Revenue loses unexplained investment case after accepting favorable Balance Sheet portions while demanding proof of others u/s 69

ITAT Chennai ruled against revenue in an unexplained investment case u/s 69. AO made addition based on seized loose sheets containing Balance Sheets found during search, requiring assessee to substantiate creditor details. CIT(A) deleted the addition. ITAT held that AO erred by accepting favorable portions of Balance Sheet while demanding substantiation of other parts. The tribunal emphasized that seized documents create presumption of correctness, and assessee cannot be obligated to prove only selective portions. ITAT upheld CIT(A)'s deletion, finding the addition unsustainable as required additions were already made for discrepancies and post-search period income.

---

---

Issues Involved:
1. Deletion of addition towards unexplained investment assessed under Section 69 of the Income Tax Act, 1961.
2. Condonation of delay in filing the appeal.

Condonation of Delay:
The Registry noted a delay of 17 days in filing the appeal, which was condoned as the respondent did not object, and the appeal was admitted for adjudication on merits.

Issue 1: Deletion of Addition towards Unexplained Investment:

Assessment Proceedings:
The assessee, engaged in the purchase and sale of foreign currency, was subjected to a search on 12-05-2016, resulting in the seizure of certain loose papers. The Ld. AO made an addition of Rs. 209.48 Lacs based on a balance sheet dated 03-05-2016 found during the search, reflecting stock, cash, and receivables totaling Rs. 256.55 Lacs. The assessee claimed that the liability side of the balance sheet, showing capital and sundry creditors, explained the sources of these assets. However, the Ld. AO rejected this explanation due to a lack of detailed information about the creditors and capital balance, thus adding the amount as unexplained investment under Sections 69 and 69A of the Act.

Appellate Proceedings:
The assessee appealed against the additions, arguing that the balance sheet as on 11-05-2016 was more relevant and that the Ld. AO selectively considered only favorable figures. The Ld. CIT(A) observed that the entire seized document should be considered, not just selective entries. The Ld. CIT(A) noted that the Ld. AO ignored the liabilities that explained the sources of the assets. The Ld. CIT(A) deleted the addition, emphasizing that the Ld. AO's selective approach was not justified.

Our Finding and Adjudication:
The Tribunal concurred with the Ld. CIT(A)'s findings, stating that the Ld. AO's approach of accepting only part of the balance sheet and ignoring the liabilities was erroneous. The balance sheet as on 11-05-2016, being the latest, was considered more relevant. The Tribunal upheld the deletion of the addition, noting that the Ld. CIT(A) had already accounted for discrepancies in the capital account and estimated income for the post-search period.

Conclusion:
The appeal was dismissed, and the deletion of the addition of Rs. 209.48 Lacs was upheld. The order was pronounced on 30th August 2023.

---