Citation Codes

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Case Number

ITA Nos. 814 to 817.Chd/2012, Assessment Years: 2002-03, 2004-05, 2005-06 & 2007-08

Advocates

Appellant By: Shri Sudhir Sehgal
Respondent By: Shri Manjeet Singh

Judges

T.R Sood, A.M
Sushma Chowla, J.M

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Smart Summary

Structured Summary of the Tribunal Opinion

Factual and Procedural Background

These four appeals challenge separate orders passed by the Learned Commissioner of Income Tax (Appeals)-I, Ludhiana, all dated 30.5.2012. The appeals involve common grounds and were heard together and disposed of by a common order. The Assessing Officer (AO) made a number of additions to the assessee's income following assessment proceedings and search-related inquiries. The CIT(A) largely confirmed these additions. The Tribunal considered multiple common issues including deemed rental income for various properties, household withdrawals, estimated disallowances for car and telephone expenses, and an addition based on a loose paper found during search. The assessee relied repeatedly on a prior Tribunal decision in the assessee's own case for assessment year 2003-2004 (ITA Nos. 343 & 376.Chd/2012, order dated 22.8.2012) and other cited authorities.

Legal Issues Presented

Whether the addition made under section 153A (upholding of addition despite "no material found") was justified (this ground was not pressed).
Whether the deemed rental income of Shop No. 2, Near Kiran Place, Railway Road, Rajpura (40 × 12 sq. yards) at Rs. 36,000 per annum was correctly assessed.
Whether the deemed rental value of a residential house measuring 100 sq. yards at Islampur, Near Rajpura (assessed at Rs. 30,000 per annum) was correctly determined.
Whether the deemed rental income of a shop measuring 25 × 12 at Main Bazaar, Mohinder Ganj, Rajpura (assessed at Rs. 48,000 per annum) was correctly determined.
Whether additions on account of low household withdrawals (for assessment years 2002-03, 2004-05, 2005-06 and 2007-08) were justified and in what amount.
Whether estimated disallowance on car and telephone expenses in assessment year 2002-03 was correctly quantified.
Whether the deemed rental income in respect of 1/4 share in a house at Ambala (assessment year 2002-03) should stand, or whether inquiries were required to determine use/condition.
Whether an addition of Rs. 7,610 in assessment year 2007-08 based on a loose paper found during search should be sustained.

Arguments of the Parties

Appellant's Arguments

For Shop No. 2 (Rajpura): The assessee submitted that the shop was used as a godown for business (storing wooden packing and miscellaneous items), and therefore rental income could not be assessed under "Income from house property". The assessee relied on the Tribunal's earlier order in its own case for AY 2003-2004 (paras 7 & 8 of the order dated 22.8.2012).
For the residential house at Islampur: The assessee contended the house was in a dilapidated condition, unfit for human habitation and lacked electricity and water, relying on prior Tribunal decisions (including Shyam Sunder Behl v. Addl. CIT; Mandeep Jain v. DCIT; ACIT v. Dr. Amrit Lal Adlakha) and the assessee's own prior Tribunal order (paras 9 & 10 of 22.8.2012).
For the shop at Main Bazar, Mohinder Ganj: The assessee asserted the shop was being used as a workshop for repairing electronic items and had filed evidence in the assessment proceedings; relied on the Tribunal's own prior order and the Special Bench decision in All Cargo Global Logistics Ltd. v. DCIT to contend that additions cannot be made without material on record.
On household withdrawals: The assessee argued withdrawals shown were sufficient, that no evidence of extra household expenses was found during search, and that any addition was excessive and should be restricted to a reasonable amount.
On car and telephone expenses: The assessee contended that the addition was made on an estimate basis in a search case and such estimation of income was not justified, requesting a reduction in the percentage disallowed.
On the Ambala house (1/4 share): The assessee repeated submissions that the house was in an inhabitable condition and/or used for storing packing material.
On the Rs. 7,610 addition (AY 2007-08): The assessee supplied the loose paper and argued that entries related to household expenses (repairs, CDs, etc.) which were already reflected in household expenses additions, so no separate addition should be made.

