Derivative Contract Value Cannot Be Closing Stock Nor Can Prior Year Opening Balances Be Taxed Under Section 69A

ORDER

Nikhil Choudhary, Accountant Member.- This is an appeal filed by the Revenue against the orders of the ld. CIT(A), NFAC under section 250 of the Income Tax Act, 1961, dated 25.02.2025, wherein the ld. CIT(A) has allowed the appeal of the assessee against orders passed by the Assessing Officer, for the A.Y. 2018-19 on 27.08.2021, under section 143(3) of the Income Tax Act, 1961. The grounds of appeal are as under:

“1. The Ld. CIT(A) has erred in law by not appreciating the fact that the assessee has introduced Capital from unexplained sources amounting to Rs. 2,82,44,223/- during the year. Also a perusal of the statement of Derivative trading account with M/s Fairwealth Securities Ltd., it was noticed that the assessee had incurred a Net Loss of Rs. 25,48,963/- and Net Debit Balance in the Future & Options trading is at Rs. 7,47,08,374/- The assessee was given a number of opportunities to explain that how this loses were made good as share market losses are settled at the end of the settlement cycle. Further the assessee was specifically asked how he had been compensating the huge losses shown in his ITRs since A.Y. 2015-16 as his income from profession and other sources is not sufficient in comparison the losses reported.

2. The appellant craves leave to add or amend the grounds of appeal as and when need of doing so arises.”

2. The facts of the case are that the Assessing Officer, noticed from the balance-sheet of the assessee that the proprietor’s capital reported in ITR for the A.Y. 2018-19 was disproportionately large in comparison to the income reported during the last three years and had seen a huge jump from previous years. He, therefore, asked the assessee to furnish the source of funds for the capital introduced with documentary evidence and to justify the huge business losses that were shown. In response, the assessee submitted that this was the first year of audit. The substantial increase in capital was because it included earlier year’s losses, which had already been filed with the Income Tax Returns of earlier years. The huge business loss was due to market rates going down, of F&O sauda which were in the closing stock of the assessee. The Assessing Officer observed that the assessee had not furnished any evidence in respect of the capital introduced during the year and only statements of F&O account and bank account statements were furnished and these did not explain the capital account of the assessee. He, therefore, asked the assessee to explain in detail the proprietor’s capital shown at Rs. 10,46,97,834/- in the balance-sheet. In response, the assessee submitted that the assessee had undertaken business of future and options/derivatives through Fairwealth Securities Ltd, during the F.Y. 2017-18. His legal advisor and C.A. had uploaded an audited profit and loss account for the year ending 31.03.2018 alongwith a tax audit report under section 44AB but the financials and tax audit report that were uploaded contained certain inaccuracies and conveyed a wrong impression. Subsequently, the assessee noticed that the closing stock/inventory taken as on 31.03.2018 by his auditor at Rs. 7,18,58,524/- was, in effect, the market value, “sauda” carried forward by the brokers and considering it as a closing stock by the auditor was patently incorrect as in F&O transactions, there was no closing stock. Furthermore, to match the balance-sheet, opening balance of capital had been placed resulting in the balance-sheet being drawn at Rs. 10,41,73,520/. Subsequently a corrected balance-sheet and audit report as on 31.03.2018 was e-filed on 24.03.2021. The ld. AO was not convinced with these submissions made by the assessee. He asked the assessee to explain the transactions and show how the loss had been financed. However, the assessee did not furnish the relevant information to the satisfaction of the Assessing Officer therefore, the Assessing Officer requested the assessee for it in a particular format. In response, the assessee made a request for adjournment of the case by about a week i.e. uptil 26.04.2021, but the Assessing Officer recorded that since the time barring date was very near, further time could not be allowed. He, therefore, proposed to complete the assessment on the basis of materials already on record. He noted that the assessee had shown cumulative loss of Rs. 3,23,63,431/- in the capital account and computed the opening capital at Rs. 10,41,73,520/-. He noted that he had asked the assessee to file supporting evidence to demonstrate that his earlier counsel had furnished wrong financial statements but the assessee had reiterated his submissions without furnishing any documentary evidence. He observed that the net debit balance in future and options trading were Rs. 7,47,08,374/- and observed that as share market losses were settled at the end of the settlement cycle and the broker/sub-broker does not permit to carry forward losses to this next settlement cycle, the assessee was required to explain the same but could not offer any explanation in this regard. Therefore, he set out to re-construct the capital account of the assessee. Taking the opening balance at the amount shown by the assessee, he deducted the closing balance of capital account as on 31.03.2017, the dividend income, long term capital gain, the short term capital gain, amount received on sale or shares, amount received by bank transfer from his wife and F&O closing stock of Rs.7,18,58,724/- but noticed that there still was a difference of Rs. 2,82,44,223/-, which was unexplained. He therefore, treated the same as investment from unexplained sources under section 69A and brought the same to tax under section 115BBE.

