Case Law Details
Vishan Swaroop Gupta Vs ITO (ITAT Jaipur)
Credit in the ‘bank account’ of an assessee cannot be construed as a credit in the ‘books’ of the assessee as per section 68 of Income Tax Act, 1961.
We observe that credit in the ‘bank account’ of an assessee cannot be construed as a credit in the ‘books’ of the assessee, for the very reason that the bank account cannot be held to be the ‘books’ of the assessee. Though, it remains as a matter of fact that the ‘bank account’ of an assessee is the account of the assessee with the bank, or in other words the account of the assessee in the books of the bank, but the same in no way can be held to be the ‘books’ of the assessee. We have given a thoughtful consideration to the scope and gamut of the aforesaid statutory provision of Section 68, and are of the considered view that an addition made in respect of a cash deposit in the bank account of an assessee, in the absence of the same found credited in the ‘books’ of the assessee maintained for the previous year, cannot be brought to tax by invoking the provisions of Section 68 of the Act. In this respect, we draw strength from the decision of the Hon’ble Bombay High Court in the case of CIT Vs Bhaichand N Gandhi (1983) 141 ITR 67 (Bombay).
FULL TEXT OF THE ITAT JUDGEMENT
This is an appeal filed by the assessee against the order of ld.CIT(A)-
3, Jaipur dated 30/10/2019 for the A.Y. 2015-16 in the matter of order passed U/s 143(3) of the Income Tax Act, 1961 (in short, the Act), wherein following grounds have been taken.
“1. The Commissioner of Income Tax (Appeals)-3, Jaipur (hereinafter referred to as the CIT(A)) erred in upholding the action of the Income Tax Officer, Ward 7(3), Jaipur (hereinafter referred to as the Assessing officer) in making an addition of Rs. 4,03,000/- under section 68 of the Act as alleged unexplained cash deposited in bank accounts.
2. The appellant contends that on the facts and in the circumstances of the case and in law, the CIT(A) ought not to have upheld the action of the Assessing Officer inasmuch as the appellant has explained the source of cash deposited in his bank accounts and hence, the impugned addition of Rs. 4,03,000/- ought to be deleted.”
2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
3. As per the facts of the present case, the assessee filed his return of income on 25/08/2015 declaring total income of Rs. 3,79,330/-. Later on, the case of the assessee was selected for scrutiny and after serving statutory notices and seeking reply of the assessee, the order of assessment U/s 143(3) of the Act was passed on 16/12/2017 thereby making addition U/s 68 of the Act.
4. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A). However, the ld. CIT(A) after considering the case of both the parties, partly allowed the appeal filed by the assessee and restricted the addition to the tune of Rs. 4,03,000/- U/s 68 of the Act. Against the order of the ld. CIT(A), the assessee has preferred present appeal before the ITAT by taking the above mentioned grounds of appeal.
5. Both the grounds raised by the assessee are interrelated and challenging the order of the ld. CIT(A) in confirming addition U/s 68 of the Act on account of unexplained cash deposit in the bank account, therefore, we thought it fit to dispose of both the grounds by this consolidated order.
6. The ld. AR appearing on behalf of the assessee has reiterated the same arguments as were raised before the ld. CIT(A) and also relied upon the written submissions filed before the Bench and the same is reproduced below:
“5.1.1 The appellant under section 44AA of the Act is not required to maintain books of account; thus, the Assessing Officer could not have made addition under section 68 of the Act.
5.1.2 Section 68 is a deeming section fastening liability on the subject and hence, should be strictly construed.
5.1.3 The pre-requisites for invoking the provisions of section 68 are-
(i) any sum is found credited in the books of an assessee
(ii) the assessee offers no explanation about the nature and source thereof
(iii) the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory.
5.1.4 The pre-requisite for invoking the provisions of section 68 is the credit entries in the books of account of the assessee. In the case on hand, the credit is in the bank statement and not in the books of account of the appellant. As the appellant is not required to maintain books of account under section 44AA of the Act, the Assessing Officer has fallen in error in invoking the provisions of section 68 of the Act.
Reliance is placed on the decision of Bombay High Court in the case of Bhai Chand N. Gandhi reported in 141 ITR 67. Following the said decision, Mumbai Tribunal in the case of Srikant G. Sawant (ITA No 7712/M/2012) has held similarly.
