2024 (6) TMI 1197 - AT - Income Tax

Addition made u/s 68 - assessee could not furnish Income Tax Return of entity/ trust as capital contributors - HELD THAT - During appellate proceedings, it transpired that notice u/s. 148 was issued to Trust and that entity filed its return of income - This return has been subjected to scrutiny assessment and an order has been passed u/s. 147 r.w.s. 144B accepting the returned income of that entity. AO has drawn conclusion that the deposits made by the assessee were out of funds received from M/s Shriram Ownership Trust for Rs. 34 Crores and from M/s Envestor Trust for Rs. 6.30 Crores. Therefore, the source of time deposit made by that assessee during that year stood explained. This being the case, there remain nothing with revenue to doubt the credit received by present assessee before us. Thus as rightly concluded in the impugned order, the assessee successfully proved the identity and creditworthiness of the investor and also the genuineness of the transactions. Decided against revenue.

Summary

Issues:
Addition made u/s 68 - Identity and creditworthiness of the source of funds - Genuineness of the transaction - Assessment Year 2018-19.

Analysis:

Assessment Proceedings:
The case involved an appeal by the Revenue for Assessment Year 2018-19 against an order by the Commissioner of Income Tax, National Faceless Appeal Centre (NFAC). The primary issue was the addition made by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The assessee, a resident firm engaged in investment, had made a significant investment in a foreign entity. The source of this investment was primarily from a trust, Iwell Trust, which failed to provide its Income Tax Return and financial statements. The AO concluded that the trust's sole purpose was to channel funds to the assessee for investment, lacking proof of the source's identity, creditworthiness, and transaction genuineness.

Appellate Proceedings:
During the appellate proceedings, the assessee argued that Iwell Trust, being a private discretionary trust, was not required to file an Income Tax Return. It was highlighted that the trust had eventually filed a return in response to a notice under Section 148. The CIT(A) considered the submissions, including fund flow details, bank statements, and foreign remittances, and concluded that the requirements of Section 68 were met. The trust's source of funds was traced back to other trusts, and the impugned additions were deleted based on the provided evidence.

Findings and Adjudication:
The Tribunal found that the investment by the assessee sourced from Iwell Trust was legitimate, with clear documentation supporting the flow of funds. Although the Income Tax Return of Iwell Trust was initially unavailable, it was later filed and accepted after scrutiny assessment. The AO's doubts regarding the source of funds were dispelled, as the deposits were traced back to other trusts. Consequently, the Tribunal upheld the CIT(A)'s decision, stating that the identity, creditworthiness of the investor, and transaction genuineness were adequately established, warranting no interference with the impugned order.

The appeal was dismissed, affirming the deletion of the addition made under Section 68 for Assessment Year 2018-19.