2009 (12) TMI 553 - HC - Income Tax

Unexplained investment - additions made in the block assessment - deleted by the first appellate authority, were restored by the Tribunal - Counsel contended that there was no justification for the Tribunal to sustain the addition - assessee tried to prove source towards loan taken from brother, sister, nephew and other close relatives, the Assessing Officer found there is unexplained time lag between the alleged loan and the actual investment - assessee contended that the time for filing return was not over as on the date of search - Held that - assessee has no case that the assessee has paid advance tax on this amount or has accounted the share income from the firm as on the date of search - assessee should account the same and should pay advance tax which is not done here - Tribunal rightly held that the share income the firm was not accounted by the assessee - Appeal is dismissed

Summary

Issues:
1. Addition of Rs. 5.85 lakhs as unexplained investment made by the assessee in a firm.
2. Addition of Rs. 1,43,660 for the year 1997-98.

Issue 1: Addition of Rs. 5.85 lakhs as unexplained investment:
The appellant challenged the Tribunal's decision to restore the addition of Rs. 5.85 lakhs made in the block assessment, despite the first appellate authority deleting it. The appellant tried to prove the source of the investment as loans from family members, but the Assessing Officer raised concerns about the time lag between the alleged loans and the investment. The loans were allegedly taken in cash, contrary to Income-tax Act provisions requiring transactions over Rs. 20,000 to be through account payee cheques or demand drafts, except in emergencies. The substantial time gap between the cash loans and the investment led the Assessing Officer to disbelieve the transaction, a decision upheld by the Tribunal. The High Court found no significant legal question arising from the Tribunal's order on this issue, supporting the Assessing Officer's decision.

Issue 2: Addition of Rs. 1,43,660 for the year 1997-98:
The second issue involved the addition of Rs. 1,43,660 for the year 1997-98. The appellant argued that the time for filing the return had not expired at the time of the search in July 1998. However, the Tribunal found no evidence to prove that the income was accounted for, a requirement under section 158B(b) of the Income-tax Act to exclude it from undisclosed income assessment. The appellant failed to demonstrate payment of advance tax on the amount or accounting for share income from the firm at the time of the search. Despite the appellant's claim that the firm's maintained accounts were sufficient for exclusion under section 158B(b), the High Court disagreed. It emphasized that the appellant, receiving salary income from the firm, should account for income as received and pay advance tax, which was not done in this case. Consequently, the Tribunal's decision that the share income from the firm was not accounted for by the appellant was upheld, leading to the dismissal of the appeal on this issue.

By analyzing the two issues raised in the judgment, the High Court of Kerala upheld the Tribunal's decisions regarding both the addition of unexplained investment and undisclosed income, emphasizing the importance of compliance with Income-tax Act provisions and the need for proper documentation and accounting practices to avoid such additions during assessments.