MERCHANTS CREDIT CO-OPERATIVE SOCIETY LTD,BAGALKOT vs. INCOME-TAX OFFICER, WARD-1, BAGALKOT

This appeal is against the DIN & Order No.ITBA/NFAC/S/250/2022-23/1051572681(1) dated 29.03.2023 of the CIT(Appeals), National Faceless Appeal Centre, Delhi [NFAC] for the Ay 2017-18 on the following grounds of appeal:-

The learned CIT(A) erred in confirming the order of Assessing Officer treating Rs 67,31,239/- cash received after demonetization as unexplained u/s 68 of the Income Tax Act 1961, even when cash receipts were explained and recorded in books of accounts. We draw support in the ITAT Cases decided (i) Bhageeratha Pattina Sahahkara Sangh Niyamit Vs ITO ITA 646/Bang/2021 TS-5362 ITAT 2022 (Bang) (ii) Prathamik Krushi Pattina Sahakari Sangh Niyamitha Vs ITO ITA 593/Bang/2021 3. The learned CIT(A) erred in confirming Assessing Officer action of treating cash receipts u/s 68 of the Income Tax Act 1961 and charging it u/s 115BBE at 60 percent tax with 25 percent surcharge which was brought by amendment on 15/12/2016 (retrospective amendment-after commencement of assessment year 2017-18) which is bad in law.

On appeal, the CIT(Appeals) upheld the action of the AO. Aggrieved, the assessee is in appeal before the Tribunal.

The ld. AR submitted that during the demonetisation period, the assessee accepted cash deposits from its members for depositing in pigmy accounts, loan accounts, SBs A/c, and different accounts maintained with the assessee. The collection of money from the members was in the ordinary course of business. The assessee did not get any financial benefit as alleged by the AO because the money was deposited in the members accounts only. After submitting the details of the members no further information was sought by the AO, accordingly, the assessee discharged the very purpose of section 68. Therefore section 68 will not apply in the hands of the assessee. He further submitted that RBI had issued a series of Circulars and when it came to the notice of the assessee in regard to Circular/Notification issued on 14.11.2016, the assessee did not accept any deposits in SBNs. He further submitted that on 14.11.2016 a Notification was issued that the DCC Banks were prevented from accepting money from the members and it was issued in the evening applicable from 15.11.2016. Thereafter, since 15.11.2016, the assessee has not accepted any money in SBNs. Therefore, the addition made by the AO u/s. 68 does not survive. In support of his arguments, he relied on the following judgments:-

We have considered the rival submissions. The assessee is a credit co-operative society dealing with the members only. During the demonetisation period the members of the society have deposited cash in pygmie a/c, SB A/c, loan a/c. etc. The assessee has produced a list of depositors and the amount deposited by members with denominations of currency. The assessee has accepted the deposits from its members from 9.11.2016 to 14.11.2016. As per Gazette Notification of RBI & Govt. of India dated 08.11.2016, the assessee was not authorized to accept cash deposits in SBNs. The AO observed that the assessee was not authorized to receive or collect money in SBNs of Rs.1,000 and Rs.500 which were not in legal tender w.e.f. 09.11.2016 and such transactions on or after 09.11.2016 cannot be entered in cash book. The cash deposits made by the members of the society had no value as such. The Assessing Officer issued show-cause notice by observing that the impugned amount should be treated as income of the assessee u/s 69A of the Act., however the AO made addition u/s 68 of the I.T. Act. The assessee has satisfied the requirement of section 69A of the Act and the AO did not give further opportunity to the assessee for addition u/s 68 of the I. T. Act. During the assessment proceedings, assessee filed the details of list of depositors and loanees who made cash deposits. The AO accepted that it was money deposited by the members and noted that the assessee had brought the entries in its books of account, therefore section 68 will apply and accordingly treated it as income u/s. 68. There is no doubt that the assessee has satisfied the identity of the deposits, who are members of the society and genuineness of the transactions because the amounts have been deposited in the members accounts only. If the AO had any doubts that the assessee has not satisfied the ingredients of section 68, he could have asked further details from the assessee, but the AO has not done the same, which clearly shows that the assessee has discharged its duty to satisfy the requirement of section 68. We further note that the SBNs have been deposited in the members accounts, accordingly, the assessee did not get any extra benefit as observed by the AO in his order at para No. 06 which was treated as income us 69A of the Act. In view of this, the provisions of section 68 is not applicable in the present facts of the case and the AO without discussing in detail has made addition u/s. 68 which is not proper. Therefore the addition is deleted.

In the result, the appeal by the assessee is allowed.