ANDHRA PRAGATI FARMERS SERVICE COOPERATIVE SOCIETY LIMITED,CHIPPAGIRI, KURNOOL vs. INCOME TAX OFFICER, WARD-1, ADONI

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ITA 2226/HYD/2025Status: DisposedITAT Hyderabad29 April 2026AY 2017-1815 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the Assessing Officer did not follow the Standard Operating Procedure (SOP) for verification of cash transactions during demonetization. Therefore, the matter was set aside to the Assessing Officer for fresh adjudication.

What were the facts?

The assessee society made cash deposits in Specified Bank Notes (SBNs) during the demonetization period and also received a debt waiver amount which was allegedly misappropriated. The Assessing Officer added these amounts to the assessee's income.

What were the issues?

Whether the cash deposits made during demonetization and the utilization of the debt waiver amount were correctly assessed as unexplained income by the Assessing Officer without following due procedure.

Which sections of the Income-tax Act were involved?

Section 69A,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad

For Respondent: Dr. Narendra Kumar Naik

आयकर अपील�य अ�धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘B’ Bench, Hyderabad �ी रवीश सूद, माननीय �या�यक सद�य एवं �ी मधुसूदन साव�डया, माननीय लेखा सद�य SHRI RAVISH SOOD, HON’BLE JUDICIAL MEMBER AND SHRI MADHUSUDAN SAWDIA HON’BLE ACCOUNTANT MEMBER (आ.अपी.सं /ITA No.2226/Hyd/2025) (�नधा�रण वष�/Assessment Year: 2017-18) Andhra Pragati Farmers Vs. Income Tax Officer, Service Cooperative Society Ward-1, Adoni, Limited, Kurnool. Hyderabad. PAN: AAAAR1876J (Appellant) (Respondent) �नधा�रती �वारा/Assessee by: Shri KA Sai Prasad, CA राज� व �वारा/Revenue by: Dr. Narendra Kumar Naik, CIT-DR

सुनवाई क� तार�ख/Date of 08/04/2026 Hearing: घोषणा क� तार�ख/Date of 29/04/2026 Pronouncement: आदेश / ORDER PER. RAVISH SOOD, J.M: The present appeal filed by the assessee society is directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, dated 14/11/2025, which in turn arises from the order passed by the Assessing Officer (for short, “AO”) under section 143(3) of the Income Tax Act, 1961 (for short, “the Act”),

2 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO dated 24/12/2019 for the Assessment Year (AY) 2017-18. The assessee society has assailed the impugned order of the CIT(A) on the following grounds of appeal: “1. The order of the Learned First Appellate Authority is not correct either on facts or in law and in both. 2. The Learned First Appellate Authority is not justified in confirming the action of assessing officer in adding Rs. 28,85,000/- as unexplained money under section 69A of the Income-tax Act by rejecting the evidences submitted by the appellant explaining the sources of receipts. 3. The Learned First Appellate Authority is not justified in confirming the action of assessing officer in adding Rs. 75,34,826/- under the head "Other sources” on account of misappropriation of debt waiver amount received and transferred to SB Account. 4. The Learned First Appellate Authority failed to appreciate the contention of the appellant that the debt waiver scheme amounts were credited to SB accounts of such borrowers those loan accounts were closed earlier but they were eligible to get the benefits from the government at the time of receipt of debt waiver amount. 5. The Appellant prays for leave to add or amend or alter any of the grounds at the time of hearing of appeal.”

2.

Succinctly stated, the assessee society, which is engaged in the business of providing credit facilities to its members for agricultural purposes or for purposes concerned with agricultural activities, had filed its return of income for AY 2017-18 on 13/07/2017, declaring an income of Rs. NIL after claiming deduction under section 80P of Rs. 43,36,427/-. Subsequently, the assessee's case was selected for scrutiny assessment under section 143(2) of the Act.

3 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO 3. During the course of the assessment proceedings, it was observed by the AO that the assessee society had during the demonetization period falling in the subject year, i.e., in the period 10/11/2016 to 16/11/2016 made cash deposits in Specified Bank Notes (SBNs) of Rs. 35,04,500/- (out of total cash deposits made during the year of Rs.93,54,500/-) in its bank account No. 19059089006 with Andhra Pragathi Grameena Bank. The AO observed that the cash deposits (in SBNs) made by the assessee society during the demonetization period were not commensurate with those made in the pre and post-demonetization period. Also, it was observed that the assessee society had closing cash in hand on 08/11/2016 of Rs. 6,19,267/-, but had made cash deposits in SBNs of Rs. 35,04,500/- during the demonetization period. The AO, based on the aforesaid facts, observed that the assessee society had accepted cash deposits in SBNs from its various members, despite not being authorized to accept such deposits, as they were no longer legal tender. Accordingly, the AO held that the entire cash deposits of Rs. 35,04,500/- (SBNs) made by the assessee society during the demonetization period were sourced from its unexplained money under section 69A of the Act.

