Loading judgment…
Facts
The assessee's capital account showed a significant increase in the Return of Income for AY 2018-19 compared to AY 2017-18. The assessee contended this was due to a human error in clubbing overdrawn balances from partnership firms as proprietor's capital.
Held
The Tribunal noted that the balance sheet figures were presented under different heads due to regrouping, causing a substantial increase in proprietor's funds. However, the purported clerical mistake was not brought to the AO's notice during initial proceedings, nor was a revised return filed.
Key Issues
Whether the increased proprietor's capital, allegedly due to a clerical error in clubbing liabilities with capital, constitutes an unexplained cash credit under Section 68 of the Income Tax Act, and if the matter should be remanded for fresh verification.
Sections Cited
68, 143(3), 143(3A), 143(3B), 250, 139(5), 142(1), 143(2)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SMT. BEENA PILLAI, JM & SHRI ARUN KHODPIA, AM
The captioned appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (in short ‘Ld. CIT(A)’), passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act'), dated 08.06.2025, for the Assessment Year (in short ‘A.Y.’) 2018-19, which in turn arises from the assessment order u/s. 143(3) read with sections 143(3A) & 143(3B) of the Act, passed by Income Tax Officer, National e-Assessment Centre, Delhi, dated 10.03.2021.
Rajeev Surana vs ITO, Ward-19(3)(1), Mumbai 2. The grounds of appeal raised by the assessee are extracted as under:
1. That the Learned Assessing Officer (AO) and the Hon’ble Commissioner of Income Tax (Appeals) [CIT(A)] have erred in law and on facts in making and upholding an addition of Rs. 7,86,11,114/- under Section 68 of the Income Tax Act, 1961, treating the same as unexplained cash credit, without properly appreciating the facts and circumstances of the case.
2. That the addition under section 68 is unjustified and untenable in law, as the amount represents the overdrawn capital balances of the assessee from the partnership concerns in which he was partner, which is not in the nature of any fresh cash credit from an external source.
3. That the authorities below failed to appreciate that the capital appearing in the books of the proprietary concern is merely a reflection of the business assets and liabilities, and any debit or credit therein does not attract the mischief of Section 68 of the Act.
4. That without prejudice, the learned AO and CIT(A) erred in not appreciating that the was no real income arising to the assessee from such overdrawn balance, and hence, no addition could have been made under section 68.
5. That the assessment and the appellate order are arbitrary, perverse, and not sustainable in law.
6. The appellant craves leave to amend, alter, delete, or add to the above grounds of appeal at the time of hearing.
Briefly stated, the assessee is an individual, derives income from proprietary business, share trading, and other sources. Assessee is also the Karta of Rajeev Surana HUF and partner in firms Navkar Goa Corporation and Rite Developers. The assessee was previously also a partner in Shree Shankheswar Rajeev Surana vs ITO, Ward-19(3)(1), Mumbai Enterprises. The case of assessee for assessment year 2018-19 was selected for limited scrutiny under e-assessment scheme 2018. To examine the issue “Share capital / other capital”. Statutory notices, u/s 143(2) and 142(1) of the Act were issued and the assessee made necessary compliances before the Ld. AO. During the assessment proceedings, the Ld. AO observed that the Proprietor’s Capital in the return of income for AY 2017-18 was shown at Rs. 1,23,51,290/- as on 31.03.2017, whereas in the return for AY 2018-19 as on 31.03.2018, the amount of proprietor’s capital has been increased to Rs. 9,18,14,154/-. An inquiry was raised to the assessee, to which the assessee has responded as under:
1. 1. The assessee does not accept the proposed modification and therefore filing this written objection.
2. The assessee's capital has decreased from the opening balance of Rs. 1,23,51,288/- , as on 1.4.2017, to Rs. 92,66,778/- being closing-balance as on 31.03.2018 (copy of the balance sheet and capital account is enclosed pl. refer to page 1-2 of the annexed paper book.
