PRIMARY AGRICULTURE CREDIT COOPERATIVE SOCIETY KADURAHALLY,KADURAHALLY vs. INCOME TAX OFFICER WARD 1, CHICKMAGALURU

Briefly stated, the facts of the case are assessee is a Co-operative Society and has not filed return of income under section 139(1) of the Act for the Assessment Year 2017- 18. It was noticed that assessee has made substantial cash deposits during the demonetization period amounting to Rs.18,03,500/-. Thereafter, notice under section 143(2) of the Act dated 08.02.2018 was issued to the assessee calling for the return of income for Assessment Year 2017-18 to be filed on or before 10.03.2018. Subsequently, another notice under section 142(1) of the Act dated 06.03.2019 has been issued to the assessee calling for details. Assessee has not responded to these notices. The learned AO thereafter made independent enquiries and obtained statement of bank account of the assessee for the Financial Year 2016-17 from M/s. CDCC Bank and State Bank of India. Thereafter a show cause notice dated 20.09.2019 has been issued on the assessee. During the assessment proceedings, the CEO of the assessee appeared on 05.09.2019 before the learned AO. The assessee filed the return of income on 06.09.2019 declaring a total income of Rs.8,15,242/- and claimed deduction under Chapter VI A of the Act of Rs.8,15,242/-. On perusal of the information available on record, the learned AO noticed that assessee has made cash deposits aggregating to Rs.18,03,500/- during demonetization period which was treated as unexplained investment of the assessee under section 69 r.w.s. 115BBE of the Act.

Aggrieved by the Order of the learned AO, the learned CIT(A) considering the material available on record upheld the Order of the learned AO thereby dismissing the appeal of the assessee.

Being aggrieved by the Order of the learned CIT(A), assessee is in appeal before us by raising various grounds. The only issue emanating from the grounds raised by the assessee is with respect to disallowance made by the learned AO of the cash deposits made amounting to Rs.18,03,500/- by considering it as SBNs. The learned AR submitted that as per section 5 of the Specified Bank Notes (Cessation of Liabilities) Act 2017, the acceptance of SBNs were prohibited only from the appointed date i.e., 31.12.2016. He therefore prayed that the additions made by the learned AO be deleted.

On the other hand, the learned DR fully supported the Order of the Revenue authorities.

We have heard the rival contentions and perused the material available on record. In the present case, the assessee is a Co-operative Society engaged in extending credit facilities to its Members. This fact was not disputed by Revenue. The only contention of the learned AO is that in the normal course of business, the assessee collected deposits from its members in SBNs and therefore disallowed the SBNs made as deposits in the bank account of the assessee. However, it was not disputed that assessee received SBNs from its Members during the period of demonetization as deposits and as repayment of loans. It is also pertinent to note that as per section 5 of the Specified Bank Notes (Cessation of Liabilities) Act 2017, only on and from the appointed date i.e., 31.12.2016, holding, transferring or receiving of any SBN by any person, knowingly or voluntarily, was prohibited. In the instant case, the assessee has received SBNs from its Members prior to appointed date i.e., 31.12.2016 and thereby it was deposited by the assessee in the bank account maintained with scheduled banks. We are of the considered view that since the SBNs ceased to be a legal tender only w.e.f. 31.12.2016 and therefore the money received from its members in the form of SBNs during the demonetization period which was subsequently deposited into the bank account cannot invite disallowance under section 69 of the Act. We, therefore, direct the learned AO to delete the addition made under section 69 of the Act in respect of SBNs received from its Members. We therefore set aside the Order of the learned CIT(A) and the grounds raised by the assessee are allowed.

ITA No.2527/Bang/2026

On being aggrieved by the Order of the learned AO, assessee filed appeal before the learned CIT(A). The learned CIT(A), considering the facts of the case, dismissed the appeal of the assessee. Assailing the Order of the learned CIT(A), the assessee is in appeal before us by raising various grounds. The only issue agitated by the assessee is with respect to disallowance of deduction under section 80P of the Act, amounting to Rs.9,15,112/-. The learned AR submitted that the return of income was filed in response to notice under section 148 of the Act and hence eligible for deduction under section 80P of the Act.

Per contra, the learned DR submitted that as per section 80AC of the Act, no deduction shall be allowed to the assessee if the return of income is not filed on or before the due date specified under section 139(1) of the Act. The learned DR submitted that the learned AO has rightly invoked the provisions of section 80AC of the Act and prayed that the Orders of the lower authorities be upheld.

We have heard the rival contentions and perused the material available on record. Admittedly, the assessee has not filed its return of income within the due date under section 139(1) of the Act for the Assessment Year 2018-19. The assessee has filed its return of income belatedly in response to notice under section 148 of the Act by claiming the deduction under section 80P of the Act. In this connection, section 80AC of the Act introduced by the Finance Act, 2018, w.e.f. 01.04.2018 is extracted below:

From the plain reading of the section 80AC of the Act as referred above, it is clear that any deductions under this Chapter under the heading "C.—Deductions in respect of certain incomes", no deduction shall be allowed to him unless the assessee files return of his income for such assessment year on or before the due date specified under section 139(1) of the Act. Section 80AC of the Act limits its allowability of deduction under this Chapter deduction in respect of certain incomes specifically for the return of income furnished on or before the due date specified under section 139(1) of the Act and not for the return of income furnished under any other section of the Act. Therefore, it cannot be given an interpretation to cover the return of income under section 139 of the Act. We are therefore inclined to dismiss the appeal.

In the result, appeal of the assessee is dismissed.

In the result, appeal in ITA No.2526/Bang/2026 is allowed and appeal in ITA No.2527/Bang/2026 is dismissed.