Addition under section 68 towards Cash gift is not sustainable if Assessee is not required to maintain any books of accounts

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Addition under section 68 towards Cash gift is not sustainable if Assessee is not required to maintain any books of accounts

Short Overview : Provisions of section 68 could not be invoked on various deposits/credits found recorded in bank account of assessee in the absence of books of assessee maintained for the previous year.

AO made addition on account of cash gifts to an extent of Rs. 8,00,000 as unexplained cash credit under section 68.Assessee’s case was that she was not required to maintain any books.

it is held that: Section 68 operates only where books are maintained by an assessee and a sum is found credited therein. Assessee, in the instant case, was not required to maintain any books  as required under section 44AA(2)(iv) and AO had accepted profit @ eight per cent, as offered by the assessee under section 44AD, in such circmstances, addition made under section 68 was illegal and unsustainable. Also, all the details regarding cash gifts in question were made available to AO who examined the donors under oath and summarized their statements and as such, addition was not sustainable on merits also.

Decision: In assessee’s favour.

Relied: Yadwinder Singh  (2016) 48 ITR (Trib) 328 (Asr) : 2016 TaxPub(DT) 2864 (Asr-Trib) and Kamal Kumar Mishra  (2013) 33 Taxmann.com 610 (Luck-Trib).

IN THE ITAT, APPELLATE TRIBUNAL, PATNA BENCH

  1. BALAGANESH, A.M. & S.S. VISWANETHRA RAVI, J.M.

Indrani Devi v. ITO

ITA No. 103/Patna/2016

A.Y. 2009-10

24 August, 2018

Assessee by: Samir Kumar, Advocate, Authorised Representative

Depart­ment by: Abhay Kumar, Senior Departmental Representative

ORDER

S.S. Viswanethra Ravi, J.M.

This appeal by the assessee is against the Order, dt. 2-6-2016 passed by the Commissioner (Appeals), Bhagalpur for the assessment year 2009-10.

  1. The assessee has raised the following grounds of appeal :–

“1. For that on the facts and circumstances of the case the learned Commissioner (Appeals), Bhagalpur, has failed to appreciate that the gift given by the parents-in-law is lawful and proper in the eye of law.

  1. For that on the facts and circumstances of the case the learned Commissioner (Appeals), Bhagalpur, has failed to appreciate that gift made to appellant in natural love and affection.
  2. For that on the facts and circumstances of the case the learned Commissioner (Appeals), Bhagalpur, has failed to appreciate that appellant is only daughter-in-law of her parents-in-law, therefore all love and affection is concentrate on appellant.
  3. For that on the facts and circumstances of the case the learned Commissioner (Appeals), Bhagalpur, has failed to appreciate that gift given by the parents-in-law to the appellant through gift deed.
  4. For that any other grounds shall be urged at the time of hearing, if necessary.”
  5. Amongst above grounds of appeal, the only effective ground is to be decided as to whether the Commissioner (Appeals) justified in confirming the addition made by the assessing officer on account of cash gifts to an extent of Rs. 8,68,000 made as unexplained cash credit under section 68 of the Act.
  6. Brief facts of the case are that the assessee is an individual and engaged in civil contract work under proprietary concern. The assessee derives her income from civil contract work specifically from the Public Health Depart­ment, Government of Bihar, Munger. The assessee filed her return of income declaring of Rs. 2,70,590 on 29-6-2009. Notices under sections 142(1) and 143(2) of the Act were issued. In response to which the Authorised Representative representing the assessee appeared time to time and replied to the questionnaire. The assessing officer assessed the total income at Rs.11,38,590 vide hisOrder, dt. 29-11-2011 passed under section 143(3) of the Act making an addition of Rs. 8,68,000 on account of cash credit under section 68 of the Act.
  7. The assessee challenged the impugned addition made under section 68 of the Act before the Commissioner (Appeals) and reiterated her same submissions as made before the assessing officer and filed no other documentary evidence/explanation other than evidences/explanation filed before the assessing officer. The Commissioner (Appeals) considering the submissions of the assessee held that the asses­see failed to controvert the findings of the assessing officer pertaining to gift and confirmed the addition made by the assessing officer. Relevant portion of the Commissioner (Appeals) order is reproduced herein below :–

