2024 (9) TMI 638 - AT - Income Tax

Addition u/s 69 v/s Gift u/s 56(2) - unexplained investment made towards purchase of immovable property - HELD THAT - It is an undisputed fact that the payment was made by Shri Arun Patil and not by the assessee. Thus, for applying the provisions of section 69 AO should first come to a finding that the assessee has made investments and the same are not recorded in the books of account and thereafter he can call the assessee for an explanation from about the nature and source of the investments and in case he finds that the assessee is unable to furnish the explanation or the explanation offered by him is not satisfactory, the assessing officer can treat the value of the investments to be the income of the assessee of the financial year in which she/he has made the investments. In the case of the assessee, the nature and source of payment is satisfactorily explained by the assessee with necessary supporting evidences and the AO has also not questioned the genuineness of the loan given by Shri Arun Nair and whether the loan have been completely repaid or pending is of no relevance to invoking of provisions of 69 of the Act. Therefore, we do not find any fallacy in the findings of the ld. CIT(A) in deleting the addition made by the AO u/s 69 of the Income Tax Act, 1961. DR contention that the said addition is taxable u/s 56(2) - As mentioned that applicability of section 56 was never discussed by the AO or the CIT (A) in their respective order. Thus, the department cannot make out a fresh case or improve the order of the AO. Even otherwise revenue cannot deny the documents submitted in the form of loan confirmation and part repayment of the loan. AO has not made any further enquiry to disprove bonafide of these documents. Once both the parties have confirmed the transaction as loan, then revenue cannot treat it as gift merely on the plea that assessee does not have repayment capacity. Assessee has rightly submitted that the loan is fully secured as he is joint owner of the property and assessee cannot run away with the loan amount. Hence there is no merit in the contention of the revenue. Addition u/s 69C - investment in the purchase of a car - When it is admitted by the AO that the ultimate source of car purchase is from the bank account of Shri Arun Patil, then it could not have been the undisclosed expenditure of the assessee u/s 69C of the Act. Therefore, we do not find any fallacy in the findings of the ld. CIT(A) in deleting the addition made by the AO u/s 69C. Even the plea before us that the amount should be taxed U/s 56(2) of the Act is also without merit. Appeal of the Revenue is dismissed.

Summary

Issues:
1. Addition of Rs. 1.39 Crore related to investments in flat/immovable property.
2. Addition of Rs. 40 Lacs related to investment in the purchase of a car.
3. Assessment of the true nature of transactions under relevant provisions of the Income Tax Act.

Analysis:

1. The appeal by the revenue challenged the order passed by the National Faceless Appeal Centre (NFAC) and CIT(A) regarding the quantum of assessment for the A.Y. 2017-18. The revenue raised grounds questioning the sustainability of additions made under sections 69 and 69C of the Income Tax Act, particularly related to investments in immovable property and a car. The AO initially added substantial amounts under these sections, but subsequent investigations revealed discrepancies in the assessment.

2. The assessee, engaged in the profession of a TV artist, faced allegations of high-volume transactions based on information from the INSIGHT portal. The AO made additions under sections 69 and 69C for the purchase of property and a motor vehicle, along with cash credits in the bank account. The CIT(A) intervened after the assessee submitted additional evidence under Rule 46A of the Income Tax Rules, leading to a remand report that significantly reduced the undisclosed investment amounts.

3. The CIT(A) analyzed the remand report, submissions by the assessee, and documents provided, ultimately deciding to delete the additions made by the AO. The revenue, however, contended that the additions should be taxable under section 56(2) of the Act, arguing that the transactions should be treated as gifts due to the assessee's alleged incapacity to repay. The assessee countered with evidence of loans and repayments, disputing the characterization of the transactions as gifts.

4. The Tribunal considered the arguments from both sides, emphasizing the need for the AO to establish unrecorded investments before invoking section 69. In this case, the nature and source of payments were adequately explained by the assessee, supported by documentation. The Tribunal rejected the revenue's attempt to introduce section 56(2) at a later stage, highlighting the lack of discussion on this aspect in previous orders.

5. Regarding the addition related to the car purchase, the Tribunal upheld the CIT(A)'s decision to delete the amount added under section 69C. The documents provided during the remand proceedings clarified the sources of funds for the purchase, leading to the conclusion that the expenditure was not undisclosed. The revenue's argument for taxation under section 56(2) was deemed meritless, given the established sources of funds.

6. The Tribunal dismissed the technical ground raised by the revenue as infructuous, leading to the final decision to dismiss the appeal. The judgment emphasized the importance of substantiating unrecorded investments and the inadmissibility of introducing new tax provisions without prior consideration.