Respondent's (Revenue's) Arguments

For the deemed rentals and other additions, the Revenue (through the Assessing Officer and CIT(A)) relied on findings about good locations and estimated annual values (e.g., Rs. 36,000 for Shop No. 2; Rs. 30,000 for the Islampur house; Rs. 48,000 for the Main Bazaar shop) and supported confirming the AO's additions.
Regarding evidence of alternate use (godown/workshop) or condition (dilapidated), the Revenue disputed the sufficiency of the evidence and relied on the AO and CIT(A) conclusions that rental assessments were proper.
On household withdrawals, the Revenue supported the CIT(A)'s computations and the additions made by the AO as recorded in the assessment orders.
On car and telephone expenses, the Revenue relied on the CIT(A)'s view to support the disallowance percentages used by the AO.
On the Rs. 7,610 addition, Revenue relied on the AO's assessment based on the loose paper found during search and on the CIT(A)'s confirmation of that addition.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Assessee's own case: ITA Nos. 343 & 376.Chd/2012 (Tribunal order dated 22.8.2012)	Previous adjudication on identical fact-situations concerning deemed rental for various properties; determinations that where premises were used for business (godown/workshop) or were in a dilapidated/uninhabitable condition, rental could not be assessed as "Income from house property".	The Tribunal followed these prior paras (7–12 of that order) to allow the assessee's grounds concerning Shop No. 2 (used as godown), the Islampur house (dilapidated), and the Main Bazaar shop (used as workshop), and applied those outcomes to the present appeals.
Shyam Sunder Behl v. Addl. CIT (2006) 99 TTJ 1147 (Asr-Trib)	Authority relied upon before CIT(A) regarding principles on when rental income cannot be assessed because a property is unfit for habitation.	Cited by the assessee before CIT(A) (as part of authorities relied upon) in support of the contention that a dilapidated house not fit for residence should not attract deemed rental; the Tribunal accepted the reasoning in its prior order and applied it in favor of the assessee.
Mandeep Jain v. DCIT (2011) 43 SOT 288 (Chd-Trib)	Authority supporting the proposition that rental income should not be assessed where a house is unfit for habitation.	Cited before CIT(A) and relied upon in the prior Tribunal decision which the present Bench followed in allowing the assessee's contention on the Islampur house.
ACIT v. Dr. Amrit Lal Adlakha (2006) 105 TTJ (Asr-Trib) 271	Authority relied upon before CIT(A) concerning fitness of a property for habitation and assessment of rental income.	Part of the authorities cited by the assessee to support the contention that deemed rental cannot be assessed for premises not fit for human habitation; relied upon in the prior Tribunal reasoning adopted by the Bench.
All Cargo Global Logistics Ltd. v. DCIT (Special Bench) ITA Nos. 5018-5022 & 5059/M/2010 (assessment years 2004-05 to 2009-10), order dated 6.7.2012	Support for the principle that an addition cannot be made without material brought on record to justify it.	Relied upon by the assessee before the prior Tribunal; the Tribunal in its prior order found that non-availability of material before AO or CIT(A) made it inappropriate to uphold the addition, and the present Bench followed that approach for the Main Bazaar shop matter.

Court's Reasoning and Analysis

The Tribunal considered each common issue by comparing the AO's findings, the CIT(A)'s confirmation, and the assessee's submissions (including reliance on the Tribunal's earlier order in the assessee's own case and other precedent authorities). The Tribunal repeatedly framed its analysis around whether there was material on record to justify the AO's estimated additions and whether the facts matched prior adjudicated fact-situations.

