2021 (10) TMI 498 - AT - Income Tax

Addition u/s 68 - unexplained cash credit - HELD THAT - Under section 68 of the Act, the AO has power to make addition of any sum found credited in the books of account of the assessee maintained for any previous year, as income of the assessee of that previous year if the assessee fails to explain about the nature and source thereof or the explanation offered by the assessee is not satisfactory in the opinion of the AO. In the present case, CIT(A) has confirmed the addition made by the AO on account of opening capital balance as on 01.04.2013. AO has already reopened the returns of the assessee for the earlier assessment years including the assessment year 2013-14 and made additions. Under these circumstances, CIT(A) has wrongly confirmed the addition ignoring that the credit entry in question does not pertain to the year relevant to the assessment year under consideration - we hold that the action of the Ld. CIT(A) is not in accordance with the provisions of the Act and contrary to the ratio laid down in the cases discussed above - allow this ground of appeal and set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition. Unexplained investment u/s 69 - Whether assessee has explained the source of payments made towards installments of home loan? - HELD THAT - As per the said statement of account, the cheques received from M/s Prem Oil Store from time to time were deposited in assessee s account and thereafter the amounts of EMI were transferred to the loan account through cheques. So, the assessee has proved the source of amount paid towards repayment of home loan - CIT(A) has sustained the addition inter alia on the ground that the assessee has filed copy of account of M/s Prem Oil Store as per which the said firm has paid the tanker rent in cash. Since the assessee has explained the source of the said amount on the basis of entries in the bank account, we find merit in the contention of CIT(A) has sustained the said addition ignoring the documentary evidence i.e., entries in the statement of bank account of the assessee. On the other hand, there is no reference of the statement of bank account of the assessee in the assessment order - we set aside the findings of the Ld. CIT(A) and send this issue back to the AO with the direction to delete the addition after verification of entries in the statement of bank account of the assessee. Assessee is partly allowed for statistical purposes.

Issues Involved:

1. Addition of opening capital balance as unexplained income under Section 68 of the Income Tax Act, 1961.
2. Addition of repayment of principal and interest on housing loan as unexplained investment under Section 69 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Addition of Opening Capital Balance as Unexplained Income under Section 68

The assessee filed an appeal against the order of the Commissioner of Income Tax (Appeals) [CIT(A)], who confirmed the addition of ?80,55,462/- as unexplained income under Section 68 of the Income Tax Act. The Assessing Officer (AO) initially selected the case for scrutiny for the limited purpose of verifying the substantial increase in the capital account during the financial year 2013-14, which was later converted into complete scrutiny. The AO determined the total income of the assessee at ?1,02,50,570/- and made an addition of ?80,55,462/- as unexplained income under Section 68 and ?6,94,290/- as unexplained investment under Section 69.

The assessee contended that the opening capital balance as on 01.04.2013 was ?1,23,12,128/- and the closing capital was ?1,14,86,802/-. The AO accepted the opening balance of ?42,56,666/- but added ?80,55,462/- as unexplained income on a protective basis, stating that substantive additions would be made after reopening assessments for earlier years under Section 147. The AO subsequently reassessed the income for the assessment years 2010-11 to 2013-14, making various additions.

The assessee argued that the total addition of ?1,42,92,186/- had already been made for earlier years, and the opening balance could not be considered as credit during the current year. The legal precedents cited included CIT vs. Usha Stud Agricultural Farms Ltd., CIT vs. J.J. Development (P) Ltd., and CIT vs. Parmeshwar Bohra, which supported the view that the opening balance carried forward from earlier years could not be treated as fresh credit in the current year.

The Tribunal found merit in the assessee's contention, noting that the AO had already made additions for earlier years. The Tribunal held that the opening balance could not be treated as fresh credit in the relevant previous year and directed the AO to delete the addition.

Issue 2: Addition of Repayment of Principal and Interest on Housing Loan as Unexplained Investment under Section 69

The assessee challenged the addition of ?4,20,519/- out of a total addition of ?6,94,290/- made by the AO as unexplained investment under Section 69. The assessee explained that the payments were made from an account maintained with HDFC and provided documentary evidence, including bank statements and ledger accounts, to substantiate the source of payments.

The CIT(A) sustained the addition on the ground that the payments towards tanker rent were made in cash, and the assessee had not filed a cash account to show the availability of funds. However, the Tribunal found that the assessee had provided a detailed breakup of payments, including cheque numbers and bank statements showing deposits from M/s Prem Oil Store, which were used to pay the EMI.

The Tribunal noted that the CIT(A) had sustained the addition without considering the documentary evidence provided by the assessee. The Tribunal set aside the findings of the CIT(A) and directed the AO to delete the addition after verifying the entries in the bank statement.

Conclusion:

The appeal of the assessee was partly allowed for statistical purposes. The Tribunal directed the AO to delete the addition of ?80,55,462/- under Section 68 and to verify and delete the addition of ?4,20,519/- under Section 69 after examining the bank statements.

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