JOINT COMMISSIONER OF INCOME TAX (OSD), PUNE vs. SURESH KUMAR LAKHOTIA , PUNE

।आयकर अपीलीय अिधकरण ”बी” �ायपीठ पुणेम�। IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES “B” :: PUNE BEFORE MS. ASTHA CHANDRA, JUDICIAL MEMBER AND DR.DIPAK P. RIPOTE, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.24/PUN/2024 िनधा�रण वष� / Assessment Year:2018-19 Vs Suresh Kumar Lakhotia, The Joint Commissioner of Income Tax(OSD), 3A/3B, Archies Court Pune. Shankersheth Road, Ghorpade Peth, Pune – 411042. Pune – 411042. PAN: AAZPL4337L Appellant / Revenue Respondent / Assessee Assessee by Shri Devdatta Mainkar – AR Revenue by Shri Ajay Keshari – DR Date of hearing 14/08/2024 Date of pronouncement 27/09/2024 आदेश/ ORDER PER DR. DIPAK P. RIPOTE, AM: This appeal filed by the Revenue is against the order of ld.Commissioner of Income Tax(Appeal)[NFAC], under section 250 of the Income Tax Act, 1961 dated 09.11.2023 for the Assessment Year 2018-19. The Revenue has raised the following grounds of appeal : “1. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in accepting the assessee's contention that the additional capital introduced in AY 2018- 19 represents accumulated

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capital from disclosed income between AY 2006-07 to AY 2017-18, when the AO had correctly highlighted in the assessment order that the assessee's personal capital remarkably surged to Rs. 17.31 crores in AY 2018-19, whereas the most recent wealth tax return filed in AY 2013-14 reported a net wealth of only Rs. 1.11 crores and the income declared in the intervening AYs ITRs does not reasonably justify such a substantial increase. 2. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding that no statutory provision in the Income tax Act requires disclosing personal balance sheets when the I I R explicitly mandates disclosure of complete assets and liabilities for individuals with a total taxable income exceeding Rs. 50 lakhs and despite the assessee having a total taxable income above Rs. 50 lakhs in AY 2017-18, no personal assets and liabilities were reported. 3. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding that sufficient evidence for the source of additional assets has been provided when the assessee failed to provide satisfactory documentary evidence for the additional assets acquired during the assessment proceedings and the submission of calculations of disclosed incomes in previous years was 11 Rs as evidence of the source is inadequate as there is no record of evidence establishing that the same income has been utilized for the additional assets and not expended elsewhere. 4. The appellant craves leave to add, amend, or alter any ground(s) of appeal at the time of hearing before the Hon'ble Tribunal.” Submission of ld.AR : 2. The ld.Authorised Representative(ld.AR) of the assessee submitted that for the first time in AY 2018-19 assessee has clubbed his Personal Balance sheet and Business Balance Sheet and presented as one single balance sheet in the return of income. Therefore, there is difference between the closing balance of

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A.Y.2017-18 and opening balance of A.Y.2018-19. The relevant part of the written submission of the Ld.AR is as under : “1. The Appellant filed return of income on 31.10.2018 declaring total income of Rs.1,59,81,090. His income includes salary from group companies, business income from proprietary concern 'Shree Ram Minerals', house property income, capital gains and income from other sources. 2. In the return of income, the Appellant merged personal balance sheet with balance sheet of proprietary concern, which resulted in adding opening capital of Rs. 19.04 crores and corresponding personal assets in the balance sheet. 3. The learned AO considers this treatment as introduction of capital and issued show-cause notice proposing addition u/s 68of the Income Tax Act, 1961 (the Act). Summary of the Appellant's submissions before the AO are • There is merging of personal balance sheet with balance sheet of proprietary concern for better presentation of affairs of the Assessee. Personal capital is balancing figure represented by personal assets minus liabilities. Therefore, there is no introduction of capital during the year as alleged by the AO. • Personal assets were acquired out of income from salary, capital gains, other sources and exempt income earned over last 20 years. • There is merely change in disclosure / presentation in ITR by reporting opening personal capital as on 01.04.2017 and not actual addition of capital during the year. • In support of above contention, documentary evidences such as details of income from AY2006-07 to AY2017-18, CA certified personal balance sheets as on 31.03.2012 to 31.03.2017, copies of wealth tax returns from AY2007-08 to AY2013-14, supporting documents of assets / investments acquired, were submitted before the AO. • Personal assets were acquired in earlier years and hence, opening balance of capital represented by the net assets cannot be added as income in the current year.

