Unexplained expenditure under Section 69C upheld but disallowance reduced to 25% due to lack of employee confirmations and missing reimbursement entries

The ITAT Rajkot upheld the AO's finding of unexplained expenditure under Section 69C where certain expense entries were unmatched in the assessee's books. The assessee's explanation that expenses were initially incurred by employees and later reimbursed was rejected due to lack of employee confirmations and absence of reimbursement entries in cashbooks. While the CIT(Appeals) dismissed the appeal entirely, the ITAT partially allowed it, restricting the disallowance to 25% of the AO's original assessment in the interests of justice, despite the assessee's failure to provide satisfactory explanations for the unaccounted expenses.

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Issues involved:
The appeal filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals) for Assessment Year 2015-16, regarding addition of unexplained expenditure.

Summary of Judgment:

Issue 1: Condonation of Delay in Filing Appeal
The appeal was found to be time-barred by 91 days, but the delay was condoned due to the lockdown during the pandemic, in the interest of justice.

Issue 2: Unexplained Expenditure Addition
The assessee company, engaged in trading and Works Contract of Electric Items, had unexplained expenses amounting to Rs. 4,73,865. The AO added this sum under Section 69C of the Act as unexplained expenditure, as the expenses were not accounted for in the books of accounts.

Issue 3: CIT(A) Confirmation of Addition
In the appeal, the Ld. CIT(A) confirmed the addition, stating that the expenses were not accounted for in the books of accounts and the explanation provided by the assessee was not acceptable. The CIT(A) dismissed the appeal, emphasizing the lack of proper documentation and entries to support the expenses.

Issue 4: Tribunal Decision
The assessee appealed against the additions confirmed by the Ld. CIT(A). The assessee argued that the expenses were incurred by employees at sites and later reimbursed by the company, which led to discrepancies in accounting. The Tribunal observed that the assessee failed to provide satisfactory explanations and documentation for the unaccounted expenses. However, considering the overall circumstances, the Tribunal allowed a partial disallowance of 25% of the addition made by the AO.

This judgment highlights the importance of maintaining accurate records and providing clear explanations for expenses to avoid additions under Section 69C of the Income Tax Act. The Tribunal's decision to partially allow the appeal showcases a balanced approach considering the circumstances of the case.

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