3. Aggrieved with the said assessment order, the assessee filed an appeal before the ld. CIT(A). Before the ld. CIT(A), it was submitted that the assessee was an Ophthalmologist and also traded in financial services. He had filed a return of income for the A.Y. 2018-19 on 17.10.2018 declaring a loss of Rs.90,26,712/-. This original return was revised/rectified due to certain inherent grave mistakes by the auditor and the rectified return was filed on 25.03.2021. As per this revised return, the capital opening balance of capital was taken at Rs. 27,084/- instead of Rs. 10,41,71,521/- as given in the original audit report. The assessee submitted that he came to know about the infirmities in the original audit report only when the case was picked for scrutiny and he found that the Income Tax Department was repeatedly issuing notices to which delayed and unsatisfactory replies were being submitted by his previous legal advisor. He therefore, changed his legal advisor and became aware of these infirmities and mistakes in the original audit report and financial statements. Accordingly, the necessary corrections were made through a revised audit report dated 23.03.2021 after considering the guidance note under section 44AB of the Income Tax Act and the guidance note on accounting for future and options and its impact on the balance-sheet as published by the ICAI. Consequently, the corrected audit report and balance-sheet were uploaded on 24.03.2021 and a rectified ITR according to the amended audited financial statements/balance-sheet dated 23.03.2021, was uploaded on 25.03.2021 vide rectification reference which was submitted. In these revised audited financials, the opening capital account as on 1.04.2017 at Rs. 27,084/- was in sync with closing capital in the ITR for A.Y. 2017-18 at Rs. 27,084/- that appeared in the uploaded ITR of 31.03.2017. The assessee submitted that there were three infirmities and mistakes in the original return which he detailed as under:-

It was submitted that during the course of scrutiny proceedings, the assessee had filed an affidavit on 25.03.2021 affirming and reiterating those facts. The assessee further submitted that the very basis of drawing the financial statements dated 20.09.2018 was incorrect, because financial statements were drawn for a particular year. No accounting standards justified the mention the last several year’s entries in the capital account of any particular year i.e. there was no justification for the auditor to mention the past several year’s profits and losses in the capital for the balance-sheet of opening balance as on 1.04.2018. Furthermore, the figure of Rs. 7,18,58,523.85/- was the sauda value carried forward which was erroneously presumed to be closing stock. The assessee further submitted that even if it was presumed that the past losses for A.Ys. 2015-16, 2016-17 and 2017-18 were out of undeclared income/ asset, there was no justification for adding the same to the assessee’s income for the assessment year under consideration i.e. A.Y. 2018-19. It was further submitted that the assessee was a regular tax payer for the last 40 years and in the year ending 31.03.1992 had filed a wealth tax return showing taxable wealth of Rs. 23,72,000/-. In the last few years, the assessee had incurred losses in futures trading, but his past assessment records demonstrated that the assessee had sufficient wealth to pay for these losses. He had never taken any loans from any banks or otherwise. It was submitted that of late the Department had made audit compulsory for speculative trading but not many auditors understand futures trading and it was this that had led to the auditor drawing up the exaggerated figures of losses. However, the assessee has not attempted to set off these losses anywhere. None of them have been used to offset profits and therefore, there was no case of concealment of tax. The assessee further submitted that, as per the case of CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144, the Hon’ble Supreme Court had held that Income Tax was a levy of income and there were two points of time at which the liability to tax was attracted viz. , the accrual of income or its receipt. The Court had held that if the income does not result at all, there cannot be a tax even though in book keeping, an entry is made about a, “hypothetical income” which does not materialize. The assessee held that an erroneous incorrect entry made in the books of accounts/audited financial statements and subsequently corrected by a tax auditor in the audited financial report, not being a real income of the assessee could not be subjected to tax as under the Income Tax Act, it was only the real income which could be subjected to tax and the Assessing Officer had failed to consider this. He further pointed out that there was no case for the Department to add back losses determined of past years in the current assessment year and then bring them to tax under section 115BBE of the Income Tax Act. The assessee submitted that all the past years’ cases had been done under scrutiny and no additions had been made in those cases.