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Ld.CIT(A)'s findings - pages 13-14 & 16-17 of the order as under : a. The Appellant provided details of business income, personal income (including income exempt under the Act) and taxes paid for a period of 12 years from AY2006-07 to AY2017- 18. The Appellant has disclosed income of Rs. 18.58 crores and paid taxes of Rs. 3.61 crores in the above period. b. The Appellant also provided detailed cash flow statement showing accumulation of personal capital over the years. c. In wealth tax returns, only certain assets chargeable to wealth tax are disclosed and therefore, there is no occasion to disclose financial assets such as shares, mutual funds units, FDs, in wealth tax returns. d. There is no requirement to disclose audited personal balance sheet in the return. e. Addition to capital is balancing figure arisen due to merger of personal assets in the books. There no receipt of money in the year but a book entry which is incorporated personal assets and liabilities. As per Wealth Tax Act, only certain types of assets and properties are treated as wealth and required to be disclosed in wealth tax return as per rules. Bank deposits, investments in shares, mutual funds etc were not part of taxable wealth and hence, are not required to be disclosed in the wealth tax return. It is respectfully submitted that comparing assets disclosed in wealth tax returns and that too of A.Y.2013-14 with assets in balance sheet as on 31.03.2017 is erroneous and conclusion from such comparison would be misleading. Before the AO, the Assessee submitted personal balance sheets, supporting documents of assets acquired and details of income from AY2006-07 to AY2017-18. These details clearly explain increase in assets and corresponding increase in capital. The finding of the ld.CIT(A) is in response to the AO's allegation that personal balance sheets submitted for prior years are not audited. Even if the assets and liabilities were not reported in ITR of A.Y.2017- 18, there existence cannot be denied, which is supported by documentary evidence. The learned AO has not doubted about acquisition of the assets in

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earlier years. In fact, in the year under appeal, the personal assets and liabilities are shown in balance sheet and were audited.

Before the AO, the Assessee submitted personal balance sheets, supporting documents of assets acquired and details of income from A.Y.2006-07 to A.Y.2017-18. These details clearly explain acquisitions of assets, sources of funds and corresponding increase in capital. The learned ld.CIT(A) has examined this and given a finding that assets were acquired out of income reported.

The AO failed to appreciate that the assets were acquired in earlier years out of income disclosed in the ITRs and therefore, there cannot be any 'insertion of assets' to match balance sheet. As submitted earlier, the capital is balancing figure and not the assets as alleged by the AO. Case laws relied upon :

In an identical case before the Chennai bench of the Income Tax Appellate Tribunal (ITAT) in Dy. CIT vs. V. V. D. Murali ITA No. 84/Mds/2015), the Hon'ble ITAT held that opening capital cannot be added u/s 68 or 69 of the Act.

In the case of CIT vs. Parmeshwar Bohra [2004] 267 ITR 698, the Hon'ble Rajasthan High Court held that opening capital cannot be added u/s 68 or 69 of the Act.

Business income, Personal income, and Total income reported in ITR from AY 2006-07 to AY 2017-18 Business income Income from other Page no. of Paper Sr No ROI Year Total Income Exempt income Personal income Taxes paid heads Book A B C D E-C-D F G:E+F H

AY 2006-07 49,28,570 49,28,570 49,28,570 9,39,223 2 AY 2007-08 48,36,281 48,36,281 48,36,281 13,36,578 383 3 AY 2008-09 2,00,09,131 2,00,09,131 2,00,09,131 45,21,283 384 4 AY 2009-10 74,28,945 74,28,945 74,28,945 21,13,974 385-387 5 AY 2010-11 82,89,695 82,89,695 82,89,695 24,52,973 388 6 AY 2011-12 1,26,01,980 1,26,01,980 34,89,943 1,60,91,923 37,86,882 389 7 AY 2012-13 94,96,966 3,04,634 91,92,332 17,69,316 1,09,61,648 2878944 390 8 AY 2013-14 86,50,499 3,73,118 82,77,381 7,05,081 89,82,462 26,01,428 391 9 AY 2014-15 97,70,159 5,66,344 92,03,815 11,74,791 1,03,78,606 29,15,966 392 10 AY 2015-16 1,01,69,293 1,78,420 99,90,873 5,43,04,639 6,42,95,512 30,84,119 393 11 AY 2016-17 1,00,31,500 1,11,906 99,19,594 2,29,000 1,01,48,594 28,32,759 394 12 AY 2017-18 2,04,89,866 13,48,114 1,91,41,752 3,67,914 1,95,09,666 66,69,927 395 Total 12,67,02,885 28,82,536 12,38,20,349 6,20,40,684 18,58,61,033 3,61,34,056

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Submission of Ld.DR : 3. Ld.DR relied on the order of the Assessing Officer. Ld .DR submitted that there is no evidence filed by the assessee for his claim regarding the earlier years Capital balances. In the absence of any evidence the addition made by AO is correct.

