Rs 1.90 Crore FDR Renewal Not a Fresh Investment: ITAT Upholds Deletion of Addition u/s 69 [Read Order]

The assessee, Continental Construction Ltd, a limited company incorporated in 1962, was once among India’s leading construction companies and had executed major projects in India and abroad, including in Iraq and Libya. However, the outbreak of the Iran–Iraq war in 1980 and the Gulf War in 1990 forced the assessee to abandon its operations overseas, leaving behind assets, equipment, and receivables.

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This prolonged disruption led to severe financial distress, closure of offices in India, disputes among directors, and seizure of bank accounts by the Income Tax Department. Due to these circumstances, the company’s accounts remained unaudited for several years, and the return of income for A.Y. 2018–19 could not be filed.

In the absence of a return, the Assessing Officer completed the assessment based on information available in Form 26AS and made an addition of Rs. 1.90 crore under Section 69, treating a fixed deposit appearing in bank records as an unexplained investment. The AO observed that the assessee had failed to produce earlier FDR copies and therefore presumed it to be a fresh investment from undisclosed sources.

Aggrieved by the order of the AO, the assessee, before the CIT(A), explained that the fixed deposits were originally made as performance security for bank guarantees with State Bank of India, UCO Bank, and SBI Exim Bank, and were renewed from time to time.

Specifically, an earlier deposit matured on and Rs. 1,99,12,379 was credited to the assessee’s account, out of which a new FDR for Rs. 1,90,00,000 was immediately created on the same day.

The assessee contended before the CIT(A) that this was only a renewal of an existing deposit and not a new investment, emphasising that the company had become defunct and had no income or business receipts during the year.

The CIT(A) examined the assessee’s detailed submissions and the supporting bank records and found that the fixed deposits were originally made as security for bank guarantees with State Bank of India, UCO Bank, and SBI Exim Bank. These deposits had been renewed periodically, and some were closed when the corresponding guarantees were released.

The CIT(A) also noted that the company had become defunct, had no operational receipts during the year, and therefore, there was no question of any undisclosed income being used for investment.

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The CIT(A) held that the AO could have verified the details directly from the bank instead of drawing adverse conclusions. Accordingly, the addition of Rs. 1.90 crore under Section 69 was deleted, and the appeal of the assessee was allowed on this ground.

Aggrieved by this order, the Revenue filed an appeal before the Tribunal.

The assessee argued before the Tribunal that the alleged Rs. 1.90 crore FDR was not a fresh investment but a renewal of an existing fixed deposit that had matured on 29.12.2017. On the same day, the matured amount of Rs. 1,99,12,379 was credited, and a new FDR for Rs. 1,90,00,000 was issued, indicating reinvestment, not new funds.

It was further submitted that the FDs were originally linked to bank guarantees given to public authorities like the HP Electricity Board, a routine business requirement. Also, the company had no operational income or business receipts during the year; hence, there could be no undisclosed income.

It was also submitted that the non-availability of old FDR copies was due to bank access difficulties and internal disputes, but this did not mean the deposit was unaccounted for.

The Tribunal noted that the pattern of transactions clearly showed closure and renewal of existing FDs and not any new investment. It was further observed that the AO’s inference was unreasonable, as the evidence (bank statements) demonstrated the flow from closure to renewal on the same day. The Tribunal opined that the CIT(A)’s reasoning that the assessee had no business income and the renewal was part of earlier deposits was found sound and factually correct.

Accordingly, the two-member bench comprising Satbeer SinghGodara ( Judicial Member ) and S. Rifaur Rahman (Accountant Member) upheld the CIT(A)’s order and dismissed the Revenue’s appeal.

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