Section 69C Addition Deleted as Customs Assessable Value Is Not Proof of Unexplained Expenditure

DCIT Vs Azure Power (Raj) Pvt Ltd (ITAT Delhi)

Summary : The Income Tax Appellate Tribunal dismissed the Revenue’s appeal and upheld the deletion of an addition made under Section 69C of the Income Tax Act on account of alleged unexplained expenditure arising from differences between customs assessable value and invoice value of imported goods. The assessee, engaged in solar power generation, had imported modules and cable harnesses for setting up its solar plant and recorded the purchases in its books. The Assessing Officer treated the difference between the Customs Department’s assessable value and the invoice value as unexplained expenditure and taxed it under Section 69C read with Section 115BBE. However, the CIT(A) and Tribunal held that customs assessable value, determined for levy of customs duty, cannot automatically be treated as actual expenditure incurred by the assessee. Since the Revenue failed to establish that any unaccounted expenditure was actually incurred, invocation of Section 69C was held unsustainable and the addition was deleted.

Core Issue: The Assessing Officer made an addition under section 69C of ₹1,57,79,479 being the difference between the assessable value adopted by Customs authorities and the purchase value recorded in the books.

Facts: The assessee, engaged in solar power generation, imported cable harness and solar modules aggregating to ₹157.79 crore, which were fully capitalized in its books. As per CBEC data, the customs assessable value was ₹159.37 crore, resulting in a difference of ₹1.57 crore. The AO treated this differential amount as unexplained expenditure under section 69C and taxed it under section 115BBE.

AO’s Finding: The AO held that since the customs assessable value exceeded the invoice value recorded in the books, the differential amount represented purchases made outside the books and accordingly added ₹1,57,79,479 under section 69C.

CIT(A)’s Finding: The CIT(A) deleted the addition, holding that customs assessable value is relevant only for levy of customs duty and does not establish that the assessee actually incurred any additional expenditure. Since the AO accepted the invoice value and failed to bring any evidence of actual outflow, section 69C was inapplicable.

ITAT’s Finding: The Tribunal upheld the CIT(A)’s order and held that for invoking section 69C, the Revenue must first establish that the assessee actually incurred the expenditure. A mere difference between customs assessable value and invoice value, without any material proving extra payment, cannot justify an addition under section 69C. The assessable value adopted by Customs is only a notional value for duty purposes and not evidence of unexplained expenditure.

Cases Relied Upon:

1. CIT vs. Lubtec India Ltd. (2009) 311 ITR 175 (Delhi HC) – Section 69C applies only when actual expenditure is proved to have been incurred.

2. ACIT vs. Shri Shivprakash S. Chandak, ITA No. 3765/Mum/2019 & CO No. 122/Mum/2021, order dated 13.05.2022 (ITAT Mumbai) – Difference between customs assessable value and invoice value cannot by itself justify addition.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal is filed by the Department against the order of Ld. CIT(A) vide DIN: ITBA/NFAC/S/250/2023-24/1059449397(1) dated 08-Jan-2024 for the Assessment Year 2017-18.

2. The Department has raised the following grounds of appeal:

1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A) justified in deleting the addition of Rs.1,57,79,479/-made by the AO, ignoring the fact that a difference of Rs.1,57,79,479/- on account of imports purchase was detected during the assessment proceedings on reconciliation of the data provided by the Customs Authority with the assessee’s submission and found to be the purchases made out of the books.

2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.

3. Brief facts of the case are that the assessee company is a private limited company incorporated on 13.8.2010 under the provisions of the Companies Act, 1956 and is engaged in the business of power generation and sale of power to Hubli Electricity Supply Company Limited from its solar power plant situated in the State of Karnataka. The assessee filed its return of income on 20.10.2017 declaring total loss of Rs. 95,838,612/- under normal provisions of the Act and book losses of Rs. 9,727,030/- under section 115JB of the Act and a refund of prepaid taxes of Rs. 392,820/- was claimed in the return of income. The case of the assessee was selected for scrutiny and the assessment proceedings of the year under consideration was taken up by the AO/NFAC and detailed questionnaire were issued in response to which the assessee furnished various submissions/clarifications/details. The AO passed the impugned assessment order under section 144C(3) read with section 144B of the Act dated 13.8.2021 wherein the AO has made addition of Rs. 15,779,479/- under normal provisions of the Act in relation to unexplained expenditure under section 69C of the Act and levied tax on the aforesaid adjustment amount under section 115BBE of the Act @77.25% (base rate of 60% plus surcharge of 25% and cess of 3%) amounting to Rs. 12,189,647/-. Further, the AO raised the disputed tax demand of Rs. 18,465,520/- (including interest) under the normal provisions of the Act. Against the above action, assessee appealed before the CIT(A), who deleted the addition by partly allowing the appeal of the assessee.

4. Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal.

5. On the other hand, Ld. AR for the assessee relied upon the order of the Ld. CIT(A) and submitted that Ld. CIT(A) has passed a well-reasoned order which does not need any interference on our part.

6. We have heard the rival contentions and perused the records. We find that Ld. CIT(A) has adjudicated the issues at length by observing as under:-

“Vide Ground 4, the Appellant has challenged the action of the AO in making an addition of Rs.1,57,79,479/- u/s 69C of the Act. In this regard the Appellant has made a detailed submission which have been reproduced at para 4 above. The Appellant has submitted that the AO has erred in making the impugned addition on the basis of difference between the assessable value of the imported goods and its invoice value. The Appellant has further submitted that the AO has further erred in making the addition u/s 690 since the Appellant has not incurred any expenditure to the tune of Rs.1,57,79,479/-and as such provisions of section 69C are inapplicable. The Appellant has also placed reliance on various case laws in support of above contention.

I have considered the submissions of the Appellant. I have also perused the assessment order. I find that the AO has made the addition of Rs.1,57,79,479/- u/s69C of the Act simply on account of difference between the assessable value of the imported goods as per the Customs Act, 1962 and the invoice value. The AO has not brought out anything on records to establish that such expenditures have been actually incurred by the Appellant. This is evident from the assessment order; relevant part is reproduced below;

“The assessee also submitted the details of purchases made by the Company during the year:

Further the assessee has also submitted that the Company has made purchases from Azure Power India Private limited, which further made these purchases from Amphenol Technology (Shenshen) Co Ltd and Solar FE Holdings Pte Ltd, and all the payment has been made through banking channels.

On perusal of the CBEC data it is observed that the total assessable value of Imports was Rs.159,37,27,388/- and the duty paid was Rs. 7,75,493/-. Though the duty paid is accepted to be capitalized as per the assessee submission, the difference between the Purchases reported and Purchases details received from CBEC data of Rs.1,57,79,479/- would be brought to tax accordingly, as unexplained Expenditure within the meaning of section 69C of the Income Tax Act 1961.

Keeping in view the forgone observation the assessment is concluded by making an addition of Rs.1,57,79,479/- to the retuned Income of the assessee for the AY 2017­18.”

Thus, from the above, it is crystal clear that he AO has made the addition of Rs.1,57,79,479/- u/s 69C merely on account of difference between the assessable value of the imported goods as per the Customs Act, 1962 and the invoice value of such goods. In this regard it is observed that as regards the invoice value of the imported goods, there is no dispute between the AO and the Appellant. The costs paid by the Appellant in importing the goods has been accepted by the AO. However, these imported goods have been assessed by the customs authorities at a higher value for the purpose of levy of customs duty. This excess value has been treated by the AO as unexplained expenditure which is liable to be taxed u/s 690 of the Act. In this regard, I find that on similar set of facts, Hon’ble ITAT Mumbai in the case of ACIT vs. Shri Shivaprakash S Chandak, ITA No. 3765/Mum/2019, CO No. 122/Mum/2021 dated 13/05/2022has held that the difference in assessable value of imported goods under the Customs Act and the invoice value of such goods can not be a ground for addition. Relevant part of the order is reproduced below for reference:

9………………………………………………………………………………………. On the verification of the detail it is found that there is difference between the invoice value in rupees and assessable value for customs. Assessable value for custom is on higher side in each of the invoices than the invoice value. The learned Assessing Officer as well as the learned CIT (A) both has overlooked the fact that there can be difference between the invoice value and the assessable value of goods imported as per the Customs Act. Therefore, unless that Is reconciled it cannot be said that assessee has purchased goods out of books of account. Further, the mere difference between the invoice value and the assessable value cannot result into an addition………………………………………………………………………………………….. The relevance to the assessable value is not the reason to make an addition as it is value only for the purposes of levy of customs duty. Assessee is directed to produce all the invoices mentioned in the information received from customs authority and also the respective custom duty paid against each of the invoices. The learned Assessing Officer is directed to examine the same and if still a different arises, the assessee may be given opportunity of hearing to explain the same and thereafter the issue may be decided on the merits of the case. Thus we allow the Grounds raised by the Id AO accordingly. Similar direction also applies to appeal of the assessee.”

