ITAT Pune Upholds Section 68 Addition for Unexplained Increase in Proprietor’s Capital

An individual contractor engaged in electrical repair and maintenance work for the Military Engineering Services filed his return for AY 2014-15, declaring a total income of Rs. 6,44,890. During scrutiny assessment, the Assessing Officer noticed that the proprietor’s capital as on AY 2014-15 stood at Rs.2,31,66,442, whereas the last return filed by the assessee for AY 2011-12 showed proprietor’s capital of only Rs.54,57,103.

The assessee had not filed any returns for AYs 2012-13 and 2013-14. When called upon to explain the sharp increase in capital, the assessee contended that it arose due to increase in sundry creditors and sundry debtors. The Assessing Officer treated the unexplained portion of capital as income under Section 68.

Main Issue: Whether a huge increase in proprietor’s capital can be sustained without credible evidence when the assessee failed to file returns for intervening years and could not satisfactorily explain the source of such increase.

ITAT’s Order: The ITAT upheld the order of the CIT(A) confirming the addition. The Tribunal observed that the assessee had failed to file returns for AYs 2012-13 and 2013-14 and could not produce reliable evidence to justify the substantial increase in proprietor’s capital.

The additional evidences produced at the appellate stage, including revised balance sheets and capital accounts of earlier years, were found to be unreliable, unvouched, and an afterthought. The addition under Section 68 was held to be justified due to lack of evidence. Hence, the appeal of the assessee was dismissed.

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