VANGAPANDU PREM KUMAR,,KAKINADA vs. THE INCOME TAX OFFICER, WARD-1, , KAKINADA

आदेश /O R D E R

Per Shri D.S.Sunder Singh, Accountant Member :

Vangapandu Prem Kumar, Kakinada

are related to sustaining the addition of Rs.33,34,000/- out of total addition made by the Assessing Officer (AO) amounting to Rs.37,34,000/- u/s 68 of the Income Tax Act, 1961 (in short ‘Act. The assessee filed appeal with the following grounds:

1. The order of the Learned Commissioner of Income Tax (Appeals), Hyderabad is contrary to the facts of the case and also the law applicable to the facts of the case.

2. The learned Commissioner of Income Tax (Appeals) ought to have admitted the additional evidence filed by the appellant and called for remand report.

3. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the addition of Rs.33,34,000/- out of total addition of Rs.37,34,000/- made by the assessing officer u/s 68 of the Act towards alleged unexplained cash credits.

4. The learned Commissioner of Income Tax (Appeals) is not justified in sustaining the interest charged u/s 234A and u/s 234B of the Act.

5. Any other grounds may be urged at the time of hearing 2.1. During the appeal hearing the assessee filed petition for admission of additional grounds as under:

1. Whether on the facts and in the circumstances of the case, the assessing officer is justified in making addition u/s 68 of the Income Tax Act) 1961 in respect of deposits in bank accounts of the appellant as the provisions of S.68 are not applicable to credits in a bank account which cannot be regarded as a book of account of the appellant?

2. Without prejudice to the above, whether the assessing officer is justified in making addition towards unexplained deposits in the two bank accounts that were already disclosed in the books of account, when the assessing officer ignored the book results and assessed the income on estimate basis?

Vangapandu Prem Kumar, Kakinada 2.2. Additional ground No.1 is related to the validity of addition made under section 68 in respect of the deposits made in the bank account. The Ld.AR argued that the addition made u/s 68 is unsustainable, since, the deposits were made in the bank accounts but not in the books of accounts. According to the Ld.AR, the bank deposits are not permissible to be brought to tax u/s 68, since, section 68 refers to the entries that are made in the books of accounts for which the assessee fails to offer satisfactory explanation. The Ld.AR further submitted that the additional grounds are legal grounds which go to the root of the assessment and No fresh enquiry or material is required to adjudicate the grounds and the entire material is available in the assessment records, therefore, requested to admit the additional ground and adjudicate the same. We have heard both the parties and find that the additional grounds are legal grounds and no fresh information is required, hence, the additional grounds are admitted.

The assessee submitted that the cash deposits are sourced from loans from friends and relatives to the tune of was Rs.23.35 lakhs, the sum of Rs.11 lakhs was from the drawings of assessee’s capital account and the balance sum of Rs.4 lakhs was sourced from agricultural income. The AO did not believe the contention of the assessee with regard to loans of Rs.23.35 lakhs, drawings of Rs.11 lakhs and agricultural income of Rs.4 lakhs and treated the entire sum of Rs.37,34,000/- as unexplained cash credit and accordingly assessed the same as income u/s 68 of the Act.