4. The ld. CIT(A) gave due consideration to the submissions made by the assessee and held that the assessee had explained that the increase of opening capital of Rs. 10,41,73,520/- as against the closing balance in capital of Rs. 27,084/- for the A.Y. 2017-18 dated 31.03.2017, was on account of erroneous accounting of F&O transactions. He observed that in the original audited balance-sheet uploaded, the closing stock of F&O had been shown at Rs. 7,18,58,523/- but the same was actually the market value of, “sauda” carried forward by brokers Fairwealth Securities Ltd, that was wrongly considered as closing stock. Subsequently, the assessee had uploaded revised audit report and filed a rectified return of income for the relevant assessment year correcting the above. He noted that the assessee’s submissions were supported by evidence in the form an affidavit, his ITR and the revised audit report plus the financial statements with regard to derivatives (F&O transactions) in his account with Fairwealth Securities Ltd, and Motilal Oswal Financial Services Ltd. He noted that the assessee had explained the source by which he had financed his losses as being funded primarily from equity shares acquired many years back as evidenced by the Wealth Tax in Income Tax Returns and scrutiny assessment orders of past years and partially by contract notes of F.Y. 2013-14 from Tata Securities Limited as well as M/s Fairwealth Securities Ltd. He further noted that the margins provided to the broker were set off against the losses and this could be cross verified with M/s Fairwealth Securities Ltd,. The assessee had the option to provide margin in the form of bank remittance or equity shares. He had submitted 7,468 equity shares of Infosys Limited as security in margin money and the broker M/s Fairwealth Securities Ltd., had transferred the shares in its name to secure and insure itself as mandated by SEBI. He further noted that the assessee had been a regular tax payer for the last 40 years disclosing substantial income and the losses suffered by him were met either out of his equity shares of Infosys purchased by him in F.Y. 2013-14 and held by the brokers as a margin money, or paid from his bank account at Central Bank of India, Chowk, Lucknow. He further noted that scrutiny under section 143(3) for the assessment year 2016-17 had been conducted wherein the matter regarding loss of Rs. 2,04,92,021/- for the A.Y. 2015-16 as well as loss of Rs. 12,03,759/- for A.Y. 2016-17 have been examined in length and no adverse view had been taken. He also noted that the above evidences had been furnished before the AO during the scrutiny proceedings and reiterated during the video conference made before the AO. He came to the conclusion that the assessee had credibly explained with supporting evidence, the source of increase in opening capital vis-a-vis, the closing capital of the preceding assessment year and therefore, he deleted the addition of Rs. 2,82,44,223/- made under section 69A of the Income Tax Act. He directed the AO to take into consideration the revised audit report and rectified ITR as representing the true and correct income and statement of affairs of the assessee for the assessment year 2018-19.

