2013 (1) TMI 676 - AT - Income Tax

Determination of annual value of properties - Addition made AO u/s 23(4) - calculation of notional rent - case of the assessee that according to section 23(1)(c) annul value of those properties are nil - Held that - Neither the Revenue authorities nor the assessee has brought on record any material or evidence in support of the determination of annual value of properties, however, the assessee has furnished evidence in respect of annual value determined by municipal/local authority, Agra Nagar Nigam in support of annual value of concerned properties. Such material is relevant for determination of annual value is in accordance with section 23(1)(a) as there are various consideration which are relevant for determination of Annual value under section 23(1)(a) out of which, one of the consideration is annual value as taxed by Municipality or Local Authority for the purpose of municipal or local tax. Therefore, the annual valuation taken by the local authority is one of the basis under the peculiar facts and circumstances of these cases for determining the annual value under section 23(1)(a). Since additional evidence is admitted by us first time, therefore, the A.O. is directed to verify the annual valuation determined by the local authority/Agra Nagar Nigam and determine the annual value for the purpose of section 23(1)(a) - it is relevant to state that the annual value determined by the municipal/local authority has been considered in the case under consideration is one of the basis of determination of annual value for the purpose of section 23(1)(a) but under the peculiar facts and circumstances of the case under consideration, as neither the assessee nor the Revenue has brought on record any other material based on which the annual value of these properties can be determined in accordance with section 23(1)(a) therefore, the ratio of this order is not applicable to other cases as annual value under section 23 is to be determined in accordance with facts of each case - in favour of assessee for statistical purposes. Addition on account of house hold expenses - Held that - The estimation made by the A.O. on account of house hold expenses are arbitrary also sustained by CIT(A). In A.Y. 2003-04 the assessee has shown house hold expenses of Rs. 3,71,500/-, whereas the CIT(A) has estimated at Rs. 4,80,000/-. The addition of Rs. 8,500/- has been sustained in A.Y. 2003-04. Similarly, in A.Y. 2008-09 the CIT(A) has estimated the house hold expenses at Rs.10,80,000/-against the house hold expenses shown by the assessee at Rs. 8,91,000/-. The addition of Rs. 1,89,000/- has been sustained by the CIT(A). The facts of the case regarding family status and other for A.Y. 2003-04 and 2008-09 are same whereas the addition sustained in A.Y. 2003-04 was Rs. 8,500/- and in A.Y. 2008-09 it was Rs. 1,89,000/- which clearly establishes that the estimation made by the Revenue authorities on account of house hold expenses are arbitrary without any basis particularly under the circumstances where during the course of search no such material was found in this regard. Further, confirming the additions in respect of bills related to house hold appliances which were found at the time of search in A.Y. 2002-03,2005-06 & 2007-08 while deciding separate grounds of those appeals in subsequent paras of this order. In the light of the facts, the arbitrary addition made on account of house hold expenses are not sustainable therefore deleted - in favour of assessee. Unexplained investment in purchase of Washing Machine & Air Conditioner - Held that - CIT(A) confirmed the addition as the bill was found at the time of search and the assessee did not furnish any explanation. The assessee has failed to explain the source of the said amount except general submission that it has been purchased out of household withdrawals. Since the addition on account of low house hold withdrawals which was made by the A.O. on adhoc are deleted and estimation basis without any basis and since this addition is supported by the bill which was found at the time of search, in the light of the fact, no infirmity in the order of CIT(A).

Summary

Issues Involved:
1. Legality of proceedings initiated under Section 153A.
2. Calculation of notional rent under Section 23(4).
3. Addition on account of low household withdrawals.
4. Charging of interest under Sections 234A, 234B, and 234C.
5. Addition of unexplained investments in household items.

Detailed Analysis:

1. Legality of Proceedings Initiated Under Section 153A:
The appellants argued that the proceedings initiated under Section 153A were illegal as no incriminating material related to the relevant year was found during the search. The Tribunal noted that this ground was not pressed during the hearing, thus it was dismissed.

2. Calculation of Notional Rent Under Section 23(4):
The Assessing Officer (A.O.) calculated the annual letting value (ALV) of certain properties and made additions based on notional rent. The A.O. applied Section 23(4) of the Income Tax Act, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The appellants contended that Section 23(1)(c) should apply, making the annual value nil due to vacancies. The Tribunal referred to the Mumbai Bench's decision in the case of Premsudha Exports (P.) Ltd., which interpreted "property is let" as including properties intended to be let out. However, the Tribunal distinguished the present case as the appellants did not provide evidence of efforts to let out the properties. The Tribunal directed the A.O. to verify the annual valuation determined by the local authority and recalculate the ALV accordingly.

3. Addition on Account of Low Household Withdrawals:
The A.O. made additions based on presumed low household withdrawals, which were partly confirmed by the CIT(A). The Tribunal found these estimations arbitrary and without basis, especially as no incriminating material was found during the search. The Tribunal reviewed the household expenses over several years and found the estimations by the Revenue authorities to be inconsistent and arbitrary. Consequently, the Tribunal deleted the additions made on account of low household withdrawals.

4. Charging of Interest Under Sections 234A, 234B, and 234C:
This ground was also not pressed during the hearing and hence was dismissed.

5. Addition of Unexplained Investments in Household Items:
The A.O. made additions based on bills found during the search for items like washing machines and air conditioners, which were confirmed by the CIT(A). The Tribunal upheld these additions as the appellants failed to explain the sources of these investments. Specific cases include:
- ITA No. 347/Agr/2012: Addition of Rs. 22,840 for a washing machine.
- ITA No. 355/Agr/2012: Addition of Rs. 20,000 for an air conditioner.
- ITA No. 105/Agr/2012: Addition of Rs. 22,500 for a washing machine.
- ITA No. 103/Agr/2012: Addition of Rs. 22,500 for a washing machine.

Conclusion:
The Tribunal partly allowed the appeals, remanding the issue of ALV determination to the A.O. for verification of municipal valuations and deleting arbitrary additions for household expenses. Additions for unexplained investments in household items were upheld.