2013 (9) TMI 880 - HC - Income Tax

High Court Upholds Income Tax Addition for Unrecorded Transactions: Importance of Disclosure & Justification

The High Court upheld the addition under Section 69C of the Income Tax Act for unrecorded transactions during the block period, emphasizing the need for ... Unexplained expenditure u/s 69C of the Income Tax Act - Appellant submitted difference between the excess of expenditure over receipts, should be brought to tax and treated as undisclosed income and the two amounts should not be separately taxed – Held that:- Assessing Officer in the present case did not tax the unaccounted sales and has only taxed unaccounted expenses/expenditure/withdrawals - The appellant has not, in the present case, furnished details or explained nature and purpose behind the “expenditure”. Some expenses have been incurred towards kabadi etc. Names of persons do find mention but the nature of activities undertaken why and for what purpose the payment was made, are not known. It was for the appellant assessee to produce relevant material or produce the said person to justify the payment and show and establish that the expense was not personal in nature but related to or was pertaining to unaccounted business - Findings of fact recorded by the tribunal cannot be categorized as perverse – Decided against the Assessee. Issues:1. Addition under Section 69C of the Income Tax Act, 1961 for unrecorded transactions during the block period from 1st April, 1985 to 16th November, 1995.Analysis:The appeal in question pertains to the block period from 1st April, 1985 to 16th November, 1995, arising from a search operation conducted under Section 132 of the Income Tax Act, 1961 at the business premises of Mahavir Woolen Mills. Incriminating documents were seized, leading to an addition of Rs.7,63,055/- for unrecorded transactions under Section 69C, which was later reduced to Rs.6,13,000/- by the tribunal. The appellant contested the addition, claiming it to be unjustified and contrary to facts and law.The Assessing Officer, in the block assessment order, highlighted unaccounted sales and expenditure based on seized papers not reflected in the regular books of accounts. The appellant argued that the excess of expenditure over receipts should be treated as undisclosed income, rather than separately taxed. However, the tribunal rejected this plea, citing a previous case and emphasizing the need for proper disclosure and justification of expenses. The tribunal provided relief of Rs.1,50,000/-, but the Assessing Officer did not separately tax profits from unaccounted sales. The appellant failed to provide detailed explanations or evidence regarding the nature and purpose of the expenditure, leading to the conclusion that the expenses were personal in nature and related to unaccounted business activities.The High Court found that the tribunal's factual findings were not perverse and did not warrant reversal under Section 260A of the Act. Consequently, the question of law was answered against the appellant, upholding the addition under Section 69C. The appeal was dismissed, with no costs imposed.In summary, the judgment upheld the addition under Section 69C for unrecorded transactions during the specified block period, emphasizing the importance of proper disclosure and justification of expenses to avoid tax implications. The appellant's failure to provide sufficient evidence led to the dismissal of the appeal by the High Court, affirming the tribunal's decision.