“Appellate finding and decision :–

After considering the assessing officer’s finding and submission of the appellant, I find that following facts emerged :–

  1. The appellant received gift of Rs. 5 lakh each from father-in-law Sh. Tarini Prasad and mother-in-law Smt. Pratima Kumari. In the detail discussion and findings given in the assessment order, the assessing officer arrived at the conclusion that Sh. Tarini Prasad had no known source of funds to support his claim that the gift of Rs. 5 lakh was given to the appellant. With regard to the gift from Smt. Pratima Kumari, the assessing officer allowed the withdrawal of Rs. 1,32,000 from post office three months prior to the gift date but could not find any source of fund for the balance amount of Rs. 3,68,000 gifted to the appellant.
  2. In the assessment proceeding, the appellant’s claim of gift was fully disproved by way of statement of the donors as well as third party enquiry from Sahara India whereby it was conclusively proved by the assessing officer that there was no basis to support the claim of the donors that they had made any investment in Sahara India and after redemption of the same, the gifts were made to the appellant.
  3. In the appellate proceeding, the appellant has not put forth any extra submissions/explanation to controvert the finding of the assessing officer in the assessment proceeding.
  4. Even though the donors bank accounts indicate withdrawals from bank accounts of Sh Tarini Prasad in financial year 2004-05, it is highly unbelievable that not a single piece of documentary evidence was available with donor for investment in Sahara India. Similarly, there are withdrawals from bank account of Smt. Pratima Kumari in financial year 2001-02, but not a single piece of evidence pertaining to investment in Sahara India was available with her. These facts clearly indicate that the withdrawals by parents-in-laws in earlier financial years 2001-02 and 2004-05 are being taken as supporting evidence for the gifts in financial year 2008-09 without any evidence of fund investment or withdrawals in the intervening periods. Denial of any such investments by these two persons from Sahara India, further support the assessing officer conclusion.

In view of the above factual circumstances, I have no reason to differ with the finding of the assessing officer with regard to the gift of Rs. 8,68,000 and hence the same is hereby confirmed.”

