Addition of capital account opening balance because no earlier return filed, deleted by ITAT

Addition made towards opening balance of capital account merely because no return was filed earlier deleted by ITAT

ABCAUS Case Law Citation:
ABCAUS 3816 (2023) (11) ITAT

In the instant case, the assessee had challenged the order passed by the National Faceless Appeal Centre / CIT(A) in inter alia confirming the disallowance towards the opening balance of capital account and cash deposit into Savings Bank Account.

The appellant assessee was an individual and derived income mainly from commission and brokerage. He furnished his e-return for the relevant Assessment Year showing taxable income.

The case was selected for scrutiny through CASS followed by issuance of notice u/s 143(2) and 142(1) of the Act, which were duly served.

During the course of assessment proceedings, the Assessing Officer (AO) observed that observed that the assessee had shown opening capital balance of approx 9 lacs but since no return was filed for preceding year, the Assessing Officer made addition of approx Rs. 4 lacs for unexplained opening capital. Further, the Assessing Officer noticed that during the year, the assessee deposited cash of Rs. 8,00,000/- and when asked about the source of the said deposit, it was stated that it is from past savings.

The Assessing Officer was not satisfied with the submissions and made the addition thereof.

The Tribunal observed that AO had made the addition for unexplained capital out of the opening capital and on the other hand, addition has been made for unexplained cash deposit claimed to have been made out of past savings.

The Tribunal noted that it remained an uncontroverted fact that the assessee did not file any return of income in the past stating that her income was less than the taxable income limit. Further, on the liability side the assessee had shown opening capital of approx. 9 lacs and on the asset side has shown opening cash in hand at approx. Rs. 8 lacs. The assessee had claimed to have deposited this opening cash in hand during the year

The Tribunal observed that as per the cash flow statement cash in hand had risen to

More than Rs. 10 lacs before the date the alleged sum of Rs. 8 lacs had been deposited on 06/03/2013. Thus, apart from the opening cash in hand, further cash income was available as cash in hand.

So far as the disallowance of opening capital of Rs. 4,00,000/- was concerned, the Tribunal opined that the same deserved to be deleted because the addition had also been made by the Assessing Officer towards unexplained cash of Rs.8,00,000/- source of which was claimed to be from opening cash. Thus double addition had been made by the Assessing Officer.

Therefore, the Tribunal deleted the addition made for unexplained capital of Rs.4,00,000/-.

With regard to the addition for cash deposit of Rs. 8 lacs, the Tribunal held that since further cash income was available with the assessee apart from the opening cash in hand, the assessee deserved the benefit of the same.. Further considering that in the past, the assessee had accumulated savings and even though return was not filed and assessee did not earn income more than the taxable limit, the Tribunal further gave benefit of Rs.1,50,000/- on account of cash in hand available from

past savings and accordingly restricted the disallowance made.

Download Full Judgment  Click Here >>

• Address in PAN vital & decisive to determine territorial jurisdiction of High Court
• Challenge to intimation passed u/s 143(1) calls for independent adjudication – ITAT
• Assessee writing ‘No’ to mark choice of personal hearing, have no legal consequence
• ICAI Guidance Note on Non-Compliances Observed by Quality Review Board
• Order passed u/s 74 of UPGST Act quashed as opportunity of hearing not granted