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Income-tax Officer, Barabanki v. Kamal Kumar Mishra
Factual and Procedural Background
This opinion addresses an appeal filed by the Revenue against the order of the learned Commissioner of Income Tax (Appeals) [CIT(A)] which deleted several additions made by the Assessing Officer under section 68 of the Income Tax Act, 1961. The additions related to various unexplained cash credits reflected as deposits in the assessee's bank accounts. The assessee, an advocate by profession, had not maintained any books of account for the relevant assessment year, and the Assessing Officer treated bank passbook entries as unexplained credits. The CIT(A) deleted these additions after considering the explanations and confirmations provided by the assessee. The Revenue challenged this deletion on multiple grounds, while the assessee filed a cross objection which was later not pressed.
Legal Issues Presented
- Whether the provisions of section 68 of the Income Tax Act, 1961 can be invoked on credit entries found in the bank passbook of the assessee, who has not maintained books of account for the relevant previous year.
- Whether the additions made by the Assessing Officer under section 68 of the Act, based on unexplained deposits in the bank accounts, were justified given the explanations and confirmations furnished by the assessee.
Arguments of the Parties
Revenue's Arguments
- The CIT(A) erred in deleting additions made under section 68 of the Act on various sums credited in the assessee’s bank accounts, as the assessee failed to prove the identity of creditors, genuineness of transactions, source of income of lenders, and creditworthiness of lenders.
- The CIT(A) overlooked relevant judicial precedents such as Nanak Chandra Laxman Das v. CIT.
- The explanation given for certain amounts, such as the Stridhan received by the assessee’s wife, was unreasonable and unsupported by evidence.
- The assessee failed to provide evidence for opening capital and source of agriculture income expenses.
Assessee's Arguments
- The assessee, being an advocate, did not maintain books of account for the relevant year; the deposits were observed only from bank passbooks.
- The provisions of section 68 of the Act apply only where sums are credited in the books of the assessee, and a bank passbook is not considered the assessee’s book of account.
- The assessee furnished plausible and reasonable explanations supported by confirmations for the deposits in the bank accounts.
- Relied on judgments of the Hon’ble Gauhati High Court in Anand Ram Ratiani v. CIT and Hon’ble Bombay High Court in CIT v. Bhaichand N. Gandhi, which held that bank passbooks are not books maintained by the assessee for the purpose of section 68.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Nanak Chandra Laxman Das v. CIT [1983] 140 ITR 151 / [1982] 9 Taxman 252 (All) | Requirement to prove identity of creditors and genuineness of transactions under section 68. | The Revenue’s reliance on this precedent was noted but the court found the CIT(A) had adequately considered the explanations and confirmations. |
| CIT v. Bhaichand N. Gandhi [1982] 11 Taxman 59 (Bom) | Bank passbook is not a book of the assessee for section 68 purposes. | The court held that since the assessee had no books of account, the bank passbook entries could not invoke section 68 additions. |
| Anand Ram Ratiani v. CIT [1997] 223 ITR 544 (Gauhati HC) | Books referred to in section 68 must be the books of the assessee and not of any other entity. | The court applied this principle to reject invocation of section 68 based on bank passbook entries in absence of assessee’s books. |
| Baladin Ram v. CIT [1969] 71 ITR 427 (SC) | Income from undisclosed sources can be assessed only when amount credited in assessee’s books. | Supported the interpretation that section 68 applies only to sums credited in books maintained by the assessee. |
Court's Reasoning and Analysis
The court analyzed the scope of section 68 of the Income Tax Act, emphasizing that the section applies only where a sum is found credited in the books of the assessee maintained for the relevant previous year. It held that a bank passbook is not a book of the assessee, but rather a record maintained by the bank, and thus cannot be treated as the assessee’s book of account for invoking section 68. The court relied on authoritative judicial precedents, including the Bombay High Court’s ruling in CIT v. Bhaichand N. Gandhi and the Gauhati High Court’s ruling in Anand Ram Ratiani v. CIT, to support this interpretation.
