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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A.MOHAN ALANKAMONY
आदेश / O R D E R
Per A. Mohan Alankamony, AM:-
This appeal by the assessee is directed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-1, Coimbatore dated 23.11.2016 in Appeal No.53/14-15 for the assessment year 2011-12 passed U/s.250(6) r.w.s. 143(3) of the Act.
The assessee has raised several grounds in his appeal however the cruxes of the issues are that (i) The Ld.CIT(A) has erred in sustaining the addition made by the Ld.AO amounting to Rs.6,21,360/- being disallowance of expenditure with respect to payment made through credit card. (ii) The Ld.CIT(A) has erred in partly sustaining the addition made by the Ld.AO to Rs.9,21,836/- towards insufficient drawings.
The brief facts of the case are that the assessee is an individual and Managing Director of M/s. Veejay Lakshmi Engineering Works P. Ltd., Coimbatore filed his return of income for the assessment year 2011-12 on admitting total income of Rs.31,85,830/-. Initially the return was processed U/s.143(1) of the Act. Subsequently the case was selected for scrutiny under CASS and notice U/s.143(2) of the Act was issued on 01.08.2012. Finally assessment order was passed U/s.143(3) of the Act on 24.02.2014 wherein the Ld.AO made addition of Rs.6,21,360 by disallowing expenses, the payment of which was made by credit card and further addition was made for Rs.15,21,836/- towards insufficient drawing. On appeal, the Ld.CIT(A) confirmed the order of the Ld.AO with respect to the addition of Rs.6,21,360/- and partly sustained the addition to Rs.9,21,836/- lakhs with respect to insufficient drawings.
Ground No.2 (i) : Disallowance of expenditure amounting to Rs.6,21,360/-:- During the course of scrutiny assessment proceedings, it was observed by the Ld.AO, that the assessee had made payment through credit card amounting to Rs.6,21,360/-. On query, it was explained that the assessee had paid through credit card with respect to the expenses incurred by the company in which he is the Managing Director and the same was subsequently reimbursed to him by the company. However the assessee failed to produce the details of the expenditure incurred. Therefore the Ld.AO invoked the provisions of Section 68C of the Act and treated the amount of Rs.6,21,360/- as unexplained expenditure in the hands of the assessee. On appeal the Ld.CIT(A) upheld the order of the Ld.AO based on his findings that most of the expenditure incurred through payment by the assessee’s credit card was towards purchase of golf equipment, foreign travel expenditure, hotel bills and expense incurred in the golf clubs. The Ld.CIT(A) further observed that the assessee had failed to disclose the source of expenditure incurred by the assessee.
4.1 Before us the Ld.AR submitted a statement with respect to the expenditure incurred towards payment made through credit card and argued stating that the expenditure was genuinely incurred on behalf of the company by him for the purpose of the business of the company and the same was reimbursed by the company. It was therefore pleaded that the addition made in the hands of the assessee for Rs.6,21,360/- may be deleted. On the other hand, the Ld.DR argued in support of the order of the Ld.Revenue Authorities.
4.2 We have heard the rival submissions and carefully perused the materials on record. At the outset, we do not find any merit in the order of the Ld.AO because the assessee had only made the payment through his credit card which he explain to be the expenditure incurred on behalf of the company which was subsequently reimbursed. Therefore it is evident that the assessee has not claimed any expenditure in his return of income. Hence if at all the expenditure has to be disallowed, it has to be disallowed only in the hands of the company. There is no logic in making addition in the hands of the assessee towards the disallowance of expenditure in the case of the company. Similarly the Ld.CIT(A) observations also does not have merit. Even if the payment was made towards the personal expenditure of the assessee, which was claimed as deduction by the company then the disallowance of expenditure has to be made in the hands of the company and not the assessee. Further the Ld.AO has also not questioned the source of the expenditure. The assessee had clarified that the payment made by him through credit card was reimbursed by the company. In this situation, we are of the considered view that the addition of Rs.6,21,360/- made in the hands of the assessee is erroneous. Hence we hereby direct the Ld.AO to delete the addition of Rs.6,21,360/-.
Ground No.2(ii) : Sustaining the addition to Rs.12 lakhs towards insufficient drawing:- During the course of scrutiny assessment proceedings it was observed by the Ld.AO that the assessee had disclosed drawings of Rs.324/- only. On query it was explained that the assessee had drawn Rs.2,77,840/- from his HUF fund. However the Ld.AO was of the view that considering the lifestyle of the assessee, the assessee’s annual household expenditure would be Rs.18 lakhs. Since the assessee had already disclosed the drawings of Rs.324/- and Rs.2,77,840/-, the balance amount of Rs.15,21,836/- was treated as income of the assessee towards insufficient drawings. On appeal the Ld.CIT(A), estimated the annual expenditure of the assessee to be Rs.12 lakhs and thereby sustained the addition to Rs.9,21,836/-.
5.1 Before us the Ld.AR submitted that the addition made by the Ld.Revenue Authorities based on estimate is erroneous and the same may be deleted. The Ld.DR on the other hand relied on the orders of the Ld.Revenue Authorities.
5.2 After hearing both sides, we are of the considered view that the assessee’s declared annual household expenditure cannot be accepted as it is too low, however it can be fairly estimated to Rs.8 lakhs per annum. Accordingly we hereby sustain the addition to Rs.5,21,836/-. It is ordered accordingly.
In the result, the appeal of the assessee is partly allowed.
Order pronounced on the 25th October, 2018 at Chennai.