Case Note & Summary
The appellant-assessee, Babulal C. Borana, a dealer in HDPE plastic powder, filed an appeal under section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT) dated 3rd August 2000 for the assessment year 1988-89. The core issue was whether 400 bags of HDPE powder found during a search under section 132 at a godown belonging to M/s Wak Bros. could be treated as unexplained investment under section 69 of the Act. The assessee had recorded 540 bags of HDPE powder in its books of accounts as purchases and closing stock. During the search on 29th January 1987, 540 bags were found at the godown. The Assessing Officer (AO) treated 400 bags as unexplained investment, which was upheld by the Commissioner of Income Tax (Appeals) and the ITAT. The High Court framed the question of law and held that since the goods were part of the recorded purchases and closing stock in the books of accounts maintained by the assessee, and the assessee had duly explained the nature and source of the investment, section 69 was not applicable. The court allowed the appeal, set aside the ITAT's order, and directed the AO to delete the addition of the value of 400 bags of HDPE powder.
Headnote
A) Income Tax - Unexplained Investment - Section 69 of Income Tax Act, 1961 - Goods recorded in books of accounts cannot be treated as unexplained investment - The assessee, a dealer in HDPE plastic powder, had recorded 540 bags of HDPE powder in its books as purchases and closing stock. During a search under section 132, 540 bags were found at a third-party godown. The ITAT directed addition of 400 bags as unexplained investment under section 69. The High Court held that since the goods were already recorded in the books of accounts and the assessee had explained the nature and source of investment, section 69 was not applicable. The court allowed the appeal and set aside the ITAT's order. (Paras 3-6)
Issue of Consideration
Whether on the facts and in the circumstances of the case the ITAT was right in law 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 a part of the purchases and part of the closing stock recorded in the books of accounts maintained by the assessee and the nature and source of the investment has been duly explained by the assessee?
Final Decision
The appeal is allowed. The order of the ITAT dated 3rd August 2000 is set aside. The Assessing Officer is directed to delete the addition of the value of 400 bags of HDPE powder made under section 69 of the Income Tax Act, 1961.
Law Points
- Section 69 of Income Tax Act
- 1961 applies only to unexplained investments not recorded in books of accounts
- goods found during search but already recorded in books cannot be treated as unexplained investment
- burden of proof shifts to revenue when assessee explains nature and source of investment
Case Details
2005 LawText (BOM) (01) 101
Income Tax Appeal No.1311 of 2000
S. Radhakrishnan, J.P. Devadhar
Arun P. Sathe for appellant, R.V. Desai with R. Asokan for respondents
3rd Income Tax Officer, Ward No.17, Mumbai; Commissioner of Income-tax, Mumbai; The Registrar, Income Tax Appellate Tribunal, Mumbai; Union of India Through Ministry of Law, Mumbai
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Nature of Litigation
Income tax appeal under section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal.
Remedy Sought
The appellant-assessee sought to set aside the ITAT's order directing addition of value of 400 bags of HDPE powder as unexplained investment under section 69.
Filing Reason
The assessee challenged the ITAT's order that upheld the addition of 400 bags of HDPE powder as unexplained investment under section 69, despite the goods being recorded in the books of accounts.
Previous Decisions
The Assessing Officer treated 400 bags as unexplained investment under section 69, which was confirmed by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal.
Issues
Whether goods recorded in books of accounts as purchases and closing stock can be treated as unexplained investment under section 69 of the Income Tax Act, 1961.
Submissions/Arguments
The appellant argued that the 400 bags of HDPE powder were part of the recorded purchases and closing stock in the books of accounts, and the nature and source of investment were duly explained.
The respondents supported the ITAT's order that the addition was justified under section 69.
Ratio Decidendi
Section 69 of the Income Tax Act, 1961 applies only to unexplained investments which are not recorded in the books of accounts. Where the assessee has recorded the goods in its books of accounts as purchases and closing stock and has explained the nature and source of the investment, no addition under section 69 can be made.
Judgment Excerpts
Short point of law required to be considered in this appeal is:- 'Whether on the facts and in the circumstances of the case the ITAT was right in law 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 a part of the purchases and part of the closing stock recorded in the books of accounts maintained by the assessee and the nature and source of the investment has been duly explained by the assessee ?'
Since the goods in question are part of the purchases and part of the closing stock recorded in the books of accounts maintained by the assessee and the nature and source of the investment has been duly explained by the assessee, the provisions of section 69 are not attracted.
Procedural History
The Assessing Officer made an addition of the value of 400 bags of HDPE powder as unexplained investment under section 69 for AY 1988-89. The Commissioner of Income Tax (Appeals) confirmed the addition. The Income Tax Appellate Tribunal upheld the addition by order dated 3rd August 2000. The assessee filed an appeal under section 260A before the Bombay High Court, which allowed the appeal on 17th January 2005.
Acts & Sections
- Income Tax Act, 1961: 69, 132, 260A
