2024 (8) TMI 1674 - AT - Income Tax

Undisclosed investments and unsecured loans: documentary evidence upheld; additions deleted where AO made no independent inquiry

Assessing officer's additions treating share investments and unsecured loans as non-genuine were reversed because the assessee produced confirmations and ... Additions relating to investment in shares of a company as well as unsecured loans availed - HELD THAT:- In course of assessment proceedings, the assessee had furnished all documentary evidences, including confirmations from the concerned parties to prove the genuineness of the transactions relating to both the investments in shares and availing of unsecured loans. AO has not taken care to analyze and inquire into the evidences furnished by the assessee. No effort has been made by the AO to disprove and discredit them. Without making any inquiry on his own or even establishing on record that evidences furnished by the assessee are not valid, the AO could not have proceeded to treat the investments in shares and unsecured loans availed as nongenuine. It is prima facie evident, the AO has treated the transactions between the assessee and M/s. Vidya Shankar Investments Pvt. Ltd. and M/s. Index Securities & Research Pvt. Ltd. as non-genuine, merely, relying upon the observations made by the DCIT, Central Circle in the communications sent to the AO. No independent inquiry at all has been made by the AO to verify the genuineness of the transactions. Thus, in our view, the additions made purely on conjecture and surmises cannot survive. Accordingly, we direct the AO to delete the additions representing undisclosed investments in shares and unsecured loans. Undisclosed investment in jewellery - There is nothing on record to suggest that the jewellery was found from the possession of the assessee. It is a fact on record that affidavits have been filed by the assessee and Smt. Rajni Aggarwal stating that the jewellery valued at Rs. 9,50,000/- belongs to the assessee and remaining jewellery belongs to other family members. When the jewellery was found in a residential premise cohabited by various family members, it is not understood how the AO can apportion the jewellery in equal proportion without identifying the person to whom the jewellery in reality belongs. Moreso, when two of the ladies have come forward to claim that the assessee owned jewellery worth Rs. 9,50,000/- only. Without establishing on record that the jewellery found is equally owned by all the three ladies, addition could not have been made on estimate basis. Thus, we are inclined to hold that the addition made is unsustainable. So far as the contention of DR that this ground cannot be entertained, as it was not raised before the first appellate authority, we are of the view that the assessee did raise the issue before learned first appellate authority in her submissions. Hence, the contention of DR cannot be accepted. AO is directed to delete the addition. Issues: (i) Whether investments in shares treated as unexplained investment under section 69B are genuine; (ii) Whether unsecured loans treated as unexplained cash credits under section 68 are genuine; (iii) Whether undisclosed investment in jewellery treated as unexplained investment under section 69B is exigible.Issue (i): Unexplained investment in purchase of shares under section 69B of the Income-tax Act, 1961 (amount Rs. 1,84,17,025/-).Analysis: Documentary evidence including confirmations, bank statements, MOA and filings before corporate authorities were furnished to establish identity, capacity and genuineness. Communications from another tax authority alleging that the companies are paper entities did not include or produce the incriminating material for assessment scrutiny and were not independently verified by the Assessing Officer. Prior assessments under section 143(3) read with section 153C and appellate/tribunal/high court decisions testing the genuineness of those companies are on record and adverse material to displace the assessee's evidentiary showing is absent.Conclusion: Addition under section 69B in respect of share investments is deleted and outcome is in favour of the assessee.Issue (ii): Unsecured loan treated as unexplained cash credit under section 68 of the Income-tax Act, 1961 (amount Rs. 47,89,760/-).Analysis: The assessee produced confirmations and documentary proof of the loans. The Assessing Officer relied primarily on third-party communications alleging accommodation entries without conducting independent inquiries or confronting and disproving the assessee's evidence. Earlier appellate and judicial decisions addressing genuineness of the concerned entities weigh against treating the loans as unexplained cash credits on conjecture.Conclusion: Addition under section 68 in respect of unsecured loans is deleted and outcome is in favour of the assessee.Issue (iii): Undisclosed investment in jewellery under section 69B of the Income-tax Act, 1961 (amount Rs. 26,25,776/-).Analysis: Jewellery alleged to be found at a residential premises occupied by multiple family members. Affidavits were filed identifying jewellery belonging to the assessee (valued within claimed limits) and to others. The Assessing Officer apportioned total value equally among three persons without identification of actual possession or independent evidence to support equal division. No material establishes that the jewellery was in the assessee's exclusive possession or proves ownership in equal shares.Conclusion: Addition in respect of jewellery is deleted and outcome is in favour of the assessee.Final Conclusion: All contested additions on merits are unsustainable and the appeal is allowed.Ratio Decidendi: Additions based on conjecture or sole reliance on third-party seizure communications without independent verification or contrary material do not survive where the assessee has produced credible documentary evidence discharging the burden to prove identity, creditworthiness and genuineness of transactions.