Facts of the Case

The assessee had deposited certain sums in a bank account during the relevant assessment year but did not maintain regular books of account. During assessment proceedings, the Assessing Officer (AO) treated these deposits as unexplained cash credits and made additions under Section 68 of the Income-tax Act.

The AO relied primarily on entries reflected in the bank statement/passbook. The assessee contended that since no books of account were maintained, Section 68 had no application.

The Commissioner of Income-tax (Appeals) [CIT(A)] granted relief to the assessee by deleting the additions. The Revenue filed an appeal before the Income Tax Appellate Tribunal (ITAT). 

Issues Involved

  1. Whether cash deposits in a bank account can be treated as unexplained credits under Section 68 in the absence of books of account.
  2. Whether a bank statement or passbook constitutes “books of account” of the assessee.
  3. Whether the AO’s addition was legally sustainable.

Petitioner’s Arguments (Revenue)

  • The bank deposits represented unexplained income.
  • The assessee failed to satisfactorily explain the source of funds.
  • The AO was justified in invoking Section 68 based on bank entries.

Respondent’s Arguments (Assessee)

  • No books of account were maintained during the relevant period.
  • A bank passbook is maintained by the bank, not by the assessee.
  • Section 68 applies only to credits recorded in the books of the assessee.
  • Therefore, additions based solely on bank deposits were unsustainable.

Court Order / Findings (ITAT)

  • Section 68 applies only where a sum is found credited in the books of account maintained by the assessee.
  • A bank passbook or statement is merely a record maintained by the bank and cannot be treated as the assessee’s books.
  • In the absence of books maintained by the assessee, invocation of Section 68 is legally untenable.
  • The AO failed to bring independent material to establish that the deposits represented undisclosed income.

Important Clarification

  • Section 68 cannot be applied where the assessee does not maintain books of account.
  • Bank statements or passbooks are not “books of account” of the assessee.
  • Additions must be supported by legally admissible evidence beyond mere bank entries.
  • Revenue authorities must establish unexplained income through proper investigation.

Link to download the order – https://itat.gov.in/public/files/upload/1574674436-SHEETALAYA-213(CITA).pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.