TMI Blog2005 (6) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... -tax (Appeals) deleting the addition of Rs. 1,80,95,811 in respect of fixed deposit and Rs. 21,71,500 in respect of interest?" The assessment year is 1983-84 and the relevant accounting period is July 1, 1981, to June 30,1982. The assessee, a co-operative society, is engaged in the business of banking. As against returned income of Rs. 14,317 the Assessing Officer assessed at a total income of Rs. 2,02,61,628 by an order of assessment dated March 31, 1986. It appears that there were search proceedings under section 132 of the Act on December 24, 1983, at the premises of the bank and due to various discrepancies/irregularities in the records maintained by the assessee-bank, with special reference to issuance of various fixed deposit receipts the authorised officer issued a prohibitory order of attachment under section 132(3) of the Act, directing the assessee-bank not to take any action in relation to fixed deposit receipts. It is an admitted position that the said prohibitory orders were modified/lifted from time to time on partial basis depending on different applications moved by the assessee-bank. The Assessing Officer has made additions to the tune of Rs. 1,80,95,811 as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income-tax (Appeals) and the Tribunal. Mr. R.K. Patel, appearing on behalf of the respondent-assessee, submitted that the additions had rightly been deleted by the appellate authorities after concurrently recording various findings of fact on appreciation of evidence which was produced by the assessee. A grievance was made that though the Assessing Officer had called for details of fixed deposits wherein the amount involved was more than Rs. 10,000 ultimately the addition comprised of various deposits which were even below the amount of Rs. 10,000. That the Assessing Officer had equated irregularity committed by the staff of the assessee-bank in maintenance of records with deposit of unaccounted money by treating deposits of third party depositors as income of the assessee-bank. That the Commissioner of Income-tax (Appeals) and the Tribunal had rightly taken cognizance of the fact that more than 90 per cent. of the fixed deposit holders were having either savings account or current account with the bank and such accounts had neither been doubted nor had the balance in those accounts been treated as undisclosed income of the assessee-bank. He therefore urged that no in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank is amenable to periodical inspection by the officers of the Reserve Bank of India, and in fact under section 35 of the Banking Regulation Act, 1949, officers from the Ahmedabad Regional Office of the Reserve Bank of India have carried out inspection between February 20, 1984 and March 16, 1984. Referring to the inspection report, the Commissioner of Income-tax (Appeals) has noted that the various violations of the RBI guidelines and directions, reflect that the deposits are made by an identifiable person and that for obtaining deposits the assessee-bank has made payment in cash at the time of deposit. It has further been recorded by the Commissioner of Income-tax (Appeals) that while lifting the prohibitory orders the authorities have taken cognizance of the fact that against security of fixed deposits the bank had advanced loans to the deposit holders. That the assessee-bank has placed on record affidavits of the depositors which confirm that the deposits have been made by the persons making affidavits, and the affidavits contain details like addresses, G.I.R. Numbers or permanent account numbers. That the prohibitory orders have been lifted after due verification of such affi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taking into consideration the fact that interest on fixed deposits varied between 4 per cent. and 11 per cent. during the year under consideration depending upon the period for which the amount was deposited and hence the entire addition on account of interest has also been deleted. The Commissioner of Income-tax (Appeals) has further found that the assessee-bank carries on business of banking under a licence issued by the Reserve Bank of India and as such in the absence of any material available on record it was not possible to presume that the assessee indulged in any other activity apart from banking. That the Assessing Officer by holding that the assessee had earned income from undisclosed source was indirectly proceeding on a surmise that the bank was indulging in activity other than banking activity and such surmise was not borne out from the record. While confirming the aforesaid findings of the Commissioner of Income-tax (Appeals) the Tribunal has recorded: (i) In the case of a bank it was not possible to state that it is undisclosed income: if there is any such income, it would be of the depositors and not of the bank; (ii) The names and addresses of all depositor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate that the Tribunal committed any error when it confirmed the findings of the Commissioner of Income-tax (Appeals) deleting the addition. The assessee offered an explanation. The said explanation is not found to be false. The Assessing Officer merely does not accept the explanation because he finds it not satisfactory. From that, legally there is no obligation, on the Assessing Officer, to treat the fixed deposits as income of the assessee. In the case of CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349, the apex court was called upon to decide the issue as to whether the deposit standing in the name of son of the partner of a firm could be treated as belonging to the respondent firm because the respondent firm had offered the fixed deposit receipt as collateral security to the bank while taking a loan from the bank. It is laid down by the apex court that firstly, the onus of proving that the apparent was not the real was on the party who claimed it to be so; secondly, the question was not whether the amount really belonged to the son of the partner, but whether it belonged to the firm. That as it was the Revenue which claimed that the amount of fixed deposit receipt belonged to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, but in the name of an independent party, the burden will still lie upon him to establish the identity of that party and to satisfy the Income-tax Officer that the entry is real and not fictitious. Once the identity of the third party is established before the Income-tax Officer and other such evidence are prima facie placed before him pointing to the fact that the entry is not fictitious, the initial burden lying on the assessee can be said to have been duly discharged by him. It will not, therefore, be for the assessee to explain further as to how or in what circumstances the third party obtained the money and how or why he came to make advance of the money as a loan to the assessee. Once such identity is established and the creditors, as in the instant case, have pledged their oath that they have advanced the amounts in question to the assessee, the burden immediately shifts on to the Department to show as to why the assessee's case could not be accepted and as to why it must be held that the entry, though purporting to be in the name of a third party, still represented the income of the assessee from a suppressed source. And, in order to arrive at such a conclusion, even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bank of India. This is apart from the fact that under the provisions of section 80P of the Act the entire income from banking activities is exempt in the hands of the assessee, a co-operative bank. Thus there can exist no reason for the assessee-bank to indulge in any activity which would yield undisclosed income. Therefore, in the facts and circumstances of the case the findings recorded by both the Commissioner of Income-tax (Appeals) and the Tribunal establish that the assessee had discharged the primary onus which was on it by offering explanation, and the said explanation has not been found to be incorrect or false in any manner. The grievance made by the Assessing Officer that complete details and addresses of the depositors were not furnished has been categorically found to be incorrect in the light of the facts which have come on record and as found by the Tribunal. Similarly as regards the defects in maintenance of records of the bank, both the Commissioner of Income-tax (Appeals) and the Tribunal have accepted the explanation tendered by the assessee by referring to the statements of the manager and the clerk. In these circumstances, it is not possible to find that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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