TaxTMI 
TaxTMI 
Source of capital introduced in previous years
18 Oct 2010 
2 Replies 
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Source of capital inquiries can be validly sought by tax authorities when opening capital originates in prior years.
An assessing officer may seek details of opening capital introduced in earlier years; one suggested response is a written statement that no fresh capital was introduced. Statutory inquiry powers are subject to two constraints: prior Joint Commissioner approval is required to demand statements of assets and liabilities not in the accounts, and accounts older than three years prior to the previous year generally cannot be required; calling for opening capital details is within those inquiry-power limits. (AI Summary)
An assessing officer may seek details of opening capital introduced in earlier years; one suggested response is a written statement that no fresh capital was introduced. Statutory inquiry powers are subject to two constraints: prior Joint Commissioner approval is required to demand statements of assets and liabilities not in the accounts, and accounts older than three years prior to the previous year generally cannot be required; calling for opening capital details is within those inquiry-power limits. (AI Summary)
Capital introduced by partners in firm in the year 2007 and 2006, my case under scrutiny is A.Y 2008-09, query is regarding the source of capital introduced in the previous years which is opening capital in the current year under scrutiny. Whether AO can ask the source of opening capital when asseessee has filed audited statements along with ITR submitted on due dates.