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आदेश/Order
Per R.L. Negi, Judicial Member:
The assessee has filed the present appeal against the order dated 30.10.2019 passed by Commissioner of Income Tax (Appeals)-4, Ludhiana [for short ’the CIT(A)’] for the assessment year 2014-15,
whereby the Ld. CIT(A) has dismissed the appeal filed by the assessee against the assessment order passed u/s 143(3) of the Income Tax Act, 1961 [for short ’the Act’].
Brief facts of the case are that the assessee filed his return of income for the assessment year under consideration declaring total
ITA No.40-Chd-2020 Sh. Mukesh Kumar, Jagadhari 2 income of Rs.2,89,230/- and agricultural income of Rs. 92,093/-.
Initially, the case was selected for scrutiny for a limited purpose of
verifying the substantial increase in the capital account during the
relevant financial year 2013-14, however, later on the same was
converted into complete scrutiny. Accordingly, AO issued notice u/s
143(2) and 142(1) and served upon the assessee. In response thereof the
authorized representative of the assessee attended the proceedings and
filed the details called for by the AO. The AO after hearing the
authorized representative in the light of the documents and details on
record, passed assessment order and determined the total income of the
assessee at Rs.1,02,50,570/- and agricultural income of Rs. 92,093/-
inter alia making addition of Rs. 80,55,462/- i.e., brought forward
opening balance as on 01.04.2013 as unexplained income of the assessee
u/s 68 of the Act and Rs. 6,94,290/- on account of unexplained
investment u/s 69 of the Act. In the first appeal, the Ld. CIT(A)
confirmed the addition of opening capital balance u/s 68 of the Act,
however, restricted the addition on account of unexplained investment to
Rs.4,20,519/- Still aggrieved, the assessee has filed the present appeal
before this Tribunal.
The assessee has challenged the impugned order passed by the Ld.
CIT(A) on the following grounds: -
1.1 That the learned CIT(A) has erred in law and on facts in confirming the actions of the AO in assessing the opening capital
ITA No.40-Chd-2020 Sh. Mukesh Kumar, Jagadhari
3 balance as on 01.04.2013 amounting Rs. 80,55,462/- as unexplained income u/s 68. (Tax Effect = Rs.24,89,140/-) 1.2 That the learned CIT(A) has erred in law and on facts in confirming the protective additions made by the AO on account of opening capital balance amounting Rs. 80,55,462/- on substantive basis ignoring that the same has already been added to income of assessee of rearlieryears upon re-assessment u/s 148. (Tax Effect-Same as Gr.1) 1.3 That the learned CIT(A) has erred in law and on facts in confirming the protective additions on substantive basis without providing an opportunity of being heard to the assessee and against the principles of natural justice. 2. That the learned CIT (A) has erred in law and on facts in confirming the actions of the AO in assessing the repayment of principal and interest on housing loan amounting Rs.4,20,519/- as unexplained investment u/s 69 ignoring the explanations of sources of payments furnished by assessee. (Tax Effect = Rs. 1,29,940/-) 3. That the appellant craves leave to add, alter, amend or to substitute the above grounds of appeal either before or at the time of hearing of case.
Vide ground No 1.1 to1.3 the appellant/assessee has challenged
the action of the Ld. CIT(A) in confirming the addition of opening
capital balance amounting to Rs. 80,55,462/- u/s 68 of the Act on
substantive basis. The Ld. counsel for the assessee submitted before us
that the assessee engaged in the business of plying vehicles on hire and
trading in oil, declared income from transport vehicle on hire under the
provisions of section 44AE of the Act on presumptive basis. During the
assessment year 2014-15, combined balance sheet of both the businesses
was submitted. As per the capital account, the opening capital as on
ITA No.40-Chd-2020 Sh. Mukesh Kumar, Jagadhari 4 1.4.2013 was Rs. 1,23,12,128/-and closing capital was Rs. 1,14,86,802/-
During the assessment proceedings the assessee furnished complete
movement of capital account from 01.04.2005. The AO accepted the
opening balance of capital at Rs. 42,56,666/- however, made addition of
Rs. 80,55, 462/- to the income of the assessee under section 68 of the
Act on protective basis holding that substantive additions will be made
after reopening of assessment for earlier years under section 147 of the
Act. Thereafter, reassessment proceedings were initiated for the
assessment years 2010-11 to 2013-14 and additions of Rs. 1,42,92,186/-,
Rs. 93,37,171/-, Rs. 36,61,237/-, Rs. 68,230/- and Rs. 7,25,548/-were
made in the assessment years 2010-11, 2011-12, 2012-13 and 2013-14
respectively either on account of opening capital or out of capital
addition or as per declaration by the assessee.
