Eye Focus Entertainment Vs ITO (ITAT Mumbai)
Summary: The ITAT Mumbai allowed Eye Focus Entertainment’s appeal for AY 2022-23 and directed deletion of an addition of ₹1,14,25,29,008. The assessee had declared gross receipts of ₹1,04,27,333 and offered business income under the presumptive provisions of Section 44AD, without maintaining regular books of account. The Assessing Officer treated credits in its bank account as unexplained cash credits under Section 68. The assessee also pointed out that corresponding bank debits of ₹113,53,69,269 had not been considered. The CIT(A) held that Section 68 was inapplicable but sustained the same addition under Section 69A. The Tribunal first condoned the one-day delay in filing the appeal and then adjudicated the two legal grounds specifically pressed by the assessee.
On Section 68, the Tribunal held that a credit in books maintained by the assessee is a condition precedent. The absence of regular books was undisputed and recorded in the assessment order. Following CIT v. Bhaichand N. Gandhi, [1983] 141 ITR 67 (Bom.), it held that a bank passbook is a copy of the customer’s account in the bank’s books and cannot be treated as books maintained by the assessee. Consequently, the bank entries did not satisfy the essential requirement for invoking Section 68. The Tribunal also noted that the Revenue had not challenged the CIT(A)’s finding that the original Section 68 addition was unsustainable.
On the substitution of Section 69A, the Tribunal explained that Sections 68 and 69A operate on different statutory conditions. The CIT(A)’s action therefore went beyond correcting the nomenclature of the provision. Although the first appellate authority has wide powers, those powers remain subject to statutory limitations, including the reasonable opportunity required by Section 251(2). Having accepted the objection to Section 68, the CIT(A) should have issued the requisite enhancement notice and allowed the assessee to address the factual and legal requirements of Section 69A. As neither safeguard was followed, the Tribunal allowed both legal grounds, deleted the entire addition and allowed the appeal.
Cases Discussed
- The Abhinandan Cooperative Group Housing Society Ltd. v. ITO, ITA No. 1850/Del/2023 (ITAT Delhi), order dated 18.12.2024; AY 2011-12. — The Tribunal referred to this decision as taking the same view on the appellate authority’s substitution of the statutory basis of an addition.
- Prashant Pitti v. ACIT, ITA No. 3032/Del/2022 (ITAT Delhi), order dated 07.02.2024; AY 2016-17. — Relied upon for the conclusion that replacing Section 68 with Section 69A on a different basis required a specific enhancement notice. The relevant passage was reproduced.
- Shri Arif v. ACIT, ITA No. 976/Bang/2022 (ITAT Bangalore), order dated 16.01.2023. — The assessee submitted that this decision, discussed during arguments, was distinguishable on facts and in law.
- Toffee Agricultural Farms (P.) Ltd. v. ITO, [2022] 141 taxmann.com 429 (ITAT Delhi). — Relied upon concerning the CIT(A)’s treatment of an addition made under Section 69C as one under Section 69B. The relevant reasoning was reproduced.
- Mehul V. Vyas v. ITO, [2017] 80 taxmann.com 311 (ITAT Mumbai). — Cited by the assessee and referred to by the Tribunal as following the rule that bank-passbook entries do not satisfy the requirement of a credit in the assessee’s books under Section 68.
- Manasi Mahendra Pitkar v. ITO, [2016] 73 taxmann.com 68 (ITAT Mumbai). — Cited by the assessee and referred to by the Tribunal in support of the distinction between a bank passbook and books maintained by the assessee.
- Roshan Motors v. ITO, [2015] 64 taxmann.com 381 (ITAT Delhi). — Appears in the reproduced passage from Prashant Pitti as supporting the requirement of notice when enhancement introduces a different source or basis of income.
- Brahmiah (Y) v. ITO, [2015] 229 Taxman 558 (Andhra Pradesh High Court). — Appears in the reproduced passage from Prashant Pitti in support of the view concerning enhancement without a specific notice.
