CC & Sons (HUF) vs. ITO, Ward-50(1), New Delhi: Addition of Unexplained FDR for AY 2011-12

CC & Sons (HUF) vs. ITO, Ward-50(1), New Delhi: Addition of Unexplained FDR for AY 2011-12

The Income Tax Appellate Tribunal (ITAT), Delhi Bench “SMC,” presided by Shri Kul Bharat, Judicial Member, adjudicated on the appeal filed by CC & Sons (HUF) against the Income Tax Officer, Ward-50(1), New Delhi for the assessment year 2011-12. The appeal, numbered ITA No. 6461/DEL/2019, was filed on 1st August 2019 and was heard on 5th July 2022, with the final order pronounced on 20th July 2022.

Background of the Case

The case revolves around an addition made by the Assessing Officer (AO) under Section 147/148 of the Income Tax Act, 1961. The issue began when the AO reopened the case based on an Annual Information Report (AIR) indicating that CC & Sons (HUF) had made time deposits (Fixed Deposit Receipts or FDRs) amounting to Rs. 17,92,434 and earned bank interest of Rs. 1,15,002. However, the assessee failed to file the return of income for the assessment year 2011-12. Consequently, the AO issued a notice under Section 148 of the Act to reopen the assessment.

During the assessment proceedings, the authorized representative of the assessee attended but failed to provide a satisfactory explanation or evidence regarding the source of funds for the FDR amounting to Rs. 7,92,434. Consequently, the AO treated this amount as unexplained investment and added it to the income of the assessee under Section 69 of the Income Tax Act. The addition was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)], leading to the appeal before the ITAT.

Appellant’s Grounds of Appeal

The appellant, CC & Sons (HUF), raised the following grounds in their appeal:

• The CIT(A) erred in confirming the addition of Rs. 7,92,434 as unexplained investment without properly considering the evidence provided by the appellant.
• The appellant explained that the FDR of Rs. 7,92,434 was made from savings accumulated over 20 years, and therefore, the addition was unjustified.
• The appellant also contested the levy of interest under Sections 234A, 234B, and 234C, arguing that it was not liable for such interest.

Tribunal’s Observations and Findings

At the time of the hearing before the ITAT, no one appeared on behalf of the appellant. The Tribunal noted that the assessee had not been attending the proceedings since 4th March 2021, and the notices sent to the assessee were returned with the remark “not known.” Consequently, the Tribunal decided to proceed with the case based on the material available on record.

The Tribunal observed that the AO had reopened the assessment after discovering that the assessee had made substantial time deposits and earned interest income, which had not been reported. The AO had specifically added the amount of Rs. 7,92,434 as unexplained investment in FDRs due to the assessee’s failure to substantiate the source of funds for this investment.

The CIT(A) had reviewed the case and upheld the AO’s decision, noting that the assessee had provided bank statements from IDBI Bank and Punjab & Sind Bank. However, these statements did not sufficiently explain the source of the FDRs, particularly the amount of Rs. 7,92,434. The CIT(A) emphasized that the appellant had failed to furnish any evidence regarding the source of this investment, leading to the confirmation of the addition.

Upon reviewing the CIT(A)’s findings and the absence of any new evidence or material presented before the Tribunal, the ITAT concluded that there was no reason to interfere with the order of the CIT(A). The Tribunal found that the addition of Rs. 7,92,434 as unexplained investment in FDRs was justified and dismissed the appeal filed by the assessee.

Conclusion

In this case, the Income Tax Appellate Tribunal (ITAT) upheld the addition of Rs. 7,92,434 as unexplained investment under Section 69 of the Income Tax Act for the assessment year 2011-12. The Tribunal’s decision was based on the assessee’s failure to provide sufficient evidence to explain the source of funds for the FDRs. Despite the appellant’s claims that the FDRs were funded by savings accumulated over 20 years, the lack of documentary evidence led to the dismissal of the appeal.

The Tribunal also addressed the issue of the levy of interest under Sections 234A, 234B, and 234C, which the appellant had contested. However, due to the appellant’s absence and lack of representation during the hearing, this aspect of the case was not further deliberated upon.

This judgment highlights the importance of providing adequate documentation and evidence to substantiate claims regarding the source of funds for investments, especially when such investments come under scrutiny during income tax assessments. Taxpayers must ensure that they maintain proper records and are able to justify their financial transactions to avoid adverse decisions by tax authorities.

The ITAT’s order reaffirms the principle that unexplained investments, particularly those related to substantial sums like FDRs, will be added to the taxpayer’s income unless the source of funds is adequately explained and supported by evidence.

Order Pronounced in the Open Court on 20th July 2022

Signed by:
Judicial Member: Shri Kul Bharat

Date of Pronouncement: 20th July 2022

CC & Sons (HUF) vs. ITO, Ward-50(1), New Delhi: Addition of Unexplained FDR for AY 2011-12