Vangapandu Prem Kumar, Kakinada

Vangapandu Prem Kumar, Kakinada

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 Assessing Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year : Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10. From plain reading of section 68, what is to be made addition and what is to be brought to tax u/s 68 is the credits made in the books of accounts, for which the assessee failed to offer explanation. As per para No.4.1 of the assessment order, the AO found that the deposits were made in Savings Bank account with Andhra Bank and the same was not taken in to account in books of accounts, thus, it is clear that the deposits made in the bank account were not entered in the books of accounts. Therefore, the AO ought to have considered the addition u/s 69 instead of 68. As Vangapandu Prem Kumar, Kakinada discussed earlier, the deposits made in the bank account are not to be taxed u/s 68 of the Act and the correct course of action is to tax the same is u/s 69 of the Act. On similar facts, this Tribunal in the case of Smt.Asha Sanghavi Vs. Income Tax Officer in dated 15.11.2019 held that the cash deposits required to be brought to tax u/s 69, but not u/s 68 of the Act. For the sake of clarity and convenience, we extract relevant part of the order of this Tribunal which reads as under : “10. We have heard both the parties and perused the material placed on record. In the instant case, the AO made the addition of Rs.1,22,29,000/- representing cash deposits made in the bank account u/s 68 of the Act. Section 68 allows the AO to make addition for the sums credited in the books of accounts maintained by the assessee for which the assessee fails to offer satisfactory explanation with regard to source. In the instant case, the assessee is maintaining the books of accounts but did not make any entry in the books of accounts. The amounts were deposited in the bank accounts, but not made relevant entry. Hence, the Ld.AR argued that since the assessee did not make any entry in the books of accounts, the AO is not permitted to make the addition u/s 68. The issue with regard to deposits made in the bank account, whether to be brought to tax u/s 68 or not was considered by the coordinate bench of ITAT Mumbai in Mehul V.Vyas Vs. Income Tax Officer (supra) and held that the amounts found credited in the bank pass book or bank statement cannot be considered to be books maintained by the assessee in any previous year as understood for the purpose of section 68 of the Act. For the sake of clarity and convenience, we extract para No.8 of the cited order which reads as under : “5. We have heard the Id. Authorized representatives of both the parties, perused the orders of the lower authorities as well as the material produced before us. We will first deal with the objection raised by the Id. A.R as regards the addition of Rs.10,53,000/- which was made by the A.O under Section 68 of the 'Act', in respect of the cash deposit in the bank account of the assessee We find substantial force in the contention of the Id. A.R that an addition under Section 68 can only be made where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee either offers no explanation about the nature and source as regards the same, or the explanation offered by him in the opinion of the assessing officer is not found to be satisfactory. That before adverting further, we

Vangapandu Prem Kumar, Kakinada herein reproduce the relevant extract of the aforesaid statutory provision, viz. Section 68, which reads as under: - "Cash Credits. 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 [Assessing] officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.......... That a bare perusal of the aforesaid deeming section therein reveals that an addition under the said statutory provision can only be made where any sum is found credited in the books of an assessee maintained for any previous year. Thus, the very sine qua non for making of an addition under Section 68 presupposes a credit of the aforesaid amount in the 'books of an assessee' maintained for the previous year. We not being oblivious of the settled position of law that a statutory provision has to be strictly construed and interpreted as per its plain literal interpretation, and no word howsoever meaningful it may so appear can be allowed to be read into a statutory provision in the garb of giving effect to the underlying intent of the legislature, thus confining ourselves within the realm of our jurisdiction, therein construe the scope and gamut of the aforesaid statutory provision by according a plain meaning to the language used in Sec.

not of trustee and beneficiary. Applying this principle, the pass book supplied by the bank to its constituent is only a copy of the constituent's account In the books maintained by the bank. It is not as if the pass book is maintained by the bank as the agent of the constituent, nor can it be said that the pass book is maintained by the bank under the instructions of the constituent. In view of this, the Tribunal was, with respect, justified in holding that the pass book supplied by the bank to the assessee in the present case could not be regarded as a book of the assessee, that is, a book maintained by the assessee or under his instructions. In our view, the Tribunal was justified In the conclusions at which it arrived." We find that the aforesaid view of the Hon'ble jurisdictional High Court had thereafter been followed by a 'SMC of the ITAT Mumbai bench in the case of Smt. Manshi Mahendra Pitkar Vs. ITO 1(2), Thane (2016) 73 taxmann.com 68 (Mumbai Trib.) wherein it was held as under: - I have carefully considered the rival submissions. In the present case the addition has been made by the income tax authorities by treating the cash deposits in the bank account as an unexplained cash credit within the meaning of sect/on 68 of the Act The legal point raised by the assessee is to the effect that the bank Pass book is not an account book maintained by the assessee so as to fail within the ambit of section 68 of the Act. Under section 68 of the Act, it is only when an amount is found credited in the account books of the assessee for any previous year that the deeming provisions of section 68 of the Act would apply in the circumstances mentioned therein. Notably, section 68 of the Act would come into play only in a situation "Where any sum is found credited in the books of an assessee ........... ". The Hon'ble Bombay High Court in the case of Shri Bhaichand Gandhi (supra) has approved the proposition that a bank Pass Book maintained by the bank cannot be regarded as a book of the assessee for the purposes of section 68 of the Act. Factually speaking, in the present case, assessee is not maintaining any books of account and section 68 of the Act has been invoked by the Assessing Officer only on the basis of the bank Pass Book. The invoking of section 68 of the Act has to fail because as per the judgment of the Hon'ble Bombay High Court in the case of Shri Bhaichand N. Gandhi (supra), the bank Pass Book or bank statement cannot be construed to be a book maintained by the assessee for any previous year as understood for the purposes of section 68 of the Act. Therefore, on this account itself the impugned addition deserves to be deleted. I hold so"

