INCOME TAX ACT 1961

Section 69

Income from undisclosed sources - Addition under section 69 - Unexplained investment -

Assessee made investment in purchase of property the source of which was flowed from the partnership firm M/s. KSR wherein the assessee's spouse was a partner. AO held that the said partnership firm had not maintained regular books of account and the aforesaid transaction was not reflected in the income tax return filed by the firm. Assessee's spouse had also not disclosed the transaction in her return of income. Hence, he made addition under section 69 as unexplained investment. Held: Assessee does not have any proximity with M/s. KSR other than the fact that her spouse is one of the partners in the firm. Amount advanced by M/s. KSR Constructions to the assessee shall be obviously treated as the amount withdrawn by the assessee's spouse from the firm which has to be debited to the assessee's spouse's capital account in the firm's books of account. Just because the books of account of the assessee's firm and the assessee's spouse has not been properly maintained or incomplete the nature of the transaction does not change. Thus, amount advanced by M/s. KSR to the assessee has to be construed as the amount given by M/s. KSR Constructions on behalf of the assessee's spouse. Hence, the first proviso of section 56(2)(vi) shall come into operation in the case of the assessee and accordingly the amount received by the assessee shall be treated as a gift received by the assessee from her spouse. Accordingly, addition made in the hands of the assessee invoking the provisions of section 69 was required to be deleted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2009-10

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