Specific lines of reasoning adopted by the Tribunal were:

On the first common ground (addition under section 153A where "no material was found"): The issue was not pressed before the Tribunal and was dismissed as not pressed.
Shop No. 2 (Rajpura) — deemed rental Rs. 36,000: The AO treated the property as yielding deemed rent because no rental was shown and the shop was in a good location. The assessee asserted the shop was used as a godown. The Tribunal relied on its own prior finding in the assessee's AY 2003-04 (paras 7–8) that where premises are used for business/godown, rental under "Income from house property" cannot be assessed. Applying that identical fact-situation, the Tribunal allowed the assessee's ground.
Residential house at Islampur — deemed rental Rs. 30,000: The AO assessed deemed rent due to location. The assessee contended the house was dilapidated and unfit for habitation, placing reliance on prior authorities. The Tribunal followed its prior decision (paras 9–10 of the earlier order) that a house in dilapidated condition, without electricity and water and not fit for human habitation, should not attract rental assessment, and therefore decided the issue in favour of the assessee.
Main Bazaar shop, Mohinder Ganj — deemed rental Rs. 48,000: The AO estimated rent because no income was shown. The assessee submitted the shop was used as a workshop and had filed evidence; the prior Tribunal order had found that additions cannot be sustained in absence of material and that photographs and later evidence did not necessarily mean absence of past business use. The Tribunal, following its prior analysis and noting non-availability of material before AO/CIT(A), deleted the addition.
Household withdrawals: The AO estimated additional household withdrawals based on items found in search (appliances etc.) and disallowed specific sums for multiple assessment years. The CIT(A) allowed relief for wife's contributions in specified amounts. The Tribunal observed that the additions were made on an estimated basis without material and appeared excessive. Therefore, in addition to the relief already granted by CIT(A) for wife's contribution, the Tribunal further restricted the balance addition to 50% of the amounts confirmed by CIT(A) and directed remand to the AO to make additions accordingly.
Car and telephone expenses (AY 2002-03): The Tribunal noted that in the prior Tribunal decision it had restricted such estimated disallowances to 1/10th of the expenses (paras 5–6 of the prior order). Finding the AO's additions to be on estimate basis without cogent evidence, the Tribunal set aside the CIT(A)'s order and directed the AO to disallow such expenses at 1/10th.
Deemed rental for 1/4 share in house at Ambala (AY 2002-03): The AO had made the addition as no income was shown; the assessee claimed the house was inhabitable or used for storage. The Tribunal found that the AO had not made basic enquiries to ascertain the condition or use of the house. In the interest of justice, the Tribunal set aside the CIT(A)'s order and remitted the matter to the AO with directions to make enquiries and decide in accordance with law.
Addition of Rs. 7,610 (AY 2007-08) based on a loose paper: The assessee produced the loose paper showing entries relating mainly to household expenses (repairs of TV, purchase of CDs etc.), and the Tribunal agreed that these items were already covered by household expenses additions. The Tribunal set aside the CIT(A)'s confirmation and deleted the Rs. 7,610 addition.

Holding and Implications

Holding: All the appeals are partly allowed.

Immediate consequences and directions:

Shop No. 2 (Rajpura): Addition of Rs. 36,000 was deleted in favour of the assessee (issue allowed).
Residential house at Islampur: Deemed rental addition of Rs. 30,000 deleted (issue allowed).
Main Bazaar shop, Mohinder Ganj: Deemed rental addition of Rs. 48,000 deleted (issue allowed).
Household withdrawals additions: In addition to relief granted by CIT(A) for wife's contributions, the Tribunal restricted the remaining additions to 50% of the amounts confirmed by CIT(A) and directed the AO to compute additions accordingly.
Car and telephone expenses (AY 2002-03): Disallowance restricted to 1/10th of expenses; AO directed to compute disallowance at that rate.
1/4 share in house at Ambala: Matter remitted to the AO for enquiries into the condition/use of the property and decision in accordance with law.
Rs. 7,610 addition (AY 2007-08): Deletion of the addition as entries related to household expenses already covered elsewhere.

Broader implications: The Tribunal applied its prior findings in the assessee's own case and existing authorities to resolve identical fact-situations, emphasizing that additions made on mere estimation without material on record are vulnerable to deletion or restriction. The opinion does not purport to lay down a new legal principle beyond applying existing case law and the Tribunal's earlier decisions to the facts; its practical effect is to direct reductions, deletions or remand for enquiry as specified above.

