2016 (4) TMI 1348 - AT - Income Tax

Tribunal allows partial appeals, emphasizes reasonable basis for disallowances

Ashwin S Mehta, Versus DCIT Mumbai

The Tribunal partly allowed both appeals for statistical purposes, setting aside various issues for fresh adjudication by the CIT(A) and AO. Emphasizing ... Rejection of books of account - allowance of provisions of interest - HELD THAT:- As decided in HITESH S. MEHTA VERSUS DCIT CENTRAL CIRCLE- 23, MUMBAI [2013 (10) TMI 1065 - ITAT MUMBAI] One of the reasons for not allowing the provisions of interest claimed by the assessee is that the books of accounts produced by the assessee during the assessment proceedings has been held to be unreliable. Shorn off all other unnecessary details, considering the facts and circumstances in toto, we are of the view that it would be appropriate that the issue is set aside to the file of the Ld.CIT(A) to adjudicate afresh on merits in respect of the issue pertaining to the rejection/reliability of the books of accounts produced by the assessee after giving due opportunity of being heard to the assessee Addition u/s 69C - Personal expenses - HELD THAT:- As decided in PRATIMA H. MEHTA case [ 2013 (8) TMI 991 - ITAT MUMBAI] Expenses in the nature of household and personal expenses may comprise of kitchen/food expenses, expenses for maintenance of residence, expenditure on education of children, expenses on religious occasions, expenditure on tour and travels, expenses for special occasion of celebration on anniversaries / birthdays, medical expenses, etc. The assessee has not furnished any details to explain as to how all these essential expenses to pull on the day to day life have been incurred. I therefore, conclude that these expenses have been met from the undisclosed sources of income of the assessee. Therefore estimate an amount of ₹ 1,00,000/- p.m. as his personal expenses. Accordingly an amount of ₹ 12,00,000/- is added as assessee’s total taxable income under section 69C - thus we set aside the ground to the file of the CIT(A), thus ground No.3 is allowed for statistical purposes. Addition u/s 14A - HELD THAT:- The assessee has earned dividend income and LTCG against which, no expenses have been said to be attributable. AO has mechanically applied Rule 8D which admittedly is not applicable in AY 2006-07. Once that is so, then the entire basis of computation of disallowance is incorrect. Looking to the nature of expenditure and claim of the assessee that it has business loss which has been assessed by AO also, we are of the opinion that this matter should be set aside to the file of the AO to work out some reasonable basis for disallowance after examining the nature of accounts and the nature of expenses debited by the assessee. Accordingly, ground No.4 is treated as allowed for statistical purposes. Addition on account of personal household expenses - HELD THAT:- After considering the rival submissions and on perusal of the relevant finding in the impugned order, we find that the addition made by the AO as well as sustained by the CIT(A) are though on ad-hoc basis, but same was done because no details of expenditures was filed by the assessee. Before us, the Ld. Counsel has submitted that, most of the expenses have been incurred by Dr. Hitesh S Mehta and other family members living in a Joint family set-up. Further other members have contributed for household expenses and that some of the additions have been confirmed on account of personal household expenses by the Department. On these facts and circumstances, we inclined to scale down the additions to ₹ 3 lakhs. Accordingly, addition sustained on account of personal household expenses would be ₹ 3 lakhs Issues Involved:1. Rejection of books of accounts.2. Disallowance of interest expenditure.3. Disallowance of various expenses.4. Addition on account of personal household expenses.5. Disallowance under section 14A.Detailed Analysis:1. Rejection of Books of Accounts:The Tribunal examined the issue of rejection of books of accounts, referencing previous cases within the assessee's family. The Tribunal noted that the CIT(A) had followed the appellate order of Pratima Mehta, where the matter was restored to the CIT(A) for fresh adjudication. The Tribunal cited similar decisions in the cases of Pratima H Mehta, Rasila S Mehta, M/s Devine Holdings Pvt Ltd, and Hitesh S Mehta, where the issue was set aside to the CIT(A) for re-examination of the books of accounts. Consequently, the Tribunal set aside the issue to the CIT(A) for fresh adjudication, allowing ground No.2 for statistical purposes.2. Disallowance of Interest Expenditure:For the disallowance of interest expenditure, the Tribunal referenced the case of Pratima Mehta for AY 2009-10, where the issue was similarly set aside to the CIT(A). The Tribunal followed this precedent and set aside the issue to the CIT(A) for fresh adjudication, allowing ground No.3 for statistical purposes.3. Disallowance of Various Expenses:The Tribunal addressed the disallowance of various expenses claimed by the assessee under section 14A. The AO disallowed expenses related to demat charges and other expenses, applying Rule 8D. The Tribunal noted that Rule 8D was not applicable for AY 2006-07 and found that the AO had mechanically applied the rule. The Tribunal set aside the issue to the AO to work out a reasonable basis for disallowance after examining the nature of accounts and expenses, allowing ground No.4 for statistical purposes.4. Addition on Account of Personal Household Expenses:The Tribunal examined the addition on account of personal household expenses, where the AO had estimated household expenditure at Rs. 1 lakh per month. The CIT(A) had reduced the addition to Rs. 6 lakhs. The Tribunal considered the submissions that the assessee lived in a joint family setup and that other family members contributed to the household expenses. The Tribunal scaled down the addition to Rs. 3 lakhs, partly allowing ground No.5.5. Disallowance under Section 14A:The Tribunal addressed the disallowance under section 14A for AY 2007-08, where the AO had made similar disallowances as in AY 2006-07. The Tribunal followed the same reasoning and set aside the issue to the AO to work out a reasonable basis for disallowance, allowing ground No.5 for statistical purposes.Conclusion:Both appeals were partly allowed for statistical purposes, with the Tribunal setting aside several issues to the CIT(A) and AO for fresh adjudication. The Tribunal emphasized the need for a reasonable basis for disallowances and the re-examination of the books of accounts and expenses. The judgment reflects a consistent approach in handling similar issues within the assessee's family and group.