Tribunal Allows Appeal, Rules Section 68 Inapplicable Without Maintained Books u/s 44AD of Income Tax Act.

The Tribunal set aside the impugned order and allowed the appeal of the assessee. It concluded that section 68 of the Income Tax Act could not be invoked in the absence of maintained books of account, as the appellant filed returns under section 44AD. The Tribunal admitted the new legal ground challenging section 68 at the second appellate stage, rejecting the Department's objection. Consequently, no addition under section 68 was permissible in this case.

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Issues:
1. Invocation of section 68 of the Income Tax Act in absence of books of account.
2. Admissibility of new ground challenging section 68 at the second appellate stage.

Issue 1: Invocation of Section 68 of the Income Tax Act in Absence of Books of Account:

The appellant, a contractor, filed a return under section 44AD of the Act, not maintaining books of account. The Assessing Officer made an addition of Rs. 11,20,000 under section 68 based on unexplained cash deposits in the bank account. The appellant argued that section 68 cannot be invoked without maintained books, citing relevant case laws. The Tribunal emphasized that section 68 requires sums to be found in the books maintained by the assessee. The definition of "books of account" under section 2(12A) does not include bank passbooks or statements. The Bombay High Court held that bank passbooks do not constitute books under section 68. As the appellant filed returns under section 44AD without maintaining books, the Tribunal concluded that section 68 cannot be applied in this scenario.

Issue 2: Admissibility of New Ground Challenging Section 68 at the Second Appellate Stage:

The appellant raised a new ground challenging the Assessing Officer's invocation of section 68 at the second appellate stage. The Department objected to this new ground, arguing it was not raised before the CIT(A). The appellant contended that legal grounds can be raised at any stage and cited precedent where similar grounds were admitted at the second appellate stage. The Tribunal admitted the new ground, stating that it is legal in nature and the facts and documents for its consideration are already on record. The Tribunal relied on a decision by the Hon'ble Apex Court to admit the new ground for adjudication on its merits, rejecting the Department's objection.

In conclusion, the Tribunal set aside the impugned order and allowed the appeal of the assessee, emphasizing that no addition under section 68 could be made in the present case. The legal ground challenging the invocation of section 68 being accepted, the Tribunal did not deliberate on the merits of the addition under section 68.

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