Addition u/s 69C as unexplained expenditure upheld over and above GP addition

ITAT confirmed addition u/s 69C as unexplained expenditure over and above Gross Profit addition

In a recent judgment, ITAT Hyderabad confirmed addition under section 69C as unexplained expenditure over and above the GP addition holding that the two additions serve different purposes i.e. one addresses the unexplained nature of the expenditure, and the other quantifies the income element derived therefrom.

ABCAUS Case Law Citation:
4681 (2025) (08) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming addition under section 69C of the Income Tax Act 1961 (the Act) over and above addition of estimated profit on unaccounted purchase.

The appellant assessee was an individual and the proprietor engaged in wholesale and retail trade of electronic parts and equipments.

A search and seizure operation was conducted in the case of a Group of companies. During the course of the search, it was revealed that the assessee had made unaccounted purchases for two Assessment Years. Based on this information, the AO  issued notice under section 153C of the Act to the assessee.

During the assessment proceedings, it was found that the assessee had made unaccounted purchases. The AO treated the entire sum as undisclosed income and added it to the assessee’s income. The assessment was accordingly completed  by under section 153C of the Act.

Aggrieved, the assessee filed appeal before the CIT(A). During the appellate proceedings, the CIT(A) noted that during the year under consideration the assessee had made unaccounted purchases at two dates within a time gap of 2 and half months. The CIT(A) treated the first purchase as unexplained expenditure under section 69C of the Act, citing failure of the assessee to explain the source of payment. In respect of the second transaction, CIT(A) allowed telescoping benefit to the extent of the first purchase and treated the balance as unexplained expenditure.

Additionally, by taking a three-year average gross profit (“GP”) rate, the CIT(A) estimated profit on total unaccounted purchases and made a further addition towards suppressed profit. Thus, the CIT(A) confirmed additions under two heads i.e.  (i) as unexplained expenditure under section 69C and (ii) suppressed gross profit.

Before the Tribunal the assessee raised the ground of addition as unexplained expenditure over and above the GP addition and contended that once GP is estimated on total unaccounted purchases, there was no justification to again treat the amount as unexplained expenditure. It was prayed that the addition under section 69C be deleted and only the GP addition be retained.

The Tribunal observed that the CIT(A) had examined the two unaccounted purchases and granted benefit of telescoping against the first purchases, while treating the balance amount as unexplained. It was also found that the CIT(A) had independently estimated the GP on the total unaccounted purchases and made an addition towards suppressed profit.

The Tribunal further noted that the assessee had failed to produce any credible evidence before the AO or the CIT(A) regarding the source of these payments. Accordingly, the addition towards unexplained expenditure was justified.

The Tribunal opined that the two additions made by the CIT(A) serve different purposes i.e. one addresses the unexplained nature of the expenditure, and the other quantifies the income element derived therefrom. Since telescoping benefit had already been granted, and the GP addition is on overall unaccounted turnover, the approach of the CIT(A) was reasonable. 

Accordingly, the Tribunal upheld the order of the CIT(A) and dismissed the appeal of the assessee in its entirety.

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