2018 (4) TMI 1866 - AT - Income Tax

Addition u/s 68 - unexplained cash deposits - HELD 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. A thoughtful consideration to the scope and gamut of the aforesaid statutory provision, viz. Sec. 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 found credited in the 'books of the assessee maintained for the previous year, cannot be brought to tax by invoking the provisions of Section 68. As stands gathered from the records, the addition made by the A.O is in respect of the cash deposits in the bank accounts of the assessee, and not in any books of the assessee for the year under consideration. In the backdrop of the aforesaid settled position of law, the addition made by the A.O in respect of the cash deposits of ₹ 8,51,400/- in the bank accounts of the assessee by invoking Section 68 has to fail, for the very reason that as per the judgment in the case of of CIT Vs. Bhaichand N. Gandhi 1982 (2) TMI 28 - BOMBAY HIGH COURT a bank pass book or bank statement cannot be considered to be a 'book' maintained by the assessee for any previous year for the purpose of Section 68 of the Act. Therefore, on this count itself the impugned addition deserves to be deleted. As quashed the addition on the ground that no such addition could have been validly made u/s 68 of the Act, therefore, we refrain from adverting to the grounds wherein the assessee had assailed on merits the additions sustained by the CIT(A).

Summary

Issues Involved:
1. Addition of ?8,51,400 under Section 68 of the Income Tax Act.
2. Charging of interest under Section 234B of the Income Tax Act.

Detailed Analysis:

1. Addition of ?8,51,400 under Section 68 of the Income Tax Act:

The assessee, engaged in trading textiles, filed a return declaring an income of ?88,930. During scrutiny, the Assessing Officer (A.O) found cash deposits totaling ?12,37,400 in the assessee's bank account. The assessee explained the deposits as follows:
- Opening cash balance: ?2,50,000
- Cash gift from wife: ?2,50,000
- Cash withdrawals redeposited: ?7,55,000

The A.O questioned the substantiation of these claims and made the following observations:
- Opening Cash Balance: The A.O observed a closing cash balance of ?29,247 in the assessee's business balance sheet and found the claim of ?2,50,000 as accumulated savings unconvincing. The A.O allowed only ?1,00,000 as accumulated savings, adding ?1,50,000 as unexplained cash credit.
- Cash Gift from Wife: The A.O doubted the claim of ?2,50,000 as a cash gift from the wife, considering her bank withdrawals and the likelihood of keeping such an amount at home. The A.O allowed ?1,00,000 as a plausible gift, adding ?1,50,000 as unexplained cash credit.
- Cash Deposits: The A.O calculated total cash withdrawals and deposits in various bank accounts, adjusting for household expenses, and concluded an unexplained cash deposit of ?5,51,400.

The CIT(A) upheld these additions, leading the assessee to appeal to the ITAT. The assessee contended that the A.O's additions were arbitrary and that the cash deposits should be considered explained by the available cash from withdrawals and gifts. The assessee also argued that the addition under Section 68 was invalid as the deposits were in bank accounts, not in the 'books' of the assessee.

The ITAT examined the legal scope of Section 68, which applies to credits in the 'books' of an assessee. The Tribunal found that a bank account does not qualify as 'books' maintained by the assessee. Citing legal precedents, including the Bombay High Court's decision in CIT Vs. Bhaichand N. Gandhi, the ITAT concluded that the A.O's addition under Section 68 was invalid.

2. Charging of Interest under Section 234B of the Income Tax Act:

The assessee also challenged the charging of interest under Section 234B, arguing that the A.O did not provide an opportunity to contest the interest charge, violating principles of natural justice. The ITAT did not address this issue in detail, as the primary addition under Section 68 was quashed.

Conclusion:

The ITAT allowed the appeal, quashing the addition of ?8,51,400 under Section 68, as the deposits were not in the assessee's 'books'. Consequently, the issue of interest under Section 234B was rendered moot. The order was pronounced on 25/04/2018.