2013 (1) TMI 430 - HC - Income Tax

Unexplained investments u/s 69 - CIT(A)deleted the addition - Held that - AO was clearly wrong in holding against the assessee by concluding that the assessee had not offered any explanation. It is clear that the assessee had offered an explanation. However, there is no express finding of the CIT(A) or of the Tribunal as to whether the explanation offered by the assessee was satisfactory or not. Although, to be fair to the assessee, an inference could possibly be gathered that the CIT(A) had found the explanation to be satisfactory. But the matter cannot be decided on inferences and the authorities below have to arrive at the clear and express conclusion as to whether the explanation offered by the assessee was satisfactory or not. Also that the Tribunal is the final fact finding authority under the scheme of Income Tax Act and therefore, it is incumbent on the Tribunal to return a finding in clear and express terms. This is so, because it is only when the finding is clear that a question of law based on those findings can be examined by the High Court. Consequently it would be appropriate to remit the matter to the Tribunal to return a clear finding as to whether the explanation offered by the assessee is satisfactory or not - in favour of the revenue by way of remand - parties shall appear before the Tribunal in the first instance on 06.05.2013.

Summary

Issues:
Deletion of addition under Section 69 of the Income Tax Act, 1961 based on unexplained investments.

Analysis:
1. Issue of Deletion of Addition: The primary issue in this case revolved around the deletion of an addition of Rs.70,18,518 made by the assessing officer under Section 69 of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal both ruled in favor of the assessee, deleting the said addition. The assessing officer's basis for the addition was the purported unexplained investments. However, the assessee had provided material, including letters and other evidence, to support the contention that the investments were duly accounted for in their books, contrary to the assessing officer's claim of unexplained investments.

2. Assessing Officer's Error: The assessing officer's finding of no evidence/explanation offered by the assessee regarding the investments was deemed incorrect by both the Commissioner of Income Tax (Appeals) and the Tribunal. They highlighted that the assessee had indeed submitted evidence detailing the sources of the investments, which the assessing officer had allegedly ignored. The Commissioner of Income Tax (Appeals) specifically noted that the assessing officer had made the addition without examining the submissions provided by the assessee, leading to the deletion of the addition.

3. Satisfactory Explanation Requirement: A crucial aspect raised during the proceedings was whether the explanation offered by the assessee was satisfactory, as required under Section 69 of the Income Tax Act, 1961. The revenue contended that while the authorities acknowledged the provision of an explanation by the assessee, there was no explicit finding on the satisfaction of the explanation's adequacy. The Tribunal, being the final fact-finding authority, was expected to return a clear and express conclusion on the acceptability of the explanation, which was deemed necessary for a proper legal assessment.

4. Legal Interpretation of Section 69: Section 69 of the Income Tax Act, 1961 was crucial in determining the validity of the addition based on unexplained investments. The section outlines two scenarios where such additions can be made: when the assessee offers no explanation about the nature and source of the investments, or when the explanation provided is deemed unsatisfactory by the assessing officer. In this case, it was evident that the assessing officer's conclusion of no explanation offered was erroneous, leading to the subsequent deletions by the appellate authorities.

5. Remittal to the Tribunal: In light of the lack of a clear finding on the satisfaction of the explanation offered by the assessee, the High Court decided to remit the matter back to the Tribunal for a specific determination on the adequacy of the explanation. The Court emphasized the importance of explicit findings by the Tribunal to enable a proper examination of legal questions based on those findings. The appeal was allowed, and the Tribunal was directed to return a conclusive finding on the explanation's satisfaction for the application of Section 69 of the Income Tax Act, 1961.