2022 (9) TMI 586 - AT - Income Tax

Unverifiable expenses - disallowance being 30% of the direct expenses claimed by the assessee - HELD THAT - Profit and loss account now filed by the assessee is not even signed by the assessee or his authorized representative as a true copy and in the absence of any books of account maintained by the assessee as admitted during the course of assessment proceedings before the AO we are of the view that no credence can be given to the same. Insofar as arguments raised on behalf of the assessee challenging the applicability of Section 69C of the Act, we find that disallowance out of direct expenses claimed by the assessee was made by the AO to the extent of 30%; and, having regard to the observation/findings recorded by the AO in the assessment order, the same was made on account of unverifiable elements involved in the direct expenses claimed by the assessee since there was a failure on the part of the assessee to furnish the details and documents in order to support and substantiate his claim for the said expenses. Reference to Section 69C made by the AO, therefore, was totally unwarranted and it appears that the reference to Section 69C was made by the AO through inadvertent mistake. In our opinion, such inadvertent reference made by the Assessing Officer to Section 69C could not or should not come in a way to sustain the disallowance in question made by the Assessing Officer which otherwise was justifiably made on account of unverifiable elements involved in the direct expenses claimed by the assessee. As such, considering all the facts of the case, we are of the view that the disallowance made by the AO out of direct expenses was fully justified and there was no infirmity in the order of the CIT(A) in confirming the same. We, therefore, uphold the impugned order of the CIT(A) on this issue and dismiss this appeal filed by the assessee.

Summary

Issues Involved:
1. Addition of Rs.2,08,17,445/- on account of unverifiable expenses.
2. Applicability of Section 69C of the Income-tax Act, 1961.
3. Adequacy of opportunities provided to the assessee to substantiate claims.
4. Compliance with procedural requirements during assessment and appellate proceedings.

Detailed Analysis:

1. Addition of Rs.2,08,17,445/- on account of unverifiable expenses:
The assessee, a HUF engaged in IT and Data Entry Job Work, declared a total income of Rs.3,82,520/- for the relevant year. The Assessing Officer (AO) scrutinized the case due to large expenses reported and demanded substantiation for direct expenses of Rs.6,24,52,237/-. The assessee's submissions were found inadequate, leading the AO to disallow 30% of the expenses, amounting to Rs.2,08,17,445/-, under Section 69C of the Income-tax Act, 1961. The CIT(A) upheld this addition, noting the assessee's failure to maintain records or provide substantial evidence despite multiple opportunities.

2. Applicability of Section 69C of the Income-tax Act, 1961:
The assessee contended that Section 69C was incorrectly applied as the source of funds was not questioned. However, the CIT(A) clarified that Section 69C pertains to unexplained expenditure and requires the assessee to justify the source of such expenses. The AO's reference to Section 69C was deemed inadvertent, and the disallowance was justified based on unverifiable elements in the direct expenses claimed.

3. Adequacy of opportunities provided to the assessee to substantiate claims:
The AO and CIT(A) provided multiple opportunities to the assessee to furnish relevant details and documents. Despite this, the assessee failed to comply, citing reasons such as the illness and eventual death of their Authorized Representative. The CIT(A) admitted additional evidence under Rule 46A but found it insufficient. The Tribunal noted the assessee's consistent non-compliance during assessment and remand proceedings.

4. Compliance with procedural requirements during assessment and appellate proceedings:
The Tribunal observed that the assessee initially attempted to justify direct expenses of Rs.6,00,00,000/- but later claimed the expenses were only Rs.8,40,000/- as per a newly submitted Profit & Loss Account. This account was unsigned and unsupported by books of account. The Tribunal upheld the AO's disallowance, emphasizing the importance of maintaining proper records and providing credible evidence.

Conclusion:
The Tribunal dismissed the appeal, affirming the disallowance of Rs.2,08,17,445/- due to the assessee's failure to substantiate the expenses claimed. The decision underscored the necessity for assessees to maintain accurate records and comply with procedural requirements during assessments and appeals. The reference to Section 69C, although inadvertent, did not affect the legitimacy of the disallowance based on unverifiable expenses.