- CIT v. Aar Pee Apartments (P.) Ltd. (Delhi High Court). — Appears in the reproduced passage from Toffee Agricultural Farms concerning the distinction between statutory provisions and the principle of casus omissus in interpreting Section 142A.
- Collector, Land Acquisition, Anantnag & Anr. v. Mst. Katiji & Ors., AIR 1987 SC 1353 (Supreme Court). — Relied upon for preferring substantial justice over technical objections arising from non-deliberate delay and for liberally construing sufficient cause.
- CIT v. Bhaichand N. Gandhi, [1983] 141 ITR 67 (Bombay High Court). — Followed as the jurisdictional authority holding that a bank passbook is not books maintained by the assessee for Section 68.
- CIT v. Vegetable Products Ltd., [1973] 88 ITR 192 (Supreme Court). — The assessee cited this decision for adopting an interpretation favourable to the assessee where judicial views conflict.
- CIT v. Rai Bahadur Hardutroy Motilal Chamaria, [1967] 66 ITR 443 (Supreme Court). — Considered concerning the scope and limitations of appellate enhancement powers and introduction of a new source of income.
- CIT v. Shapoorji Pallonji Mistry, [1962] 44 ITR 891 (Supreme Court). — Considered concerning statutory limits on the first appellate authority’s enhancement powers.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal is filed by the Assessee against the order of Ld. NFAC, Delhi, dated 08-Sep-2025 for the Assessment Year 2022-23. The Assessee has raised the following grounds of appeal:
1. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) (through National Faceless Appeal Center] has erred in upholding the action of Ld. Assessing Officer who had erred making the addition under the deeming provisions despite the undisputed fact that the appellant had opted for presumptive taxation u/s 44AD and was not required to maintain books of accounts. Hence, Section 68 cannot be invoked in absence of “books of account”, which is a mandatory pre-condition for applicability.
2. Ld. CIT(A) erred in law by changing the section of addition from Section 68 to Section 69A suo motu, without issuing a separate notice, without confronting the assessee, and without granting an opportunity to rebut the proposed change. This action is beyond jurisdiction, contrary to appellate powers and violative of section 250(6).
3. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) [through National Faceless Appeal Center) has erred in upholding the action of Ld. Assessing Officer who had erred making the addition purely on suspicion, surmise, and conjecture, without any evidence to show that the remittances represented income of the assessee.
4. In the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) [through National Faceless Appeal Center] has erred in upholding the action of Ld. Assessing Officer who had erred in law and on facts in taxing entire credits in bank account and ignoring the settled principle that only real income can be brought to tax under the Income-tax Act, 1961. The impugned addition is liable to be deleted as it does not represent real income that has actually accrued or arisen to the appellant.
5. All the above grounds are without prejudice to each other. The Appellant craves leave to add, alter, delete or modify all or any of the above grounds of appeal.
2. At the outset, it is noticed from the records that there is a delay of one day in filing the appeal before us. In this regard, the Ld. AR has put forth an explanation for the delay in filing the appeal.
3. We have heard the learned representatives of both the parties and perused the material placed on record, including the explanation furnished for the delay. Considering the entire factual position as explained before us and keeping in view the principles laid down by the Hon’ble Supreme Court in the case of Collector, Land Acquisition, Anantnag & Anr. v. Mst. Katiji & Ors., 1987 AIR 1353 (SC), wherein it has been held that when substantial justice is pitted against technicalities arising from a non-deliberate delay, substantial justice is to be preferred, we are of the view that the principle of advancing substantial justice is of paramount importance.
4. Accordingly, considering the explanation furnished by the assessee, which, in our view, satisfactorily and properly explains the delay in filing the appeal, and keeping in view that the expression “sufficient cause” is required to be construed liberally, we are inclined to condone the delay in filing the appeal before us.
5. Consequently, the delay is condoned and the appeal is admitted for adjudication on merits.
6. The assessee has raised several grounds of appeal. However, at the time of hearing, the Ld. AR specifically pressed the legal grounds raised in Ground Nos. 1 and 2. Since these grounds are legal in question and goes to the roots of the case, therefore we have decided to adjudicate the same firstly.
