Top Stories NRI’s Investment in Mutual Funds Held as Legitimate, ITAT Dismisses Revenue’s Appeal [Read Order] The Tribunal’s order is expected to provide clarity on procedural issues related to documentary evidence submission and the importance of proper verification by tax authorities. By Adwaid M S – On December 25, 2024 6:34 pm – 3 mins read In a recent ruling, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, upheld the decision of the Commissioner of Income Tax (Appeals) CIT(A) in a case involving unexplained investment, income from house property, and capital gains. The case relates to the appeals filed by the Revenue against the CIT(A)’s order for the Assessment Years 2015-16 and 2016-17. The Revenue had filed appeals challenging the deletion of additions made by the Assessing Officer (AO) in the income of the assessee, Rajan Sehgal, regarding investments and capital gains.

The case, which involved a non-resident individual, saw the ITAT examine the factual accuracy and the procedural correctness of the AO’s actions. The AO had made an addition under Section 69 of the Income Tax Act, citing unexplained investments amounting to Rs. 2,76,30,628 in mutual funds. The AO relied on information gathered from the Non-filers Monitoring System (NMS) and the Income Tax Department’s Form 26AS, which revealed certain large receipts and investments in the assessee’s accounts. Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here However, the assessee contended that these investments were sourced from the redemption of earlier mutual fund units and funds remitted from his salary income earned abroad. The CIT(A) observed that the assessee had submitted supporting bank statements, showing the source of these funds, which were ignored by the AO. It was also noted that the AO did not cross-check the information with relevant bank statements. The CIT(A) concluded that the source of investment was adequately substantiated by the assessee’s evidence, and hence, the addition of Rs. 2,76,30,628 was deleted. The AO had also added income from capital gains and house property in the assessment. The assessee had declared long-term capital gains of Rs. 6,66,430 from the sale of mutual funds, which had already incurred Securities Transaction Tax (STT). The CIT(A) found that the transaction qualified for exemption under Section 10(38) of the Income Tax Act. Consequently, the addition was deleted. Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

In the case of income from house property, the assessee had claimed house tax expenses against rental income, which was found to be inconsistent with the property records. The CIT(A) upheld the AO’s disallowance of Rs. 1,25,187 in house tax expenses, confirming the addition. The ITAT, in its judgment, agreed with the CIT(A)’s findings. The Tribunal observed that the AO had not properly considered the documentary evidence submitted by the assessee, and the assessee had been denied an adequate opportunity during the assessment proceedings. The Tribunal emphasized that the evidence provided was sufficient to substantiate the claims regarding mutual fund investments and capital gains, leading to the dismissal of the Revenue’s appeal. The Tribunal’s order is expected to provide clarity on procedural issues related to documentary evidence submission and the importance of proper verification by tax authorities.

The decision of two member Bench comprising of Saktijit Dey(Vice-President) and S RifaUr Rahman(Accountant Member) highlighted the significance of cross-verification of information and ensures that taxpayers are not unfairly penalized for procedural lapses by tax authorities. In conclusion, the ITAT dismissed the Revenue’s appeals for both Assessment Years, reinforcing the importance of proper documentation and fair adjudication in tax matters.