2025 (11) TMI 157 - AT - Income Tax

Bank passbooks not treated as books of account; additions under s.68 and s.56(2)(x)(B) deleted, AO must use books or s.69A

ITAT (Visakhapatnam) allowed the appeal, holding that bank passbooks are not the assessee's books of account and additions under s.68 based solely on ... Addition u/s 68 - unexplained cash credit - explanation offered by the assessee towards source of cash deposit is not supported by necessary evidences - addition towards cash deposits on the basis of bank pass book which is not a books of account as defined u/s. 2 (12A) or maintained by the assessee in the normal course of his business - HELD THAT:- Once the credit in the bank pass book is not found in the books of account maintained by the assessee, then additions cannot be made towards the said credit u/s. 68 of the Act. This legal position is supported by the decision of Bhaichand N Gandhi [1982 (2) TMI 28 - BOMBAY HIGH COURT] where held that the pass book supplied by the bank to the assessee cannot be regarded as the books of account of the assessee. A cash credit of previous year shown in the bank pass book is not found in the cash book maintained by the assessee for that year does not fall u/s. 68 of the Act and the Assessing Officer is not satisfied with explanation of the assessee, he can treat it as unexplained money u/s. 69A of the Act. A similar view has been taken in the case of CIT Vs. Parameswar Bohra [2003 (2) TMI 10 - RAJASTHAN HIGH COURT] The ITAT, Mumbai Bench, in the case of Mehul V Vyas [2017 (4) TMI 534 - ITAT MUMBAI] had taken a similar view and held that passbook supplied by a bank is not a books of account maintained by the assessee and thus the addition cannot be made as unexplained cash credit u/s. 68 of the Act. Since the Assessing Officer has made addition towards cash deposit u/s. 68 of the Act, on the basis of bank passbook in our considered view, the additions made by the Assessing Officer cannot be sustained. CIT(A) without considering relevant facts simply sustained the additions. Thus, we set aside the order of Ld. CIT(A) on this issue and direct the Assessing Officer to delete the addition made u/s. 68 of the Act. Addition made towards difference in sale consideration paid for purchase of property as per registered sale deed and fair market value of the property as per the stamp duty authority - explanation offered by the assessee towards difference in valuation of the property is not acceptable - As argued fair market value of the property as per the stamp duty authority is although higher than the sale consideration paid by the assessee as per the registered sale deed, but the present market value of the property as determined by the registered valuer is less than the amount of consideration shown as per registered sale deed and accordingly the Assessing Officer ought not to have made addition u/s. 56(2)(x)(B) - HELD THAT:- We find that the assessee has furnished relevant details of property along with valuation report where the valuer has provided the description of the property along with photo copy of the property to arrive at a value which is less than the sale value of the property as per the registered sale deed and accordingly, stated the provision of section 56 of the Act is not applicable. We find that, as per the valuation report submitted by the assessee, the value of property is less than the sale consideration paid for purchase of property and therefore in our considered opinion, the AO ought to have accepted the explanation offered by the assessee. Further, when the assessee has disputed the value determined by the AO for the purpose of section 56(2) of the Act, then the AO ought to have referred to the valuation of the property to the registered valuer before making the addition. Since the AO made addition without considering the explanation of the assessee, even though the said explanation is supported by necessary evidences and also without referring the matter to the DVO, in our considered view the additions made by the AO towards difference in value of the property cannot be sustained. CIT(A) without appreciating the relevant facts, simply sustained the addition made by the Assessing Officer. Thus, we set aside the order of Ld. CIT(A) and direct the AO to delete the addition made u/s. 56(2)(x)(B) of the Act - Appeal filed by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether additions made under section 68 of the Income Tax Act based on bank passbooks (cash deposits) can be sustained where the assessee does not maintain books of account and the alleged credits are not found in any books of account as defined in section 2(12A). 2. Whether an assessing officer can make additions under section 56(2)(x)(b)(B) on account of difference between stamp duty (circle) value and registered sale consideration without (a) affording opportunity to the assessee where the show-cause notice invoked a different provision and (b) referring the valuation to the District Valuation Officer (DVO) / relying on a registered valuer's report submitted by the assessee. 3. Whether treatment of bank passbooks as 'books of account' for the purpose of invoking section 68 is legally permissible, and if not, what is the correct statutory treatment of unexplained bank credits not recorded in books of account. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of additions under section 68 based on bank passbooks / cash deposits Legal framework: Section 68 applies to 'cash credits' appearing in the assessee's books of account; section 2(12A) defines 'books of account' (ledger, day book, cash book, account books, etc.) and expressly excludes bank passbooks. Where credits are not recorded in books of account, alternative provisions (e.g., section 69A) are relevant for unexplained money. Precedent Treatment: Followed decisions holding that bank passbooks are not books of account and cash credits shown only in passbooks cannot sustain additions under section 68; reliance placed on High Court and Tribunal authorities to this effect. Interpretation and reasoning: The Court examined the statutory language of section 68 and the definition in section 2(12A), concluding that entries in a bank passbook do not constitute entries in the assessee's 'books of account'. Since the assessee is not in business/profession and is not required to maintain business books, the Assessing Officer's reliance on bank passbook entries to characterize deposits as unexplained cash credits under section 68 is impermissible. The correct approach is that such bank credits, if unexplained in the assessee's books, cannot be treated as section 68 cash credits; the Assessing Officer should, if at all, examine other statutory provisions (e.g., section 69A) and/or require proof in an appropriate manner. Ratio vs. Obiter: Ratio - section 68 cannot be mechanically invoked where the alleged cash credit appears only in bank passbooks and not in books of account as defined; addition under section 68 on that basis is unsustainable. Obiter - comments on alternative provisions (section 69A) for unexplained money. Conclusion: Addition of Rs. 65,00,000 made under section 68 on the basis of bank passbook entries is deleted; Assessing Officer directed to delete the addition. Issue 2: Addition under section 56(2)(x)(b)(B) for difference between stamp duty value and sale consideration - duty to afford opportunity and to refer valuation Legal framework: Section 56(2)(x) (as amended effective 01.04.2017) governs taxation of certain receipts including excess of stamp duty value over consideration in specified circumstances; procedural fairness requires that an assessing officer follow the show-cause notice and afford the assessee an opportunity to meet the specific ground on which the addition is proposed. Where valuation is disputed, statutory scheme and principles of natural justice may necessitate reference to a DVO or consideration of registered valuer reports. Precedent Treatment: Followed High Court authorities holding that an assessing officer cannot make additions under a provision different from that indicated in the show-cause notice without giving an opportunity to the assessee to address the new legal basis; failure to do so violates principles of natural justice. Also relied on authorities recognizing the relevance of independent valuation and referral to DVO where appropriate. Interpretation and reasoning: The Assessing Officer's show-cause notice proposed addition under section 56(2)(vii)(b)(ii) but the final order made addition under section 56(2)(x)(B) without affording further opportunity. The Tribunal held this a breach of the audi alteram partem rule - making a substantive change in the charge without giving the assessee a chance to explain against the new provision is procedurally invalid. Substantively, the assessee produced a registered valuer's report and explained factual reasons (e.g., lack of access/amenities affecting marketability) for valuation being below stamp duty value; the Assessing Officer should have considered that material and/or referred the matter to the DVO rather than mechanically adopting circle/stamp duty value. Where a supporting valuation (by approved valuer) and documentary material are on record, AO must evaluate or obtain DVO valuation before making additions under section 56(2). Ratio vs. Obiter: Ratio - addition under section 56(2)(x)(B) made without giving opportunity after changing the legal basis from that in the show-cause notice violates natural justice and is unsustainable; where explanation is supported by a registered valuer's report and relevant facts, Assessing Officer should refer valuation to DVO or accept the evidence rather than make addition mechanically. Obiter - observations on applicability of section 56(2)(x) as a general proposition (revenue contention rejected on the facts due to procedural infirmity rather than a finding on substantive applicability in all cases). Conclusion: Addition of Rs. 45,40,750 under section 56(2)(x)(B) is deleted on two independent grounds - procedural violation (change of charge without fresh opportunity) and substantive failure to consider registered valuer's report / refer to DVO; AO directed to delete the addition. Cross-References and Related Points - Issue 1 and Issue 2 are related to evidentiary and procedural standards: section 68 requires existence of entries in books of account; where such entries are absent, different statutory heads and procedural safeguards apply. - Where Assessing Officer proposes additions under a particular provision in a show-cause notice, any change to a different statutory provision in the final order requires affording the assessee a fresh opportunity; failure to do so constitutes violation of natural justice and vitiates the addition. - Where the assessee furnishes a registered valuer's report and documentary material disputing circle/stamp duty value, the Assessing Officer should either accept such evidence or refer the matter to the DVO for independent assessment before making an addition under section 56(2). Final Disposition The Tribunal allowed the appeal: deletion of the Rs. 65,00,000 addition under section 68 and deletion of Rs. 45,40,750 addition under section 56(2)(x)(B); Assessing Officer directed to give effect to the deletions and proceed in accordance with law consistent with the reasons above.