ITAT Remands Section 69A Addition After Holding AO Failed to Verify Creditworthiness of Donors [Read Order]

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has remanded a case involving addition towards unexplained investment under Section 69A of the Income Tax Act, 1961, back to the Assessing Officer. It was held that proper enquiry into the creditworthiness of the alleged donors was not carried out before making the addition.

The appeal was filed by Sanjitha Reddy, challenging an order passed by the National Faceless Appeal Centre (NFAC). The order confirmed an addition of ₹71.23 lakh under Section 69A for the assessment year 2016-17. The addition arose in respect of cash allegedly paid for purchase of immovable property, which was viewed as unexplained investment.

The reassessment proceedings were initiated under Section 148 based on information that the assessee had purchased a property. During the proceedings, the Assessing Officer obtained a copy of the sale deed from the seller under Section 133(6) and noted that the property was purchased for a consideration of ₹66.82 lakh along with registration charges of ₹4.41 lakh.

In response to the show cause notice, the assessee explained that the funds used for purchase of the property were received as gifts from her relatives and furnished affidavits from the donors in support of her claim. It was also contended that gifts received from relatives were exempt in terms of the first proviso to Section 56(2)(x) of the Act.

However, the Assessing Officer rejected the explanation on the ground that the creditworthiness of the donors was not established and proceeded to make the addition. The assessment order was upheld by CIT(A), NFAC.

The Bench, comprising Laxmi Prasad Sahu (Accountant Member) and Soundararajan K. (Judicial Member), examined the records and noted that while the assessee had furnished affidavits explaining the source of funds, the Assessing Officer did not independently enquire about the genuineness or creditworthiness of the donors.

The Tribunal observed that once the assessee had discharged her initial onus by filing affidavits, it was upon the Assessing Officer to verify the same by issuing summons or calling for information under Section 133(6) before drawing conclusions. It held that the Assessing Officer failed to conduct such enquiry and made the addition without bringing any contrary material on record.

As a result, the Tribunal set aside the orders of the lower authorities and remitted the issue back to the file of the Assessing Officer for fresh consideration. Accordingly, the appeal filed by the assessee was allowed.

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