Assessee proves identity and creditworthiness of capital contributors under section 68, additions deleted

The ITAT Chennai ruled against the revenue in a case involving additions under section 68 where the assessee initially could not furnish income tax returns of capital contributing entities. During appellate proceedings, it was established that notices under section 148 were issued to the contributing trusts, which filed returns subjected to scrutiny assessment. The AO accepted the returned income under section 147 read with section 144B, confirming deposits totaling Rs. 40.30 crores from two trusts as the source of the assessee's time deposits. The tribunal concluded the assessee successfully proved the identity, creditworthiness, and genuineness of transactions, rejecting the revenue's case.

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Issues:
Addition made u/s 68 - Identity and creditworthiness of the source of funds - Genuineness of the transaction - Assessment Year 2018-19.

Analysis:

Assessment Proceedings:
The case involved an appeal by the Revenue for Assessment Year 2018-19 against an order by the Commissioner of Income Tax, National Faceless Appeal Centre (NFAC). The primary issue was the addition made by the Assessing Officer (AO) under Section 68 of the Income Tax Act. The assessee, a resident firm engaged in investment, had made a significant investment in a foreign entity. The source of this investment was primarily from a trust, Iwell Trust, which failed to provide its Income Tax Return and financial statements. The AO concluded that the trust's sole purpose was to channel funds to the assessee for investment, lacking proof of the source's identity, creditworthiness, and transaction genuineness.

Appellate Proceedings:
During the appellate proceedings, the assessee argued that Iwell Trust, being a private discretionary trust, was not required to file an Income Tax Return. It was highlighted that the trust had eventually filed a return in response to a notice under Section 148. The CIT(A) considered the submissions, including fund flow details, bank statements, and foreign remittances, and concluded that the requirements of Section 68 were met. The trust's source of funds was traced back to other trusts, and the impugned additions were deleted based on the provided evidence.

Findings and Adjudication:
The Tribunal found that the investment by the assessee sourced from Iwell Trust was legitimate, with clear documentation supporting the flow of funds. Although the Income Tax Return of Iwell Trust was initially unavailable, it was later filed and accepted after scrutiny assessment. The AO's doubts regarding the source of funds were dispelled, as the deposits were traced back to other trusts. Consequently, the Tribunal upheld the CIT(A)'s decision, stating that the identity, creditworthiness of the investor, and transaction genuineness were adequately established, warranting no interference with the impugned order.

The appeal was dismissed, affirming the deletion of the addition made under Section 68 for Assessment Year 2018-19.

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