S. 69C—If there is a dispute of the source of the expenditure, then addition can be made u/s.69C — Merely because labour charges are shown as outstanding cannot be a ground to make addition u/s.69C.

14 Muscovite Construction v. ACIT
ITAT ‘I’ Bench, Mumbai
Before R. S. Padvekar (JM) and Rajendra Singh (AM)
ITA No. 2856/Mum./2009
A.Y. : 2005-06. Decided on : 21-5-2010
Counsel for assessee/revenue : C. N. Vaze/Rajnesh Dev Buvman.

The assessee was carrying on business of civil construction
contract work and labour contract. It filed its return of income declaring an
income of Rs.14,29,579. In the course of assessment proceedings the Assessing
Officer (AO) noticed that the assessee had debited labour charges of Rs.1.10
crores in the P & L Account and in the balance sheet out of the said expenditure
a sum of Rs.54,56,235 was shown as outstanding. The outstanding labour charges
were for the months of Jan, Feb and March 2005. In response to the show cause
notice issued by the AO asking the assessee to explain why outstanding labour
charges/ wages should not be treated as unexplained, the assessee submitted that
it was facing a financial crunch in the business and the break-up of monthly
wages in respect of each type of labour like carpenter, mason, etc. was
furnished. The AO, not being satisfied with the explanation furnished, added the
amount of Rs.54,56,235 as unexplained expenditure u/s.69C.

Aggrieved the assessee preferred an appeal to the CIT(A) who
upheld the action of the AO.

Aggrieved the assessee preferred an appeal to the Tribunal.

The Tribunal noted that nothing has been brought on record by
the AO to show that the assessee has used the money which was not reflected in
the books of account. It also noted that in the immediate next year the assessee
has paid the outstanding wages/labour charges and also that in the assessment
order for A.Y. 2006-07 the AO has discussed the issue. The Tribunal held that as
per the language used by the Legislature in S. 69C, if there is a dispute of the
source of the expenditure, then the addition can be made. Since the payment of
outstanding wages has been accepted by the AO in the next year, hence no
addition can be made u/s.69C of the Act. It also noted that it was not that the
expenditure was bogus or non-genuine and the AO has also not examined any of the
labourers to support his case. It held that merely because labour charges are
shown as outstanding that cannot be a ground to make the addition u/s.69C.

The Tribunal deleted the addition and decided the ground in
favour of the assessee.