Case Note & Summary
The appeal was filed by the assessee, Babulal C. Borana, a dealer in HDPE plastic powder, under Section 260A of the Income Tax Act, 1961 against the decision of the Income Tax Appellate Tribunal (ITAT) dated 3rd August 2000. The assessment year in question was 1988-89. On 29th January 1987, a search action under Section 132 of the I.T. Act was carried out at a godown belonging to M/s Wak Bros. situated at Andheri (E), Mumbai. During the search, 540 bags of HDPE plastic powder weighing 25 kgs each were found. The Assessing Officer (A.O.) treated 400 bags out of these as unexplained investment under Section 69 of the Act and added their value to the assessee's income. The assessee contended that the 400 bags were part of the purchases and closing stock recorded in the books of accounts maintained by him, and the nature and source of the investment had been duly explained. The ITAT, however, upheld the A.O.'s action and directed the addition. The short point of law considered by the High Court was whether the ITAT was right in directing the A.O. to make additions of the value of 400 bags of HDPE powder as unexplained investment under Section 69 when the same is part of the purchases and closing stock recorded in the books of accounts and the nature and source of the investment have been duly explained by the assessee. The court held that since the assessee maintained books of accounts and the stock was duly recorded, Section 69 could not be invoked. The ITAT's direction to add the value as unexplained investment was set aside. The appeal was allowed.
Headnote
A) Income Tax - Unexplained Investment - Section 69 of Income Tax Act, 1961 - The issue was whether 400 bags of HDPE powder found during search could be treated as unexplained investment under Section 69 when the assessee had recorded them as part of purchases and closing stock in books of accounts and had explained the nature and source. The court held that since the assessee maintained books of accounts and the stock was duly recorded, Section 69 could not be invoked. The ITAT's direction to add the value as unexplained investment was set aside. (Paras 3-5)
Issue of Consideration
Whether the ITAT was right in directing the A.O. to make additions of the value of 400 bags of HDPE powder as unexplained investment under section 69 of the Income Tax Act, 1961 when the same is part of purchases and closing stock recorded in books and nature and source of investment have been duly explained by the assessee.
Final Decision
The appeal is allowed. The ITAT's direction to add the value of 400 bags of HDPE powder as unexplained investment under Section 69 is set aside.
Law Points
- Section 69 of Income Tax Act
- 1961 applies only when assessee fails to explain nature and source of investment
- unexplained investment cannot be inferred when purchases and closing stock are recorded in books and explanation is satisfactory.
