S R RAJENDRA KUMAR,BANGALORE vs. INCOME TAX OFFICER, WARD 4(4),, BANGALORE

Facts apropos are that assessee had filed his return for impugned assessment year declaring income of Rs.1,85,060/-. Original assessment was completed u/s.143(3) of the Income-tax Act, 1961 (‘the Act’ in short), after making an addition of Rs.1,08,000/-. Proceedings u/s.263 of the Act were ITA.1092/Bang/2014 Page - 2 initiated by the CIT for a reason that assessee’s bank account with Karur Vysya Bank was not reflected in the books of account. Pursuant to order u/s.263 of the Act, assessee was required to explain the sources of credits in various bank accounts held by it. There were total deposits of Rs.17,48,674/- in assessee’s the bank account over various dates. Assessee’s reply in this regard was as under :

In its appeal before the CIT (A) argument of the assessee was that during the period 31.04.2007 to 15.10.2007 he had no registration from Commercial Tax Department. As per the assessee, current account could not be opened ITA.1092/Bang/2014 Page - 3 without such registration. Since business had already started cheques issued by various parties on sale of steel materials was with the assessee, and such cheques were deposited into the SB account. According to the assessee the withdrawn money therefore was utilised for buying goods for trading. Assessee also took an argument that Section 68 of the Act would be attracted only when there is a credit entry in the books of account. As per the assessee, credits being found in the pass book and not in the books of account, Section 68 of the Act, could not be attracted.

CIT (A) was partially appreciative of the above contentions. According to him, some evidence could be produced by the assessee to show that the credits in the bank account represented sale proceeds of iron and steel material. He held that assessee was entitled for relief of 60% of the addition of Rs.17,48,674/-. Thus out of the total addition of Rs.17,48,674/-, CIT (A) confirmed Rs.6,99,470/- and deleted the balance.

Now before us, Ld. AR submitted that Section 68 could not be attracted since the credits in the bank pass book were never a part of books of account of the assessee. As per the Ld. AR pass books cannot be considered as books of account and hence Section 68 could not be attracted. Reliance was placed on judgment of Hon’ble Punjab & Haryana High Court in the case of Shanta Devi v. CIT (171 ITR 532) and that of Hon’ble Bombay High Court in the case of CIT v. Bhaichand H. Gandhi (141 ITR 67).

Per contra, Ld. DR strongly supported the order of lower authorities.

We have perused the orders and heard the rival contentions. Sole ground taken by the assessee is that Section 68 would not be attracted since bank pass book could be considered as books of account maintained by an assessee. No doubt in the judgment of Hon’ble Mumbai High Court in the case of Bhaichand H. Gandhi (supra), as well as that of Hon’ble Punjab & Haryana High Court in the case of Shanta Devi (supra), it has been held that Section 68 of the Act would be attracted only when an amount is credited in the books of the assessee. Passbooks are maintained by the bank and cannot be considered as books of the assessee. However in the case before us, there is no dispute that assessee was not able to give any reasonable explanation for the credits in the bank account. Just because the AO mentioned Section 68 of the Act for making the addition would not, in our opinion, absolve the assessee from its duty to explain the source of the deposits. When money is deposited in a bank account, it is certainly an investment made and when investments are not recorded in the books of account and where assessee has not offered any plausible explanation, in our opinion even if Section 68 of the Act cannot be applied, Section 69 will automatically come into play. Just because AO mentioned Section 68 in the assessment order, it would not mean that assessee can go scot-free without explaining the source of investments. Section 69 of the Act clearly states that investments which are not recorded in the books of account on which no good explanation was offered on the nature and source, could be treated as income of the assessee. In such circumstances we are of the opinion that AO was justified in making addition and the CIT (A) had given more than considerable relief to ITA.1092/Bang/2014 Page - 5 the assessee by sustaining the addition to the extent of only 40%. We do not find any reason to interfere with the order of CIT(A).

In the result, appeal of the assessee stands dismissed.