Delhi High Court Rules Section 69A of IT Act To Be Invoked Only When Books Of Account Are Maintained

Delhi High Court Rules Section 69A of IT Act To Be Invoked Only When Books Of Account Are Maintained

The NRI assessee was not obligated to maintain financial records in India

The Delhi High Court has held that Section 69A of the Income Tax Act, 1961, can be invoked only when books of account are maintained.

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that the assessee was a Non-Resident Indian (NRI), and his source of income in India was interest on bank accounts and interest on income tax refunds. He was not obliged to maintain any books of account in India. The expression ‘if any’ specifically used in Section 69A amplified that it would not be possible to invoke the provision, if the books of account were not maintained,

Section 69A deals with unexplained money in aggregation of income under Chapter VI of the Act. Section 69A lays down that if, in any financial year, the assessee was found to be the owner of any money, bullion, jewelery, or another valuable article, and such money was not recorded in the books of account maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, or the explanation offered by him was not satisfactory in the opinion of the Assessing Officer (AO), the money would be considered the assessees’ income.

The respondent/assessee, residing in the United Arab Emirates (UAE), filed his Income Tax Return (ITR) for Assessment Year 2017-2018 by declaring his income as Rs.1,02,288. This included savings bank interest and interest on the income tax refund.

The AO made additions under Section 69A for Rs.1,40,09,733 on unexplained credit entries in the bank accounts, a sum of Rs.1,64,219 on account of under-reporting of interest, and an amount of Rs.4,69,335 towards a deemed dividend under Section 2(22)(e).

The assessee filed an appeal to the limited extent of assailing the addition made under Section 69A. The Commissioner of Income Tax (Appeals) allowed the appeal by deleting the addition of Rs.1,40,09,733, the inter-bank transfer of Rs.5,00,000 and the income tax refund of Rs.2,84,200.

Aggrieved by the order of the CIT(A), the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT), which deleted the addition under Section 69A.

The tribunal had held that the provision under Section 69A did not apply to the assessee. One of the conditions of Section 69A was not satisfied; consequently, the addition made by invoking Section 69A was not sustainable.

However, the IT department contended that if the tribunal’s view was accepted, the rigors of Section 69A would not apply to the case of any NRI and would sanctify the non-maintenance of account books by an assessee.

Justice Shakdher and Justice Kathpalia held that the money could not be treated as unexplained, as the assessee gave a specific explanation of the split-up. In the impugned order, the tribunal had meticulously examined and discussed the documentary record in support of the money in the bank account of the assessee. In the absence of a stand taken by the IT department alleging perversity, the court stated that while acting under Section 260A, it could not enter into the arena of appreciation of facts and documents.