The court held that additions under section 69C cannot be made based on suspicion alone, especially when expenditures are recorded and supported by evidence.

ORDER

PER V. DURGA RAO, J.M.

The present appeal preferred by the Revenue is against the impugned order dated 29/12/2023, passed by the learned Commissioner of Income Tax (Appeals)–3, Nagpur, [“learned CIT(A)”], for the assessment year 2016–17.

2. In its appeal, the Revenue has raised following grounds:–

“1. On the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the addition of Rs.7,50,00,000/- on account of Unexplained Expenditure u/s 69C of the I.T. Act, 1961, without appreciating the fact that the addition of Rs.7,50,00,000/- made by the AO was supported with independent finding by issuing notice u/s 133(6) of the I. T. Act, 1961 to Bhagwat Power & Steel Ltd and Aarti Sponge & Power Ltd.

2. On the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the addition of Rs.20,67,364/- on account of difference in additional income disclosed during survey proceedings and returned income declared by the assessee in his return of income for AY 2016-17.

3. Any other question of law and fact to be raised at the time of appeal.”

3. The only issue before us is, whether or not the learned CIT(A) was correct in deleting the addition of ‘ 7.50 crore made by the Assessing Officer under section 69C of the Income Tax Act, 1961 ("the Act") on account of unexplained expenditure.

4. Facts in Brief:– The assessee is a company. On 26/12/2019, a survey under section 133A of the Act was conducted by the Investigation Wing, Income Tax Department, Nagpur. The assessee company is engaged in the business of construction, wholesale and retail trade and other services. On 17/10/2016, the assessee filed its return of income for the year under consideration declaring total income of ‘ 4,60,44,360. On 25/12/2016, the Assessing Officer completed assessment under section 143(3) of the Act determining total assessed income a ‘ 4,81,11,724. During the survey proceedings, the assessee disclosed an additional income of ‘2.03 crore. The Assessing Officer re–opened the assessment under section 147 of the Act and notice under section 148 was issued on 31/03/2021 which was served upon the assessee. In response to notice under section 148, the assessee filed return of income on 26/05/2021, declaring total income at ‘ 6,63,44,360. Thereafter statutory notices were also issued by the Assessing Officer from time to time. The Assessing Officer completed the assessment under section 147 of the Act on 30/03/2022, determining total assessed income at ‘ 14,34,11,724, after making addition of ‘ 7.50 crore on account of unexplained expenditure under section 69C of the Act and ‘ 20,67,364, on account of difference under section 69C of the Act.

5. Before the learned CIT(A), the assessee made following submissions:–

“The appellant submitted the written submission which is reproduced as under:

Assessee is a Company incorporated under the provisions of Companies Act, carrying on the business of Construction, trading, and services. It maintains regular books of accounts which are audited u/s 44AB of IT Act as well as under the provisions of Companies Act:

The present appeal is against the reopening of assessment and the additions made in the assessment order passedu/s 147 of the Act on 25/12/2018.

Facts of the case:

Assessee filed return of income under section 139(1) of I T Act on 17/10/2016 declaring income of Rs.4,60,44,360/–. Case was selected for scrutiny and various notices were issued which were duly replied by the assessee. Assessment order under section 143(3) was passed on 25/12/2018 wherein AO made following additions and computed the total income at Rs.4,81,11,724/-.

Belated payment of EPF/ESIC Rs. 18,60,893/-

Other Disallowance out of expenses Rs. 2,06,471/-

Addition of belated payment of EPF/ESIC was disputed by assessee in appe