ITAT deletes ₹126.58 lakh addition, holding that Section 69 cannot treat duly recorded investments as unexplained merely due to source inquiries.
ITAT: Section 69 Cannot Target Investments Recorded in Books
The Income Tax Appellate Tribunal (ITAT) has deleted an addition of ₹126.58 lakh, ruling that Section 69 of the Income Tax Act cannot be invoked to treat investments as unexplained simply because the taxpayer is asked to explain their source. The investments in question were fully disclosed and recorded in the company’s books of account.
The AO had invoked Section 69, alleging that the source of investments by shareholders was not adequately explained. However, the Tribunal emphasized that once an investment is entered in audited financial statements, it cannot be treated as 'unexplained' without evidence of falsity or sham creation. Mere inability to produce source documents, in the absence of contradiction or fraud, does not justify treating it as undisclosed income.
Duly recorded entries in audited books shift the burden to the Department to disprove genuineness; they cannot be treated as unexplained solely for want of source evidence.
This ruling strengthens taxpayer rights in cases involving share subscriptions and capital infusion. Practitioners should resist blanket applications of Section 69 where transactions are properly accounted for and backed by underlying commercial intent.
Citations
- Section 69, Income Tax Act, 1961
