2012 (12) TMI 72 - AT - Income Tax

Unexplained Investment u/s 69 - Whether transactions pertain to investment or sale of shares - Held that - AO came to a conclusion that the transaction was an investment in SAIL on 17.12.2007 of assessee which was unexplained. Now the data available on record indicate that these are not purchase transactions but sale transactions by M/s Credit Suisse Ltd on behalf of various other funds being managed by Threadneedle Asset management Ltd. Once these are sale transactions, provisions of section 69 does not apply, which can be invoked for unexplained investment. Unless complete inquiry was conducted, it is not proper on the part of AO to make an assessment of sale of transactions as investment, as is done in this case. - matter remanded back - appeal filed by assessee is allowed for statistical purposes.

Summary

Issues involved:
Assessment based on AIR data reconciliation, Unexplained investment under section 69, Re-examination of transactions by AO, Authentication of documents filed before DRP, Opportunity for assessee to reconcile transactions properly.

Analysis:
1. The appeal was against the AO's order following the DRP-II Mumbai's directive under section 143(3) r.w. section 144C(13) of the I.T. Act. The assessee, a foreign company, declared a total income but faced challenges reconciling transactions reported by the Bombay Stock Exchange (BSE) through AIR data. The AO concluded that unexplained investment occurred, taxing it at 40%, without adequately considering the assessee's explanations or complete transaction details.

2. The assessee provided detailed explanations and evidence before the DRP, showing that the transactions did not belong to them, and the broker acted on behalf of other funds. Despite providing confirmations and letters from custodians and brokers, the DRP rejected the documents as unauthenticated photocopies, leading to confirmation of the AO's draft order.

3. The counsel argued that the transactions were sales, not buys, and the BSE data lacked specific details for reconciliation within the given time. The assessee's efforts to reconcile were dismissed by the DRP, even though additional evidence was submitted. The DRP's lack of consideration and opportunity for the assessee to explain further raised concerns.

4. Upon review, the Tribunal found discrepancies in the AO and DRP's approach. The lack of complete transaction details and authentication in the AIR report hindered proper reconciliation. The Tribunal directed the AO to re-examine the transactions, obtain fresh details from relevant authorities, and allow the assessee to provide explanations and evidence for a fair assessment.

5. The Tribunal emphasized the need for a thorough examination by the AO, ensuring proper opportunities for the assessee to present their case. The orders of the DRP and AO were set aside, and the assessment was restored to the AO for a fresh review. The assessee was directed to furnish details to the AO and explain the transactions adequately, with a focus on due process and fairness.

6. Ultimately, the Tribunal allowed the appeal for statistical purposes, highlighting the importance of a comprehensive and just assessment process, with proper consideration of all relevant details and opportunities for the assessee to clarify their position.