Shafiquddin Vs ITO (ITAT Kolkata)
Kolkata ITAT: Booked Expenditure Cannot Be Treated as “Unexplained” u/s 69C Merely Due to Flipkart/Amazon Reconciliation Mismatch – Matter Remanded
Summary: The Kolkata ITAT set aside the CIT(A)’s order and remanded the matter to the AO for fresh examination of a ₹3,63,868 addition made under Section 69C in respect of commission expenses claimed by a footwear business on Flipkart and Amazon. The AO had identified a discrepancy between the ₹45.10 lakh commission recorded in the books and information received from the platforms under Section 133(6), and treated ₹3,63,868 as unexplained expenditure; the CIT(A) confirmed the addition. Before the Tribunal, the assessee submitted that the difference arose from reconciliation issues involving GST and credit notes and that the actual unreconciled difference was about ₹21,000. Relying on CIT v. Radhika Creation, the assessee contended that Section 69C concerns the source of expenditure and that expenditure recorded in regular books has an explained source. The ITAT held that proper reconciliation had not been undertaken before the AO or CIT(A), set aside the CIT(A)’s order and restored the matter to the AO to examine the reconciliation and frame the assessment de novo after giving reasonable opportunity of hearing. The appeal was partly allowed for statistical purposes.
The assessee, engaged in a footwear business with online sales through Flipkart and Amazon, claimed commission expenses of ₹45.10 lakh paid to the two platforms. Based on information obtained directly from the service providers under Section 133(6), the AO noticed a mismatch between the commission claimed in the books and that reported by Flipkart/Amazon. After certain adjustments for GST and credit notes, the AO treated ₹3,63,868 as unexplained expenditure under Section 69C. CIT(A) confirmed the addition.
Before the ITAT, the assessee explained that the discrepancy essentially arose from reconciliation issues involving commission, GST and credit notes. According to the assessee’s revised reconciliation, the actual unreconciled difference was only about ₹21,000.
More importantly, the assessee challenged the very applicability of Section 69C. Relying upon the Delhi High Court judgment in CIT v. Radhika Creation, it argued that Section 69C concerns the “source of expenditure” and not the genuineness or allowability of the expenditure itself. Where expenditure is duly recorded in the regular books of account, its source is ordinarily explained and it cannot simply be characterised as unexplained expenditure under Section 69C.
The Tribunal reproduced the principle from Radhika Creation that where expenditure is accounted for in the regular books, “the source is obviously explained”, and therefore Section 69C is not attracted merely because the AO questions the authenticity or supporting evidence for that expenditure.
However, the ITAT did not finally delete the ₹3.64 lakh addition. It found that the central factual issue—reconciliation between the assessee’s accounts and information received from Flipkart/Amazon under Section 133(6)—had not been properly undertaken either by the AO or CIT(A). The assessee had produced detailed reconciliation material before the Tribunal which had not been available to the AO.
Accordingly, the CIT(A)’s order was set aside and the matter restored to the AO. The assessee was directed to furnish a complete reconciliation, which the AO must examine before framing the assessment de novo after providing reasonable opportunity of hearing. The appeal was partly allowed for statistical purposes.
Key takeaway: Section 69C targets unexplained source of expenditure-not merely a dispute over its quantum, genuineness or reconciliation. Where an expenditure is already recorded in the regular books, a mismatch with third-party data may warrant verification or disallowance under an appropriate provision, but does not automatically make the expenditure “unexplained” under Section 69C. In this case, however, the ITAT left the ultimate issue open and remanded the matter for proper reconciliation.
Cases Discussed
Commissioner of Income -tax-V vs. Radhika Creation (Delhi High Court), [2011] 10 taxmann.com 138 (Delhi) [30-04-2010]
Om Forging and Engineering Pvt. Ltd. vs. Pr. Commissioner of Income Tax (ITAT Kolkata), ITA No. 509 & 510/KOL/2017 AY 2010-11 & 2011-12; order dated 13.12.2017
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as Ld. ‘CIT(A)’] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2018-19 dated 11.09.2025.
1.1 The Registry has informed that the appeal is barred by limitation by 46 days. The assessee has filed an affidavit along with a petition for condonation of delay explaining the reasons that the assessee was seriously ill and diagnosed with jaundice requiring complete bed rest for almost two months, followed by further delays caused by the erstwhile tax consultant failing to prepare the draft appeal petition, which ultimately necessitated engaging a new legal Counsel to file the appeal. After perusing the same, we are satisfied that the assessee had a reasonable and sufficient cause and was prevented from filing the instant appeal within the statutory time limit. We, therefore, condone the delay and admit the appeal for adjudication.
2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:
“1. That on the facts and in the circumstances of the case, the disallowance and interest with reference thereto, quantification of taxable income and the tax liability, including interest, by the Assessing Officer (here-in-after referred to as A.O.) has been grossly unjustified, erroneous and unsustainable and necessary direction may please be given to the A.O. to give appropriate relief in accordance with law.
