2018 (3) TMI 579 - AT - Income Tax

Unexplained investment u/s 69 - Reopening of assessment u/s 147 - Held that - The case of the AO in the remand report was that on redemption of the investments made in the earlier year during the previous year, the investments made during the previous year becomes fresh investment. This stand of the AO is contrary to the provisions of sec.69. There is no dispute about that fresh investments have been made during the year but all such investments have come out of the maturity of the investments made in earlier years. Therefore the source of investments made during the year have been explained. The addition of ₹ 3,29,00,000/- cannot be sustained as unexplained investment of the assessee during the assessment year in question and was rightly deleted by the CIT(A). Further the earlier year s assessment have been reopened by the AO u/s 148. The source of funds for making investments of the units of Mutual funds which matured for payment can be examined only in the assessment year relevant to the previous year in which the investment was made. - Decided against revenue.

Issues Involved:
1. Delay in filing the appeal by the Revenue.
2. Addition of ?3.29 crores as unexplained investment under Section 69 of the Income Tax Act, 1961.
3. Non-disclosure of short-term capital gains by the assessee.

Issue-wise Detailed Analysis:

1. Delay in filing the appeal by the Revenue:
The appeal by the Revenue was delayed by 19 days. The Revenue provided an affidavit explaining that the delay was due to administrative and procedural reasons. The Tribunal accepted these reasons as reasonable and sufficient, thereby condoning the delay and allowing the appeal to proceed.

2. Addition of ?3.29 crores as unexplained investment under Section 69 of the Income Tax Act, 1961:
The Assessee, an individual, declared a total income of ?2,12,670/- for A.Y.2008-09. During the assessment proceedings under Section 143(3), the Assessing Officer (AO) confronted the Assessee with AIR information indicating investments in various mutual fund schemes totaling ?3.29 crores. The AO added this amount to the Assessee's income as unexplained investments under Section 69, citing the Assessee's failure to explain the source of funds.

Before the Commissioner of Income Tax (Appeals) [CIT(A)], the Assessee explained that these investments were funded by the redemption proceeds of mutual fund units from the previous assessment year. Detailed evidence was provided for each investment, linking them to earlier investments and their respective redemption proceeds. Since these details were additional evidence, the CIT(A) forwarded them to the AO for a remand report.

In the remand report, the AO argued that the investments made in the earlier year were not disclosed and thus should be considered as made from undisclosed sources. However, the CIT(A) disagreed, stating that the Assessee had satisfactorily explained the source of funds for the investments made during the previous year. Consequently, the CIT(A) deleted the addition made by the AO.

The Revenue appealed this decision, arguing that the maturity proceeds of investments should be viewed as a fresh source and that the Assessee had not explained the source of the original investments. The Tribunal, however, upheld the CIT(A)'s decision, noting that the Assessee had provided satisfactory explanations linking the investments to the redemption proceeds of earlier investments. The Tribunal found the AO's stance contrary to Section 69, which requires unexplained investments to be added as income only if the Assessee fails to provide a satisfactory explanation. Since the Assessee had explained the source of funds, the addition of ?3.29 crores was not justified.

3. Non-disclosure of short-term capital gains by the Assessee:
The CIT(A) observed that the Assessee had earned short-term capital gains of ?14,97,103/- from the redemption of mutual fund units during the previous year, which were used to make various investments. However, these gains were not disclosed in the Assessee's return of income. The CIT(A) directed the AO to bring this amount to tax.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition of ?3.29 crores and directing the AO to tax the undisclosed short-term capital gains of ?14,97,103/-. The Tribunal's decision was based on the Assessee's satisfactory explanation of the source of investments, in line with the provisions of Section 69 of the Income Tax Act, 1961.

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