5.1.5 Without prejudice, section 68 cannot be invoked in case the assessee prima facie proves the following —
(i) Proof of identity of the creditor
(ii) Capacity of such creditor to advance the money
(iii) Genuineness of the transaction
Reliance is placed on the decision of Gauhati High Court in the case of Jalan Timbers —223 ITR 11 (Gau)
5.1.6 The appellant contends that the CIT(A) failed to adjudicate the legal ground of appeal raised by the appellant before him. The CIT(A) has at para 4 of his mentioned that “This is legal ground. The A/R of the appellant has not filed any submission about this ground. Therefore this ground is not allowed”. In the written submissions filed before the CIT(A), the appellant has contended that the Assessing Officer ought not to have invoked the provisions of section 68 of the Act, however; the CIT(A) in his entire order has not dealt with the aforesaid contentions and hence, CIT(A) has fallen in error in sustaining the additions made by the Assessing Officer — refer para 5.2 at page nos 4 and 5 of the CIT(A) order.
In view of the above, the appellant submits that the CIT(A) ought not to have confirmed the action of the Assessing Officer in invoking the provisions of section 68 and thus, the impugned addition needs to be deleted.
6. Regarding the addition sustained by the CIT(A), individual additions are discussed as under —
6.1 Opening Cash Balance — Rs 3,38,000
(a) The Assessing Officer has made an addition of Rs 3,38,000 as unexplained cash credit of the opening cash balance of Rs 3,38,000 shown by the appellant.
(b) The appellant submits that —
(i) he is 64 years of age in the relevant previous year and the opening balance of Rs 3,38,000 represents his savings of the past so many years. He generally maintains some cash balance with him for any medical or other emergencies; he is suffering from high blood pressure and diabetes since last almost 20 years.
(ii) Further opening balance cannot be said to be unexplained cash credit as it is an amount brought forward from immediately preceding previous year; hence, cannot be Treated as cash credit under section 68 of the Act.
(iii) Further, the CIT(A) and the Assessing Officer, for not allowing credit for opening cash balance, have merely observed that household expenses are not shown in the cash flow statement of the earlier year and hence, stated that the opening cash balance is not available. The appellant submits that his wife, Mrs Mahendra Gupta, though a homemaker has some earnings which is utilised for household expenses—refer acknowledgement evidencing filing of return of income for income-tax assessment years 2012-13 to 2014-15 of Mrs Mahendra Gupta page nos 2 to 9.
In view of the above, the CIT(A) and the Assessing Officer has fallen in error in considering Rs 3,38,000, being the opening cash balance as unexplained cash credit under section 68 of the Act and hence, the same needs to be deleted.
6.2 Cash gift from son Rs 75,000
(a) The CIT(A) confirmed the action of the Assessing Officer in making addition of Rs 75,000 as unexplained cash credit in respect of the gift received by the appellant from his son, Mr Vivek Gupta, a non-resident Indian.
(b) The appellant submits that —
(i) During the year, the appellant has received a gift of Rs 75,000 from his son on 28th December, 2014 when he was on visit to India. He is 45 years of age and is presently staying in United States of America working as a software engineer and drawing a net salary of Rs 8 to 10 lacs per month.
In view of the above, the CIT(A) and the Assessing Officer ought not to have considered Rs 75,000, as unexplained cash credit and thus, impugned addition needs to be deleted.
In view of the above, the appellant contends the impugned addition of Rs 4,03,000 sustained by the CIT(A) ought to be deleted.”
7. On the other hand, the ld DR has relied on the orders of the authorities below.
8. After having considered the rival submissions as well as relevant material on record we noticed that the assessee is a Doctor by profession, who retired from Rajasthan Government and files his return of income regularly. It was a case of the assessee that there is no other person who stays with the assessee and his wife, Mrs. Mahendra Gupta. The assessee has challenged the additions U/s 68 of the Act on the ground that section 68 of the Act is a deeming Section fastening liability on the subject and should be strictly construed. It was submitted that pre-requisites for invoking the provisions of Section 68 are that:
(i) any sum is found credited in the books of account of assessee
(ii) the assessee offers no explanation about the nature and source thereof
(iii) the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory.
Therefore, according to the ld AR, the pre-requisite for invoking the provisions of section 68 is the credit entries in the books of account of the assessee. It was further submitted that the assessee U/s 44AA of the Act is not required to maintain books of account, therefore, the A.O. could not have made addition U/s 68 of the Act. In this regard, the ld AR also relied on the decision of the Hon’ble Bombay High court in the case of Bhai Chand N Gandhi 141 ITR 67 and also relied upon the decision of the Coordinate bench of Mumbai Tribunal in the case of Srikant G Sawant ITA No. 7712/M/2012 order dated 25/04/2018.
