DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE-1,BURDWAN, BURDWAN vs. CHACK AJAPUR SAMABAY KRISHI UNNAYAN SAMITY LIMITED, BURDWAN

IN THE INCOMETAXAPPELLATE TRIBUNAL “A” BENCH, KOLKATA Before ShriRajesh Kumar, Accountant Member and Shri Pradip Kumar Choubey, Judicial Member ITA No.2690/Kol/2025 Assessment Year: 2017-18 Deputy Commissioner of Income Tax, Circle- 1, Burdwan…………………….Appellant Aayakar Bhawan, Court Compound, Burdwan-713101, West Bengal- 713101 [PAN No. AABAC2279F] Vs. Chack AjapurSamabay Krishi Unnayan……………..…………….………... Respondent Samity Limited’ Abhujhati, Jamalpur, Burdwan- 713166, Burdwan, West Bengal, 713166 Appearances by: Shri Bisweswar Ghosh, AR, appeared on behalf of the Appellant. Shri Arun Kumar Meena, Addl. CIT, Sr. DR, appeared on behalf of the Respondent. Date of concluding the hearing : April 06, 2026 Date of pronouncing theorder :May 15 ,2026 ORDER Per Pradip Kumar Choubey, Judicial Member: This appeal filed by the assessee is directed against the order dated 17.06.2025 of the National Faceless Appeal Centre (NFAC) passed under Section 143(3) of the Assessment Year 2017-18 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). At the very outset it appears from the report of the Registry that the appeal has been filed after a delay of 78 days. The Revenue has filed a petition to condone the delay. Keeping in view the contents of the petition delay is hereby condoned.

ITA No.2690Kol/2025 Assessment Year- 2017-18 them. The society also undertakes the sale of seeds, fertilizers, and implements as part of its primary objectives.The case was selected for scrutiny under CASS for multiple reasons, including high cash deposits during the demonetization period and mismatch of loan disbursements. The Assessing Officer made three additions to the returned income:

(1) Rs. 32,00,093 on account of interest on investments treated as income from other sources; (2) Rs. 15,50,315 disallowed on account of provision for NPA and overdue interest; and (3) Rs. 1,13,56,000 added under section 69A as unexplained cash deposits during the demonetization period.

Aggrieved by the said order assessee preferred appeal before the CIT(A) wherein appeal of the assessee has been allowed by the CIT(A) and the relevant portion of the order as herein below;-

The Assessing Officer disallowed the deduction claimed by the appellant under section 80P(2)(a)(i) in respect of interest income of Rs. 32,00,093 earned from fixed deposits made with the Burdwan Central Cooperative Bank Ltd. According to the AO, this income was not attributable to the business of providing credit facilities to members and, hence, was to be taxed under the head 'Income from Other Sources’.

The appellant, a cooperative society registered under the relevant State laws, has submitted that the funds invested ted in fixed deposits were sourced from its core business-ess namely, deposits received from members and income generated from its lending and trading operations. The surplus funds were temporarily parked with a cooperative bank in 2

ITA No.2690Kol/2025 Assessment Year- 2017-18 the interest of prudent financial management and compliance with liquidity norms. Therefore, the interest earned on such deposits is not only incidental but also integrally connected to the business of the cooperative society.

In this regard, reliance has been placed on several judicial decisions:

CIT v. Karnataka State Cooperative Apex Bank [2001] 251 ITR 194 (SC): The Supreme Court ruled that interest earned by cooperative banks from other cooperative banks is eligible for deduction under section 80P(2)(a)(i), clarifying that such income forms part of business profits of cooperative banks. [2001] 251 ITR 194 (SC)

Furthermore, in the appellant's own case for the A.Y. 2016-17, the CIT(A) accepted a similar claim and granted deduction under section 80P(2)(a)(i) on identical facts. There has been no change in the facts or in the nature of the investment in the current year.

It is also pertinent that the Burdwan Central Cooperative Bank Ltd. qualifies as a cooperative society under the law. Therefore, even if the

ITA No.2690Kol/2025 Assessment Year- 2017-18 interest income is not considered as attributable to the business under section 80P(2)(a)(i), it is still eligible under section 80P(2)(d), which explicitly provides for deduction on interest and dividend earned from investments in other cooperative societies.

In light of the consistent judicial guidance, statutory interpretation, and factual analysis of the case, it is held that the interest income of Rs. 32,00,093/ is eligible for deduction under section 80P Accordingly, the addition made by the AO on this count is directed to be deleted. This ground of appeal is allowed.

TAX

The Assessing Officer disallowed a sum of Rs. 15,50,315/ on the ground that the provision for Non-Performing Assets (NPAs) and overdue interest is an unascertained liability and therefore not allowable as deduction under the Income tax Act. The AO considered such provision as notional and speculative in nature, not representing an actual incurred expenditure during the year.

The appellant is a registered cooperative credit society, operating under regulatory guidelines laid down by NABARD (National Bank for Agriculture and Rural Development). As per Circular No. 1281/10 dated 16.12.2010, cooperative societies are mandated to make provisioning for overdue loans and advances based on specified norms. These provisions are not optional, but statutorily required for the maintenance of financial discipline and prudent banking operations.

It is well settled in tax jurisprudence that such statutory provisions, though not strictly ascertained liabilities under mercantile system, are allowable as deductions if they are integral to the conduct of the

ITA No.2690Kol/2025 Assessment Year- 2017-18 business. In this to the core case, the provisioning is directly linked to activity of lending and recovered advances from TAX DEPAR members, and therefore constitutes part of the normal operating expenditure.