Since the assessee had not maintained any books of account, the additions based solely on bank passbook entries were not sustainable under section 68. Furthermore, the court noted that the CIT(A) had examined the merits of the additions and found the explanations and confirmations furnished by the assessee to be plausible and reasonable. The court found no infirmity in the CIT(A)’s order and concurred with the deletion of the additions.
Holding and Implications
The appeal of the Revenue is dismissed.
The court upheld the CIT(A)’s order deleting the additions made under section 68 of the Income Tax Act, 1961, on the ground that the bank passbook entries cannot be treated as credits in the assessee’s books of account in the absence of maintained books. The decision directly affects the parties by confirming that additions based on bank passbook entries alone cannot be sustained under section 68 without corresponding entries in the assessee’s own books. No new precedent was set beyond the reaffirmation of existing judicial principles.
ORDER
Sunil Kumar Yadav, Judicial Member - This appeal is preferred by the Revenue against the order of the ld. CIT(A) on various grounds, which are as under:-
2. The assessee has filed cross objection challenging the additions of Rs.2.80 lakhs in respect of Stridhan of his wife and Rs.78,895 on the basis of presumption, sustained by the ld. CIT(A).
3. During the course of hearing, the ld. counsel for the assessee has opted not to press the cross objection filed by the assessee, to which the Revenue has no objection. Accordingly, the cross objection filed by the assessee is dismissed being not pressed.
4. Now we are left with Revenue's appeal, through which the order of the ld. CIT(A) is assailed on deletion of additions made under section 68 of the Income-tax Act, 1961 (hereinafter called in short "the Act").
5. At the outset, the ld. counsel for the assessee invited our attention to the fact that the assessee is an Advocate by profession and he has not maintained any books of account for the previous year relevant to the assessment year under consideration. Whatever deposits are noticed by the Assessing Officer, these were from the bank passbooks on different dates. The Assessing Officer has invoked the provisions of section 68 of the Act for making additions of all the deposits in the bank at different dates after treating them to be unexplained cash credit. The ld. counsel for the assessee further contended that the provisions of section 68 of the Act can only be invoked where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory. In that eventuality, the said sum so credited may be charged to income-tax as the income of the assessee of that previous year. Since various deposits on different dates in the bank are not found to have been credited in the books of the assessee, provisions of section 68 of the Act cannot be invoked for making addition of the same to the income of the assessee for that impugned previous year. In support of his contention, the ld. counsel for the assessee has placed reliance upon the judgment of the Hon'ble Gauhati High Court in the case of Anand Ram Ratiani v. CIT [1997] 223 ITR 544 (Gau.) and the judgment of the Hon'ble Bombay High Court in the case of CIT v. Bhaichand N. Gandhi [1982] 11 Taxman 59 , in which it has been categorically held that passbook supplied by the bank to the assessee could not be regarded as a book of the assessee. The expression "books" used in section 68 of the Act means the books have to be books of the assessee himself, not of any other assessee. The ld. counsel for the assessee further contended on merit also that the deposits found recorded in the bank account of the assessee were duly explained before the Revenue Authorities and having convinced with the explanations, the ld. CIT(A) deleted the addition.
