Income Tax Appellate Tribunal - Hyderabad
M.P. Malliwal vs Joint Cit, (Assts.) on 4 January, 2006
ORDER
Vimal Gandhi, President Order under Section 255(4) of the Income Tax Act, 1961
1. On account of difference of opinion between the Hon'ble Members, A-Bench, Hyderabad, the matter has been referred to me for consideration of the difference as reflected in the following questions:
(i) Whether, in facts and circumstances of the case, the tax authorities were justified, in estimating the withdrawals at Rs. 12,000 P.M. ?
(ii) Whether it is fit case to award costs of Rs. 20,000, which is equivalent to the institution fee paid by the assessee for the two years under consideration
2. The facts of the case briefly are that the assessee individual during the relevant period was Managing Director I.T.C. Bhadrachalarn Paper Boards Ltd. and submitted returns disclosing incomes at Rs. 14,22,340 and Rs. 16,68,010 for assessment years 1996-97 and 1997-98 respectively. The assessing officer on scrutiny of the cases was not satisfied with the household expenses disclosed by the assessee at Rs. 73,127 and Rs. 1,03,029 in the two returns. Vide order sheet entry dated 18-11-1998 and show-cause notice dated 8-2-1999, he asked the assessee to give details with sources of expenditure as under:
... electricity bill, water bill, telephone bill including mobile, food and drinks, gas bill, petrol bill, newspaper bill, household help, maid/house servant, house rental, children school fee and other expenditure, gifts, clothing, footwear, toiletries, doctor/chemists, house furnishing, Compact Disc, Video, books unexpected expenditure, repairs, other taxes, credit card expenditure, holiday expenditure, religious ceremonies, marriage expenditure.
3. It is further recorded in the assessment order that the assessee had not maintained books of account recording "day-to-day transactions of his life". Further with reference to cash-flow statements, he held that expenses shown were not acceptable. The assessee was found to have withdrawn sum of Rs. 5,000 every month up to September 1995. But there was no withdrawal from bank account from October 1995 to March 1996. Having in mind the status of the assessee, the household expenses were estimated at the rate of Rs. 12,000 per month at Rs. 1,44,000 and accordingly Rs. 70,874 and Rs. 40,971 were added on account of low withdrawals by inferring that household expenses were met from unexplained sources. Accordingly Rs. 70,873 and Rs. 40,971 were added in assessments for the two years under consideration.
4. The assessee impugned the above assessments before the learned Commissioner (Appeals) but remained unsuccessful and accordingly approached the Income Tax Appellate Tribunal (ITAT) for relief.
5.1 After hearing of the matter there was a difference between the learned Judicial Member and the learned Accountant Member. The learned Judicial Member noted that in the relevant period, the assessee's family consisted of husband and wife as children were staying elsewhere and not dependent on the assessee. He also noted that most of the expenses such as electricity, water, telephone, gas etc. of the assessee were met by the Employer Company. The assessee has further claimed that they were vegetarian and did not believe much in socializing. In the opinion of the learned Judicial Member, the appellate authority while upholding the addition was obsessed with three facts, ie.,
(a) The assessee stayed at Banjara Hills;
(b) He was M.D. of a reputed company.
(c) That a family of two will always have floating relatives, guests coming and going.
5.2 The learned Judicial Member did not agree with the above, which according to him was surmises and conjectures not based on any evidence or investigations carried by the revenue authorities. There was nothing on record to suggest that the assessee had floating relatives, guests and incurred expenditure on pets, clubs etc. Learned Commissioner (Appeals) in the opinion of the learned Judicial Member had decided the appeals on the strength of assumptions and entire decision was based on surmises and suspicions.