5. The Department is aggrieved at this decision of the ld. CIT(A) and has accordingly come before us. Sh. Amit Kumar, Sr. DR (hereinafter referred to as the ld. DR) appearing on behalf of the Department invited our attention to a report prepared by the DCIT, Circle-1, Luckow in which it was stated that the assessee had filed an ITR for the A.Y. 2018-19 on 17.10.2018 where he had shown proprietors capital of Rs. 10,46,97,834/-. During the course of assessment proceedings, the assessee had submitted that this figure had been wrongly taken by his professionals and therefore, he filed a revised audited profit and loss account and balance-sheet on 25.03.2021, showing therein the proprietor’s capital at Rs. 4,75,878/-. However, in the very next year’s balance-sheet i.e. as on 31.03.2019, the assessee had shown the same figure i.e. Rs. 10,46,97,883.49/- as opening capital. It was pointed out that the assessee had not furnished any documentary evidence in support of his claim that the first audit report was incorrect. Despite being asked to furnish information relevant to the source of income for A.Y. 2016-17 and A.Y. 2017-18, the assessee remained non-compliant. Vide notice under section 142(1) dated 20.04.2021 when the assessee was required to furnish certain information, he asked for some more time but did not comply with the said notice. Pursuant to the same, the assessment order was passed on 27.08.2021. It was submitted that the claim of mistakes in the audited profit and loss account could not be accepted because no written statement from the said professionals had ever been submitted by the assessee before the ld. AO. If incorrect financials were certified by the C.A. or Advocate, then this matter was to be brought to the knowledge of the ICAI/NFRA/BCI etc,. With regard to the assessee’s claim to have removed the mistakes in the rectified balance-sheet, it was pointed out that the assessee had not rectified the financial results for the A.Y. 2019-20, which indicated that the financial results in the revised balance-sheet were not realistic. Merely filing revised profit and loss account and balance sheet in the wake of scrutiny assessment did not suffice. The assessee had not filed the audited profit and loss account and balance-sheet for the assessment year 2019-20. The conduct of the assessee during the assessment proceeding manifested a consistent pattern of non-compliance, lack of transparency and an attempt to retrospectively manipulate financial results to suit the outcome of scrutiny proceedings. He had filed a return showing an abrupt and phenomenal increase in proprietor’s capital in this year without furnishing any cogent or concurrent evidence explaining the source thereof. Despite repeated opportunities and statutory notices, the assessee failed to produce even the most basic primary records such as bank statements, contract notes or trading summaries for F.Y. 2016-17 to 2018-19. The belated plea that incorrect audited financial statements were uploaded due to mistakes of engaged professionals was thus an afterthought unsupported by affidavit or written confirmation from the said professionals and were further belied by the fact that the assessee continued with the same auditor in subsequent years and never lodged any compliant with the ICAI. The assessee had also submitted that the financial results of the past years had been accepted but the principle of consistency or res judicata did not apply to the assessee’s case. The Hon’ble Supreme Court in the case of Radhasoami Satsang v. CIT 193 ITR 321 (SC) had categorically held that the principle of res judicata does not strictly apply to income tax proceedings and consistency could be claimed only where fundamental facts permeating through different assessment years remain identical. In the present case, not only had the assessee’s own financial disclosures undergone drastic and unexplained changes, but the very foundation of capital accretion remains unsubstantiated. Therefore, in the absence of reliable evidence, the assessee could not seek shelter under past acceptance or alleged consistency. Mere filing of revised profit and loss accounts and balance-sheets during scrutiny without supporting material and contrary to originally audited records did not cure the inherent defects or discharge the burden cast upon the assessee under the Income Tax Act. Consequently, the findings recorded by the Assessing Officer were fully justified. It was submitted that the statement of the assessee that he had never taken any loans from any banks or otherwise in para 16 of the statement of facts filed with the memo of appeal before the ld. CIT(A), was contradicted by the fact that he had admitted to having taken loan from his wife Smt. Preeti Kapoor amounting to Rs. 35,35,000/-. The ld. AO further pointed out that it was incorrect to say that the assessee had not been granted opportunity, rather it was the assessee who did not appear for video conferencing and avail the opportunity given before him. Placing these facts before us, the ld. Sr. DR pointed out that perusal of the statement of derivative trading account with M/s Fairwealth Securities Ltd, showed that the assessee had incurred a net loss of Rs. 25,48,963/- and the net debit balance in future and options trading was at Rs. 7,47,08,374/-. The assessee had been given a number of opportunities to explain how these losses were made good as share market losses are settled at the end of the settlement cycle and how he had been compensating the huge losses shown in his ITR since A.Y. 2015-16, but the assessee had not submitted any evidence in his regard. Accordingly, it was prayed that the additions of the Assessing Officer were made on account of the failure of the assessee to reply to the queries of the Assessing Officer and correctly explain the abnormal increase in opening balance of share capital in the capital account that had been filed by him. Hence, the addition deserves to be confirmed.