6. Finding force in the arguments of the ld. counsel for the assessee in the light of the aforesaid judgments, the legal position with regard to the invocation of the provisions of section 68 of the Act on the entries found recorded in the bank passbook was confronted to the ld. D.R. and his comments were sought. Except relying upon the orders of the Assessing Officer, the ld. D.R. could not produce any judicial pronouncements in support of his contention that the provisions of section 68 of the Act can also be invoked on the credit entries found recorded in the bank account. Since this argument goes to the root of the case, we felt it necessary to adjudicate the same at the threshold. For reference, we extract the provisions of section 68 of the Act as under:-
"68. Cash credits.--Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
7. The aforesaid provisions of section 68 of the Act can only be invoked where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory. In that eventuality, the said sum so credited may be charged to income-tax as the income of the assessee of that previous year. Meaning thereby maintenance of books of the assessee, in which credit entry so found, is a condition precedent for invoking the provisions of section 68 of the Act. Now the question arises whether the passbook issued by the bank with regard to the accounts of the assessee can be termed to be the books of the assessee for the purpose of section 68 of the Act. This issue was examined by the Hon'ble Bombay High Court in the case of Bhaichand N. Gandhi (supra) and while answering the question i.e. whether on the facts and circumstances of the case, the Tribunal was justified in holding that cash credit for the previous year shown in the assessee's bank passbook issued to him by the bank, but not shown in the cash book maintained by him for that year does not fall within the ambit of section 68 of the Act and as such the sum so credited is not chargeable to income tax as the income of the assessee of that previous year, their Lordships of the Hon'ble Bombay High Court categorically held that passbook supplied by the bank to the assessee could not be regarded as book of the assessee, that is, a book maintained by the assessee or under his instruction. The relevant observations of the Hon'ble Bombay High Court are extracted hereunder:-
"In Baladin Ram v. CIT [1969] 71 ITR 427 , it has been held by the Supreme Court that it is now well settled that the only possible way in which income from an undisclosed source can be assessed or reassessed is to make the assessment on the basis that the previous year for such an income would be the ordinary financial year. Even under the provisions embodied in s.68 of the said Act it is only when any amount is found credited in the books of the assessee for any previous year that the section will apply and the amount so credited may be charged to tax as the income of that previous year, if the assessee offers no explanation or the explanation offered by him is not satisfactory.
As the Tribunal has pointed out, it is fairly well settled that when moneys are deposited in a bank, the relationship that is constituted between the banker and the customer is one of debtor and creditor and not of trustee and beneficiary. Applying this principle, the pass book supplied by the bank to its constituent is only a copy of the constituent's account in the books maintained by the bank. It is not as if the pass book is maintained by the bank as the agent of the constituent, nor can it be said that the pass book is maintained by the bank under the instructions of the constituent. In view of this, the Tribunal was, with respect, justified in holding that the pass book supplied by the bank to the assessee in the present case could not be regarded as a book of the assessee, that is, a book maintained by the assessee or under his instructions. In our view, the Tribunal was justified in the conclusions at which it arrived."
8. In the case of Anand Ram Ratiani (supra), the Hon'ble Gauhati High Court has also held that perusal of section 68 of the Act shows that in relation to expression "books", the emphasis is on the word "assessee" meaning thereby that such books have to be the books of the assessee himself and not of any other assessee. In that case, the books of account of the partnership firm were not treated as those of the individual partner and accordingly the additions made in the hands of the individual partners on the basis of the books of the partnership firm was deleted.
9. In the instant case, it is an undisputed fact that the assessee has not maintained any books of account and whatever credit entries are found by the Assessing Officer, it was from the bank accounts of the assessee in which deposits were made at different point of time. Even the passbook issued by the bank cannot be termed to be the book of the assessee as per the judgment of the Hon'ble Bombay High Court Bhaichand N. Gandhi (supra). Therefore, provisions of section 68 of the Act cannot be invoked on various deposits/credits found recorded in the bank account of the assessee in the absence of books of the assessee maintained for that previous year.
10. The ld. CIT(A) has adjudicated the issue in the light of the aforesaid judgment and has held that provisions of section 68 of the Act cannot be invoked. Besides, he has also examined the additions made by the Assessing Officer through grounds No.1 to 6 on merit also and has noted that in each and every case the assessee has furnished plausible and reasonable explanations with respect to the deposits found recorded in the bank passbook of the assessee and on merit also the ld. CIT(A) did not find any justification in the additions made by the Assessing Officer. Though we are of the view that provisions of section 68 of the Act cannot be invoked on the deposits made in the bank account of the assessee, yet we have examined the veracity of the additions made by the Assessing Officer on certain deposits by invoking the provisions of section 68 of the Act and we find that before the ld. CIT(A) the assessee has furnished reasonable and plausible explanations along with confirmation with regard to the different deposits. Since the ld. CIT(A) has adjudicated the issue on merit also in the light of the explanations and confirmations placed before him, in a proper perspective and we find no infirmity therein, we confirm the same. Accordingly, finding no merit in the Revenue's appeal, we dismiss the same.
11. In the result, appeal of the Revenue and Cross Objection of the assessee are dismissed.
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