TaxTMI 
TaxTMI 
2008 (2) TMI 531
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....iled to prove the identity of the so called account holder and also expressed its inability to prove the genuineness of the creditors/depositors. 2. That the ld. CIT(A) while upholding the initiation of notice Under Section 148 has admitted that the relevant accounts under consideration based on which notice was issued were operated in violation of banking norms by not obtaining any introduction photo or proper address which mans identity of the depositor was not verifiable. The amounts were deposited in the ledgers of the bank constituting the books of account of the appellant and in the light of finding of the investigation wing, the onus was on the appellant to establish the identity of the depositor which it failed to do so. 3. That while allowing relief at Sr. No. 1 above, the ld. CIT(A) has erred in admitting additional documentary evidence in violation of Rule 46A especially when vide reply dated 27-3-2002 before the A.O., the assessee bank denied to produce the bank account holders on the plea that it will adversely effect its banking business. As such the deletion of addition made was not called for. 3-5. The assessee has raised a ground in this case i....
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....ssee has not been able to show as to how the satisfaction recorded was not of the A.O., but of the DDIT. The reasons recorded also did not suggest that the satisfaction was not that of the A.O., but of some other authority. Moreover, the issue now stands well settled by the Hon'ble Supreme Court in the case of "ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd." 291 ITR 500 (SC), wherein, inter alia, it has been held that the expression "reason to believe" in Section 147 of the Act would mean cause or justification; that if the A.O. has cause or justification to know or suppose that income has escaped assessment, he can be said to have reason to believe that income had escaped assessment; that the expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion; that what is required is "reason to believe" but not the established fact of escapement of income; that at the stage of issue of notices, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief; that whether the material would conclusively prove escapement of income is not the concern at th....
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....pura Branch amounting to Rs. 17.63 lakhs were made in this amount. The entire amount was withdrawn in cash. 11. The Investigation Wing, in its aforesaid letter, further intimated that huge transfers from FDRs were credited to the above accounts and afterwards, the cash was withdrawn and the accounts were closed; that the bank was asked to provide the identities of these account holders; that the bank expressed its inability to prove the genuineness of the creditors/depositors; that the Investigation Wing had recorded the statement of the Managing Director of the Bank, wherein he had admitted that the introducer, Shri Vijay Sethi, M.D. of the Bank had died and as the account holders had given more than one address, all incomplete, in the account opening forms; that the bank was unable to prove the identities of the account holders; and that since the bank was not able to prove the identity of the creditors/depositors, action under Section 68 of the Act in the hands of the bank was suggested. 12. On receipt of the above information, the A.O. issued a notice under Section 148 of the Act, which was served on the assessee. In response, vide letter dated 23-6-2000, the assessee sta....
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....the address of the account holder only depicted the name of road/which stretched in kilometers and a number of colonies were located thereon; that the address of Ramesh Kumar and Mohinder Singh, account holders of account No. 1571 above, was Ladowali Road, Jalandhar; that Ladowali Road started from Shastri market and extended upto BSF Chowk, i.e., a distance of about 2 Kms.; that it had so many colonies located on both of its sides; that so, it was very difficult to locate Shri Ramesh Kumar and Shri Mohinder Singh; that so much so, even the names of their father/mother had not been given; that Jawahar Nagar, Mota Singh Nagar, Focal Point, Bye Pass, Basti Sheikh were very big colonies and thousands of landlords/tenants were residing in each colony; that it appeared that while opening the account, the bank had not obtained the full address, for the reasons best known to them, in violation of the banking rules; that this went to establish that the assessee was working as an escape-route to tax dodgers by firstly not obtaining the complete address of the account holder and then contending that the bank was in no way responsible to give the complete address or prove the genuineness of t....
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....ing their complete addresses; that it had been stated that the bank obtained a witness as introducer regarding the identity of the person who opened an account; that the bank accepted the introduction of the person in accordance with the rules framed in this regard; that the so-called introducer was, in no way, accountable or answerable to the Income tax Department regarding the identity of the account holders, rather, he was responsible to the bank, which accepted the identity of the person as genuine at the instance of the introducer; that as per Section 68 of the Act, it is the onus of the bank to explain the credit entries in its books of account; that the bank had failed to give the full addresses of the account holders and as such, the case was covered in the first limb of Section 68; that it appeared that the bank had accommodated the account holders by opening accounts in the names of unidentified persons, precluding the department from further smooth enquiry into the source of the deposit of funds by the account holders; that the proceedings in the case had started on 16-3-2004 by issuance of notice under Section 143(2) of the Act; that the assessee bank had purposely been....
