ITAT Upholds Rs. 37.85 Lakh Unexplained Expenditure Addition in Resort Search Case

Ramya Resorts Pvt. Ltd., which was previously engaged in running a resort before its operations were suspended, came under proceedings under Section 153C following a search conducted on August 17, 2016, at the residence of its director. During the search, the department seized loose papers, diaries, agreements, and other documents relating to resort maintenance expenses and the purchase of land. Statements of persons who were managing the resort were also recorded.

Based on the seized material, the Assessing Officer concluded that the resort had incurred maintenance expenditure of about Rs. 1.97 crore, whereas receipts were only Rs. 46.47 lakh. Treating the balance of Rs. 1.51 crore as unexplained expenditure, the AO distributed it equally over four assessment years and made an addition of Rs. 37,84,963 for AY 2014-15 under Section 69C. An identical addition was made for AY 2015-16.

Issues Before ITAT: Whether the addition of unexplained expenditure under Section 69C could be sustained on the basis of seized documents and statements and whether the addition towards unexplained investment in land for AY 2015-16 was justified.

ITAT’s Decision: The Hon’ble ITAT dismissed both appeals. For AY 2014-15, the Tribunal held that the seized documents, statements of persons managing the resort, and supporting material clearly indicated unaccounted maintenance expenditure.

For AY 2015-16, the Tribunal upheld the same unexplained expenditure addition on identical facts. As regards the land purchase at Chilamathur, the Tribunal observed that although part of the consideration was paid through banking channels, the assessee could not explain the significant difference between the consideration reflected in the seized agreement and the registered value. Thus, both appeals for AYs 2014-15 and 2015-16 were dismissed in full.

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