Landmark Judgment :Addition deleted by court as it was made under section 68 and not under section 69:

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Landmark Judgment :Addition deleted by court as it was made under section 68 and not under section 69:

Dirisala Bala Murali v. ITO

I.T.A. No. 452/Viz/2019

29 July, 2020

Appellant byG.V.N. Hari, Authorised Representative

Respondent bySuman Malik, Departmental Representative

 

ORDER

D.S. Sunder Singh, A.M.

This appeal is filed by the assessee against the order of the Commissioner (Appeals) (Commissioner (Appeals)), Rajamahendravaram in ITA Nos. 10090 & 10094/2017-18, dated 29-3-2019 for the assessment year (A.Y.) 2011-12.

2. The assessee filed the return of income declaring total income of Rs. 1,48,500 on 28-12-2012. The return was processed under section 143(1)of the Income Tax Act, 1961 (in short ‘Act’) and subsequently on receipt of information from Investigation Wing with regard to deposits made in the bank account of the assessee in ICICI Bank, Palakol on 3-4-2010, the assessing officer (AO) has reopened the assessment and issued notice under section 148 on 24-10-2016. In response to the notice issued under section 143(2), the assessee filed letter on 27-10-2016 stating that the return of income already filed for the assessment year 2011-12 may be treated as return in response to the notice under section 148. Subsequently, the assessing officer issued the notice under section 143(2) and called for the explanation of the assessee as to why the sum of Rs. 40,00,500 deposited in ICICI bank account on 3-4-2010 should not be considered as unexplained cash credit and brought to tax.

3. In response to the notice, the assessee filed explanation stating that the said sum was deposited by Jindath Jewellers in his account and the same amount was withdrawn by them on the same day and thus explained that the amount was not belonged to him but belonged to Jindath Jweellers therefore, requested to drop the proceedings under section 148 and not to make any addition in his assessment.

4. Not being impressed with the explanation of the assessee, the assessing officer made the addition of Rs. 40,00,500 under section 68 of the Act.

5. Against the order of the assessing officer, the assessee went on appeal before the Commissioner (Appeals) and challenged the order of the assessing officer on merits as well as on technical grounds stating that the notice issued under section 148 is bad in law. The learned Commissioner (Appeals) confirmed the addition and also upheld the validity of issue of notice under section 148.

6. Against which the assessee filed the appeal before us. During the appeal proceedings, the assessee filed additional ground vide Petition, dated 22-6-2020 stating that the assessing officer made the addition under section 68 instead of under section 69, and hence submitted that the addition made by the assessing officer is unsustainable and accordingly requested to admit the additional ground.

7. We have heard both the parties and after hearing both the parties, we admit the additional ground raised by the assessee. The additional ground raised by the assessee reads as under :–

“On the facts and in the circumstance of the case, whether the assessing officer is justified in making addition of Rs. 40,00,500 under section 68 of the Income Tax Act, 1961 towards alleged unexplained deposit in the bank account in as much as a bank account is not a book of account maintained by the appellant?”

8. We have heard the arguments of the learned Authorised Representative as well as the Departmental Representative and gone through the additional ground raised by the assessee. In the instant case, the deposit was made in the bank account, but not in the regular books of accounts maintained by the assessee. As per the provisions of section 68, the amount found credited in the books of accounts for which the assessee failed to offer explanation to the satisfaction of the assessing officer required to be brought to tax under section 68, whereas in the instant case, the said sum was not credited in the books of accounts, but the amount was found credited in the bank account of the assessee. The correct course of action for taxing the sums paid into the bank account is to tax under section 69 of the Act. Neither the assessing officer nor the learned Commissioner (Appeals) has made addition under section 69. On identical facts in the case of Smt. Asha Sanghavi in I.T.A. No. 33/Viz/2019 : 2019 TaxPub(DT) 7665 (Visakhapatnam-Trib), this Tribunal held that the cash deposits or deposits made in bank account required to be brought to tax under section 69 and not under section 68 of the Act. For the sake of clarity and convenience, we extract para No. 10 to 10.1 which reads as under :–

“10. We have heard both the parties and perused the material placed on record. In the instant case, the assessing officer made the addition of Rs. 1,22,29,000 representing cash deposits made in the bank account under section 68 of the Act. Section 68 allows the assessing officer to make addition for the sums credited in the books of accounts maintained by the assessee for which the assessee fails to offer satisfactory explanation with regard to source. In the instant case, the assessee is maintaining the books of accounts but did not make any entry in the books of accounts. The amounts were deposited in the bank accounts, but not made relevant entry. Hence, the learned Authorised Representative argued that since the assessee did not make any entry in the books of accounts, the assessing officer is not permitted to make the addition under section 68. The issue with regard to deposits made in the bank account, whether to be brought to tax under section 68 or not was considered by the coordinate bench of ITAT Mumbai in Mehul V. Vyas v. ITO (supra) and held that the amounts found credited in the bank pass book or bank statement cannot be considered to be books maintained by the assessee in any previous year as understood for the purpose of section 68 of the Act. For the sake of clarity and convenience, we extract para No. 8 of the cited order which reads as under :–

“5. We have heard the learned Authorised Representatives of both the parties, perused the orders of the lower authorities as well as the material produced before us. We will first deal with the objection raised by the learned Authorised Representative as regards the addition of Rs. 10,53,000 which was made by the assessing officer under section 68 of the ‘Act’, in respect of the cash deposit in the bank account of the assessee.

