Section 68 – No addition u/s. 68 can be made when assessee is not liable to maintain books of accounts, further bank passbook cannot be regarded as books maintained by assessee.

Babbal
Bhatia vs. ITO ITA Nos.
5430 & 5432/DEL/2011 A.Ys.:  2010-11 to 2012-13 Dated: 8^th June, 2018

Section 68 – No addition u/s. 68 can be made when assessee is not liable to
maintain books of accounts, further bank passbook cannot be regarded as books
maintained by assessee.

FACTS

Assessment was reopened u/s. 147 based on
information that Assessee had earned Rental income and had made huge cash
deposit in her bank account. In response to notice u/s. 148, she filed her
Return of Income (ROI) wherein she clearly stated that she did not maintain
books of accounts. Further, assessee had declared her income under the
presumptive taxation provisions of section44AF, however as per the contentions
of revenue, the turnover and profit shown by assessee did not entitle assessee
to be governed by section 44AF. During the assessment proceeding, she submitted
Cash Flow Statement and stated that cash deposited was received from cash sales
and withdrawals from other banks. However, the Assessing Officer (AO) rejected
the explanation and made addition of cash deposit u/s. 68.

CIT(A) upheld the order of AO and assessee
filed appeal before the Hon’ble ITAT.

HELD

The Tribunal allowed the assessee’s appeal
and held as under:

1.  If returned income did not match the
presumptive tax rates u/s. 44AF revenue authorities should have treated the ROI
as invalid. Further in such circumstances, AO cannot proceed by making addition
u/s. 68 in respect of cash deposited in Bank account knowing fully that
assessee was not maintaining books of accounts.

2.  The Hon’ble ITAT relied on the following
decisions:

(a) ITO vs. Om Prakash Sharma (ITA
2556/Del/2009) wherein it was accepted that bank passbook does not
constitute Books of Accounts, further when no Books are maintained by assessee
addition u/s. 68 cannot be made. Reliance was placed on CIT vs. Bhaichand H.
Gandhi [141 ITR 67 (Bom.)], Sampat Automobile vs. ITO [96 TTJ(D)368], Mayawati
vs. DCIT [113 TTJ 178(Del.)], Sheraton Apparels vs. ACIT [256 I.T.R. 20 (Bom.)].

(b) Baladin Ram v. CIT [1969] 7 ITR 427[SC]
wherein the apex court held that passbook could not be regarded as books of
account of assessee as relationship between banker and customer is that of
debtor-creditor and not of trustee-beneficiary.

(c) CIT vs. Ms. Mayawati [338 ITR 563 (Del
HC)] wherein it was held that Bank neither act as agent of customer nor
maintains pass book under the instructions of customer (assessee). Thus, cash
credit in the Pass Book of the assessee does not attract provisions of section
68.

(d) Anandram Ratiani vs. CIT [1997] 223 ITR
544 (Gauhati) wherein it was observed that perusal of section 68 of the
Act, shows that in relation to the expression “books”, the emphasis
is on the word “assessee” meaning thereby that such books have to be
the books of the assessee himself and not of any other person.

3.  The very sine qua non for making
addition u/s. 68 presupposes a credit of the amount in the Books of the
assessee. A credit in the Bank account of assessee cannot be construed as
credit in the books of the assessee.

4.  The Hon’ble ITAT stated that it is settled
position that statutory provision has to be given plain literal interpretation
no word howsoever meaningful it may appear can be allowed to be read into a
statutory provision in garb of giving effect to the underlying intent of
legislature. Thus, credit in bank of assessee cannot be construed as credit in
Books of assessee. Accordingly no addition u/s. 68 can be made in the given
case.