2011 (12) TMI 597 - AT - Income Tax

Unexplained cash credit u/s 68 - Genuineness of payment - Held that - The assessee is having income from house property, income from other sources , long term capital gain and business income. The business income is interest and remuneration from the firm. It is nowhere mentioned in the assessment order that assessee has maintained the books of account in which sale proceeds of the shares were credited. The sale proceeds of shares were credited in the bank account. When monies are deposited in bank, the relationship i.e. constituted between the banker and the customer is one of debtor and creditor and not of trustee and beneficiary. The pass book supplied by the bank to its customer is not books of account maintained by the bank and it is not the account book of the assessee. Such pass book is not maintained b the bank under the instruction of client. The pass book supplied by the bank to the assessee cannot be regarded as a book of the assessee. See CIT vs Bhai Chand G Gandhi 1982 (2) TMI 28 - BOMBAY High Court . Such credit in the pass book may fall within the ambit of Section 69 as unexplained investment and not in Section 68 of the Income Tax Act, 1961. The ld.CIT(A) held that the amount could not have been added u/s 68 of the Act. The Revenue in its grounds of appeal has nowhere mentioned that such addition should be considered u/s 69 of the Act. We therefore, hold that the ld.CIT(A) was justified in deleting the addition

Issues Involved:
1. Deletion of addition as unexplained cash credit under Section 68 of the Income Tax Act.
2. Alleged violation of Rule 46A by the CIT(A).
3. Deletion of addition of commission paid on undisclosed income.

Issue-wise Detailed Analysis:

1. Deletion of Addition as Unexplained Cash Credit under Section 68 of the Income Tax Act:

The Revenue challenged the deletion of an addition of Rs. 29,50,797/- as unexplained cash credit under Section 68 of the Income Tax Act for the assessment year 2005-06. The Assessing Officer (AO) had observed that the assessee showed long-term capital gain from the sale of 62,500 equity shares of Talent Infoways Ltd., purchased at a very low rate and sold at a significantly higher rate. The AO suspected the transaction to be a sham, facilitated by a broker, M/s. Goldstar Finvest P. Ltd., who was allegedly involved in providing accommodation entries. The AO relied on the statement of Shri Mukesh M. Choksi, who admitted to issuing accommodation bills. Consequently, the AO treated the transaction as a means to bring undisclosed income into books and added the amount as unexplained cash credit.

On appeal, the CIT(A) found that the assessee had provided sufficient documentary evidence, including contract notes, share certificates, and bank statements, to substantiate the genuineness of the transaction. The assessee had also received sale proceeds through account payee cheques. The CIT(A) held that the AO's reliance on the statement of Shri Mukesh M. Choksi was insufficient to discredit the transaction, especially when the assessee had provided concrete evidence. The CIT(A) deleted the addition, stating that the amount could not be treated as unexplained cash credit under Section 68 since the sale proceeds were received through banking channels.

The Tribunal upheld the CIT(A)'s decision, noting that the AO had not established any additional evidence to counter the assessee's claims. The Tribunal also referenced the Bombay High Court's ruling in CIT vs. Bhai Chand G Gandhi, which held that credits in a bank passbook do not fall under Section 68 but may fall under Section 69 as unexplained investments. However, since the Revenue did not argue for consideration under Section 69, the Tribunal affirmed the deletion of the addition.

2. Alleged Violation of Rule 46A by the CIT(A):

The Revenue contended that the CIT(A) entertained additional details not produced before the AO, violating Rule 46A. However, the Tribunal found that the details provided by the assessee were already part of the evidence submitted during the assessment proceedings. The Tribunal concluded that there was no violation of Rule 46A as the CIT(A) did not consider any new evidence but relied on existing records.

3. Deletion of Addition of Commission Paid on Undisclosed Income:

For the assessment year 2006-07, the AO added Rs. 624/- as commission allegedly paid to the broker for providing accommodation entries. The AO based this addition on the modus operandi of Shri Mukesh M. Choksi, who charged a commission for such entries. The assessee argued that all brokerage charges were already included in the contract notes and bills issued by the broker, and no additional commission was paid.

The CIT(A) agreed with the assessee, noting that the broker's charges were already deducted from the sale proceeds and reflected in the contract notes. The CIT(A) found no evidence to support the AO's claim of an additional commission payment and deleted the addition.

The Tribunal upheld the CIT(A)'s decision, finding it fair and reasonable. The Tribunal dismissed the Revenue's appeal, affirming that the brokerage was already accounted for and no further commission was paid.

Conclusion:

The Tribunal dismissed the Revenue's appeals for both assessment years 2005-06 and 2006-07, affirming the CIT(A)'s decisions to delete the additions under Section 68 and the alleged commission payment. The Tribunal found no violation of Rule 46A and upheld the genuineness of the assessee's transactions based on the evidence provided.

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