Addition under Section 68 not applicable where the assessee has not maintained books of accounts

Issue: Whether an addition under Section 68 of the Income-tax Act, 1961, can be made for share sale proceeds claimed as exempt income under Section 10(38), when the assessee did not maintain books of account and the credit was not found in non-existent books.

Facts:

The assessee showed exempt income under Section 10(38) from the sale of shares in his return of income.
The Assessing Officer (AO) initiated proceedings under Section 148, believing income chargeable to tax had escaped assessment.
The assessee did not maintain books of account.
The credit of share sale proceeds was not found credited in the non-existent books of account.

Decision:

The court held that the impugned addition under Section 68 was to be deleted.

Key Takeaways:

Section 68 Applicability: Section 68 applies to cash credits found in the books of account of the assessee.
Non-Maintenance of Books: If the assessee does not maintain books of account, the provisions of Section 68 cannot be applied.
Lack of Credit in Books: If the share sale proceeds are not credited in the books of account (which do not exist), there is no basis for making an addition under Section 68.
Exempt Income: The AO’s action of initiating proceedings under Section 148 and making an addition under Section 68 was not justified when the income claimed was exempt under Section 10(38).
Burden of Proof: While the assessee must explain the nature and source of cash credits, the absence of books of account makes Section 68 inapplicable.
The court is reinforcing the idea that section 68 only applies when there are books of account, and that it can not be used when there are no books.

IN THE ITAT MUMBAI BENCH ‘SMC’

Smt. Vimladevi Parasmal Jain

Income-tax Officer

Sandeep Gosain, Judicial member

IT Appeal No. 5047 (Mum.) of 2024
[Assessment Year 2011-12]

JANUARY 28, 2025

Vimal Punmiya for the Applicant. Sunny Kachhwaha, Sr. DR for the Respondent.

ORDER

Sandeep Gosain, Judicial Member. – The present appeal has been filed by the assessee challenging the impugned order 06.02.2024, passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi (‘Ld. CIT(A)’) for the assessment year 2014-15.

2. There is a delay in filing the appeal, and in this regard, the assessee has requested for the condonation of delay and the reasons given are supported by an affidavit.

3. After having heard the counsels for both the parties and going through the contents of the application for seeking condonation of delay and also taking into consideration the principles as laid down by Hon’ble Supreme Court in the case of Land Acquisition Collector v. Mst. Katiji & Ors., [1987] AIR 1353 (SC) wherein it has been held that where substantial justice is pitted against technicalities of non deliberate delay, then in that eventuality the cause of substantial justice is to be preferred.

4. Thus, considering these principles and also taking into account that the application for seeking condonation of delay is supported by an affidavit. Whereas, on the contrary no affidavit has been filed by the department to rebut or controvert the facts, contained in the affidavit filed by the assessee. Therefore the contention of the affidavit filed by the assessee went un-rebutted. Considering the totality of facts and legal preposition as discussed above, the delay in filing the appeals stands condoned.

5. Ground No. 1 & 2 raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the additions made by the AO. Therefore I have decided to take up both these grounds jointly and dispose of the same through the present consolidated order.

6. I have heard the counsels for both the parties and have also perused the material placed on record, judgement cited before me and the orders passed by the revenue authorities.

7. As per the facts of the present case, assessee has shown exempt income under section 10(38) of the Act of Rs. 10,12,375/- in his return of income from sale of shares of M/s DMC Education, however, AO was of the view that income chargeable to tax has escaped assessment. Therefore, initiated proceedings under section 148 of the Act.

8. Ld. AR drawn my attention to the fact that the assessee has not earned long term capital gain rather on the contrary made loss of Rs. 37,932/- and in this regard referred to page number 11 and 12 of the paper book which contains statement of purchases and sales of shares of DMC international Ltd and statement with effect from 01.04.2010 to 31.03.2011 of Nirmal Bang securities Private Limited through which shares were purchased and sold.

9. After analyzing the documents placed on record I found that assessee suffered loss of Rs.37,932/- instead of gain. Even otherwise the assessee has not maintained books of account and credit of Rs.10,12,375/- has not been found credited in the books of accounts. Therefore in my view, the provisions of section 68 of the act are not applicable where the assessee has not maintained books of accounts and the same is not found credited in the books of accounts. For this proposition, I rely upon the following case laws:

Cit v. Bhaichand N Gandhi,

Anand Ram Raitani v. CIT,

Smt Shanti Devi v. CIT,

Smt Manasi Mahendra Pitkar, ITA no. 4223 of 2015

ITO v. Kamal Kumar Mishra ITA No. 398/LKW/2012.

10. I also found that no amount Rs. 10,12,375/- has been found credited in the books of account, therefore, no addition could have been made under section 68 of the act by the Ld.AO. Even otherwise Ld. CIT(A) while dealing with the appeal of the assessee adjudicated the provisions of section 69A instead Sec. 68 of the Act. Therefore the impugned order of CIT(A) is contrary to the provisions of law. Thus, the order of Ld. CIT(A) is not sustainable and consequently as discussed above the additions made by the AO are directed to be deleted.

11. In the result the appeal filed by the assessee stands allowed.