2015 (5) TMI 224 - HC - Income Tax

Addition u/son 69/69(C) - ITAT deleted addition as when the assessee did not offer ₹ 43,07,179/- as expenditure and did not claim deduction as expenditure, AO was not justified in invoking Section 69/69C and/or in making the addition as unexplained expenditure - Held that - The assessee never offered and/or claimed deduction of ₹ 43,07,179/- as expenditure. Therefore, it is rightly observed by the learned Tribunal that there was no question of making any addition under Section 69/69(C) of the Act. Section 69(C) of the Act would be applicable in a case where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. Tribunal has rightly held that the Assessing Officer has committed error in making addition of ₹ 43,07,179/- under Section 69/69C of the Act. No substantial question of law - Decided against revenue.

Issues:
1. Addition of undisclosed expenditure under Section 69/69(C) of the Income Tax Act.
2. Validity of the order passed by the Assessing Officer and confirmed by the CIT(A).
3. Justification of the Tribunal's decision to delete the addition made by the Assessing Officer.

Analysis:

Issue 1: Addition of undisclosed expenditure under Section 69/69(C) of the Income Tax Act
The case involved the assessment of undisclosed income and investments by the assessee following a search and seizure operation. The Assessing Officer made an addition of Rs. 43,07,179 as unexplained expenditure under Section 69/69(C) of the Act. However, the assessee never offered or claimed this amount as expenditure. The Tribunal rightly observed that since the assessee did not offer or claim the amount as expenditure, there was no basis for invoking Section 69/69(C) of the Act. Section 69(C) applies when an assessee incurs expenditure without explaining its source, which was not the case here. Therefore, the Tribunal held that the addition made by the Assessing Officer was unjustified.

Issue 2: Validity of the order passed by the Assessing Officer and confirmed by the CIT(A)
The assessee, dissatisfied with the Assessing Officer's order, appealed to the CIT(A), who upheld the addition of Rs. 43,07,179 as unexplained expenditure. Subsequently, the assessee appealed to the Tribunal, which overturned the CIT(A)'s decision and deleted the addition. The Tribunal reasoned that since the assessee neither offered nor claimed the amount as expenditure, the Assessing Officer erred in invoking Section 69/69(C) of the Act. The High Court concurred with the Tribunal's decision, emphasizing that there was no justification for the addition under the circumstances.

Issue 3: Justification of the Tribunal's decision to delete the addition made by the Assessing Officer
The Revenue, dissatisfied with the Tribunal's decision, filed a tax appeal questioning the deletion of the addition by the Tribunal. The proposed substantial question of law raised by the Revenue pertained to the justification of deleting the addition of Rs. 43,07,179 under Section 69C of the Act. However, after considering the arguments and examining the orders of the Assessing Officer, CIT(A), and Tribunal, the High Court upheld the Tribunal's decision. The High Court agreed with the Tribunal's reasoning that the Assessing Officer's addition was unwarranted as the assessee had not offered or claimed the amount as expenditure, thereby dismissing the appeal.

In conclusion, the High Court dismissed the tax appeal, finding no substantial question of law arising from the case. The judgment highlighted the importance of substantiating additions under the Income Tax Act with proper evidence and adherence to the provisions of the law to prevent unjustified assessments.

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