2020 (6) TMI 841 - AT - Income Tax

Assessee's unexplained investment addition deleted after proving amount belonged to HUF with consistent documentation

Shri C.M. Gopal, C/o. P. Murali & Company Versus DCIT, Central Circle-2, Hyderabad

ITAT Hyderabad allowed the assessee's appeal, deleting the addition made for unexplained investment. The assessee consistently maintained that the amount ... Unexplained investment and addition of interest thereon - before the lower authorities assessee has been consistently stating that the amount lent belongs to HUF and the transactions are already reflected in the return of income of the HUF and in support of which assessee has also placed on record copy of the balance sheet and the computation of income for A.Y. 2008-09 & 2009-10 - HELD THAT:-Without there being on material to be contrary, the return of income filed by HUF for A.Y. 2010-11 cannot be simply brushed aside. Before us, no material has been placed by Revenue to demonstrate that the submissions made by the assessee of the investment being of HUF is false or is not correct. Considering all, we are of the view that no addition on account of unexplained investment is called for in the case of the assessee. We, therefore, delete the addition made on account of unexplained investments. Appeal of the assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal are:Whether the addition of Rs. 1,73,500/- as unexplained investment in the hands of the assessee is justified, given that the amount relates to promissory notes allegedly lent out of HUF funds and reflected in the HUF's return of income filed after the date of search.Whether the addition of Rs. 18,480/- as interest income on the aforesaid unexplained investment is warranted.Whether the return of income filed by the HUF after the date of search can be accepted as valid and relied upon to establish the source of investment and interest income.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Legitimacy of Addition of Rs. 1,73,500/- as Unexplained InvestmentRelevant legal framework and precedents: The assessment was framed under section 143(3) read with section 153A of the Income Tax Act, which deals with assessments following search and seizure operations. Section 139(4) allows filing of a belated return within prescribed timelines, which if accepted, is considered a valid return. The principle that unexplained investments found during search can be added to income unless satisfactorily explained is well established.Court's interpretation and reasoning: The Assessing Officer (AO) disbelieved the assessee's claim that the promissory notes aggregating Rs. 1,73,500/- belonged to the HUF because the HUF's return of income for the relevant assessment year was filed after the date of search. AO considered the HUF return as an afterthought and held that the assessee failed to explain the source of the investment, thus making the addition as unexplained investment.The Commissioner of Income Tax (Appeals) upheld the AO's addition, agreeing that no satisfactory evidence was produced to link the investment to the HUF funds before the date of search.Before the Tribunal, the assessee's representative argued that the HUF return filed on 28.02.2011 was a valid return under section 139(4) and that the HUF was engaged in lending business, as evidenced by earlier years' returns showing interest income from such activities. The assessee contended that the AO and CIT(A) erred in disregarding the HUF return and the supporting documents without any contrary material from the Revenue.The Revenue representative contended that the return filed by the HUF after the date of search was an afterthought and that no evidence was provided to establish the availability of funds from which the amounts were lent.Key evidence and findings: The Tribunal noted that the assessee consistently maintained that the investment belonged to the HUF and placed on record copies of balance sheets and income computations for AY 2008-09 and 2009-10, showing interest receipts by the HUF. The HUF return for AY 2010-11 was filed after the search but was a valid return under section 139(4). No material was brought on record by the Revenue to disprove the assessee's claim.Application of law to facts: The Tribunal emphasized that the validity of the HUF return could not be lightly brushed aside merely because it was filed after the date of search. Since the return was valid and no contrary evidence was produced, the Tribunal held that the addition of Rs. 1,73,500/- as unexplained investment was not justified.Treatment of competing arguments: The Tribunal gave due consideration to the Revenue's argument that the return was an afterthought but found that absence of any contradictory material weakened the Revenue's stance. The consistent explanation by the assessee, supported by prior years' returns and computations, was accepted.Conclusion: The addition of Rs. 1,73,500/- as unexplained investment was deleted.Issue 2: Addition of Rs. 18,480/- as Interest Income on Unexplained InvestmentRelevant legal framework and precedents: Interest income on unexplained investments is liable to be added to the income of the assessee if the principal amount is treated as unexplained investment. The principle follows that if the principal addition is deleted, the consequential addition of interest also falls.Court's interpretation and reasoning: Since the Tribunal deleted the addition of unexplained investment, the consequential addition of interest income on that investment also did not survive.Key evidence and findings: The interest amount of Rs. 18,480/- was admitted in the HUF's return of income filed under section 139(4), which was accepted as valid by the Tribunal.Application of law to facts: The Tribunal applied the principle of consequential relief, holding that deletion of the principal addition necessarily entails deletion of the interest addition.Treatment of competing arguments: The Revenue's argument that the interest addition was justified because the principal was unexplained was rendered moot by the deletion of the principal addition.Conclusion: The addition of Rs. 18,480/- as interest income was deleted.3. SIGNIFICANT HOLDINGSThe Tribunal held:'In such a situation, without there being on material to be contrary, the return of income filed by HUF for A.Y. 2010-11 cannot be simply brushed aside.''Considering the totality of the aforesaid fact, we are of the view that no addition on account of unexplained investment is called for in the case of the assessee.''Since the addition on unexplained investment has been deleted, consequently, the addition of interest on such investments also does not survive and the addition on account of interest is also deleted.'Core principles established include the acceptance of a valid return filed under section 139(4) even if filed after the date of search, unless rebutted by contrary evidence, and the principle that deletion of unexplained investment leads to deletion of interest addition thereon.Final determinations:The addition of Rs. 1,73,500/- as unexplained investment was deleted.The addition of Rs. 18,480/- as interest income on the unexplained investment was deleted.