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TMI Blog2014 (5) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... ch circumstances the society cannot be treated as an assessee engaged in the business of banking. 4. Brief facts of the case are that for the assessment year 2009- 10, the assessee, engaged in the business of banking, has filed return admitting 'nil' income, after claiming deduction under S.80P of the Act at Rs.4,26,37,081. Though the return was initially processed under S.143(1), the case was taken up for scrutiny, and in the scrutiny assessment, the assessee was requested to furnish deposits register along with full details of the depositors, i.e. name and addresses, etc. in order to verity the genuineness of the transactions. There are some cash deposits also. The Authorised Representative for the assessee has furnished some computerized sheets of the Fixed Deposit accounts, which contained only the account number, member's name, opening balance, debit, credit and balance amount, but not addresses of the depositors, which were not made available. Observing that in the absence of the addresses, it is not possible to verify the genuineness of the transactions, the Assessing Officer held that difference between the closing balance as on 31.3.2009 of Rs. 160,24,48,937 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to section 68 of the Act and observed as follows: (a) The assessee is society registered and recognised by State Government. (b) The Society is engaged in the activity of banking for it's members, as approved by RBI and governed by Banking Regulation Act, 1949. (c) The Assessee Society was maintaining systematic record, at the time of accepting the deposits as well as refunding the amounts to the member depositors and followed KYC norms, with the Society governed by inspections undertaken by the concerned Regulatory Authorities. (d) The Assessing Officer merely relied upon the facts of the case for AY 2008-09 and no enquiries were made or details were called for to examine the genuineness of the creditworthiness of the depositors for the year and the addition was made on the net of opening and closing balances of the deposits for the year and the additions were made by falling on the findings and observations of the Assessing Officer for the Assessment Year namely AY 2008-09 and earlier Years. There is no change in the activities and practices from the earlier year and the affidavit filed in this regard and the information filed indicate the same, as such the decisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o earlier years, in whose case the decisions of the Hon'ble ITAT, as regard to the additions u/s. 68 of IT Act are applicable. Further, the AO relied upon the decisions of his predecessor in the earlier years and as such, the decision of the CIT(A) and Hon'ble ITAT are applicable to the year under reference, with the same set of facts as applicable/relatable to earlier years. No fresh facts, were brought on the record by the AO in assessment order and no new set of facts emerged, based on the information furnished and brought on record either during the course of the assessment proceedings or the set aside appellate proceedings before CIT(A), as regard to the methodology in accepting the deposits by the Society from its member depositors. With the set of facts remaining the same, the decision of ITAT squarely applicable to the year under reference and addition u/s. 68 are not sustainable, since the provisions of Sec. 68 are held to be not applicable to the assessee Society. Thus, on the limited issue of addition u/s. 68, to the extent of Rs. 38,53,72,794/-, as set aside by Hon'ble ITAT stand decided in favour of the assessee and the addition stand deleted. This ground o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set of guidelines and procedures. As per the By - Laws of the Society only members either permanent or Nominal shall transact in the Society. The staff employed in the branch accepts the cash deposits along with the application at the counters. The staffs makes sure that all the columns of the application are filled and requisite supporting documents i.e. proof of address, proof of identity and photographs of the applicant as stipulated by RBI in KYC (Know Your Customer) norms. To regulate the transactions the staff accepts the cash at the counter and on verification the branch manager issues the Certificate. The amount so received is recorded in the cash book as well as deposit register maintained for this purpose. The application is containing the details of name and address along with proof of address given at the time of opening account. From the above facts it is proved that the assesses has proved the identity of the depositor. Pertaining to this the assessing officer did not bring any positive material evidence to show that there is contravention and violation of KYC norms prescribed by the banking Regulation Act, while opening account with any banking institution. More ove ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. The amounts maintained at the customers account is not in the control of the society as it is required to pay the deposits on demand. In the present case what is required to be done before accepting the deposit is to take proper proof of address, identity, photograph and introduction for opening and accepting the deposits. Once the assessee complied with the requirement it is not the assessee Society duty to question about the source of depositor and it is not its duty to seek any other particulars. Only the requirement is, to report to the controlling authorities wherever suspicious transactions are reported or doubt about the Anti Money Laundering Act. Therefore these features distinguish the case of the assessee from other normal assessee. Further the assessee has to maintain the confidentiality in respect of information collected from its customers, such information cannot be divulged to outsiders. There is no findings from the assessing officer that the assessee violated the regulatory authorities. Usually the banks are not required to go for verifying the correctness of the details furnished by the depositor and sources of the amount deposits. The deposits acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other proof of identity given by the depositors. What is required to be done as per the normal banking system is to report the controlling authorities in case any suspicious transactions are reported. The present case the assessee has complied with all the elements as a banking institution thus discharged onus of proof of identity of the depositor. There is no single instance found out by the assessing Officer that the assessee is making deliberate attempt to accommodate tax dodgers. It is seen from the assessment order that out of 30 depositors examined by the assessing officer all the depositors are identified and accepted the deposits made by them with the society. The department examined them, all are disclosed the deposits in their income tax returns. There is no evidence with the assessing officer that, the deposits made by the depositors represent the income of the Society. In this regard the reference is made to the decision of the Hon'ble Supreme court in the case of CIT vs. P.K. Noorjahan reported in 237 ITR 576 wherein it was held that the word may leaves it to the discretion of the assessing Officer whether an addition under the deeming provisions could be made or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions under s. 68 of the Act, which are explicit. 27. As per s. 68 of the Act, where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof, or the explanation offered by him is not, in the opinion of the AO, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The business of the assessee bank is to carry on banking transactions. 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 at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, (copy at p. 75 of the assessee's paper book), 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. In Bapulal Premchand vs. Nath Bank Ltd. AIR 1946 Bom 483, as pointed out, it has been held, inter alia, that there is no absolute obligation on a bank to make inquiries about a proposed customer, so as to avail of the protection under s. 131 of the Negotiable Instruments Act. In Union of India vs. National Overseas & Grindlays Bank Ltd. (1978) 48 Comp. Cases 277 (Del) referring to the Bapulal Premchand (supra), it was held that the bank could rely on the introduction of any old customer and that if the bank bona fide acted on the reference of a customer, it can avail of the protection under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny of the deposits could not be the same as in the case of an assessee making entries of deposits on account of loan etc. 33. In CIT vs. Steller Investment Ltd. (1991) 99 CTR (Del) 40 : (1991) 192 ITR 287 (Del), it was held that even if the subscriber to capital was not genuine, the amount of share capital could not, under any circumstance, be regarded as the undisclosed income of the company. This decision was upheld by the Hon'ble Supreme Court in the case of CIT vs. Steller Investment Ltd. (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC). 34. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A), however, allowed such evidence to be produced as additional evidence. In this regard, the assessee did not produce such evidence before the AO under the bona fide belief that it was not obliged to do so, as it would adversely affect its business. The learned CIT(A) found that the documents produced as additional evidence were in regard to the additions made and could not be produced at the time of assessment proceedings, in the bona fide belief which was, as aforesaid, nurtured by the assessee. 44. 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. 45. 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." 15. Further, the Tribunal, assessee's in its own case vide Order dated 26.02.2010 in ITA No. 1156 to 1159/Hyd/2009 for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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