Wrong ITR Figures ≠ Unexplained Cash Credit: Delhi ITAT Deletes ₹16.36 Cr Addition After AO’s Own Remand Verification

Priya Jain Vs ACIT (ITAT Delhi)

Wrong ITR Figures ≠ Unexplained Cash Credit: Delhi ITAT Deletes ₹16.36 Cr Addition After AO’s Own Remand Verification

The Delhi ITAT in Priya Jain vs ACIT deleted an addition of ₹16.36 crore made u/s 68, holding that mere correction of wrongly reported capital figures in the ITR cannot automatically lead to an unexplained cash credit addition when the assessee has substantiated the reconciliation with evidence.

The assessee had originally shown opening capital of ₹3.67 crore in the earlier year, whereas the capital reflected in the current year stood at ₹20.03 crore, leading the AO to treat the differential amount as unexplained. However, the assessee explained that the earlier return contained omissions relating to FDRs, bank balances and sale proceeds of property, which were inadvertently not reflected in the capital statement.

During remand proceedings, the AO himself verified that the assessee possessed FDRs of ₹12.58 crore, bank balances exceeding ₹1.10 crore and had sold property for ₹8 crore in the preceding year while investing in a new property. The Tribunal noted that these facts were independently verified and supported by records and bank statements.

The ITAT further observed that the source of the new property was self-explanatory since deduction u/s 54 had been claimed out of the earlier capital gains, while the bank statements also showed maturity of old FDRs immediately preceding creation of fresh FDRs. Thus, the assets represented opening balances and recycled funds from earlier years rather than unexplained credits of the relevant year.

The Tribunal held that once the assessee demonstrated that the discrepancy arose due to errors and omissions in the earlier ITR and such explanation stood verified by the AO in remand proceedings, no addition u/s 68 could survive merely because the capital figures were corrected in the subsequent year. Accordingly, the entire addition of ₹16.36 crore was deleted.

FULL TEXT OF THE ORDER OF ITAT DELHI

The present appeal is filed by assessee against the order dated 08.01.2024 by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-18/10529/2019-20 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 21.12.2019 passed u/s 143(3) of the Act pertaining to Assessment Year 2017-18.

2. Brief facts of the case are that the assessee e-filed her return of income of INR 71,30,960/-. The case was selected for limited scrutiny under CASS. The assessee has declared loss of INR 36,25,400/- under the head “income from business and profession” and after claiming set off of the said income out of the house property of INR 1,09,06,364/- declared under the head “income from other sources” and net income offered was of INR 72,80,964/-. During the course of assessment proceedings, the assessee has withdrawn claim of set off of business loss and accordingly, the same was disallowed by the AO. Thereafter, the AO observed that in the Balance Sheet, the proprietor capital account was shown at INR 20,03,24,766/- as on 31.03.2017 whereas closing capital balance on preceding year was of INR 3,67,15,490/- thus, there was introduction of capital gain of INR 16,36,09,276/- for which no explanation was offered. Thereafter, the assessee was show-caused to file explanation, in reply, it was submitted that in the return of income filed for immediately preceding year, there were certain errors/omissions where the balances of FDRs owned by the assessee and the bank balances and receipts from sale of property remained to be incorporated in the books therefore, the assessee filed a re-conciliation statement which is reproduced at page 5 of the assessment order. However, the AO has not accepted the explanation of the assessee and made the addition for the differential amount in capital balance of INR 16,36,09,276/-.

3. Against the said order, an appeal was filed before the ld. CIT(A) who dismissed the appeal of the assessee thus, the present appeal is filed before the Tribunal by taking various grounds as per appeal memo.

4. Grounds of appeal No.1 & 3 are general in nature hence, not adjudicated.

5. Grounds of appeal Nos. 2 & 4 are not pressed hence, dismissed.

6. The remaining Grounds of appeal Nos. 5 to 7 raised by the assessee are with respect to the addition of INR 16,36,09,276/- made u/s 68 of the Act.

7. Before us, ld. AR submits that before the ld. CIT(A), all the facts were explained and supporting evidences were also filed which were send to the AO for remand report. In remand proceedings, the AO has verified all the contentions raised by the assessee and no adverse remark was made with respect to the reconciliation statement filed by the assessee however, the ld. CIT(A) has confirmed the addition by observing that the assessee has filed to justify the sources of FDR’s and investment in new properties..

8. Ld. AR for the assessee submits in the Remand Report as reproduced in the appellate order at pages 40 to 46, the AO has clearly observed that the reasons for different in the capital is on account of capital gain declared and offered for tax in immediately preceding year which was accumulated in the shape of FDRs and bank balance which fact has been ignored.