7. As per the facts of the case, the assessee filed its return of income for the year under consideration declaring gross receipts of Rs.1,04,27,333/- and offered its business income to tax under the presumptive provisions of section 44AD of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). It is an undisputed position that the assessee did not maintain regular books of account. The assessment order itself records this factual position.
8. During the course of assessment proceedings, the Ld. Assessing Officer (AO) made an addition of Rs.1,14,25,29,008/- under section 68 of the Act by treating the credits reflected in the assessee’s bank account as unexplained cash credits. The assessee has also pointed out that corresponding debits aggregating to Rs.113,53,69,269/- appearing in the same bank account were not considered while making the aforesaid addition.
9. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) held that the addition made under section 68 of the Act was not sustainable. However, while doing so, the Ld. CIT(A) proceeded to sustain the addition by invoking section 69A of the Act in place of section 68.
10. It is the contention of the assessee that the Ld. CIT(A) substituted section 69A for section 68 without issuing a specific notice of enhancement under section 251(2) of the Act and without affording the assessee an opportunity of being heard on the proposed change. It is also an undisputed position before us that the Revenue has not challenged the finding of the Ld. CIT(A) that the addition as made by the AO under section 68 was not sustainable.
11. Hence, the assessee is in appeal before us and has pressed the aforesaid two legal grounds.
12. The Ld. AR submitted that section 68 of the Act can be invoked only where a sum is found credited in the “books of an assessee maintained for any previous year”. In the present case, the assessee had declared its business income under the presumptive provisions of section 44AD and had not maintained regular books of account. According to the Ld. AR, the assessee was not required to maintain books of account in the facts of the present case and, therefore, the basic condition for invoking section 68 was not satisfied.
13. The Ld. AR further submitted that the impugned addition under section 68 was admittedly based upon the entries appearing in the assessee’s bank account. Reliance was placed upon the judgment of the Hon’ble jurisdictional Bombay High Court in CIT v. Bhaichand N. Gandhi [1983] 141 ITR 67 (Bom.), wherein it was held that a bank passbook supplied by the bank to its customer cannot be regarded as the books of account of the assessee for the purposes of section 68. Reliance was also placed upon Manasi Mahendra Pitkar v. ITO [2016] 73 taxmann.com 68 (Mumbai – Trib.) and Mehul V. Vyas v. ITO [2017] 80 taxmann.com 311 (Mumbai – Trib.).
14. On Ground No. 2, the Ld. AR submitted that sections 68 and 69A operate in different fields and contain materially different statutory requirements. Section 68 is attracted where a credit is found in the books of the assessee, whereas section 69A deals with money, bullion, jewellery or other valuable article of which the assessee is found to be the owner and which is not recorded in the books of account, if any, maintained by him.
15. It was submitted that the Ld. CIT(A), having held that section 68 was not applicable, could not have simply substituted section 69A and sustained the same addition without following the statutory requirement contained in section 251(2) of the Act. The Ld. AR relied upon the decisions of the Delhi Bench of the Tribunal in Prashant Pitti v. ACIT, ITA No.3032/Del/2022, Toffee Agricultural Farms (P.) Ltd. v. ITO [2022] 141 taxmann.com 429 (Delhi – Trib.) and The Abhinandan Cooperative Group Housing Society Ltd. v. ITO, ITA No.1850/Del/2023.
16. The Ld. AR also submitted that the decisions discussed during the course of the arguments, including Shri Arif v. ACIT, ITA No.976/Bang/2022, are distinguishable on facts and in law. It was further submitted that, in case of any conflict between judicial views, the interpretation favourable to the assessee should be adopted in accordance with the principle laid down by the Hon’ble Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 (SC).
17. The Ld. DR, on the other hand, supported the orders passed by the Revenue Authorities.
18. We have heard the counsels for both the parties, perused the material placed on record, the judgments cited before us, and the order passed by the Revenue Authorities. From the records, we noticed that the first issue requiring our consideration is as to whether, in the facts of the present case, the addition of Rs.1,14,25,29,008/- could validly be made under section 68 of the Act.
