2021 (1) TMI 13 - AT - Income Tax

Unexplained cash deposits in bank accounts - assessee submitted that the assessee had purchased land at Dehu Road and since payment for purchase of land was to be made urgently, the assessee deposited cash in his bank account - new ground raised by the assessee whether the provisions of section 68 of the Act are attracted where the assessee has not maintained books of account and has filed return of income on the basis of presumptive income under section 44AD of the Act? - HELD THAT - The new ground raised by the assessee before the Tribunal being legal in nature is admitted for adjudication on merits in the light of decision rendered by Hon ble Apex Court in the case of National Thermal Power Co. Ltd. vs. CIT 1996 (12) TMI 7 - SUPREME COURT A bare perusal of section 68 of the Act makes explicitly clear that the addition can be made under the section if, any sum is found credited in the books maintained by the assessee. That is the books should be that of the assessee. The definition of books under the Act is inclusive. A perusal of the definition shows that the same does not include bank passbook or bank statement. A conjoint reading of above provisions would thus lead to the conclusion that the addition u/s 68 can be made only where any amount is found credit in the books as defined u/s 2(12A) of the Act maintained by the assessee. Maintaining of books by the assessee is sine qua non for making addition u/s 68 of the Act. Since section 44AD does not obligates the assessee to maintain books, the provisions of section 68 cannot be invoked where the assessee has filed return of income under the provisions of section 44AD of the Act without maintaining books of account. As in the case of Anand Ram Raitani vs. CIT 1996 (8) TMI 95 - GAUHATI HIGH COURT has held that existence of books of account is a condition precedent for invoking the provisions of section 68 by the Assessing Officer. The Tribunal in the case of Madhu Raitani 2010 (10) TMI 905 - ITAT GAUHATI held that if books of account are not maintained by the assessee, the provisions of section 68 cannot be invoked. The Tribunal further held that bank passbook cannot be considered as books of account. Thus no addition under section 68 can be made in the instant case. We find merit in ground no.1 raised by the assessee in appeal.

Summary

Issues Involved:
- Invocation of provisions of section 68 of the Income Tax Act in absence of books of account filed under section 44AD
- Admissibility of new legal ground challenging section 68 at the appellate stage

Detailed Analysis:

Issue 1: Invocation of provisions of section 68 of the Income Tax Act in absence of books of account filed under section 44AD:
The case involved an appeal by the assessee against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2014-15. The assessee, a contractor of wood, tiles, and marble works, had gross receipts of ?16,00,000 from contract work. The Assessing Officer observed cash deposits of ?11,20,000 in the assessee's bank account based on an AIR report. The assessee explained that the deposits were from savings of earlier years and for urgent land purchase. The Assessing Officer invoked section 68 of the Act, but the authorized representative argued that this section does not apply when returns are filed under section 44AD without maintaining books of account. The Tribunal analyzed relevant provisions and case laws, concluding that section 68 cannot be invoked if books are not maintained, as per the decision in CIT vs. Bhaichand N. Gandhi and Anand Ram Raitani vs. CIT.

Issue 2: Admissibility of new legal ground challenging section 68 at the appellate stage:
The assessee raised a new legal ground challenging the Assessing Officer's invocation of section 68 at the appellate stage. The Department opposed admitting this ground, arguing it was not raised before the CIT(A). However, the authorized representative contended that legal grounds can be raised at any stage and cited precedent to support this argument. The Tribunal accepted the new ground, stating that it was legal in nature and could be adjudicated at the appellate stage. The Tribunal relied on the decision in Manasi Mahendra Pitkar vs. ITO and the case of National Thermal Power Co. Ltd. vs. CIT to admit and decide the new ground. The Tribunal ultimately allowed the appeal, setting aside the impugned order.

In conclusion, the Tribunal's judgment focused on the application of section 68 of the Income Tax Act in cases where returns are filed under section 44AD without maintaining books of account. The decision highlighted that section 68 cannot be invoked in such situations, emphasizing the importance of maintaining books for invoking this provision. Additionally, the judgment addressed the admissibility of new legal grounds challenging the application of section 68 at the appellate stage, ultimately allowing the appeal based on the legal analysis provided.