2. The order of the assessing officer is erroneous on grounds that the assessing officer lost sight of the fact the commission paid to M/s. Flipkart Internet Pvt, Ltd., and M/s. Amazon Seller Services Pvt. Ltd inclusive of GST, and after considering 17 nos. credit notes aggregated to Rs 45,10,829 in a total of 40 invoices, (Rs 44,18,145.98 paid to M/s. Flipkart Internet Pvt, Ltd in 23 invoices and Rs 92,683 paid to M/s. Amazon Seller Services Pvt. Ltd in 17 invoices). List of the invoices along with the copies thereof has been enclosed herein and marked as Exhibit I.
3. That on the facts and in the circumstances of the case, the A.O. was not justified and grossly erred in disallowance as unexplained expenses under section 69C of the Income Tax Act 1961 and added back to the returned income in computing total income of the appellant. The said disallowance was uncalled for and hence the same should be reversed.
4. That on the facts and in the circumstances of the case, on the disposal of the appeal there will be reduction and/or deletion of interest under section 234A of the Act, hence necessary direction may please be given to the A.O. to modify the computation of interest under section 234A of the Act.
5. That on the facts and in the circumstances of the case, on the disposal of the appeal there will be reduction and/or deletion of interest under section 234B of the Act, hence necessary direction may please be given to the A.O. to modify the computation of interest under section 234B of the Act.
6. That on the facts and in the circumstances of the case, on the disposal of the appeal there will be reduction and/or deletion of interest under section 234C of the Act, hence necessary direction may please be given to the A.O. to modify the computation of interest under section 234C of the Act
7. That on the facts and in the circumstances of the case, on the disposal of the appeal there will no Penalty imposition under section 271AAC(1) of the Act and therefore necessary direction may please be given to the A.O. to give appropriate relief in accordance with law.
8. That the appellant craves leave to submit additional evidence as per Rule 29 Income-tax (Appellate Tribunal) Rules, 1963, either before or at the time of hearing of this appeal.
9. That on the facts and in the circumstances of the case, on disposal of this appeal, material adjustments would be required in computing total income, and tax (including interest, if any, payable by and/or to the appellant) for the assessment year under reference and necessary direction may be given to the A.O. on this front.
10. That the assessee craves leave to add or modify, delete or alter all or any of the grounds of appeal.”
3. Brief facts of the case are that the assessee filed the return of income for AY 2018-19 on 01.10.2018 declaring the total income at ₹5,27,010/-. The Assessing Officer (hereinafter referred to as Ld. ‘AO’) observed that the assessee had claimed commission expenses of ₹45,10,829/- paid to M/s. Flipkart Internet Pvt. Ltd. and M/s. Amazon Seller Services Pvt. Ltd. as deductions. On the basis of the information called for u/s 133(6) of the Act, the Ld. AO noted a discrepancy between the commission claimed in the profit and loss account and the actual commission reported by the service providers. The Ld. AO subsequently rejected the assessee’s contentions regarding the inclusion of GST and a credit note of ₹1,57,006/- due to lack of supporting evidence, and treated the difference of ₹3,63,868/- as unexplained expenses u/s 69C of the Act. The Ld. AO determined the total income at ₹8,90,878/-. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who observed that the assessee’s explanation regarding the credit note did not fully reconcile the substantial discrepancies between the claimed commission expenses and the amounts reported by the service providers, and held that the disallowance represented the unsubstantiated portion of the commission expenses. Accordingly, the Ld. CIT(A) confirmed the action of the Ld. AO and dismissed the appeal of the assessee vide his findings as under:
“After going through arguments and submissions made by the both parties; The appellant’s contention rests on the argument that the addition is erroneous due to the mishandling of a credit note issued by Flipkart, amounting to 1,31,385/-. The appellant argues that this credit note represented a reduction in the commission payable to Flipkart and, therefore, should have been applied to reduce the gross commission expense. Instead, the appellant claims, it was either treated as income or its impact on reducing the expense was not properly accounted for, thereby artificially inflating the difference that the Assessing Officer identified. The appellant presents their own calculation, adjusting this credit note, to arrive at a lower figure for actual commission paid.
However, The AO observed a significant discrepancy between the commission expenses claimed by the appellant Rs.45,10,829/-) and the total amounts reported by the service providers Rs.35,41,400/ -), a difference of 9,69,429/-. The AO also sought information u/s 133(6) from Flipkart and amazon. After considering adjustments and specific treatments mentioned in the appellant’s response to the show cause notice, the AO arrived at a disallowance after deducting GST paid from actual difference and came to Rs. 3,63,868/-, which was added to the appellant’s income as unexplained expenditure under Section 69C of the Income-tax Act, 1961. In my view, The AO, after due inquiry and consideration of information from third parties, found a significant variance between the commission expenses claimed by the appellant and the amounts reported by the service providers. The appellant’s explanation regarding the credit note, while acknowledging an adjustment, does not fully reconcile the substantial discrepancy of 9,69,429/-. The disallowance of 3,63,868/- made by the Assessing Officer represents the portion of the commission expenses that, despite the appellant’s submissions, remained unsubstantiated and unexplained to the satisfaction of the AO. The addition made by the AO under Section 69C is therefore upheld.
