9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2008 (2) TMI 531 - AT - Income TaxInitiation of the proceedings under s. 147/148 - escaped assessment - Expression Reason to Believe - Addition made under s. 68 - banking transactions - Whether CIT 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? Initiation of the proceedings under s. 147/148 - escaped assessment - Expression Reason to Believe - HELD THAT - The issue now stands well-settled by the Hon'ble Supreme Court in the case of Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. 2007 (5) TMI 197 - SUPREME COURT , held that the expression reason to believe in s. 147 of the Act would mean cause or justification; that if the AO has cause or justification to know or suppose that income has escaped assessment, he can be said to have reason to believe that income had escaped assessment. It is nowhere the case of the assessee that the AO did not have cause or justification to know or suppose that income had escaped assessment. Once this is so, it has to be said that the AO had reason to believe that income had escaped assessment. Thus, we do not find any force in this grievance of the assessee and the same is hereby rejected. Addition made under s. 68 - business of the assessee bank is to carry on banking transactions - 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 - The case of the assessee bank could not be put at par with the cases of other persons, since the bank does not have any control in respect of the amounts credited in its accounts; that the bank is to maintain accounts of its customers, which accounts can be operated only by those customers and the bank does not have any control over the amounts in the accounts. While holding in favour of the assessee, the learned CIT(A) has duly taken into consideration the provisions under s. 68 of the Act, which are explicit. The bank, for all its banking activities, is strictly governed by the Banking Regulations Act, 1949. The said Act defines a banking company as a company which transacts the business of banking. 'Banking' is described as accepting, for the purpose of lending or investment of money, due from the public repayable on demand or otherwise and withdrawal by cheque, draft order or otherwise. Thus, the deposits held by the assessee are its stock-in-trade. The amounts in the accounts maintained by the assessee bank were not in the control of the assessee bank. They are the deposits in the savings accounts of the customers of the assessee bank. To these deposits, s. 68 of the Act is not attracted. Still further, under s. 35 of the Banking Regulations Act, 1949, a banking company is subject to periodical inspections and audit by the RBI and in case any default is found, the bank is liable for heavy monetary penalty, besides cancellation of its license. This is not the case with other assessees. A bank, under the RBI guidelines, in order to maintain confidentiality in respect of the information collected by a bank relating to its customers, such information is not to be divulged to outsiders. There is no such obligation with other assessees. Despite the RBI guidelines providing maintenance of secrecy with regard to the information regarding the customers of the bank, the assessee furnished to the AO whatever information it had in its possession. The addresses of the account holders, as mentioned in the bank ledgers, as also the addresses of the introducers of the accounts were furnished to the AO. Now if the addresses of the customers of the assessee bank were found to be incomplete, this cannot form the basis for making the addition in question. Undisputedly, the assessee bank did not violate any of the relevant guidelines of the RBI. In the Master Circular of the RBI, introduction by an existing account holder by the bank has been held to be one of the proper methods of introduction of a customer to the bank for opening an account. The bank was not required to go for detailed verification of the addresses/whereabouts of its customers, though this position has now changed and at present the requirement in this regard calls for a much more stringent compliance. Further, even on merits, the addition was uncalled for. Concerning account Nos. 8211, 8212 and 8213, the introducer was Shri Vijay Sethi, the deceased managing director of the assessee bank itself. The original investments were made in RMRD accounts or savings bank accounts with the Mithapur Branch of the assessee. These investments were made way back in 1992. It was only on maturity that they were transferred to the accounts under consideration. It has rightly been contended that the origin of these amounts falling in the earlier years, which fact has also been admitted by the AO, they could not be brought to tax in the year under appeal, in the hands of the assessee. The learned CIT(A) thus rightly deleted the addition in this regard. Hence, we find ourselves to be in agreement with the observations recorded by the learned CIT(A) while allowing the appeal of the assessee. The grievance of the Department in this regard is found to carry no force whatsoever and is, as such, rejected. Apropos the objection of the Department that the learned CIT(A) erroneously admitted additional documentary evidence when before the AO, the assessee had denied producing the bank account holders on the plea that this would adversely affect its banking business. Here also, we find no case made out by the Department. We do not find any error in the order of the learned CIT(A). In this regard, it has not been made out that the plea of the assessee of not being obliged to file such documents in respect of its depositors, who had been introduced either by the bank's own staff members or by someone already having a bank account with the assessee bank, was mala fide. Further, undisputedly, the documents so produced were directly related to the additions made. In this view of the matter, the Department's grievance in this regard also stands rejected.
Issues Involved:
1. Deletion of additions made by the Assessing Officer (AO) under Section 68 of the Income Tax Act, 1961. 2. Admission of additional documentary evidence by the Commissioner of Income Tax (Appeals) [CIT(A)]. 3. Validity of the initiation of reassessment proceedings under Section 147/148 of the Income Tax Act. Detailed Analysis: 1. Deletion of Additions Made by the AO Under Section 68 of the Income Tax Act, 1961: The primary issue was whether the additions made by the AO under Section 68 of the Income Tax Act, 1961, were justified. The AO had added Rs. 59,41,593/- as unexplained income, treating the peak credits in various doubtful accounts as income from sources other than banking business. The CIT(A) deleted these additions, reasoning that the bank's operations were governed by the Banking Regulation Act and RBI guidelines, which required maintaining customer confidentiality and did not obligate the bank to verify the source of deposits. The CIT(A) also noted that the amounts in question were transferred from other branches and were not new deposits. The Tribunal upheld the CIT(A)'s decision, emphasizing that the bank, as a custodian of public funds, could not be equated with other assessees for the purpose of Section 68. 2. Admission of Additional Documentary Evidence by the CIT(A): The department contended that the CIT(A) erred in admitting additional evidence in violation of Rule 46A of the Income Tax Rules, 1962. The CIT(A) admitted the evidence, noting that the assessee had not been given sufficient opportunity to present these documents during the assessment proceedings. The Tribunal found no error in the CIT(A)'s decision to admit the additional evidence, as it was directly related to the additions made and the assessee had a bonafide belief that it was not obligated to file such documents initially. 3. Validity of the Initiation of Reassessment Proceedings Under Section 147/148: The assessee challenged the initiation of reassessment proceedings, arguing that the AO did not independently verify the reasons for issuing the notice under Section 148 and merely followed the directions of the DDIT. The CIT(A) upheld the initiation of reassessment proceedings, stating that the AO had sufficient cause to believe that income had escaped assessment based on the material gathered by the Investigation Wing. The Tribunal agreed with the CIT(A), citing the Supreme Court's decision in "ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd.," which clarified that the AO's "reason to believe" need not be based on conclusive evidence but should be a cause or justification to suppose that income had escaped assessment. For the assessment year 1998-99, the Tribunal remitted the matter back to the CIT(A) to decide afresh on the preliminary issue of recording and communication of reasons for initiation of reassessment proceedings and issuance and service of notice under Section 148, as the CIT(A) had not specifically addressed these points. Conclusion: The Tribunal dismissed the department's appeal for the assessment year 1999-2000, upholding the CIT(A)'s deletion of additions under Section 68 and the admission of additional evidence. For the assessment year 1998-99, the Tribunal remitted the matter back to the CIT(A) for a fresh decision on the preliminary issues related to the reassessment proceedings.
|