Thus, respectfully following the above decision of Hon’ble ITAT Mumbai, I hold that the AO has erred in making addition of Rs. 1,57,79,479/- u/s 69C merely on account of difference between the assessable value of the imported goods as per the Customs Act, 1962 and the invoice value of such goods.

Further, I am also in agreement with the submission of the Appellant that prerequisite for invoking provisions of section 69C is that there should be certain expenditures incurred by the assessee which remain unexplained. In the case of the Appellant, there is no finding by the AO that the expenditures added u/s 69C have been incurred by the Appellant. In absence of such crucial finding, the provisions of section 69C has wrongly been made applicable in the case of the Appellant. In this regard I place reliance on the decision of Hon’ble Jurisdictional High Court of Delhi in the case of CIT vs Lubtec India Ltd (2009)311 ITR 175, wherein it has been held that provisions of section 69C can be invoked only when there is a finding that the expenditure have been actually incurred. Relevant part of the decision is reproduced below:

6. It is quite clear that what is postulated in section 69C of the Act is that first of all the assessee must have incurred that expenditure and thereafter, if the explanation offered by the assessee about the source of such expenditure is not found satisfactory by the Assessing Officer, the amount may be added to his income.

7. In the present case, there is nothing to show that the expenditure was in fact incurred by the assessee. The assessee had denied having incurred the expenditure and had contended that it did not have that kind of money. The Tribunal noted that the Assessing Officer had not made any enquiry whatsoever to find out whether such expenditure was actually incurred by the assessee. Since a part of the expenditure related to advertisements in newspapers, it could have been easily verified by the Assessing Officer, but he did not do so.

8. We find no fault in the view taken by the Tribunal since there is nothing on record to show that the expenditure was actually incurred by the assessee nor did the Assessing Officer take any action to find out whether the expenditure was actually incurred or not.

9. No substantial question of law arises. ”

Thus, in view of facts of the case and respectfully following the decision of Hon’ble Jurisdictional High Court of Delhi in Lubtec India Ltd. (supra), I hold that the AO has erred in making an addition of Rs. 1,57,79,479/- u/s 69C of the Act without giving a finding that the Appellant has actually incurred expenditures to the tune of Rs.1,57,79,479/-.

Thus, in view of above discussions and findings, I hold that the AO has erred in making the addition of Rs. 1,57,79,479/- u/s 69C of the Act. The said addition is, therefore, directed to be deleted. Ground is, thus. Allowed.”

7. We note that during the year under consideration, the assessee had imported capital assets (i.e., cable harness and modules) amounting to Rs. 1,57,79,47,909/- from Azure Power India Private Limited for the purpose of construction of its solar power plant. Such imported goods have been capitalized both in the accounting books and tax books. Further, custom duty of Rs. 7,75,493/- was payable on import of cable harness and no custom duty was payable on import of modules. AO noticed the difference of assessable value of imports as per CBEC i.e. Rs. 159,37,27,388/- and the purchase value of Rs. 157,79,47,909/- reported by the assessee and made addition of differential amount of Rs. 157,79,479/- as unexplained expenditure. It is settled law that assessable value as per customs cannot be considered as the basis of making addition. Further, in the plethora of judicial precedents, it has been held that addition u/s. 69C merely on the basis of data obtained from the indirect tax authorities is not sustainable. It is also settled position in law under the provisions of section 69C of the Act that the onus is on the revenue authorities to prove that an assessee has actually incurred any expenditure during the financial year which is unexplained in nature. However, no material has been brought on record in the present case to suggest that the difference between the assessable value and purchase invoices was actually incurred by the assessee. The prerequisite for invoking the provisions of section 69C is that there should be certain expenditures incurred by the assessee which remain unexplained. In the instant case, there is no finding by the AO that the expenditures added u/s. 69C have been incurred by the assessee. In the absence of such crucial finding, the provisions of section 69C has wrongly been made applicable in the case of the assessee. From the above decision of the Hon’ble Jurisdictional High Court of Delhi in the case of CIT vs Lubtec India Ltd (2009)311 ITR 175, the Court has held that provisions of section 69C can be invoked only when there is a finding that the expenditure have been actually incurred, therefore, in our considered view, in the instant case the ld. CIT(A) has rightly deleted the addition of Rs. 1,57,79,479/- u/s 69C of the Act, which does not need any interference on our part, hence, we uphold the same and reject the ground raised by the Revenue.

8. In the result the appeal of the revenue is dismissed

Order pronounced in the open court on 08-05-2026.