Section 69C addition fails where creditor balances are opening items and contractor claims are supported by records.

Section 69C could not be applied to opening balances of sundry creditors because the amount represented a brought-forward liability from earlier years, not expenditure incurred in the relevant year; the addition was therefore unsustainable and deleted. Section 69C also did not support the addition for labour contractor expenses where the assessee produced bills, ledger accounts, TDS particulars and banking records, and the record contained no defect or corroborative evidence showing the payments were bogus; suspicion and third-party statements alone were insufficient, so the addition was deleted. The Revenue's challenge to both additions failed.

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Issues: (i) Whether the addition made under section 69C of the Income-tax Act, 1961 in respect of opening balances of sundry creditors could be sustained in the year under appeal. (ii) Whether the addition made under section 69C of the Income-tax Act, 1961 in respect of labour contractor expenses credited in sundry creditors accounts was justified.

Issue (i): Whether the addition made under section 69C of the Income-tax Act, 1961 in respect of opening balances of sundry creditors could be sustained in the year under appeal.

Analysis: The balance in question was found to be a brought forward opening balance from earlier years and not an expenditure incurred in the relevant previous year. The legal basis for invoking section 69C is that the assessee must have incurred expenditure during the financial year and must fail to explain the source of such expenditure. Where no fresh expenditure is incurred in the year and the amount is only an opening balance, the provision cannot be applied for the year under consideration.

Conclusion: The addition in respect of opening balances of sundry creditors was not sustainable and was rightly deleted, in favour of the assessee.

Issue (ii): Whether the addition made under section 69C of the Income-tax Act, 1961 in respect of labour contractor expenses credited in sundry creditors accounts was justified.

Analysis: The assessee supported the expenditure with bills, ledger accounts, TDS particulars, banking records, and other supporting material. The record did not show any defect in the documents or any contradictory evidence to establish that the payments were bogus. The addition was based only on suspicion and statements of third parties, without corroborative material disproving the business expenditure. On these facts, the second limb of section 69C was not attracted and the expenditure could not be treated as unexplained.

Conclusion: The addition in respect of labour contractor expenses was not justified and was rightly deleted, in favour of the assessee.

Final Conclusion: The Revenue's challenge to both additions failed, and the order deleting the additions was left undisturbed.

Ratio Decidendi: Section 69C applies only where expenditure is incurred in the relevant year and the source of that expenditure remains unexplained; opening balances from earlier years and duly supported business cannot be assessed under that provision in the absence of adverse corroborative evidence.

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