2024 (3) TMI 525 - AT - Income Tax

Addition of opening capital as unexplained investment u/s 69 - income from undisclosed sources - HELD THAT - Once the assessee based on the all the evidence which are not under dispute submit that the same is out of the opening cash in hand no addition can be made in the year under consideration. AO assumed opening cash balance as 'Nil' on the suspicion that whatever the assessee had earned in the preceding years stood utilized towards expenses or in making the investments and also alleged that the assessee failed to prove the existence of cash in hand and accordingly he considered sum as undisclosed income of the current year. What the ld. AO added was the opening balance of cash in hand in this year which is legally impermissible on the face of it. Although the ld. AO has not invoked any particular provision of law yet however, assuming that it was a case of S.68 (or even u/s 69A), the provision speaks of the credit found during the previous year in the books of account maintained by the assessee. Therefore, the law is well settled that credit found on the first day or carried forward from the preceding year cannot be added in this year. As decided in CIT v/s Parmeshwar Bohra 2007 (1) TMI 105 - RAJASTHAN HIGH COURT Opening capital cannot be added as unexplained investment u/s 69 of the Act for the AY 1993-94 - clear finding recorded by the Tribunal that the impugned amount was credited in the books of account of the assessee in the earlier previous year and was shown as closing capital of that year carried forward amount of the previous year does not become an investment or cash credit of the relevant year. Thus we direct to delete the addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of action under Section 147/148.
2. Non-issuance of notice under Section 143(2).
3. Addition of Rs. 16,98,502/- as undisclosed income.
4. Charging of interest under Sections 234A, 234B, and 234C.

Summary:

Issue 1: Validity of Action under Section 147/148
The assessee challenged the reassessment proceedings initiated under Section 147/148, arguing they were without jurisdiction and based on mere suspicion rather than "reason to believe." The assessee contended that the Assessing Officer (AO) did not dispose of objections raised against the reassessment, violating the procedure established by the Supreme Court in GKN Driveshafts (India) Ltd. vs. ITO. The AO's belief was not based on concrete evidence but on suspicion, which is insufficient for reopening assessments. The Tribunal found that the AO did not have reasonable grounds to believe that income had escaped assessment and acted on borrowed satisfaction from the CBI's opinion, rendering the reassessment invalid.

Issue 2: Non-issuance of Notice under Section 143(2)
The assessee argued that no notice under Section 143(2) was issued concerning the return filed in response to the notice under Section 148, making the assessment invalid. The Tribunal referred to the Supreme Court's decision in ACIT vs. Hotel Blue Moon, which mandates the issuance of a notice under Section 143(2) before proceeding with reassessment. The Tribunal found that the AO failed to issue the required notice, thereby invalidating the reassessment proceedings.

Issue 3: Addition of Rs. 16,98,502/- as Undisclosed Income
The AO added Rs. 16,98,502/- as undisclosed income, assuming the opening cash balance was nil. The assessee provided balance sheets for previous years showing the closing cash balance of Rs. 16,98,502/- for the preceding year, which became the opening balance for the current year. The Tribunal noted that the AO accepted the balance sheets and other entries but arbitrarily assumed the opening cash balance was nil without rejecting the books of accounts. The Tribunal held that the addition of the opening cash balance as undisclosed income was legally impermissible and directed its deletion, citing precedents that opening balances cannot be added as unexplained investments under Section 69.

Issue 4: Charging of Interest under Sections 234A, 234B, and 234C
The assessee contested the charging of interest under Sections 234A, 234B, and 234C. However, since the Tribunal allowed the appeal on the merits of the main issues, this ground became consequential and did not require separate adjudication.

Conclusion:
The Tribunal allowed the appeal, quashing the reassessment proceedings and deleting the addition of Rs. 16,98,502/- as undisclosed income. The grounds challenging the technical validity of the assessment became infructuous due to the decision on the merits. The order was pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1963.