DCIT vs. Sahara India Financial Corpn. Ltd (ITAT Delhi)

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.