Case Law Details
Facts of the case – The assessee is engaged in agricultural and allied activity. This company is one of the group companies constituted by Shri B.Ramalinga Raju and his family members. During the course of scrutiny proceedings, the Assessing Officer called for the books of account of the assessee, wherein it was found that there were certain additions to the fixed assets during the previous year relevant to the assessment year under consideration. The assessee was called upon to explain the source of such investments. In the opinion of the Assessing Officer, the company failed to produce any evidence in support of the additions to the fixed assets, and therefore, the same were treated as unexplained investments in the hands of the assessee under S.69 of the Act. The Assessing Officer thus made an addition of Rs.4,52,713 under S.69 of the Act.
Contention of the Assessee – Assessing Officer wrongly invoked S.69 of the Act, as in fact, credit in the bank account is self-explanatory to the fact that the payment was by way of fund transfer. The Assessing Officer, having accepted the Liability Side of the Balance Sheet, is not justified in isolating the ‘Assets Side’ of the Balance Sheet, since source of investment is proved.
Observation of CIT (A)– CIT(A) observed that these expenses/investments were not items of expenditure that were debited to Profit & Loss Account; more importantly, they cannot be called as ‘unexplained’, as they are extracted from ‘Application of Funds’ and the Asset Side of the Balance Sheet. In other words, the source of fund is explained. Though the learned CIT(A) observed that these cannot be treated as unexplained, he proceeded on a different footing that if the expenses were capitalized, the allowance of the same as expenditure can be considered in a subsequent year, i.e. as and when the lands are sold. This implies that the led CIT(A) has not given a categorical finding about the source of funds or application of funds and the final observations are based on incorrect appreciation of facts.
Held by ITAT- Admittedly, assessees have made investments in fixed assets and the source of such investments was the inflow available on the Liability Side of the Balance Sheet. Since the Assessing Officer has not properly appreciated the facts, before the learned CIT(A), the source was explained, and the same was accepted by the learned CIT(A). Having accepted the source of funds, there cannot be any addition made in this year and even in the subsequent year, i.e. in the year of sale, the source of investment cannot be disputed. Therefore, the learned CIT(A) is not justified in giving direction to the Assessing Officer to consider the source of investment in the year of sale. In these circumstances, we set aside the directions of the learned CIT(A) and hold that it is not a fit case for making the addition under S.69 of the Act.
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