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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
Before: SHRI A.T. VARKEY & SHRI PRASHANT MAHARISHI
O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :
This appeal, at the instance of the assessee, is directed against the order of the Commissioner of Income-tax (Appeals)-XXXI, New Delhi dated 16.08.2013 for the assessment year 2010-11.
Consequent upon a search & seizure operation on Tulip Group carried out on 24th & 25th September, 2009, a notice under Section 142(1) of the Income-tax Act, 1961 was issued and served upon the assessee firm on 11.07.2011. In compliance to the above notice, assessee submitted return of income declaring income of Rs.76,39,871/- on 20.10.2011. The AO issued a Questionnaire calling for information under section 142(1) of the Act along with notice under section 143(2) on 20.10.2011. The AO asked the assessee to explain the household expenses incurred by him during the relevant assessment year. The AO, after perusal of the reply of the assessee, was of the opinion that the household expenses claimed by him was not sufficient to meet out the day-to-day requirements of the assessee and according to him, the amount claimed by the assessee was considered low. The AO further observed that the assessee had not been able to produce any details in respect of Telephone & electricity Bills and other expenses. The AO observed that being head of the family, the assessee was responsible for incurring household expense and had to meet the requirements of the family. Therefore, the AO held that household withdrawals by the assessee were on lower side and as such, he made an addition of Rs.4 lacs in the income of the assessee on account of low household withdrawals. Accordingly, the AO assessed the income after making the addition of Rs.4 lacs at Rs.80,39,871/-.
Aggrieved, the assessee filed an appeal before the first appellate authority and the ld. CIT (A) decided the appeal ex-parte and upheld the order of the AO as under :-
"3.4 All the grounds relate to the only addition being on account of low withdrawals towards household expenses. The appellant had not explained before the AO the expenses relating to Telephone and electricity. I do not find any demerits in the addition. The statement of facts filed with Form No. 35 also does not give any contrary facts. Hence the addition made by the AO is confirmed. The ground is rejected."
The assessee, being aggrieved, is in appeal before us and has taken the following grounds of appeal :-
“(A) The impugned order passed by CIT (Appeal) confirming the order of AO is wrong on facts and erroneous on point of law.
(B) The impugned order dismissing the appeal exparte is in violation of principle of natural justice as the alleged notices dated 10.04.2013 and 12.07.2013 are only issued and there is not an iota of fact about service of notices. Law requires service of notice before proceedings ex-parte. The order passed by CIT (Appeal) is silent on service of notice. There is difference between issuance of notice and service of notice. No real opportunity of hearing was provided as no notice as alleged in impugned order had been received by assessee.
(C) That the Ld. CIT (Appeal) had erred in law in upholding addition of Rs.4 lacs on a ground of low house hold withdrawal which had been made by AO by purely guess work. No specific reason / documents or enquiry report was brought on record by AO while enhancing the income by Rs.4.00 Lakhs on ground of low house hold withdrawal.
(D) The Ld. CIT (Appeal) erred in law is not appreciating the fact the assessee during assessment proceedings had provided a detailed note on house hold expenses and its sources but the same was not considered by AO as well as CIT (Appeal). Apex Court in case of C. Velukuty case reported as 17 STC, P-465 had held: -
"The limits of the power are implicit in the expression "Best Judgment". Judgment is a faculty to decide matters with wisdom, truly and legally. Judgment does not depend upon the arbitrary caprice of a Judge, but on a settled and invariable principle of justice. Though there is an element of a guess-work in a "Best Judgment Assessment" yet it shall not be a wild one but shall have a reasonable nexus to the available material and the circumstances of the case. The assessing Authority should not be vindictive while making "Best Judgment Assessment.”
The impugned order upholding order of Assessing Authority is in complete violation of above principles of law as there was no material before AO. To treat the House Hold withdrawal low.
(E) Initiation of penalty proceedings duly confirm by CIT (Appeals) in impugned order is also illegal and without authority of law.
(F) The assessee reserves his right to raised additional ground either before or at time of hearing of appeal.
