Explained source of investment upheld where accumulated salary receipts and credited interest in books defeated unexplained investment treatment.

Accumulated salary receipts recorded in the books of a proprietary concern were accepted as the explained source of an investment, because the salary had been offered to tax in earlier years and interest was credited year after year on the unpaid balance. The transactions were duly reflected in the books, and the concern had also declared income under the presumptive scheme. On those facts, the source of funds stood explained and the addition as unexplained investment could not be sustained. The ITAT therefore deleted the addition of Rs. 44 lakh.

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Issues: Whether the addition of Rs. 44 lakh made as unexplained investment was sustainable when the assessee explained that the underlying funds represented accumulated salary receipts reflected in the books of M/s. Sudhir Agencies and generated interest income year after year.

Analysis: The assessee had been receiving salary from M/s. Sudhir Agencies in earlier years also, and the salary income had been offered to tax year by year. The unpaid salary accumulated in the books of the proprietary concern, and interest was credited on such accumulated balance. The transactions were recorded in the books, and the concern had also declared income under section 44AD of the Income-tax Act, 1961. On these facts, the source of the investment giving rise to the interest income stood explained, and there was no basis to treat the amount as unexplained investment under section 69.

Conclusion: The addition of Rs. 44 lakh was deleted and the assessee succeeded on merits.

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