2015 (7) TMI 610 - AT - Income Tax

Addition on account of inadequate house hold expenses - validity of assessment u/s 153A - Held that - It is true that no addition can be made in respect of unabated assessments, if no incriminating material is found during the course of search. The recent judgment of the Hon ble Bombay High Court in the case of Continental Warehousing Corporation (2015 (5) TMI 656 - BOMBAY HIGH COURT ) supports that the argument of the assessee. In this case during the course of search, certain valuables were found. A list of the same is found in the panchnama. There valuable assets include billiards table, piano, expensive paintings, chandlier, centrally air conditioner system etc. Thus in our view the ld. CIT(A) is correct in coming to a conclusion that, certain material was found during the course of search, based on which assessment can be done, even in the case of the abated assessments. Owning luxurious cars etc. indicate that the monthly expenditure on maintenance would be higher than the personal drawing disclosed. In our view, the valuable found during the course of search, indicate the standard of living the assessee and his other members and these are material based on which an addition can be made for low drawing. Thus this legal argument of the assessee is dismissed on the issue of addition made u/s 153A r.w.s. 143(3) on abated assessments. Taking into consideration all the facts and circumstances and also the fact that the appellant is avoiding in giving the requisite details viz. details of insurance policies, electricity expenses, copy of passport and also considering that the appellant is having a luxurious life style (refer to valuables which were found during the search and the copy of Annexure A-6 of Panchnama is part of this order), inevitable conclusion reaches that the appellant cannot survive on a monthly expenditure of ₹ 32,000 approximately which is just around approximately ₹ 4500 per family member p.m. Accordingly, AO is right in making an addition on account of low household withdrawals to the extent of ₹ 2,40,000 in appellant s hands in the year under consideration, and the addition made by him is therefore upheld.We find no infirmity in these findings of the ld. CIT(A). The argument of the ld. Counsel for the assessee the two HUF have been considered as adult members, do not help his case. The AO in our view is justified in estimating this household expenditure. Further in this case, the assessee did not provide the details as sought by the first appellate authority. This lead to adverse inference. - Decided against assessee.

Summary

Issues Involved:
1. Jurisdiction of AO to make additions under Section 153A for abated assessments.
2. Adequacy of household expenses declared by the assessee.
3. Legality of additions made without incriminating material found during the search.
4. Justification of the first appellate authority's decision on the adequacy of household expenses.

Issue-wise Detailed Analysis:

1. Jurisdiction of AO to make additions under Section 153A for abated assessments:
The assessee challenged the jurisdiction of the AO to make additions under Section 153A of the Income Tax Act for the assessment years 2003-04 to 2007-08 on the ground that no incriminating material was found during the course of the search. The CIT(A) held that valuables found during the search were part of the Panchnama and constituted incriminating material. The Tribunal upheld this view, citing that the presence of valuables like a billiards table, piano, expensive paintings, etc., indicated undisclosed income.

2. Adequacy of household expenses declared by the assessee:
The AO observed that the assessee showed inadequate drawings for household expenses, given his luxurious lifestyle and residence in a posh area. The AO estimated household expenses at Rs. 20,000 per month, totaling Rs. 2,40,000 per annum, and made an addition accordingly. The CIT(A) upheld this addition, noting the luxurious cars and other assets owned by the assessee, and the lack of detailed information provided by the assessee regarding household expenses.

3. Legality of additions made without incriminating material found during the search:
The assessee contended that no incriminating material was found during the search, and hence, no additions could be made under Section 153A. The CIT(A) and the Tribunal rejected this argument, stating that the valuables listed in the Panchnama were sufficient incriminating material to justify the additions. The Tribunal referenced the judgment of the Hon'ble Bombay High Court in the case of Continental Warehousing Corporation, which supports the addition based on material found during the search.

4. Justification of the first appellate authority's decision on the adequacy of household expenses:
The CIT(A) justified the addition by noting the luxurious lifestyle of the assessee and the inadequate monthly withdrawals for household expenses. The Tribunal found no infirmity in the CIT(A)'s findings and upheld the addition. The assessee's failure to provide requested details such as the area of the house, electricity expenses, and insurance policies led to an adverse inference. The Tribunal concluded that the AO was justified in estimating household expenses and dismissed the assessee's appeals.

Conclusion:
The Tribunal dismissed all six appeals filed by the assessee, upholding the additions made by the AO and confirmed by the CIT(A) on account of inadequate household expenses. The Tribunal agreed with the CIT(A) that the valuables found during the search constituted incriminating material, justifying the additions under Section 153A, even for abated assessments. The Tribunal also found the AO's estimation of household expenses reasonable, given the luxurious lifestyle of the assessee and the lack of detailed information provided.