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....account with the assessee bank. 17. The aforesaid request of the assessee was forwarded by the learned CIT(A) to the A.O. for his comments. The A.O. objected to the admission of the additional evidence, stating that the assessee, vide its reply dated 27-3-2002, filed before the A.O., had denied to produce the account holders on the plea that it would adversely affect the banking business of the assessee bank; and that the case did not get covered by Rule 46A(1) of the Income tax Rules, 1962. The bank, on the other hand, stated that its stand held good, since the bank could not be equated with others for the purpose of Section 68 of the Act. 18. The CIT(A) observed that since the documents submitted by the assessee in appeal were in relation to the additions made and could not be produced at the time of the assessment proceedings, the case was covered by the relevant clause as laid down under Rule 46A(1) of the Income tax Rules, 1962. The learned CIT(A) thus admitted the said additional documentary evidence. 19. Apropos the merits of the case, the assessee submitted before the learned CIT(A) that the A.O. had erred in holding that the accounts held by the bank in its ledger....
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....ers were found to be doubtful, it was also that the bank would lose the protection Under Section 131 of the Negotiable Instruments Act. 20. The assessee further submitted before the learned CIT(A) that in three accounts, i.e., account numbers 8211,8212 and 8213, the introducer was none other than the deceased Managing Director of the Bank itself and if the introducer is known to the bank, the formalities are well met with; that so far as regards the addresses of the account holders being not correct, the bank was under no legal obligation to make such enquiries, since if the bank fails to take a proper introduction, it would lose the protection under Section 131 of the Negotiable Instruments Act; that the bank is run by its employees and directors who keep changing periodically and if any account was found doubtful at a much later date when the introducer had passed away, the bank could not be held responsible for any alleged default in the opening of the account, or for non verification of proper address; that for the three accounts opened through the introduction of the late M.D., all the credits were by transfer from the Kishanpura branch of the Bank and the original investme....
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....ion lying on the records. Looking at the nature of activities of the appellant it can be said that not withstanding the facts of the case, the appellant's case was subject to rules laid down under Banking Regulation Act and as per regulations from RBI it has to maintain CRR/SLR ratio. All the banking operation are under audit and report in this regard goes to RBI. Therefore, its case can not be treated at par with the cases of other persons i.e. Individual/firms etc. because the bank does not have any control like other persons can exercise in respect of the amounts credited in their accounts. The bank is to maintain accounts of the customers which can only be operated by those customers by facility of cheques/drafts/cash vouchers and the bank being the custodian of the money cannot have control over the amount in these accounts, being operated by account holder than to provide the clement of interest or to charge interest on the credit/debit balances in these accounts. It is not the case that the accounts were not introduced by the addresses of the account holders were not complete. In respect of the first three accounts which were introduced but the addresses of the account h....
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....ns routed through these accounts and bring to tax the unaccounted income in the relevant years in the hands to whom it belongs. Another addition of Rs. 20,01,009/- is made representing peak amount in the account of Shri Harbhajan Singh bearing A/c No. 9803. A look at the account reveal that there appear transactions in the name of Lally Motors and United India Insurance Co. and though letter was written to the A.O. on 24-2-2002 to trace the identity of the person in view of the said transactions and to comment upon propriety of the addition in the hands of the appellant yet no reply was received. In the same account, there appeared cheque transaction and though the cheques being dishonoured were returned back by the appellant yet the said letter was not received back unserved. In view of the cheque transactions reflected in the account it is beyond comprehension to treat the peak amount involved in these transactions as income of appellant when the cheque transactions reflected in the account were honoured by the appellant on the basis of signature of account holder. Simply because the account holder could not be located because of incomplete address, the account can not b....