6. Replying to the arguments of the ld. Sr. DR, Sh. Rohit Bhalla, C.A. (hereinafter referred to as the ld. AR) submitted that the accounts of the assessee were audited for the first time in the current assessment year. While auditing the return, the assessee’s auditor Sh. Himanshu Agarwal, had taken the sauda value of derivatives (F&O) as the closing inventory and to balance the same, he had shown an opening capital of Rs. 10,41,73,520/-which included losses for the assessment years 2015-16, 2016-17 and 2017-18 to the extent of Rs. 2,33,15,090/-. It was submitted that the assessee was not well-versed in financial matters and had depended upon his auditors for the preparation of the financial statement. The auditor had committed a mistake in valuing the sauda value of derivatives as closing stock because sauda value could never be closing stock in the case of derivatives, which were not physically held. Because of this mistake, he had committed another mistake in an attempt to balance the capital account wherein he had shown the assessee’s opening capital at Rs. 10,41,73,520/-, which was inclusive of the cumulative losses of previous three years amounting to Rs. 2,33,15,090/. As such the capital account filed by him was inherently flawed. Similar action had been taken by the same auditor in the next assessment year. The assessee was unaware of these mistakes until the time the case was taken up for scrutiny. When he found that notices from the Income Tax Department were not being complied with or being complied with delay, he approached another consultant and was informed of the mistake in the preparation of the capital account. Thereafter, based upon the guidance note under section 44AB of the Income Tax Act, 1961 (2014 revised addition) and guidance notes on accounting for future and options and its impact on balance-sheet as published by ICAI, the assessee had revised his audit report and rectified the income tax return that was filed by him on the basis of such revised audit report. He had also sworn an affidavit on 25.03.2021 pointing all these out. The ld. AR submitted that the mistakes in the capital account were selfevident from the fact that the sauda value of derivatives could never be considered in closing stock and even if it was presumed for a moment that the past losses of AYs 2015-16, 2016-17 and 2017-18 were squared off out of undeclared income/assets, there was no justification for adding the same to his income for the relevant assessment year. Financial statements were drawn for a particular year. No accounting standard in the world justifies the mention of last several years entries into the capital account of any particular year. Thus, there was no justification for the auditor to have mentioned the past years’ profits or losses or transactions in the capital account for the balance-sheet for the opening balance as on 1.04.2017. Hence, the correction of the audited financial statements dated 23.03.2021 was fully justified as it was only the real income which could be brought to tax. Explaining how these losses had been squared off in the past, the ld. AR pointed out that the assessee vide his submissions dated 5.04.2021 had submitted before the AO that he was a regular tax payer for the last 40 years and in the year ending 31.03.1992 had filed a wealth tax return showing taxable wealth of Rs. 23,72,000/-. Thus, he had ample resources. Furthermore, in A.Y. 2013-14, the assessee had purchased 5,700 shares of Infosys and between the years 2014 to 2018 received a 1:1 bonus upon these shares. Some of these Infosys shares had been sold to pay for the speculative losses. It was submitted that it had been pointed out to the ld. CIT(A) that the assessee had to provide margin to his broker to M/s Fairwealth Securities Ltd, for the derivative trades and this margin could be either in the form of bank remittance or equity shares. In the assessee’s case, it had been in equity shares of Infosys Limited and he submitted that he gave 7,468 equity shares of Infosys Limited as security in margin money. After submission of shares, the broker, viz, M/s Fairwealth Securities Ltd, transferred those shares in its name, to secure and insure itself as mandated by SEBI. It was submitted that the losses were met out of transfer and sale of those shares hence, no portion of the of the amount paid to square off losses was unexplained. Furthermore, it was submitted that in any case, expenditure made for clearing losses for past years’, could not be the subject matter of assessment in this year and the Assessing Officer was incorrect in treating them to be so. Replying to the specific allegations of the Assessing Officer as contained in the report brought on record by the ld. Sr. DR, it was submitted that the ITR for the A.Y. 2019-20 had been filed in October, 2019 itself. The assessee only came to know about the mistake in the filing of the audited financials when the case was taken up scrutiny in the Financial Year 2020-21 and 2021-22. Thus it could not be a ground to show that the audit report filed by the assessee initially was correct because it had been repeated in the financials of the next year. Regarding why no complaint was filed against the auditor, it was submitted that the tax auditor C.A. Himanshu Agarwal, was suffering from throat cancer for about three years and died sometime in 2024. Furthermore, the concerned C.A. having realized his mistake had undertaken to rectify the mistake. The ICAI mandates the C.A. to obtain a unique documentation identification number (UDIN) for carrying out attestation functions. It was pertinent to state that the C.A. obtained UDIN on rectified audit report dated 23.03.2021 which was contained on page 69 of the paper book of the respondent. In the circumstances, it was not deemed appropriate to file a complaint against him for the mistaken audit report. With regard to the allegations that he had not submitted documents to reply to the queries of the Assessing Officer, it was submitted that replies had consistently been furnished and our attention was invited to pages 113, 121, 129, 130, 134, 141, 173, 175 and 180 of the paper books which contained these replies. Our specific attention was invited to page 136 which contained a list of documents that had been uploaded on 25.03.2021. Responding to the allegation that the assessee was unresponsive during the assessment proceedings, it was submitted that the assessee had replied multiple times during scrutiny proceedings before the AO trying to make him understand the underlying process of derivative trading of futures. He had also submitted the account statements of Fairwealth Securities Limited, as well as of Motilal Oswal Security Limited for the relevant year with past years. He had also requested the AO to cross verify all transactions carried out from SEBI, NEC, BSE or any other institution for the veracity of the transactions and end result of such transactions. Such request was apparent from the various correspondences made by the assessee which had already been referred to earlier. However, the AO had failed to carry out the specific enquiries or understand the nature of futures trading before making the addition. Regarding the AO’s plea that past assessment records could not be a ground to justify the assessee’s arguments in view of the departure in the present year’s filing, the assessee submitted that earlier his income tax matters had been looked after by Sh. A.K. Rohtagi, who was both diligent and intelligent and knew the law. But following his demise, his son Puneet Rohtagi, Advocate took up the matter and gravely erred in the filing of his income tax returns for this relevant assessment year and the subsequent assessment year. Once it had been demonstrated that the said return had been filed on account of a defective audit report, then the past results could not be ignored. Finally with regard to the allegation that it was he who had not properly availed the opportunity of video conference, the assessee submitted that he had made a request for video conferencing several times but it was not done either for non-receipt of SMS or confirmation link or mail, failing which the VC could not take place and grievances were raised against the same on the appointed date and time. Subsequently, however, the ld. CIT(A) had granted a VC to the assessee and the assessee had submitted all the issues before him. On consideration of these, the ld. CIT(A) had passed the order in favour of the assessee and it was prayed that the order may kindly be confirmed.

