2008 (8) TMI 17 - HC - Income Tax

Additions made by AO on account of the unexplained investment made by the assessee through Certificate of Deposit - Tribunal uphold the decision of Commissioner of deletion of additions - revenue could not seek to add the amount to the income of the assessee without any substantial material and merely on the basis of surmises in similar issue revenue appeal against deletion of addition by tribunal was dismissed by HC in view of the same impugned appeal of revenue is liable to be dismissed

Summary

Issues:
1. Addition of unexplained investment made by the assessee through Certificate of Deposit (CD) in Wells Fargo Bank, USA.
2. Explanation given by the assessee regarding the source of investment.
3. Dismissal of the revenue's appeal by the tribunal.
4. Comparison with a similar case involving Smt. Poonam Rani Singh.
5. Previous court order in ITA No.99/2008 regarding the inter-governmental exchange.

Analysis:

1. The appeal was filed against the tribunal's order regarding the addition of an alleged unexplained investment made by the assessee through Certificate of Deposit (CD) in Wells Fargo Bank, USA for the assessment year 1996-97. The Commissioner of Income-tax (Appeals) deleted the addition based on the evidence provided by the assessee, including affidavits from foreign nationals confirming their contributions. The court upheld the deletion as the source of funds was established, and no substantial question of law arose.

2. The assessee explained the investment as deposits advanced by three US citizens, supported by notarized affidavits. The Assessing Officer added the investment amount as unexplained before receiving a verification report from the Foreign Tax Division. However, the report confirmed the source of funds before the CIT (Appeals) passed the order, leading to the deletion of the addition based on the verified information.

3. The tribunal dismissed the revenue's appeal considering a similar case involving Smt. Poonam Rani Singh, where additions made by the Assessing Officer were deleted. The tribunal's decision was based on the genuineness of the transaction and lack of substantial material for adding the amount to the assessee's income, in line with the previous court order in ITA No.99/2008.

4. The comparison with the case of Smt. Poonam Rani Singh highlighted the consistent approach in both cases regarding the treatment of unexplained investments made through Certificate of Deposit (CD) in Wells Fargo Bank, USA. The court's decision in ITA No.99/2008 set a precedent for dismissing appeals where no substantial question of law arises due to verified sources of funds and genuine transactions.

5. Referring to the previous court order in ITA No.99/2008, the judgment emphasized the importance of inter-governmental exchanges resulting in verified reports from foreign tax authorities. The court's observation that revenue cannot add amounts to an assessee's income without substantial material or on mere surmises reinforced the need for concrete evidence in tax assessments to prevent arbitrary additions.