2022 (11) TMI 411 - AT - Income Tax

Addition u/s.69 - unexplained investment - for maturity of the fixed deposit the assessee failed to make any satisfactory explanation - HELD THAT - On perusal of the details of the FDR, we find that these FDR were created in the earlier year and therefore if any addition is warranted then it can only be in the year in which such FDRs were created and not in the year of the maturity of fixed deposit. It is for the reason the investment was made in the earlier year and which was matured in the year under consideration. As such the amount matured in the year under consideration does not represent the unexplained investment merely on the reasoning that it was credited in the bank account of the assessee - it the source of money which has been used for the purpose of the FDR and the same can only be brought to tax and that too in the year in which such FDR were created. Thus, after considering the necessary fact as discussed above, we set aside the findings of the of CIT(A) and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.

Summary

Issues:
1. Validity of addition made by the AO under section 69 of the Income Tax Act.
2. Application of section 69A instead of section 69 by the AO.
3. Assessment validity under section 147 r.w.s. 143(3) of the Act.

Analysis:

Issue 1: Validity of addition made by the AO under section 69 of the Income Tax Act:
The assessee contested the addition of Rs. 23,91,095/- under section 69 of the Act, claiming that the amount credited to the bank account was from matured fixed deposits and not unexplained investments. The AO had added this amount as unexplained investment under section 69. The CIT(A) upheld the AO's decision, stating that even though section 69 was mentioned instead of 69A, the addition was justified as unaccounted income needed to be taxed. The CIT(A) dismissed the appellant's argument that only the net income from fixed deposits should be considered. The ITAT, however, after reviewing the details of the fixed deposits and parties involved, concluded that the addition was not warranted in the year under consideration. The ITAT directed the AO to delete the addition, ruling in favor of the assessee.

Issue 2: Application of section 69A instead of section 69 by the AO:
The AO mistakenly applied section 69 instead of section 69A while making the addition. The CIT(A) acknowledged this error but maintained that the addition was still valid. The ITAT, on the other hand, emphasized that the source of the money used for fixed deposits should be taxed in the year the deposits were created, not when they matured. Therefore, the ITAT directed the AO to delete the addition made under section 69.

Issue 3: Assessment validity under section 147 r.w.s. 143(3) of the Act:
The assessee raised concerns about the validity of the assessment under section 147 r.w.s. 143(3) of the Act. However, since the ITAT ruled in favor of the assessee on the merit-based issues, they deemed the challenge to the assessment validity as infructuous and dismissed it.

In summary, the ITAT allowed the appeals partly, directing the AO to delete the additions made under section 69 for both assessment years. The ITAT's decision was based on the understanding that the source of the money used for fixed deposits should be taxed in the year the deposits were created, not when they matured. The ITAT's ruling favored the assessee's arguments and highlighted the importance of correctly applying relevant sections of the Income Tax Act in such cases.