  1. Before us the learned Authorised Representative of the assessee submits that parents-in-law (Shri Tarini Prasad father-in-law and Smt. Pratima Kumari (mother-in-law) has given each of Rs. 5 lakhs in cash to the asses­see. The assessee made deposits in the form of term deposits and NSC. The assessee maintained no books of account and offered profit at eight per cent, on gross receipts reflected in the TDS and payments (Rs. 37,74,706) under the provisions of section 44AD of the Act. The learned Authorised Representative argued when the gross profit is below the prescribed monetary limit as per section 44AD of the Act, and the assessee has not required to maintain any books of account under section 44AA of the Act. The assessing officer did not dispute the same and made no adverse remark on this aspect. In an explanation regarding the source of deposit in the form of NSC and term deposits, the learned Authorised Representative submits that the salary and retirement benefits of the assessee’s parents-in-law invested in Sahara India and parents-in-law received the amounts from Sahara India against their investments and gave cash gifts to assessee on withdrawals of such investments on maturity. All the details were filed before the assessing officer. To verify the said donors the assessing officer issued notice under section 131 of the Act and statements were recorded on oath. Further, the assessing officer for not filing evidence regarding withdrawals from Sahara India disbelieved the source of making gift by the father-in-law of the assessee. The assessing officer did not provide the account numbers Tarini Prasad and Pratima Devi in response to the reply under section 133 of the Act. However, the assessing officer accepted the gift to an extent of Rs. 1,32,000 given by Smt. Pratima Devi, mother-in-law of assessee and did not accept the gift given by Shri Tarni Prasad in entirety. The learned Authorised Representative argued that no addition under section 68 of the Act is maintainable as the assessee filed return under section 139(1) of the Act read with section 144AD(1) and offered a profit at eight per cent, on gross receipts and placed reliance in the case ofAnand Ram Raitani v. CIT reported in (1997) 223 ITR 544 (Gauhati) : 1997 TaxPub(DT) 0638 (Gau-HC), in the case of CIT v. Taj Borewells reported in (2007) 291 ITR 232 (Mad) : 2007 TaxPub(DT) 1133 (Mad-HC), in the case of Yadwinder Singh v. ITO reported in (2016) 48 ITR (Trib) 328 (Amritsar) : 2016 TaxPub(DT) 2864 (Asr-Trib) : 88 taxmann.com 433 (Amritsar-Trib) and in the case of ITO v. Kamal Kumar Mishra reported in (2013) 33 taxmann.com 610 (Lucknow-Trib) and argued that provisions of section 68 of the Act can only be invoked wherein sum is found credited in the books of account maintained by the assessee and submitted the assessing officer did not make any adverse inference for non-maintenance of books of account in view of the profit offered at eight per cent, of gross receipt and referred to para. 2 of assessment order.
  2. The learned Departmental Representative relied on the order of the both the authorities below.
  3. Heard both the parties and perused the material on record. The contention of the learned Authorised Representative that when the assessee is not required to maintain any books as required under section 44AA(2)(iv) of the Act and the assessing officer accepted the profit at eight per cent, as offered by the assessee under section 44AD of the Act. In such circumstances, it was contended that the addition made under section 68 of the Act is illegal and unsustainable and the provisions of section 68 is not applicable to the present facts and circumstances of the case involving the impugned addition. The learned Authorised Representative on many case law as narrated above and it is noted from the order ofYadwinder Singh reported in (2016) 48 ITR (Trib) 328 (Amritsar) : 2016 TaxPub(DT) 2864 (Asr-Trib) : 88 taxmann.com 433 (Amritsar-Trib), held that section 68 operates only where books are main­tained by an assessee and a sum is found credited therein. Relevant portion of which is reproduced herein below :–

“I have heard the parties and have perused the material available on record. Section 68 of the Income Tax Act, read as follows :–

‘Section 68. 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.’

So section 68 talks of any sum found credited in the books of an assessee maintained for any previous year. As per this section, if the assessee offers no explanation, the section would apply. But ; this explanation has to be with regard to any sum found credited in the books. This is amply clear from the use of expression ‘about the nature and source thereof (thereof being the operative word). Then, in case the explanation offered by the assessee is not found by the assessing officer to be satisfactory; the section can be invoked. This explanation, obviously; harks back to any sum found credited in the books. The words ‘the sum so credited’ again relate to any sum found credited in the books ‘so credited’, here being the pregnant expres­sion.

Thus, a plain reading of the section establishes that it operates only where books are maintained by an assessee and a sum is found cred­ited therein.”

  1. Further, in the case ofKamal Kumar Mishra reported in (2013) 33 taxmann.com 610 (Lucknow-Trib), The Lucknow Tribunal held that maintains of books in which credit entry so found, is a condition precedent for invok­ing the provisions of section 68 of the Act. Relevant portion of which is reproduced herein below :–

“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 CIT v. Bhaichand H. Gandhi (1983) 141 ITR 67 (Bom) : 1983 TaxPub(DT) 0582 (Bom-HC) 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 (SC) : 1969 TaxPub(DT) 0155 (SC). 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 section 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.’

