23 July 2025
Great question. Let’s break down Section 69C and its applicability after books of accounts are rejected by the Assessing Officer (AO).
📘 What is Section 69C? Section 69C of the Income Tax Act, 1961 deals with unexplained expenditure. It states:
Where an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or the explanation offered is not satisfactory, the amount shall be deemed to be income of the assessee.
✅ Key Conditions for Section 69C For invoking Section 69C:
There must be expenditure incurred.
Assessee must fail to explain the source of such expenditure.
Or the explanation offered is not satisfactory to the AO.
❓If Books Are Rejected – Can 69C Still Apply? ✅ Yes, Section 69C can still apply even after rejection of books, if the AO finds unexplained expenditure during assessment. 👉 The rejection of books only means that profits can't be computed based on those books, and the AO will now rely on best judgment assessment (Section 144).
But if the AO finds specific unexplained expenses, he may apply Section 69C in addition to estimating profits.
⚖️ Relevant Case Laws 1. CIT v. Devi Prasad Vishwanath Prasad (1969) 72 ITR 194 (SC) Even after estimating profits, the AO can make separate additions for unexplained cash credits or expenditure under sections like 68 or 69C.
2. CIT v. Smt. P.K. Noorjahan (1999) 237 ITR 570 (SC) Discretion exists in treating unexplained income under these sections, but AO must record reasons and evidence.
3. Indwell Constructions v. CIT (1998) 232 ITR 776 (AP) If books are rejected and income is estimated, no further separate additions should be made on the same set of accounts — i.e., no double taxation.
📌 When 69C Cannot Apply If the books are rejected and profits estimated, and the same expenses have already been considered while estimating profits, Section 69C cannot be additionally applied on the same expenditure.
Double addition is not permitted.
🔍 Illustrative Example Assessee has claimed large "marketing expenses."
AO finds:
No bills/invoices or evidence.
Books are inconsistent — AO rejects books under Section 145(3).
During assessment, AO finds a specific cash transaction where marketing expenses were paid in cash without source.
🔸 In this case: AO may estimate profits AND invoke Section 69C for unexplained part of marketing expenses, provided it is not already factored in estimated profits.
✅ Summary Situation Can Section 69C Apply? Books accepted Yes, if expenditure is unexplained Books rejected + specific unexplained expenses found Yes, 69C can be applied separately Books rejected + AO estimates income including those expenses No, can't invoke 69C again (would lead to double addition)
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