Loading judgment…
Facts
The assessee's appeals were filed against the orders of the CIT(Appeals) concerning assessment years 2018-19 and 2019-20. The primary issue was the addition of cash credits under Section 68 of the Income Tax Act, which the assessee contended were not found in their books of account but in the books of other companies.
Held
The Tribunal held that Section 68 of the Income Tax Act is applicable only when sums are found credited in the books of the assessee. Since the cash deposits were in the books of other companies and not the assessee's books, Section 68 was not applicable. The Tribunal relied on various judicial precedents to support this view.
Key Issues
Whether Section 68 of the Income Tax Act can be applied to add cash credits in the hands of the assessee when such credits are found in the books of other entities and not the assessee's own books.
Sections Cited
153D, 68, 69
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “A” NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI M BALAGANESH
सुनवाईक�तारीख/ Date of hearing: 03.06.2025 30.06.2025 उ�ोषणाक�तारीख/Pronouncement on आदेश /O R D E R PER C.N. PRASAD, J.M.
These two appeals are filed by the Assessee against the orders of the Ld. CIT(Appeals)-23, New Delhi dated 5.3.2024 for the assessment years 2018-19 and 2019-20.
Ld. Counsel for the assessee, at the outset, referring to ground no.5 of grounds of appeal submitted that the approval granted u/s 153D by the Addl.CIT, Central Range-1 dated 9.4.2021 is a 1 & 1726/Del/2024 consolidated approval for the assessment years 2013-14 to 2019-20 of the assessee and therefore such a consolidated approval was passed without application of mind and without verification of records and hence is bad in law.
The Ld. Counsel further submitted that the addition made u/s 68 by the AO are not the entries recorded in the books of accounts of the assessee. In other words these sums were not found in the books of the assessee but were found credited in the books of Ascertain Multi Trade Pvt. Ltd. and Murad Mercantile Pvt. Ltd. during the assessment years 2018-19 and 2019-20 which are under consideration. Ld. Counsel submits that there is no cash deposit in the bank account of the assessee i.e. Ashish Garg and therefore the assessee cannot be expected to explain the nature and sources of amounts which are not even found to be credited in the books of the assessee. Ld. Counsel for the assessee therefore submitted that the provisions of section 68 cannot be applied to the case of the assessee in respect of cash deposited in the bank accounts of various companies namely Ascertain Multi Trade Pvt. Ltd. and Murad Mercantile Pvt. Ltd., during the assessment years 2018-19 and 2019- 20.
& 1726/Del/2024 4. The Ld. Counsel further submitted that even according to the Assessing Officer himself the cash has been found deposited in the bank accounts of the companies and therefore explanation about the nature and source of the amounts deposited in the bank accounts of the companies can be given by those respective companies. Ld. Counsel submitted that even as per the Revenue those companies are separate Income Tax assessees filing their return of income and the assessments are completed in those cases. In such a situation the addition cannot be made in the hands of the assessee. Ld. Counsel placed reliance on the following cases in support of the above contentions:
• CIT Vs. P. Mohankala (2007) 291 ITR 278; • Smt. Shanta Devi Vs. CIT 171 ITR 532 (P&H); • DCIT Vs. M/s Jogia Properties Ltd. [2022] (10 TMI 1047 ITAT, Mumbai); • DCIT Vs. Basant R. Aggarwal [2023] (5) TMI 634-ITAT- Ahmedabad.
The Ld. Counsel further submitted that in assessee’s own case for the AY 2017-18 the Tribunal in ITA 1018/Del/2023 dated 31.01.2025 accepted the contention of the assessee that when the sums are not found credited in the books of the assessee such deposits cannot be treated as unexplained credits of the assessee.
On the other hand, the Ld. DR strongly supported the orders of the authorities below. 3 & 1726/Del/2024 7. Heard rival contentions, perused the orders of the authorities below. Admittedly in this case there were cash deposits in the books of the account of the following companies for the assessment years 2018-19 and 2019-20:
S.No. Name of Company AY 2018-19 AY 2019-20 Amount (Rs.) Amount (Rs.) 1. Aston Multi Trade Pvt. Ltd. 9,00,000 7,50,000 2. Murad Mercantile Pvt. Ltd. 19,45,000 1,81,400 Total 28,45,000 9,31,400 8. The above said cash deposits which were recorded in the books of accounts of the above companies were held to be unexplained cash credit in the hands of the assessee by the AO. For invoking the provisions of section 68 the first and foremost condition is that the sums should be found credited in the books of the assessee and the assessee offers no explanation about the nature and source thereof, unless these conditions are satisfied the provisions of section 68 have no application. In the present case no sum is found credited in the books of the assessee but the cash was deposited in the bank accounts of the companies and the transactions were recorded in the books of the companies referred to above and therefore since no sum are found credited in the books of the assessee, the provision of section 68 have no application to the assessee.