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Shri Vipan Kumar Verma, Prop M/S Verma Electronics, Rajpura () v. The Acit, Central Circle, Patiala ().

T.R Sood, A.M:— These four appeals are directed against the separate orders passed by the Ld. CIT(A)-I, Ludhiana all dated 30.5.2012

2. In these appeals, common grounds have been raised, therefore, all the appeals were heard together and are being disposed off by this common order.

3. The first common is sue is that CIT(A) was not justified in upholding the addition in the assessment framed u/s. 153A of the Act as no material was found.

4. This issue was not pressed before us, therefore, the same is dismissed as not pressed.

5. The second common issue is regarding deemed rental income of Shop No. 2, Near Kiran Place, Railway Road, Rajpura.

6. After hearing both the parties, we find that during assessment proceedings the Assessing Officer noticed that assessee was owner of Shop No. 2, measuring 40 × 12 square yards area, near Kiran Place, Railway Road, Rajpura. Since no rental income was shown, the Assessing Officer was of the opinion that since shop was located in a very good location, the annual value of the same should be Rs. 36,000/- per annum. Accordingly, he treated the same as deemed rental income of the assessee and made an addition of Rs. 36,000/-,

7. On appeal, the addition was confirmed by the Ld. CIT(A).

8. The Ld. counsel of the assessee submitted that this issue is covered by the decision of the Tribunal in assessee's own case for assessment year 2003-2004 in ITA Nos. 343 & 376.Chd/2012 order vide paras 7 & 8 of the order dated 22.8.2012 On the other hand, the Ld. DR relied on the order of the Assessing Officer and CIT(A).

9. After considering the rival submissions, we find that identical issue came up for consideration in assessee's own case for assessment year 2003-2004. The issue was adjudicated in paras 7 & 8, which reads as under:—

“7. In Ground No. 3, the assessee contended that CIT(A) erred in holding deemed rental value of shop No. 2, Railway Road, Rajpura @ 36,000/- per month, as per para 8(a) of the order, by not considering the facts that shop is being used as godown, for the purpose of business for keeping wooden packing and miscellaneous items.

8. We have carefully perused the rival submissions, facts of the case and relevant records. The assessee filed submissions before the CIT(A) as well as before the AO, indicating that the said shop No. 2, Railway Road, Rajpura was used as a godown. In view of such an assertion of using the premises for business purpose, rental income cannot be assessed under the head ‘Income from house property’. The findings of the CIT(A), in such a fact-situation cannot be upheld. This ground of the assessee is allowed.”

10. Following the above, we decide this issue in favour of the assessee.

11. The next common issue is regarding deemed rental of residential house measuring 100 sq. yards at Islampur, Near Rajpura.

12. After hearing both the parties, we find that during assessment proceedings the Assessing Officer noticed that assessee was owner of a residential house measuring 100 square yards which was located in Islampur, Near Rajpura. According to Assessing Officer, the house was located in a good location and the annual value should be Rs. 30,000/-. Since the assessee had not shown any income against this house, deemed rental value was accepted addition Rs. 30,000/- and addition was made accordingly.

13. On appeal, the Ld. CIT(A) confirmed the addition.

14. Before us, Ld. counsel of the assessee submitted that identical issue came up for consideration of the Tribunal in assessee's own case for assessment year 2003-2004 in ITA Nos. 343 & 376.Chd/2012 (supra) which has been adjudicated upon vide paras 9 & 10 of the order. On the other hand, the Ld. DR relied on the order of the Assessing Officer and CIT(A).

