THE COMMISSIONER OF INCOME TAX vs. PRAGATI CO.OP BANK LTD.

ITR/215/1993HC GujaratGJHC24021261199329 June 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI19 pages
AI SummaryAllowed

What were the facts?

The assessee, Pragati Co.op Bank Ltd., a cooperative bank, filed a return of income of Rs. 14,317/- for Assessment Year 1983-84. The Assessing Officer (AO) assessed the total income at Rs. 2,02,61,628/-. This was after search proceedings under section 132 of the Income Tax Act, 1961, on December 24, 1983, which led to a prohibitory order under section 132(3) regarding fixed deposit receipts. The AO made additions of Rs. 1,80,95,811/- as income from undisclosed sources (fixed deposits) and Rs. 21,71,500/- as interest on these deposits. The additions were based on discrepancies in bank records, including missing addresses and signatures, and interest paid to one person for deposits in different names. The Commissioner of Income Tax (Appeals) deleted these additions, and the Income Tax Appellate Tribunal (ITAT) confirmed the deletion. The Commissioner of Income Tax (CIT) has referred the matter to the High Court.

What did the High Court hold?

The High Court held that the Tribunal was right in law in confirming the deletion of additions. The Court agreed with the principles that an assessee can be asked to prove the source of credit in their books but not the source of the source. In this case, the assessee, a cooperative bank, had discharged its primary onus by furnishing details of third-party deposits. It was not disputed that these deposits were made by customers, not directors or their relatives. The Court noted that the bank's activities are regulated by the Banking Regulations Act, 1949, and RBI guidelines, and under Section 80P of the Act, income from banking activities is exempt for cooperative banks, thus providing no reason for the bank to generate undisclosed income. The Court found that the explanations for discrepancies in record maintenance, as stated by the bank's Manager, were accepted by the appellate authorities. The grievance that complete details were not furnished was found to be incorrect. Therefore, the Court answered the referred question in the affirmative, in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Authority (ITAT) was right in law in confirming the order of the CIT(A) deleting the addition of Rs. 1,80,95,811/- in respect of fixed deposits and Rs. 21,71,500/- in respect of interest? (Question of law) Assessee's Contentions: - The additions were rightly deleted by the appellate authorities who concurrently recorded findings of fact. - The AO equated irregularities in record maintenance by bank staff with the deposit of unaccounted money, treating third-party deposits as the bank's income. - Over 90% of fixed deposit holders had Savings or Current Accounts with the bank, which were not doubted. - The assessee discharged the onus by providing details of third-party deposits, and the revenue failed to investigate these parties. Revenue's Contentions: - The AO was justified in making additions due to discrepancies like missing addresses on specimen signature cards, missing bank official signatures, interest paid to one person for deposits in different names, and illegible signatures of interest recipients. - The ITAT made a sweeping statement that no addition could be made under Section 68 in the case of a bank. - Even a bank could earn undisclosed income and bring it into its books via fictitious fixed deposits. - The assessment order should be restored.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 132,Section 132(3),Section 68,Section 35,Section 80P

AI-generated summary — verify with the full judgment below

1 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 215 of 1993 For Approval and Signature: HON'BLE MR.JUSTICE D.A.MEHTA HON'BLE MS.JUSTICE H.N.DEVANI ======================================================= ======= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ======================================================= THE COMMISSIONER OF INCOME TAX - Petitioner(s) Versus PRAGATI CO.OP BANK LTD. - Respondent(s) ======================================================= Appearance : MR B.B.NAIK for Petitioner No(s).: 1. MR RK PATEL for Respondent No(s).: 1. ======================================================= CORAM :THE HON'BLE MR.JUSTICE D.A.MEHTA HON'BLE MS.JUSTICE H.N.DEVANI Date : 29/06/2005

2 ORAL JUDGMENT (Per : THE HON'BLE MR.JUSTICE D.A.MEHTA) 1 The Income Tax Appellate Tribunal, Ahmedabad Bench 'C' has refe

The order continues below.

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