S. 68 cash credits: A bank, NBFC etc is not required to give
conclusive proof of the identity, credit worthiness etc of the
depositor. Practical view has to be taken of deficiencies in KYC norms,
absence of PAN card etc
The assessee, a RNBFC, received a large volume of deposits of small
and medium value through a wide network of rural agents. The AO
appointed a special auditor to verify the new deposits collected during
the year in terms of s. 68. The auditor alleged that the assessee had
not cooperated during the audit procedure and not provided copies of the
accounting software etc. It was also alleged that there were
inconsistencies in the deposit registers such as the same name with same
address was appearing repeatedly, the PAN of the
depositors were not
given, the addresses were not complete etc. The AO issued 1126 summons
on a test check basis to verify the genuineness, identity and
creditworthiness of the depositors. A large number of depositors did not
reply. The AO alleged that even in the ones that did reply, there were
several discrepancies. The assessee explained the discrepancies and
inter alia also argued that an entity engaged in the business of
mobilization of deposit was not expected to insist for demonstrative
proof of creditworthiness from the depositor lest he runs away to some
other bank. It also claimed that view a view to to promote small
savings, no such norms are prescribed by RBI regulations for banking
industry in India. However, the AO rejected the argument and assessed
Rs. 1855 crore as unexplained cash credits u/s 68. On appeal by the
assessee, the CIT(A) deleted the addition inter alia on the ground that
as the assessee’s activity fell in the category of banking industry, the
nature of primary onus lying on the assessee was akin to the banking
industry. He held that compliance with RBI regulations and KYC norms was
reasonable discharge of the assessees’ onus u/s 68. On appeal by the
department to the Tribunal HELD dismissing the appeal:
The nature of primary onus and discharge thereof in terms
of s. 68 is a question of fact and is not a static proposition. The
nature of business, regulatory norms, rules, regulation and various
other factors under which deposits are collected is to be properly
considered. The fact that legislature has not prescribed any fixed
parameters in this behalf, s. 68 being a deeming fiction and AO being
entrusted the duty of satisfying himself in objective terms underline
these relevant aspects. The primary onus and discharge thereof is to be
examined by the AO with objectivity. That is how the onus u/s 68 qua
share capital applications, banking industry and other statutorily
regulated enterprises has been differently treated in terms of primary
onus. It is to be appreciated that majority of the deposits are
recurring deposits coming from earlier years. Besides assessee has about
3 crores of depositors belonging small income group people who may not
be very educated and a big net work of field agents spread over various
rural and other areas, many of them may also not be very literate. It
has not been disputed that possible deficiencies in KYC compliance has
been noted by the Board and as suggested by RBI, lien has been put on
such accounts and not to repay unless these KYC deficiencies are made
good. Under these facts and circumstances expecting the substantial
rural and agro based citizenry to possess PAN card and drawing adverse
inference therefrom is not justified in these facts and circumstances.
The assessee’s business is akin to banking business and the discharge of
primary onus by the assessee has to be on the same lines that of
banking industry. A catena of judgments has been already referred in
this behalf. In consideration of overall facts and circumstances,
history of earlier litigation and ITAT judgment in assessee’s own case,
the assessee should be considered to have discharged its primary onus in
terns of s. 68.
Note: In the
ongoing matter
in the Supreme Court relating to the refund of 22,000+ crore deposits
by Sahara, the Supreme Court apparently termed Sahara’s argument that
the source of the money was “
immaterial” as being “
obnoxious“. Of course, the context was different. For a perspective of Subrata’s problems read this
article
(Click Here To Read More)