Unexplained cash credit under Section 68 invalid when assessee not required to maintain books of accounts

ITAT Raipur ruled in favor of the assessee regarding unexplained cash credit under Section 68 read with Section 115BBE. The tribunal held that additions under Section 68 cannot be made when the assessee does not maintain books of accounts, as the assessee was not required to maintain books given income sources were only salary, house property, and other sources. The tribunal followed the Bombay HC precedent in Bhaichand N. Gandhi case, distinguishing it from the revenue's cited Delhi ITAT decision. Bank passbook entries cannot be treated as books of accounts for Section 68 purposes, making the addition legally invalid.

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Issues Involved:
1. Addition of Rs. 35,00,000/- under Section 68.
2. Applicability of Section 68.
3. Validity of the assessment order.
4. Scope of "Limited Scrutiny."

Issue 1: Addition of Rs. 35,00,000/- under Section 68
The assessee contested the addition of Rs. 35,00,000/- made by the AO under Section 68, arguing that the loans were genuine and supported by documentary evidence. The AO treated the loans from M/s Mission Dealmark Private Limited and M/s Starlink Iron & Steel Private Limited as unexplained cash credits. The Tribunal noted that the assessee provided confirmations, bank statements, and financial statements of the lenders. The AO conducted an enquiry through PDIT (Inv.) & DDIT (Inv.), Kolkata, which yielded no adverse findings. The Tribunal found that the burden cast on the assessee was discharged, and reliance was placed on the judgment in CIT vs Orissa Corporations (P) Ltd. (1986) 159 ITR 78 (SC).

Issue 2: Applicability of Section 68
The assessee argued that Section 68 was not applicable as no books of accounts were maintained. The Tribunal referred to several judicial pronouncements, including CIT vs. Bhaichand N. Gandhi (1983) 141 ITR 67 (Bom.), which held that a bank passbook is not considered a "book" for the purposes of Section 68. Consequently, the addition made under Section 68 was deemed invalid.

Issue 3: Validity of the Assessment Order
The assessee contended that the assessment order was illegal and violated principles of natural justice. The Tribunal did not separately adjudicate this issue, as the addition under Section 68 was already vacated based on the non-maintenance of books of accounts.

Issue 4: Scope of "Limited Scrutiny"
The Tribunal observed that the case was selected for "Limited Scrutiny" to examine cash deposits and transactions in property. However, the AO made additions based on unsecured loans, which were not within the scope of the "Limited Scrutiny." The Tribunal referenced judgments that emphasized the AO's jurisdiction should be confined to the issues specified in the "Limited Scrutiny" notice.

Conclusion:
The Tribunal vacated the addition of Rs. 35,00,000/- made under Section 68, ruling that the assessee did not maintain books of accounts, and thus, Section 68 was inapplicable. The appeal was allowed, and other grounds were left open for not requiring separate adjudication. The judgment was pronounced in the open court on 10/01/2024.

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