2015 (3) TMI 845 - HC - Income Tax

Unexplained investments - ITAT deleted the addition u/s 69 - Held that - The CIT(A) appears to have taken into account the remand report. The assessee, in turn, appears to have relied upon letters written by the associate companies, each one of which had mentioned that the sums were paid directly to the asseseee s vendor during the concerned period in the assessment year in question. The assessee s case was that neither it nor the associate companies reflected these transactions in the books of accounts and consequently in the return, the investments were reflected in the stock inventory. This aspect has particularly been noticed by the CIT(A) whose order was made on 07.11.2012. We also notice that the appeal before the CIT(A) itself was instituted on 21.01.2010. In these circumstances, the CIT(A) was certainly within its right, before rendering its findings, to have additionally called for the returns for the subsequent years (when these entries were in fact reflected by the assessee in its returns) as well as the returns of the associate concerns. This, in our opinion, would have reflected the complete picture and either supported or falsified assessee s contentions with respect to the inadvertence in omitting to make a mention of this investment at the relevant time in AY 2007-08. - Matter is remitted to the CIT(A) for specific finding on this question. It goes without saying that in the event of the CIT(A) being satisfied that these amounts were duly reflected as claimed by the assessee, applicability of Section 69 would be doubtful.- Decided in favour of revenue for statistical purposes.

Summary

Issues:
- Interpretation of Section 69 of the Income Tax Act, 1961 regarding addition of a specific amount to the assessee's income.
- Whether the Income Tax Appellate Tribunal (ITAT) erred in its decision to allow the assessee's appeal against the addition of a substantial sum under Section 69.

Analysis:
The judgment involves a dispute over the addition of a significant amount to the assessee's income under Section 69 of the Income Tax Act, 1961. The assessee, engaged in real estate business, claimed a loss for the relevant assessment year. The Assessing Officer (AO) added two amounts under Sections 68 and 69 of the Act, totaling to over Rs. 1 crore. The Central Board of Direct Taxes (CBDT) challenged the ITAT's decision to allow the assessee's appeal against the addition under Section 69.

The CBDT argued that the ITAT erred in disturbing the concurrent factual finding that the assessee failed to explain the source of expenditure, despite reflecting significant assets. Enquiries made to the associate concerns revealed discrepancies in the responses, with some denying payments to the assessee. The CIT(A) granted partial relief by deleting the addition under Section 68 but upheld the addition under Section 69, emphasizing the need for tax treatment consistency and avoiding double taxation.

The High Court observed that the CIT(A) considered a remand report and the letters from associate companies indicating direct payments to the assessee's vendor during the relevant period. The assessee contended that the transactions were not reflected in their books due to inadvertence, supported by the subsequent inclusion of these transactions in later returns. The Court noted the CIT(A)'s right to seek subsequent year returns to ascertain the complete picture and determine the validity of the inadvertence claim.

Consequently, the Court remitted the matter to the CIT(A) for a specific finding on whether the transactions were indeed reflected in subsequent returns as claimed by the assessee. The applicability of Section 69 would be questionable if the CIT(A) finds in favor of the assessee. The rights of the parties were expressly reserved, and the appeal was allowed under these terms.