ITAT Deletes Unexplained Credit Addition But Confirms Household Expense and TDS Disallowances

The ITAT Ahmedabad partly allowed the assessee’s appeal, deleting the Rs 28.92 lakh addition under Section 68 for unexplained credits, while upholding additions for low household withdrawals (Rs 3.21 lakh) and TDS default on freight expenses (Rs 1.47 lakh).

The assessee, Pallavi Nileshbhai Shah, had raised three key disputes before the ITAT Ahmedabad.

In the first dispute, the assessee had declared a total withdrawal of Rs 98,935 during the assessment year 2022-23 for the household expenses. The drawings of the assessee for the AY 2021-22 were declared as Rs 4.43 lakh. Consequently, the tax authorities made an estimation of Rs 5,000 per month; if calculated for the entire year, it would amount to Rs 420,000 as estimated household expenses. However, in AY 2022-23, the assessee had shown a total withdrawal of only Rs 98,935. In conclusion, the tax authorities made an addition amounting to Rs 3.21 lakh to the assessee’s income on the grounds of low household withdrawal.

Thereafter, the assessee approached the ITAT Ahmedabad, arguing that the household expenses in question were made by his wife. When the tribunal examined the case, it noted that on the issue that the assessee had shown significantly lower household expenses/withdrawals in comparison to the last assessment year, the assessee could not provide any solid reasons/evidence. Additionally, the assessee had not furnished any evidence proving that the expenses were incurred by his wife.

Considering the aforementioned findings, the tribunal upheld the impugned addition of Rs 3.21 lakh and sustained the CIT(A)’s ruling. Accordingly, the appeal was dismissed, and the final decision was held in favour of the tax authorities.

The tribunal held that, “In the light of the same, the fact remains that the assessee has shown unreasonably low household withdrawals as compared to the preceding year and has given no cogent reasons for the same. He has also not furnished any evidence of household expenses having been incurred by his spouse. We, therefore, confirm the order of the Ld. CIT(A) upholding the addition made by the AO of Rs.3,21,675/- on account of low household withdrawal.”

In the second dispute, the assessee had challenged an addition made by the tax authorities to its income on the grounds of outstanding credits of about Rs 28.92 lakh under Section 68 of the Income Tax Act.

When the tribunal analysed the ground, it noted that the assessee had shown to have paid off the entire outstanding balance in the succeeding year; however, the tax authorities did not highlight the fact either in their final order or even before the ITAT. As a result, the tribunal concluded that it does not find any reasons to sustain the addition of Rs 28.92 lakh, treating the same amount as unexplained credits as per Section 68 of the Act. Accordingly, the impugned addition was deleted.

In the third dispute, the issue involved an addition made to the assessee’s income on the grounds of non-deduction of tax at source on expenses incurred by him by way of transportation/freight expenses under Section 40(a)(ia) of the Income Tax Act.

When the case was taken before the ITAT Ahmedabad, the assessee failed to provide relevant evidences challenging the facts served by the tax authorities that “the assessee had failed to deduct TDS on freight payment of Rs.4.92 Lakhs and the declarations allegedly furnished by the transporters u/s.194C(6) of the Act were incomplete and did not contain the place, date, period and to whom had been addressed”. Accordingly, the tribunal confirmed the disallowance of Rs 1.47 lakhs made under Section 40(a)(ia) of the Act.

Overall, the appeal was partly allowed.