C I T vs. M/S CITIZEN URBAN COOP. BANK LTD.

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ITA/547/2008HC Punjab & HaryanaPHHC01080550200821 April 2011Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL5 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the amounts in question could not be treated as unexplained credits in the hands of the assessee under Section 68 of the Income Tax Act, 1961. The Court found no error in the ITAT's appreciation of evidence. The Tribunal had concluded that there was no nexus between the creditors and the bank, and therefore, the amounts could not be treated as unexplained credits of the assessee. The reasoning provided by the Tribunal, which was upheld by the High Court, included specific instances where the identity and genuineness of depositors or their introducers were established. For instance, the deceased Managing Director introduced some accounts, and the origin of funds for certain accounts predated the assessment year. An accountant of the bank appeared and confirmed knowing account holders, discharging the onus. A Director of the bank had his account, and an introducer confirmed knowing another account holder. Furthermore, the proprietor of a business owned up an account. The assessee also provided further details of account holders to the AO. The Court found that the Revenue had not shown these findings to be perverse or erroneous. The substantial question of law was decided against the Revenue.

What were the facts?

The Revenue (Commissioner of Income Tax, Jalandhar) appealed against an order of the Income Tax Appellate Tribunal (ITAT) for the assessment year 1999-2000. The assessee, M/s. Citizen Urban Co-op. Bank Ltd., filed a return declaring Nil income. During a survey, certain transactions were noticed where amounts from FDRs were credited to specific accounts, cash withdrawn, and accounts closed. The assessee was unable to prove the identity of the depositors. The Assessing Officer (AO) made an addition of Rs. 59,41,593/- under Section 68 of the Income Tax Act, 1961, representing the peak balance in these accounts. The Commissioner of Income-tax (Appeals) deleted this addition. The ITAT upheld the deletion, leading to the Revenue's appeal to the High Court.

What were the issues?

1. Whether on the facts and in the circumstances of the case, the Hon’ble ITAT is right in holding that Section 68 of the Income Tax Act, 1961 does not apply to the co-operative bank for assessing the unexplained credits as taxable income? Assessee's Contentions: The Tribunal found that there was no nexus between the creditors and the bank, and therefore, the amounts could not be treated as unexplained credits of the assessee. Specific instances were cited: for accounts 8211, 8212, and 8213, the introducer was the deceased Managing Director of the bank, and the investments originated in earlier years. For accounts 954, 955, and 956, the introducer, an accountant of the bank, appeared before the AO and admitted knowing the account holders, thus discharging the onus. The existence of account holder S. Swaran Singh (a Director) was proved by clearing entries. For account 1658, the introducer confirmed knowing the account holder. For account 8268, the proprietor of M/s. H.S. Gas Service owned up the account, which was confirmed by the AO assessing her. Further details of account holders were provided to the AO. Revenue's Contentions: The Revenue argued that the unexplained amounts in the accounts of account holders could be treated as income of the assessee-bank under Section 68, as the Revenue had not established connivance of the account holders with the bank.

Which sections of the Income-tax Act were involved?

Section 260A,Section 68,Section 133A,Section 148,Section 143(3),Section 131

AI-generated summary — verify with the full judgment below

Income Tax Appeal No. 547 of 2008 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 547 of 2008 Date of decision: 21.4.2011 Commissioner of Income Tax Jalandhar --- Appellant Versus M/s. Citizen Urban Co-op. Bank Ltd. Jalandhar --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Mr. Vivek Sethi, Advocate for the appellant-Revenue. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the Revenue against the order dated 15.2.2008 passed by the Income Tax Appellate Tribunal Amritsar Bench, Amritsar (in short “the Tribunal”) in ITA No. 115(ASR) 2003, relating to the assessment year 1999-2000. 2. The appeal was admitted by this Court for determination of the following substantial question of law: “Whether on the facts and in the circumstances of the case, the Hon’ble ITAT is right in holding that Section 68

Income Tax Appeal No. 547 of 2008 2 of the Income Tax Act, 1961 does not apply to the co- operative bank for assessing the unexplained credits as taxable income?”

3.

The facts, in brief, necessary for adjudication as narrated in the appeal, are that the respondent-assessee is a co-operative society. It filed return of income for the assessment year 1999-2000 on 29.6.1999 declaring ‘Nil’ income. Later on, vide letter dated 1.2.2000, the assessee was informed that during the course of survey under Section 133A(1) carried at the Bank on 1.10.1999, certain accounts and transactions were noticed whereby the amounts contained in the FDRs were credited to those accounts and thereafter the cash was withdrawn and accounts were closed. In the wake of this situation, the assessee-bank was required to provide identity of those account holders, but the assessee expressed its inability to prove the genuineness of the creditors/depositors. Owing to failure of the assessee to do so, action under Section 68 of the Act was recommended and accordingly, a notice under Section 148 of the Act was issued to the assessee. Thereafter assessment was made under Section 143(3) of the Act vide order dated 28.3.2002 at an income of Rs. 59,41,593/-, by making addition of the said amount, on account of peak balance standing in the name of the various depositors. The Commissioner of Income-tax (Appeals) {in short “the CIT (A)”}, deleted the addition vide order dated 31.12.2002, made by the assessing officer. The Revenue carried appeal before the Tribunal. The order of the CIT(A) having been upheld and Revenue’s appeal dismissed, it is how the Revenue is in appeal before us.

Income Tax Appeal No. 547 of 2008 3

4.

We have heard learned counsel for the appellant and have perused the record.

5.

The point in issue in this appeal is, whether the unexplained amount in the accounts of the account holders could be treated income of the assessee-bank under Section 68 of the Act, where the revenue had not established that there was connivance of the said account holders with the assessee-bank?

6.

The Tribunal on appreciation of evidence came to the conclusion that there was no nexus of the said creditors with the bank and, therefore, the same could not be treated to be unexplained credits of the assessee. The findings recorded by the Tribunal in that behalf in paras 34 to 40 are as under:

“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 of S.B. 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 A.O., they could not be brought to tax in the year under appeal, in the hands of the assessee. The learned CIT (A), thus, rightly deleted the addition in this regard.

Income Tax Appeal No. 547 of 2008 4

35.

The introducer of account Nos. 954. 955 and 956 was Shri Parmod Sharma, Accountant of the assessee-bank. He appeared before the A.O. in response to 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.

36.

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 existence also stands proved by the entries through clearing in account.

37.

Shri Pawan Sharma was the introducer of account No. 1658. His statement was recorded by the A.O. under Section 131 of the Act. He also confirmed knowing the account holder.

38.

Smt. Harsimaranjit Kaur, Prop. M/s. H.S. Gas Service owned up account No. 8268 of Shri J.P. Singh, which fact was got confirmed by the learned CIT(A) through the A.O assessing the said lady.

39.

The above facts were duly taken into consideration by the learned CIT(A) while admitting the appeal. We do not find anything erroneous with the order of the learned CIT (A).

40.

Not only this, in pursuance to the directions issued by the learned CIT(A), the assessee located further details/addresses of account holders. These details were Income Tax Appeal No. 547 of 2008 5 furnished to the A.O. vide letter dated 4.10.2005. A copy of this letter had been placed at pages 90-91 of the assessee’s paper book. This also boosts the stand taken by the assessee.”

7.

The aforesaid findings have not been shown to be perverse or erroneous in any manner by the learned counsel for the Revenue. In the given facts, the amounts mentioned above cannot be said to be unexplained credits in the hands of the assessee, under Section 68 of the Act. The substantial question of law is, thus, decided against the Revenue and the appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) April 21, 2011 JUDGE *rkmalik*

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