Vangapandu Prem Kumar, Kakinada

We further find that a similar view had also been arrived at in a 'third member' decision of the Tribunal in the case of Smt. Madhu Raitani Vs. ACIT (2011) 10 .taxmann.com 205 (Gauhati) (TM), as well as by a coordinate bench of the Tribunal in the case of ITO, Barabanki Vs, Carnal Kumar Mishra (2013) 33 taxamann.com 610 (Lucknow Trib.) Thus in the backdrop of the aforesaid facts of the case read in light of the settled position of law, we are of the considered view that the addition made by the A.O in respect of the cash deposit of Rs.10,53000/-(supra) in the bank account of the assessee by invoking Section 68 has to fail for the very reason that as per the judgment of the Hon'ble Bombay High Court in the case of Shri Bhaichand N. Gandhi (supra), a bank pass book or bank statement cannot be considered to be a 'book' maintained by the assessee for any previous year, as understood for the purpose of Section 68 of the Act. Therefore, on this count itself the impugned addition Rs.10,53,000/- deserves to be deleted. 10.1. While delivering the decision, the Coordinate Bench relied on the decision of Hon’ble Bombay High Court in the case of CIT Vs. Bhaichand N.Gandhi (supra). Similar view was taken by the coordinate Bench of ITAT, Delhi in the case of Smt Babbal Bhatia in TS-306-ITAT- 2018. In the instant case, though the assessee has maintained the books of accounts, the cash deposits made in the bank account were not found credited in the books of accounts. The entire transactions were made outside the books of accounts. In the absence of any finding with regard to cash deposits recorded in the books of accounts of the assessee, the addition made by the AO u/s 68 in respect of cash deposits made in the bank account are unsustainable. During the appeal hearing, the Ld.DR did not bring any other decision to support the revenue’s contention that the cash deposits made in the bank account to be brought into the purview of section 68 of the Act. The case law relied upon by the Ld.DR in the case of Sachdeva (supra) though related to sale of jewellery and the failure of the assessee to prove the genuineness of sale, it was not related to the addition u/s 68. The case law relied upon by the Ld.DR is distinguishable and does not help the Revenue’s case. Since the facts are identical to the decision of Mehul V.Vyas (supra), respectfully following the view taken by the coordinate bench of ITAT, Mumbai, we hold that the addition made by the AO u/s 68 in respect of cash deposits made in the bank account is unsustainable, accordingly, we set aside the order of the Ld.CIT(A) and delete the addition made by the AO. Accordingly, the appeal of the assessee is allowed.

Vangapandu Prem Kumar, Kakinada 7.1. Since the facts are similar, respectfully following the view taken by the Coordinate Bench of ITAT in the case of Asha Sanghavi (supra), we hold that the addition made u/s 68 in respect of deposits made in the bank account is unsustainable, hence, deleted. The assessee also explained that the family is having agricultural holdings of 48.60 acres and the entire deposits were made out of agricultural income of the family members which was received in the form of loans / gifts, thus, the assessee has argued the case on merits also. Since, we have deleted the addition, holding that the addition u/s 68 unsustainable, we consider it is not necessary to adjudicate the grounds on merits and other grounds raised by the assessee. Accordingly, appeal of the assessee is allowed.

8. In the result, appeal of the assessee is allowed.

Order pronounced in the open court on 23rd November 2020.