The Ld. counsel further submitted that since the total addition of
Rs. 1,42,92,186/- has already been made by the AO after reassessment
for the aforesaid assessment years on substantive basis against the
opening capital balance of Rs.80,55,462/-, the Ld. CIT (A) has wrongly
confirmed the addition of the said amount in the assessment year under
consideration. The Ld. counsel further argued that as per the settled law
the amount of opening balance of capital carried forward from earlier
years cannot be considered as credit during the current year and the
same can only be assessed in the year in which the amount has been
ITA No.40-Chd-2020 Sh. Mukesh Kumar, Jagadhari 5 credited. To substantiate his contention, the Ld. counsel relied on the
the following cases.
a. CIT versus Usha Stud agricultural Farm ltd. 301 ITR 384 (Delhi) b. CIT versus J. J. Development (P) Ltd. ITA519/2008 (Calcutta) c. CIT versus Parmeshwar Bohra 301 ITR 404 (Rajasthan) d. Nirmal Ronnie versus DCIT policy ID No. 1075/Chd. /2013
(Chandigarh tribunal)
In view of the submissions and the ratio laid down by the hon’ble
High Courts and the Chandigarh Bench of the Tribunal in the aforesaid
cases, the Ld. counsel submitted that the findings of the Ld. CIT(A) are
not in accordance with the ratio laid down in the aforesaid cases,
therefore liable to be set-aside.
On the other and the Ld. Departmental representative (DR)
supporting the findings of the CIT(A) submitted that since the assessee
has failed to explain and substantiate the opening capital balance as on
01.04.2013, the Ld. CIT(A) has rightly confirmed the addition made by
the AO.
We have heard the rival submissions of the parties and also
perused the material on record including the cases relied upon by the
Ld. counsel for the assessee. The Ld. CIT(A) has confirmed the addition
holding that the assessee has not taken the correct figures of profit
ITA No.40-Chd-2020 Sh. Mukesh Kumar, Jagadhari 6 earned during the year relevant to the assessment year under
consideration. As pointed out by the Ld. counsel, in its return of
income, assessee had shown opening capital of Rs. 1,23,12,128/- as on
1.4.2013. The AO after hearing the assessee accepted the opening
balance of Rs. 42,56,666/- however, made addition of the remaining
amount of Rs. 80,55,462/- to the income of the assessee on protective
basis. Further, the AO re-assessed the income of the assessee for the
assessment years 2010-11, 2011-12, 2012-13 and 2013-14 and made
additions of Rs. 93,37,171/-, Rs.36,61,237/-, Rs. 5,68,230/- and Rs.
7,25,548 respectively either on account of opening capital or capital
additions during the relevant years or as per the suo motu declaration by
the assessee. The copies of the assessment orders passed u/s 144/147 or
u/s 143/147 of Act for the aforesaid assessment years are available in
the paper book at pages 70 to78, 54 to 62, 43 to 46 and 28 to 31
respectively. We further notice that in the assessment year 2013-14
assessee had shown opening balance of Rs. 79,02.054 as on 01.04.2012
and closing balance of Rs. 1,23,12,128.32/- as on 31.03.2013. The AO
passed the assessment order dated 28.12.2018 u/s 143(3) read with
section 147 of the Act, after making addition of Rs. 7,25,548/- on the
basis of declaration made by the assessee in its return of income filed on
24.12.2018. The assessee has taken the said closing balance Rs.
1,23,12,128.32/- as opening balance in the assessment year under
consideration. Under these circumstances we find merit in the
ITA No.40-Chd-2020 Sh. Mukesh Kumar, Jagadhari 7 contention of the Ld. counsel that since the AO has already made
addition of Rs. 1,42,92,186/- to the income of the earlier years, against
the addition made on account of opening balance of Rs. 80,55,462/-, the
Ld. CIT(A) has wrongly confirmed the addition of the said amount in
the assessment year under consideration on substantive basis.