5.3 The learned Judicial Member also referred to the decision of the Hon'ble Delhi High Court in the case of Yadu Hari Dalmia v. CIT wherein it is observed as under:
We would like to make it clear that an estimate without details will not be upheld in all circumstances and we would suggest that the department should give some definite basis for arriving at an estimate of expenditure whenever it can He deleted the additions and imposed a cost of Rs. 20,000 with the following observations To highlight the fallacy in the observations of the Commissioner (Appeals), we prefer to take the best understandable example of income tax officials who are residing at Banjara Hills Quarters allotted by the Government. We are concerned herein with the period beginning from 1-4-1995 onwards. Before 5th pay commission recommendations were implemented, the salarv of a Seniormost Government functionary was between Rs. 12,000 to Rs. 15,000 per month and the take-home pay was between Rs. 6,000 to Rs. 9,000. If the basis as adopted by the learned Commissioner (Appeals) is applied to the Government Officers who enjoy social status similar or better as compared to MD of a Company residing in a Company provided accommodation, the take home pay of even a Senior Officer may not be sufficient especially when they reside in Banjara Hills area. Obviously we have not come across any case where such additions are made with regard to a Government servant based on social status he enjoys and the place where he stays. In this age of nuclear families, floating guests and visitors is not common and to prove that assessee's case is an exception, onus is on the authority concerned. The tax authorities ought to have noticed that a Managing Director of a reputed company will hardly find any time for his personal pleasures and most of the parties /funnetions would be on company's account and would have no time and inclination to spend his hard-earned money to eat outside. In fact, our personal experience shows that the social status is saddled with the disadvantage of attending so many functions/ parties and more often than not, one may prefer to eat homefood rather than eating outside. Under these circumstances, it is difficult to appreciate the reasons given by the assessing officer and the first appellate authority to estimate the house-hold expenditure at Rs. 12,000, particularly when the assessee was provided with a rent-free furnished residential accommodation apart from reimbursement of expenditure towards telephone; gas, electricity, water charges etc. Considering the facts and circumstances of the case, we are of the firm view that the addition made by the assessing officer presumably, under Section 69C of the Act has no legs to stand and we hereby delete the addition.
6. Learned Accountant Member did not agree with the above view. He noted that the assessee withdrew Rs. 5,000 each from April 1995 to September 1995 towards household expenses and that there was no withdrawal for the months of October to March 1996. This fact was not disputed or disproved before the revenue authorities or before the Tribunal. The appellant further did not categorically deny that there was no expenditure incurred on household help, guests, personal goods, and personal travel as mentioned by the assessing officer in the assessment order. The household expenses shown at Rs. 73,127 would cover expenses incurred for first six months and it was not believable that there was sufficient cash in hand to cover last six months of financial year 1995-96 as there was no withdrawal from the bank in the above period. Thus if the amount of Rs. 73,127 is taken to have been spent for six months, the expenditure per month would work out to more than Rs. 12,000. In the above view of the matter, the estimate of the assessing officer as confirmed by the Commissioner (Appeals) was fully justified. On the above basis, the learned Accountant Member upheld the addition made in the two assessment years under appeal. Having upheld the impugned order of revenue authorities, there was no question of imposing cost on the revenue. The learned Accountant Member accordingly held "that this is not a fit case in which costs are required to be awarded". He accordingly proposed that appeals for both the years should be dismissed.
7. In the above circumstances, two questions noted above have been referred to me.
8. The case was fixed for hearing and accordingly I have heard the arguments of Shri Samuel Nagadesi on behalf of the assessee and Shri K. Satyanarayana, CIT-DR on behalf of the revenue.
9. The learned Counsel for the assessee submitted that during the course of assessment proceedings, the assessing officer had asked the assessee to furnish details of expenses connected with engagement and marriage of assessee's son Mr. Rajendra Malliwal. This is evident from detailed questionnaire issued to the assessee vide letter dated 21-12-1999. The assessee has furnished all the details as per reply dated 18-1-2000. A copy of the said reply was filed before me. The assessing officer had further asked to furnish head-wise details of expenditure incurred on electricity bills, water bills, etc. Such details were not maintained by the assessee and could not be filed. No further questions were asked on alleged low withdrawals. The assessee had explained that expenditure like electricity bills, water bills, telephone, gas etc. were taken care of by assessee's employer. No doubt questions as raised by the assessing officer in the assessment order were put to the assessee. It was further submitted that provision of Section 69C of the Income Tax Act, 1961 under which addition could be made was not at all attracted in this case. There was no material on record on the basis of which it could be said that the assessee had incurred unexplained expenditure. Before calling upon the assessee to explain, there has to be cogent material to hold that the assessee had incurred expenditure and therefore, his explanation relating to such expenditure was not satisfactory. The burden of proof under Section 69 was on the revenue. The same was not discharged and on mere presumption that the assessee has incurred expenditure at the rate of Rs. 12,000 per month the addition was made. The addition is based on surmises and conjectures.
9.1 The learned Counsel for the assessee also supported the proposed order of the learned Judicial Member relating to cost as according to the learned Counsel, the assessee was forced to pay Tribunal fees of Rs. 20,000 and incurred other incidental expenses for filing appeals to Tribunal challenging totally unjustified additions. Therefore, the proposed order of the learned Judicial Member imposing cost on the revenue was fully justified.
