Section 69/69C mandates that assessee must have incurred any expenditure. Additions can not be made by just estimating the expenditure-ITAT

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ITAT Lucknow in a recent judgment has held that section 69 of the Income Tax Act, 1961 provides that the assessee must have incurred any expenditure and the additions can not be made by the Assessing Officer by just estimated the expenditure.

Case Law Details:
ITA Nos.35,36 & 37/Lkw/2016 Assessment years: 2004-05, 2005-06 & 2006-07

Rajendra Kumar Somani vs. Dy CIT
Date of Order/Judgment: 28/04/2016

Brief Facts of the Case:
In the present case, the Assessing Officer asked the assessee to furnish the details of house hold expenses with regard to expenses incurred on telephone, mobile phone, payment of electricity bill for house. During the relevant assessment year, the assessee had paid electricity bills to the extent of Rs.1,42,417/-. The Assessing Officer on the basis of the Inspector’s report that the assessee is living in the palatial building constructed in 1600 square meter estimated the drawing of the assessee @Rs.25,000/- per month and accordingly estimated the additional expenses of Rs.3,57,417/- as unexplained expenditure  u/s 69C on account of low withdrawal.

The assessee went in appeal before the CIT(A). However the appeal was dismissed.

The ITAT allowed the appeal and set aside the addition holding that the provisions of section 69 of the Income Tax Act, 1961 lays down a rule of law. The section mandates that where in any financial year the assessee must have incurred any expenditure which remains unexplained/explained unsatisfactorily. As against the onus to prove that the assessee has actually incurred the expenditure whereas the Assessing Officer just estimated the monthly expenditure.

Important Excerpts from ITAT Judgment:

4. We have heard the rival submissions, carefully considered the same along with the orders of the tax authorities below. We noted that so far the addition of Rs.3,00,000/- towards the low house hold withdrawals, the Assessing Officer just estimated the monthly expenditure of the assessee @Rs.25,000/-. The assessee made the drawings at Rs.85,000/-. No detail whatsoever was brought on record that the assessee has incurred the expenditure more than Rs.85,000/-. The addition has been made by the Assessing Officer u/s 69C of the Act. The provisions of section 69 lays down a rule of law. The section mandates that where in any financial year the assessee has incurred any expenditure and 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. From these provisions, it is apparent that the onus is on the Revenue to prove that the assessee has actually incurred the expenditure. There is no evidence or cogent material being brought on record or placed before us by learned D.R. which may prove that the assessee has incurred the expenditure much more than the sum of Rs.85,000/- which has been withdrawn by the assessee as drawings except the payment of electricity. The Assessing Officer just estimated the expenditure. Once the Revenue discharges its onus only then the onus gets shifted on the assessee to give explanation proving the nature and source of the expenditure to the satisfaction of the Assessing Officer. Since the Revenue did not discharge its onus we therefore, set aside the order of CIT(A) and delete the addition …..

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