9. Before us, Ld. AR filed a detailed written submission wherein Ld.AR submits that the assessee has sold a property of INR 8.00 crores in preceding year and purchased the new property of 6.00 crores out of the said funds therefore, the immediate source of the property purchases is self-explanatory. In the Remand proceedings, statement of capital was verified by the AO according to which FDRs at INR 12,58,04,840/- was available with the assessee as on 31.03.2016 and further there was bank balance of INR 1,10,08,605/-which both alongwith the immovable property purchased, inadvertently were not included in the value of total assets owned by the assessee in the return of income filed for preceding Assessment Year. Ld.AR submits that in preceding AY, assessment was completed u/s 143(3) wherein AO has examined the issue of capital gain and as against the total income of INR 53,08,960/- declared by the assessee and income was assessed at INR 7,45,60,480/-. The copy of the order is placed in the Paper Book pages 98 to 107. Ld.AR submits that the AO in the year under appeal has doubted the source of the capital which was the accumulation of the capital gain as well as FDRs and thus no further addition is required to be made. The written submission filed by the Ld.AR for the assessee is as under:-

3. “Ground Nos 4 to 7 – Subject matter of dispute in these grounds is addition to Total Income of Rs 16.36 crore u/s 68 of Act. Brief facts in this regard are that in the ITR for AY 2016-17 (copy enclosed at pages 53 to 83 of PB – relevant at page 54) ‘A’ declared “Proprietor’s Capital” as on 31-03-2016 of Rs 3,67,15,490/- and then in the ITR for AY 2017-18 (copy enclosed at pages 4 to 48 of PB – relevant at page 5) ‘A’ declared “Proprietor’s Capital” as on 31-03-2017 of Rs 20,03,24,766/-. This was the triggering point for the AO to investigate into the aspect of increase in proprietor’s capital of Rs 16.36 crore.

4. At pages 3 to 12, paras 7.1 to 7.15 of the assessment order it is alleged by the AO that the ‘A’ has not been able to provide a satisfactory explanation regarding source of additional proprietor’s capital to the tune of Rs 16.36 crore. While alleging as such the AO has conveniently brushed aside the explanations offered by the ‘A’. In this regard in the order of assessment :

(i) Claim made by the ‘A’ that it has inadvertently stated opening capital of Rs 3,67,15,490/- in its ROI for AY 2016-17 has been rejected .. refer page 4, para 7.4(a) to 7.4(e) of the assessment order

(ii) It is important to note that while concluding on facts as above the AO agrees that account so the ‘A’ are not audited and ‘A’ has made various wrong claims in its ROI…. Page 5, para (f) Allegations of AO at pages 5 to 12, paras 7.5 to 7.15 are legal in nature regarding “burden of proof” which are settled legal propositions. Explanation offered by the ‘A’ in this regard has conveniently been brushed aside by the AO at page 7, para 7.8 by observing that “the assessee credited capital account by Rs 16,36,09,276/- and did not give any explanation except claiming that the figures reported in the FY 2015-16 were wrong and what has been claimed in the current year is correct. No evidence has been furnished in this regard…”

5. Crux of the issue in dispute is therefore whether the figure of opening of Rs 3,67,15,490/- is correct or not ?

In this regard kind reference of the Hon’ble Bench is invited to the remand report furnished by the AO during the course of first appellate proceedings. Copy of this remand report is reproduced by the CIT(A) in the impugned order at pages 41 to 46. A clear / more legible copy is eclosed at pages 110-114 of the PB. During remand proceedings AO enquired into the details of FDRs and bank balances as on 31-03-2016 (refer page 111, para 6 of the PB). Details furnished by the ‘A’ are noted at page 112, para 6.1 of the PB. Then at page 113, top table the AO records that as on 31-03-2016 the ‘A’ had a FDR balance of Rs 12,58,04,840/- and the Statement of Capital as on 31-03-2016 is as under:

Finaly the AO submitted the facts of the case before the CIT(A) as under (refer page 113 and 114, para 6.3:

“6.3 In her reply, the assessee has stated that the total Fixed Deposits (FDRs) as on 31.03.2026 was Rs 12,58,04,840/-. It is also stated that the total Capital as on 31.03.2016 was Rs 21,68,13,445/- & same as on 01.04.2016 and the total capital as on 31.03.2017 was Rs 20,03,24,766/-. The assessee provided the supporting documents in respect of Capital, FDRs, Bank balance, interest income and immovable  property (copy attached)

7. Considering the above mentioned facts, the CIT(A) is requested to decide the matter on merits”

5.1 It may please be noted that in remand proceedings the AO has enquired and verified the details of :

• • FDRs
  • Bank Balance
  • Interest Income, and
  • Immovable Property

The importance of these facts are that in ITR for AY 2017-18 the ‘A’ declared :

-> Interest income of Rs 1,09,06,364/- which has also been assessed by the AO at this amount (refer page 3, para 6 of AO order) and upheld by CIT(A) at page 39, paras 7.3 and 7.4. Issue to be noted here is if interest income derived during the year under consideration is Rs 1,09,06,364/- then how can the opening Capital Balance be a sum of Rs 3,67,15,490/- ? This fact was specifically pleaded before CIT(A) at page 21, para IV and page 22, para VII.

