The Calcutta High Court has dismissed an appeal filed by the Principal Commissioner of Income Tax-1, Kolkata, against the order of the Income Tax Appellate Tribunal (ITAT), Kolkata, which had directed deletion of a ₹19.21 crore addition made under Section 69 read with Section 115BBE of the Income Tax Act, 1961.
The Bench of Justice Rajarshi Bharadwaj and Justice Sudip Deb has observed that the ITAT had examined the relevant bank accounts and audited balance sheets before concluding that the investments and loans and advances were properly explained.
The bench found no perversity or illegality in the Tribunal’s factual findings and consequently held that no substantial question of law arose for consideration.
The department had challenged the Tribunal’s decision to delete additions made by the Assessing Officer (AO), contending that the Tribunal had erred in accepting the assessee’s explanation regarding investments, loans and advances.
The department raised several proposed substantial questions of law, principally concerning whether the ITAT was justified in deleting an addition of ₹19,21,00,329 under Section 69 read with Section 115BBE, particularly when, according to the Revenue, the investments and advances had been brought forward from the preceding year and there were alleged deficiencies in the supporting documents.
The department also questioned the Tribunal’s appreciation of the assessee’s bank statements, ledger accounts and audited balance sheets and alleged that the assessee had not furnished sufficient material to enable verification of the transactions.
Another contention was that the case had been selected for scrutiny through the Computer-Assisted Scrutiny Selection (CASS) system for verification of loans, advances, investments and high-value transactions. The Revenue argued that the relief granted by the Tribunal was contrary to the requirement of proper verification by the Assessing Officer.
The High Court noted that the assessee had filed its return of income for AY 2018-19 declaring nil total income.
The case was subsequently selected for scrutiny through CASS for verification of transactions relating to investments, advances and loans.
During assessment proceedings, the Assessing Officer noticed credits of ₹1,69,69,098 and ₹1,68,47,661 in the assessee’s bank accounts. According to the AO, the assessee had failed to satisfactorily explain the source of these credits.
The AO consequently treated ₹3,88,16,759 as unexplained money under Section 69 of the Income Tax Act and added the amount to the assessee’s total income.
The assessment proceedings also revealed substantial amounts reflected in the company’s balance sheet under investments and loans and advances.
The AO noted ₹6,74,64,000 under investments in unlisted shares; and ₹12,46,36,329 under short-term loans and advances.
According to the AO, the assessee had failed to explain the source of these assets. Accordingly, the aggregate amount of ₹19,21,00,329 was added to the total income under Section 69 read with Section 115BBE.
The matter was carried in appeal before the Commissioner of Income Tax (Appeals).
The CIT(A) upheld the assessment order, thereby sustaining the additions made by the Assessing Officer.
The assessee thereafter preferred an appeal before the Income Tax Appellate Tribunal under Section 253 of the Income Tax Act.
The ITAT, after hearing the parties, set aside the order of the Commissioner and directed the Assessing Officer to delete the additions.
The Calcutta High Court specifically noted that the Tribunal had examined the assessee’s IDBI and UBI bank accounts as well as the audited balance sheets for the relevant years.
The Tribunal had considered the investments aggregating to ₹6,74,64,000 and advances to others amounting to ₹12,46,36,329, which had been questioned by the Assessing Officer on the ground that supporting documents had not been furnished and the transactions remained unexplained.
However, after examining the bank accounts and audited financial statements, the ITAT concluded that the assessee had been able to explain the transactions.
The Tribunal found that the investments and advances were disclosed in the books of account and had come over from the preceding assessment year. On that basis, it held that the amounts could not be treated as unexplained investments.
The Tribunal accordingly set aside the order of the CIT(A) and directed the AO to delete the addition.
The Division Bench proceeded to examine the statutory framework governing the Revenue’s case.
Section 69 deals with investments which are not recorded in the books of account. The provision applies where the assessee either offers no explanation regarding the nature and source of the investment or where the explanation offered is not considered satisfactory by the Assessing Officer.
The Court noted that the provision therefore comes into play in circumstances where the investment remains unexplained in accordance with the statutory requirements.
The Court also considered Section 115BBE, which prescribes the tax treatment applicable to income referred to in provisions including Sections 68, 69, 69A, 69B, 69C and 69D.
The Court observed that Section 115BBE applies in relation to taxation of income where investments or other amounts fall within the scope of Section 69 and remain unexplained.
A key aspect of the High Court’s reasoning was that the ITAT had, on examination of the material before it, recorded a factual finding that the investments and loans and advances were properly explained.
The High Court observed that Section 69 applies only where the assessee fails to offer an explanation regarding the nature and source of the investments, or where the explanation offered is not satisfactory.
In the present case, however, the Tribunal had considered the documents and found that the relevant investments and loans and advances had been properly explained.
The High Court therefore held that the Tribunal’s order could not be characterised as perverse.
The Bench placed particular emphasis on the role of the ITAT as the last fact-finding authority in the income-tax appellate hierarchy.
The Court held that the Tribunal had considered the relevant facts and documents, including the bank accounts and audited financial statements, before arriving at its conclusion that the assessee had satisfactorily explained the investments and loans and advances.
Since those factual findings had been properly appreciated and dealt with by the Tribunal, the High Court found no perversity or illegality warranting interference in the appeal.
Ultimately, the Calcutta High Court concluded that the questions raised by the Revenue did not constitute substantial questions of law requiring admission of the appeal.
The Bench held that the ITAT had properly dealt with the relevant factual issues and that its findings were neither perverse nor illegal.
The Court dismissed the Revenue’s appeal, along with the connected stay application. There was no order as to costs.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
