ITAT partly confirms addition of site expenses as unexplained expenditure for being not accounted for in the books of accounts in the expense ledger
In a recent judgment, the ITAT has confirmed the addition of unexplained expenditure u/s 69C towards site expenses not accounted for in the books of accounts in the expense ledger
ABCAUS Case Law Citation:
ABCAUS 3969 (2024) (04) ITAT
Important Case Laws relied upon:
Yadu hari Dalmia4 Taxman 525
Srinivasa Ferro Alloys Ltd. 51 taxmann.com 512
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming Addition made in respect of unexplained expenditure under Section 69C of the Income Tax Act, 1961 (the Act)
The appellant assessee was a Private Limited company engaged in the business of Works Contract. During the survey proceedings, back-up of computers installed in the premises of the assessee was taken in HDDs, which were impounded along with some diaries and loose papers.
After close scrutiny of entries in various materials impound during the course of survey, the AO observed that certain entries were found unmatched / not accounted for in the books of accounts in the expense ledger of the assessee.
The AO issued show cause notice to the assessee, in response to which the assessee submitted that all the expenses were already accounted in their books of account, and due to mistake of accountant, these expenditures were accounted cumulatively and not individually.
However, the AO held that the 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.
Therefore, the AO made an addition towards unexplained expenditure to the income of the assessee under Section 69C of the Act.
The CIT(Appeals) dismissed the appeal of the assessee by observing that it was an uncontroverted fact that the impugned expenses had not been accounted for in the books of accounts. Further, the 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 was also not accepted since the assessee had not filed confirmation from the employees to whom reimbursement was made. Further, the assessee also failed to show any entries of reimbursement in his books of accounts.
Before the Tribunal, the assessee contended that the it had maintained regular books of accounts and relevant documents for the year under consideration. The books of the accounts of the assessee had been duly audited under Section 44AB of the Act, and no defects had been found in the books of accounts of the assessee.
With regards to the additions made by the AO, the assessee submitted that the expenses had been incurred by the employees of the company as site expenses viz. cement, expenses, labour, expenses, chemical expenses, pipe, fitting expenses, etc. In the books of accounts, the same have been debited in the profit and loss account as “site, labour wages” under the head “employee benefit expenses”.
It was submitted that the practice of the assessee is that the employees of the company pay for expenses at site and later on the company reimburses the amount of expenses to it’s employees.
It was also submitted that the expenses shown in the loose papers were duly accounted for, however, since the expenses were merged with other expenses and therefore the direct expenses could not be tallied in the books of accounts. Further, it was submitted that the turnover of the company had also increased substantially during the year under consideration and the assessee was showing reasonable income during the year under consideration.
The assessee also submitted that looking into the instant facts, a reasonable disallowance may be made.
On the contrary, the Revenue contended that the assessee had not been able to give any plausible explanation why expenses like cement, expenses, labour, expenses, chemical expenses, pipe, fitting expenses, etc have all been incurred by the employees at their site and later reimbursed by the assessee company. As per Department, this was not the normal practice being followed in this line of business. Further, reliance was placed on the observations made by CIT(Appeals).
The Tribunal observed that the Hon’ble High Court has held that even though 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.
Further, in another case the High Court had held that as regards objection relating to disallowance of expenses, the Tribunal had found that each of the amounts which were added by invoking Section 69C, did not form part of the books of account and that there was no proper explanation or supporting material, as to their source, in spite of opportunity was given to the appellant by the Assessing Officer. Section 69C would take in its sweep, not only of the expenditure which was reflected in the books of account but also the other items of expenditure regarding which no proper explanation is forthcoming from the assessee, once they were discovered in the course of search and seizure. To give any other meaning to the Section would defeat the very purpose, for which it has been incorporated in the statute.
The Tribunal observed that as the assessee had 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 had not been able to file any confirmation of employee’s to whom such expenses were reimbursed, and the assessee had 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 facts and the plea of the Counsel that a reasonable disallowance may be made, the Tribunal restricted the disallowance to 25% of disallowance made by the Assessing Officer.
Download Full Judgment Click Here >>
- In absence of mala fide intention bank should not be treated as assessee in default
- Whether bank account was fraudulently open in the name of assessee is question of fact
- SBI Concurrent Auditor Empanelment of Chartered Accountant Firms 2024-25. Last date 18.05.2024
- Change in the constitution of Appellate Authority for CAs CSs and Cost Accountants
- Trade Tax refund withheld beyond stipulated period & adjusted from demand unjustified – SC
