TMI Blog2008 (2) TMI 944X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of section 68 of the Income-tax Act, 1961, in various bank accounts in respect of which the assessee-bank failed to prove the identity of the so-called account holder and also expressed its inability to prove the genuineness of the creditors/depositors. 2. That the learned Commissioner of Income-tax (Appeals) while upholding the initiation of notice under section 148 has admitted that the relevant accounts under consideration based on which notice was issued were operated in violation of banking norms by not obtaining any introduction, photo or proper address which means identity of the depositor was not verifiable. The amounts were deposited in the ledgers of the bank constituting the books of account of the appellant and in the light of finding of the Investigation Wing, the onus was on the appellant to establish the identity of the depositor which it failed to do so. 3. That while allowing relief at Sr. No. 1 above, the learned Com missioner of Income-tax (Appeals) has erred in admitting additional documentary evidence in violation of rule 46A especially when vide reply dated March 27, 2002, before the Assessing Officer, the asses see- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer and it was based on the material available on record ; and that it could not at all be said that the Assessing Officer had proceeded on the directions of the Investigation Wing. In this manner, the learned Commissioner of Income-tax (Appeals) upheld the notice issued under section 148 of the Act. 5. Before us, the stand of the assessee has remained much the same as that before the learned Commissioner of Income-tax (Appeals). However, the categorical findings of fact recorded by the learned Commissioner of Income-tax (Appeals) have remained firm. The assessee has not been able to show as to how the satisfaction recorded was not of the Assessing Officer, but of the Deputy Director of Income-tax. The reasons recorded also did not suggest that the satisfaction was not that of the Assessing Officer, but of some other authority. Moreover, the issue now stands well-settled by the hon'ble Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500, wherein, inter alia, it has been held that the expression reason to believe in section 147 of the Act would mean cause or justification ; that if the Assessing Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... troduced by Remarks 8211 S/Sh. Des Raj, Rakesh amp; Sohanlal R/o New Jawahar Nagar, Jal. Sh. Vijay Sethi managing director of the bank This account was opened on February 4, 1997 and closed on October 16, 1999. Huge credit deposits/transfers of FDRs from Kishanpura Branch amounting to ₹ 13.70 lakhs were made in this account. The entire amount was withdrawn in cash. 8212 S/Sh. Sham Lal, Dev Sohan Lal, R/o Mota Singh Nagar, Jal -do - This account was opened on Feb-ruary 4, 1997 and closed on October 14, 1999. Huge credit deposits/ transfers of FDR s from Kishanpura Branch amounting to ₹ 19.53 lakhs were made in this account. The entire amount was withdrawn in cash. 8213 S/Shri Parveen, Mohan Lal R/o Mota Singh Nagar, Jalandhar -do - This account was opened on February 4, 1997 and closed on Oc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr. No. Account No. Name of the account holder 1. 1571 S/Sh. Ramesh Kumar, Mohinder Singh, Ladowali Road, Jalandhar. 2. 8211 Sh.Des Raj, R/o New Jawahar Nagar, Jalandhar. 3. 8212 Sh. Sham Lal S/o Sh. Dev Mitter, Mota Singh Nagar, Jal. 4. 8213 Sh. Parveen, Raj Kumar, Mohan Lal S/o Sh. Hans Raj, Mota Singh Nagar, Jalandhar. 5. 954 Smt. Usha Rani Seth W/o Sh. Subhash Chander, 37, Sodal Nagar, Sodal Road, Jalandhar. 6. 1663 Sh. Mahesh Kumar S/o Sh. Yash Paul, G. T. B. Nagar, Jal. 7. 9803 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ; 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 holder and then contending that the bank was in no way responsible to give the complete address or prove the genuineness of the identity to the account holders. It was observed that the following were the introducers of the account holders having account Nos. as shown against each : 1. Sh. Vijay Seth (expired) M. D. of the assessee-bank 8211, 8212, 8213 2. Parmodh Sharma, Acctt. of assessee-bank 954, 955 and 956 3. Anil Chopra director of the bank 9803 4. Davinder Singh, S/o H. Singh 137, Partap Nagar, Jal. 8268 5. No introducer (Being director of the bank) 1108 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddresses ; 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 entries in its books of account ; that the bank had failed to give the full addresses of the account holders and as such, the case was covered in the first limb of section 68 ; that it appeared that the bank had accommodated the account holders by opening accounts in the names of unidentified persons, precluding the Department from further smooth enquiry into the source of the deposit of funds by the account holders ; that the proceedings in the case had started on March 16, 2004, by issuance of notice under section 143(2) of the Act ; that the assessee-bank had purposely been seeki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of its depositors, who had been introduced either by the bank's own staff members, or by someone already having a bank account with the assessee-bank. 15. The aforesaid request of the assessee was forwarded by the learned Commissioner of Income-tax (Appeals) to the Assessing Officer for his comments. The Assessing Officer objected to the admission of the additional evidence, stating that the assessee, vide its reply dated March 27, 2002, filed before the Assessing Officer, 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 section 68 of the Act. 16. The Commissioner of Income-tax (Appeals) observed that since the documents submitted by the assessee in appeal were in relation to the additions made and could not be produced at the time of the assessment proceedings, the case was covered by the relevant clause as laid down under rule 46A(1) of the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent 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. 18. The assessee further submitted before the learned Commissioner of Income-tax (Appeals) 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 would lose the protection under section 131 of the Negotiable Instruments Act ; that the bank is run by its employees and directors who keep changing periodically and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natively, 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. 