10. The learned Departmental Representative supported the orders of the revenue authorities as confirmed by the learned Accountant Member in the proposed order. He argued that the assessee was Managing Director staying in a posh locality like Banjara Hills and was maintaining good standard of life. He was also not able to explain where from the expenses from October 1995 to March 1996 were incurred in assessment year 1996-97. The learned Commissioner (Appeals) was quite justified in her approach as on certain other points she remanded the matter back to the assessing officer, as reasonable opportunity was not afforded to the assessee. She confirmed the addition on account of low household withdrawals on sound grounds. Learned Departmental Representative further submitted that there was no reason to impose cost on the revenue in this case.
11. I have given careful thought to the rival submissions. Before commenting on the proposed orders of my learned Brothers, I deem it appropriate to reproduce the relevant extract from the impugned order of the Commissioner (Appeals) on the issue involved before me. These are as under:
5.(i) The last ground of appeal pertains to the addition of Rs. 70,000 being house-hold expenses. The arguments of the assessing officer contained in para 7 of the assessment order which reads as under:
7. House-hold expenses - Vide this office note sheet entry dated 18-11 -1998, and show-cause notice dated 8-2-1999, the assessee was asked to furnish the following details of household expenditure with sources thereof.
electricity bill, water bill,. Telephone bill including mobile, food and drinks, gas bill, petrol bill, newspaper bill, household help, maid/house servant, house rental, children school fee and other expenditure, gifts, clothing, footwear, toiletries, doctor/ chemists, house furnishing, Compact Disc, Video, books, unexpected expenditure, repairs, other taxes, Credit card expenditure, holiday expenditure, religious ceremonies, marriage expenditure.
In response to the above, the assessee has filed a letter dated 22-2-1999 mentioning that he has not been maintaining the books of account to record the day-to-day transactions of his life. Total personal drawings of the assessee during the previous year were amounting to Rs. 73,127 as per the cash flow statement.
The assessee's above submission is not acceptable in view of the fact that the break-up of domestic withdrawal of Rs. 73,127 along with the source was not furnished. On perusal of the bank statement (A/c No. 5835 with the Vysya bank Ltd.), it is found that the assessee has shown cash withdrawal of Rs. 5,000 in every month up to September. Afterwards, it is not known how the assessee has managed the household expenditure from October 1995 to March 1996.
Considering the status of the assessee and other perquisites which he got from M/s ITC Bhadrachalam PF Ltd., I consider that the monthly household expenditure should be about Rs. 12,000 per month which works out for the year to Rs. 1,44,000, excluding perquisites received from M/s. ITC BPB Ltd, The difference of Rs. 70,873 (Rs. 1,44,000- 73,127) is added to the total income as unexplained expenditure.' 5(ii) As against the above arguments of the assessing officer, the appellant's contentions are contained at page No. 19 of his written submissions which reads:
It is submitted the expenses in respect of electricity, water, telephone and gas was met by the employer and the assessee offered for tax by way of perquisite value. In this connection we draw the kind attention of the learned Commissioner to the enclosed Form No. 16 along with details of salary. Further the conveyance as well furnished accommodation was provided by the employer.
The assessee submits that on him and his wife, domestic expenditure was very meagre, as both do not socialise and have very simple habits. They do not have any vices e.g. smoking, drinking or eating outside. They are purely vegetarian. Children of assessee are all settled and do not depend on them. There were no unexplained expenditure. So far as withdrawals from bank is concerned, assessee was doing so according to his wife's requirement. His wife had cash carried forward from the earlier withdrawals which was sufficient to last through the year.
Hence, there were no withdrawals after September 1995. Amount drawn in first half of the year was for certain contingencies. These contingencies did not arise and surplus cash was enough to meet domestic expenditure.' When queried where the assessee was living, it is submitted that the assessee is living at Road No. 14, Banjara Hills, Hyderabad. Theassessee had relinquished the of fice of the MD of ITC Bhadrachalam Paper Boards Ltd. on 31-12-1998.
5(iii) After due consideration of the facts, I am more inclined to agree with the assessing officer that a minimum of Rs. 12,000 is required to run the household given the social status of the assessee who was MD of M/s. ITC Bhadra chalam Paper Boards Ltd. This is in lieu of the following reasons:-
(a) The appellant stays at Banjara Hills where the cost of living is much higher in comparison to the other locations of Hyderabad.
(b) The AR's arguments are general and not specific and the same do not substantiate issues like entertainment expenditure, some miscellaneous club expenses, expenses on account of domestic servants, pets etc. No specific details have been furnished in this regard and a reasonable inference drawn by the assessing officer is that a minimum expenditure of Rs. 12,000 is required for a family of 2, which always has floating relatives, guests coming and going. Although the appellant is furnished with the house and related expenses like electricity, telephone gas etc., still expenses on books, personal travel, gifts etc. are always there in the case of every house which had not been taken into account while justifying a lower withdrawal. The addition made of Rs. 70,000 is sustained.