4. In the result, the appeal of the appellant is Dismissed”
4. Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.
5. Rival contentions were heard and the submissions made have been examined. The Ld. AR submitted that the issue relates to the reconciliation of the commission expenses incurred by the assessee. The assessee runs a footwear agency and sales were made online through Amazon and Flipkart which deducted their charges and remitted the balance of the sale proceeds to the assessee. The Ld. AR submitted that the Ld. AO had issued notice u/s 133(6) of the Act to Amazon and Flipkart but failed to consider the documents filed by the assessee. Our attention was drawn to page 3 and 4 of the assessment order. It was submitted that the assessee had inadvertently mentioned the incorrect commission and requested that in view of the reconciliation carried out now, only a minor difference of ₹21,000/- can be said to be there.
6. The Ld. DR countered by submitting that the dispute relates to Flipkart only and no dispute was arising in the case of payment s relating to Amazon except for a small amount of ₹400/-. Our attention was drawn to page 157 of the paper book and it was submitted that the commission expenses were incorrectly mentioned which was shown on the credit side inadvertently. The Ld. AO considered the GST but the Ld. CIT(A) failed to consider the difference of ₹6,05,561/-. The Ld. AR submitted that section 69C of the Act was not applicable as it talks about the source and since the payment was made through the books of account, in view of the decision of Hon’ble Delhi High Court in the case of Commissioner of Income -tax-V vs. Radhika Creation [2011] 10 taxmann.com 138 (Delhi) [30-04-2010] specifically paras 5 and 6 which are extracted as under, no addition u/s 69C was called for:
“5. Insofar as the first aspect of the matter is concerned, we find that section 69C clearly stipulates that where, in any financial year, the assessee has incurred an expenditure and he offers no explanation about ‘the source of such expenditure or part thereof’ or the explanation, if it is offered by him, is not, in the opinion of the Assessing Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year. Thus, the focus of section 69C is on the “source” of such expenditure and not on the authenticity of the expenditure itself. It is an admitted position that the expenditure was shown by the assessee in its regular books of account and it is because of this reason that the Income-tax Appellate Tribunal had observed:—
“As the expenditure was accounted in the regular books, the source is obviously explained. The provisions of section 69C are not applicable as there was no unaccounted expenditure.” [Emphasis supplied]”
6. What the Assessing Officer attempted to do was to go into the authenticity of the expenditure and he returned a finding that the expenditure was not authenticated by vouchers and, consequently, he added the said expenditure as unexplained expenditure under section 69C. We are in agreement with the observations and findings of the Commissioner of Income-tax (Appeals) as well as that of the Income-tax Appellate Tribunal that this is not a case which falls under section 69C. Clearly, section 69C refers to the ‘source of the expenditure’ and not to the expenditure itself. Consequently, the Assessing Officer was clearly wrong in treating the said expenditure as unexplained expenditure under section 69C of the said Act and the lower appellate authorities were right in their conclusions in deleting the said addition.”
7. The assessee has also relied upon the decision of the Coordinate Bench in the case of Om Forging and Engineering Pvt. Ltd. vs. Pr. Commissioner of Income Tax in ITA No. 509 & 510/KOL/2017 AY 2010-11 & 2011-12; order dated 13.12.2017. Since the expenditure was routed through the books of account, therefore, section 69C of the Act was not applicable as the source was explained, it was submitted. The Bench pointed out that incorrect mention of the section does not vitiate the addition or the order.
8. The Ld. DR submitted that the assessment was made on the basis of the information received from Flipkart. However, the Ld. AR submitted that a difference of ₹21,000/- only is arising, which at the most can be added to the income of the assessee.
9. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). Since the issue requires reconciliation of the accounts submitted by the assessee and those received by the Ld. AO in response to the notice issued u/s 133(6) of the Act, the assessee was required to reconcile the difference between the two and which somehow was not done properly either before the Ld. AO or even before the Ld. CIT(A). Before us, in the paper book filed, the assessee has filed the required details. However, since the same were not available before the Ld. AO, the Bench was of the view that the order of Ld. CIT(A) be set aside and the issue may be remanded before the Ld. AO so that the required explanation could be filed. The assessee is directed to file the reconciliation of accounts before the Ld. AO who shall consider the same and thereafter, frame the assessment de novo. Needless to say, the assessee shall be given a reasonable opportunity of being heard to make any further submission he wants to make in support of his grounds of appeal and shall not seek unnecessary adjournments. Accordingly, the grounds taken by the assessee in the appeal are partly allowed for statistical purposes.
10. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open Court on 14th August, 2026.
