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
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
