Unexplained expenditure under section 69C cannot rest on ad hoc purchase disallowance without defects in books or supporting evidence.

In the absence of defects in the books of account, rejection of accounts, or tangible material showing bogus or unexplained expenditure, an ad hoc disallowance of purchases under section 69C cannot be sustained. The purchases were supported by books, stock records, bank statements, import documents and supplier ledgers, and no quantitative discrepancy or adverse sales finding was shown. The TDS-related addition was linked to a revised Form 26AS and revised TDS returns, so verification of the updated record was directed, with deletion to follow if the assessee's explanation was confirmed.

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Issues: (i) Whether the addition made under section 69C by estimating 10% of purchases as unexplained expenditure was sustainable in the absence of any defect in the books of account or supporting evidence. (ii) Whether the addition relating to alleged TDS default required deletion or verification in light of the revised Form 26AS and revised TDS returns.

Issue (i): Whether the addition made under section 69C by estimating 10% of purchases as unexplained expenditure was sustainable in the absence of any defect in the books of account or supporting evidence.

Analysis: The purchases were supported by books of account, stock register, purchase and sales registers, bank statements, import documents and ledger accounts of suppliers. No discrepancy was pointed out in the quantitative records, no adverse inference was drawn from the sales, and the books were not rejected under section 145. In such circumstances, an ad hoc percentage disallowance could not be sustained, because estimation cannot replace evidence and section 69C applies only where the expenditure remains unexplained.

Conclusion: The addition under section 69C was rightly deleted and the finding is in favour of the assessee.

Issue (ii): Whether the addition relating to alleged TDS default required deletion or verification in light of the revised Form 26AS and revised TDS returns.

Analysis: The discrepancy was stated to have been corrected through revised TDS returns, and the updated Form 26AS was placed before the appellate authority. A verification-based direction ensured that the addition would survive only if the claim was found incorrect and would be deleted if the revised records supported the assessee's explanation.

Conclusion: The direction for verification was upheld and the issue stands resolved in favour of the assessee.

Final Conclusion: The Revenue's challenge failed, and the appellate relief granted to the assessee on the purchase-related addition was sustained while the TDS issue was left to verification on the updated record, resulting in an overall outcome favourable to the assessee.

Ratio Decidendi: In the absence of defect in books of account, rejection of accounts, or tangible material showing bogus or unexplained expenditure, an ad hoc disallowance of purchases cannot be made under section 69C of the Income-tax Act, 1961.

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