AO cannot invoke Section 69C over business expediency when

AO cannot invoke Section 69C over business expediency when foreign remittance sources are fully documented, nor duplicate additions for suo motu disallowed CSR expenses.

Issue

Whether the Assessing Officer (AO) can legally invoke Section 69C to tax recorded foreign remittances as unexplained expenditure based solely on a perceived lack of commercial expediency, and whether a separate addition can be made for Corporate Social Responsibility (CSR) expenses that the taxpayer had already voluntarily added back in its tax computation.

Facts

Foreign Remittances (Section 69C): For the Assessment Year 2022-23, the assessee-company (a manufacturer of pressure gauges and temperature calibrating systems) made foreign remittances to its Associated Enterprises (AEs) for royalty, commissions, and fees for technical services. The AO treated the entire remittance portfolio as unexplained expenditure under Section 69C, claiming the assessee failed to prove commercial necessity or actual rendition of services.
Evidentiary Compliance: The expenditures were fully recorded in the audited financial books. Payments were executed through standard banking channels, subject to proper Tax Deducted at Source (TDS), and accompanied by statutory compliance forms (Form 15CA/15CB), formal agreements, and invoices. The AO did not dispute the actual transfer of funds or point out an unexplained source.
CSR Expenditure Disallowance (Section 37(1)): The assessee debited ₹40.44 lakhs for CSR activities in its commercial profit and loss statement. During the assessment, the AO made a formal addition of this exact amount to the taxable income. However, the assessee’s original computation of income revealed that the company had already suo motu (voluntarily) added this amount back to its taxable income to comply with the statutory business disallowance rules for CSR.

Decision

Section 69C Inapplicable to Documented Business Expenses: Held in favour of assessee. Section 69C can only be triggered if a taxpayer incurs an expenditure whose source is unexplainable or missing from the books. Once an expense is clearly recorded and the banking source is transparently accounted for, the AO cannot use Section 69C to police the business necessity or commercial wisdom of the transaction. Additionally, since the department accepted identical payments in previous cycles, the rule of consistency prevails.
Double Disallowance of CSR Set Aside: Held in favour of assessee. The AO’s separate addition of ₹40.44 lakhs constituted an impermissible double disallowance. The AO was directed to delete the addition after verifying from the final return of income and tax computation that the assessee had already self-disallowed the CSR expenditure.

Key Takeaways

Source vs. Expediency under Section 69C: Section 69C is an anti-evasion tool meant for “unexplained” outgoings. It gives no authority to tax officers to disallow authentic, fully accounted-for cross-border corporate payments simply because they question whether the services were practically required.
Verify Computations to Avoid Double Additions: Tax authorities must review a taxpayer’s formal tax computation matrix alongside the financial statements before making additions, ensuring they do not duplicate disallowances that the taxpayer has already proactively offered to tax.

IN THE ITAT MUMBAI BENCH ‘B’

Baumer Technologies India (P.) Ltd.

Dy. CIT Circle 1(2)(1)^*

Sandeep Gosain, Judicial Member
and Jagadish, Accountant Member

IT Appeal No. 8744 (Mum) of 2025
[Assessment year 2022-23]

MAY 22, 2026

Bomi Daruwala and Ms. Anita Basrur for the Appellant. Swapnil Choudhari, (SR. AR.) for the Respondent.

ORDER

Jagadish, Accountant Member. – This appeal is filed by the assessee against the order dated 27.10.2025 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “the CIT(A)”] for A.Y. 2022-23 arising from the assessment order passed u/s 143(3) r.w.s. 144B of the Income Tax Act, 1961 (“the Act”).

2. The assessee has filed this appeal on the following grounds:-

That the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (“CIT(A)”) erred in law and on facts in confirming the assessment order passed under section 143(3) read with section 144B of the Income-tax Act, 1961 (the “Act”) dated 19.03.2024 (“assessment order”) without appreciating that the assessment order is beyond jurisdiction, bad in law and void-ab-initio.

That the CIT(A) erred in law and on facts, in treating the assessment order as valid even when the statutory requirement to refer the international transactions to the Transfer Pricing Officer under section 92CA (1) was not fulfilled.

