ITAT rules Section 68 provisions don't apply to transactions not recorded in assessee's books, deletes additions

The ITAT Delhi ruled in favor of the assessee regarding additions made under section 68 of the Income Tax Act. The case involved transactions that were not recorded in the assessee's books of accounts, though these transactions were properly recorded in the books of the companies providing advances. The tribunal held that section 68 provisions do not apply to transactions that are not recorded in the assessee's own books of accounts. Relying on precedent, the ITAT directed the Assessing Officer to delete the additions made under section 68 for assessment years 2018-19 and 2019-20, concluding that the statutory provisions were inapplicable to the specific circumstances of unrecorded transactions in the assessee's books.

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ISSUES:

• Whether the provisions of section 68 of the Income-tax Act can be invoked when the sums in question are not credited in the books of the assessee but in the books of other companies.
• Whether a consolidated approval under section 153D without application of mind and verification of records is valid.
• Whether additions under section 68 can be made in the hands of an assessee when the cash deposits are in the bank accounts of separate companies which are distinct assessees and have undergone assessment.
• Whether the concept of protective assessment applies under section 68 when there is no certainty regarding the person liable to tax.
• Whether double taxation is permissible when the same sum is added in the hands of different assessees.

RULINGS / HOLDINGS:

• Section 68 applies only where "any sum is found credited in the books of an assessee" and the assessee offers no explanation about the nature and source thereof; since no sum was credited in the assessee's books but in the books of other companies, section 68 has no application to the assessee.
• The consolidated approval under section 153D passed without application of mind and verification of records is "bad in law" (not adjudicated on merits in this judgment but left open).
• Additions under section 68 cannot be made in the hands of an assessee when the cash deposits are recorded in the books of separate companies which are distinct income tax assessees and have filed returns and undergone assessment.
• The concept of protective assessment under section 68 cannot be applied where it is not established beyond doubt that income has accrued or arisen or where there is no ambiguity regarding the person liable to tax; section 68 is triggered only when sums are credited in the books of the assessee who fails to explain the nature and source thereof.
• Double taxation is not permissible; an addition made in the hands of one assessee cannot be duplicated in the hands of another for the same sum.

RATIONALE:

• The Court applied the statutory language of section 68 which requires that sums be credited in the books of the assessee for the provision to apply, as emphasized in the Supreme Court ruling in CIT v. P. Mohankala, which states that the "assessee's offer no explanation" refers to sums found credited in the books maintained by that assessee.
• Precedents from High Courts and Tribunals were relied upon, including the Punjab & Haryana High Court in Smt. Shanta Devi v. CIT, which held that the books of a partnership firm cannot be treated as those of the individual partner for section 68 purposes, and Tribunal decisions in DCIT v. Jogia Properties Ltd. and DCIT v. Basant R. Aggarwal, which clarified that section 68 additions are confined to the person in whose books sums are credited and that protective assessment is not applicable where income accrual or person liable to tax is uncertain.
• The judgment reaffirmed the fundamental principle that "income cannot be taxed twice" unless expressly provided, citing Laxmipat Singhania v. CIT.
• The Court noted that the Assessing Officer's opinion must be based on "proper appreciation of material and other attending circumstances" and that "application of mind is the sine qua non for forming the opinion" under section 68.
• The Court declined to adjudicate on the validity of the mechanical consolidated approval under section 153D and other merits of the addition, as the appeal was allowed on the primary ground of inapplicability of section 68.

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