Similarly addition in the other assessment was sustained taking household expenses at the rate of Rs. 12,000 per month.
11.1 On a perusal of queries raised by the assessing officer and reply given by assessee, it is evident that the assessing officer had asked the assessee to explain the expenditure incurred on engagement and marriage of his son Mr. Rajendra Malliwal. The assessee was also to give bifurcated details of expenditure incurred under various heads. The assessee had given detailed reply as also the amounts spent on household expenses with reference to cash flow statement. No further query was raised by the assessing officer. No basis whatsoever is given in the assessment order or in the order of Commissioner (Appeals) to take the average household expenses of the assessee at the rate of Rs. 12,000 per month, particularly when the assessee did not incur any expenditure on accommodation, electricity, water, telephone, gas, car etc. There is no material to support that any extra, expenditure was incurred by the assessee on entertainment and miscellaneous items like club expenses or on account of domestic servant. There is no evidence to show that the assessee was receiving floating relatives, guests coming and going. The estimate of expenditure at the rate of Rs. 12,000 per month is based on surmises as elaborately pointed out by the learned Judicial Member in his proposed order. I am not repeating all the reasons recorded by him. I deem it sufficient to hold that without proper material inference of expenditure on various alleged items could not be drawn. Thus the onus that lies on the revenue under Section 69C cannot be taken to be discharged in these cases.
11.2 Having regard to the fact that various facilities were provided to the assessee by his employer and that only personal expenses were incurred on two persons and the stand that his average estimated expenses were approximately Rs. 6,000 per month, could be rejected by the revenue only by bringing some material on record. It was open to the assessing officer to question the assessee on various doubts arising in his mind as was done for expenses incurred on son's engagement/ marriage. But the same approach was not adopted in respect of household and personal expenses. It has been observed that the assessee was withdrawing Rs. 5,000 per month from his bank for household and personal expenses but then expenditure for the assessment year 1996-97 was admittedly shown at Rs. 73,127. Evidently either the assessee had withdrawn more than Rs. 5,000 per month from bank or had some other source of withdrawal which was utilized and thus sufficient cash was left with the assessee for months of October 1995 to March 1996. If we go by withdrawal of Rs. 5,000 per month as observed by assessing officer, the total amount should have been Rs. 30,000 and not Rs. 73,127. Therefore, some source of cash available for utilization for household expenses at Rs. 73,127 was definitely there. This was not examined. Therefore on facts it is not possible to reject the assessee's claim that his wife had sufficient cash with her to last through the year. Revenue authorities brought no material on record to show why the withdrawal could not be accepted. No comparative case was cited to justify the estimated expenditure of Rs. 1,44,000 in the two years under appeal. Therefore, on facts and circumstances of the case, I am of the view that revenue authorities did not bring sufficient material on record to apply the provisions of Section 69C of the Income Tax Act and accordingly addition for low household withdrawals in the two years were not sustainable. The learned Judicial Member rightly deleted them in the proposed order. I am unable to agree with the learned Accountant Member that estimate of assessee's household expenses at Rs. 12,000 per month is justified on fact. I agree with the view taken by the learned Judicial Member that additions made in two years are liable to be deleted.
12. As far as the question of levy of cost is concerned, the cost can be imposed by the Appellate Tribunal in the light of provisions of Sub-section 2(B) of Section 254 of the Income Tax Act. Normally, discretion to award cost is vested with the Tribunal to check filing of frivolous and unjustified appeals. The present appeals filed by the revenue cannot be said to be frivolous appeals to levy of heavy cost of Rs. 20,000. The assessing officer did enquire into the aspect of expenditure incurred by the assessee and made addition in a bona fide manner by making estimate of household expenses. It is a different thing that the Tribunal as an appellate authority has not agreed with the above view. Even then, one of us, the learned Accountant Member has held that the addition made is fully justified. The revenue authorities were of the view that sufficient material to estimate household expenses at Rs. 12,000 per month is available on record. May be the Tribunal as per majority does not agree with the above view. It is a case of difference of opinion and, therefore, I do not see any good reason to agree with the learned Judicial Member's order that the revenue should be burdened with cost of Rs. 20,000. I agree with the learned Accountant Member that this is not a fit case in which cost should be imposed.
12.11 answer the above questions referred to me as above.
13. The matter should now be placed before the regular Bench for disposal of both the appeals in accordance with law.