  1. In the case ofAnand Ram Raitani(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.
  2. 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 CourtBhaichand N. Gandhi(supra). Therefore, the 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.
  3. The learned Commissioner (Appeals) 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 Nos. 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 the merits also the learned Commissioner (Appeals) 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 learned Commissioner (Appeals) the assessee has furnished reasonable and plausible expla­nations along with confirmation with regard to the different deposits. Since the learned Commissioner (Appeals) 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.
  4. In the result, appeal of the Revenue and cross objection of the assessee are dismissed.”
  5. It is observed from the record that the assessee offered profit at eight per cent, and the assessing officer accepted claim of exemption of non-main­tenance of books as provided under section 44AA(2)(iv) of the Act. There­fore, in view of the discussion made hereinabove in respect of two decisions of Amritsar Tribunal and Lucknow Tribunal in the cases of supra, in our opinion the addition made by the assessing officer under section 68 of the Act and confirmed by the Commissioner (Appeals) is liable to be deleted.
  6. Further, it is noted from the record that all the details regarding the cash gifts were made available to the assessing officer and the assessing officer examined the donors under oath and summarized their statements in his order at pages 2 and 3. We find that the assessee has furnished the details as required by the assessing officer and possible explanation along with confirmation with regard to the different deposits made in the banks as well as withdrawals from Sahara India. Therefore, it is clear that the assessee provided the identity and creditworthiness of said two donors. The assessing officer disbelieved only the source of making the gift. The Hon’ble High Court of Patna in the case ofSarogi Credit Corporation v. CIT reported in (1976) 103 ITR 344 (Patna) : 1976 TaxPub(DT) 0330 (Pat-HC) observed that the Income Tax Officer’s rejection not of the explanation of the assessee but the explana­tion is regarding the source of income of depositors, cannot by itself lead to any inference regarding non-genuine or fictitious character. Relevant portion of statements of donors summarised by the assessing officer is reproduced herein below :–

Shri Tarni Prasad (Father-in-law)

He was Head clerk in ‘Bhumi Vikash Bank, Khagaria’ having retired in January, 2002. He has stated to have received retirement benefits of about 5 lakhs in part payments, which he has claimed to have deposited in the Jamui Central Co-operative Bank and after withdrawal from time-to-time said amounts have been re-deposited in Sahara India and later on its maturity payments were made as gift to Smt. Indrani Devi. He was asked to furnish evidence in this regard which he expressed his inability to produce by saying that at the time of receiving maturity payment, the certificates were surrendered after putting signature on it and copy of which could not be retained, as such, not able to furnish evidence.

The details of deposits of retirement benefits and subsequent with­drawals from the bank for re-investment in Sahara are as under :–

Deposits in bank (Rs.) Withdrawal from bank/post office (Rs.)
On 1-1-2004 1,13,954 On 20-4-2004 1,00,000
On 5-1-2004 2,94,603 On 23-4-2004 2,03,000
On 29-12-2005 1,61,592 On 27-4-2004 1,68,400
On 4-7-2006 1,46,440 On 4-1-2006 1,50,000
On 4-7-2006 1,50,000 (in post office)

Smt. Pratima Kumari (Mother-in-law)

She was employed in Government school having retired in November, 2000. She has stated to have received about Rs. 4,50,000 as retirement benefits which in turn have been deposited in UBI, Munger and later on after withdrawal from bank, it has been re-deposited in Sahara India. She has also claimed to have given cash gift of Rs. 5 lakh to her daughter-in-law (Smt. Indrani Devi). Likewise her husband, she has also stated the same version that certificates have been surrendered at the time of receiving payments and xerox copy of which could not be retained. As such, she also expressed her inability to produce any evidence in this regard. Details of her depos­its and withdrawal are as under :–

Deposits in bank (Rs.) Withdrawal from bank/post office (Rs.)
On 7-8-2001 51,237 On 11-8-2001 25,000
On 20-9-2001 93,010 On 10-10-2001 2,00,000
On 8-10-2001 1,50,537 On 23-11-2001 15,000
On 8-2-2002 1,44,457 On 7-12-2001 62,500
On 11-1-2001 20,000
On 9-2-2002 1,34,000
  1. The above summary of statements of the said two donors suggests that the assessee has furnished explanation and the assessing officer examined the veracity of details of the said explanation along with the confirmations of the said donors and accepted the gift given by the mother-in-law to an extent of Rs. 1,32,000. Therefore, in our opinion, as discussed above, in terms of the decisions as relied on by the assessee, the addition made by the assessing officer and confirmed by the Commissioner (Appeals) is deleted. The grounds raised by the assessee are allowed.
  2. In the result, appeal filed by the assessee is allowed.

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