ITAT Holds Section 69 Cannot Apply When Source of Funds Is Properly Explained and Recorded in Books

The ITAT Delhi, in a recently significant decision, has held in favour of the respondent company, Anova Infracon Private Limited, by dismissing the appeal of the tax authorities for Assessment Years 2011-12 and 2012-13. The case concerned additions of Rs 10.10 crore and Rs 12.37 crore for respective years, made under Section 69 of the Income Tax Act for alleged unexplained investments linked to payments made to the Yamuna Motorway Industrial Development Authority (YEIDA) for land acquisition.

The dispute arose when the tax authorities carried out a search operation in the Karan Luthra Group cases, where they found loose papers showing payments made to YEIDA. Based on the findings, the assessee’s case was reopened and additions amounting to Rs 10.10 crore for AY 2011-12 and Rs 12.37 crore for AY 2012-13, were made to the assessee’s total taxable income, claiming the source of funds was unexplained because the assessee had not responded during assessment proceedings.

The aggrieved assessee filed an appeal before the Commissioner of Income Tax (Appeals), claiming that the payments were properly recorded in its books and were made using proper banking channels by entities such as Sidh Automobiles Limited, an RBI-registered NBFC, and New Jazz Electronics Private Limited. Proving the same claim, the assessee also furnished all relevant documents such as bank statements and others.

The CIT(A) noted that Section 69 of the income tax act applies only when investments are not recorded in the books and the assessee fails to explain the source. Since the transactions were recorded and the funding sources were explained, the additions were deleted.

However, when the tax authorities approached the ITAT Delhi, challenging the CIT(A)’s decision, the tribunal endorsed the findings and ruling of the CIT(A), noting that the identity, creditworthiness, and genuineness of the lenders were not disputed by the department. The Tribunal also observed that the tax authorities had received remand reports and additional evidence during appellate proceedings. Accordingly, the tribunal quashed both the impugned additions of Rs 10.10 crore and Rs 12.37 crore and announced the final decision in favour of the assessee, Anova Infracon Private Limited.