15. After considering the rival submissions, we find that identical issue came up for consideration in assessee's own case for assessment year 2003-2004 and the issue was adjudicated in paras 9 & 10 dated 22.8.2012, which reads as under:—

“9. In Ground No. 4, assessee contended that CIT(A) erred in upholding the deemed rental value of the residential house at Islampura, near Rajpura, ignoring the fact that house is in a dilapidated condition and is not fit for use as residence. The appellant placed reliance on certain decisions before the CIT(A), such as; Shyam Sunder Behl v. Addl. CIT (2006) 99 TTJ 1147 (Asr-Trib), Mandeep Jain v. DCIT (2011) 43 SOT 288 (Chd-Trib) and ACIT v. Dr. Amrit Lal Adlakha (2006) 105 TTJ (Asr-Trib) 271. Having regard to the findings of the AO as well as that of CIT(A), in the light of submissions filed by the appellant, rental income cannot be assessed in respect of such a house which is not fit for living for human beings, as the house was in a dilapidated condition and no electricity and water conditions were available in that house.

10. In view of the above identical fact-situation, in respect of Ground No. 6, the same is allowed, as that house is not in a condition to be used for human beings.”

16. Following the above, we decide this issue in favour of the assessee.

17. The next common issue is regarding deemed rental income in respect of shop measuring 25 × 12 at Main bazaar, Mohinder Ganj, Rajpura against which no rental income was offered. Since the shop was located in a good location, the annual value was estimated at Rs. 48,000/- and addition was made on account of deemed rental income for Rs. 48,000/-.

18. On appeal, the Ld. CIT(A) decided the issue against the assessee.

19. Before us, Ld. counsel for the assessee pointed out that identical issue came up for consideration of the Tribunal in ITA Nos. 343 & 376.Chd/2012 (supra) which has been adjudicated upon vide paras 11 & 12 of the order. On the other hand, the Ld. DR relied on the order of the Assessing Officer and CIT(A).

20. After considering the rival submissions, we find that identical issue came up for consideration in assessee's own case for assessment year 2003-2004 and the issue was adjudicated in paras 11 & 12 dated 22.8.2012, which reads as under:—

“11. In Ground No. 5, the assessee contended that CIT(A) erred in upholding the deemed rental value of shop at Main Bazar, Mohinder Ganj, Rajpura, as per para 8(f) of the assessment order, by not considering the fact that the shop is being used as workshop for repairing certain electronic items. The findings of the CIT(A), are contained in para 8 of the appellate order, whereby the addition made by the AO, was upheld, on the ground that no evidence was filed by the assessee regarding use of the property for business purpose. However, in the course of assessment proceedings, assessee has filed such evidence and the CIT(A) sought remand report from the AO. Ld. CIT(A) observed that photographs taken during the current period, cannot be said to be evidence for business use in the past. Such observation of the CIT(A) remained uncorroborated by any evidence brought on record. The assessee also placed reliance on the decision of the Special Bench in the case of All Cargo Global Logistics Ltd. v. DCIT in ITA No. 5018 to 5022 & 5059.M/2010 assessment year 2004-2005 to 2009-2010 dated 6.7.2012, to support his contention that said addition cannot be made without there being any material brought on record to justify said addition.

12. Having regard to the fact-situation of the case, non-availability of any material before the AO or CIT(A), to ignore the evidence filed by the assessee in the matter, we do not consider it a fit case for upholding the addition. Therefore, the addition is deleted and ground of the assessee is allowed.”

21. Following the above, we decide the issue in favour of the assessee.

22. The next common issue is regarding low house hold withdrawals.

23. After hearing both the parties, we find that during the assessment proceedings the Assessing Officer noticed that during the course of search it was found that assessee was having thre 1.5 ton ACs, a Refrigerator of 300 ltr, 4 gysers, washing machine and T.V etc., therefore, according to Assessing Officer the house hold withdrawals shown by the assessee were quite low. It was explained that some contribution was made by wife also. However, the Assessing Officer disallowed a sum of Rs. 79,473/-, Rs. 1,43,000/-, Rs. 1,69,631 and Rs. 1,82,435/- for assessment years 2002-2003, 2004-2005, 2005-2006 and 2007-2008 respectively.

24. On appeal, the Ld. CIT(A) allowed the relief in respect of contribution made by the wife amounting to Rs. 30,000/-, Rs. 60,000/-, Rs. 1,00,000/- and Rs. 72,000/- for assessment years 2002-2003, 2004-2005, 2005-2006 and 2007-2008 respectively.