4.

Apart from that, the AO, on a perusal of the day book cum cash book and the bank account of the assessee society, observed that it had received an amount of Rs. 75,34,826/- towards the second installment of

4 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO debt waiver, 2014 in its bank account on 16/08/2018. He observed that

the Debt Waiver Scheme, 2014, headed by the former NABARD

Chairperson, Sri P. Kotaiah, Andhra Pradesh Government, had

announced a loan waiver for farmers, women self-help groups, and

weavers to rescue debt-ridden farmers and revive the crisis-hit farm

sector. However, it was observed that the assessee society had utilized

the debt waiver amount, as under:

S Date Particulars Debit Credi Whether cash No withdrawals posted subsequently to loan account of the farmers on the date of withdrawal from the bank (as per Day Rs. Rs. cum cash book) 1. 16/08/2016 AP REDPTIM Amt 75,34,826 to society 2. 16/08/2016 Amt transferred to 50,00,000 FD 3. 16/08/2016 Cash withdrawn- 3,00,000 No paid to ourselves 4. 22/08/2016 Cash withdrawal 3,00,000 No 5. 09/09/2016 Cash withdrawal 6,00,000 No 6. 14/09/2016 Paid to MD 4,00,000 No APFSCS 7. 16/09/2016 Cash withdrawal 8,00,000 No 8. 19/09/2016 Cash withdrawal 4,00,000 No.

5.

The AO observed that the aforesaid utilization of the debt waiver

amount by the assessee society revealed misappropriation of the amount,

i.e., utilization of the same for investments instead of waiving the

outstanding loan amounts of the farmers who were also the members of

the society. Accordingly, the AO, based on his aforesaid observation, held

5 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO the entire amount received by the assessee society towards debt waiver as its income for the year under consideration. It was the claim of the assessee society that the amount of Rs.75.34 lakhs (approx.) received towards debt waiver was utilized for the purpose of which the same was received, viz., (i) write off of the amount against principal outstanding: Rs.1,96,560/-; (ii) write off of the amount towards principal and interest outstanding: Rs.29,31,740/-; and (iii) write off of the amount in cases where no amount was outstanding: Rs.44,06,526.84. However, the AO did not find favour with the aforesaid claim of the assessee society for the reasons, viz., (i) the transactions were not reflected in the bank account of the assessee society for the subject year; (ii) that though the amount was given for the waiver of debts of the farmers but prima facie, the assessee society had transferred major portion of the amount to its savings bank account; and (iii) that there was a decrease in interest received amount during the subject year when compared with the earlier year despite the debt waiver amount of Rs.29,31,740/- transferred to interest/PKCC account during the year.

6.

Accordingly, the AO vide his order passed under section 143(3) of the Act, dated 24/12/2019, determined the income of the assessee society at Rs. 1,04,19,826/-.

6 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO 7. Aggrieved, the assessee society carried the matter in appeal before the CIT(A) but without success.

8.

The assessee society, aggrieved with the order of the CIT(A), has carried the matter in appeal before us.

9.

We have heard the Learned Authorized Representatives of both parties, perused the orders of the lower authorities, and considered the material available on record.

10.

Shri K A Sai Prasad, Learned Authorized Representative (for short, “Ld. AR”) for the assessee society, at the threshold of hearing of the appeal, sought liberty for admission of certain documents as additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963. Elaborating on his contention, the Ld. AR submitted that copies of the farm loan ledger accounts and the savings bank accounts of the members of the society with Rayalaseema Grameena Bank could not be furnished during the proceedings before the lower authorities. The Ld. AR submitted that the assessee society has wrongly been alleged to have misappropriated the debt waiver amount of Rs. 75.43 lakhs (supra). He submitted that the aforementioned documents, which could not be filed before the lower authorities, will have a strong bearing on dislodging the said allegation and substantiating the claim of the assessee society that

7 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO the money so received from the Government was utilized to the last paisa for the said purpose alone. The Ld. AR submitted that, as the aforementioned documents will have a strong bearing on the disposal of the present appeal, and the same for justifiable reasons could not be furnished before the AO, the same, in all fairness and in the interest of justice be admitted.

11.

Per contra, Dr. Narendra Kumar Naik, Learned CIT- Departmental Representative (for short, “Ld. CIT-DR”) objected to the admission of the aforesaid documents as additional evidence.

12.

