ITAT Rejects Revenue’s Appeal as Income Source Properly Explained

The Income Tax Appellate Tribunal (ITAT), Delhi, rejected the revenue’s appeal in an unexplained investment dispute, observing that the assessee company sufficiently explained the income sources.

The case of the assessee, Prem Softech Private Ltd, was reopened, alleging the non-disclosure of interest income of Rs 11,601, contractual receipts of Rs 1,86,690, and mutual fund investments of Rs 12.30 crore.

The AO treated the mutual fund investment of Rs 12.30 crore as an unexplained investment and Rs 14,87,177 (earned from the mutual fund investment) as income from other sources.

The company submitted that the amount of Rs 12.30 was received from Prem Power Construction for the software development work. This fund was invested in a mutual fund, and it was repaid within the same financial year.

The CIT(A) deleted the addition after checking all the bank statements, mutual fund statements, and copies of the financials of Prem Construction submitted by the assessee. It noted that the entire advance was repaid by the assessee in the same year, and therefore, it was not shown in the balance sheet of Prem Power Construction. Based on these submissions and explanations of the assessee, the CIT(A) held that the amount cannot be treated as an unexplained investment. Therefore, the revenue filed an appeal before the ITAT Delhi.

The Revenue argued that the assessee had submitted extra evidence before the CIT(A), violating Rule 46A of the Income Tax Rules, which restricts an assessee from producing additional evidence that was not submitted during the assessment stage. The revenue also questioned the assessed company’s capability to undertake software development projects.

The tribunal disagreed with the revenue, observing that the assessee was asked to submit the extra evidence before the CIT(A); therefore, it cannot be said that Rule 46A was violated. It further noted that the balance sheet of Prem Power Construction had a surplus of Rs 9 crore, which proved that the company had the capability to make payment for the development of software.

Considering these facts, the tribunal held that the income source cannot be called unexplained. The ITAT upheld CIT(A)’s order stating that there was no unexplained investment. The revenue’s appeal was rejected.