Section 69 of the Income-tax Act, 1961 – Unexplained investment – Matter remitted to the file of AO as investment in trust itself stands unexplained and uncorroborated.

Facts:During the course of proceedings under section 132, it was found that assessee had set up a private discretionary trust for the benefit of his family members and it was claim of assessee that assets of Trust were derived from a earlier structure, by the same name, which was settled by Barclaystrust International Limited, BVI. None of these investments were however, apparently, accounted for at any stage or disclosed to the tax authorities. Finally, this Trust was terminated on 16 July 2013, and the amounts received by the beneficiaries were offered to tax. In the course of the assessment proceedings, AO also brought to tax partial withdrawals to tax, as income of the beneficiary withdrawing the money, and proceeded to impose penalty under section 271(1)(c) in respect of income on account of such withdrawals. Aggrieved, the assessees carried the matter in appeal before CIT(A) who confirmed the action of AO. The assessees are not satisfied and are in further appeal before Tribunal.

Held, that this is a case in which the existence of the private discretionary trust held in a tax haven jurisdiction, i.e. British Virgin Islands, has been detected during a search operation, and the bonafides of this trust, and the source of funds in the hands of the trust, are not yet established. There is no escape from the onus of explaining the investments made by the assessee. The trust investments were made much earlier but since these investments were unaccounted and undisclosed, the assessee has to explain the source of these investments now. When the investment in trust itself stands unexplained and uncorroborated, the legal position with respect to taxability of such trust funds is altogether at a different level. As we so observe, we are conscious of the fact that the evidence of trust investments is found in the search proceedings and these investments in the trust were prima facie unaccounted and undisclosed to the tax authorities. Learned representatives fairly agree that the matter can be remitted to the file of AO for examination de novo on all these aspects, including, but not limited to, in respect of the subsequent taxation of entire trust funds in the hands of the beneficiaries. In the result, appeal was allowed for statistical purposes – ATUL T PATEL Vs. DY. CIT [2020] 181 ITD 812 (ITAT-AGRA)