Case Law Details
Mahesh Subhash Shukla Vs ITO (ITAT Mumbai)
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Mumbai Bench has allowed an appeal filed by Mahesh Subhash Shukla, setting aside an addition of Rs. 30,83,300/- made under Section 68 of the Income Tax Act, 1961, and a further enhancement of Rs. 8 lakhs. The ITAT’s decision hinged on the principle that Section 68, which deals with cash credits, is not applicable when the assessee has not maintained any books of account.
The case for Assessment Year 2016-17 involved Mahesh Subhash Shukla, who had filed a return of income declaring Rs. 15,850/-. During scrutiny proceedings, the Assessing Officer (AO) discovered, through Annual Information Return (AIR) data, that Shukla had deposited Rs. 30,83,300/- in cash into his ICICI Bank account. When asked to explain the source of these deposits, the assessee reportedly failed to provide a plausible reply, leading the AO to add the entire amount to his income under Section 68 of the Act.
Shukla contested this addition before the Commissioner of Income Tax (Appeals) [CIT(A)], arguing that Section 68 provisions were inapplicable as he had not maintained any books of account. The CIT(A), however, dismissed this contention,不仅 upheld the AO’s addition but also issued a show cause notice for an enhancement of Rs. 8 lakhs, ultimately confirming both the initial addition and the enhancement.
Before the ITAT, the assessee’s counsel reiterated the core argument: the inapplicability of Section 68 in the absence of maintained books of account. The counsel presented several judicial precedents to support this claim, while the Departmental Representative (DR) defended the lower authorities’ findings.
The ITAT, after careful consideration, emphasized the specific wording of Section 68, which begins with: “where any sum is found credited in the books of an assessee maintained for any previous year.” The bench highlighted the statutory emphasis on the presence of “books of an assessee.” This crucial phrasing, according to the ITAT, means that if an assessee has not maintained any books of account, the provisions of Section 68 simply do not apply.
To reinforce its position, the ITAT referred to a pivotal judgment by the jurisdictional High Court of Bombay in the case of Bhaichand N. Gandhi (141 ITR 67). In that case, the High Court addressed whether a cash credit in a bank passbook, not reflected in the assessee’s cash book, would fall under Section 68. The Bombay High Court definitively held that a bank passbook is merely a copy of the constituent’s account in the bank’s books; it is not maintained by the bank as an agent of the constituent, nor under the constituent’s instructions. Therefore, the High Court concluded that a bank passbook “could not be regarded as a book of the assessee, that is, a book maintained by the assessee or under his instructions.” This established a key judicial precedent that the absence of formal books of account maintained by the assessee precludes the application of Section 68 based solely on bank deposits.
The ITAT further noted that similar views have been adopted by various coordinate benches, citing cases such as Mehul V. Vyas Vs. ITO (164 ITD 296 (Mumbai)), Smt Manshi Mahendra Pitkar Vs. ITO (160 ITD 605 (Mumbai)), Asha Soni Vs. DCIT in ITA No. 99/RPR/22, and Dr. Vishan Swaroop Gupta Vs. ITO in ITA No. 13/JP/2020 (Jaipur Bench decision). These consistent rulings from different benches underscore the established legal interpretation regarding Section 68.
Moreover, the ITAT referred to the Standard Operating Procedure (SOP) issued by the Central Board of Direct Taxes (CBDT) on January 10, 2018, specifically for applying Section 68. Point 1.1 of the background note to this SOP outlines the conditions for Section 68(1) applicability, explicitly stating that the assessee must have “maintained ‘books’” and that there must be “credit of amounts in the books maintained by the taxpayer.” The SOP further defines “books of account” to include ledgers, day-books, cash books, account books, and other forms, whether physical or electronic. This official guideline from the CBDT itself, according to the ITAT, supports the view that maintaining books of account is a prerequisite for invoking Section 68.
Given that the cash deposits were found in the bank account and the assessee had not maintained any books of account, the ITAT concluded that the provisions of Section 68 were indeed not applicable. Consequently, the AO’s initial addition of Rs. 30,83,300/- was deemed erroneous and directed to be deleted. The enhancement of Rs. 8 lakhs made by the CIT(A), also under Section 68, was similarly deemed unsustainable and ordered to be deleted.
