2011 (4) TMI 1161 - HC - Income Tax

Whether Tribunal is right in holding that section 68 of the Income-tax Act 1961 does not apply to the co-operative bank for assessing the unexplained credits as taxable income - addition of the said amount on account of peak balance standing in the name of the various depositors - S. Swaran Singh was the account holder of account No. 1108. He was one of the directors of the bank and so he needed no independent introduction to open his account with the assessee-firm. His independent existence also stands proved by the entries through clearing in account -Shri Pawan Sharma was the introducer to account No. 1658. His statement was recorded by the Assessing Officer under section 131 of the Act. He also confirmed knowing the account holder Held that - amounts mentioned above cannot be said to be unexplained credits in the hands of the assessee under section 68 of the Act decision against the Revenue and the appeal is dismissed

Summary

Issues:
Appeal under section 260A of the Income-tax Act, 1961 against the order of the Income-tax Appellate Tribunal regarding the application of section 68 of the Act to a co-operative bank for assessing unexplained credits as taxable income.

Analysis:
1. The appeal was filed by the Revenue against the order of the Income-tax Appellate Tribunal regarding the application of section 68 of the Income-tax Act, 1961 to a co-operative bank for assessing unexplained credits as taxable income for the assessment year 1999-2000. The respondent-assessee, a co-operative society, had declared "nil" income in its return. The Revenue recommended action under section 68 of the Act due to the failure of the assessee to prove the genuineness of certain credits. The Commissioner of Income-tax (Appeals) deleted the addition made by the Assessing Officer, leading to the appeal before the Tribunal by the Revenue.

2. The main issue in this appeal was whether the unexplained credits in the accounts of the account holders could be treated as income of the assessee-bank under section 68 of the Act, especially when the Revenue had not established connivance of the account holders with the bank. The Tribunal concluded that there was no nexus between the creditors and the bank, thus these amounts could not be considered unexplained credits of the assessee.

3. The Tribunal's findings highlighted specific instances where the introducers of certain accounts were known to the bank or had legitimate reasons for their transactions, thereby discharging the onus with regard to those accounts. The Tribunal also noted that additional details and addresses of account holders were provided to the Assessing Officer, further supporting the assessee's position.

4. The Tribunal's decision was based on the lack of evidence showing connivance between the account holders and the bank, leading to the conclusion that the amounts in question could not be treated as unexplained credits of the assessee under section 68 of the Act. The Tribunal found no error in the Commissioner of Income-tax (Appeals)'s order and dismissed the appeal, deciding the substantial question of law against the Revenue.

In conclusion, the judgment upheld the Tribunal's decision, emphasizing the importance of establishing a connection between the unexplained credits and the assessee before treating them as taxable income under section 68 of the Income-tax Act, 1961.