2005 (6) TMI 26 - HC - Income Tax

Revenue additions of Rs.1.80 crore (fixed deposits) and Rs.21.71 lakh (interest) quashed as assessee discharged onus

HC upheld Tribunal and CIT(A) in deleting additions of Rs.1,80,95,811 (fixed deposits) and Rs.21,71,500 (interest), ruling for the assessee against the ... Addition u/s 68 - undisclosed income - Assessee, a co-operative society, is engaged in the business of banking - Whether the appellate authority was right in law in confirming the order of the Commissioner of Income-tax (Appeals) deleting the addition of Rs. 1,80,95,811 in respect of fixed deposit and Rs. 21,71,500 in respect of interest? - Held that:- It is nobody's case that the deposits were made either by the directors of the assessee-bank or any of the relatives of the directors. As to what would be the scope of the inquiry and the degree of proof that would be required in such circumstances, is not required to be dealt with in the fact situation of the present case. The opinion expressed by the Patna High Court has been impliedly approved by the apex court in the case of CIT v. Orissa Corporation P. Ltd. [1986 (3) TMI 3 - SUPREME COURT], when it is stated that once the assessee had given the names and addresses of the alleged creditors and it was in the knowledge of the Revenue that the said creditors were income-tax assessees, if the Revenue did not make any effort to pursue the so-called alleged creditors the assessee could not do anything further and the assessee had discharged the burden that lay on the assessee. It was for the Revenue to examine the source of income of the alleged creditors to find out their creditworthiness. The findings recorded by both the Commissioner of Income-tax (Appeals) and the Tribunal establish that the assessee had discharged the primary onus which was on it by offering explanation, and the said explanation has not been found to be incorrect or false in any manner. The grievance made by the Assessing Officer that complete details and addresses of the depositors were not furnished has been categorically found to be incorrect in the light of the facts which have come on record and as found by the Tribunal. Similarly as regards the defects in maintenance of records of the bank, both the Commissioner of Income-tax (Appeals) and the Tribunal have accepted the explanation tendered by the assessee by referring to the statements of the manager and the clerk. In these circumstances, it is not possible to find that the order of the Tribunal suffers from any infirmity which would require interference at the hands of the court. Accordingly it is held that the Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals) deleting the addition of Rs. 1,80,95,811 in respect of fixed deposits and Rs. 21,71,500 in respect of the interest. The question referred to the court is therefore answered in the affirmative, i.e., in favour of the assessee and against the Revenue. Reference stands disposed of accordingly. 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.