2018 (7) TMI 2167 - AT - Income Tax

Addition u/s 68 - difference in opening balance to the extent not explained by the assessee - CIT-A deleted the addition - HELD THAT - Assessee could change any figures given in table given to satisfy the requirement of capital as on 01.04.2011, and argue that opening balance as on 01.04.2011 were from balances available with it on 01.04.2003, and hence could not be considered for addition in the impugned assessment year. If such claim is allowed, any amount shown by the assessee as opening balance can be claimed as coming out from balances of the earlier years. Despite this lacuna in the claim of the assessee, AO accepted what all the assessee could even remotely substantiate in such opening balance. AO, in our opinion was more than fair in accepting every explanation given by the assessee except for its claim of opening capital of ₹ 1,02,06,929/- as on 01.04.2003 and deficit due to non reflection of drawings and sources for tax payments in the earlier years. Assessee was duty bound to explain every rupee out of the opening capital balance of ₹ 7,46,48,917/- shown by it as on 01.04.2011. Especially so since it had shown Nil amount as its capital in the Balance sheet as on 31.03.2011 forming part of its return for assessment year 2011-12. Explanation of the assessee that the sum of ₹ 1,02,06,929/- represented cash in hand, value of food grain stock and value of agricultural produce was not substantiated before the ld. Assessing Officer, through any evidence. That apart, agricultural income shown by the assessee himself was in the vicinity of ₹ 1,00,000/- to ₹ 1,25,000/- per year, and the probability of accumulating a huge amount from such agricultural income was negligible. Drawings and taxes in the earlier years - It is an admitted position that such drawings and taxes do not appear in the table furnished by the assessee reproduced by us at para 3 above - assessee had no source for his personal expenses and taxes paid. Hence, we have to consider that such amounts had gone out of the income of the respective years. Then without doubt, opening capital as on 01.04.2011, would remain unexplained to the extent of such aggregate drawings and taxes. Commissioner of Income Tax (Appeals) in our opinion fell in error in considering the Balance sheet filed by the assessee alongwith its own return as not factual and incorrect one. An assessee cannot be allowed to approbate and reprobate. It cannot say that its own Balance sheet did not reflect correct state of affairs. Just by claiming that the capital was represented by assets, which were acquired during earlier years, in our opinion an assessee cannot escape from its onus of explaining the source of such capital. In the facts and circumstances, we are of the opinion that ld. Assessing Officer was justified in making the addition for unexplained capital, drawings and taxes paid. Judgment of Hon ble Jurisdictional High Court in the case of C. Packirisamy 2008 (12) TMI 190 - MADRAS HIGH COURT does enable an Assessing Officer to make an addition for deficit in opening capital. The additions made by the ld. Assessing Officer, are all reinstated. Order of the ld. Commissioner of Income Tax (Appeals) is set aside. Appeal of the Revenue is allowed.

Summary

Issues Involved:
1. Deletion of addition of ?1,02,06,929/- under Section 68 of the IT Act.
2. Deletion of addition of ?11,88,000/- on account of low personal drawings.
3. Deletion of addition of ?13,17,620/- for taxes paid.
4. Deletion of addition of ?1,27,12,549/- under Section 68 of the IT Act.
5. Excess claim of opening capital.
6. Non-following of jurisdictional High Court decision in C. Pakirasamy vs. ACIT.
7. Reliability of the balance sheet.

Detailed Analysis:

1. Deletion of Addition of ?1,02,06,929/- under Section 68 of the IT Act:
The Revenue challenged the deletion of ?1,02,06,929/- added under Section 68. The Assessing Officer (AO) had added this amount as unexplained cash credit, doubting the claim that it represented cash and value of agricultural produce as on 01.04.2003. The Commissioner of Income Tax (Appeals) [CIT(A)] held that this amount was not introduced as cash during the relevant year and was part of the cumulative value of assets. The Tribunal found that the assessee's explanation lacked evidence and upheld the AO's addition, stating that the assessee was duty-bound to explain every rupee of the opening capital.

2. Deletion of Addition of ?11,88,000/- on Account of Low Personal Drawings:
The AO noted that the assessee had not shown any drawings for personal expenses from 2003-04 to 2011-12 and made an addition of ?11,88,000/-. The CIT(A) deleted this addition, considering it based on assumptions. However, the Tribunal reinstated the AO's addition, emphasizing that the assessee must substantiate the source of personal expenses.

3. Deletion of Addition of ?13,17,620/- for Taxes Paid:
The AO added ?13,17,620/- for taxes paid in earlier years without shown sources. The CIT(A) deleted this addition, but the Tribunal reinstated it, noting that the assessee failed to explain the source of funds for tax payments, which should be considered outflows from the income of the respective years.

4. Deletion of Addition of ?1,27,12,549/- under Section 68 of the IT Act:
This issue encompasses the cumulative additions made by the AO, including the unexplained cash credit, low personal drawings, and taxes paid. The CIT(A) deleted these additions, but the Tribunal reinstated them, finding the assessee's explanations unsubstantiated and emphasizing the need for clear evidence.

5. Excess Claim of Opening Capital:
The AO challenged the opening capital of ?7,46,48,917/- as on 01.04.2011, noting discrepancies in the balance sheet. The CIT(A) accepted the assessee's explanation that the balance sheet was for a bank loan and not entirely accurate. However, the Tribunal found that the assessee's balance sheet must reflect the correct state of affairs and upheld the AO's view that the opening capital was not fully explained.

6. Non-following of Jurisdictional High Court Decision in C. Pakirasamy vs. ACIT:
The Revenue argued that the CIT(A) did not follow the jurisdictional High Court's decision, which allows for additions for deficits in opening capital. The Tribunal agreed, stating that the AO was justified in making the additions based on the High Court's judgment.

7. Reliability of the Balance Sheet:
The CIT(A) questioned the reliability of the balance sheet prepared for a bank loan. The Tribunal disagreed, stating that an assessee cannot claim its own balance sheet is incorrect to escape the onus of explaining the source of capital. The Tribunal emphasized that the balance sheet must present the correct figures and upheld the AO's additions.

Conclusion:
The Tribunal allowed the Revenue's appeal, reinstating all the additions made by the AO. The CIT(A)'s order was set aside, and the AO's additions for unexplained capital, low personal drawings, and taxes paid were upheld. The Tribunal emphasized the need for the assessee to provide clear and substantiated explanations for the opening capital and other financial discrepancies.