2023 (6) TMI 766 - AT - Income Tax

Unexplained investment - Additions u/s 69 - source of purchase of party - AO has rejected explanation furnished by the assessee only on the ground that the assessee has filed certain evidences to prove source for purchase of property and such claim is an afterthought - HELD THAT - As assessee has filed all evidences to prove genuineness of the transactions, and creditworthiness of the parties in respect of all payments received from Mr.S.V.Ranga Reddy, which is source for purchase of property, by the assessee. When evidences filed by the assessee clearly shows that there is enough source for partnership firm to explain drawings of the partner, then, non-filing of return of income by the firm, cannot be a reason to reject explanation of the assessee for explaining source for purchase of property. In this case, the AO has rejected explanation furnished by the assessee only on the ground that the assessee has filed certain evidences to prove source for purchase of property and such claim is an afterthought. But, fact remains that when the AO is invoking deeming provisions, it was incumbent on the Assessing Officer, to bring on record material evidences which canbe said to lead to the satisfaction of the AO while making requisite investigations or adopt suchother means permissible in law at his comment. AO having not discharged onus for proving the satisfaction of the condition for application of deeming sections, he cannot invoke provisions of section 69 - As already stated by us in the earlier part of this order, the assessee has discharged primary onus and proved source for purchase of property. In this case, the assessee has discharged burden of proof by filing details of loans taken from Mr.S.V.Ranga Reddy, and also drawings from M/s.SVR Construction Co., by filing necessary details, including relevant ledger account copies through parties in their respective accounts, bank statements of partnership firm, and Mr.S.V.Ranga Reddy and also confirmation letters from the parties along with their ITR filed copies for the relevant assessment year. From the above, it is abundantly clear that the explanation offered by the assessee with regard to source for purchase of property is genuine transaction, which is supported by necessary evidences. AO is erred in making addition towards source for purchase of property as unexplained investment and taxed u/s. 69 - Decided against revenue.

Summary

Issues Involved:
1. Validity of the explanation for the source of funds used in the purchase of property.
2. Applicability of Section 69 of the Income Tax Act, 1961.
3. The genuineness of transactions and creditworthiness of the parties involved.

Summary:

Issue 1: Validity of the Explanation for the Source of Funds
The Revenue raised concerns that the partnership firms from which the assessee claimed to have withdrawn Rs. 2.50 crores had not filed their returns for AY 2013-14. The Assessing Officer (AO) rejected the assessee's explanation for the source of funds, including Rs. 1.40 crores received from her husband, and Rs. 2 crores drawn from partnership firms, due to lack of supporting evidence such as Income Tax Returns (ITR) filed by the firms. The AO added Rs. 3.40 crores as unexplained investment under Section 69 of the Act.

Issue 2: Applicability of Section 69 of the Income Tax Act, 1961
The AO invoked Section 69, which deals with unexplained investments, arguing that the assessee failed to satisfactorily explain the source of funds for the property purchase. The AO's stance was that the transactions, despite being through banking channels, were not genuine, citing the Supreme Court's decision in CIT vs. P. Mohanakala (291 ITR 278).

Issue 3: Genuineness of Transactions and Creditworthiness of the Parties
The Commissioner of Income Tax (Appeals) [CIT(A)] disagreed with the AO, stating that the assessee had provided sufficient evidence to prove the source of funds, including confirmation letters, bank statements, and financial statements of the partnership firms. The CIT(A) noted that the assessee had satisfactorily discharged the onus of proving the identity, genuineness, and creditworthiness of the transactions. The CIT(A) emphasized that the AO failed to bring material evidence to disprove the assessee's claims, thus the addition under Section 69 was not justified.

Conclusion:
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, concluding that the assessee had adequately explained the source of funds for the property purchase. The ITAT noted that the AO's rejection of the explanation was based on suspicion rather than concrete evidence. The appeal filed by the Revenue was dismissed, affirming that the addition of Rs. 3.40 crores as unexplained investment under Section 69 was not warranted.