TMI Blog2008 (2) TMI 531X X X X Extracts X X X X X X X X Extracts X X X X ..... can be said to have reason to believe that income had escaped assessment. It is nowhere the case of the assessee that the AO did not have cause or justification to know or suppose that income had escaped assessment. Once this is so, it has to be said that the AO had reason to believe that income had escaped assessment. Thus, we do not find any force in this grievance of the assessee and the same is hereby rejected. Addition made under s. 68 - business of the assessee bank is to carry on banking transactions - Whether Tribunal is right in holding that section 68 of the Income-tax Act, 1961 does not apply to the co-operative bank for assessing the unexplained credits as taxable income - addition of the said amount, on account of peak balance standing in the name of the various depositors - The case of the assessee bank could not be put at par with the cases of other persons, since the bank does not have any control in respect of the amounts credited in its accounts; that the bank is to maintain accounts of its customers, which accounts can be operated only by those customers and the bank does not have any control over the amounts in the accounts. While holding in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much more stringent compliance. Further, even on merits, the addition was uncalled for. Concerning account Nos. 8211, 8212 and 8213, the introducer was Shri Vijay Sethi, the deceased managing director of the assessee bank itself. The original investments were made in RMRD accounts or savings bank accounts with the Mithapur Branch of the assessee. These investments were made way back in 1992. It was only on maturity that they were transferred to the accounts under consideration. It has rightly been contended that the origin of these amounts falling in the earlier years, which fact has also been admitted by the AO, they could not be brought to tax in the year under appeal, in the hands of the assessee. The learned CIT(A) thus rightly deleted the addition in this regard. Hence, we find ourselves to be in agreement with the observations recorded by the learned CIT(A) while allowing the appeal of the assessee. The grievance of the Department in this regard is found to carry no force whatsoever and is, as such, rejected. Apropos the objection of the Department that the learned CIT(A) erroneously admitted additional documentary evidence when before the AO, the assessee had denie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, the ld. CIT(A) has erred in admitting additional documentary evidence in violation of Rule 46A especially when vide reply dated 27-3-2002 before the A.O., the assessee bank denied to produce the bank account holders on the plea that it will adversely effect its banking business. As such the deletion of addition made was not called for. 3-5. The assessee has raised a ground in this case invoking Rule 27 of the Income lax (Appellate Tribunal) Rules, 1963, according to which, the respondent in an appeal may support an order decided against him. As per this ground, the learned CIT(A) was not justified in upholding the initiation the proceedings under Section 147/148 in the facts and the circumstances of the case, more particularly, when on appreciation of the same facts, he held the entire addition as bad in law. 6. We are taking up the issue raised by the assessee first. Before the learned CIT(A), the assessee contended that on the basis of inspection of the record, it could be said that the reasons recorded by the A.O. did not even remotely suggest to any subjective satisfaction having been arrived at by the A.O., before issuance of the said notice of reassessment; and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e fact by legal evidence or conclusion; that what is required is reason to believe but not the established fact of escapement of income; that at the stage of issue of notices, the only question is whether there was relevant material on which a reasonable person could have formed the requisite belief; that whether the material would conclusively prove escapement of income is not the concern at that stage; and that this is so because formation of the belief is within the realm of the subjective satisfaction of the Assessing Officer. 8. As to how ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. (supra), is not applicable to the present case, the learned Counsel for the assessee has not been able to make out, though this decision was specifically pointed out to him at the time of hearing of the appeals. It is nowhere the case of the assessee that the A.O. did not have cause or justification to know or suppose that income had escaped assessment. Once this is so, it has to be said that the A.O. had reason to believe that income had escaped assessment. 9. In view of the above, we do not find any force in this grievance of the assessee and the same is hereby rejected. 10. Coming t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irector of the Bank, wherein he had admitted that the introducer, Shri Vijay Sethi, M.D. of the Bank had died and as the account holders had given more than one address, all incomplete, in the account opening forms; that the bank was unable to prove the identities of the account holders; and that since the bank was not able to prove the identity of the creditors/depositors, action under Section 68 of the Act in the hands of the bank was suggested. 12. On receipt of the above information, the A.O. issued a notice under Section 148 of the Act, which was served on the assessee. In response, vide letter dated 23-6-2000, the assessee stated that the return already filed on 29-6-1999 be treated as having been filed in compliance of the said notice. Notices under Section 143(2)/142(1) of the Act, alongwith questionnaire were served on the assessee, which were complied with. 13. The A.O. observed that the assessee bank, alongwith its Head Office in Civil Lines, Jalandhar, had seven branches, i.e., Partap Bagh Branch, Kishanpura Branch, Mithapur Branch, New Sabzi Mandi Branch, Nawanshahr Branch, Banga Branch and Goraya Branch; that as per the letter of the assessee, separate books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the names of the colonies/Bastis which were spread over thousands of acres and were having thousands of houses; that the address of the account holder only depicted the name of road/which stretched in kilometers and a number of colonies were located thereon; that the address of Ramesh Kumar and Mohinder Singh, account holders of account No. 1571 above, was Ladowali