2017 (2) TMI 1304 - AT - Income Tax

Unexplained investment - no source to explain such investments - Held that - When both the balance sheets of the assessee-company and balance sheets of the companies in which the assessee had invested, reflected the amounts of investments and these correctly tallied, we cannot brush aside such accounts and auditor s report. Doing so would be giving a licence to any assessee-company to prepare any balance sheet and thereafter go back and say itself that the balance sheet was not correct. The assessee cannot be allowed to approbate and reprobate. Once assessee prepared its books of account and balance sheet which were audited by a Chartered Accountant appointed under the Companies Act as true and fair, and where the amounts reflected in the balance sheet are also shown in the balance sheets of the companies where assessee had placed the investment, we cannot disregard such balance sheets. It may be true that the banker of the assessee denied giving any loans to the assessee. However, if the source of investment was not out of loan, the question of bank giving any confirmation does not arise. The addition was made, in our opinion, due to failure of the assessee to give proper source for investment made by the assessee in M/s Sri Padmabalaji Steels Pvt. Ltd. and M/s Suryabalaji Steels Pvt. Ltd. Assessee s claim that it was only book entry cannot be accepted since the amounts were correctly reflected in the balance sheet of the assessee as well as the balance sheets of M/s Sri Padmabalaji Steels Pvt. Ltd. and M/s Suryabalaji Steels Pvt. Ltd. We are of the opinion that the addition was rightly made by the A.O. and confirmed by the CIT(Appeals - Decided against assessee.

Summary

Issues:
1. Addition of undisclosed investments made by the assessee.
2. Discrepancy in the balance sheet and investments declared by the assessee.
3. Verification of investments in related companies.
4. Disputed loans and advances shown in the balance sheet.

Analysis:
1. The assessee, an investment company, contested the addition of undisclosed investments amounting to ?25,58,68,579 made by the Assessing Officer. The CIT(Appeals) upheld the addition, considering certain investments made by the assessee for acquiring assets as undisclosed. The appellant argued that the investments were not real and merely book entries, lacking corresponding liabilities. However, the authorities found discrepancies in the balance sheet and investments declared by the assessee, leading to the addition.

2. The Assessing Officer noted substantial loans in the balance sheet of the assessee, which were later found to be non-existent. The assessee claimed that the investments and loans were not real amounts, providing a breakdown of non-current investments and related party advances. However, upon scrutiny, it was revealed that the investments made by the assessee in certain companies matched the amounts reflected in the balance sheets of those companies, contradicting the assessee's claims of non-existent investments.

3. The CIT(Appeals) dismissed the assessee's arguments, emphasizing that the investments in the related companies were evident from their balance sheets, despite the lack of a clear source for such investments. The appellant's reliance on a bank certificate stating no loans with the bank was not considered sufficient to refute the investments made. The authorities maintained that the addition was justified based on the discrepancies between the balance sheets and actual investments.

4. During the appeal, the appellant reiterated that no real investments were made in the related companies, as the issued cheques were not presented for payment. The contention that the investments were only book entries was rejected, as the amounts matched in the balance sheets of the assessee and the related companies. The tribunal upheld the addition, emphasizing the importance of providing a proper source for investments and confirming that the balance sheets' accuracy cannot be disregarded.

In conclusion, the tribunal confirmed the addition of undisclosed investments, highlighting the importance of aligning balance sheet entries with actual transactions and emphasizing the need for a clear source of investments to avoid discrepancies and tax implications.