19. In our view, Section 68 of the Act provides that 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 satisfactory in the opinion of the Assessing Officer, such sum may be charged to income-tax as the income of the assessee of that previous year.
20. Thus, the existence of a credit in the “books of an assessee maintained for any previous year” is a condition precedent for invoking section 68 of the Act. In the present case, it is not in dispute that the assessee had opted for the presumptive taxation scheme under section 44AD of the Act and had not maintained regular books of account. The assessment order itself records the absence of books of account.
21. We also find force in the submission of the Ld. AR that the entries relied upon by the AO were the entries appearing in the assessee’s bank account. The Hon’ble jurisdictional Bombay High Court in CIT v. Bhaichand N. Gandhi (supra) has held that a bank passbook supplied by the bank to its customer is merely a copy of the customer’s account in the books maintained by the bank and cannot be regarded as a book maintained by the assessee or under his instructions. Accordingly, a credit appearing only in the bank passbook does not attract section 68.
22. The aforesaid legal position has also been followed by various Benches of the Tribunal, including the Mumbai Bench in Manasi Mahendra Pitkar v. ITO (supra) and Mehul V. Vyas v. ITO (supra).
23. In the present case, admittedly, there were no books of account maintained by the assessee in which the impugned credits could be said to have been recorded. The addition was made on the basis of entries appearing in the bank account. Therefore, the essential jurisdictional requirement for invoking section 68, namely, a credit found in the books of the assessee, is not satisfied.
24. We may also note that the Ld. CIT(A) himself has held that the addition made under section 68 was not sustainable. The Revenue has not challenged the said finding before us.
25. In view of the above discussion and respectfully following the judgment of the Hon’ble jurisdictional High Court in CIT v. Bhaichand N. Gandhi (supra), we hold that the addition made by the AO under section 68 of the Act cannot be sustained. Ground No. 1 is accordingly allowed.
26. The next issue is whether, after holding that the addition under section 68 was not sustainable, the Ld. CIT(A) could, without issuing a notice of enhancement and without affording an opportunity of hearing to the assessee, sustain the same addition by invoking section 69A of the Act.
27. At the outset, we note that sections 68 and 69A are separate deeming provisions operating in different factual situations. Section 68 concerns a sum found credited in the books of the assessee, whereas section 69A concerns money, bullion, jewellery or other valuable article of which the assessee is found to be the owner and which is not recorded in the books of account, if any, maintained by him.
28. The powers of the first appellate authority in an appeal against an assessment are contained in section 251(1)(a) of the Act, under which the Ld. CIT(A) may confirm, reduce, enhance or annul the assessment. At the same time, section 251(2) of the Act provides that the Ld. CIT(A) shall not enhance an assessment unless the appellant has had a reasonable opportunity of showing cause against such enhancement.
29. In the present case, the Ld. CIT(A) did not merely correct the nomenclature of the provision while deciding the same issue. The Ld. CIT(A), having held that section 68 was not applicable, proceeded to sustain the addition by invoking a different deeming provision, namely section 69A of the Act, which operates on different statutory conditions.
30. The Coordinate Delhi Bench of the Tribunal had occasion to consider a substantially similar issue in Prashant Pitti v. ACIT, ITA No.3032/Del/2022. In that case also, the AO had made an addition under section 68 and the CIT(A) sought to sustain the addition under section 69A. The Tribunal held that changing the provision from section 68 to section 69A, in the facts of that case, amounted to enhancement by introducing a different basis of addition without issuing a specific notice of enhancement. The operative portion of the order of the Coordinate Bench is reproduced herein below:
“15.1 We are inclined to agree with the contention of the assessee that the said change tantamount to enhancement of income by introducing new source of income without giving a specific notice to the assessee to that effect. The decision of Hon’ble Andhra Pradesh is in support of this view expressed in Brahmiah(y) vs. ITO (2015) 229 Taxman 558 (AP). The Delhi Bench of the Tribunal has taken a similar view in Roshan Motors vs. ITO (2015) 64 taxmann.com 381 (Del-Trib).
