By TIOL News Service

KOLKATA, SEPT 11, 2018: THE ISSUE IS - Whether addition for undisclosed investment in relevant year can be made if investment of funds takes place in earlier years. NO IS THE VERDICT.

Facts of the case

The assessee, an individual, engaged in the business of retail outlet of MS & HSD, reseller of lubricants etc had filed return for relevant AY. During assessment, the AO observed that the assessee had given on mortgage his personal property as a collateral security for obtaining loan from the bank. The AO observed that this property was not disclosed in the asset side of the balance sheet of the assessee's proprietary concern. The assessee submitted that he was an ex-military man air force and the impugned land was allotted to him by ADDA nearly 37 years back. The construction thereon was carried out by him out of his salary savings, retirement benefits and LIC loans. Since, he was deriving salary income at the time of purchase of property, there was no need to maintain his balance sheet. He further submitted that this property was given as collateral security for availing working capital facility from the bank when the retail outlet MS & HSD business was started by him after his retirement. Accordingly, he pleaded that the value of the asset could not be treated as undisclosed asset. The AO was not satisfied with contentions of the assessee and added the value of land and building as undisclosed investment in hands of assessee. On appeal, CIT(A) deleted the addition made.

Tribunal held that,

++ it is not in dispute that the subject mentioned land was allotted to the assessee by ADDA on 23.08.1976 and the construction thereon was carried out by the assessee out of his salary savings, loan from LIC and retirement benefits. Hence the sources for investment in land and building stands duly explained. In any case, this subject mentioned property was not invested by the assessee during the year under consideration. Hence, there cannot be any addition made towards undisclosed investment in that property in the year under appeal, much less on the market value of such property. Hence CIT(A) had rightly deleted the addition. Accordingly, ground raised by the revenue was dismissed.

(See 2018-TIOL-1496-ITAT-KOL)