Ganpat Pannalal Vs NFAC (ITAT Indore)
Summary: The ITAT Indore partly allowed the assessee’s appeal for Assessment Year 2016-17 and directed deletion of an addition of Rs.37,01,999/- arising from the difference between opening and closing cash balances. The assessee had filed its return declaring total income of Rs.23,41,800/-. Its case was originally selected for limited scrutiny on the issues of cash in hand and share capital, and the assessment was completed on 27.12.2018 by accepting the returned income.
Subsequently, notice under section 148 was issued on 31.03.2021 after recording reasons concerning, inter alia, increase in partners’ capital and the movement in cash balance from Rs.15,43,216/- as opening balance to Rs.52,45,215/- as closing balance. The Assessing Officer ultimately made an addition of Rs.37,01,999/- with reference to the difference in cash-in-hand. The Tribunal noted that the assessee’s books for the relevant financial year were duly audited and the cash balance was incorporated in the audited financial statements.
Pursuant to the Bench’s direction, the assessee also produced the audited balance sheet for the year ended 31.03.2015 and partners’ capital account. On examining these materials, the Tribunal found that Rs.15,43,216/- represented the opening cash balance as on 01.04.2015, being the corresponding closing balance carried forward from the immediately preceding financial year.
It was therefore not a fresh credit or receipt recorded during the previous year relevant to AY 2016-17. The Assessing Officer had brought no material on record to establish that this opening balance was generated or received during the relevant previous year. The Tribunal further held that a mere increase in closing cash balance, without examining individual cash receipts and payments and identifying any particular unexplained receipt, could not justify the addition of Rs.37,01,999/-.
It also noted that the books of account had not been rejected under section 145(1), nor was there any specific finding that the cash book was fabricated or that any particular cash entry was false or unverifiable. Accordingly, the entire addition of Rs.37,01,999/- was directed to be deleted. Ground No.2 was allowed. Since the assessee’s authorised representative did not press Ground No.1, that ground was dismissed as not pressed, and the appeal was partly allowed.
Assessee Represented By:- Shri Milind Wadhwani
FULL TEXT OF THE ORDER OF ITAT INDORE
This appeal has been filed by the assessee against the order dated 22.09.2025 passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “the ld. CIT(A)”] for Assessment Year 2016-17 arising out of assessment order framed under section 147 read with section 144B of the Income-tax Act, 1961 (“the Act”).
2. The brief facts of the case are that the assessee filed the return of income for Assessment Year 2016-17 on 27.03.2018 declaring total income of Rs.23,41,800/-. The case was selected for limited scrutiny u/s 143(3) of the Income Tax Act 1961. Notice u/s 143(2) issued ITO-1 Harda, for limited scrutiny on 28-09-2018 on following issue (i) Cash in hand (ii) Share Capital and the assessment was completed on 27.12.2018 by accepting the return of income of the assessee filed. Thereafter notice u/s 148 issued on 31/03/2021 by ITO-Harda for the same assessment year after recording the reasons for reponing for the assessment year u/s 147 as under: –
1.During the financial year, the partners of the firm increased their capital to the tune of Rs 5,68,09,756/-. Where the creditworthiness of the partner who raised the capital was not established in their return of income vis-à-vis capital increased
2. As per the cash book of the assessee firm, it is observed that the opening balance on 1st April 2015 was Rs. 15,43,216/- and the closing balance as on 31-03-016 was Rs 52,45,215/-. and the credit entry in the ledger have not substantiated by the documentary evidence. The assessee firm submitted that the sources of cash is withdrawal from the bank and no bank account statement was furnished. The differences of Rs 37,01,999/- in the opening and closing cash balances and liabilities of the assessee firm needs to be reworked.
3. Aggrieved by the impugned assessment order, the assessee preferred an appeal before the ld. CIT(A). The ld. CIT(A), vide order dated 26.08.2025, dismissed the appeal and confirmed the action of the Assessing Officer. On the basis of reasons and facts recorded by Ld. AO observation in para on page 17 of the 17 of the order.
4. Being aggrieved against the impugned orders of the ld. CIT(A) dated 26.08.2025. The assessee is now in appeal before this Tribunal and raised grounds of appeal as mentioned in the momo of appeal filed on 22.09.2025 as under: “1.The re-opening of assessment is bad in law since original assessment was framed after considering all documents and submissions made in this regard on the same issue.
1.1 The re-opening of assessment is bad in law since there is no failure on the part of the assessee to disclose fully and truly on material facts. 1.2 The re-opening of assessment is bad in law sice the issue of the notice by the ITO is without jurisdiction. The assessment be annulled and/or cancelled.
2. The Ld. CIT(A) NFAC has erred in upholding the addition of Rs. 37,01,999/- without considering the submissions made and documents filed before him. The addition may please be deleted.
3. It was proved before the Ld. Lower authorities that the books are audited and the cash balance increased because of day to day business transaction. The addition is uncalled for and hence be deleted.