16. In Toffee Agricultural Farms (P) Ltd. (supra), Ld. CIT(A) treated addition made by the Ld. AO u/s 69C as had been made u/s 69B and dismissed the appeal of the assessee. When the matter came for consideration before the Delhi Bench of the Tribunal, it was held that in the absence of any power provided u/s 250 and 251 of the Act the Ld. CIT(A) could not have treated addition made by the Ld. AO u/s 69C as addition made under section 69B and that action of Ld. CIT(A) in treating addition made under section 69C as had been made under section 69B was contrary to law.”
31. Similar legal principles have been considered by the Delhi Bench in Toffee Agricultural Farms (P.) Ltd. v. ITO [2022] 141 taxmann.com 429 (Delhi – Trib.) The operative portion of the order of the Coordinate Bench is reproduced herein below:
“6…………..As per section 250 of the Act, the learned CIT(Appeals) is empowered to make further inquiry as he thinks fit or may direct the Assessing Officer to make further inquiry and report to the learned CIT(Appeals). As per section 251(1)(a), in appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment, but there is no such power provided by the law that learned CIT(Appeals) could change the provision of law qua the item of which assessment was made. Therefore, in the absence of such power, learned CIT(Appeals) could not have treated the addition made u/s 69C as the addition made u/s 69B and the same is contrary to the spirit of the Act. Reliance placed by the learned counsel for the assessee on the judgment of the Hon’ble Delhi high Court, rendered in the case of Aar Pee Apartments (P.) Ltd. (supra), has held that from the reading of sub-section (1) of section 142A, it is clear that legislature referred to the provisions of sections 69, 69A and 69B but specifically excluded 69C. The principle of casus omissus becomes applicable in a situation like this. What is not included by legislature and rather specifically excluded, cannot be interpreted by the Court through the process of interpretation. The only remedy is to amend the provision. It is not the function of the Court to legislate or to plug the loopholes in the law.”
31.1. And the Coordinate Bench of ITAT, Delhi has also taken the same view in The Abhinandan Cooperative Group Housing Society Ltd. v. ITO, ITA No.1850/Del/2023.
32. It is true that the powers of the Ld. CIT(A) are wide and co-terminus with those of the AO in several respects. At the same time, such appellate powers are subject to the statutory limitations contained in the Act. The Hon’ble Supreme Court in CIT v. Shapoorji Pallonji Mistry [1962] 44 ITR 891 (SC) and CIT v. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443 (SC) has considered the scope of appellate powers in the context of enhancement and introduction of a new source of income. The said principles have also been considered in subsequent judicial decisions.
33. In the facts of the present case, the Ld. CIT(A) first held that the addition under section 68 of the Act was unsustainable. Thereafter, without issuing a notice under section 251(2) of the Act proposing enhancement and without affording the assessee a reasonable opportunity to explain why the amount should not be treated as unexplained money under section 69A, the Ld. CIT(A) sustained the very same amount under section 69A.
34. Even otherwise, the distinction is material because the assessee had specifically challenged the applicability of section 68 on the ground that no books of account were maintained. Once that objection was accepted by the Ld. CIT(A), the assessee was entitled to an opportunity to address the applicability of section 69A of the Act and the factual and legal requirements of the said provision.
35. We after considering the totality of the facts and circumstances and also considering the legal preposition as discussed herein above, are therefore, of the considered view that, in the facts and circumstances of the present case, the Ld. CIT(A) was not justified in sustaining the addition under section 69A of the Act without following the statutory requirement contained in section 251(2) of the Act.
36. Accordingly, the action of the Ld. CIT(A) in sustaining the impugned addition under section 69A, without issuing the requisite notice of enhancement and without affording the assessee an opportunity of being heard on the proposed enhancement, cannot be sustained. Ground No. 2 is accordingly allowed.
37. In view of our findings hereinabove, the addition of Rs.1,14,25,29,008/- made by the AO under section 68 and sustained by the Ld. CIT(A) under section 69A are directed to be deleted.
38. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 30.09.2026.
