Assessee Gets Partial Relief from ITAT as Tribunal sets aside Interest Expenses Addition and Partly Sustains Household Expenses Disallowance [Read Order]

In a recent ruling by the Income Tax Appellate Tribunal (ITAT), Surat Bench, the assessee, Manish Chiranjilal Jain, received partial relief in his appeal concerning the assessment for the financial year 2018-19. The Tribunal set aside the addition made by the Assessing Officer (AO) on account of interest expenses and partly sustained the disallowance concerning household expenses.

The appeal was filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi, dated August 2, 2022, which had confirmed the AO’s assessment order. The AO had made a disallowance of Rs. 1,10,895 under section 36(1)(iii) of the Income Tax Act, related to interest-free advances made by the assessee. Additionally, an addition of Rs. 4.20 lakh was made on account of low household expenses, estimated by the AO to be insufficient for the assessee’s family in Surat.

In his appeal, the assessee raised multiple grounds, including a delay of 597 days in filing the appeal. The delay was explained by the assessee’s Counsel as being due to the fact that the assessee had been pursuing an alternative remedy by seeking rectification of the order before the CIT(A). The Counsel contended that the delay was not intentional and was due to the belief that the CIT(A) would rectify the order. The Tribunal, after considering the explanation, condoned the delay in filing the appeal.

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On the merits of the case, ITAT found that the AO’s disallowance of interest was unjustified. The AO had disregarded the assessee’s submission that the interest-free loans were part of routine business transactions and were of short-term nature. The assessee had shown adequate financial documents and explained that no interest was charged on the loans. The Bench agreed with the assessee’s argument and set aside the addition of Rs. 1,10,895 made on account of interest expenses.

Regarding the household expenses disallowance, the Single Bench Tribunal , Pawan Singh(Judicial Member) observed that the assessee had withdrawn Rs. 78,400 for household expenses, and his wife had withdrawn Rs. 60,000. The AO had estimated household expenses at Rs. 40,000 per month, but the Tribunal took a more reasonable approach, considering the family size and living conditions. The Tribunal allowed a deduction of Rs. 1.20 lakh for the household expenses, including the wife’s withdrawals, and upheld a part of the addition of Rs. 2,81,600.

In conclusion, the ITAT partly allowed the appeal, granting relief to the assessee by deleting the interest expense addition and partially reducing the household expenses disallowance.

To Read the full text of the Order CLICK HERE

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