The issue is squarely covered by the decision in the assessee's own case for A.Y. 2016-17, where the CIT(A) held that although the provision may be technically disallowed under accounting norms, the enhanced profit arising from such disallowance must be allowed as deduction under section 80P(2)(a)(i), since the society is engaged in the business of providing credit facilities to its members. In other words, the disallowance of the provision, even if technically correct, has no tax impact because the resultant increase in business income is again deductible under section 80P.

Judicial support for this approach can be found in the following decisions:

CIT v. Jalore NagrikSahakari Bank Ltd. [2013] 36 taxmann.com 572 (Raj): The Rajasthan High Court held that if a provision is disallowed under accounting norms, the resultant increase in income remains eligible for deduction under section 80P(2)(a)(i), thereby neutralizing any tax impact. [2013] 36 taxmann.com 572 (Raj)

2 ITO v. S1308 Amrit Cooperative Credit Society Ltd. [2021] 123 taxmanna,com 291 (Delhi Trib): The Tribunal recognized the legitimacy of provisioning in line with RBINABARD Borms, and ruled that such provisions are incidental to the credit society's business and not capital or penal in nature. [2021] 123 taxmann.com 291 (Delhi Trib)

ITA No.2690Kol/2025 Assessment Year- 2017-18 nontaxable character of surplus from core banking activities. [2011] 334 ITR 407 (Mad)

Accordingly, in line with judicial precedent and discussion the ground of appeal is allowed.

The primary issue in this ground relates to the addition of Rs. 1,13,56,000/ made by the Assessing Officer under section 69A of the Act, treating the cash deposits made during the demonetization period as unexplained money. The AO observed that the assessee had deposited large sums in Specified Bank Notes (SBNs) between 10th November and 13th November 2016, and questioned the genuineness of these deposits.

The assessee rebutted the addition by providing detailed documentary evidence, including day wise cash books, branch wise reconciliation, and member wise deposit registers. It was demonstrated that a sum of Rs. 43,30,500/ was part of the closing balance as on 08.11.2016, while the remaining Rs. 70,25,500/represented fresh deposits by members and non members. These were duly entered in the books of account contemporaneously and matched with branch wise collections.

The AO did not dispute the maintenance of cash book or impound any branch wise ledgers to contradict the explanation. Instead, he made a general presumption that such large volumes of SBNs could not have been held by rural depositors. This conclusion is speculative and not supported by material evidence. The law under section 69A requires that the cash found must be:

(a) not recorded in the books of account maintained by the assessee, and

ITA No.2690Kol/2025 Assessment Year- 2017-18 (b) the assessee must not offer a satisfactory explanation.

In the present case, both these conditions fail. The entire transaction trail, including source (i.e., members' deposits), accounting in branch daybooks, and utilization of cash for deposit into banks stands reconciled. Furthermore, the AO has not identified any fictitious member or disproved any of the depositors' existence or their capacity to deposit.

The Hon'ble ITAT Kolkata and NFAEN in the assessee's WE TAX DEPAR own case for A.X. 2016-17 have accepted similar facts and allowed the assessee relief. Additionally, in CIT v. Associated Road Carriers Ltd. [336 ITR 257 (AP)], it was held that when transactions are recorded in regular books and substantiated with evidence, no addition under section 69A can be sustained.

Hence, the addition of Rs. 1,13,56,000 under section 69A is without merit and legally unsustainable. This ground of appeal is allowed.

Ground No. 4: General error in rejecting bona fide claim

This is a general ground, without distinct legal or factual basis separate from Grounds 1 to 3. Since all substantive issues have been addressed and decided, this ground is rendered infructuous.

Decision: This ground is dismissed as infructuous.

ORDER:

In view of the above discussion and findings the appeal is partly allowed.

ITA No.2690Kol/2025 Assessment Year- 2017-18 a) Whether in the facts and the circumstances of the case the CIT(A) was justified in law to delete the addition made under section 69A on account of cash deposits in specified bank notes during demonetization period on the basis of fresh evidences produced by the assessee without giving any opportunity to the assessing officer in violation of rule 46A of the Act.

b) Whether in the facts and the circumstances of the case the CIT(A) was justified in law in allowing relief to the assessee under section 80P without considering the facts of the case and without considering the judgement of the Hon'ble Apex Court in the case of Totgars' Cooperative Sales Society Ltd. Vs ITO (2010) [322 ITR 273] which is applicable in fact as well as in law.

c) Whether in the facts and the circumstances of the case the CIT(A) was justified in law to delete the addition made under section 69A on account of cash deposits in specified bank notes during demonetization period without considering the facts of the case without considering the judgement of the Hon'ble Apex Court in the case of CIT vs. Durga Prasad More wherein the Hon'ble Apex Court observed that it is essential to look into surrounding circumstances to find out the reality where source is not substantiated.

ITA No.2690Kol/2025 Assessment Year- 2017-18 have not been rejected U/s 145 and the business nature of receipts has not been disputed by the Assessing Officers. In the instant case the deposits are fully recorded and duly explained as arising from business receipts and member related transaction, without any defect being pointed out in the books. The submission of the AR is that there is no infirmity in the impugned order.

ITA No.2690Kol/2025 Assessment Year- 2017-18 relying on the judicial guidance and statutory interpretation deleted the same.

Keeping in view the discussion made above as well as going over the order passed by the CIT(A), we do not find any infirmity in the impugned order of the CIT(A).

As a result, the appeal of the Revenue is hereby dismissed.

Kolkata, the 15th May , 2026.

Sd/- Sd/- [Rajesh Kumar] [Pradip Kumar Choubey] Accountant Member Judicial Member Dated:.15.05.2026. DC, PS

Copy of the order forwarded to: 1. Appellant - 2. Respondent - 3. CIT(A)- 4. CIT- 5. CIT(DR)

//True copy// By order Assistant Registrar, Kolkata Benches

ITA No.2690Kol/2025 Assessment Year- 2017-18