Case Law Details
Crystal Hatcheries Private Limited Vs ACIT (Karnataka High Court)
The Karnataka High Court dealt with an addition of ₹45 lakh made under Section 69 (unexplained investment) based on materials found during a search in a third party’s premises (developer). The assessee had earlier failed to satisfactorily explain the nature of the transaction before the authorities and the Tribunal, leading to confirmation of the addition. However, before the High Court, the assessee produced additional documents including sale deeds, ledger accounts, and confirmation of refund from the developer, to establish that the amount related to a property transaction that was later cancelled and refunded, and hence not an unexplained investment.
The Court held that if the assessee is able to substantiate the source and nature of the amount, even at a later stage, such explanation deserves consideration. Since the issue involves factual verification of documents, the matter was restored to the ITAT (final fact-finding authority) for fresh adjudication. Accordingly, the Tribunal’s order was set aside to the limited extent of the Section 69 addition, and all issues were kept open for reconsideration.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
This appeal is against a portion of the order dated 05.08.2025 [Annexure-A] by the Income-tax Appellate Tribunal, ‘A’ Bench, Bengaluru [for short, the Tribunal] in ITA No.256/Bang/2025. The Tribunal’s impugned common order in ITA Nos.251-257/Bang/2025 is relevant to the assessment years 2014-15 to 2020-21. The appellant/assessee has substantially succeeded in these appeals with the Tribunal allowing the appeal in ITA Nos. 251 to 255/Bang/2025 and ITA Nos.257/Bang/2025 in entirety and the appeal in ITA No.256/Bang/2025 [relevant to the assessment year 2019-20] partly.
2. The Tribunal has allowed this appeal in part confirming the orders of the Assessing Officer and the Commissioner of Income-Tax [Appeals] insofar as the additions made under Section 69 of the Income Tax Act, 1961 [for short, ‘the Act’]. The question of addition under Section 69 of the Income Tax Act [for short, ‘the IT Act’] has come up in these circumstances. (AJ A search is conducted on the premises of M/s Magna Homes and its partners. (BJ On perusal of certain content on Google Drive in the residence of Sri Damodar Reddy Marupuru [a partner of M/s Magnum Homes] certain loose sheets relating to the payment made by the appellant are found out.
3. The appellant has tried to show cause against addition of amount [Rs.45,00,000/-] so discerned contending that this was a concession that is shown to the common partners and also stating that this is related to the purchase price payable for Villa No.81 [Plot No.81] in Magna’s Majestic Meadows, but could not justify either and this has resulted in the Tribunal confirming the addition made. The appellant has proposed certain substantial questions of law that must be admitted for disposal of the appeal.
4. However, Sri A Mahesh Chowdhary, the learned counsel for the appellant, placing reliance upon documents produced along with a Memo in the present proceedings, contends that this Court will have to consider:
Whether an addition under Section 69 of the Act would be justified if the appellant, even at this stage, can demonstrate that the amount discerned during a search can be explained.
This question is admitted for consideration, and both Sri A Mahesh Chowdhary and Sri Dilip M, the learned counsel for the respondent, are heard for disposal of the appeal.
5. The appellant has produced copies of the Sale Deed dated 01.07.2021 executed by M/s Magna Homes and others in favour of a third party transferring Villa No.81 in the development called Magna’s Majestic Meadows, Kollur village, Ramachandrapuram Mandal, Sangareddy District, Telangana State with copies of certain permissions and approvals granted and an acknowledgment from M/s Magna Homes that certain amounts received between 2017-18 is refunded back on 23.02.2021 upon cancellation of the allotment and also stating that his subject villa has been transferred to a third party under the Sale Deed dated 01.07.2021. The appellant also relies upon the Ledger Accounts to justify both the initial transfer and the subsequent refund.
6. It is salient that an addition under Section 69 of the Act will be for an unexplained investment and if the Assessing Officer is not satisfied with the explanation offered about the nature and the source of investments. Until the Tribunal’s order, the appellant was not categorical in stating the transaction with M/s Magna Homes. The appellant has stated that it was some kind of concession.
However, the Sale Deeds and the Ledger Accounts [which contain the details of transfers of certain amounts by RTGS] will have to be considered in the light of the Letter of Acknowledgment issued by M/s Magna Homes to find out whether the amount added is an unexplained investment which the appellant cannot satisfactorily explain. The appellant’s case is that its representative could secure these documents after the Tribunal’s order.
7. This Court opines that the appellant’s case must be considered for a complete adjudication on the issue, and this must be considered by the Tribunal as that would be the last Forum for decision on the question of facts. This Court in making this observation to answer the question framed has also considered that the proceedings for addition under Section 69 of the Act are because of the material discerned during the search in the premises of a third person [a developer]. In the light of the afore, the following;
ORDER
The appeal is allowed in part and the Tribunal’s order dated 05.08.2025 is interfered with to the limited extent of restoring the appeal in ITA No.256/Bang/2025 for reconsideration of the question of addition under Section 69 of the Act relevant to the assessment year 2019-20 observing that all questions are left open to be duly considered.
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