ITAT Remands Case on Unexplained Capital Introduction under Section 69A for Fresh Assessment

The assessee (Vimalkumar Prakashchandra Jain), running Kalptaru Traders and a partner in firms, filed his FY 2017-18 return showing Rs. 6.93 lakh income. The IT Department questioned his Rs. 2.47 crore investment in M/s Vrundavan Corporation, treating it as unexplained income under Section 69A.

Assessee runs his own business named Kalptaru Traders and also earns income as a partner in some partnership firms, plus some other income sources. For the financial year 2017-18 (which corresponds to Assessment Year 2018-19), he filed his income tax return on October 18, 2018, showing a total income of Rs. 693,710.

Later, on information it find out that this person is a partner in a firm called M/s Vrundavan Corporation and that he had put in Rs. 2.47 crore as capital (investment) into that firm during financial year 2017-18.

The Income Tax Department sent the person a notice asking for details about the money he invested. He only replied partly and didn’t give full information. Because of that, the tax officer passed an ex-parte assessment order.

The officer then said that the money he had put in as share capital was unexplained and treated it as his hidden income under Section 69A of the Income Tax Act. As a result, the officer added tax on that unexplained amount and raised a tax demand against him.

The assessee was not satisfied with the decision and filed an appeal before the learned CIT(A). During the appeal, the assessee showed that the Rs. 2.47 crore invested in M/s Vrundavan Corporation came from his own bank account, with proper check numbers and bank details. He also provided proof of loans he had taken (with PAN, ITR, and confirmations from lenders).

All the money was transferred through bank checks, properly recorded in his personal books, and then given to the firm. He further requested to delete the addition made by the A.O.

The assessee also filed additional documents invoking Rule 46A of the Income Tax Rules before CIT(A). So, CIT(A) confirmed the addition on the basis that the creditworthiness of the creditors is not discharged.

The assessee further approached ITAT, the assessee explained in response to the show cause notice dated February 20, 2024, that the money he invested (capital introduced) was given through checks, not cash.

He also gave the tax officer copies of his personal balance sheet, ledger accounts, and bank statements to show the details of these transactions.

Further, the assessee’s A.R. showed the details of loans received from M/s. Kalptaru Developers and M/s. Srinath Developers (in which the assessee is one of the partners, and the same is adjusted against the profit and opening balance).

The assessee also provided PAN, income tax returns (ITR), and account statements of M/s Padmavati Corporation and M/s Kalpesh Prakashchandra Jain, showing that the loans were repaid through bank transactions (not in cash).

Because these new supporting documents were given during the appeal, the assessee asked that the earlier addition made by the tax officers be set aside by using Rule 46A, which allows new evidence to be considered at the appeal stage.

After reviewing the overall case, ITAT set aside the matter back to the file of the Jurisdictional Assessing Officer to look into the matter afresh by giving proper opportunity to the assessee to be heard.