Merely stating head of income from which unexplained investment was generated without stating the actual source does not amount to an explanation within the meaning of section 69.
In a recent judgment ITAT Allahabad has held that merely stating the head of income from which the unexplained investment was generated without stating the actual source and when it was earned would not amount to an explanation within the meaning of section 69.
ABCAUS Case Law Citation:
4558 (2025) (05) abcaus.in ITAT
In The instant case, an appeal was filed by the assessee against the order of the CIT(A), confirming the order of the Assessing Officer (AO) making addition towards unexplained investment by invocation of section 69 of the Income Tax Act, 1961 (the Act).
The assessee was engaged in the trading of liquor, Ayurvedic Medicine, Kirana and other items. A survey action under section 133A of the Act was carried out at the various business premises of the assessee.
During the course of survey, certain incriminating documents were found and impounded under section 133A(3)(ia) of the Act. A return of income was filed disclosing business income, income from house property and income from other sources.
The case was subsequently taken up for scrutiny. During the course of assessment, the AO observed that the assessee had disclosed rental receipts from three house properties and after deducting house tax and claiming deduction under 24(a), a net income had been disclosed under the head, ‘house property’. The AO observed that in respect of two of the properties, the assessee had not let out the same on rent to any one person on a monthly or annual basis. Instead, he had employed one manager in each property to take care of it and the same to pilgrims / travelers on a daily basis or for short periods.
The AO accepted declaration of income from house property in respect of one house property However, with regard to the other two houses held by the assessee, the AO observed that it was an established fact that the assessee earned only rentals for occupation of premises on a daily basis. Moreover, he had appointed managers and also incurred expenses on the property. Since the assessee had let this property out on a day to day basis and not produced any rent agreement/rent receipt, he held that the assessee was in the business of letting out property and therefore, the rental income was to be treated as business income.
Further, the assessee had also purchased an immovable property vide a registered sale deed. However, during the survey under section 133A, it came to light that the actual consideration paid for the immovable property was much more. This was admitted by the assessee during his statement recorded and furthermore the seller, had also confirmed the sale consideration on which necessary capital gains tax had been paid.
During the course of assessment proceedings, the assessee was asked to furnish the details of all immovable properties and sources of investments. The assessee furnished details wherein the total investment in the aforesaid property was shown. The discrepancy in the consideration price that was admitted by him in his statement and in his return and submissions filed was confronted to him.
At that point of time, the assessee admitted that the excess consideration paid was inadvertently left to be incorporated in the return of income in the relevant assessment year and the same was now being offered for taxation. Since the said investment was not reflected in the balance sheet and not offered for tax in the return filed for the relevant assessment year and since the source of this investment had not been explained, the AO decided this to treat this as unexplained investment under section 69 and taxed it at the special provisions as contained in section 115BBE of the Act.
Before the Tribunal, the assessee submitted that the price difference had been admitted by the assessee during the survey. However, it was inadvertently not recorded in the books or in the return filed later.
It was submitted that within one month from the date the scrutiny notice was issued, the assessee had deposited the tax on the difference in the price of the property purchased. The notice under section 142(1), was subsequently issued i.e. before the specific query could be raised by the AO, the assessee had already paid the tax.
It was submitted that since there was no mala fide intention on the part of the assessee to escape or conceal any part of the due tax due to the government exchequer, which was evidenced by the payment of the said tax before the issue of notice under section 142(1), the provisions of section 69 and consequently section 115BBE would not apply.
It was further argued that to apply the provisions of Section 69, the twin conditions that triggered the liability for assessment under section 69 had to be fulfilled i.e. that the investment was not recorded in the books of account and that the assessee did not provide an explanation of the nature and source of those investments or that the explanation provided was not satisfactory in the opinion of the Assessing officer, only then could the investment be deemed to be his income.
It was submitted that in the present case the assessee had explained the nature and source of the investment and therefore he could not be burdened with the provisions of section 69 as the second ingredient was not met. Furthermore, if the AO was not satisfied with the explanation given by the Assessee, he was duty bound to give an opportunity to the assessee to be heard. Not doing so, violated the right of the assessee to explain the nature and source of the investment, violated the basis principles of natural justice.
