2005 (6) TMI 26 - HC - Income Tax

High Court upholds Tribunal decision on deletion of additions for fixed deposits & interest

Commissioner of Income-Tax Versus Pragati Co-operative Bank Ltd.

Commissioner of Income-Tax Versus Pragati Co-operative Bank Ltd. - [2005] 278 ITR 170, 197 CTR 505, 149 TAXMANN 149 Issues Involved1. Legitimacy of the addition of Rs. 1,80,95,811 as income from undisclosed sources.2. Legitimacy of the addition of Rs. 21,71,500 as interest on the aforementioned fixed deposits.Issue-wise Detailed Analysis1. Legitimacy of the Addition of Rs. 1,80,95,811 as Income from Undisclosed SourcesThe primary issue was whether the addition of Rs. 1,80,95,811 representing fixed deposits as unexplained income was justified. The Assessing Officer (AO) made this addition due to discrepancies in the bank's records and the failure of the assessee to furnish complete details, including addresses of various depositors. The AO found irregularities such as missing addresses, signatures of bank officials, and illegible signatures of interest recipients.The Commissioner of Income-tax (Appeals) (CIT(A)) deleted the addition, noting that the AO should have conducted further investigations to determine the real owners of the fixed deposits. The CIT(A) also considered the statement of the bank manager, who attributed the discrepancies to heavy workload, inadequate staff, and rapid progress of the bank. The CIT(A) emphasized that the bank's internal procedural lapses could not convert third-party deposits into the bank's income.The Tribunal confirmed the CIT(A)'s findings, stating that the AO failed to make further investigations and that the bank had provided sufficient details about the depositors. The Tribunal also noted that the bank, being a cooperative bank, was subject to periodic inspections by the Reserve Bank of India (RBI), and the deposits were verified during these inspections.The High Court upheld the Tribunal's decision, emphasizing that the AO did not discharge the burden of proving that the apparent was not the real. The court referenced the legal principle that the onus lies on the Revenue to prove that the deposits belonged to the assessee-bank, especially when the deposits stood in the names of third parties. The court concluded that the assessee had discharged its primary onus by offering a plausible explanation, which was not found to be false.2. Legitimacy of the Addition of Rs. 21,71,500 as Interest on the Fixed DepositsThe AO added Rs. 21,71,500 as interest on the fixed deposits by applying a uniform rate of 12% per annum. The CIT(A) found this presumption fallacious, noting that the interest rates on fixed deposits varied between 4% and 11% during the relevant period. Consequently, the CIT(A) deleted the entire addition on account of interest.The Tribunal confirmed the CIT(A)'s deletion, stating that the AO's assumptions were incorrect and not supported by the evidence on record. The High Court agreed with the Tribunal, reiterating that the AO's presumptions were baseless and that the assessee had provided sufficient evidence to discharge its burden.ConclusionThe High Court affirmed that the Tribunal was correct in confirming the CIT(A)'s order deleting the additions of Rs. 1,80,95,811 in respect of fixed deposits and Rs. 21,71,500 in respect of interest. The court held that the assessee had provided a satisfactory explanation for the fixed deposits and interest, and the AO had failed to prove that the deposits were the bank's undisclosed income. The reference was answered in the affirmative, in favor of the assessee and against the Revenue, with no order as to costs.