9. In the case of CIT Vs. Mohan Kala (supra) the Hon’ble Supreme Court held as under:
The question is what is the true nature and scope of section 68 of the Act? When and in what circumstances would section 68 of the Act come into play? A bare reading of section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression the assessees offer no explanation" means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.”
10. The Hon’ble P&H High Court in the case of Smt. Shanta Devi Vs. CIT (supra) held as under: -
“The proposition that a partnership firm is an assessable entity distinct from its individual partners is not in dispute. The primary question that falls for consideration in this reference is as to "whether the books of accounts of the partnership firm have to be treated as those of the individual partner also?" At this stage, it would be appropriate to take notice of the two relevant provisions of sections 68 and 69 of the Income-tax Act, which are in the following terms:
& 1726/Del/2024 "68. 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 Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." "69. Unexplained investments - Wherein the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year." It is not in dispute that in case the books of account of the partnership firm are not to be treated as those of the individual partner, then the amount of Rs. 8,400 which represents alleged undisclosed income, could not be brought to tax along with the income of the assessee for the assessment year 1963-64, because in that case, the provisions of section 69 of the Income-tax Act shall be applicable. Perusal of section 68 of the Income-tax Act would show that in relation to the expression "books", the emphasis is on the word "assessee". In other words, such books have to be the books of the assessee himself and not of any other assessee. In the present case, admittedly, the assessee maintained no books of account. The cash credit entry of which the sum in question forms part, was found in the books the account of the partnership firm which in its own right is an assessee. In the above view of the matter, the books of account of the partnership firm herein cannot be considered as those of the individual assessee herein and, therefore, 6 & 1726/Del/2024 section 68 of the Income-tax Act would not be attracted to the present case. The above view receives support from Laxmi Narain Gupta v. CIT [1980] 124 ITR 94 (Pat). No decision taking a contrary view has been brought to our notice at the Bar. For the reasons aforementioned, we answer the question in the negative, i.e., in favour of the assessee and against the Revenue and dispose of the reference accordingly. No costs.”
11. In the case of DCIT Vs. M/s Jogia Properties Ltd. (supra) the Mumbai Bench of the Tribunal held as under:
“22. It is not an issue of protective addition as well as substantive addition but it is an issue that in whose books money is credited. Apparently, the money is credited in the books of account of the assessee; therefore, the provision of Section 68 of the Act should have been decided in the hands of assessee. The learned CIT (A) is also clearly fell into error in holding that section 68 of the Act addition would be in the hands of only the beneficiary.
There is no finding in the assessment orders that these additions were made in the hands of these two assesses on protective basis. Therefore it is unusual for CIT [A] to hold so. He has merely relied upon the statement of Id AO quoted by Id AR.
We find that Section 68 of the Act does not talk about any beneficiaries but is added in the hands of each and every person where Assessee fails to prove identity, creditworthiness and genuineness of the transaction to the satisfaction of the learned Assessing Officer. It is deemed income in the hands of the assessee who fails to explain nature and source of the same before the AO. Deeming fiction applies in the hands of the person in whose book’s sums are credited. There it ends, such deeming fiction cannot travel to other assessee for satisfying ingredients of section 68 of the Act as held by Id. CIT [A] in this case. Therefore, 7 & 1726/Del/2024 this addition needs to be tested u/s 68 in the hands of the assessee irrespective of the fact whether the sum is added in the hands of other assessee or not or beneficiaries are different. There is no concept of beneficial ownership of income u/s 68 of the act. Importing the same in section 68 is in clear violation of simple provisions of that section.” 12. Similarly in the case of DCIT Vs. Shri Basant R. Aggarwal (supra) the Ahmedabad Bench of the Tribunal held as under:
“16.2 The objective of the protective assessment is that in case substantive assessment made in the hands of other person not sustained then tax shall be collected from the person in whose hand protective assessment has been made. However, the concept of protective or substantive assessment only be applied where it is established beyond doubt that some income has been accrued or arisen in a particular assessment year but there is some uncertainty about the person who is liable to tax. In other word this concept cannot be applied in cases where it cannot be established beyond that the income has accrued or arises. In holding so, we draw support and guidance from the order of coordinate bench of this tribunal in case of ITO ward 10(1) Ahmedabad vs. Ketan B Thakkar HUF reported in [2015] 61 taxmann.com 18 wherein it was held as under: "The protective assessment of an income can be made where, in the opinion of the Assessing Officer, an income has definitely arisen in a particular assessment year but there is any doubt about the entity in whose income is to be brought to tax. In the light of this legal position, when court revert to the facts of the present case, the court find that even income having arisen is