2014 (1) TMI 1862 - AT - Income Tax

Unexplained investment in capital account - No supporting evidence for the opening cash balance - advances and cash balance shown to have been available with the assessee - CIT-A deleted the addition - HELD THAT - Even though assessee was regularly assessed and was showing income from sheet metal crafts on estimate basis in earlier years there was no balance sheet or any reference to the various assets and liabilities in any of the enclosed documents filed with the returns earlier. In the absence of such evidence A.O. was in a way justified in disbelieving the cash balance which is almost ten times the income. Even for the advances also there were no details and no explanation about nature and source. A.O. could have been justified in considering only these two amounts for addition in the year. Advances were not shown in the year ending 31-03-2005 whereas cash balance was increased in that year. When A.O. was completing the assessments in a block he is supposed to consider the cash flow over a period of time vis- -vis the investments and assets found in the course of search. There is nothing on record to examine whether assessee has made any investments or has any unexplained investments or assets or even unexplained sources for making any investments. A.O. seems to have not examined any of the issues and since other years assessments orders are also not before us we are also unable to examine to give any findings on this issue. In the interest of justice we set aside the Order of the CIT(A) and restore the issue to the file of the A.O. to consider afresh the cash flow statement shown by the assessee vis- -vis any other documents available in the course of search or any other details of bank accounts etc. which assessee can rely on in order to examine the cash flow statement. Appeal of the Revenue is allowed for statistical purposes.

Summary

Issues:
1. Unexplained investment in capital account deletion.
2. Failure to consider the preparation of capital account and balance sheet during assessment proceedings.

Analysis:
1. The Revenue challenged the deletion of an unexplained investment in the capital account amounting to Rs. 17,50,369/- by the CIT(A). The Assessing Officer (A.O.) found discrepancies in the sources of the opening capital of Rs. 26,15,109/- claimed by the assessee. The A.O. noted that the assessee failed to provide supporting evidence for the cash on hand and advances given, resulting in an addition of Rs. 17,50,369/- to the total income. The CIT(A), however, held that the unexplained amount should have been taxed in the year it was credited and not in the assessment year under consideration. Citing legal precedents, the CIT(A) concluded that the A.O.'s addition lacked merit and directed its deletion.

2. The second issue revolved around the A.O.'s contention that the opening cash balance and advances were not adequately supported by evidence. The Revenue argued that the unsubstantiated carry-forward balance should not have been considered, urging the setting aside of the CIT(A)'s order. Conversely, the Assessee maintained that the opening balance represented accumulated savings from previous years and should not be taxed as income under sections 68 or 69. The ITAT observed that while the A.O. had grounds to question the cash balance and advances, there was no examination of the cash flow over subsequent years or any evidence of unexplained investments or assets. Consequently, the ITAT set aside the CIT(A)'s order, directing the A.O. to reevaluate the cash flow statement and other relevant documents to determine the legitimacy of the opening balance and advances.

In conclusion, the ITAT allowed the Revenue's appeal for statistical purposes, emphasizing the need for a comprehensive reassessment by the A.O. to verify the sources and legitimacy of the disputed amounts in the capital account.