VINAY KUMAR AGRAWAL,KOLKATA vs. DC/ACIT, RANGE - 2, VARANASI

The facts relating to the above said issue are discussed in brief. The assessee is having income from business, interest income and agricultural income. The return of income filed by the assessee for the year under consideration was selected for limited scrutiny to examine the genuineness and sources of Capital account of the assessee. The assessee had declared Capital balance of Rs.1,98,67,577/- in the Balance Sheet as on 31.3.2016, while the capital balance shown as NIL in the return of income filed for AY

The assessee submitted that he had filed Balance Sheet as on 31.3.2010 in AY 2010-11 declaring capital balance at Rs.1,06,04,367/-. Thereafter, he did not file Balance sheet in AY 2011-12 to 2015-16, as there was no compulsion to file the same. However, in the return of income filed for AY 2016-17, the Balance sheet as on 31.3.2016 was filed, wherein the capital balance was declared at Rs.1,98,67,577/-. The assessee also furnished closing capital balance of every year as under:-

Since the assessee did not furnish financial statements along with the return of income filed for the immediately preceding year, i.e., for AY 2015-16 and since the capital balance was shown as NIL in the return form, the AO did not accept the above said explanations furnished by the assessee. He took the view that the assessee has not adduced evidences to support his explanations. Accordingly, he took the view that the capital balance shown as on 31.3.2016 has not been properly explained. He noticed that during the year under consideration, the assessee has shown total income of 3 Vinay Kumar Agrawal Rs.13,80,700/- and exempt income of Rs.17,83,651/-. The AO held that both the above said amounts can be given set off. Accordingly, he gave set off both the above said amounts against the capital balance of Rs.1,98,67,577/- and accordingly assessed the balance amount of Rs.1,67,03,226/- as unexplained income of the assessee. The Ld CIT(A) also confirmed the above said addition.

The Ld A.R submitted that the assessee is deriving business income from the business of hiring of tankers. Besides the above, the assessee is having agricultural income, interest income. He submitted that the assessee has been filing return of income every year. Earlier, he filed his Balance sheet along with the return of income for AY 2010-11 (31-03-2010). Thereafter, there was no necessity for the assessee to file return of income and hence the assessee had declared his income only in all the returns filed for AY 2011-12 to 2015-16.However, while filling up columns in the return of income filed for AY 2015-16, the capital balance was inadvertently shown as NIL. Thereafter, the assessee again filed Balance sheet along with the return of income filed for AY 2016-17 (31-03-2016).

He submitted that the assessee has prepared financial statements for all the earlier years and the closing capital balance of each year was given to the AO. He submitted that the assessee also furnished copies of financial statements pertaining to AY 2015-16 also in order to prove that the capital balance was not NIL. He submitted that the AO has rejected the said statements without examining them at all. He submitted that the capital account of every year contains only the income declared in the return of income and further, various withdrawals have been deducted therefrom. Accordingly, he submitted that the capital account has been prepared religiously and they should not have been rejected by the AO without finding fault with them. He submitted that the AO has presumed that the assessee would have spent all accumulated balance, but it is not based on any 4 Vinay Kumar Agrawal evidence. He submitted that the capital account submitted by the assessee is supported by the returns of income filed by the assessee in all the earlier years. Accordingly, he submitted that the Ld CIT(A) was not justified in confirming the addition made by the AO on presumptions. Accordingly, he contended that the impugned addition is not called for.

The Ld D.R, on the contrary, submitted that the assessee did not file Balance sheets along with the return of incomes filed for AY 2011-12 to 2015-16. After a gap of five years, the assessee has filed the financial statements in AY 2016-17. However, he did not substantiate the opening capital balance by furnishing any evidence. Accordingly, he contended that the financial statements pertaining to earlier years could not be relied upon. Further, the assessee has shown capital balance as NIL in the return of income filed for AY 2015-16. Hence the AO has rightly rejected the computation of capital made by the assessee. He further submitted that the AO has fairly given credit for current year’s income and assessed balance amount of capital only. Accordingly, he submitted that the order passed by Ld CIT(A) does not call for any interference.

We heard rival contentions and perused the record. The undisputed facts are that the assessee has filed his Balance sheet as on 31.3.2010 along with the return of income filed for AY 2010-11 and also Balance sheet as on 31.3.2016 along with the return of income filed for AY 2016-17. The capital balance shown was Rs.1,06,04,367/- and Rs.1,98,67,576/- respectively as on 31.3.2010 and 31.03.2016. In between years, the assessee did not file Balance sheets along with the return of income, even though the returns of income were filed for all the years in between. Another fact noticed by the AO is that the assessee has declared NIL capital balance as on 31.3.2015 in the return of income filed for AY 2015-16.

We noticed that the assessee did not file financial statements in AY 2011-12 to 2015-16. However, it is stated that the capital balance was shown as NIL as on 31.3.2015. In the absence of any supporting financial statements, the said entry made in the return of income can only be considered as an inadvertent error, as contended by Ld A.R. We notice that the assessee has furnished copies of financial statements pertaining to AY 2015-16 (Balance sheet as on 31.3.2015) and they have been incorporated in the impugned assessment order. A perusal of the said Balance sheet as on 31.3.2015 would show that the assessee has disclosed capital balance as on 31.3.2015 at Rs.1,71,74,473/-. Thus, the claim of the assessee is supported by the financial statements, which have not been found to be false by the AO on the basis of any other contrary materials. On the contrary, there is no material available with the AO (except the inadvertent error committed while filling up the return of income) to show that the capital balance as on 31.3.2015 was NIL.

The ld A.R also submitted that the assessee has prepared financial statements every year, but there was no necessity to furnish the same along with the return of income. He also submitted that the capital account of the assessee has been credited with the income that were disclosed in the return of income of the relevant year and it was debited with the withdrawals made by the assessee. He submitted that the AO has not pointed out any abnormality in the capital accounts. We agree with the said submissions of the assessee. We have extracted earlier, the year-end capital balances of each of the years, which show that the assessee has been steadily building up his capital over the years. Further, there is no material to show that the entire capital balance so built up has been spent away. In any case, we notice that the capital balance so built up is supported by the income declared by the assessee in the returns of income of earlier years. However, we notice that the AO has not verified those statements and did not bring any material to disprove the same.

Under these set of facts, we are of the view that the AO has made impugned additions only on presumptions, surmises and conjectures. On the contrary, the capital balance built up by the assessee is supported by the returns of income filed by the assessee. Accordingly, we are of the view that the AO was not justified in making impugned addition as unexplained income. Accordingly, we set aside the order passed by Ld CIT(A) and direct the AO to delete the addition of Rs.1,67,03,226/- made by him.

In the result, the appeal filed by the assessee is allowed.