not free from doubt since the Assessing Officer himself is not sure about the embezzlement having actually taken place. In the course of assessment of 'V, it is an admitted position that the Assessing Officer has disallowed the embezzlement loss and is in appeal against such a disallowance. When the fact of embezzlement is not accepted by the Assessing 8 & 1726/Del/2024 Officer, there cannot be any occasion to make substantive assessment and protective assessment in respect of such an embezzlement income. The question of protective assessment of such an income in the hands of the assessee, on protective basis, could have arisen in a situation in which, for example, the Assessing Officer was to come to a conclusion that embezzlement in’1 has taken place but he was not sure as to who has done the embezzlement. Of course, even this proceeds on the assumption that an amount embezzled by the assessee form his employer, even if that be so, would constitute his income notwithstanding the fact that, in such a situation, the fact of unlawful gains are coupled with corresponding obligation to return the same to its rightful owner. [Para 12]” 16.3 Coming to the facts of the case to hand, the AO based on the statement recorded by the investigation wing of certain person held that the share capital and premium thereon credited in the books of private company managed/controlled/owned by the respondent assessee are not genuine and treated the same as unexplained credit under section 68 of the Act. At the outset we note that the provision of section 68 of the Act is. a deeming provision wherein any sum credited in the books of the assessee can be treated deemed income of the concerned assessee if fails to explain the nature and source of such credit to the "satisfaction of the AO. Thus, under the provision of section 68 of the Act, it is not the case that it has been established beyond that the certain income accrued or arisen in a particular assessment year but there is uncertainty regarding the person liable to tax. Indeed, the provision of section 68 of the Act triggered when any sum credited in the books of an assessee and that assessee fails explain the nature and source of such credit then same can be deemed to be the income of that assessee in whose books the sum was credited. Thus, to assess deemed income under section 68 of the Act, there is no ambiguity regarding who should be liable to pay tax. Therefore, in our considered opinion the concept of protective assessment cannot be applied in the given facts and circumstances.” 9 & 1726/Del/2024 13. We also further find that the Tribunal considered identical submissions in assessee’s own case for the AY 2017-18 in ITA 1018/Del/2023 dated 31.1.2025 and deleted the additions observing as under:
“13. In the course of hearing, the Ld. AR produced written submissions as follows: “it is evident that for the applicability of provision of Section 68, the first requirement is that any sum is found credited in the books of an assessee' and the assessee offers no explanation about the nature and source thereof. In the present case of the assessee, no sum is found credited in the books of the assessee i.e. Ashish Garg. There is no cash deposit in the bank account of the assessee i.e. Ashish Garg. Therefore, the assessee cannot be expected to explain the nature and source of amounts which are not even found to be credited in the books of the assessee. Therefore, the provisions of section 68 cannot be applied to the case of the assessee Sh. Ashish Garg in respect of cash deposited in the bank accounts of carious companies. As per AO himself, the cash has been deposited in the bank accounts of the companies and, therefore, explanation about the nature and source of the amount deposited in the bank accounts of the companies can be given by those respective companies. As per the department itself, those companies are separate income tax assessee filing their return of income and the department is making assessments in their cases. In view of the above factual position, no addition can be made in the hand of the assessee.
The Hon'ble Apex Court in the case of CIT v. P. Mohankala 2007 (5) TMI 192 -Supreme Court held as under: - The question is what is the true nature and scope of section 68 of the Act? When and in what circumstances would section 68 of the Act come into play? A bare reading of section 68 suggests that 10 & 1726/Del/2024 there has to be credit of amounts in the books maintained by an assessee, such credit has to be of a sum during the previous year, and the assessees offer no explanation about the nature and source of such credit found in the books, or the explanation offered by the assessees in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income-tax as the income of the assessees of that previous year. The expression "the assessees offer no explanation" means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.
The Hon'ble Punjab and Haryana High Court in the case of Smt. Shanta Devi v. CIT 1987 (10) TMI 26 held as under: - Perusal of section 68 of the Income-tax Act would show that in relation to the expression" books", the emphasis is on the word " assessce". In other words, such books have to be the books of the assessee himself and not of any other assessee, In the present case, admittedly, the assessee maintained no books of account. The cash credit entry of which the sum in question forms part, was found in the books the account of the partnership firm which in its own right is an assessse. In the above view of the matter, the books of account of the partnership firm herein cannot be considered as those of the individual assessee herein and, therefore, section 68 of the Income tax Act would not be attracted in the present case. 11 & 1726/Del/2024 The above view receives support from Laxmi Narain Gupta v. CTT (19801 124 ITR 94 (Pat).