Grounds No.(A) & (F) are general in nature and do not require any adjudication. Ground No.(E), which is regarding initiation of penalty proceedings, is premature, hence requires no adjudication.
Grounds No.(B) to (D) are against dismissing the appeal of the assessee ex-parte by Ld. CIT(A) and upholding the addition of Rs.4 lakhs on account of low household withdrawal by the ld. CIT (A).
Ld. AR submitted that the assessee filed a detailed note on household expenses and its sources but the same was not considered by the AO as well as CIT (A). For the sake of clarity, we reproduce the note on household drawings submitted by the assessee before the lower authorities:-
“DRAWING DETAIL FOR FAMILY EXPENSES DRAWING DETAIL FOR FAMILY MEMBERS
SL. PARTICULARS AMOUNT NO. 1. Cash from Mrs. Sudesh Kaushal 71800 2. Expenses paid by Mr. Dinesh 388214 Kaushal 3. Cash from Mrs. Chandrika Kaushal 25000 Total 485014
The assessee family consists of his mother, wife and two small kids. The total withdrawing of Rs.4,85,014/- for meeting the household expenses consists of Rs.96,800/- in cash and Rs.3,88,214/- in cheque for various payment like school fees, electricity, water expenses and telephone expenses. The assessee lives in joint family and leads a simple life with no membership of any club. Considering the size and nature of living the total household drawing of Rs.4,85,014/ are Justified for the running the household"
Ld. AR submitted that the assessee produced the drawing details regarding the expenses made on account of household expenses before the lower authorities. He submitted that the AO made the addition on account of low household withdrawal purely on guess work and no specific reason / documents or enquiry report was brought on record by the AO while enhancing the income by Rs.4 lakhs. In this regard, ld. AR relied on the judgment of the Hon’ble Apex Court in case of C. Velukuty reported as 17 STC, P-465, wherein the Hon’ble Court has had held as under :-
"The limits of the power are implicit in the expression "Best judgment". Judgment is a faculty to decide matters with wisdom, truly and legally. Judgment does not depend upon the arbitrary caprice of a Judge, but on a settled and invariable principle of justice. Though there is an element of a guess-work in a "Best Judgment Assessment" yet it shall not be a wild one but shall have a reasonable nexus to the available material and the circumstances of the case. The assessing Authority should not be vindictive while making "Best Judgment Assessment.”
Ld. AR submitted that the ld. CIT (A) completely ignored the fact that there was no material before the AO to treat the household withdrawal low and so the addition confirmed by the Ld. CIT(A) without hearing the assessee is bad in law. In this view of the matter, he prayed that the orders of the lowers authorities be set aside and the addition be deleted.
On the other hand, ld. DR relied on the orders of the authorities below.
We have heard both the sides and perused the material on record.
We find that the details of withdrawals for meeting the household expenses were submitted before the lower authorities by the assessee, however, the same were just brushed aside and ad-hoc addition of Rs.4 lakhs was ordered by the AO. We take note that the AO has made the addition on account of low household expenses without any material before him and the impugned addition is a product of pure guesswork and can be safely inferred that the impugned addition is not based on any specific valid reason or documents or enquiry report brought on record. We take note that in the aforesaid case law relied upon by the ld. AR, the Hon’ble Apex Court held that, “Though there is an element of a guess-work in a "Best Judgment Assessment" yet it shall not be a wild one but shall have a reasonable nexus to the available material and the circumstances of the case. The assessing Authority should not be vindictive while making "Best Judgment Assessment”. In the aforesaid facts and circumstances, we find that the ld. CIT (A) has erred to sustain the impugned addition without any material on record to justify the low household expense. In view of the above, we are of the opinion that the Ld. CIT (A) erred in upholding the addition made by the AO on account of low household expenses and accordingly, we delete the addition and allow the grounds no.(B) to (D) raised by the assessee.
In the result, the appeal of the assessee is allowed. Order pronounced in open court on this 21st day of October, 2015.