Sale proceeds from earlier-acquired equity shares: can they be taxed as unexplained money u/s 69A due to payer's creditworthiness? Addition deleted.

Whether consideration received on sale of an investment could be treated as "unexplained money" u/s 69A merely because the payer entity allegedly lacked creditworthiness was the dominant issue. The ITAT held that where the investment (equity shares) had been acquired in an earlier AY and the acquisition stood accepted by the Revenue without adverse inference, the corresponding sale in a subsequent year could not be doubted as non-genuine. It further affirmed that s. 69A applies only to money or assets not recorded in the assessee's books; here, the sale consideration was duly recorded. Consequently, the deletion of the addition was sustained and the Revenue's appeal was dismissed.

---

---

1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the amount received by the assessee on sale of an investment in equity shares, which was recorded in the books of account and whose purchase had been accepted in earlier years, could be treated as unexplained money under section 69A.

(ii) Whether the deletion of the addition was justified where the Assessing Officer primarily relied on external information and did not carry out proper enquiry to rebut the assessee's claim regarding the sale of shares.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Applicability of section 69A to recorded sale consideration of shares

Legal framework (as discussed by the Court/Tribunal): The Tribunal accepted the finding that section 69A applies to monies/assets/articles/things which are not recorded in the assessee's books of account.

Interpretation and reasoning: The Tribunal noted that the assessee's receipt of sale consideration for the equity shares was duly shown in the books of account. It also found that the equity shares sold had been held since earlier years and the investment (purchase/holding) had been accepted by the Revenue without adverse inference in those years. On these facts, once the investment itself stood accepted, the Tribunal held that the corresponding sale in a later year could not be doubted as non-genuine in the manner done, and the receipt could not be brought to tax as "unexplained money" under section 69A when it was recorded in the accounts.

Conclusion: The addition under section 69A was held unsustainable because the sale consideration was recorded in the books and the underlying investment had been accepted in earlier years; therefore, the deletion of the addition was upheld.

Issue (ii): Sufficiency of enquiry and reliance on external information

Legal framework (as discussed by the Court/Tribunal): The Tribunal proceeded on the basis that the Assessing Officer must apply an independent mind to the facts and conduct proper enquiry rather than merely relying on external inputs.

Interpretation and reasoning: The Tribunal affirmed the finding that the Assessing Officer did not conduct adequate enquiry to rebut the assessee's explanation regarding sale of long-held shares, and had largely relied upon external information. The Tribunal further emphasized that the transaction was reflected in the assessee's books, and the shareholding had been accepted historically, supporting the assessee's claim of genuineness of the sale transaction.

Conclusion: In the absence of proper enquiry capable of dislodging the assessee's recorded transaction and accepted investment position, the deletion of the addition was justified and the Revenue's challenge failed.

---