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Facts
The assessee, engaged in plying tankers, appealed against the CIT(A)'s order for AY 2010-11. The additions were made on account of opening capital balance and expenses incurred for running tankers.
Held
The Tribunal held that the opening capital balance, having been consistently accounted for in previous years, could not be added as income. Similarly, the addition for tanker expenses was deleted as the AO failed to establish that the income offered was not in consonance with the presumptive taxation scheme under Section 44AE.
Key Issues
Whether the opening capital balance can be added as income, and whether expenses incurred for plying tankers are admissible against presumptive income under Section 44AE.
Sections Cited
44AE, 147, 148, 143(3)
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘B’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
the order of the ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (A)’] dated 16.04.2024 passed for assessment year 2010-11. The assessee has taken five grounds of appeal, out of which Ground No. 4 and 5 are general grounds which do not call for recording of any specific finding, hence rejected.
ITA No.688/CHD/2024 A.Y.2010-11 2
In Ground No.1, assessee has pleaded that ld. CIT(A) has erred in confirming the addition of Rs.53,84,062/- which has been added by the AO out of Opening Capital Balance.
The assessee has filed his return of income declaring total income at Rs.2,19,350/- and agriculture income of Rs.33,487/-. The assessee was having tankers and he has offered income under Section 44AE. The income was earned by plying tankers on hire. According to the assessee, Section 44AE contemplates that if an assessee has less than ten numbers of tankers, then it can offer income on presumptive basis to the extent provided in the Act. The AO has reopened the assessment by observing that while passing the scrutiny assessment for assessment year 2014-15, it came to the notice of the Department that assessee has shown a higher amount of capital balance on the opening date. The source of that capital balance was examined and accordingly, earlier assessment years have also been reopened. In the year under consideration, the Opening Balance as on 01.04.2019 has been shown at Rs.53,84,062/-. The ld. AO has made addition of this amount by disbelieving its source.
ITA No.688/CHD/2024 A.Y.2010-11 3
Appeal to the CIT(A) did not bring any relief to the assessee.
The ld. Counsel for the assessee submitted that this issue travelled upto the Tribunal in assessment year 2014- 15 vide ITA No. 40/CHD/2020. It has been decided in favour of the assessee vide order of the Tribunal dated 31.08.2021.
The Tribunal has held that Opening Capital Balance cannot be added. The ld. Counsel for the assessee has placed Capital Account for the Financial Years 2005-06 to 2013-14 on page No. 44 of the Paper Book. He took us through this page and submitted that Opening Capital Balance as on 01.04.2005 was Rs.17,80,647/-. After adding share of profit and other additions, less withdrawals made during the year, the closing balance was Rs.22,92,419/-. Every year, its working has been done. Thus, closing balance of earlier years came to be the Opening Balance in this year.
Therefore, it cannot be added as income of the assessee in this year.
The ld. DR, on the other hand was unable to controvert the submissions of the assessee about the deletion of addition made by the ITAT in assessment year 2014-15.
ITA No.688/CHD/2024 A.Y.2010-11 4
We have duly considered the rival contentions and gone through the record carefully. Since assessee has prepared Capital Account for Financial Year 2005-06 to 2013-14 and demonstrated as to how this Capital Balance has accumulated to the assessee, the closing balance as on 31.03.2009 was of the same amount which became Opening Balance on 01.04.2009. The closing balance has not been disturbed. Therefore, opening balance cannot be doubted.
Accordingly, the addition made of Rs.53,84,062/- is not sustainable and we delete the addition. Thus, Ground No. 1 is allowed.
In Ground No.2, assessee has pleaded that CIT(A) has erred in confirming the addition of Rs.38,53,108/-. This amount was debited by the assessee as expenditure for running his tanker. The assessee has shown gross freight receipt at Rs.36 lacs. He has debited tanker expenses at Rs.24,65,898/-. Thus, total gross receipts from bank interest, agriculture income, salary income and freight receipts are worked out by the assessee at page 80 of the Paper Book and this figure is Rs.38,24,181/-. Out of this A.Y.2010-11 5 figure, an expenditure of Rs.33,90,000/- has been debited.
Net profit has been worked out at Rs.4,34,181/-. The CIT(A) while confirming the addition made following observation :
“Ground of Appeal
Two - 'The the learned AO has erred in law and on facts in making additions of Rs.38,53,108/- alleged to be additions to capital during the year.' It has been submitted that after credit and debits to the capital account, the remaining amount of Rs.4,34,181 has been offered to tax. It is seen that the appellant has submitted that it has incurred expenses of Rs.33.90 Lacs. However, nothing has been bought on record to endorse the admissibility of such expenses. It has not led evidence before the Ld.JAO in assessment' proceedings or in remand report preparation or in appellate proceedings to establish the genuineness of such expenses. In fact, as per findings reached by the Ld.JAO and my Ld. Predecessor CIT(A), appellant has not been able to substantiate its financial accounts and in absence of evidence reduction in accretion to capital because of expense incurred cannot be allowed, unless its legitimacy is proved. In view of discussion supra ground of appeal is dismissed.
9. With the assistance of ld. Representative, we have gone through the record carefully. We are of the view that ld.
First Appellate Authority failed to appreciate the procedure contemplated in Section 44AE. Sub-clause (2) of Section 44AE provides that income of a heavy goods vehicle plied by an assessee on hire, shall be an amount equal to one thousand rupees per ton of gross vehicle weight or unladen weight, as the case may be, for every month or part of a month during which the heavy goods vehicle is owned by the assessee in the previous year. Other than heavy goods A.Y.2010-11 6 vehicle, this income shall be an amount equal to seven thousand five hundred rupees for every month or part of a month. This income is to be determined on the basis of formula given in this Section. It is a presumptive taxation on the income of an assessee engaged in plying of trucks.
He was not supposed to maintain books of account and other details whereby he can prove the expenditure and other things. The AO has not recorded the finding that income offered by the assessee is not in consonance to formula given in Section 44AE. This, this addition is not sustainable.
Accordingly, addition of Rs.38,53,108/- is deleted.
In the next ground of appeal, assessee has challenged re-opening of assessment. We do not find any merit in this ground of appeal because AO has reasons to believe that income has escaped assessment on the ground of opening balance accumulated in assessment year 2014-15 was examined by the AO wherein source was explained as closing balance of earlier years. Therefore, the AO has examined the opening balance in this year also. We are of the view that AO has sufficient material to harbour the belief that income has A.Y.2010-11 7 escaped assessment and he has rightly reopened the assessment.
In the result, the appeal of the assessee is partly allowed.
Order pronounced on 05.05.2025.