KANAKA VIVIDODDESHA SAHAKARA SANGHA NIYAMITA (EARLIER IT WAS KANAKA MULTI PURPOSE CO-OPERATIVE SOCIETY NIYAMITA),DAVANGERE vs. INCOME TAX OFFICER, WARD-3, DAVANAGERE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘SMC’ BENCH, BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI KESHAV DUBEY, JUDICIAL MEMBER

ITA No.2656/Bang/2025 Assessment Year: 2017-18 Kanaka Vividoddesha Sahakara Vs. The Income Tax Officer, Sangha Niyamita, Ward – 3, No.1, Hadadi Main Road, Davangere. Hadadi Post, Davangere – 577 525. PAN – AACAK 9518 N APPELLANT RESPONDENT Assessee by : Shri R Chandra Sekhar, Advocate Revenue by : Shri Ganesh R Ghale, Standing Counsel for the Dept Date of hearing : 04.06.2026 Date of Pronouncement : 13.07.2026 O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:

The present appeal, filed at the instance of the assessee, is directed against the order passed under section 250 of the Income Tax Act, 1961 (hereafter, the Act), for A.Y. 2017-18 by the learned Commissioner of Income Tax (Appeals) at the National Faceless Appeal Centre (hereafter, the ld. CIT(A)).

ITA No.2656/Bang/2025 Page 2 of 7 2. The effective issue raised by the assessee is that the ld. CIT(A) erred in confirming the addition of a cash deposit of Rs. 26,36,900/- during demonetisation period under section 68 of the Act.

2.1 The relevant facts are that the assessee is a multipurpose cooperative society that derives income from credit facilities extended to its members. During the demonetisation period, i.e. 9th November 2016 to 30th December 2016, the assessee society made cash deposits of Rs. 28,54,500/- in demonetised currency notes of Rs. 500 and 1000 (hereafter, SBN). However, the opening cash-in-hand balance with the assessee on 9th November 2016 was Rs. 2,17,513/- only.

2.2 The assessee explained that the sources of excess cash deposit of Rs. 26,36,900/- were out of the amount received from the members after 9th November 2016 on account of repayment of their loans, pigmy collection etc. Accordingly, the SBN collected from the members toward loan repayment, pigmy collection, etc., was utilised for making a deposit into the bank.

2.3 However, the AO found that SBNs were not allowed for normal routine transactions after midnight on 9th November 2016 and were not legal tender. Persons who possessed SBNs were only allowed to deposit them into their bank accounts. There were some exceptions under which SBNs were allowed for transactions, but the assessee society does not fall within such an exception.

2.4 Accordingly, the AO held that the assessee's explanation that the SBNs were received from the members during the demonstration period

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ITA No.2656/Bang/2025 Page 3 of 7 is unacceptable, and that the assessee failed to explain the nature and sources of the impugned cash deposit. Hence, the AO treated the excess cash of Rs. 26,36,900/- as unexplained credit under section 68 of the Act and added it to the total income.

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ITA No.2656/Bang/2025 Page 4 of 7 6. The ld. DR, on the other hand, contended that details of the members from whom SBNs were collected were not furnished. Therefore, in the absence of such details, the addition was rightly made under section 68 of the Act.

8.1 The assessee has consistently maintained that the impugned cash deposits represented amounts collected from its members towards repayment of loans, pigmy deposits and other regular business transactions. The AO, however, rejected the explanation primarily on the ground that after 8th November 2016, SBNs were no longer legal tender and, therefore, the assessee could not have accepted such notes from its members. The learned CIT(A) affirmed the view taken by the AO.

8.2 In our considered opinion, the reasoning adopted by the lower authorities cannot be sustained in law. Merely because the currency notes deposited were SBNs, it does not automatically lead to the conclusion that the corresponding cash deposits represent unexplained cash credits liable

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ITA No.2656/Bang/2025 Page 5 of 7 to be taxed under section 68 of the Act. The issue is no longer res integra. Various coordinate Benches of the Tribunal, including the Bangalore Bench in Prathamika Krushi Pattina Sahakari Sangha Niyamitha, Itagi vs. ITO and the Ahmedabad Bench in Shri Umiya Cooperative Credit Society Ltd. vs. ITO, have held that an addition under section 68 of the Act cannot be made solely on the ground that the deposits were made in SBNs after demonetisation, subject to the fact that the assessee provided all the details regarding members from whom such SBNs were accepted or collected. The fact that SBNs ceased to be legal tender does not, by itself, establish that the source of such deposits is unexplained.

8.3 At the same time, the burden still lies upon the assessee to establish the nature and source of the cash deposits with credible evidence. In the present case, although the assessee has stated that the deposits represented collections from its members towards loan repayments, pigmy deposits and similar receipts, no complete details of the concerned members have been furnished before the authorities below. The assessee has also undertaken before us that it is in a position to furnish all the necessary particulars.

8.4 In our view, the explanation offered by the assessee cannot be rejected merely because the collections were made in SBNs. However, it is equally necessary for the assessee to substantiate its claim by producing the relevant evidence. Such evidence would include the names of the members, their PAN, addresses, membership details, loan account particulars, details of pigmy deposits or other receipts, dates of collection, corresponding entries in the books of account and any other supporting

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ITA No.2656/Bang/2025 Page 6 of 7 material required to establish that the impugned SBN collections were received from members in the ordinary course of the assessee's business. Since these factual aspects have not been examined by the AO, we consider it appropriate, in the interest of justice, to restore the issue to the file of the AO. The AO shall verify the details and evidences that may be furnished by the assessee and decide the issue afresh in accordance with law. Needless to say, no addition shall be made merely on the premise that the deposits were made in SBNs after demonetisation. The AO shall independently examine whether the assessee has satisfactorily established the identity of the members, the genuineness of the transactions and the source of the impugned deposits on the basis of the evidences placed on record.

8.5 Accordingly, we set aside the orders of the lower authorities on this issue and restore the matter to the file of the AO for fresh adjudication as per law and after providing the assessee with an adequate opportunity of being heard. The assessee is directed to extend full cooperation and furnish all the relevant details and documentary evidence as called for by the AO. Thus, the assessee's grounds of appeal are hereby allowed for statistical purposes. 9. In the result, the appeal of the assessee is hereby allowed for statistical purposes. Order pronounced in court on 13th day of July, 2026 Sd/- Sd/- (KESHAV DUBEY) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 13th July, 2026 / vms /

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ITA No.2656/Bang/2025 Page 7 of 7 Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

Asst. Registrar, ITAT, Bangalore

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