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TMI Blog2008 (2) TMI 944X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-bank failed to prove the identity of the so-called account holder and also expressed its inability to prove the genuineness of the creditors/depositors. 2. That the learned Commissioner of Income-tax (Appeals) while upholding the initiation of notice under section 148 has admitted that the relevant accounts under consideration based on which notice was issued were operated in violation of banking norms by not obtaining any introduction, photo or proper address which means identity of the depositor was not verifiable. The amounts were deposited in the ledgers of the bank constituting the books of account of the appellant and in the light of finding of the Investigation Wing, the onus was on the appellant to establish the identity of the depositor which it failed to do so. 3. That while allowing relief at Sr. No. 1 above, the learned Com missioner of Income-tax (Appeals) has erred in admitting additional documentary evidence in violation of rule 46A especially when vide reply dated March 27, 2002, before the Assessing Officer, the asses see-bank denied to produce the bank account holders on the plea that it will adversely affect its banking business. As such the del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions of the Investigation Wing. In this manner, the learned Commissioner of Income-tax (Appeals) upheld the notice issued under section 148 of the Act. 5. Before us, the stand of the assessee has remained much the same as that before the learned Commissioner of Income-tax (Appeals). However, the categorical findings of fact recorded by the learned Commissioner of Income-tax (Appeals) have remained firm. The assessee has not been able to show as to how the satisfaction recorded was not of the Assessing Officer, but of the Deputy Director of Income-tax. The reasons recorded also did not suggest that the satisfaction was not that of the Assessing Officer, but of some other authority. Moreover, the issue now stands well-settled by the hon'ble Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500, wherein, inter alia, it has been held that the expression "reason to believe" in section 147 of the Act would mean cause or justification ; that if the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, he can be said to have reason to believe that the income had escaped assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h amounting to ₹ 13.70 lakhs were made in this account. The entire amount was withdrawn in cash. 8212 S/Sh. Sham Lal, Dev Sohan Lal, R/o Mota Singh Nagar, Jal -do - This account was opened on Feb-ruary 4, 1997 and closed on October 14, 1999. Huge credit deposits/ transfers of FDR's from Kishanpura Branch amounting to ₹ 19.53 lakhs were made in this account. The entire amount was withdrawn in cash. 8213 S/Shri Parveen, Mohan Lal R/o Mota Singh Nagar, Jalandhar -do - This account was opened on February 4, 1997 and closed on October 13, 1999. Huge credit deposits/transfers of FDRs from Kishanpura Branch amounting to ₹ 17.63 lakhs were made in this amount. The entire amount was withdrawn in cash. 9. The Investigation Wing, in its aforesaid letter, further intimated that huge transfers from FDRs were credited to the above accounts and afterwards, the cash was withdrawn and the accounts were closed ; that the bank was asked to provide the identities of these account holders ; that the bank expressed its inability to prove the genuineness of the creditors/ depositors ; that the Investigation Wing had recorded the statement of the managing director of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h. Rajinder Kumar, 22, Mathra Nagar, Jalandhar. 10. 1658 Sh. Gaurav Gandhi S/o Sh. Arjan Dev, Focal Point, Jal. 11. 1581 Sh. Harish Chander S/o Sh. Mohan Lal, Basti Sheikh, Jal. 12. 8268 Sh. J. P. Singh S/o Sh. Pritam Singh, Lal Bazar, Jal. 13. 956 Smt. Veena Rani, W/o Sh. Subh Kumar, 37, New Sodal Nagar, Sodal Road, Jalandhar. 14. 1108 S. Swaran Singh (No other particulars given) 12. From the above, the Assessing Officer observed that the addresses given were incomplete ; that they depicted only the names of the colonies/bastis which were spread over thousands of acres and were having thousands of houses, that the address of the account holder only depicted the name of road, which stretched in kilometers and a number of colonies were located thereon ; that the address of Ramesh Kumar and Mohinder Singh, account holders of account No. 1571 above, was Ladowali Road, Jalandhar ; that Ladowali Road started from Shastri Market and extended upto BSF Chowk, i.e., a distance of about 2 kms. ; that it has so many colonies located on both of its sides ; that so, it was very difficult to locate Shri Ramesh Kumar and Shri Mohinder Singh; that so much so, even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the address was incomplete ; that the bank did not even take the trouble to produce the certificate from its own directors to disclose the exact/full address of the persons whom they had themselves introduced at Sr. No. 3 and 5, who were stated to be the existing directors of the bank; that the assessee, vide its two letters, had given only the addresses of the introducers and had contended that it was not obliged to produce the account holders ; that this version of the assessee was incorrect, since only the full address of the account holder was asked for ; that the assessee had thus declined to provide the identity of the account holders/depositors, by not giving their complete addresses ; that it had been stated that the bank obtained a witness as introducer regarding the identity of the person who opened an account ; that the bank accepted the introduction of the person in accordance with the rules framed in this regard ; that the so-called introducer was, in no way, accountable or answerable to the Income-tax Department regarding the identity of the account holders, rather, he was responsible to the bank, which accepted the identity of the person as genuine at the instance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be produced before the Assessing Officer, since sufficient opportunity had not been afforded to produce the same, as the assessment proceedings were seriously pursued by the Assessing Officer only towards the close of the limitation period. The assessee thus requested the Commissioner of Income-tax (Appeals) to admit these documents stating that these documents could not strictly be termed as additional evidence, since they were only informative in nature with regard to the identity of the bank's clients and their respective accounts with the bank, because the assessee-bank had been under the bona fide belief that it was not 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. 15. The aforesaid request of the assessee was forwarded by the learned Commissioner of Income-tax (Appeals) to the Assessing Officer for his comments. The Assessing Officer objected to the admission of the additional evidence, stating that the assessee, vide its reply dated March 27, 2002, filed before the Assessing Officer, had denied to produce the account h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Negotiable Instruments Act, 1881, which is available for cheque transactions ; that the bank could rely on the introduction of any old customer ; that where there is any negligence in the opening of the current account, so as to affect the rights of the true owners of the cheques, the protection afforded under section 131 of the Negotiable Instruments Act cannot be availed of by the bank ; that where the account is opened only through cash deposit and is throughout operated in the same manner, the provisions of section 131 of the said Act would not be applicable, since the opening of the account by cash is a little different from opening an account by cheque ; that as such, the provisions of section 68 of the Act are not applicable, the banking company being under no legal obligation to question the source of money deposited by its customers, nor can it compel its customers to deposit the money in cash or by cheque/draft ; and that if at all the identities of the customers were found to be doubtful, it was also that the bank would lose the protection under section 131 of the Negotiable Instruments Act. 18. The assessee further submitted before the learned Commissioner of Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank ; that account No. 1658 was introduced by Shri Pawan Sharma, employee of the bank ; that there was no substance in the Assessing Officer's allegation that the assessee-bank did not take proper introduction while opening these accounts ; that the Assessing Officer ought to have applied his mind to the facts of the case, as to whether the amount which stood credited in the accounts of its customers could be deemed to be income earned by the assessee-bank, as the discretion vested with the Assessing Officer should have been exercised in favour of the assessee rather than against it ; and that alternatively, there being no finding that the bank was engaged in any business other than the banking business, the entire income added should have been allowed as exempt under section 80P of the Act. 19. By virtue of the impugned order, the learned Commissioner of Income-tax (Appeals) deleted the additions made by the Assessing Officer, holding as follows : "I have considered the submissions of the appellant and have gone through the details filed during the course of appellate proceedings as well as the information lying in the records. Looking at the nature of activities of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l maturity proceeds of ₹ 7,13,138 along with interest of ₹ 1,86,585 totalling to ₹ 8,99,723 was credited in this account on January 8, 1999. The said account was opened in Kishanpura Branch on the introduction of a staff member in that branch and its final proceeds were credited in head office in the account which was introduced by the ex-managing director of bank. The other credits were also on account of realization of FDRs for which separate introductions are available and same was the posi tion regarding other credits in this accounts. The similar transactions appeared in other accounts i.e., 8212 and 8213. It is seen from records that identity of account holders could not be established but the same were introduced by different persons either connected with the bank as managing director/staff member or existing account holders of the bank and at the stage of introduction the introducer being aware of whose account he is introducing the bank as a separate entity cannot be taxed for the credits in these accounts. In view of these facts, the addition on account of peak credits made by the Assessing Officer is deleted and the Assessing Officer should proceed in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P. Singh does not survive because the credit in the said account has already been owned up by Smt. Harsimranjit Kaur Prop. M/s H. S. Gas Service being assessed with the Deputy Commissioner of Income-tax, Central Circle I, and the facts in this regard were confirmed by the Assessing Officer assessing the case of Smt. Harsimranjit Kaur. It was men tioned that the credits in the said account were owned up by the said Smt. Harsimranjit Kaur by filing a petition before the hon'ble Settle ment Commission. Therefore, the said