Findings and Analysis: 4. We have heard both the parties and perused the records. It has been claimed by the assessee that assessee has been maintaining separate Balance Sheets for his personal affairs and Proprietary Business. The Assessee claimed that for the first time for A.Y.2018-19 assessee clubbed his two Balance Sheets and presented as one Balance Sheet. The Assessee claimed that the difference in Opening Balance for A.Y.2018-19 and Closing Balance for A.Y.2017-18 of the Capital Account is because of the clubbing.

4.1 We have perused the Chart submitted by the Assessee explaining the Total Income earned by the Assessee from A.Y.2006-07 to A.Y.2017-18. In the said Chart the Assessee has shown entire Income earned by the assessee during the period including the exempt income, personal income, Proprietary income

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etc. The AO has not disputed the said chart. It means both the parties have accepted the figures mentioned in the chart. Otherwise also we have perused the figures mentioned in the chart compared them with the figures appearing in the Return of income filed by the assessee in the paper book and seems to be matching. Thus, the Total Income earned by the assessee upto 31/03/2017 was only Rs.18,58,61,033/-. As per assessee he has paid Total tax of Rs.3,61,34,056/- during the period. Hence the figure of Tax Paid needs to be reduced from the Total Income. Accordingly, after reducing the Tax paid the Available Income for the Assessee as on 31/03/2017 is Rs.185861033(-)Rs.36134056=Rs.14,97,26,977/-. However, this is the maximum income which could have been available to the assessee. There has to be certain personal expenditures during this period. Even if we presume that the personal expenditures during A.Y.2006-07 to A.Y.2017-18 were Rs.50,00,000/- only, then also the maximum available income would be Rs.14,47,26,977/-. However, assessee has added Rs.18,69,64,013/- to the opening capital of A.Y.2018-19 to show Capital of Rs.19,03,59,703/- for A.Y.2018-19 (Rs.33,95,690/- + Rs.18,69,64,013/- = Rs.19,03,59,703/-). For A.Y.2017-18,the Assessee was having Closing Capital of Rs.33,95,690/- as per the Balance sheet filed with the Return of Income for A.Y.2017-18,

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hence opening Capital for AY 2018-19 becomes Rs.33,95,690/- to this Assessee added Rs.18,69,64,013/- and shown Opening Capital. Thus, the assessee has actually camouflaged the addition made to the capital of Rs.18,69,64,013/-. As per the evidence on record the closing capital for AY 2017-18 was only Rs.33,95,690/- therefore, as per evidence on record the opening Capital for AY 2018-19 will also be only Rs.33,95,690/-. Hence, Rs.18,69,64,013/- is in reality addition made to the Opening capital but Camouflaged . Therefore, AO was right in asking the assessee to explain Rs.18,69,64,013/-. We have already discussed that maximum available Income to the assessee at the end of AY 2017-18 was only Rs. 14,47,26,977. Therefore, at the most we can consider the amount of Rs.14,47,26,977 /- as explained. Accordingly, the remaining amount becomes unexplained (Rs.18,69,64,013- Rs.14,47,26,977) . We have already discussed that it is an addition to the opening capital hence AO has rightly invoked section 68 of the Act. The onus was on assessee to prove genuineness of the amount of Rs.18,69,64,013/-. However, the assessee failed to prove the genuineness of the remaining amount as the assessee had never earned the Total Income to that extent. Since the Assessee has failed to explain the remaining amount accordingly same needs to be added u/s 68. Accordingly, the AO is directed to consider

ITA No.24/PUN/2024 Suresh Kumar Lakhotia [R] Rs.14,47,26,977/- as explained, this amount also includes the amount already considered by AO as explained and remaining amount to be added u/s.68 out of the Total Addition of Rs.18,69,64,013/- made to the Capital.

12.1 Accordingly, the grounds of appeal raised by the Revenue are partly allowed as discussed above.

Sd/- Sd/- (ASTHA CHANDRA) (DR. DIPAK P. RIPOTE) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 27th Sep, 2024/ SGR* आदेशक��ितिलिपअ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The CIT(A), concerned. 4. The Pr. CIT, concerned. िवभागीय�ितिनिध, आयकरअपीलीयअिधकरण, “बी” ब�च, 5. पुणे / DR, ITAT, “B” Bench, Pune. गाड�फ़ाइल / Guard File. 6. आदेशानुसार / BY ORDER, // TRUE COPY // Senior Private Secretary आयकरअपीलीयअिधकरण, पुणे/ITAT, Pune.