7. We have duly considered the facts and circumstances of the case and the arguments of both parties. It is fairly apparent that the initial capital account filed with the audited accounts was defective on account of the fact that the sauda value (contract or notional value) of a derivative cannot be considered a closing stock for account and taxation purposes. The sauda value is the total exposure of the contract calculated as the quantity of the underlying asset multiplied by the current price of the underlying asset. A derivative does not confer direct ownership of the underlying asset and carries no physical inventory that one can physically possess, store or sell as traditional stock. Closing stock is defined as value of unsold tangible goods or raw materials held in inventory at the end of an accounting period whereas derivatives are mere contractual agreements to buy or sell underlying assets at a future date. Unlike holding of physical share, holding a derivative contract simply gives a trader exposure to price movements without owning the actual asset. Thus, they are settled financially based on the difference between contract price and the market settlement price. Furthermore, derivatives are marked to market daily, that is gains or losses are settled periodically making it impossible to hold them as unsold capitalized inventory at the end of the year. In these circumstances, it is apparent that considering the contract value (sauda value) of derivatives as the closing stock of inventories in the capital account was an incorrect entry. Similarly, losses of previous financial years could not be brought into the capital account of this year. The assessee has explained that these losses were settled on account of transfer of equity shares of Infosys, but even if the same were unexplained then they would be unexplained in those years in which the losses were incurred/settled and not in the current financial year. The assessee has also uploaded a financial statement of account from 1^st April, 2017 to 31^st March, 2018 with Fairwealth Securities Limited and from 1.04.2017 to 3.01.2018 with M/s Motilal Oswal. Perusal of these do not reflect that there were open positions in significant quantities to justify valuing opening capital at Rs. 10,46,97,834/-. In the circumstances, it is quite clear that the initial capital account forming part of the audit report was erroneous. It is observed that the same auditor who conducted the audit and uploaded this capital account subsequently uploaded a rectified capital account on 24.03.2021 after obtaining UDIN from the ICAI, wherein the sauda value of the derivatives were not shown as inventory and consequently the liabilities sides of the balance-sheet was also corrected with exclusion of balancing entries including that of losses of previous assessment years. Following the same, that there does not seem to be any reason to uphold the Assessing Officer’s addition of Rs. 2,82,44,223/- made on account of purported investments from unexplained sources. We further note that in any case the provisions of section 69 are only applicable when unexplained investments are made into purchase of assets during the financial year in question. The same cannot apply to an opening balance which is in fact the closing balance of the previous year. Therefore, even otherwise the addition would not have been sustainable even if the figures of opening balance of capital had been properly reflected in the capital account. There is, therefore, no basis to sustain the addition. Accordingly, we uphold the order of the ld. CIT(A) and dismiss the appeal of the Revenue.

8. In the result, the appeal of the Revenue is dismissed.