Prima facie genuine consultancy receipts cannot be taxed as unexplained income, though unverifiable expenses may still face limited disallowance.

Consultancy receipts supported by memoranda of understanding and banking evidence were held not to be fully assessable as unexplained income under section 69, because the transaction and receipt of income had prima facie credibility. At the same time, expenditure supported only by self-made vouchers and material first sought to be filed at the appellate stage remained insufficiently proved, and additional evidence was not admitted without satisfying Rule 46A. The disallowance was therefore confined to a reasonable amount for unverifiable expenses, with the balance deleted.

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Issues: (i) Whether the consultancy receipts could be brought to tax as unexplained income under section 69 of the Income-tax Act, 1961. (ii) Whether the claim of expenditure supported by self-made vouchers and additional material could be disallowed in full or only to a restricted extent.

Issue (i): Whether the consultancy receipts could be brought to tax as unexplained income under section 69 of the Income-tax Act, 1961.

Analysis: The assessee had entered into a one-time consultancy arrangement in relation to redevelopment projects and had placed memoranda of understanding and banking evidence on record. A part of the receipts had been routed through banking channels, lending prima facie credibility to the transaction. The existence of the activity and the receipt of income therefrom could not, therefore, be ignored in entirety.

Conclusion: The entire receipts could not be treated as unexplained income under section 69.

Issue (ii): Whether the claim of expenditure supported by self-made vouchers and additional material could be disallowed in full or only to a restricted extent.

Analysis: The assessee failed to substantiate the expenditure with cogent and verifiable evidence before the Assessing Officer. The self-made vouchers and related materials were sought to be introduced at the appellate stage without satisfying the conditions for admission of additional evidence under Rule 46A of the Income-tax Rules, 1962. At the same time, the nature of the activity and the assessee's concession justified only a limited disallowance for unverifiable expenses.

Conclusion: The expenditure disallowance was to be restricted to Rs. 10,00,000, and the balance disallowance was deleted.

Final Conclusion: The addition was sustained only to a limited extent for unverifiable expenditure, and the assessee obtained relief on the balance of the disputed amount.

Ratio Decidendi: Where documentary material and banking evidence establish a prima facie genuine business receipt, the entire receipt cannot be taxed as unexplained income merely because part of the expenditure remains unverified; however, unverifiable expenditure may still be disallowed to a reasonable extent, and additional evidence is not admissible unless the conditions of Rule 46A are satisfied.

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