Road, Jalandhar; that Ladowali Road started from Shastri market and extended upto BSF Chowk, i.e., a distance of about 2 Kms.; that it had so many colonies located on both of its sides; that so, it was very difficult to locate Shri Ramesh Kumar and Shri Mohinder Singh; that so much so, even the names of their father/mother had not been given; that Jawahar Nagar, Mota Singh Nagar, Focal Point, Bye Pass, Basti Sheikh were very big colonies and thousands of landlords/tenants were residing in each colony; that it appeared that while opening the account, the bank had not obtained the full address, for the reasons best known to them, in violation of the banking rules; that this went to establish that the assessee was working as an escape-route to tax dodgers by firstly not obtaining the complete address of the account holde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from its own Directors to disclose the exact/full address of the persons whom they had themselves introduced, at Sr. No. 3 and 5, who were stated to be the existing Directors of the bank; that the assessee, vide his two letters, had given only the addresses of the introducers and had contended that it was not obliged to produce the account holders; that this version of the assessee was incorrect, since only the full address of the account holder was asked for; that the assessee had thus declined to provide the identity of the account holders/depositors, by not giving their complete addresses; that it had been stated that the bank obtained a witness as introducer regarding the identity of the person who opened an account; that the bank accepted the introduction of the person in accordance with the rules framed in this regard; that the so-called introducer was, in no way, accountable or answerable to the Income tax Department regarding the identity of the account holders, rather, he was responsible to the bank, which accepted the identity of the person as genuine at the instance of the introducer; that as per Section 68 of the Act, it is the onus of the bank to explain the credit en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds the close of the limitation period. The assessee thus requested the CIT(A) to admit these documents stating that these documents could not strictly be termed as additional evidence, since they were only informative in nature with regard to the identity of the bank's clients and their respective accounts with the bank, because the assessee bank had been under the bonafide belief that it was not obliged to file such documents in respect of its depositors, who had been introduced either by the bank's own staff members, or by some one already having a bank account with the assessee bank. 17. The aforesaid request of the assessee was forwarded by the learned CIT(A) to the A.O. for his comments. The A.O. objected to the admission of the additional evidence, stating that the assessee, vide its reply dated 27-3-2002, filed before the A.O., had denied to produce the account holders on the plea that it would adversely affect the banking business of the assessee bank; and that the case did not get covered by Rule 46A(1) of the Income tax Rules, 1962. The bank, on the other hand, stated that its stand held good, since the bank could not be equated with others for the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount is opened only through cash deposit and is throughout operated in the same manner, the provisions of Section 131 of the said Act would not be applicable, since the opening of the account by cash is a little different from opening an account by cheque; that as such, the provisions of Section 68 of the Act are not applicable, the banking company being under no legal obligation to question the source of money deposited by its customers, nor can it compel its customers to deposit the money in cash or by cheque/draft; and that if at all the identities of the customers were found to be doubtful, it was also that the bank would lose the protection Under Section 131 of the Negotiable Instruments Act. 20. The assessee further submitted before the learned CIT(A) that in three accounts, i.e., account numbers 8211,8212 and 8213, the introducer was none other than the deceased Managing Director of the Bank itself and if the introducer is known to the bank, the formalities are well met with; that so far as regards the addresses of the account holders being not correct, the bank was under no legal obligation to make such enquiries, since if the bank fails to take a proper introduction, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould have been exercised in favour of the assessee rather than against it; and that alternatively, there being no finding that the bank was engaged in any business other than the banking business, the entire income added should have been allowed as exempt under Section 80P of the Act. 21. By virtue of the impugned order, the learned CIT(A) deleted the additions made by the A.O., holding as follows: I have considered the submissions of the appellant and have gone through the details filed during the course of appellate proceedings as well as the information lying on the records. Looking at the nature of activities of the appellant it can be said that not withstanding the facts of the case, the appellant's case was subject to rules laid down under Banking Regulation Act and as per regulations from RBI it has to maintain CRR/SLR ratio. All the banking operation are under audit and report in this regard goes to RBI. Therefore, its case can not be treated at par with the cases of other persons i.e. Individual/firms etc. because the bank does not have any control like other persons can exercise in respect of the amounts credited in their accounts. The bank is to maintain accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s could not be established but the same were introduced by different persons either connected with the bank as MD/staff member or existing account holders of the bank and at the stage of introduction the introducer being aware whose account he is introducing the bank as a separate entity cannot be taxed for the credits in these accounts. In view of these facts, the addition on account of peak credits made by the AO is deleted and A.O. should proceed in the case of introducers by gathering all the documentary evidence from the bank in support of the transactions routed through these accounts and bring to tax the unaccounted income in the relevant years in the hands to whom it belongs. Another addition of Rs. 20,01,009/- is made representing peak amount in the account of Shri Harbhajan Singh bearing A/c No. 9803. A look at the account reveal that there appear transactions in the name of Lally Motors and United India Insurance Co. and though letter was written to the A.O. on 24-2-2002 to trace the identity of the person in view of the said transactions and to comment upon propriety of the addition in the hands of the appellant yet no reply was received. In the same account, there a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There are small additions of Rs. 5/-, Rs. 172/-, Rs. 189/- and Rs. 102/- in the case of other account holders but the same are supported by proper introduction and considering the quantum involved, these additions are deleted subject to same directions as in the cases of other account holders. In the result, the addition of Rs. 59,41,593/- made by the A.O. is deleted. 