Further, the legal issue raised by the Ld. counsel is that as per the
settled law the amount of opening balance carried forward from earlier
year cannot be treated as credit during the current year and cannot be
assessed in the subsequent assessment year. In the present case, since
the assessee has taken the amount of closing balance as on 31.03.2013
as the opening balance as on 01.04.2013, i.e., in the assessment year
under consideration, we find merit in the contention of the Ld. counsel
that the said amount cannot be treated as fresh credit in the relevant
previous year as the said entry did not pertain to the year relevant to the
assessment year under consideration.
In the case of CIT vs. Usha Stud Agricultural Farms Ltd. (supra)
the Hon’ble Delhi High Court has upheld the findings of the Tribunal
holding that where the credit balance appearing in the accounts of the
assessee does not pertain to the year relevant to the assessment year
under consideration, the AO cannot make addition of the impugned
amount under section 68 of the Act. In the said case, AO noticed that the
assessee had shown an advance of Rs. 15 lacs. The assessee contended
ITA No.40-Chd-2020 Sh. Mukesh Kumar, Jagadhari
8 that the amount was received towards advance breeding charges. AO
rejecting the explanation of the assessee made addition of the said
amount u/s 68 of the Act for the reason that the assessee has failed to
file confirmation from the concerned person. In the first appeal, the
CIT(A) deleted the addition. In the further appeal, the Tribunal affirmed
the action of the CIT(A). The revenue challenged the order of the
Tribunal before the Hon’ble High Court. The Hon’ble High Court
dismissed the appeal of the revenue and confirmed the findings of the
Tribunal holding as under: -
“8. Here the CIT(A) has declared the addition of Rs. 15 lacs mainly on the ground that this credit balance of Rs. 15 lacs is being reflected in the accounts of the Assessee over the past four to five years or so and hence this was not a fresh credit entry of the previous year under consideration and these credit entries were already made and accounted for in the assessment years 1995-96 and 1997-98 which were introduced in the form of advance against breeding stallions owned by the Assessee and thus these credits did not relate to the year under consideration for being considered under section 68 of the Act. Since, it is a finding of fact recorded by the CIT(A) that this credit balance appearing in the accounts of the Assessee, does not pertain to the year under consideration, under these circumstances, the Assessing Officer was not justified in making the impugned addition under section 68 of the Act and as such no fault can be found with the order of the Tribunal which has endorsed the decision of CIT(A).”
ITA No.40-Chd-2020 Sh. Mukesh Kumar, Jagadhari 9 11. In the case of CIT vs. Parmeshwar Bohra (supra) the Hon’ble
Rajasthan High Court has held that unexplained investment/cash
appearing in accounts on the first day of previous year was not taxable
in the relevant assessment year holding that a carried forward amount of
the previous year does not become an investment or cash credit
generated during the relevant year.
Further, in the case of CIT vs. J.J. Developers (P) Ltd) (supra), the
Hon’ble Calcutta High Court has affirmed the findings of the Tribunal
deleting the addition made u/s 68 of the Act, holding that the share
application money in question was not introduced during the relevant
previous year. The Hon’ble Court upheld the findings of the Tribunal
holding it is not the case of the revenue that during the period between
April 1, 2002 and March 31, 2003, i.e., during the previous year any
sum was credited in the books of accounts of the assessee.
Under section 68 of the Act, the AO has power to make addition of
any sum found credited in the books of account of the assessee
maintained for any previous year, as income of the assessee of that
previous year if the assessee fails to explain about the nature and source
thereof or the explanation offered by the assessee is not satisfactory in
the opinion of the AO. In the present case, the Ld. CIT(A) has
confirmed the addition made by the AO on account of opening capital
balance as on 01.04.2013. Further, the AO has already reopened the
ITA No.40-Chd-2020 Sh. Mukesh Kumar, Jagadhari 10 returns of the assessee for the earlier assessment years including the
assessment year 2013-14 and made additions. Under these
circumstances, the Ld. CIT(A) has wrongly confirmed the addition
ignoring that the credit entry in question does not pertain to the year
relevant to the assessment year under consideration. Hence, in view of
the facts and circumstances of the case and the ratio laid down by the
Hon’ble High Courts discussed above, we hold that the action of the Ld.