3. The assessee has by mistake shown proprietor's capital in ITR as Rs.9,18,14,154/- , instead of Rs. 92,66,778/-. The person who filed/uploaded the return of income wrongly clubbed the over balance of Rs.8,25,47,567/- being, liability owed to the firms in which the assessee is partner and shown it as proprietor's capital. Copy of the confirmation from all the said firms are also enclosed herewith along with the ledger accounts of the respective parties in the book of assessee and assessee 's account in the books of the said firms.(Pl. refer to page No. 3 to 12 of the attached paper book) 4. From the above, it is seen that there is no increase in assessee's capital but there was a decrease. The alleged increased in capital was the result of a human error. The correct entry of liabilities should have been made in the liability column.
Rajeev Surana vs ITO, Ward-19(3)(1), Mumbai 5. Copy of the assessee 's bank accounts are enclosed herewith (Pl refer to page No. 12 to 32 of the attached paper-book) 6. For convenience sake, assessee is reconciling his capital account as follows i. Over drawn balance with Navkar Goa Corpn 7,84,01,387.00 ii. Over drawn balance with Rajiv Surana HUF 6,01,510.00 iii. Over drawn balance with Rite developers 2,95,670.00 iv. Over drawn balance with Shree Shankeshwar 32,49,000.00 Enterprises: Firm’s Liabilities 8,25,47,567.00 Add: Actual Capital 92,66,778.00 Total capital shown erroneously 9,18,14,345.00
The aforesaid submissions of assessee could not find favour before the Ld. AO as he observed that the First explanation by the assessee about the rise in capital was on account of profit from proprietary business and profit from share trading, but on receipt of the draft assessment order, the assessee has come forward with a new story of admitting a mistake in quoting the figure in his Return of Income. To substantiate the mistake committed while filling the figures in Return of Income, assessee furnished various documents before the Ld. AO, however, such documents are not considered sufficient by the Ld. AO to address and clarify the issue raised by him. Accordingly, the addition of Rs. 7,86,11,114/- was made to the income of assessee treating the same as unexplained cash credit u/s 68 of the Act on account of increase in capital of the assessee.
Aggrieved with the said addition, the assessee preferred an appeal before the Ld. CIT(A), who had dismissed the appeal of assessee by observing the following conclusion:
Rajeev Surana vs ITO, Ward-19(3)(1), Mumbai F. CONCLUSION AND FINAL ORDER Having regard to the entire record, the legal submissions, the statutory framework, and the judicial precedents, it is evident that the assessee has failed to discharge the burden of proof under section 68. The purported clerical mistake was not brought to the AO's notice during the initial proceedings. No revised return was filed u/s 139(5), and the confirmations filed were neither audited nor verifiable. The failure to provide PAN ITR or bank trail of the creditors renders the explanation non genuine. The decisions relied upon by the assessee are distinguishable on facts and do not aid his case. The AO has acted within the scope of law and followed a reasoned approach, giving sufficient opportunity to the assessee at every stage. The addition under section 68 is based on sound reasoning and judicially sustainable grounds. The argument of the assessee that these were merely liabilities is belied by lack of substantiating evidence. Therefore, in view of the facts, judicial precedents, and the objective analysis of material on record, the action of the AO in making the addition of 07,86,11,114/ under section 68 is upheld.
Being aggrieved again with the order of Ld. CIT(A), the assessee preferred and appeal before the ITAT, which is under consideration in the present matter before us.
At the outset, Ld. AR representing the assessee submitted that the Ld. CIT(A) in the impugned order has referred to clerical mistake committed at the end of assessee, however, as the assessee was failed to file the revised return u/s 139(5) of the Act, the appeal of assessee has been dismissed without considering Rajeev Surana vs ITO, Ward-19(3)(1), Mumbai the facts and documents furnished by the assessee to support the contention that the increase in share capital was only on account of regrouping of figures of the capital and unsecured loan in two years compared herein and therefore the addition u/s 68 without referring to such documents to correctly analyse the facts of the case was baseless and unjustified.