The Hon'ble Mumbai bench of ITAT in the case of DCIT Central Circle-5(1) v. Jogia Properties Ltd. 2022 (10) TMI 1047-ITAT Mumbai held as under :- 024. We find that Section 68 of the Act does not talk about any beneficiaries but is added in the hands of each and every person where Assessee fails to prove identity, creditworthiness and genuineness of the transaction to the satisfaction of the learned Assessing Officer. It is deemed income in the hands of the assessee who fails to explain nature and source of the same before the AO. Deeming fiction applies in the hands of the person in whose book's sums are credited. There it ends, such deeming fiction cannot travel to other assessee for satisfying ingredients of section 68 of the Act. - - - - - - - - - - - - - There is no concept of beneficial ownership of income u/s 68 of the act, Importing the same in section 68 is in clear violation of simple provisions of that section.
The Hon'ble Ahmedabad bench of ITAT in the case of DCIT Central Circle - 1(4). Ahmedabad v. Basant R. Agarwal 2023 (5) TMI 634 held as under: - 16.3 Coming to the facts of the case to hand, the AO based on the statement recorded by the investigation wing of certain person held that the share capital and premium thereon credited in the books of private company managed/controlled/owned by the respondent assessee are not genuine and treated the same as unexplained credit under section 68 of the Act. At the outset we note that the provision of section 68 of the Act is a deeming provision wherein any sum credited in the books of the assessee can be treated deemed income of the concerned assessee if fails to explain the nature and source of such credit to the satisfaction of the AO. Thus, under 12 & 1726/Del/2024 the provision of section 68 of the Act, it is not the case that it has been established beyond that the certain income accrued or arisen in a particular assessment year but there is uncertainty regarding the person liable to tax. Indeed, the provision of section 68 of the Act triggered when any sum credited in the books of an assessee and that assessee fails explain the nature and source of such credit then same can be deemed to be the income of that assessee in whose books the sum was credited, Thus, to assess deemed income under section 68 of the Act, there is no ambiguity regarding who should be liable to pay tax. Therefore, in our considered opinion the concept of protective assessment cannot be applied in the given facts and circumstances. In view of the above, it is submitted that entire addition made by the assessing officer in the case of the assessee Sh. Ashish Garg is liable to be deleted.”
The Ld. AR also submitted that the Hon’ble Supreme Court held in the case of Laxmipat Singhania v/s CIT UP(1969) 72 ITR that it is fundamental rule of law of taxation that, unless otherwise expressly provided, income cannot be taxed twice It was also submitted that no addition can be made in the hands of assessee as there is no any applicability of sec. 68 of the Act in his case because u/s 68 of the Act it must be proved that when any sum is found credited in the books of assessee maintained for any previous year but here no any sum found to be credited in the books of assessee so assessee / appellant not supposed to offer any explanation regarding nature and source thereof. It was also submitted that the Ld. CIT(A) rightly held that an addition of Rs. 101,16,53,000/- deserves to be deleted as same has been added back in the case of Friends Telecom Pvt. Ltd., Modular International Pvt. Ltd. and M/s Gracious Overseas Pvt. Ltd. and double addition is not permissible in law. It was also argued that it is established legal position that there has to be credit of amounts in the books maintained by assessee. Fact situation mentioned above never been rebutted by revenue and by following binding judicial precedents, 13 & 1726/Del/2024 ground no. 3 of the appeal of assessee deserves to be allowed whereas there is no any substance in the grounds nos. 1-4 of appeal of Revenue. As the Ld. CIT(A) rightly deleted the disallowance supported by the relevant law and fact, liable to be dismissed.” 14. In view of the above discussion and respectfully following the above decisions, we direct the AO to delete the addition made u/s 68 of the Act in the hands of the assessee as the provisions of section 68 have no application to the transactions which were not found recorded in the books of accounts of the assessee for the assessment years 2018-19 and 2019-20.
As we have allowed the appeal of the assessee on the ground that the provisions of section 68 are not applicable, the legal ground raised by the on the mechanical approval granted u/s 153D and the grounds on merits of the addition are not adjudicated and is left open.
In the result, appeals of the assessee are partly allowed as indicated above.
Order pronounced in the open court on 30.06.2025