We find substantial force in the contention of the learned Authorised Representative that an addition under section 68 can only be made where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee either offers no explanation about the nature and source as regards the same, or the explanation offered by him in the opinion of the assessing officer is not found to be satisfactory. That before adverting further, we herein reproduce the relevant extract of the aforesaid statutory provision, viz. section 68, which reads as under 

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

That a bare perusal of the aforesaid deeming section therein reveals that an addition under the said statutory provision can only be made where any sum is found credited in the books of an assessee maintained for any previous year. Thus, the very sine qua non for making of an addition under section 68 presupposes a credit of the aforesaid amount in the ‘books of an assessee’ maintained for the previous year. We not being oblivious of the settled position of law that a statutory provision has to be strictly construed and interpreted as per its plain literal interpretation, and no word howsoever meaningful it may so appear can be allowed to be read into a statutory provision in the garb of giving effect to the underlying intent of the legislature, thus confining ourselves within the realm of our jurisdiction, therein construe the scope and gamut of the aforesaid statutory provision by according a plain meaning to the language used in section 68. We are of the considered view that a 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, viz. 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 round credited in the ‘books of the assessee’ maintained for the previous year, cannot be brought to tax by invoking the provisions of section 68. That our aforesaid view is fortified by the judgment of the Hon’ble High Court of Bombay in the case of CIT v. Bhaichand N. Gandhi (1983) 141 ITR 67 (Bombay) : 1983 TaxPub(DT) 0582 (Bom-HC) wherein 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.”

We find that the aforesaid view of the Hon’ble jurisdictional High Court had thereafter been followed by a ‘SMC of the ITAT Mumbai bench in the case of Smt. Manshi Mahendra Pitkar v. ITO 1(2), Thane (2016) 73 taxmann.com 68 (Mumbai Trib.) : 2016 TaxPub(DT) 4025 (Mum-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 sect/on 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 fail 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 Hon’ble Bombay High Court in 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 v. ACIT (2011) 10 taxmann.com 206 (Gauhati) (TM) : 2011 TaxPub(DT) 1943 (Gau-Trib), as well as by a coordinate bench of the Tribunal in the case of ITO, Barabanki v. Carnal Kumar Mishra (2013) 33 taxamann.com 610 (Lucknow Trib.) : 2013 TaxPub(DT) 2139 (Luck-Trib) Thus in the backdrop of the aforesaid facts of the case read in light of the settled position of law, we are of the considered view that the addition made by the assessing officer in respect of the cash deposit of Rs. 10,53000 (supra) in the bank account 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 Shri Bhaichand N. Gandhi (supra), a bank pass book or bank statement cannot be considered to be a ‘book’ maintained by the assessee for any previous year, as understood for the purpose of section 68 of the Act. Therefore, on this count itself the impugned addition Rs. 10,53,000 deserves to be deleted.

10.1. While delivering the decision, the Coordinate Bench relied on the decision of Hon’ble Bombay High Court in the case of CIT v. Bhaichand N. Gandhi (supra).

Similar view was taken by the coordinate Bench of ITAT, Delhi in the case of Smt. Babbal Bhatia in TS-306-ITAT-2018 : 2018 TaxPub(DT) 3611 (Del-Trib).

In the instant case, though the assessee has maintained the books of accounts, the cash deposits made in the bank account were not found credited in the books of accounts. The entire transactions were made outside the books of accounts.

In the absence of any finding with regard to cash deposits recorded in the books of accounts of the assessee, the addition made by the assessing officer under section 68 in respect of cash deposits made in the bank account are unsustainable. During the appeal hearing, the learned Departmental Representative did not bring any other decision to support the revenue’s contention that the cash deposits made in the bank account to be brought into the purview of section 68 of the Act. The case law relied upon by the learned Departmental Representative in the case of Sachdeva (supra) though related to sale of jewellery and the failure of the assessee to prove the genuineness of sale, it was not related to the addition under section 68. The case law relied upon by the learned Departmental Representative is distinguishable and does not help the Revenue’s case. Since the facts are identical to the decision of Mehul V. Vyas (supra), respectfully following the view taken by the coordinate bench of ITAT, Mumbai, we hold that the addition made by the assessing officer under section 68 in respect of cash deposits made in the bank account is unsustainable, accordingly, we set aside the order of the learned Commissioner (Appeals) and delete the addition made by the assessing officer. Accordingly, the appeal of the assessee is allowed.”

Since the facts are identical, we hold that the assessing officer is not permitted to make the addition under section 68 of the Act in respect of the deposits made in the bank account. Accordingly, we set aside the order of the learned Commissioner (Appeals) and delete the addition made by the assessing officer.

9. Since we have decided the issue on additional ground raised by the assessee and deleted the addition, we consider it is not necessary to adjudicate the other grounds raised by the assessee in this appeal.

Accordingly, the appeal of the assessee is allowed.

10. In the result, appeal of the assessee is allowed.

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