22. Aggrieved by the aforesaid order passed by the learned CIT(A), the department has filed the present appeal before us. 23. Challenging the order passed by the learned CIT(A), while supporting that of the A.O., the learned D.R., apropos ground Nos. 1 and 2, has argued before us that in the survey conducted by the DDIT(Inv.), a large number of accounts were found, the details with regard to which were not complete. The A.O. enquired and found the discrepancies as detailed in the assessment order. No address regarding the account holders was made available by the assessee bank to the A.O. Even the enquiries made by the A.O. with some introducers of the accounts did not bear any result. The A.O. added back all these amounts under Section 68 of the Act, as the income of the assessee bank. The learned D.R. has cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s business income is exempt and deduction under Section SOP is available. 25. Apropos the merits, the learned Counsel for the assessee has contended that major additions were made in three accounts; that the credits are not relatable to this year and that so, no additions with regard thereto under Section 68 of the Act could be made; and that the learned CIT(A) duly took this into consideration, while ordering the deletion. 26. We have heard the parties and have perused the material on record. The facts are not in dispute. The issue is as to whether the provisions of Section 68 of the Act are applicable and whether it has rightly been applied to the assessee-bank. The learned CIT(A), while deleting the addition made, has observed that the assessee's case was subject to rules laid down under the Banking Regulation Act, as also the regulations of the RBI; that all the banking operations are under audit and report in this regard goes to the RBI; that therefore, the case of the assessee bank could not be put at par with the cases of other persons, since the bank does not have any control in respect of the amounts credited in its accounts; that the bank is to maintain accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by its customers. Also, the customers can retain the amount in his savings bank account with the assessee bank for any period. The amount has to be repaid by the bank to its customers immediately on demand. These features distinguish the case of the bank from other ordinary assessees. Therefore, the provisions of Section 68 of the Act are not applicable to the bank as they are in the cases of the other assessees. Still further, under Section 35 of the Banking Regulation Act, 1949, a banking company is subject to periodical inspections and audit by the RBI and in case any default is found, the bank is liable for heavy monetary penalty, besides cancellation of its license. This is not the case with other assessees. A bank, under the RBI guidelines, in order to maintain confidentiality in respect of the information collected by a bank relating to its customers, such information is not to be divulged to outsiders. There is no such obligation with other assessees. 28. Despite the RBI guidelines providing maintenance of secrecy with regard to the information regarding the customers of the bank, the assessee furnished to the A.O. whatever information it had in its possession. The ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the course of its business by way of dacoity is deductible as a trading loss in computing the total income of the business. This strengthens the assessee's contention that the deposits accepted by it were part of its trading activity and that its clients were its customers. 30. In TIT v. Pragati Coop. Bank Ltd. 278 ITR 170 (Guj.), it was held that the provisions of Section 68 of the Income tax Act would not apply to the case of a banking company working under the control of the Reserve Bank of India, particularly when the deposits were not stated to have been made either by the directors of the bank or by any relative of the directors. 31. In Shri Mahavir Nagari Sahakari Pat Sanstha Ltd. v. Dy. CIT 74 TTJ (Pune) 793 (copy at pages 95 to 104 of the assessee's paper book), it was held that addition could not be made under Section 68, even though the minimum onus of proving the identity of depositors had not been discharged by the assessee. 32. In by. CIT v. Sahara India Financial Ltd. (2004) 2 SOT 733 (Luck.) (copy at pages 105 to 109 of the assessee's paper book), it was held that the deposits received by the assessee, which was a non banking financial inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... got confirmed by the learned CIT(A) through the A.O. assessing the said lady. 39. The above facts were duly taken into consideration by the learned CIT(A) while admitting the appeal. We do not find anything erroneous with the order of the learned CIT(A). 40. Not only this, in pursuance to the directions issued by the learned CIT(A), the assessee located further details/addresses of account holders. These details were furnished to the A.O. vide letter dated 4-10-2005. A copy of this letter had been placed at pages 90-91 of the assessee's paper book. This also boosts the stand taken by the assessee. 41. In view of the above, we find ourselves to be in agreement with the observations recorded by the learned CIT(A) while allowing the appeal of the assessee. The grievance of the department in this regard is found to carry no force whatsoever and is, as such, rejected. 42. Apropos the objection of the department that the learned CIT(A) erroneously admitted additional documentary evidence when before the A.O., the assessee had denied producing the bank account holders on the plea that this would adversely affect its banking business. Here also, we find no case made out by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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