Wednesday, July 10, 2013

Books of account pre-requisites to tax unexplained cash credit; no additions for deposit in bank account in absence of books

Where assessee has not maintained any books of account, AO can’t invoke provisions of section 68 on the basis of deposits made in bank account of assessee

In the instant case, the assessee had not maintained any books of account. During assessment, the AO invoked the provisions of section 68 and made additions of all the deposits made by assessee in his bank account. The assessee, however, contended that the provisions of section 68 could only be invoked where any sum was found credited in his books of account. On appeal, the CIT (A) deleted the additions. Aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The provisions of section 68 can only be invoked if any sum is found credited in the books of account maintained by assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by him isn’t, in the opinion of the Income-tax Officer, satisfactory. In this eventuality, the said sum so credited may be charged to income-tax as the income of the assessee of that previous year;

2) The passbook issued by the bank can’t be termed to be the books of account  of the assessee as per the judgment of the Bombay High Court in CIT v. Bhaichand N. Gandhi [1982] 11 Taxman 59. Therefore, the provisions of section 68 can’t be invoked on various deposits or credits found in the bank account of the assessee in the absence of any books of accounts maintained by assessee for the previous year;

3) Though provisions of section 68 couldn’t be invoked on the deposits made in the bank account of the assessee, yet the veracity of the additions made by the AO on certain deposits by invoking the provisions of section 68 examined and the assessee had furnished reasonable and plausible explanations along with confirmation with regard to different deposits. Thus, there was no infirmity in the order of CIT(A) – ITO v. Kamal Kumar Mishra [2013] 33 610 (Lucknow - Trib.)