By TIOL News Service

MUMBAI, MAR 18, 2014: THE issue before the Bench is - Whether when assessee fails to prove that its income was below taxable threshold, the AO can make estimation on the basis of average of income declared in the preceding and in the succeeding AYs. And the answer is YES.

Facts of the case

The assessee is the wife of Shri Mayur M Thakkar, son of Shri Manoj M.Thakkar, who is one of the pioneers of chemical trade and dealing in chemicals. There was a search and seizure operation u/s 132 in Thakkar Group of cases on 21.1.1999. The search operation covered both, the business premises as well as residential premises of the members of Thakkar family. The Thakkar family is engaged in the business of manufacturing as well as trading in various chemicals. During the relevant years the assessee was associated with certain business concerns of Thakkar Group. Sunil Chemical Industry carried out trading business in petrochemicals under the proprietorship of assessee only for four months i.e. till 31.3.1998 and from 1.4.1998 this concern was converted into a partnership firm with assessee and her husband as partners.

Pursuant to search at the premises of the assessee, notice u/s 158BC (a) was issued on 13.11.1999, vide which the assessee was asked to file block return covering the period from 1.4.1988 to 21.1.1999. The assessee filed return for the block period after expiry of 45 days showing undisclosed income at Rs. NIL. AO determined undisclosed in at Rs.8,95,570/- interalia determining the income of the assessee on estimated basis for non filing of return of Rs.55,750/- for AY 1989-90, Rs.1,21,205/-for AY 1994-95 and Rs.1,21,205/- for AY 1995-96, which has been confirmed by the CIT(A).

AO stated that the assessee did not file return of income nor details were given. Therefore, AO took average total income for AY 1991-92 and 1992-93 to estimate the income at Rs.55,750/- for AY 1989-90. Similarly, the AO has stated that assessee neither filed returns nor the details were given by her and therefore AO considered the income for preceding AY 1993-94 and succeeding AY 1996-97 and took average returned income for AYs 1994-95, 1995-96 at Rs.1,21,205/- for each of the AY. The CIT(A) confirmed the action of the AO.

AO stated that assessee had visited Dubai during the previous year relevant to AY 1994-95, once and during the AY 1995-96, twice. AO has stated that the assessee failed to explain the source of expenditure incurred and also failed to furnish other necessary details. He has further stated that the assessee neither furnished quantum of expenditure nor source thereof. Therefore, AO has estimated expenses on foreign journey including fare, boarding, lodging, shopping, entertainment expenditure and incidental expenses of Rs.1,00,000/- for the foreign visits during the previous year relevant to AY 1993-94 and Rs.2,50,000/- for two times foreign visits during the previous year relevant to AY 1994- 95. The assessee disputed the above said addition before the CIT(A).

CIT(A) after considering the submissions of the assessee held that no incriminating evidence were found during the course of search regarding undisclosed income attributable to foreign traveling is concerned. CIT(A) has accepted the fact that expenses of boarding, lodging, local travelling and entertainment expenditure etc, were born by her husband. However, he has considered that expenditure on account of foreign travelling can be estimated at Rs.75,000/- i.e. at the rate of Rs.25,000/- per trip as undisclosed income of the assessee. Therefore, CIT(A) has deleted a sum of Rs.2,75,000/- out of the addition of Rs.3,50,000/- made by AO and sustained the addition to the extent of Rs.75,000/-.

Having heard the parties, the Tribunal held that,

++ it is a fact that the assessee has failed to prove by any documentary evidence that the income of assessee in the AYs viz 1989-90, 1994-95 and 1995-96 were below taxable limit. The assessee has also not disputed the fact, which have been stated by AO that the source of income of the assessee in the above AYs viz 1993-94 or 1996-97 were constant. Assessee during the course of assessment proceedings was non-cooperative and non-complied with the notices issued by AO. Considering the above facts and in the absence of any document on record, the CIT(A) has rightly stated that in the absence of co-operation from the assessee, the AO is justified to resort to estimate, considering the quantum of income declared by assessee in the preceding as well as in the succeeding AYs in taking average of the same. The assessee has chosen not to furnish any credible evidence regarding her income for any of the AY under consideration. Therefore, CIT(A) was right that the assessee has failed to prove that the income taxed by AO as undisclosed income in any of the aforesaid three AYs is such which is excessive or which was partly or fully disclosed by assessee during the block period. Considering the facts of the case, there was no reason to interfere with the order of CIT(A). Hence, his order was confirmed;

++ additions on account of foreign visits - onus is on the department to prove that the said expenses were not incurred by husband of the assessee but were born by the assessee from undisclosed income. The department is asking to prove something that does not exist. There is no dispute that no material/document or evidence was found during the course of search and /or inquiries made following search that the assessee had incurred the expenditure on her visits to Dubai and not her husband. CIT(A) has stated that no incriminating evidence was found during the course of search regarding undisclosed income attributable to foreign travelling of the assessee. Considering the said facts, the CIT(A) is justified in deleting the addition of Rs.2,75,000/- which has been estimated on account of boarding, lodging, local travelling and entertainment etc. Further, CIT(A) is not justified to estimate a sum of Rs.25,000/- per trip aggregating to Rs.75,000/- as undisclosed income of the assessee on account of foreign traveling particularly when no evidence is placed on record and the said estimation is made arbitrarily and not on any cogent material on record. Hence, the said addition of Rs.75,000/- as sustained by CIT(A), was deleted besides confirming the order of CIT(A) in giving relief of Rs.2,75,000/- out of total addition of Rs.3,50,000/- made by AO.

(See 2014-TIOL-142-ITAT-MUM)