9. After having gone through the facts and circumstances, we observe that credit in the ‘bank account’ of an assessee cannot be construed as a credit in the ‘books’ of the assessee, for the very reason that the bank account cannot be held to be the ‘books’ of the assessee. Though, it remains as a matter of fact that the ‘bank account’ of an assessee is the account of the assessee with the bank, or in other words the account of the assessee in the books of the bank, but the same in no way can be held to be the ‘books’ of the assessee. We have given a thoughtful consideration to the scope and gamut of the aforesaid statutory provision of Section 68, and are of the considered view that an addition made in respect of a cash deposit in the bank account of an assessee, in the absence of the same found credited in the ‘books’ of the assessee maintained for the previous year, cannot be brought to tax by invoking the provisions of Section 68 of the Act. In this respect, we draw strength from the decision of the Hon’ble Bombay High Court in the case of CIT Vs Bhaichand N Gandhi (1983) 141 ITR 67 (Bombay) wherein the High Court has held as under:-
“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.”
We find that the aforesaid view of the Hon’ble Bombay High Court had thereafter been followed by a ‘SMC’ bench of the ITAT, Mumbai in the case of Smt. Manshi Mahendra Pitkar Vs. ITO 1(2), Thane (2016) 73 taxmann.com 68 (Mumbai Trib.) wherein it was held as under: –
“I have carefully considered the rival submissions. In the present case the addition has been made by the income tax authorities by treating the cash deposits in the bank account as an unexplained cash credit within the meaning of section 68 of the Act. The legal point raised by the assessee is to the effect that the bank Pass book is not an account book maintained by the assessee so as to fall within the ambit of section 68 of the Act. Under section 68 of the Act, it is only when an amount is found credited in the account books of the assessee for any previous year that the deeming provisions of section 68 of the Act would apply in the circumstances mentioned therein. Notably, section 68 of the Act would come into play only in a situation Where any sum is found credited in the books of an assessee the case of Shri Bhaichand Gandhi (supra) has approved the proposition that a bank Pass Book maintained by the bank cannot be regarded as a book of the assessee for the purposes of section 68 of the Act. Factually speaking, in the present case, assessee is not maintaining any books of account and section 68 of the Act has been invoked by the Assessing Officer only on the basis of the bank Pass Book. The invoking of section 68 of the Act has to fail because as per the judgment of the Hon’ble Bombay High Court in the case of Shri Bhaichand N. Gandhi (supra), the bank Pass Book or bank statement cannot be construed to be a book maintained by the assessee for any previous year as understood for the purposes of section 68 of the Act. Therefore, on this account itself the impugned addition deserves to be deleted. I hold so.”
We further find that a similar view had also been arrived at in a ‘third member’ decision of the Tribunal in the case of Smt. Madhu Raitani Vs. ACIT (2011) 10 taxmann.com 206 (Gauhati) (TM), as well as by the coordinate Benches of the Tribunal in the case of Mehul V. Vyas Vs. ITO (2017) 164 ITD 296 (Mum) and ITO, Barabanki Vs. Kamal Kumar Mishra (2013) 33 taxamann.com 610 (Lucknow).
10. We find that a s stands gathered from the records, the addition aggregating to Rs. 4.03 lacs sustained by the ld. CIT(A) is in respect of the cash deposits in the bank accounts of the assessee, and not in any ‘books’ of the assessee for the year under consideration. We thus are of the considered view that in the backdrop of the aforesaid settled position of law, the addition made by the A.O in respect of the cash deposits of Rs.7,13,000/- in the bank accounts of the assessee by invoking Section 68 has to fail, for the very reason that as per the judgment of the Hon’ble Bombay High Court in the case of CIT Vs. Bhaichand N. Gandhi (1983) 141 ITR 67 (Bombay), a bank pass book or bank statement cannot be considered to be a ‘book’ maintained by the assessee for any previous year for the purpose of Section 68 of the Act. Therefore, on this count itself the impugned addition made and sustained deserves to be deleted and we direct to delete the same. Since we have quashed the addition on the ground that no such addition could have been validly made U/s 68 of the Act, therefore, we refrain ourselves to decide the other grounds wherein the assessee has assailed on merits the additions sustained by the ld. CIT(A)
11. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 28th January, 2021.
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