Loading judgment…
Facts
The assessee's case was reopened under Section 148, with the AO issuing notice and passing an order under Section 147 r.w.s 144B. The assessee invested Rs. 40 lakhs in bonds, funded by NBFC ECL Finance Ltd. The CIT(A) confirmed an addition of Rs. 12,97,795/- regarding the source of investment.
Held
The Tribunal held that the source of investment of Rs. 12,97,795/- was established, as the funds were borrowed from ECL Finance Ltd. and invested by them on behalf of the assessee. The amount not invested was refunded. Therefore, the addition retained by the CIT(A) was deleted.
Key Issues
Whether the addition made by the AO and confirmed by the CIT(A) for unexplained investment in bonds is justified when the source of funds has been established.
Sections Cited
148, 147, 144B, 69, 115BBE, 133(6), 143(2), 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SMT. BEENA PILLAI
Per: Smt. Beena Pillai, J.M.: The Present appeal is filed by the assessee is against order dated 02/07/2025 passed by NFAC, Delhi, for assessment year 2016-17 following ground of appeal:
1. The Hon'ble Commissioner of Income Tax (Appeals), National Faceless Appeal Centre erred in confirming the action of AO in issuing the notice u/s 148 of the Income Tax Act, 1961 (Act) and passing the order u/s 147 r.w.s 144B of the Act.
2 ITA 4521/Mum/2025; A.Y. 2016-17 Kusum Jagannath Amin The Appellant submits that the notice issued u/s 148 of the Act and order passed u/s 147 r.w.s. 144B of the Act is against the provision of the law, ultra vires and without jurisdiction; hence, the same shall be quashed.
2. The Hon'ble CIT(A) erred in confirming the addition to the extent of Rs. 12,97,795/-made u/s 69 of the Act by stating that the Appellant has not explained the source of investment made in the bonds. The Appellant submits that she has duly explained the source of investment made in the bonds; hence, the addition made by the AO and confirmed by the CIT(A) shall be deleted.” Brief facts of the case are as under:
The assessee is an individual and earned income under the head salary, capital gains and other sources. The assessee’s case was reopened by issuing notice under section 148 of the Act on 24/03/2023. In response to said notice, assessee filed its return of income on 03/07/2023 declaring total income of Rs.10,540/-. Subsequently, statutory notices under section 143(2) and 142(1) of the act were issued. In compliance to the said notices, representatives of the assessee appeared before the Ld.AO and filed its submissions. 2.1 The Ld.AR observed that, assessee invested in purchase of bonds to the extent of Rs.50 lakhs and thus was called upon to furnish details and the source of such investments. In response, the assessee furnished following table:
Date Name of the Cheque Amount Bank and A/c No. Bond No. 23/09/2015 NTPC Tax Free 47096 10 lakh Directly invested Bonds by the M/s. ECL 05/10/2015 Power Finance 48989 10 lakh Finance Ltd on Corporation behalf of the Ltd NCD assessee 27/10/2015 REC Limited 50763 10 lakh NCD 3 ITA 4521/Mum/2025; A.Y. 2016-17 Kusum Jagannath Amin 08/12/2015 Indian 52444 10 akh Railway Finance Corporation Ltd NCD 2.2 It was submitted that, the assessee made total investment in bond amounting to Rs.40 lakhs by M/s. ECL Finance Ltd., directly on behalf of the assessee. The assessee also furnished bank statement of M/s. ECL Finance Ltd., reflecting the amount and the cheque number along with the ledger account of the assessee in the books of the ECL Finance Ltd., to prove that the payments were made through proper banking channels. 2.3 The Ld.AO issued notices under section 133(6) Rural Electrification Corporation Ltd and NTPC Ltd., however dismissed the claim of the assessee. The Ld.AO extracted a letter issued by IRB Inv. T Fund, refusing any investment by assessee. Thus made addition of Rs.40 lakhs in the hands of the assessee under section 69 of the Act read with 115 BBE of the act. Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A).
