This article looks to answer a very specific question whether the Assessing Officer make an addition u/s 68 of the Income Tax Act, 1961 solely relying upon the bank passbook/ statements for making addition when the transaction was outside the books of the accounts if maintained by the Assessee.
Before examining the aspects whether the bank passbooks can be regarded as books of accounts of the Assessee, it is relevant at this juncture to understand the definition of books of accounts of the Assessee under the Income Tax Act, 1961 and it relevance to the Section 68.
Books of accounts has been defined u/s 2(12A) of the Act as-
“books or books of account' includes ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy, disc, tape or any other form of electro-magnetic data storage device”
The definition of the books or books of accounts is inclusive in nature, thus, the Assessing Officer cannot make an addition in case of the Assessee merely on finding any record of the transaction on a paper and term it as books of accounts of the Assessee. Furthermore, the Assessing Officer can only make an addition based on the books of the Assessee and not based on the books of any other person.
This view was held in the case of the CBI vs. V.C. Shukla (1998) 3 SC 410, 433, 434 by the Hon’ble Supreme Court as-
“Collection of sheet fastened or bound together so as to form material whole. Loose sheets or scraps of paper cannot be termed as books.”
Followed by the Hon’ble Delhi High Court in the case of Girish Chaudhary 296 ITR 619 it was held that-
“entries made therein are relevant in view of section 34 of Indian Evidence Act. 1872 but these entries above shall not be sufficient evidence charge any person with the liability. Thus no addition can be made merely on the basis of rough jottings or scribbling found during the course of search unless these are supported with some cogent evidences.”
Section 68: Before proceeding further it would be imperative to refer Section 68 which states that-
“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”
The Pre-requisites for invoking the provision of Section 68
In order to invoke the provision of the Section 68 by the Assessing Officer following conditions are to be satisfied
i. Any sum is found to be credited in the books of Assessee.
ii. The Assessee offers no explanation about the nature and source thereof.
iii. The explanation offered by him is not, in the opinion of the Assessing Officer satisfactory.
Issue: Section 68 of the Act clearly states that in order to make an addition under this section any sum is found to be credited in the books of accounts of the Assessee and the explanation about the nature and source of the credit is either not given or the explanation so provided by the Assessee is not satisfactory in the opinion of the Assessing Officer. The dispute arises when the Assessee deposits any sum into the bank account or any sum is credited in the bank passbook and such transaction were not recorded in the books of accounts. In such instance two issues arises before the Court they are:
1. Can the bank passbook be considered as the books of the Assessee for making an addition u/s 68?
2. Can the Assessing Officer make an addition of such sum u/s 68 of the Act solely relying on the bank passbook/ statements?
Whether bank passbook can be considered to be the books of accounts of the Assessee?
It is to be noted that a bank passbook is not considered as books of account due to the following reasons:
i. The relationship between the banker and the customer is one of debtor and creditor and not a trustee and beneficiary.
ii. It is only a copy of the constituent's account in the books maintained by the bank.
iii. It is not as if the pass book is maintained by the bank as an agent of the constituent.
iv. Nor can it be said that the pass book is maintained by the bank under the instructions of the constituent.
Judicial Pronouncements:
Some of the judicial pronouncements dealing with the issues under this regards are:-
I. In case of Baladin Ram v. CIT [1969] 71 ITR 427 (SC) the Hon’ble Supreme Court held that-
“section 68 will be applicable only when any amount is found credited in the books of an assessee. On the other hand if the undisclosed income was found to be from some unknown source or the amount represents some concealed income which is not credited in his books then the section will not be applicable.”
II. In case of Mehul V. Vyas vs. ITO, [2017] 80 taxmann.com 311 (Mumbai-Trib.) it was held that-
“The ITAT held that where assessee was not maintaining any account books, bank statement could not be construed to be a books of account maintained by her; merely on basis of information that assessee made a ‘cash deposit’ in her saving bank account, no addition could be made as unexplained cash credit. Further, it was held that a credit in the ‘bank account’ of an assessee cannot be construed as a credit in the ‘books of the assessee’, for the very reason that the bank account cannot be held to be the ‘books’ of the assessee. Though it remains as a matter of fact that the ‘bank account’ of an assessee is the account of the assessee with the bank, or in other words the account of the assessee in the books of the bank, but the same in no way can be held to be the ‘books’ of the assessee.”
III. In case of Smt. Manasi Mahendra Pitkar v ITO [2016] 73 taxmann.com 68 (Mumbai – Trib.) it was held that-
“The ITAT held that when the assessee is not maintaining any books of account and section 68 cannot invoked by the AO only on the basis of the bank Pass Book. The ITAT observed that 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.”
IV. In case of CIT v. Bhaichand N. Gandhi [1982] 11 Taxman 59 (Bom.) it was held that-
“In this case certain money was credited in the bank account, but same was not accounted in the books of account. On assessment, the ITO made addition u/s 68 of the Act in respect of amount credited in pass book. On appeal, the tribunal deleted the addition.
On further appeal by revenue, the High Court affirmed the decision of tribunal and held that held that pass book is provided by the bank to its account holders is only a copy of 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. So pass book supplied by the bank to the assessee in the present case could not be regarded as a book of the assessee and hence section 68 is not applicable.”
V. The Hon’ble jurisdictional High Court of Delhi in the case of CIT Vs. Ms. Mayawati reported in 338 ITR 563 [DEL] has held as under:
“As the ITAT has come to the conclusion that Section 68 has no applicability to the facts of the present case as the assessee is not maintaining any books of accounts. If that be so Section 68 does not apply in this case for the simple reason cheque received from Mr.Pankaj Jain has been deposited in her bank account in this regard. The ITAT was of the opinion that balance sheet/statement of the affairs cannot be equated to books of account because a pass book of the bank cannot be treated as a book of account of the assessee because this is proved by the banker, which is given to its customer and is only a copy of the customer‟s account in the books maintained by the bank. The bank does not act as an agent of the customer nor can it be said that the banker maintains the pass book under instructions of the customer (assessee) the relationship between the banker and customer is one of the debtor and creditor only. Therefore, a cash credit appearing in assessee‟s pass book relevant to a particular previous year, in a case where the assessee does not maintain books of account, does not attract the provisions of Section 68.”
Conclusion: The provision u/s 68 of the Income Tax Act, 1961 is well settled that in order to make an addition under this section the very sine qua non is that there should be any sum credited in the books of the Assessee. The very fact that there was a credit entry in the bank passbook of the Assessee cannot be construed as a credit in the books of the Assessee. It is fact that the onus to prove the nature and the sources of the sum credited is on the Assessee but onus does not get transferred on to the Assessee since the very sine qua non u/s 68 is that there should be any sum credited in the books of the Assessee. Since the bank passbook cannot be constructed as the books of the Assessee, as explained detailed above along with judgements, the order passed by the Assessing Officer making an addition u/s 68 of the Act is unsustainable.
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