Addition of Rs.10,53,000 under s.68 deleted as bank passbook not "book maintained" and cash deposits found credible

ITAT (Mumbai) allowed appeal and deleted an addition of Rs.10,53,000 made under s.68. The Tribunal held a bank passbook/statement is not a "book maintained" by the assessee for s.68 purposes, so the AO's invocation of s.68 failed. The assessee's explanation and substantial supporting material for the cash deposits were found credible; the AO's rejection rested on doubts and conjectures, insufficient to sustain an addition. Decision in favour of the assessee.

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Issues Involved:
1. Validity of proceedings initiated by issuance of notice under Section 148 of the Income-tax Act.
2. Validity of the assessment order passed under Section 143(3) read with Section 147 of the Income-tax Act.
3. Addition of Rs. 10,53,000/- under Section 68 of the Income-tax Act.
4. Failure of the CIT(A) to appreciate the appellant’s explanations and evidence regarding the source of cash deposits.

Issue-wise Detailed Analysis:

1. Validity of proceedings initiated by issuance of notice under Section 148 of the Income-tax Act:
The appellant contended that the proceedings initiated by the issuance of notice under Section 148 were invalid and bad in law. The Tribunal, however, found that the Assessing Officer (A.O) had received information from the CIT(CIB) regarding a cash deposit of Rs. 10,53,000/- in the appellant’s bank account. Based on this information, the A.O formed a bonafide belief that the income chargeable to tax had escaped assessment. The Tribunal concluded that there was a well-established nexus between the material available on record and the formation of the belief by the A.O, thereby satisfying the fundamental requirement for the assumption of jurisdiction under Section 147. Consequently, the Tribunal found no infirmity in the initiation of the proceedings by the A.O and rejected the additional grounds of appeal raised by the appellant on this issue.

2. Validity of the assessment order passed under Section 143(3) read with Section 147 of the Income-tax Act:
The appellant also challenged the validity of the assessment order passed under Section 143(3) read with Section 147. The Tribunal observed that there was no indication from the assessment order or any submission by the appellant’s representative that could lead to the conclusion that the assessment framed by the A.O was not sustainable in the eyes of the law. Thus, the Tribunal upheld the validity of the assessment order.

3. Addition of Rs. 10,53,000/- under Section 68 of the Income-tax Act:
The appellant argued that the A.O had erroneously added Rs. 10,53,000/- under Section 68, contending that the said amount was not found credited in the appellant’s books of account but was a cash deposit in her bank account. The Tribunal agreed with the appellant, referencing the judgment of the Hon’ble Bombay High Court in the case of CIT Vs. Bhai Chand N. Gandhi (1983) 141 ITR 67 (Bom), which held that a bank account cannot be considered as the books of the assessee for the purposes of Section 68. The Tribunal concluded that the addition under Section 68 was unsustainable because the bank passbook or statement is not the books of the assessee. Consequently, the Tribunal directed the A.O to delete the addition of Rs. 10,53,000/-.

4. Failure of the CIT(A) to appreciate the appellant’s explanations and evidence regarding the source of cash deposits:
The appellant contended that the CIT(A) failed to appreciate the explanations and evidence provided regarding the source of the cash deposits. The Tribunal noted that the appellant had provided substantial documentary evidence, including a summarized cash analysis, confirmations from family members, and details of loans received and repaid. The A.O, however, rejected the explanations without establishing any credible infirmity in the material provided. The Tribunal found that the A.O’s rejection was based on doubts, surmises, and conjectures, which are insufficient grounds for making an addition. Given the Tribunal’s decision to delete the addition under Section 68, this issue was rendered moot.

Conclusion:
The Tribunal allowed the appeal, setting aside the order of the CIT(A) and directing the deletion of the addition of Rs. 10,53,000/- made under Section 68 in the hands of the appellant. The Tribunal pronounced the order in the open court on 07.04.2017.

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