Unexplained Cash Credits in Bank Statements held taxable u/s 68. Non production of document is different from not maintaining Books of Account – High Court
ABCAUS Case Law Citation:
ABCAUS 2045 (2017) (08) HC
The appellant assessee was aggrieved by the order of the Income Tax Appellate Tribunal (ITAT) confirming the action of the Assessing Officer (AO) bringing the unexplained credit entries found in bank statement to tax u/s 68 of the Income Tax Act, 1961 (the Act).
Assessment Year : 1996-97
Important Case Laws Cited/relied upon by the parties:
Baladin Ram v/s. Commissioner of IncomeTax, U. P. reported in 1969 (71) ITR 427
Income Tax, Poona v/s. Bhaichand H. Gandhi reported in 1983 (141) ITR 67
Anand Ram Raitani v/s. Commissioner of Income Tax reported in 1997 (223) ITR 544
Commissioner of IncomeTax v/s. Taj Borewells reported in 2007 (291) ITR 232;
Sudhir Kumar Sharma (HUF) v/s. Commissioner of Income Tax reported in  224 Taxmann 178.
Brief Facts of the Case:
The assessee had filed his return of income showing income from rent, share of profit from firm, salary and income from other sources declaring total income at Rs.6,00,570/. The return was processed u/s 143(1(a) of the Act.
The case was taken up for scrutiny and a notice u/s 143 (2) of the Act was issued fixing the date of hearing. However, nobody appeared on behalf of assessee. A notice u/s 274(1)(b for said default and another notice u/s 142(1), fixing the hearing were issued. Appellant was called upon to furnish certain information.
However, right from the beginning, the assessee adopted dilatory approach in complying with the attendance and submission of information called for. Despite several adjournments and couple of notices u/s 271(1)(b) rws. 274 of the Act, only few details were filed. With respect to compliance regarding NRI gift and loans received, it was stated that details were under preparation.
The facts emerged that the assessee had received NIR gift of Rs. 33,82,224/ from a friend and also taken loan amounting to Rs. 79.06 lakhs from eleven individual/entities. The AO concluded that since no confirmations had been given in respect of these amounts, they qualified to be treated as unexplained cash credits and therefore the said amounts were added to the total income of the assessee as unexplianed cash credits u/s 68 of the Act.
The assessee preferred appeal to the Commissioner of Income Tax (Appeals) who partly allowed it in respect of the loans for which explanation had been given.
ITAT dismissed the appeal of the assessee.
Contention of the Appellant Assessee:
It was vehemently argued that Books of accounts had not been maintained by the Petitioner and therefore Section 68 of Act was not applicable. Though it was a fact that certain amounts were taken by the Petitioner from various persons, yet, when entries of the same were not taken in the books of accounts. It was pointed out the these amounts had been found by the AO on the basis of entries in the Bank Statement and no other document was considered by him, before issuing order. Therefore those amounts could not be added to the income of the assessee for the assessment of tax.
The appellant relied on a decision of Hon’ble Madras High Court wherein it was held that,
“Unless the following circumstances exist, the Revenue cannot rely on Section 68 of the Act : (a) Credit in the books of an assessee maintained for the year, (b) the assessee offers no explanation or if the assessee offers an explanation the Assessing Officer is of the opinion that it is not satisfactory, and the sum so credited is chargeable to tax as “income from other sources”. The assessee alone has to offer an explanation. If the assessee makes an explanation it is for the Assessing Officer to accept it or reject it”.
It was also submitted that the authorities failed to take into consideration the documents produced by the Appellant. The loan amounts were received by cheques and some of them were in respect of booking of the flats. The booking could not be materialized and therefore, cheques were returned and there was no credit at the end of the year. The amount ought not to have been held to be liable to be added in the income of the Petitioner.
Contentions of the Respondent Revenue:
The Revenue contended that the appellant were given many opportunities to produce relevant documents in order to substantiate and prove his version. However, the apellant had failed to give the further details of the persons from whom the loan was allegedly taken. It was the bounden duty of the assessee to explain the nature and source of cash deposits. It has been therefore, rightly held that assessee can not take any advantage of the transaction as he had not kept any books of accounts.
The Revenue placed reliance on the decision of Hon’ble Punjab and Haryana High Court wherein it was held that,
“When during the assessment proceedings, Assessment Officer noticed that assessee had deposited huge amount of cash in his bank account; the addition of the said amount in the income of the assessee by invoking the provisions of Sec. 68 of Income Tax Act is justified. The onus is on the assessee to explain nature and source of said cash deposits”.
It was pointed out that A Special Leave Petition (SLP) was preferred challenging the above judgment; however, Supreme Court had dismissed the same.
Observations made by the High Court:
The Hon’ble High Court observed that the assessee did not dispute the facts but contended that he had not maintained books of accounts and therefore, those amounts could not be considered.
The Hon’ble High Court opined that when the assessee was doing business, then it was incumbent on him to maintain proper books and/ or books of account. It may be in any form. Therefore, if he had not maintained it, then he can not be allowed to take advantage of his own wrong. Burden lied on him to show from where he had received the amount and what was its nature. Unless this fact was explained he could not claim or exemption of the said amount from the income tax.
The Hon’ble High Court explained that Section 68 of the Act provides that where the assessee offers no explanation about the nature and source of the credits in the books of account, all the amounts so credited or where the explanation offered by the assessee is not satisfactory in relation to the same then such credits may be charged to tax as income of the assessee for that particular previous year.
The Hon’ble High Court noted that in the instant case huge amounts had been credited in the account of the Appellant and he had not explained the nature of the same. The source of the said amount had been discovered by the Assessing Officer from Bank Pass Book. It was also noted that when the source and nature has been held to have been explained, the said amount had been deleted by the CIT(A).
The Hon’ble High Court opined that with respect to the amount added u/s 68, Nn document was produced nor the amounts had been confirmed from those persons, who were shown to have lent them. The authorities below have therefore, rightly held that nature of the transaction has not been properly shown by the assessee.
Regarding the various case laws relied by the assessee, the Hon’ble High Court observed that the ratio of those decisions were not applicable in the instant case. In those cases, either the entries were confirmed by the parties in whose name they were standing or books of accounts were showing the cash credits from undisclosed source. Whereas in this case, at no earlier point of time, a firm stand was taken by the assessee that he had not maintained books of account. Whenever a direction was given to produce the same in any form, every time the assessee replied that he wanted time to prepare. Many opportunities were given by the Assessing Officer for the production of relevant documents including books of account in the form of ledger, balance sheet , etc. However, such documents were never produced.
The Hon’ble High Court opined that the non production of the document is different from not maintaining the Books of Account. The Appellant had raised the said point of “books of accounts not maintained” for the first time before High Court.
The Hon’ble High Court found that the facts of the case relied by the Revenue were almost similar and therefore, the observations were binding.
It was held that when even after giving opportunities, The Appellant had failed to produce relevant documents and explain the nature and source of the amount received by him ; the order of the AO and the appellate authorities in respect of those amounts was justified.