25. Before us, Ld. Counsel for the assessee submitted that assessee has shown sufficient withdrawals. Further, no evidence was found during the search regarding extra house-hold expenses. In any case the addition has been made on a higher side and therefore, may be restricted to reasonable amount.

26. On the other hand, the Ld. DR relied on the order of CIT(A).

27. After considering the rival submissions, we find that addition has been made on account of low house hold expenses on estimated basis without bringing any material on record. The addition seems to be on higher side. Therefore, in addition to the relief granted by Ld. CIT(A) regarding contribution of wife, we further restrict the balance addition to 50% of the amounts. Accordingly, we set aside the order of Ld. CIT(A) and direct the Assessing Officer to made addition on account of low house hold withdrawals at 50% of the additions confirmed by Ld. CIT(A).

28. There is one more issue regarding estimated disallowance on car and telephone expenses in assessment year 2002-2003.

29. After considering the rival submissions, we find that identical issue was adjudicated by the Tribunal in assessee's own case where disallowance on account of car and telephone expenses was restricted to 1/10 of the expenses vide paras 5 & 6 of the order of the Tribunal (supra), which read as under:—

“5. In Ground No. 2, the appellant contended that CIT(A) erred in restricting addition of Rs. 11,500/- of 1/5th of car and vehicle expenses against addition of Rs. 14,090/- of 1/4th of car and telephone expenses made by the AO. The appellant stated that the addition has been made on estimate basis and being a search case, such estimation of income is not justified. Revenue placed reliance on the order of the CIT(A).

6. We have carefully perused the rival submissions, facts of the case and found that the addition has been made by the AO, purely on estimate basis, without bringing any cogent and credible evidence on record. However, ld. CIT(A) has restricted the addition to lower percentage. In view of the discussions before the Bench, it was found reasonable to restrict the addition to 1/10th. Accordingly, this ground of appeal of the assessee is partly allowed.”

30. Following the above, we set side the order of Ld. CIT(A) and direct the Assessing Officer to make disallowance of the said expenses at 1/10.

31. There is one more issue in assessment year 2002-2003 i.e regarding deemed rental income in respect of 1/4 of share in the house at Ambala.

32. This addition was made because the assessee had not shown any income against this house. It was mainly submitted that house was in inhabitable condition and was also being used for storing, packing material etc. However, Ld. CIT(A) did not find force in the same and confirmed the disallowance.

33. Before us, Ld. Counsel for the assessee reiterated the submissions made before the CIT(A).

34. On the other hand Ld. DR supported the orders of the Assessing Officer and CIT(A).

35. After considering the rival submissions carefully, we find that the Assessing Officer could have easily find out whether the house was inhabitable condition or the same is used for the purpose of packing of material. However, no such inquiry has been made. Therefore, in the interest of justice, we set aside the order of Ld. CIT(A) and remit the matter back to the file of the Assessing Officer with a direction to make enquiries in respect of this house and then decide the issue in accordance with law.

36. In assessment year 2007-2008, there is one more issue regarding addition of Rs. 7,610/-. This addition has been made on the basis of a loose paper found during search. On appeal, the Ld. CIT(A) confirmed the addition.

37. Before us, Ld. Counsel for the assessee submitted a copy of the loose paper and pointed out that these items are basically included in the house hold expenses, therefore, no addition is called for because separate addition has already been made in respect of house hold expenses.

38. On the other hand Ld. DR relied on the order of the Assessing Officer.

39. We have perused the said loose paper and found that entries in that paper mainly relate to house hold expenses like repair of TV and purchase of C.Ds etc. We agree with the contention of Ld. counsel that a separate addition has already been made by the Assessing Officer regarding house hold expenses which has been partly confirmed by us and therefore, there is no justification for separate addition because of a loose paper. Accordingly, we set aside the order of Ld. CIT(A) and delete the addition amounting to Rs. 7,610/-.

40. In the result, all the appeals are partly allowed.

Shri Vipan Kumar Ver... v. The Acit, Central Ci...