19. By virtue of the impugned order, the learned Commissioner of Income-tax (Appeals) deleted the additions made by the Assessing Officer, 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 in the records. Looking at the nature of activities of the appellant it can be said that notwithstanding the facts of the case, the appellant's case was subject to rules laid down under the Banking Regulations Act and as per regulations from RBI it has to maintain CRR/SLR ratio. All the banking operations are under audit and report in this regard goes to RBI. Therefore, its case cannot be treated at par with the cases of other persons i.e., individuals/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 accounts of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons appeared in other accounts i.e., 8212 and 8213. It is seen from records that identity of account holders could not be established but the same were introduced by different persons either connected with the bank as managing director/staff member or existing account holders of the bank and at the stage of introduction the introducer being aware of 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 Assessing Officer is deleted and the Assessing Officer should proceed in the case of intro ducers 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 ₹ 20,01,009 is made representing peak amount in the account of Shri Harbhajan Singh bearing account No. 9803. A look at the account reveals that there appears transactions in the name, of Lally Motors and United India Insurance Co. and though letter was written to the Assessing Officer on February 24, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts does not survive. The account of Shri Harish Chander wherein peak credit was worked out by the Assessing Officer at ₹ 59,634 was introduced by M/s. S. K. Traders having account savings bank account 244 with the appellant-bank and following the decision in other cases and subject to same finding and direction the addition of ₹ 59,634 is deleted. There are small additions of ₹ 5, ₹ 172, ₹ 189 and ₹ 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 ₹ 59,41,593 made by the Assessing Officer is deleted. 20. Aggrieved by the aforesaid order passed by the learned Commissioner of Income-tax (Appeals), the Department has filed the present appeal before us. 21. Challenging the order passed by the learned Commissioner of Income-tax (Appeals), while supporting that of the Assessing Officer, the learned Departmental representative, apropos ground Nos. 1 and 2, has argued before us that in the survey conducted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of the RBI (APB 85) for the bank to maintain confidentiality and under this, personal information quoted by the banks in respect of their customers is not to be provided to other agencies, else it would amount to breach of customer's confidentiality obligation ; that strict compliance in this regard has been required by the RBI ; that then, in the case of offences punishable under the Income-tax Act committed by the staff/officers of the bank, such a delinquent has to be proceeded against by the Department, as provided by the RBI (APB 83) ; that then, this is a case of a co-operative society, to which deduction under section 80P is allowed ; and that if any addition is made, the assessee's business income is exempt and deduction under section 80P is available. 23. Apropos the merits, 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 Commissioner of Income-tax (Appeals) duly took this into consideration, while ordering the deletion. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entity is required to be taken by the bank with proper introduction, photographs and address, etc. This is so, because any person from the general public can open an account with a bank. The other cases of acceptance of deposits cannot be equated with that of the bank. In those cases, normally, deposits are accepted from the people connected with or known to the depositees. It is in accordance with the terms of section 131 of the Negotiable Instruments Act that this requirement is there. As such, if introduction of the customer had been duly taken by the bank, the bank would not be liable in case of a fraud. Moreover, pertinently, if the customer seeks to operate the account with cash only, the bank can open an account without introduction and without proper identification. Further, the bank is not obliged to question the source of deposits made by its customers. Also, the customer 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of a customer, it can avail of the protection under section 131 of the Negotiable Instruments Act. So far as regards non-obtaining of photographs of the account holders, it is true that the same were not obtained in the normal course. Pertinently, in savings bank accounts where cheque facilities were not provided, RBI guidelines (page 76 of the assessee's paper book) provided exemption. Thus, in respect of accounts with only cash transactions, even the rule of proper introduction did not operate strictly. All this shows that the assessee-bank did not commit any infringement in taking proper introduction and, therefore, it is incorrect that there was any deliberate attempt on the part of the assessee to accommodate tax dodgers. 27. In CIT v. Nainital Bank Ltd. [1965] 55 ITR 707, the hon'ble Supreme Court, vide its order dated September 25, 1964 (copy at page 110 of the assessee's paper book), held that cash is the stock-in-trade of a banking business and that loss in 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 deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in the earlier years, which fact has also been admitted by the Assessing Officer, they could not be brought to tax in the year under appeal, in the hands of the assessee. The learned Commissioner of Income-tax (Appeals) thus rightly deleted the addition in this regard. 33. The introducer of account Nos. 954, 955 and 956 was Shri Parmod Sharma, accountant of the assessee-bank. He appeared before the Assessing Officer in response to the summons under section 131 of the Act. He admitted knowing the account holders personally. The onus with regard to these accounts thus stood amply discharged. 34. S. Swaran Singh was the account holder of account No. 1108. He was one of the directors of the bank and so he needed no independent introduction to open his account with the assessee-firm. His independent existence also stands proved by the entries through clearing in his account. 35. Shri Pawan Sharma was the introducer to account No. 1658. His statement was recorded by the Assessing Officer under section 131 of the Act. He also confirmed knowing the account holder. 36. Smt. Harsimranjit Kaur, Prop. M/s H. S. Gas Service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee. 42. We do not find any error in the order of the learned Commissioner of Income-tax (Appeals). In this regard, it has not been made out that the plea of the assessee of not being obliged to file such documents in respect of its depositors, who had been introduced either by the bank's own staff members or by someone already having a bank account with the assesseebank, was mala fide. 43. Further, undisputedly, the documents so produced were directly related to the additions made. In this view of the matter, the Department's grievance in this regard also stands rejected. I. T. A. No. 114/Asr/2003 (assessment year 1998-99) : 44. In this case also, the assessee has, under rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, taken the objection/ground that the learned Commissioner of Income-tax (Appeals) erred in sustaining the assumption of jurisdiction by the Assessing Officer to issue notice under section 148 of the Act. It has been contended that no such notice or any reasons recorded for issuing the same was ever served on the assessee ; and that the learned Commissioner of Inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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