Opening capital and drawings rebut unexplained investment addition in assessment

Opening capital balance cannot be treated as unexplained investment where it represents carried-forward capital from an earlier business period, and a small current-year capital addition is fully covered by available drawings. The closing capital of Rs. 7,481 was held not to be fresh investment in the relevant year, and the further Rs. 500 was absorbed by drawings of Rs. 6,990. The addition of Rs. 7,981 was therefore deleted.

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Issues: Whether the addition of Rs. 7,981 as unexplained investment was sustainable where the amount comprised the assessee's opening capital balance and a small capital addition during the year.

Analysis: The assessment year was the first year under consideration, but the material showed that the assessee had been carrying on business earlier as well. The figure of Rs. 7,481 represented the closing capital as on 31 March 1975 and could not be treated as fresh investment during the relevant previous year. The further addition of Rs. 500 was covered by drawings of Rs. 6,990 made during the year, and therefore did not justify an inference of unexplained investment.

Conclusion: The addition of Rs. 7,981 was not justified and was deleted in favour of the assessee.

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