That the CIT(A) erred in law and on facts, in upholding the disallowance of Rs. 8,77,07,756/-being international transactions with associated enterprises as “unexplained expenditure” under section 69C of the Act.

That the CIT(A) erred in law and on facts, in not appreciating that the assessing officer erred in making the aforesaid addition without affording adequate opportunity of being heard to the appellant.

That the CIT(A) erred in facts and in law, in disregarding the fact that the said expenditure was duly supported by the agreements, invoices, evidences of payments being made through banking channels, Form 15CA/CB’s and evidences of TDS deductions.

That the CIT(A) erred in facts and in law, in disregarding the fact that similar payments were also made in the preceding assessment years and the same were not disputed in any of the assessment years.

That the CIT(A) has erred in law and on facts in upholding the addition of Rs. 40,44,000/- towards CSR expenditure without appreciating that the said amount had already been suo motu disallowed by the appellant in the computation of income filed along with the return, leading to impermissible double disallowance.

That the CIT(A) erred in law and on facts in directing the assessing officer to further verify if the said CSR expenditure was actually incurred.

That the CIT(A) erred in law and on facts that irrespective of whether or not the CSR expenditure has been incurred or not, the same is not an allowable deduction unless it is an eligible donation under section 80G of the Act.

10.

That the assessing officer erred on facts and in law in initiating penalty under section 271AAC (1) and section 270A of the Act.

11.

That the assessing officer erred on facts and in law in charging interest under section 234B of the Act and has further erred in incorrectly computing the cumulative interest levied under sections 234A, 234B, 234C, 234D and 234F of the Act.

3. Brief facts of the case are that the assessee company is engaged in the business of manufacturing of pressure gauges and temperature calibrating systems and rendering related services. The assessee filed its return of income for the year declaring total income of Rs 16,88,24,130/-. The Assessing Officer in the assessment order has observed that the assessee had made foreign remittances aggregating to Rs.8,77,07,756/- towards royalty, commission and fees for technical services to its Associated Enterprises (“AE”) but failed to establish the business necessity for availing such services from foreign entities and had merely furnished agreements without substantiating actual rendition of services. The Assessing Officer accordingly treated the expenditure of Rs.8,77,07,756/- as unexplained expenditure u/s 69C of the Act and added the same to total income of the assessee.

4. The Assessing Officer further observed that the assessee had debited CSR expenditure of Rs.40,44,000/- in books of account but did not furnish evidences to substantiate actual incurrence of CSR expenditure. Accordingly, addition of Rs.40,44,000/- was also made while computing total income.

5. Aggrieved, the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) upheld the addition made u/s 69C observing that mere furnishing of agreements, Form 15CB and payment through banking channels do not establish actual rendition of services or business rationale for such payments. As regards CSR expenditure, the Ld. CIT(A) directed the Assessing Officer to verify whether the assessee had already added back the said expenditure in computation of income and grant consequential relief if the claim was found correct.

6. Before us, the Ld. AR submitted that Ground No.2 and Ground No.10 are not pressed. Accordingly, the same are dismissed as not pressed.

7. As regards Ground Nos.3 to 6, the Ld. AR submitted that the impugned amount of Rs.8,77,07,756/- comprised royalty of Rs.1,93,77,831/-, commission of Rs.60,68,683/- and fees for technical services of Rs.6,22,61,242/- paid to Associated Enterprises. The Ld. AR submitted that royalty was paid under Trademark License and Management Agreement for use of “Baumer” trademark and technology marks. The commission was paid towards referral fee under service level agreement for business sourced through overseas group entity and fees for technical services were paid under centralized management service arrangements for management, finance, administration, legal, HR, IT support, procurement and marketing services rendered by group entities.

8. The Ld. AR submitted that all payments were made through banking channels after deduction of taxes at source and were duly supported by agreements, invoices, Form 15CA/15CB and audited books of account. It was argued that section 69C deals with unexplained source of expenditure and once expenditure is duly recorded in books and source of payment stands explained, provisions of section 69C cannot be invoked merely because Assessing Officer is not satisfied with business expediency or necessity of expenditure.

