Section 68 of the Act deals with unexplained cash credits. Section 68 provides that if 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 the opinion of the Assessing Officer, satisfactory, then the sum so credited may be charged to income-tax as the income of the assessee of that previous year.
To invoke section 68, one of the prerequisite condition is that any sum must be found credited in the books of account of the assessee maintained for any previous year. There could be various circumstances under which the assessee may not be liable to maintain books of account or may not be maintaining any books of account.
However, the Assessee may have deposited cash directly in the bank. The credit may therefore appear in the Bank passbook/statement. Under such circumstances the issue has arose before the courts as to whether bank statement/passbook can be considered as books maintained by the assessee and whether section 68 can be invoked.
This issue is dealt in the following cases
Baladin Ram v. CIT [1969] 71 ITR 427 (SC) – the Hon’ble Apex Court observed that section 68 will be applicable only when any amount is found credited in the books of an assessee. On the other hand if the undisclosed income was found to be from some unknown source or the amount represents some concealed income which is not credited in his books then the section will not be applicable.
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.
CIT v. Bhaichand N. Gandhi [1982] 11 Taxman 59 (Bom.) – In this case certain money was credited in the bank account, but same was not accounted in the books of account. On assessment, the ITO made addition u/s 68 of the Act in respect of amount credited in pass book. On appeal, the tribunal deleted the addition.
On further appeal by revenue, the High Court affirmed the decision of tribunal and held that held that pass book is provided by the bank to its account holders is only a copy of the books maintained by the bank. It is not as if the pass book is maintained by the bank as the agent of the constituent, nor can it be said that the pass book is maintained by the bank under the instructions of the constituent. So pass book supplied by the bank to the assessee in the present case could not be regarded as a book of the assessee and hence section 68 is not applicable.
Mehul V. Vyas vs. ITO, [2017] 80 taxmann.com 311 (Mumbai-Trib.) – The ITAT held that where assessee was not maintaining any account books, bank statement could not be construed to be a books of account maintained by her; merely on basis of information that assessee made a ‘cash deposit’ in her saving bank account, no addition could be made as unexplained cash credit. Further, it was held that a credit in the ‘bank account’ of an assessee cannot be construed as a credit in the ‘books of the assessee’, for the very reason that the bank account cannot be held to be the ‘books’ of the assessee. Though it remains as a matter of fact that the ‘bank account’ of an assessee is the account of the assessee with the bank, or in other words the account of the assessee in the books of the bank, but the same in no way can be held to be the ‘books’ of the assessee.
Smt. Manasi Mahendra Pitkar v ITO [2016] 73 taxmann.com 68 (Mumbai – Trib.) – The ITAT held that when the assessee is not maintaining any books of account and section 68 cannot invoked by the AO only on the basis of the bank Pass Book. The ITAT observed that bank Pass Book or bank statement cannot be construed to be a book maintained by the assessee for any previous year as understood for the purposes of section 68.
In following decisions it has been held that bank pass book or bank statement cannot be regarded as the books of accounts of the assessee for the purposes of section 68 of the Act:
- Rameshbhai Somabhai Patel vs ITO (ITA No- 1864/AHD/2014) dated 19.04.2018;
- Smt.Nirmala Devi vs ITO [2017] 88 taxmann.com 870 (Jodhpur-Trib.);
- Smt. Bhagwati Devi v. ITO [1993] 47 ITD 58 (Cal.);
- ITO v. Kamal Kumar Mishra [2013] 33 taxmann.com 610 (Lubknow-Trib.); and
- Smt. Ramilaben B Patel vs ITO [2018] 100 taxmann.com 325 (Ahmedabad Trib.)
- 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.
- Babbal Bhatia vs. ITO (2018) 65 ITR (Trib.) 500 (Delhi) – The 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 AO rejected the explanation and made addition of cash deposit u/s. 68. The Tribunal held that the 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.
- Satish Kumar v ITO (2019) 198 TTJ (Asr) 114 – The Tribunal held that bank account of the assessee cannot be held to be books of the assessee and therefore no addition under section 68 can be made in respect of a deposit in the bank account.