4. The addition of Rs. 37,01,999/- may please be deleted.
5. The assessee craves to amend, alter or delete any of the ground of appeal.”
5. The ld. AR submitted the paper books on 23.03.2026 which contain the page no.1 to 70 and on 06.07.2026 which contained page no.49-144. With the direction by the ITAT on the hearing date the Ld. AR also submitted on 08.09.2026. He audited balance sheet for the year ended 31.03.2015 and the partners capital account for the relevant financial years.
Ground No.1
6. During the course of hearing, Ld. AR did not press the legal ground raised in ground no.1. However he submitted that the proceedings initiated undersection 147 of the Actare not maintainable having regard to the reasons recorded by the AO and furnished to the assessee. The Ld. AR according confirmed his submission to the validity of the proceedings on the basis of the reasons recorded by the AO.
7. Ld. DR has relying upon the order passed by the lower authorities.
8.We have considered the rival submissions and perused the material available on record. The learned Authorised Representative has not pressed the legal ground raised in Ground No. 1 and has confined his submissions to the issue arising from the reasons recorded by the Assessing Officer and the addition made in the reassessment proceedings.
Ground No 2
9. We have heard the rival submissions of the learned Authorised Representative and the learned Departmental Representative and perused the material available on record. The first issue raised by the assessee relates to the validity of reopening of the assessment under section 147 of the Income-tax Act, 1961. From the facts available on record, it is undisputed that the assessee had originally filed its return of income for Assessment Year 2016-17 declaring total income of Rs.23,41,800/-. The return was selected for limited scrutiny under section 143(3) on the issues of cash-in- hand and share capital. Notice under section 143(2) was issued on 28-09-2018 and notice under section 142(1) was also issued during the course of the original assessment proceedings. The assessment under section 143(3) was thereafter completed on 27- 12-2018.
10. From the assessment records, it is noticed that the Assessing Officer made an addition of Rs.37,01,999/- by referring to difference in the cash-in-hand reflected in the books of account of the assessee. The reasons recorded by the Assessing Officer refer to the opening cash balance of Rs.15,43,216/- as on 01-04-2015 and the closing cash balance of Rs.52,45,215/- as on 31-03- 2016. The ld AR also stated that the source of cash was withdrawals from the bank the summary of cash flow statement for the year ended 31-03-2016 is submitted on page no 99 of the paper book.
11. In this regard, we find that the assessee’s books of account for the relevant financial year were duly audited. The cash balance reflected in the books was also incorporated in the audited financial statements. The assessee has further placed before us, pursuant to the direction of the Bench, the audited balance sheet for the year ended 31-03-2015 and the partners’ capital account for the relevant financial year. On examination of the material placed before us, the amount of Rs.15,43,216/- represents the opening cash balance as on 01-04-2015. The corresponding closing balance as on 31-03-2015 is carried forward as the opening balance of the subsequent financial year. Thus, the amount of Rs.15,43,216/- is not a fresh credit or receipt recorded in the books during the previous year relevant to Assessment Year 2016-17. It is a brought-forward balance from the immediately preceding financial year.
12. We further note that the Assessing Officer has not brought any material on record to demonstrate that the opening cash balance of Rs.15,43,216/- was generated or received by the assessee during the previous year relevant to Assessment Year 2016-17. Merely because the opening cash balance was not supported by a separate document during the reassessment proceedings, the same cannot, by itself, establish that the amount represented unexplained income pertaining to the relevant previous year. The Assessing Officer has also referred to the movement in the cash balance, namely, the opening balance of Rs.15,43,216/- and closing balance of Rs.52,45,215/-. However, the mere increase in the closing cash balance, without examining the individual cash receipts and payments recorded in the books and without identifying any particular unexplained receipt, does not by itself justify an addition of Rs.37,01,999/-.
13. We also find that the books of account of the assessee have not been rejected by the Assessing Officer under section 145(1) of the Income Tax Act, 1961. There is no specific finding in the assessment order that the cash book was fabricated or that any particular cash entry recorded therein was false or unverifiable. The addition has essentially been made with reference to the difference of opening and closing cash balance.
14. In these circumstances, we are of the considered view that the addition of Rs.15,43,216/- cannot be sustained merely on the ground that the assessee could not furnish further documentary evidence in respect of the opening cash balance, particularly when the said balance is shown as the brought-forward balance from the preceding financial year and is reflected in the audited accounts. The Ld DR has not brought any contrary material before us to establish that the opening cash balance of Rs.15,43,216/- did not exist as on 01-04-2015 or that the same represented income earned by the assessee during the previous year relevant to the year under consideration. Therefore, on the facts and material available on record, the addition of Rs.37,01,999/- is not justified.
15. Accordingly, the addition of Rs.37,01,999/- made by the Assessing Officer is directed to be deleted. Ground No. 2 raised by the assessee is accordingly allowed. Since the learned Authorised Representative has not pressed Ground No. 1, the same is dismissed as not pressed.
16. In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 17/09/2026.
