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2013 (9) TMI 89 - HC - Income TaxUndisclosed income u/s 68 - Genuineness of Gift - Held that - It was found that though the bank pass book is not a book maintained by the assessee for the purpose of Section 68, it made no difference whether Section 68 and Section 69 of the Act would be applicable. The assessee is a wholesale cloth merchant doing the business under the name of Shri Ganesh Traders, which was maintaining the accounts. The accounts stood audited under Section 44AB of the Act in respect of the business as well as personal accounts, which were compiled as final accounts in the form of combined profit and loss account, capital account and personal balance sheet and reflected the capital investments in Shri Ganesh Traders. The assessee had produced these accounts before the Assessing Officer and thus the Tribunal opined in its majority opinion of the Accountant Member and the 3rd Member that Section 68 would be attracted and that even if Section 69 is referred to, the addition was justified under any of these two Sections as the sum was found credited in the books of assessee maintained for the previous years - both the Accountant Member and the 3rd Member have expressly recorded in their orders that they have not gone into the merits of the additions. The 3rd Member also observed that he has refrained himself from getting into the merits of the additions although learned counsels, who appeared, presented certain case laws, which were relevant for deciding the issue on merits. The Accountant Member and the 3rd Member, after having decided the question of law, should have considered the question of genuineness of gifts, which was pressed by the counsel appearing for the assessee. The assessee has lost the right of second appeal on the question of genuineness of gifts, on its merits - Tribunal erred in law in dismissing the appeal only on the ground that since the 3rd Member had agreed with the Accountant Member, the appeal deserves to be dismissed. The question of genuineness of gifts in view of the opinion of the 3rd Member was not considered on merits and was thus still open and on which the Tribunal did not give any decision - matter remanded back. - Decided in favour of assessee.
Issues Involved:
1. Error in adjudicating merits of addition under Section 68. 2. Scope of reference for the third Member. 3. Dismissal of miscellaneous application under Section 254(2). 4. Genuineness of gifts received by the assessee. 5. Applicability of Sections 68 and 69 of the Income Tax Act. Issue-Wise Detailed Analysis: 1. Error in adjudicating merits of addition under Section 68: The Tribunal was questioned for not adjudicating the merits of the addition under Section 68. The Judicial Member believed that the legal question of whether the amount could be added under Section 68 needed resolution first. The Judicial Member held that Section 68 applies only to credit entries in the books of accounts, not bank passbooks. The Accountant Member disagreed, stating that the bank account forms part of the assessee's accounts, making Section 68 applicable. The third Member agreed with the Accountant Member, affirming that the addition could be justified under Section 69 if not under Section 68. 2. Scope of reference for the third Member: The third Member was tasked with resolving whether the Commissioner of Income Tax (Appeals) was wrong in confirming the disallowance of gifts received by the assessee as cash credit under Section 68. The third Member supported the Accountant Member's view that the bank account is part of the assessee's accounts, thus Section 68 is applicable. The Tribunal, with the third Member's concurrence, treated the appeal as dismissed. 3. Dismissal of miscellaneous application under Section 254(2): The Tribunal dismissed the assessee's application under Section 254(2), which sought rectification of the alleged mistake of not adjudicating the merits of the addition. The Tribunal held that a debatable issue could not be considered a mistake apparent on record and thus could not be rectified under Section 254(2). The Tribunal relied on precedents to assert that it lacked the power to review its orders. 4. Genuineness of gifts received by the assessee: The Assessing Officer disallowed the gifts received by the assessee, citing lack of proof of the donors' capacity to gift the amounts. The CIT (A) confirmed this finding. The Judicial Member did not address the genuineness of the gifts, focusing instead on the legal applicability of Section 68. The Accountant Member and third Member, while agreeing on the legal point, did not adjudicate the merits of the genuineness of the gifts. The High Court found that the Tribunal erred in not deciding the genuineness of the gifts on merits, remanding the matter back to the Tribunal for this purpose. 5. Applicability of Sections 68 and 69 of the Income Tax Act: The Judicial Member held that Section 68 applies only to entries in the books of accounts, not bank passbooks. The Accountant Member argued that the bank account forms part of the assessee's accounts, making Section 68 applicable. The third Member agreed that the addition could be justified under Section 69 if not under Section 68. The High Court upheld the Tribunal's majority view that Section 68 applies and that the addition could also be justified under Section 69. Conclusion: The High Court allowed the Income Tax Appeal (Defective) No.36 of 2013, remanding the matter to the Tribunal to decide the genuineness of the gifts on merits. The Income Tax Appeal No.67 of 2013 was dismissed, affirming the Tribunal's dismissal of the application under Section 254(2).
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