CHAMRU RAM,CHANDAULI vs. DC/ACIT, CIRCLE - 3, VARANASI

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ITA 14/VNS/2023Status: DisposedITAT Varanasi05 January 2026AY 2017-2018Bench: SHRI KUL BHARAT (Vice President), SHRI ANADEE NATH MISSHRA (Accountant Member)30 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal, after considering the Third Member's opinion, resolved the difference of opinion. Regarding the applicability of Section 69C to the additions of Rs. 17,19,275 and Rs. 9,07,100, it was held that Section 69C is not applicable. The reasoning was that Section 69C is a deeming provision for unexplained expenditure where no explanation or an unsatisfactory explanation about the source of expenditure is offered. In this case, there was no dispute about the source of expenditure; rather, the AO made the addition by disallowing excess expenditure on an ad-hoc basis. Therefore, the precondition for applying Section 69C was not met. Consequently, Ground No. 2 of the appeal was allowed. Regarding the disallowance of Rs. 1,38,143 from workmen and staff welfare expenses, there was no difference of opinion between the original members, and they agreed in confirming this disallowance. The AO had recorded that the assessee failed to provide any reply, explanation, or documents to justify the claim. In the absence of such evidence, the disallowance was confirmed, and Ground No. 3 of the appeal was dismissed. The appeal was partly allowed.

What were the facts?

The assessee, Chamru Ram, proprietor of Bagahi Service Station, filed an appeal against the order of the ACIT, Circle-3, Varanasi, for Assessment Year 2017-18. The appeal challenged additions made by the Assessing Officer (AO) and confirmed by the CIT(A). The AO had applied Section 145(3) for rejecting books of account, made additions under Section 69A (Rs. 17,19,275) and Section 69C (Rs. 9,07,100) for unexplained amounts, and disallowed Rs. 1,38,143 from workmen and staff welfare expenses. A difference of opinion arose between the Judicial Member and Accountant Member regarding the applicability of Section 69C to the disallowance of compensation to employees/salary and wages. This difference was referred to a Third Member.

What were the issues?

1. Whether, in the facts and circumstances of the case, the provisions of Section 69C of the Income Tax Act, 1961, are attracted in respect of the disallowance made by the Assessing Officer on account of unexplained expenses under the head compensation to employees/salary and wages, or if the issue is required to be set aside to the record of the Assessing Officer for fresh adjudication? Assessee's Contention (Ground 1): The books of account were maintained in due course and clearly indicated sales against quantity of petrol and diesel sold. The AO erred in applying Section 145(3), and the CIT(A) erred in confirming it. Assessee's Contention (Ground 2): Purchases and sales of petroleum products against cash were allowed during the demonetization period, thus Section 69A/69C is not applicable to bank deposits during that period. The AO erred in applying these sections and adding Rs. 17,19,275 under Section 69A and Rs. 9,07,100 under Section 69C. Assessee's Contention (Ground 3): The AO erred in disallowing Rs. 1,38,143 out of workmen and staff welfare expenses. Revenue's Contention (Ground 3): The AO made the disallowance for want of any reply, explanation, or documents to justify the claim of expenses, and therefore, a 15% disallowance is justified, citing the jurisdictional High Court decision in Pr. CIT vs. Rimjhim Ispat Ltd.

Which sections of the Income-tax Act were involved?

Section 145(3),Section 69A,Section 69C,Section 270A

AI-generated summary — verify with the full judgment below

(A) This appeal has been filed by the assessee against impugned appellate order, dated 19/01/2023 (DIN & Order No.ITBA/NFAC/S/250/2022-23/1048934293(1). The grounds of appeal are as under:

“1. Because it was fully explained that the books of account have been maintained in due course of business reveals fully and truly each and every aspect of business, the stock register has Assessment Year:2017-18 2 been maintained which clearly indicate the sales amount against the quantity of petrol and diesel sold by the assessee.

The learned Assessing Officer has erred and acted illegally in applying the provision of section 145(3) of the I. T. Act.

The learned CIT(A) has also erred and acted illegally in confirming the same.

2.

Because it was fully explained that the purchase and sales of petrol and diesel i.e. petroleum product against cash were allowed during demonetization period and therefore, the provision of section 69A/69C of the Act is not applicable on the deposit in bank account during demonetization period.

The learned Assessing Officer has erred and acted illegally in not placing reliance on the same and erred and acted illegally in applying the provision of section 69A/69C of the I. T. Act on the excess amount and adding back Rs.17,19,275/- u/s 69A of the I. T. Act as well as Rs.9,07,100/- u/s 69C of the I. T. Act.

The learned CIT(A) has also erred and acted illegally in confirming the same.

3.

Because the learned Assessing Officer has erred and acted illegally in disallowing Rs.1,38,143/- out of workman and staff welfare expenses.

The learned CIT(A) has also erred and acted illegally in confirming the same.

4.

Because the assessment is bad both on facts and in law and not maintainable.”

(B) In this case, there was difference of opinion between Hon'ble Judicial Member and Hon'ble Accountant Member. The question of difference between the Division Bench of the Members is as under:

(1)Whether in the facts and circumstances of the case, the provisions of section 69C are not attracted in respect of the disallowance made by the Assessing Officer on account of unexplained expenses under Assessment Year:2017-18 3 head compensation to employees/salary and wages or the issue is required to be set aside to the record of the Assessing Officer for fresh adjudication ?

(B.1) The Hon'ble Third Member has passed order dated 09/10/2025; which is reproduced below for the ease of reference:

Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 11 (B.2) The aforesaid order dated 13/09/2024 of Hon'ble Third Member is to be read conjointly with the proposed orders authored by the Hon'ble Judicial Member and Hon'ble Accountant Member, which are reproduced below for the ease of reference:

Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 Assessment Year:2017-18 29 (B.2.1) As far as the issue regarding applicability of section 69C is concerned, the difference of opinion in the aforesaid proposed orders as referred to in foregoing paragraph (B.2) of this order, has been resolved by the Ld. Third Member vide aforesaid order dated 09/10/2025 referred to in foregoing paragraph (B.1) of this order. Accordingly, it is held that provisions of section 69C are not applicable as far as the additions of Rs.17,19,275/- and Rs.9,07,100/- are concerned. Consequently, ground No. 2 of appeal is allowed. As far as the disallowance of Rs.1,38,143/- is concerned; there was no difference of opinion in the proposed orders, referred to in foregoing paragraph (B.2) of this order. The Members were in agreement in confirming this disallowance. Accordingly, the aforesaid disallowance of Rs.1,38,143/- is confirmed, and ground No. 3 of appeal is dismissed. All the grounds of appeal are treated as disposed of in accordance with the aforesaid. (B.3) In the result, the appeal is partly allowed.

(Order pronounced in the open court on 05/01/2026)

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