BHANWAR SINGH SHEKHAWAT,JAIPUR vs. INCOME TAX OFFICER, WARD-3(1), JAIPUR

This appeal by the assessee is directed against the order of NFAC, Delhi dated 02.12.2024 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’). The assessee has raised the following grounds of appeal: -

“1. That on the facts and in the circumstances of the case the learned CIT(A) is wrong, unjust and has grossly erred in law in confirming addition of Rs. 1,01,38,155/- made to income of the appellant by the learned AO on account of alleged unexplained increase in capital of the appellant. The learned CIT(A) while sustaining above said addition is wrong, unjust and has erred in law in:

(a) upholding rejection by the learned AO of the plea of the appellant that difference in opening capital of the assessee as on 01.04.2016 i.e. A.Y. 2016-17 was on account of incorporation of value of assets inherited by the appellant from his deceased father and value of other assets purchased by him before 2010 in opening capital as on 01.04.2015 in balance sheet which were earlier not shown in balance sheet for A.Y. 2014-15 and 2015-16 and (b) in confirming action of the learned AO in computing capital of the appellant on the basis of net taxable income declared by the appellant in A.Y. 2014-15 to A.Y. 2016-17 instead of gross income declared by the appellant.

2. That without prejudice to the ground No. (1) above on the facts and in the circumstances of the case, learned CIT(A) is wrong, unjust and has grossly erred in law in holding that addition of Rs. 1,01,38,155/- made to the income of the appellant by the learned AO and confirmed by him shall be charged to tax u/s. 68 of the IT Act. 1961 instead of as normal income without issuing notice under sub section (2) of Sec. 251 of the IT Act, 1961 for enhancement of tax liability.

3. That the appellant craves permission to add to or amend to any of grounds of appeal or to withdraw any of them.

2. The brief facts of the case are that the assessee filed his return of income on 23.07.2016 declaring taxable income at Rs. 2,83,430/- and agricultural income of Rs. 19,76,214/-. The case of the assessee was selected for limited scrutiny for the reason “Substantial increase in capital (Part-ABS of ITR)”. After due deliberation on the issue between the assessee and the AO, Rs. 1,01,38,155/- was added back as income u/s. 68 of the Act being difference in the opening and closing balance of the capital account furnished by the assessee. The assessee being aggrieved with this order of the AO preferred an appeal before the Ld. CIT (A), who in turn dismissed the appeal of the assessee and confirmed the order of the AO. The assessee being further aggrieved with the same preferred the present appeal before us.

3. We have gone through the order of the AO, order of the Ld. CIT (A) and submissions of the assessee alongwith the grounds taken before us. It is observed that the only issue in dispute before us is the difference in capital account of the assessee, i.e. opening balance vis-à-vis closing balance amounting to Rs. 1,01,38,155/-. The opening balance of capital as accepted by the department was Rs. 56,84,112/-, whereas the closing balance as declared by the assessee was Rs. 1,56,38,209/- resulted in a difference of Rs. 99,54,097/-, ultimately after certain adjustment final figure under dispute was Rs. 1,01,38,155/-, which the assessee accepted for the purposes of taxation matter to be explained. The facts mentioned above are not under challenge by either of the parties.

4. It is further observed that this difference in the opening and closing capital account of the assessee was because of introduction of certain assets in his personal balance-sheet at assets side and consequential credit to his capital account and there is no cash element involved in the form of loan/gift/introduction of capital etc. We have gone through the balance-sheet of the assessee for F.Y. 2015-16, i.e. A.Y. 2016-17 and observed that closing balance of capital account as on 31.03.2014 was Rs. 13,77,666/- (as accepted by the AO) and then the assessee claimed certain assets acquired between the period 1995 to 2013-14 amounting to Rs. 90,82,982/- plus income for the year 2013-14 amounting to Rs. 3,46,789/- minus drawing for the year 1,38,749/-, meaning thereby the closing balance of capital is Rs. 1,06,68,958/-. This Rs. 1,06,68,958/- became opening balance for the A.Y. 2015-16 plus income for the year 4,54,917/- along with agricultural income of Rs. 19,14,332/- minus drawings for the year 2,44,674/-, meaning thereby the closing balance of capital balance is Rs. 1,27,93,533/-. This Rs. 1,27,93,533/- became opening balance for A.Y. 2016-17 plus income for the year 5,24,948/- alongwith agricultural income of Rs. 19,14,332/- minus drawings for the year 2,44,674/- and addition of Rs. 5,50,650/- in the capital account as gift from mother, this resulted in total reconciliation of Rs. 1,56,38,209/-.

S. No. Details of Property Year of Amount Purchase

5. Agricultural Land inherited from father acquired Inherited in Rs. 20 Lacs (Estimated) earlier by grandfather 1995

8. Residential House purchased in Ranjit Nagar August 2010 Rs. 21,74,355/-

TOTAL Rs. 1,49,06,186/-

6. In view of the table above, it is observed that as the all documents were there before the AO and the Ld. CIT(A) and other than column nos. 5 and 6 (In bold) all the acquisitions were made by the assessee himself. In addition to this the AO was well within its power to examine the sources of the acquisitions as all the transactions were within the limitation provided in law. The assessee furnished the reconciliation of the gap between the opening and closing balance of the capital account with details of property alongwith registered purchase deed etc. except there was no source adduced about the gift received from mother amounting to Rs. 5,50,650/-.

7. We have thoroughly considered the orders of the authorities below and their apprehensions, they have about genuineness of the assessee’s claim and intentions. Principally, even if agreed with their concerns, it is found that the AO has not handled the matter the way it should be. All the purchases of the assessee could have been examined by examining the income proofs of the respective years by resorting to section 148 of the Act. But the same was not done and now this is undisputedly on record that the assets introduced in the balance-sheet of the assessee pertains to the earlier years and can’t be added back in the year under consideration, as we have to follow the principle that “each year is separate year”. It’s a classic case where on the one hand the AO and the Ld. CIT (A) are not agreed with the claim of the assessee, on the other hand they are not reopening the matters of the assessee for previous years in which purchases of assets have been made. Although, the claim of the assessee about receiving gift from his mother in current A.Y. never substantiated before the AO and the Ld. CIT(A) and even before us. In view of this addition to the extent of Rs. 5, 50,650/- is sustained u/s. 68 of the Act and for the balance amount of addition, the AO is directed to delete the same as the assessee has discharged his onus and the AO himself was failed to adhere the required exercise in this matter for which the assessee can’t be held responsible. In the result, grounds raised by the assessee are partly allowed.

The Order is pronounced in the open court on the 8th day of May 2025.