9. The Ld. AR relied upon the decision of Hon’ble Bombay High Court in the case of PCIT v. Vishal P. Mehta, Hon’ble Delhi High Court inCIT v. Radhika Creation , decision of coordinate bench in ITO v. Growel Energy Co. Ltd 150 ITD 633 (Mumbai)., Asstt. CIT v. Matrix Publicities and Media India (P.) Ltd. [ 213 ITD 463 (Mumbai – Trib.)and Rupee Finance & Management (P.) Ltd. v. Asstt. CIT [2008] 120 ITD 539 (Mumbai)/[2008] 22 SOT 174 (Mumbai). The Ld. AR further relied upon the principle of consistency laid down by Hon’ble Supreme Court in CIT v. Excel Industries Ltd. 358 ITR 295 (SC) and Hon’ble Bombay High Court in Pr. CIT v. Quest Investment Advisors (P.) Ltd. 409 ITR 545 (Bombay) .

10. Per contra, the Ld. DR relied upon the orders of lower authorities and submitted that the assessee failed to establish actual receipt of services and corresponding business benefit derived therefrom.

11. We have heard the rival submissions and perused the material available on record. The short issue before us is whether expenditure duly recorded in books of account and paid through banking channels can be treated as unexplained expenditure u/s 69C merely because the Assessing Officer was not satisfied regarding commercial expediency or actual rendition of services.

12. We find that the impugned expenditure is duly reflected in audited books of account and audited financial statements of the assessee. The payments have admittedly been made through banking channels after deduction of tax at source and supported by Form 15CA/15CB, agreements and invoices. The Assessing Officer has nowhere disputed of remittances or brought any material on record to establish that the expenditure is bogus or that source of such expenditure remains unexplained.

13. In our considered view, section 69C primarily deals with unexplained source of expenditure. Once expenditure is duly recorded in books of account and source of payment stands explained, provisions of section 69C cannot be invoked merely because Assessing Officer was not satisfied regarding necessity or business expediency of expenditure. The Hon’ble Delhi High Court in the case of Radhika Creation (supra) has held that where expenditure is duly recorded in books, provisions of section 69C are not attracted. Similar view has also been taken in various judicial precedents relied upon by the assessee.

14. We further note that the Assessing Officer has not invoked provisions of section 37(1) of the Act to disallow expenditure on account of lack of business purpose nor has any transfer pricing adjustment been made. The entire addition has been made u/s 69C. Even otherwise, commercial expediency has to be examined from the perspective of businessman and not from the viewpoint of the Assessing Officer as held by the Hon’ble Supreme Court in the case of S.A. Builders Ltd. v. CIT (Appeals) 288 ITR 1.

15. We also find merit in submission of the assessee that similar payments were accepted in preceding years and no distinguishing feature has been brought on record by Revenue during the year under consideration. Though principle of res judicata does not strictly apply to income tax proceedings, rule of consistency as laid down by Hon’ble Supreme Court in Excel Industries Ltd. (supra) supports the case of the assessee.

16. Considering the totality of facts and judicial precedents discussed hereinabove, we are of the considered view that addition of Rs.8,77,07,756/- made u/s 69C of the Act is unsustainable. Accordingly, same is directed to be deleted. Ground Nos.3 to 6 are allowed.

17. As regards Ground Nos.7 to 9 relating to CSR expenditure of Rs.40,44,000/-, we find from the computation of income filed by the assessee that the said amount has already been added back by the assessee as disallowance u/s 37 of the Act while computing total income. The Assessing Officer himself has noted this fact in the assessment order. Therefore, making further addition of the same amount would clearly result in double disallowance, which is impermissible under law. The Ld. CIT(A), therefore, rightly directed the Assessing Officer to verify the claim of the assessee and grant consequential relief. Since the computation of income placed on record clearly evidences that the assessee has already suo motu disallowed the CSR expenditure, we direct the Assessing Officer to delete the addition of Rs.40,44,000/- after due verification from the return of income and computation filed by the assessee. Accordingly, Ground Nos.7 to 9 are allowed for statistical purposes.

18. Ground No.11 relating to levy of interest is consequential in nature.

19. In the result, the appeal of the assessee is allowed.