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...., while supporting that of the A.O., the learned D.R., apropos ground Nos. 1 and 2, has argued before us that in the survey conducted by the DDIT(Inv.), a large number of accounts were found, the details with regard to which were not complete. The A.O. enquired and found the discrepancies as detailed in the assessment order. No address regarding the account holders was made available by the assessee bank to the A.O. Even the enquiries made by the A.O. with some introducers of the accounts did not bear any result. The A.O. added back all these amounts under Section 68 of the Act, as the income of the assessee bank. The learned D.R. has contended that the provisions of Section 68 of the Act are amply clear and that, therefore, if the credits under consideration are in the books of account of the assessee bank and if no explanation regarding the ingredients of Section 68 is given, or if the explanation offered is not proper, addition has to be made under Section 68 of the Act, as had correctly been done by the A.O. It is contended that the learned CIT(A) has erroneously deleted the addition made; that there is nothing in the provisions of Section 68 of the Act or in the Banking Regula....
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.... whether the provisions of Section 68 of the Act are applicable and whether it has rightly been applied to the assessee-bank. The learned CIT(A), while deleting the addition made, has observed that the assessee's case was subject to rules laid down under the Banking Regulation Act, as also the regulations of the RBI; that all the banking operations are under audit and report in this regard goes to the RBI; that therefore, the case of the assessee bank could not be put at par with the cases of other persons, since the bank does not have any control in respect of the amounts credited in its accounts; that the bank is to maintain accounts of its customers, which accounts can be operated only by those customers and the bank does not have any control over the amounts in the accounts. While holding in favour the assessee, the learned CIT(A) has duly taken into consideration the provisions under Section 68 of the Act, which are explicit. 27. As per Section 68 of the Act, where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof, or the explanation offered by him is not, in ....
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.... by the RBI and in case any default is found, the bank is liable for heavy monetary penalty, besides cancellation of its license. This is not the case with other assessees. A bank, under the RBI guidelines, in order to maintain confidentiality in respect of the information collected by a bank relating to its customers, such information is not to be divulged to outsiders. There is no such obligation with other assessees. 28. Despite the RBI guidelines providing maintenance of secrecy with regard to the information regarding the customers of the bank, the assessee furnished to the A.O. whatever information it had in its possession. The addresses of the account holders, as mentioned in the bank ledgers, as also the addresses of the introducers of the accounts were furnished to the A.O. Now if the addresses of the customers of the assessee bank were found to be incomplete, this cannot form the basis for making the addition in question. Undisputedly, the assessee bank did not violate any of he relevant guidelines of the RBI. In the Master Circular of the RBI, (copy at page 75 of the assessee's paper book), introduction by an existing account holder by the bank has been held to be....
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....t stated to have been made either by the directors of the bank or by any relative of the directors. 31. In "Shri Mahavir Nagari Sahakari Pat Sanstha Ltd. v. Dy. CIT" 74 TTJ (Pune) 793 (copy at pages 95 to 104 of the assessee's paper book), it was held that addition could not be made under Section 68, even though the minimum onus of proving the identity of depositors had not been discharged by the assessee. 32. In "by. CIT v. Sahara India Financial Ltd. (2004) 2 SOT 733 (Luck.) (copy at pages 105 to 109 of the assessee's paper book), it was held that the deposits received by the assessee, which was a non banking financial institution, recognised by the Reserve Bank of India, were not in the nature of taking of any loan or deposit for the purposes of its business, that rather, it was in the business of accepting deposits and that in view of the nature of such business, the scrutiny of the deposits could not be the same as in the case of an assessee making entries of deposits on account of loan, etc. 33. In "CIT v. Settler Investment Ltd." 192 ITR 287 (Del.), it was held that even if the subscriber to capital was not genuine, the amount of share capital could not, und....
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.... paper book. This also boosts the stand taken by the assessee. 41. In view of the above, we find ourselves to be in agreement with the observations recorded by the learned CIT(A) while allowing the appeal of the assessee. The grievance of the department in this regard is found to carry no force whatsoever and is, as such, rejected. 42. Apropos the objection of the department that the learned CIT(A) erroneously admitted additional documentary evidence when before the A.O., the assessee had denied producing the bank account holders on the plea that this would adversely affect its banking business. Here also, we find no case made out by the department. 43. Before the learned CIT(A), the assessee, inter alia, filed copies of accounts of various account holders and other supporting documents, as additional evidence. The A.O. objected to the same. The learned CIT(A), however, allowed such evidence to be produced as additional evidence. In this regard, the assessee did not produce such evidence before the A.O. under the bonafide belief that it was not obliged to do so, as it would adversely affect its business. The learned CIT(A) found that the documents produced as additional ev....