KOMALAVALLY PRABHAKARAN,CALICUT vs. ACIT CIRCLE 1(1) & TPS, KOZHIKODE

The present appeal of the assessee is arising from the order of the learned Commissioner of Income-tax (Appeals) dated 10th November, 2022 and it relates to the assessment year 2016-2017, having DIN & Order No.ITBA/NFAC/S/ 250/2022-23/1047206720(1).

The brief facts as coming out from the orders of the authorities below are that the assessee is an individual filed the return of income on 27th July, 2017 declaring a total income of Rs.30,18,170. The return of income filed by the assessee was selected for scrutiny vide notice dated 13th July, 2017. During the course of assessment proceedings, the . Komalavlly Prabhakaran. Assessing Officer observed that the assessee has introduced capital of Rs.2,15,23,520 in the impugned year. The A.O. asked the assessee the source for the introduction of the capital by the assessee. Responding to the queries of the A.O., the assessee explained the source vis-à-vis the capital introduced by the assessee as under: -

Assessee further explained to the A.O. that the source of the fund is the interest accrued to the assessee on the deposits made by the assessee, which deposits were duly offered for taxation in assessment year 2010-2011 onwards. Further clarifying, the assessee contended that these amounts were not included in the capital in the preceding years and the same are included in the current assessment year only. Considering the reply of the assessee, the A.O. asked for the details of income returned from assessment year 2010-2011 to assessment year 2014-2015. Thereafter the A.O. scrutinized the income of those years and reached to the conclusion that if some expenses such as personal drawing etc would be deducted on assumption basis the the assessee was left out with only Rs.71,88,748 instead of Rs 1,67,95,556and hence the AO made an addition of Rs.96,06,808 to the income of the assessee.

Aggrieved with the order of the A.O., the assessee preferred an appeal before the ld.CIT(A) and inter alia contended that the A.O. had erred in scrutinizing the previous years of assessment without there being any authority of law. The learned AR of the assessee appeared before the Ld.CIT(A) also argued the additions on merits. However, the Ld. CIT(A) could not find any force in the arguments of the assessee and partly allowed the appeal of the assessee.

Still aggrieved with the action of the ld.CIT(A), the assessee has come up in appeal before us and has raised 13 grounds of appeal, which are related to the additions of Rs.85,94,268. The learned Counsel appearing on behalf of the assessee, contended that the A.O. could not have gone into the accounts of earlier years and further could not have made additional on the basis of assumptions and presumption with respect to those years.

The learned Departmental Representative relied upon the orders of the authorities below.

We have heard the rival submissions and perused the material available on record. The facts involved in the present case would show that it has been admitted by the lower authorities that the assessee was having enough income from assessment year 2010-2011 to assessment year 2014-2015. From such income the assessee has created fixed deposits in the bank and then capitalized those principal and interest in the impugned year as an opening balance. It is settled position of law that the A.O. cannot add previous years credits . Komalavlly Prabhakaran. as unexplained credits u/s.68 of the I.T.Act. In other words, the opening balance figures cannot be added u/s.68 of the I.T.Act since the purport of sec.68 is meant only for the current year’s credit. The Revenue is not remediless. In case the Revenue wants to examine the previous years’ financials under scrutiny, there are several other provisions of the Act, which empowers the Revenue to scrutinize the earlier years. Therefore, we are of the firm opinion that the additions made by the A.O. on the basis of assumption and presumption and that too by taking cognizance of the previous year’s financials, which were not impugned before him, is not correct in law. Therefore, we allow the appeal of the assessee and direct the lower authorities to delete the addition.

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