2024 (3) TMI 476 - AT - Income Tax

Unexplained expenditure - certain entries were found unmatched / not accounted for in the books of accounts in the expense ledger of the assessee - As per AO assessee has not been able to match the expenses on one to one basis and in absence of a clear and satisfactory explanation, the expenses remained unexplained - CIT(Appeals) dismissed the appeal of the assessee by observing that it is an uncontroverted fact that the impugned expenses have not been accounted for in the books of accounts and explanation of the assessee that these expenses were first incurred by the employees at respective sites, which were subsequently reimbursed by the assessee to employees is also not acceptable HELD THAT - Section 69C came into force with effect from 01.04.1976, the provision is merely clarificatory and embodies a rule of evidence which is even otherwise quite clear. When there is direct and clear evidence of expenditure not recorded in the books, the ITO would be entitled to treat the amount of expenditure or unexplained part of it as income from undisclosed sources, as the case of proven expenditure is in principle no different from that of a cash credit. See YADU HARI DALMIA 1980 (5) TMI 22 - DELHI HIGH COURT . In the instant facts, we observe that the assessee has not been able to give any plausible explanation for the aforesaid expenses i.e. why they were not accounted for in the books of accounts, the assessee has not been able to file any confirmation of employee s to whom such expenses were reimbursed, and the assessee has also failed to show entries of reimbursement in his cashbook as well. The assessee has only relied on the fact that books of accounts were audited and turnover of the assessee has increased during the year. However, looking into the instant facts and the plea of the Ld. Counsel for the assessee that a reasonable disallowance may be made, in the interests of justice, the disallowance of restricted to 25% of disallowance made by the AO. Appeal of the assessee is partly allowed.

Summary

Issues involved:
The appeal filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals) for Assessment Year 2015-16, regarding addition of unexplained expenditure.

Summary of Judgment:

Issue 1: Condonation of Delay in Filing Appeal
The appeal was found to be time-barred by 91 days, but the delay was condoned due to the lockdown during the pandemic, in the interest of justice.

Issue 2: Unexplained Expenditure Addition
The assessee company, engaged in trading and Works Contract of Electric Items, had unexplained expenses amounting to Rs. 4,73,865. The AO added this sum under Section 69C of the Act as unexplained expenditure, as the expenses were not accounted for in the books of accounts.

Issue 3: CIT(A) Confirmation of Addition
In the appeal, the Ld. CIT(A) confirmed the addition, stating that the expenses were not accounted for in the books of accounts and the explanation provided by the assessee was not acceptable. The CIT(A) dismissed the appeal, emphasizing the lack of proper documentation and entries to support the expenses.

Issue 4: Tribunal Decision
The assessee appealed against the additions confirmed by the Ld. CIT(A). The assessee argued that the expenses were incurred by employees at sites and later reimbursed by the company, which led to discrepancies in accounting. The Tribunal observed that the assessee failed to provide satisfactory explanations and documentation for the unaccounted expenses. However, considering the overall circumstances, the Tribunal allowed a partial disallowance of 25% of the addition made by the AO.

This judgment highlights the importance of maintaining accurate records and providing clear explanations for expenses to avoid additions under Section 69C of the Income Tax Act. The Tribunal's decision to partially allow the appeal showcases a balanced approach considering the circumstances of the case.