CIT(A) is not in accordance with the provisions of the Act and contrary
to the ratio laid down in the cases discussed above. We therefore, allow
this ground of appeal and set aside the findings of the Ld. CIT(A) and
direct the AO to delete the addition.
Vide ground No 2. The assessee has challenged the action of the
Ld. CIT(A) in sustaining the addition of Rs.4,20,519/- out of total
addition of Rs. 6,94,290/- made by the AO as unexplained investment
u/s 69 of the Act, on the ground that the assessee has explained the
source of payments made towards installments of home loan. The Ld.
counsel submitted before us that the assessee has paid Rs. 4,20,519/- in
nine installments from its account maintained with HDFC and the
assessee has explained the source of these payments. The Ld. counsel
invited our attention to the copy of bank account statement which is
available at pages 81to 86 of the paper book and copy ledger A/c of M/s
Prem Oil Store to demonstrate the source of the said payments. The Ld.
ITA No.40-Chd-2020 Sh. Mukesh Kumar, Jagadhari 11 counsel further pointed out that none of the payments from the said
firm, was received in case. The Ld. counsel accordingly submitted that
since, the assessee has explained the source of investment in question on
the basis of documentary evidence, the Ld. CIT(A) has wrongly
sustained the addition Rs. 4,20,519/- holding the same as unexplained
investment u/s 69 of the Act.
On the other hand, the Ld. DR supporting the order passed by the
Ld. counsel, submitted that as per the copy of account of M/s Prem Oil
Store, the payments towards tanker rent, have been made in cash
however, the assessee has not filed its cash account to show availability
of the funds. Hence, the Ld. CIT(A) has rightly confirmed the addition
in question.
We have heard the rival submissions of the parties and perused the
material on record. As pointed out by the Ld. counsel, the assessee has
furnished the breakup of payment amounting to Rs. 4,20,519/- In the
said detail, the assessee has mentioned the cheque numbers, vide which
payments were received from M/s Prem Oil Store. The assessee has
furnished the copy of statement of Bank account which is available at
pages 81 to 86 of the paper book. As per the said statement of account,
the cheques received from M/s Prem Oil Store from time to time were
deposited in assessee’s account and thereafter the amounts of EMI were
transferred to the loan account through cheques. So, the assessee has
ITA No.40-Chd-2020 Sh. Mukesh Kumar, Jagadhari 12 proved the source of amount paid towards repayment of home loan.
However, the Ld. CIT(A) has sustained the addition of Rs. 4,20,519/-
inter alia on the ground that the assessee has filed copy of account of
M/s Prem Oil Store as per which the said firm has paid the tanker rent in
cash. Since the assessee has explained the source of the said amount on
the basis of entries in the bank account, we find merit in the contention
of the Ld. counsel that the Ld. CIT(A) has sustained the said addition
ignoring the documentary evidence i.e., entries in the statement of bank
account of the assessee. On the other hand, there is no reference of the
statement of bank account of the assessee in the assessment order.
Hence, we set aside the findings of the Ld. CIT(A) and send this issue
back to the AO with the direction to delete the addition after
verification of entries in the statement of bank account of the assessee.
In the result, the appeal of the assessee is partly allowed for
statistical purposes.
Order pronounced on 31s t Aug, 2021
Sd/- Sd/-
(N.K. SAINI) (R.L. NEGI) उपा�य� /Vice President �या�यकसद�य/ Judicial Member
Dated : 31 .08.2021 “आर.के.”
आदेशक���त+ल,पअ-े,षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant
ITA No.40-Chd-2020 Sh. Mukesh Kumar, Jagadhari 13 2. ��यथ�/ The Respondent 3. आयकरआयु.त/ CIT 4. आयकरआयु.त (अपील)/ The CIT(A) 5. ,वभागीय��त�न1ध, आयकरअपील$यआ1धकरण, च3डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड�फाईल/ Guard File
आदेशानुसार/ By order, सहायकपंजीकार/ Assistant Registrar