The Tribunal expressed agreement that in view of the specific provisions of section 115BBE 1(a),once the incriminating material is unearthed during the course of survey and any investment is found, which is not found recorded in the regular books of accounts or found only partially recorded in the books of accounts, then even if the same is included in the return of income, it will still be liable to be assessed under section 69/69B and be brought to tax under the special provisions of section 115BBE.
The Tribunal further observed that the only circumstance in which it may not be treated so is if the Assessee was to indicate exactly how the money for the unexplained investment was generated and when it was generated and thereafter makes the necessary adjustments in his account to account for that escaped income, so that it may thereafter be assessed to tax under the appropriate head and in the appropriate year. Merely stating that the investment arose out of undeclared business income or undeclared rental income without undertaking this exercise, would not take the investment out of the ambit of section 69, even if it were to be subsequently incorporated in the subsequent return of income.
The Tribunal observed that in the instant case, during the course of survey, an unexplained investment was discovered which was subsequently admitted by the assessee. However, while the Assessee submitted that he had made this investment from his previously undisclosed business income and rental income, he did not undertake the exercise to bring those undisclosed incomes to tax. Therefore, by choosing to offer the same to tax in that very previous year without stating how or when the income was generated, he subjected himself to the rigours of section 69/69B.
The Tribunal further noted that the assessee reiterated the disclosure made during the survey, in a subsequent statement. The assessee was also given copies of all the impounded materials well before the filing of his return. However, the assessee did not include the said amount in either his books of accounts, or in his audited accounts, or in his return. Consequently, the amount remained undisclosed at the time of filing of the return. It was further observed that even if the assessee could not revise his return, nothing prevented him from paying the tax on the undisclosed investment that had been owned up by him at the time of survey.
The Tribunal further noted that taxes were not paid for nearly one year and 10 months after the date of survey. All these factors would indicate that the assessee, though he made a disclosure of sorts at the time of survey, did not follow through with the same and pay his due taxes, in a manner that would indicate his bonafide. Thus, the case of the assessee was still weaker than that of someone who discloses the amount in the subsequent return, in whose case also the liability for assessment under section 69 would still exist, unless the sources from which the disclosure was made was disclosed and offered for tax in the appropriate year.
The Tribunal further observed that it was only after the case of the assessee was picked up for scrutiny and the assessee was intimated about the same, that suddenly the assessee came forward to pay the tax. The assessee was still disclosing the investment at the rate recorded in the books of accounts. In the circumstances, since the investment was not recorded in the books of accounts, it was not recorded in the audit report and it was not disclosed in the return of income at the time of computation of income, it can only be taken as a partly undisclosed investment under section 69B.
The Tribunal opined that explaining the source does not mean explaining just the head of income but must also state how the undisclosed investment was earned and when it was earned. Merely stating the head of income from which the unexplained investment was generated without stating the actual source and when it was earned would not amount to an explanation within the meaning of section 69. Therefore, the assessee cannot escape the rigours of section 69.
The Tribunal noted that there was no explanation regarding the nature and source of such investments at all. The Hon’ble Supreme Court had held that the only valid disclosures are those which are made in accordance with the scheme laid down in the Act and that subsequent disclosures would not absolve the assessee from penal consequences, if the conduct of the assessee shows an intention to conceal.
The Tribunal opined that in the present case, the conduct of the assessee over nearly two years showed the intention to conceal. Therefore, the AO was right in bringing that portion which had not been disclosed to tax under the special provisions of section 69 and would be bound to thereafter levy the tax under the provisions of section 115BBE.
With respect to contention that section 69B ought to be applied and not section 69, the Tribunal opined that since the actions of the AO were quite clearly in accordance with the intent and purpose of the Act, section 292B will apply and the addition would not be hit on that count.
Accordingly, the Tribunal dismissed the grounds of appeal.
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