Before us, Ld. AR of the assessee furnished the copy of return for the AY 2017-18 as well as for AY 2018-19 and explained that the assessee’s source of fund for AY 2017-18 were Rs. 11,22,89,354/- whereas the source of fund in AY 2018-19 was Rs. 12,21,74,403/-. It is further explained that the proprietor capital shown in AY 2018-19 for Rs. 9,18,14,154/- which was Rs. 1,23,51,290/- for the AY 2017-18, therefore, an obvious increase was noted by the revenue. It is submitted that in AY 2018-19, assessee has committed a mistake and added the amount of capital with partnership firms also while submitting the figure for total proprietor’s fund.
Whereas in AY 2017-18, the figure of capital with partnership firms was shown under the head unsecured loans from others, therefore, in total the source of funds of the assessee was 12.21 Crores in AY 2018-19, whereas it was 11.23 Crores in AY 2017-18, therefore, there was only an increase of approximate Rs. 99 Lacs in the total source of funds of the assessee, whereas the capital account of the assessee was in fact decrease from Rs. 1.23 Crores to Rs. 92.66 Lacs. It was the submission that the assessee has tried to explain these facts before the Ld.
In backdrop of facts and circumstances, it was the prayer that the increase in proprietors fund observed by the revenue was only due to regrouping of figures under clerical mistake committed while filing the ROI, as the existing overdrawn figures by partnership firms by the assessee are added to the proprietor fund in AY 2018-19, whereas in AY 2017-18 it was added in unsecured loans, therefore, there was no addition in proprietor capital of the assessee. Accordingly, Ld. AR contented to reverse finding of revenue authorities and to vacate the addition made u/s 68.
Per contra, Ld. Sr. DR representing the revenue has submitted that the assessee was unable to furnish any explanation before the Authorities below also, the assessee also furnished various additional evidences before the Tribunal, therefore, even if the contentions of Ld. AR are accepted, the matter needs to be restored back to the file of Ld. CIT(A) for verification of the facts.
We have considered the rival submission, perused the material available on record. Admittedly, in present case, prima facie it is apparent that the balance sheet figures were furnished in the ROI for 2017-18 and 2018-19 under different heads by regrouping the figures and that had caused the substantial increase in proprietors funds of the assessee. We find that it was just an error in grouping of Rajeev Surana vs ITO, Ward-19(3)(1), Mumbai the figures of balance sheet by the assessee in his two returns (ROI) under consideration. For that reason, it cannot be construed that the assessee has introduced from his capital during the year under consideration. Since assessee was failed in furnishing the facts and figures properly before the authorities below. We find it appropriate to provide one more opportunity to explain the assessee his case before the Ld. CIT(A), to examine the issue afresh and deciding the same after considering the facts and documents.
On perusal of Ld. CIT(A) order also, we find that the Ld. CIT(A) has recorded the observation that the purported clerical mistake was not brought to the AO’s notice, neither during the initial proceedings nor a revised return was filed by the assessee. Instead of verifying evidence furnished by the assessee, Ld. CIT(A) have observed the mistake committed by him, only for such reason if the Ld. CIT(A) has arrive at a decision that there was a clerical mistake, the issue could have been examined by way enquiries by himself or through calling remand report from the Ld. AO so that logical conclusion could have been drawn.
In view of the aforesaid circumstances and facts of the present case, we are of the opinion that the present matter needs to be restore back to the file of Ld. CIT(A) for verifications of facts from evidence submitted by the assessee and adjudicate the matter afresh on merits.
Rajeev Surana vs ITO, Ward-19(3)(1), Mumbai 15. Needless to say, the assessee shall be afforded with reasonable opportunity of being heard in the set aside appellate proceedings. The assessee as conceded through its authorized representative before us, also directed to cooperate and assist proactively in the set aside proceedings, failing which the Ld. CIT(A) would be at liberty to decide the case in accordance with the mandate of law.
In result, the appeal of assessee is allowed, in terms of our aforesaid observations. Order pronounced in pursuance of Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963 on 27/10/2025.