addition in view of these facts does not survive. The account of Shri Harish Chander wherein peak credit was worked out by the Assessing Officer at ₹ 59,634 was introduced by M/s. S. K. Traders having account savings bank account 244 with the appellant-bank and following the decision in other cases and subject to same finding and direction the addition of ₹ 59,634 is deleted. There are small additions of ₹ 5, ₹ 172, ₹ 189 and ₹ 102 in the case of other account holders but the same are supported by proper introduction and considering the quantum involved, these additions are deleted subject to same directions as in the cases of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h somebody else's money and not its own ; that the Assessing Officer himself accepts that the account holders were different from the bank ; that the definition of "banking company" has been given in section 5(b) of the Banking Regulations Act ; that the bank acts under the Customers Identification Scheme of the RBI, as is available at page 83 (back) of the assessee's paper book ("APB", for short) ; that therefore, the bank is acting within the guidelines issued by the RBI ; that it is also a requirement of the RBI (APB 85) for the bank to maintain confidentiality and under this, personal information quoted by the banks in respect of their customers is not to be provided to other agencies, else it would amount to breach of customer's confidentiality obligation ; that strict compliance in this regard has been required by the RBI ; that then, in the case of offences punishable under the Income-tax Act committed by the staff/officers of the bank, such a delinquent has to be proceeded against by the Department, as provided by the RBI (APB 83) ; that then, this is a case of a co-operative society, to which deduction under section 80P is allowed ; and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, section 68 of the Act is not attracted. In the cases of banking companies like the assessee, the customer's identity is required to be taken by the bank with proper introduction, photographs and address, etc. This is so, because any person from the general public can open an account with a bank. The other cases of acceptance of deposits cannot be equated with that of the bank. In those cases, normally, deposits are accepted from the people connected with or known to the depositees. It is in accordance with the terms of section 131 of the Negotiable Instruments Act that this requirement is there. As such, if introduction of the customer had been duly taken by the bank, the bank would not be liable in case of a fraud. Moreover, pertinently, if the customer seeks to operate the account with cash only, the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lute obligation on a bank to make inquiries about a proposed customer, so as to avail of the protection under section 131 of the Negotiable Instruments Act. In Union of India v. National Overseas and Grindlays Bank Ltd. [1978] 48 Comp Cas 277 (Delhi) referring to the Bapulal Premchand v. Nath Bank Ltd., [1946] 16 Comp Cas 133 ; AIR 1946 Bom 482, it was held that the bank could rely on the introduction of any old customer and that if the bank bona fidely acted on the reference of a customer, it can avail of the protection under section 131 of the Negotiable Instruments Act. So far as regards non-obtaining of photographs of the account holders, it is true that the same were not obtained in the normal course. Pertinently, in savings bank accounts where cheque facilities were not provided, RBI guidelines (page 76 of the assessee's paper book) provided exemption. Thus, in respect of accounts with only cash transactions, even the rule of proper introduction did not operate strictly. All this shows that the assessee-bank did not commit any infringement in taking proper introduction and, therefore, it is incorrect that there was any deliberate attempt on the part of the assessee to acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 Assessing Officer, they could not be brought to tax in the year under appeal, in the hands of the assessee. The learned Commissioner of Income-tax (Appeals) thus rightly deleted the addition in this regard. 33. The introducer of account Nos. 954, 955 and 956 was Shri Parmod Sharma, accountant of the assessee-bank. He appeared before the Assessing Officer in response to the summons under section 131 of the Act. He admitted knowing the account holders personally. The onus with regard to these accounts thus stood amply discharged. 34. S. Swaran Singh was the account holder of account No. 1108. He was one of the directors of the bank and so he needed no independent introduction to open his account with the assessee-firm. His independent existe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncometax (Appeals) found that the documents produced as additional evidence were in regard to the additions made and could not be produced at the time of the assessment proceedings, in the bona fide belief which was, as aforesaid, nurtured by the assessee. 42. We do not find any error in the order of the learned Commissioner of Income-tax (Appeals). 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 assesseebank, was mala fide. 43. 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. I. T. A. No. 114/Asr/2003 (assessment year 1998-99) : 44. In this case also, the assessee has, under rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, taken the objection/ground that the learned Commissioner of Income-tax (Appeals) erred in sustaining the assumption of jurisdiction by the Assessing Officer to issue notice under section 148 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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