Case law - Opening balances

[B Tayub]

Whether the ITO can add opening balance in the books stating the loans received in preceding years were not genuine? In the process in addition to adding the opening balances he has disallowed the interest credited in those accounts. whether there is any case law in support of the assessee?

[Surender Gupta]

I think the action of ITO is incorrect. Loan amount received or paid in a particular financial year can be allowed or disallowed in the same financial year / assessment year only. Therefore, ITO should initiate the proceedings u/s 148 / 147. Same view is applicable on Interest portion. If the basic amount can not be disallowed, the interest portion also should not be disallowed.

[B Tayub]

Whether there is any case law in support of the views expressed by Mr. Dinesh Gupta?

I think, the issue must be tried to solve within the parameters of statutory provisions of law. You must ask the ITO to provide the details of statutory provision/s which empowers him to add the bogus entries of one year with the income of different year. If the action of the ITO is held as justified, than the period of limitation of re-assessment u/s 148 / 149 would become infructuous.

AI Summary

Reassessment powers: cross-year additions of opening balances and interest require formal reassessment and statutory authority.
Adjustments treating loans and related interest from preceding years as not genuine cannot be shifted into a different assessment year except through the formal reassessment procedure; the assessing officer must identify statutory authority for cross-year additions, and the same procedural and limitation constraints that apply to principal disallowances apply equally to interest.