2017 (3) TMI 577 - AT - Income Tax

Disallowance of investment as from undisclosed sources - Held that - CIT-A in the instant case has not formed any firmed opinion that it was the assessee money invested in the mutual fund through his relatives. The ld. CIT-A has just sustained the addition on the possibility of assessee money used in the impugned investment. In our view the addition cannot sustain on the basis of surmise & conjecture. Hence, we reverse the order of Ld. CIT(A) and this ground of assessee s appeal is allowed.

Summary

Issues:
Assessment framed under section 144 of the Income Tax Act, 1961 for the assessment year 2007-08 based on undisclosed income from investments in mutual funds.

Analysis:
The appellant, an individual deriving income from salary, filed a return declaring total income of ?5,85,470 for the year. The Assessing Officer (AO) framed the assessment under section 144 of the Act at a total income of ?13,60,430 after treating an investment with Rural Electrification Corporation Ltd. (RECL) for ?9 lakh as undisclosed income. The AO observed that the appellant failed to provide documentary evidence for the source of the investment, leading to its addition to the income. The appellant contended that the investments were made by relatives out of their own funds, supported by affidavits and bank statements. The Commissioner of Income Tax (Appeals) partly upheld the addition, questioning the creditworthiness of the relatives making the investments.

The appellant appealed this decision, arguing that the investments were made by relatives and he was only a second holder for safety purposes. The appellant provided evidence to support his claim, stating that the AO did not provide a reasonable opportunity during assessment proceedings. The Tribunal noted that the issue revolved around whether the investments were undisclosed income of the appellant. The Tribunal found that the CIT(A) sustained the addition based on conjecture, as the appellant's role in the investments was not conclusively established. Referring to relevant case law, the Tribunal ruled that the addition was not sustainable based on surmise and conjecture, overturning the CIT(A)'s decision.

The Tribunal allowed the appellant's appeal, emphasizing that the addition could not be upheld solely on the possibility of the appellant using undisclosed funds for the investments. The remaining grounds of the appeal were deemed general and did not require further consideration. Consequently, the appellant's appeal was allowed, reversing the CIT(A)'s decision.

This detailed analysis of the judgment showcases the legal intricacies involved in determining the tax implications of investments and the burden of proof regarding the sources of income, providing a comprehensive understanding of the case and its resolution.