Income Tax section 69C Dispute Abandoned: HC Doesn’t Rule After Surprise Withdrawal

The assessee, engaged in the business of supplying labour on contract, filed his return for AY 2001-02, declaring an income of Rs. 2.08 lakh. The Assessing Officer made an addition of Rs. 10.81 lakh under Section 69C of the Income Tax Act on the ground that payments to labourers were made from unexplained sources, apart from other minor disallowances.

CIT(A)’s Ruling: The CIT(A) deleted the addition, holding that sufficient cash was available in the books and that the discrepancy arose from the delayed recording of actual payments.

ITAT’s Decision: The Tribunal, however, reversed the decision of CIT (A) and restored the addition, observing that no contemporaneous evidence or ledger entries substantiated the cash payments prior to the close of the financial year.

Issue Raised: When the assessee’s books showed a healthy cash balance and the discrepancy resulted only from delayed accounting entries, was the addition made under Section 69C for labour payments sustainable?

High Court Held: In the High Court, the assessee contended that the Tribunal ignored the availability of cash in hand as reflected in the audited balance sheet and erred in relying solely on the assessee’s own statement without corroborative evidence. It was argued that mere delay in passing accounting entries could not justify an addition under Section 69C.

However, during the hearing, the assessee’s counsel sought permission to withdraw the appeal, which the Court allowed without answering the substantial question of law originally framed.

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