The Ld.CIT(A) after considering the submissions of the assessee, restricted disallowance at Rs.12,97,795/-.
Aggrieved by the order of the Ld.CIT(A), the assessee is in appeal before the Tribunal.
The Ld.AR submitted that in Ground No.1 the assessee is challenging validating of the assessment order and the notice issued under section 148 of the act. He submitted that this issue may be kept open as academic at this stage.
4 ITA 4521/Mum/2025; A.Y. 2016-17 Kusum Jagannath Amin Accordingly ground number 1 is not adjudicated and is left open to be agitated by the assessee in appropriate circumstances.
Ground No.2 raised by the assessee is in respect of the addition of Rs.1,297,795/- under section 69 of the Act. 5.1 The Ld.AR submitted that the assessee took loan from NBFC being M/s. ECL Finance Ltd., towards bond funding to the extent of Rs.40 lakh during the year under consideration. He submitted that the investment was directly made by the NBFC institution on behalf of the assessee.
5.2 It is submitted that in respect of non-allotment of bond the amount was returned back to the power of attorney (POA) account from where the amount was recovered by the NBFC. Similarly, in case of part allotment the excess amount was 5 ITA 4521/Mum/2025; A.Y. 2016-17 Kusum Jagannath Amin returned back to the POA account which was recovered by the NBFC. The Ld.AR placed reliance on the ledger account of the assessee in the books of the M/s. ECL Finance Ltd., showing investment made in various bonds.
5.3 The Ld.AR submitted that, the source of the investments is from the IPO funding by M/s.ECL Finance Ltd. Relying on the table reproduced hereinabove he submitted that, on redemption/sale of investment after holding the same for short period, the assessee earned income of Rs.17,211/-. It is also submitted that, out of the income earned by the assessee paid interest of Rs.10,710 to M/s.ECL Finance Ltd., with net profit of Rs.6,500/-. It is submitted that the said amount is offered to tax in the return filed by the assessee in response to notice issued under section 148 of the act. 5.4 On the contrary, the Ld.AR relied on the orders passed by the authorities below.
I have perused the submissions advanced by both sides in the light of the records placed before me.
From the table reproduced hereinabove it is clear that the assessee invested only Rs.40 lakhs through the NBFC being ECL
6 ITA 4521/Mum/2025; A.Y. 2016-17 Kusum Jagannath Amin Finance Ltd in various bonds. However the investment was made only to the extent of Rs.1,297,795 and the remaining amount of Rs.27,02,205/- was refunded to the POA account that has been returned to the NBFC as per the agreement. 6.1 I have also gone through the power of attorney pleased at page 21 of the paper book wherein the assessee appointed ECL Finance Ltd to act operate, open and close account on behalf of assessee as a lawful and true attorney. 6.2 It is noted that, against the investment of Rs.12,97,795/- the assessee redeemed the same for Rs.1,315,006/-resulting in profit of Rs.17,211/-. Admittedly the assessee has paid Rs.10,710/- to ECL Finance and the remaining amount of Rs.6,500/- is offered to tax as income for the year under consideration. 6.3 It is noted that the Ld.CIT(A) did not consider the fact that, out of Rs.40 lakhs, the amount against which the bonds were not issued was refunded to the POA account and the investment in bond is only to the extent of Rs. 12,97,795 on which the source is already established. Confirmations filed by the NBFC proves that the money has been borrowed by the assessee from ECL Finance Ltd and it was invested by ECL Finance Ltd on behalf of the assessee. I therefore do not find any reason to uphold the addition retained by the Ld.CIT (A) and the same stands deleted.
Accordingly ground number 2 raised by the assessee stands allowed. In the result appeal filed by the assessee stands allowed
7 ITA 4521/Mum/2025; A.Y. 2016-17 Kusum Jagannath Amin Order pronounced in the open court on 29/08/2025