2024 (2) TMI 550 - HC - Income Tax

Addition u/s 68 - unexplained balance in corporation bank - as argued pass book cannot be treated as books of account - HELD THAT - It is true that pass book itself cannot be treated as books of accounts, but in the instant case as appears from the order that the assesssee has submitted balance-sheet, profit and loss account, computation of income etc. and certainly the assessee also maintained his own books of account in his ledger; as such the findings given by Tribunal that in the peculiar facts and circumstances the claim of the assessee is not sustainable, prima facie, is acceptable to this Court. It is not a case where the assessee has proved the source of income or identity/creditworthiness/genuineness of transaction and before us they have taken only one ground that since the pass book cannot be treated as books of account; as such the addition made by the Assessing Officer under section 68 of the Act is not sustainable is not sustainable. Effect of Mere mentioning of wrong section/provision - Only for not mentioning the correct provision in the assessment order, an amount which may be an income under the provisions of the Act cannot be allowed to go untaxed. Admittedly, in the Income Tax Act under Section 69 of the Act there is a provision of undisclosed investment and certainly an amount deposited in the Bank will come under the purview of investment. Otherwise also no prejudice has been caused to the petitioner as petitioner failed to show any prejudice even when a wrong provision has been mentioned in the assessment order. It is a settled legal principle that if a source of power can be traced, the mere mentioning of wrong section/provision will not invalidate the order. Even assuming the contention of the petitioner that passbook cannot be treated as part of Books of Accounts to be true; admittedly, the source of income in the case of both the assesses has not been proved; inasmuch as, both the assesses have failed to prove the identity/creditworthiness/genuineness of the creditors, who have given cash loan as claimed by them . Assessee has submitted the balance-sheet, profit and loss account, Bank account and computation of income and other details before the AO. Thus, definitely those amounts have escaped the taxation and as stated hereinabove only for not mentioning the correct provision in the assessment order an amount which may be an income under any of the provisions of the Act; cannot be allowed to go untaxed. No error has been committed by the Tax Authorities and/or the Tribunal in adding the amount not disclosed to the total income of the respective Assessee. Decided in favour of revenue.

Summary

Issues Involved:
1. Applicability of Section 68 of the Income Tax Act, 1961.
2. Validity of additions made based on bank passbooks.
3. Proof of source, identity, creditworthiness, and genuineness of transactions.

Summary:

Issue 1: Applicability of Section 68 of the Income Tax Act, 1961

The appellants argued that Section 68 does not apply as they do not maintain books of account, only balance sheets and statements of affairs. They contended that passbooks cannot be equated to books of account. The Tribunal, however, held that financial statements such as balance sheets and profit and loss accounts indicate that books of account are maintained. Therefore, Section 68 is applicable as per the definition in Section 2(12A) of the Act, which includes various forms of account books.

Issue 2: Validity of Additions Made Based on Bank Passbooks

The appellants cited judgments to argue that bank passbooks are not books of account, thus additions under Section 68 are not sustainable. The Tribunal disagreed, noting that the appellants had submitted financial statements, which imply the maintenance of books of account. The Tribunal held that bank accounts are part of the financial statements and thus fall under the purview of Section 68.

Issue 3: Proof of Source, Identity, Creditworthiness, and Genuineness of Transactions

The Assessing Officer (AO) had added amounts to the total income of the appellants due to unexplained cash deposits. The appellants failed to prove the source, identity, creditworthiness, and genuineness of the creditors who allegedly provided the cash loans. The CIT(A) and the Tribunal upheld these additions, noting that the appellants could not satisfactorily explain the cash deposits.

Conclusion:

The High Court dismissed the appeals, agreeing with the Tribunal that the appellants failed to prove the source of income and the genuineness of the transactions. The Court noted that even if the wrong provision was mentioned, the amounts were still taxable under the Act. Remitting the cases to the AO was deemed futile as the appellants could not substantiate their claims. The questions of law were decided in favor of the Revenue, and the Tribunal's order was sustained.