The Tribunal thus allowed the assessee’s appeal, reinforcing the legal stance that Section 68 cannot be invoked to make additions based on bank deposits alone if the assessee does not maintain formal books of account. This ruling is expected to provide clarity for taxpayers who do not fall under mandatory book-keeping requirements.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the assessee is preferred against the order of ld. CIT(A)-58, Mumbai dated 24.06.2024 pertaining to Assessment Year 2016-17.
2. The sum and substance of the grievance of the assessee is that the ld. CIT(A) erred in confirming the addition of Rs. 30,83,300/- made by the AO u/s 68 of the Act and further erred in enhancing the sum of Rs. 8 lakhs without appreciating that the assessee had not maintained any books of account therefore, provisions of Section 68 of the Act are not applicable.
3. Briefly stated the facts of the case are that the assessee filed a return of income on 16.01.2017 declaring total income of Rs. 15,850/-. The return was processed u/s 143(1) of the Act and later on selected for limited scrutiny under CASS.
4. During the scrutiny assessment proceedings and on perusal of the AIR information the AO came to know that the assessee had deposited Rs. 30,83,300/- in cash in his ICICI Bank Account. The assessee was asked to explain the source and on receiving no plausible reply the AO made addition of Rs. 30,83,300/-.
5. The assessee carried the matter before the ld. CIT(A) and strongly contended that the provisions of Section 68 are not applicable because the assessee has not maintained any books of account. The contention of the assessee did not find any favour with the ld. CIT(A) who not only confirmed the addition but also issued a show cause notice for enhancement of addition of Rs. 8 lakhs and completed the appellate proceedings by confirming the addition of Rs. 30,83,300/- and enhancing by the sum of Rs. 8 lakhs.
6. Before us the Counsel reiterated that the provision of Section 68 of the Act does not apply because the assessee has not maintained any books of account. In support of his contentions strong reliance was placed on several judicial decisions placed in the case law paper book. Per contra the ld. DR strongly supported the findings of the AO.
7. We have given a thoughtful consideration to the orders of the Authorities below. The provisions of Section 68 starts with “where any sum is found credited in the books of an assessee maintained for any previous year”. The emphasis is on the sum found credited in the books therefore, if the assessee has not maintained any books of account, then the provisions of Section 68 are not applicable. The Hon’ble Jurisdictional High Court of Bombay in the case of Bhaichand N. Gandhi 141 ITR 67 was seized with the following substantial question of law:-
“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that a cash credit for the previous year shown in the assessee’s bank pass book 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 Income-tax Act, 1961, and as such the sum so credited is not chargeable to income-tax as the income of the assessee of that previous year?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the deposit of Rs. 10,000 made by the assessee on January 20, 1961, in the bank was not includible under section 68 of the Income-tax Act, 1961, in computing the income of the assessee for the assessment year 1962-637″
8. The Hon’ble 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.”
9. Similar view was taken by the coordinate bench in the case of Mehul V. Vyas Vs. ITO 164 ITD 296 (Mumbai), Smt Manshi Mahendra Pitkar Vs. ITO 160 ITD 605 (Mumbai), Asha Soni Vs. DCIT in ITA No. 99/RPR/22 and Jaipur Bench decision in the case of Dr. Vishan Swaroop Gupta Vs. ITO in ITA No. 13/JP/2020.
10. It would be pertinent to refer to SOP issued by CBDT vide order dated 10.01.2018 for applying the provision of Section 68 of the Act and in the background note appended to the said SOP at point 1.1 from the reading of Section 68 following conditions can be stated to be met for the applicability of Section 68(1) of the Act (i) assessee has maintained ‘books’; (ii) there has to be credit of amounts in the books maintained by the taxpayer of a sum during the year and for the meaning of the term books – the term ‘books of account’ was inserted by the Finance Act, 2001 w.e.f. 01.05.2001- book/ books of account includes ledgers, day-books, cash books, account books and other books whether kept in the written form or as print-outs of data stored in a floppy disc, tape or any other form of electro-magnetic data storage device.
11. Considering the fact that the cash was found to be deposited in the bank and since the assessee has not maintained any books of account therefore, in our considered opinion and in the light of the judicial decisions discussed hereinabove provisions of Section 68 are not applicable and therefore no addition could have been made by the AO u/s 68 of the Act which deserves to be deleted and the enhancement made by the ld. CIT(A) again u/s 68 of the Act also deserves to be deleted.
12. We accordingly, direct the AO to delete the impugned additions.
13. Appeal of the assessee is allowed.
Order pronounced in the Court on 05th September, 2024 at Mumbai.
Author Bio