-> Erroneously the “Rental” derived from letting out of property was offered to tax in ROI as “Business Income” (refer page 1 of PB). This has been corrected by the AO by observing that during the course of assessment the ‘A’ has filed a revised computation of income and has withdrawn the claim of “business loss”. The AO has finally assessed a final income under the Head income from “House Property” of Rs 69,60,864/- (refer page 2 and 3, para 5 and page 12 of AO order). Is it possible that if Income from House Property is assssed at a sum Rs Rs 69,60,864/- then the opening Capital Balance will be sum of Rs 3,67,15,490/- ? Details of investments yielding house property income have not been shown in opening capital at all either by ‘A’ or by the AO.

-> Kind reference here is invited to copy of assessment order for AY 2018-19 {copy enclosed at pages 108 and 109 of PB]. At page 109 of PB AO records that source of income for the ‘A’ is “rental income and income from other sources”. Since there was no business income ‘A’ was not required to file it ROI in ITR-4 and was therefore wrongly advised to declare the Capital Account figures as on year end. This is therefore a case wherein the ‘A’ that not only filed a wrong form for its return of income but was also not properly advised.

6. Kind reference of the Hon’ble Bench is also invited to the copy of assessment order passed in case of ‘A’ for AY 2016-17 {copy enclosed at pages 98 to 107 of PB]. The assessment order records at page 99 of PB that in FY 2015-16 i.e immediately preceding year ‘A’ has sole a property for a sale consideration of Rs 8,00,00,000/-and had invested this money in purchase of a new property worth Rs 6,92,51,520/- crores on which deduction u/s 54 was claimed by the ‘A’. It is a different matter that in this order deduction u/s 54 has been denied by the AO as conditions of that section are not met, however, the fact of further investment has not been disputed. AO in his remand report as also accepted this fact at page 113 of the PB. This further substantiates that the figure of opening capital of Rs 3,67,15,490/- on 31-03-2016 was reported incorrectly by the ‘A’.

7. Provisions of section 68 are attracted only “Where any sum is found credited in the books of an assessee maintained for any previous year…”. CIT(A) has concluded that ‘A’ has maintained regular books of accounts since ITR-4 was filed by the ‘A’ and it had filled in details in columns “were regular books of accounts are maintained”. {refer pages 51 to 54, paras 8.13 to 8.15] of CIT(A) order. We have already stated above that in the assessment order at page 5 AO notes that “accounts of the assessee are not audited, and assessee has made various wrong claims in the return as well.” Moreover, facts stated above and, in the remand, clearly demolish the fact stated in ROI declaring opening capital of Rs 3,67,15,490/- on 31-03-2016. CIT(A) was thus not right in merely relying upon ITR forms to conclude that figures stated therein are also the actual figures depicting correct statement of affairs.

It is submitted that in order to charge any person with liability, it is not enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is further incumbent upon the person relying upon those entries to prove that they were in accordance with facts. In other words, even correct and authentic entries in books of account cannot without independent evidence of their trustworthiness, fix a liability upon a person [Central Bureau of Investigation v. V. C. Shukla, (1998) 3 SCC 410, 433, 434]. From Section 34 of the Evidence Act, 1972, it may be noticed that sanctity is attached in the law of evidence to books of account if the books are indeed ‘account books’, i.e., in original and if they show, on their face, that they are kept in the ‘regular course of business’. Such sanctity cannot attach to private extracts of alleged account books where the original accounts are not seen by a Court. This is because from the extracts, it cannot be discovered whether accounts are kept in the regular course of business or if there are any interpolations or whether the interpolations are in a different ink or whether the accounts are in the form of a book with continuous page numbering. Hence, if the original books have not been produced, it is not possible to know whether the entries relating to payment of rent are entries made in the regular course of business. In the result, extracts from accounts are not ‘account books’ falling within the said section 34 and are inadmissible [Ishwar Dass Jain v. Sohan Lal, AIR 2000 SC 426, 432, 433 ; Sheraton Apparels: Max Corporation: Tressa Fashion v. Asst. CIT, (2002) 256 ITR 20, 31(Bom)]

8. CIT(A) has then analyzed the bank statements of the ‘A’ and at page 65, para 8.19 and alleged that “…Concisely, the FDRs of Rs 5.7 crores made in the fag end of FY 2015-16 are only out of sale proceeds received by the appellant on the sale of immovable property. Therefore, it is obvious that appellant has tried to create two different sources of capital in her books of accounts”. While alleging as such the CIT(A) has erred in not taking into consideration that:

• • AO in his remand report has stated that FDR balance as on 31-03-2016 was 12.58 crores,
  • Here it is relevant to note that CIT(A) accepts that there are FDRs were not factored in while reporting figure of opening capital of Rs 3,67,15,490/- on 31-03-2016. Entire bank statements are there on record of CIT(A).
  • Sale consideration of Rs 8 cr was temporarily parked in form of FDRs during the year under consideration but then in FY 2016-17 there is a fresh investment made of Rs 6,92,95,487/-. The fact of further investment has not been disputed by the AO in his order of assessment for AY 2016-17 {refer page 99 of PB}. Even in his remand report the AO records fact of further investment of Rs 6,92,95,487/- as on 31-03-2016. Therefore, FDR balance of Rs 12.58 crores is a separate source altogether.
  • It is submitted that ‘A’ had sold Land at Village Bijwasan, Tehsil Kapashera, New Delhi for a Sale consideration of Rs 8 cr vide Sale Deed dated 01-12-2015. Then ‘A’ had purchased Multiple Office Units on the 10th Floor, DLF Towers (Tower B), Jasola, New Delhi for which Purchase Deed got executed and registered on March 4, 2016. Purchase consideration of Rs. 6,15,88,000/- and Rs. 27,74,500/- was paid to M/s BHL Forex and Finlease Ltd on 14-12-2015 and 30-12-2015 (balance purchase consideration paid as stamp duty charges on registration in February and March 2016)
  • Further it also important to note that in AY 2016-17 the AO has not doubted the source of fresh investment to the tune of Rs 6,92,95,487/-. His case is that conditions of section 54 are not met.”

10. On the other hand, Ld. CIT DR for the Revenue vehemently supported the orders of the lower authorities and submits that Ld. CIT(A) has discussed this issue in detailed and after considering the facts and circumstances of the case and Remand Report of the AO, has confirmed the assessment order. Ld. CIT DR submits that in the assessment order, the AO clearly observed that assessee has failed to furnish the source of the bank balances as well as FDRs and the immovable property for which a detailed discussion is made. Ld. CIT DR placed reliance on the order of Ld. CIT(A) and requested for the confirmation of the same.

11. Heard the contentions of both the parties at length and perused the material available on record. From the order of the lower authorities, it is observed that the addition was made on account of difference in the balance of the capital declared by the assessee in the return of income filed. When confronted, the assessee has stated that in preceding AY, she had sold the immovable property and had invested the consideration for the acquisition of new property. Assessee further claimed that there were FDRs with the assessee and closing balance of the FDRs was of INR 12,58,04,840/-, the details of which is reproduced in the Remand Report, which is reproduced herein below for sake of convenience:-

12. The Ld.AR for the assessee further filed a re-conciliation statement of capital gain wherein items left to be included in the statement of assets filed in preceding years comprising of FDRs of INR 12,58,04,840/-, bank balance of INR 1,10,08,605/- and sale consideration received of INR 8.00 crores. The said re-conciliation as submitted in the Remand Report is reproduced as under:-

13. With respect to the acquisition of the property during the year, the assessee has claimed deduction u/s 54 out of the capital gain therefore, the immediate source of the same is self-explained and no doubts could be raised therefore, to this extent, claim of the assessee is acceptable.

14. Regarding the source of the FDRs, Ld. CIT(A) has reproduced the bank statement in the appellate order wherein the entries of maturity of FDRs are at page 62 to 64 of the appellate order according to which there were credits in the bank accounts of the assessee on account of maturity of FDRs immediately before the entry of making new FDRs thus source of the FDRs is also self-explained.

15. Since all these assets / receipts relate to immediately preceding year and admittedly there was opening balance of FDRs of INR 12.58 crores and the bank balance of INR 1.10 crores therefore, once these credits were received in the year under appeal, no addition could be made u/s 68 of the Act. From the perusal of the bank statement as reproduced at pages 62 to 64 of the appellate order, this fact is very much clear that FDRs were prepared in immediately preceding AYs therefore, the opening balance in the hands of the assessee cannot be added u/s 68 of the Act in subsequent year i.e. the year under appeal. Once the assessee has been able to demonstrate that there were errors and omissions in the ITR field for previous year and duly explained the same with all the plausible evidences which were verified by the AO also in remand proceedings, we find no reason to sustain the addition in such circumstances on account of correction made in the figure of capital in the year under appeal.

16. In view of the above facts and overall discussions made herein above, we hereby, delete the addition made. Grounds of appeal Nos. 5 to 7 raised by the assessee are thus allowed.

17. In the result, appeal of the assessee is partly allowed.

Order pronounced in the open Court on 22.05.2026.