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Facts
The assessee, a Chinese citizen and director of a company, had her income assessed under Section 147 after a search in a group case. The AO added Rs. 3 lakhs for unexplained money related to personal expenses, which was later reduced to Rs. 1 lakh by the CIT(A). The assessee appealed the CIT(A)'s order.
Held
The Tribunal held that the AO's calculation of living expenses lacked justification and was not based on any verifiable data. The Tribunal noted that the company had borne these expenses and already accounted for them. Therefore, the addition sustained by the CIT(A) was unwarranted.
Key Issues
Whether the addition of personal expenses sustained by the CIT(A) was justified when the company had borne these expenses and the AO's estimation lacked justification.
Sections Cited
250, 147, 143(3), 148, 69A, 115BBE, 132
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “K(SMC
Before: SHRI ANIKESH BANERJEE & SHRI PRABHASH SHANKAR
Instant appeals of the assessee were filed against the order of the Learned Commissioner of Income-tax (Appeals)-48, Mumbai, *for brevity, ‘Ld.CIT(A)’) passed under section 250 of the Income-tax Act, 1961 (for brevity, ‘the Act’), date of order 03/06/2024 for A.Ys. 2019-20, 2020-21 & 2021-22. The impugned order was emanated from the orders of the Deputy Commissioner of Income- tax,Central Circle-2(1), Mumbai passed under section 147 / 143(3) of the Act, date of orders03/11/2023.
All the appeals have same nature of fact and common issue, accordingly, for A.Y. 2019-20 is taken as lead case. The assessee has raised the following grounds of appeal:- ITA No.3770/Mum/2024
1. The Ld. CIT(A) has completed the assessment without considering the facts and circumstances of the case, which is contrary to law and is against the principles of natural justice.
2. The Ld. CIT(A) ought to have considered that appellant’s Living Expenses of Rs. 2,00,000 for 126 days stay in India (Rs. 50,000 per month approx.) estimated by the appellant were reasonable in view of the fact that the appellant lived in a company owned flat (no 603, Building No 31, Seawood Estates, NRI Complex Phase-I Sector-5, Nerul, Navi Mumbai) near her office and she had no family expenses as such since she lived alone in India during the said period of 126 days.
The Ld. CIT(A) has erred in confirming the Ld. AO’s estimation of Living Expenses at Rs. 3,00,000 for 126 days stay in India (Rs. 75,000 per month approx.) as against appellant’s claim of Rs. 2,00,000 (Rs. 50,000 per month approx.) without giving any justification for the confirming the addition of Rs. 3,00,000; and ignoring the appellant’s estimation of Living Expenses of Rs. 2,00,000.
The Ld. AO and CIT(A) have erred in invoking the provisions of Section 69A without considering the conditions precedent to invoke the said section and also not appreciating that provisions of Section 69A cannot be invoked in respect of any estimated expenditure where no documentary evidence is found justifying that the said expenditure is actually incurred.
5. The Ld. AO and CIT(A) have erred in not appreciating that during the course of search operations u/s. 132 of Fengyuan India Private Limited, of which appellant is a Director/shareholder, no incriminating documents were found by the investigation team
at her residence, justifying estimating her living expenditure at Rs. 3,00,000 (Rs. 75,000 per month approx.).
6. The appellant craves leave to add, alter, amend, modify, substitute or delete any or all of the above grounds of appeal
.”
3. The brief facts of the case are that the assessee is an individual and citizen of China working as a shareholder and director of a company, M/s Fengyuan India Pvt Ltd at Navi Mumbai. A search and seizure action was conducted in the group case of Bane Peng (M/s. Tianchao Import Export Trading Pvt. Ltd.) & others on 06/11/2021. On the basis of the search, the assessee’s case was taken for scrutiny under section 148 of the Act. During the assessment proceedings, it was found that the assessee had not received salary for this assessment year and the assessee had filed the return of income by declaring total income at Rs.Nil. The Ld. Assessing Officer completed the assessment under section 147 read with section 143(3) of the Act and added back Rs.3 lakhs for unexplained money under section 69A read with section 115BBE related to the assessee’s personal expenses for his stay in India for 126days. Though the assessee claimed that the personal expenses were borne by the company and was debited in the company’s account. Later on, the company disallowed the same and added back with the total income of the assessee which was amount to Rs.2 lakhs. Aggrieved assessee filed an appeal before the Ld. CIT(A). The Ld.CIT(A) found that the company is already bearing the expenses of the assessee and the assessee is staying in the company’s accommodation at Flat No.603, Building NO.31, Seawood Estate, NRI Complex, Phase-I, Sector 5, Nerul, Navi Mumbai and the assessee had no family expenses as he lives alone in India. During the impugned assessment year, the assessee stayed only for 126 days in India. Considering the submission of the assessee, the Ld.CIT(A) allowed the living expenses of Rs.2 lakhs which was borne by the company. Finally, Rs.2 lakhs was deducted from assessee’s addition amount to Rs.3 lakhs and the balance of Rs.1 lakh was sustained for addition. The aggrieved assessee filed an appeal before the ITAT by challenging the order of the Ld.CIT(A).
4. Upon review, we observe that the assessee is a Chinese citizen residing in India in their capacity as a director and shareholder of the company. The company has duly borne the assessee's living expenses, and the monthly expenditure was independently estimated by the Ld. AO without reference to any comparative analysis or other verifiable data. Furthermore, we note that the company has borne the personal expenses of the assessee, which were appropriately added back during the computation of income. The assessee resides alone in accommodation provided by the company, and all living expenses have been confirmed as being borne by the company.
The Ld. DR has relied upon the orders of the revenue authorities to support their arguments.
After careful consideration, we find that the Ld. AO's calculation of the assessee's living expenses lacks justification, as it was made without reference to any comparative benchmarks or defendable sources. The Ld.CIT(A)has acknowledged the expenses borne by the company and has appropriately deducted the same from the addition made by the Ld. AO. We further note that there is no credible basis for the Ld. AO’s computation of personal expenses, particularly since the company has already borne these costs and duly added them back during income computation.
In our considered view, the addition sustained by the Ld. CIT(A) is unwarranted and is hereby deleted. Consequently, the impugned appeal order is set aside, and the addition is quashed.
In the result, the appeal of the asesssee succeeds. & 8. The facts and circumstances in these appeals are identical to which we have already decided above. Therefore, for the reasons stated therein, the decision arrive at therein shall apply mutatis mutandis to these appeals also.
In the result, assessee’s appeals bearing 3884 & 3796/Mum/2024 are allowed.