2017 (4) TMI 534 - AT - Income Tax

Addition u/s 68 - no sum found credited in the books of an assessee maintained for any previous year - Held that - The addition made by the A.O in respect of the cash deposit in the bank account of the assessee by invoking Section 68 has to fail for the very reason that as per the judgment in the case of Shri 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, as understood for the purpose of Section 68 of the Act. Therefore, on this count itself the impugned addition ₹ 10,53,000/- deserves to be deleted. We find that the explanation rendered by the assessee in respect of the nature and source of the cash deposit in her bank account has been disbelieved by the lower authorities without establishing any credible infirmity or fallacy in the substantial material which was made available on record by the assessee. We are of the considered view that the assessee had not only put forth an explanation in respect of the nature and source of the cash deposit in her bank account, but rather it remains as a matter of fact that substantial material was placed on record by the assessee to fortify the genuineness and veracity of his aforesaid explanation. We find that the explanation of the assessee had been dislodged by the A.O merely on the basis of doubts, surmises and conjectures, which we are afraid cannot form a basis for making an addition in the hands of the assessee. - Decided in favour of assessee.

Issues Involved:
1. Validity of proceedings initiated by issuance of notice under Section 148 of the Income-tax Act.
2. Validity of the assessment order passed under Section 143(3) read with Section 147 of the Income-tax Act.
3. Addition of ?10,53,000/- under Section 68 of the Income-tax Act.
4. Failure of the CIT(A) to appreciate the appellant’s explanations and evidence regarding the source of cash deposits.

Issue-wise Detailed Analysis:

1. Validity of proceedings initiated by issuance of notice under Section 148 of the Income-tax Act:
The appellant contended that the proceedings initiated by the issuance of notice under Section 148 were invalid and bad in law. The Tribunal, however, found that the Assessing Officer (A.O) had received information from the CIT(CIB) regarding a cash deposit of ?10,53,000/- in the appellant’s bank account. Based on this information, the A.O formed a bonafide belief that the income chargeable to tax had escaped assessment. The Tribunal concluded that there was a well-established nexus between the material available on record and the formation of the belief by the A.O, thereby satisfying the fundamental requirement for the assumption of jurisdiction under Section 147. Consequently, the Tribunal found no infirmity in the initiation of the proceedings by the A.O and rejected the additional grounds of appeal raised by the appellant on this issue.

2. Validity of the assessment order passed under Section 143(3) read with Section 147 of the Income-tax Act:
The appellant also challenged the validity of the assessment order passed under Section 143(3) read with Section 147. The Tribunal observed that there was no indication from the assessment order or any submission by the appellant’s representative that could lead to the conclusion that the assessment framed by the A.O was not sustainable in the eyes of the law. Thus, the Tribunal upheld the validity of the assessment order.

3. Addition of ?10,53,000/- under Section 68 of the Income-tax Act:
The appellant argued that the A.O had erroneously added ?10,53,000/- under Section 68, contending that the said amount was not found credited in the appellant’s books of account but was a cash deposit in her bank account. The Tribunal agreed with the appellant, referencing the judgment of the Hon’ble Bombay High Court in the case of CIT Vs. Bhai Chand N. Gandhi (1983) 141 ITR 67 (Bom), which held that a bank account cannot be considered as the books of the assessee for the purposes of Section 68. The Tribunal concluded that the addition under Section 68 was unsustainable because the bank passbook or statement is not the books of the assessee. Consequently, the Tribunal directed the A.O to delete the addition of ?10,53,000/-.

4. Failure of the CIT(A) to appreciate the appellant’s explanations and evidence regarding the source of cash deposits:
The appellant contended that the CIT(A) failed to appreciate the explanations and evidence provided regarding the source of the cash deposits. The Tribunal noted that the appellant had provided substantial documentary evidence, including a summarized cash analysis, confirmations from family members, and details of loans received and repaid. The A.O, however, rejected the explanations without establishing any credible infirmity in the material provided. The Tribunal found that the A.O’s rejection was based on doubts, surmises, and conjectures, which are insufficient grounds for making an addition. Given the Tribunal’s decision to delete the addition under Section 68, this issue was rendered moot.

Conclusion:
The Tribunal allowed the appeal, setting aside the order of the CIT(A) and directing the deletion of the addition of ?10,53,000/- made under Section 68 in the hands of the appellant. The Tribunal pronounced the order in the open court on 07.04.2017.

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