2025 (8) TMI 355 - AT - Income Tax

ITAT Orders Recheck of Opening Cash Balance and Section 57 Loss Disallowance, Upholds Investment Addition

The ITAT set aside the addition of opening cash balance to the AO for verification of the cash book's correctness for FY 2008-09 and 2009-10, directing ... Addition on account of opening cash balance - AO had noticed that the assessee had introduced fresh capital in partnership firm deposited cash in his bank account with State Bank of India and Bank of India and also made investment in cash for purchase of agricultural land - HELD THAT:- Correctness of the cash book for the F.Y. 2008-09 & 2009-10 as furnished by the assessee was not verified. The presumption of the AO that no opening cash balance at all was available with the assessee, cannot be held as correct. Even if no evidence in respect of opening cash balance is made available by the assessee, a reasonable amount of opening cash balance has to be considered in the hands of the assessee. In the interest of justice, we deem it proper to set aside the matter to the file of the Jurisdictional AO with a direction to verify the correctness of cash book for the F.Y. 2008-09 & 2009-10 and, thereafter, determine the correct opening balance as available with the assessee. The balance sheet of the earlier years may also be referred to ascertain the opening cash balance available with the assessee. The ground taken by the assessee is allowed for statistical purposes. Addition on account of investment in immovable property - assessee explained that the share of the assessee in the said property was to the extent of Rs. 25% only., therefore, the addition made by the AO was not correct - HELD THAT:- The copy of the sale deed dated 26.11.2009 has been brought on record. It is found that the specific shareholding of the two buyers was nowhere specified in the sale deed. Under the circumstances, the AO had rightly taken the shareholding of the two buyers at 50% each. It is also not mentioned in the sale deed that the payment made by the assessee was to the extent of Rs. 13,97,630/- only. Rather, in the sale deed the entire payment was acknowledged to be received in cash. Under the circumstances, the contention of the assessee that he had only 25% ownership in the property was rightly rejected by the Revenue. In the absence of individual share of the two co-buyers being not mentioned in the sale deed, the shareholding of the co-owners in the property had to be considered in equal proportion. The AO had, therefore, rightly added the balance unexplained investment on the part of the assessee. The addition as upheld by the Ld. CIT(A) is, therefore, confirmed. The ground taken by the assessee is dismissed. Disallowance of loss claimed u/s.57 - AO had made the disallowance for the reason that the details of loan taken and the interest payment thereon were not filed -assessee has contended that the loans were taken from family members and details thereof was filed - Also interest payment was in respect of loans, which were ultimately advanced to M/s. Rudra Construction and on which interest income was also earned by the assessee - HELD THAT:- This aspect was not examined by the AO in the course of assessment. We, therefore, deem it proper to set aside the matter to the file of the Jurisdictional AO to verify the nexus between the interest expenditure of Rs. 12,07,500/- and the interest income of Rs. 9,07,086/- earned from partnership firm M/s. Rudra Construction. In case, the assessee is able to establish this nexus, the deduction in respect of interest payment may be proportionately allowed to the assessee. At the same time, the assessee is also directed to file the confirmation for the loans taken as well as the interest payment thereon as made by the assessee, before the AO. ISSUES: Whether the reopening of assessment under Section 147 of the Income Tax Act, 1961 was valid when no addition was made for which the case was reopened.Whether the addition of Rs. 23,87,500/- on account of opening cash balance pertaining to an earlier assessment year was justified without supporting evidence.Whether the addition of Rs. 12,39,937/- on account of presumed 50% share in immovable property investment was correct instead of the actual claimed 25% share.Whether the disallowance of loss of Rs. 12,04,869/- claimed under Section 57 of the Act for interest expenses on funds borrowed for investment in a partnership firm was justified. RULINGS / HOLDINGS: Reopening of assessment under Section 147 was not challenged and thus the ground was dismissed.The addition of Rs. 23,87,500/- as unexplained opening cash balance was set aside for verification because 'the presumption of the AO that no opening cash balance at all was available with the assessee, cannot be held as correct.' The matter was remanded to verify the correctness of the cash book and balance sheets for earlier years to determine the correct opening cash balance.The addition of Rs. 12,39,937/- on presumed 50% share in the immovable property was upheld since 'the specific shareholding of the two buyers was nowhere specified in the sale deed' and the entire payment was acknowledged as received in cash. Therefore, the AO correctly presumed equal 50% shares and rightly added the unexplained investment amount. The ground was dismissed.The disallowance of interest expense loss under Section 57 was set aside for verification of the nexus between the interest expenditure and interest income from the partnership firm. The assessee was directed to produce confirmations and evidence of loans and interest payments. The AO was given liberty to verify genuineness and allow deduction proportionately if nexus is established. RATIONALE: The Court applied the procedural provisions of the Income Tax Act, 1961, specifically Sections 143(3), 147, and 57, and principles regarding reopening of assessments and burden of proof for unexplained cash balances and investments.In respect of unexplained cash balance, the Court emphasized that mere absence of evidence does not justify presumption of zero opening balance and ordered verification of books and balance sheets to ascertain the correct figure, reflecting a cautious approach to factual findings.Regarding investment share, the Court relied on the absence of explicit shareholding terms in the sale deed and the acknowledgment of full payment, applying the principle that co-owners are presumed to hold equal shares unless otherwise specified.On disallowance of interest expenses, the Court recognized the need to establish a nexus between expenditure and income under Section 57 and allowed reassessment after verification, highlighting the requirement of documentary proof and genuineness of transactions for deduction claims.