2022 (1) TMI 182 - AT - Income Tax

Addition u/s 69C - unexplained expenditure - HELD THAT - As perused the Balance Sheet along withits relevant annexures for the immediately preceding assessment year, wherein, it has been suitably demonstrated by the Ld. AR that the impugned amount represented capital work in progress as on 31.3.2011 and during the year under consideration, it has only been transferred from capital work in progress to fixed assets account - no fresh expenditure has been incurred during the year under consideration and the addition to fixed assets is merely a transfer entry. Also gone through the copy of the ledger account for the capital work in progress for the year ended 31.3.2011 and we note that most of the work pertains to labour charges paid for cleaning and leveling of land. It is also a case in point that neither in the immediately preceding assessment year nor in the assessment year under consideration, the assessee has claimed the impugned amount as expenditure but has capitalized the same. A plain reading of section 69C would show that a rigours of this provision are attracted in the financial year in which the assessee has incurred an expenditure and where he offers no explanation about the source of such expenditure. However, in the present case, neither has the impugned expenditure been incurred in the assessment year under consideration nor is it the Department s case that the assessee could not explain the source of such expenditure, as admittedly, and undisputedly, this expenditure has been routed throughthe books of account which are duly audited and have been accepted by the AO - In such a situation, we are unable to uphold the order of the Ld. CIT(A). We set aside the same and direct the Assessing officer to delete the addition. - Decided in favour of assessee.

Summary

Issues:
1. Addition to fixed assets as unexplained expenditure under section 69C of the Income Tax Act, 1961.
2. Disallowance made under Section 14A of the Act.

Analysis:

Issue 1: Addition to fixed assets as unexplained expenditure under section 69C of the Income Tax Act, 1961

The appellant, engaged in Real Estate business, filed a return of income for the Assessment Year 2012-13, declaring total income. During assessment proceedings, the Assessing officer noted additions to fixed assets without proper documentation. The Assessing officer added this amount as 'unexplained expenditure' under section 69C of the Act. The Ld. First Appellate Authority deleted the disallowance under Section 14A but upheld the addition under section 69C. The appellant challenged this before the Tribunal, arguing that the addition was unjustified as the expenditure was transferred from capital work-in-progress to fixed assets without incurring new expenses.

The Ld. Authorised Representative demonstrated through the balance sheet and ledger account that the impugned amount was a transfer entry, not fresh expenditure. The Tribunal observed that no new expenditure was incurred during the relevant year, and the amount was merely transferred. The Assessing officer's addition under section 69C was found unjustified as the provision requires unexplained expenditure in the relevant financial year, which was not the case here. The Tribunal directed the Assessing officer to delete the addition, concluding in favor of the appellant.

Issue 2: Disallowance made under Section 14A of the Act

The Ld. First Appellate Authority deleted the disallowance under Section 14A of the Act, which was not challenged further by the appellant. Hence, this issue did not form part of the appeal before the Tribunal and was not addressed in the judgment.

In conclusion, the Tribunal allowed the appeal of the assessee concerning the addition to fixed assets as unexplained expenditure under section 69C of the Income Tax Act, 1961, based on the lack of fresh expenditure and proper documentation. The judgment highlighted the importance of substantiating expenses and complying with the provisions of the Act to avoid unwarranted additions to income.