We have given thoughtful consideration and are of the view that as the aforementioned documents, prime facie will have a strong bearing for adjudicating the core issue involved in the preset appeal, i.e., as to whether or not the assessee society had utilized the amount received from the Government towards debt waiver, for the said purpose, therefore, in the interest of justice we deem it apposite to admit the same. The Ld. AR, in his attempt to impress upon us that the amount received towards debt waiver from the Government was utilized for the said purpose, submitted that as a substantial time has elapsed since the requisite details of the outstanding dues of the members were forwarded by the assessee society and the receipt of the amount, thus the majority of the amounts were either partly/fully repaid. Elaborating further on his contention, the

8 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO Ld. AR submitted that the assessee society had transferred the aforesaid amount of Rs.75.34 lakhs towards three categories of its members, viz., (i) write off of the amount against principal outstanding: Rs.1,96,560/-; (ii) write off of the amount towards principal and interest outstanding: Rs.29,31,740/-; and (iii) write off of the amount in cases where no amount was outstanding: Rs.44,06,526.84. The Ld. AR, in his attempt to substantiate his aforesaid explanation, had taken us through one of the loan accounts of its member, i.e., (loan account No.290/13) Page-35 of additional evidence r.w. Page-22 of APB, viz., Sri Kurba Eswarappa. However, the Ld. AR, despite making much effort, failed to reconcile with or substantiate his explanation before us.

13.

Be that as it may, as the aforementioned documents that have been filed by the assessee society before us are in the nature of additional evidence under Rule-29 of the Income Tax (Appellate Tribunal) Rules, 1963, which had been admitted by us, therefore, in all fairness and in the interest of justice we deem it apposite to set aside the matter to the file of the AO with a direction to readjudicate the issue regarding the addition of Rs.75,34,826/- (supra) made by him by alleging misappropriation of the debt relief amount by the assessee society after considering the said material.

9 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO 14. Coming to the second facet of the issue involved in the present appeal, i.e., cash deposits (SBNs) of Rs. 35,04,500/- made by the assessee society during the demonetization period, i.e., 10/11/2016 to 16/11/2016 in its bank account No. 19059089006 with Andhra Pragathi Grameena Bank. As the assessee society on 08/11/2016 had closing cash in hand of Rs.6,19,269/- as against the cash deposits of Rs.35,04,500/- (SBNs) made during the demonetization period, the AO in the absence of any plausible explanation regarding the source of the subject amount, had after allowing credit of the closing cash in hand of Rs.6,19,269/- made an addition of the balance amount of Rs.28,85,000/- under section 69A of the Act.

15.

We have given thoughtful consideration to the contentions advanced by the Learned Authorized Representatives of both parties in respect of the aforesaid issue in hand. Although the AO had observed that the assessee society had failed to come forth with an explanation regarding the source of the cash deposits of Rs.28.85 lakhs (supra) made by the assessee society in its bank account during the demonetization period, but we are of the view that considering the CBDT Instruction No.3/2017, dated 21/02/2017, wherein a Standard Operating Procedure (SOP) has been provided for the Assessing Officers (AO’s) for verifying the cash transactions made by the assessee’s during the demonetization

10 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO period had not been followed in the present case. For the sake of clarity, we deem it apposite to cull out the CBDT Instruction No.3/2017, dated 21/02/2017, as under: "GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF REVENUE CENTRAL BOARD OF DIRECT TAXES NEW DELHI Instruction No. 3/2017 February 21, 2017 Subject: Standard Operating Procedure (SOP) to be followed by the Assessing Officers in verification of Cash transactions relating to demonetisation - regd. Post demonetisation of Rs. 500 and Rs. 1000 notes on November 8, 2016, several malpractices has been noticed. The Income Tax Department is enquiring/seeking information and analysing instances of deposits to identify cases involving risk of tax evasion. Based upon vast amount of information of cash deposits collected and analysed by CBDT, a number of persons have been identified in whose case the cash transactions did not appear to be in line with their profile available with the Income-tax Department ('ITD'). In such cases, it has been decided to undertake online verification of select transactions through jurisdictional Assessing Officers ('AOs'). XX XXX XX Source Specific General Verification Guidelines 1. Cash out of earlier income or savings 1.1 In case of an individual (other than minors) not having any business income, no further verification is required to be made if total cash deposit is up to Rs. 2.5 lakh. In case of taxpayers above 70 years of age, the limit is Rs. 5.0 lakh per person. The source of such amount can be either household savings/savings from past income or amounts claimed to have been received from any of the sources mentioned in Paras 2 to 6 below. Amounts above this cut-off may require verification to ascertain whether the same is explained or not. The basis for verification can be income earned during past years and its source, filing of ROI and income shown therein, cash withdrawals made from accounts etc. 1.2 In case the individual claims that cash deposit includes savings of other person(s), the necessary information is required to be submitted under Para 4 or Para 5 below, as the case may be. 1.3 In case of an individual having no business income, if the cash out of earlier income or savings exceeds the above mentioned threshold, the AO needs to consider the remarks provided by the person under verification and seek further relevant information. During verification, the AO needs to consider the information provided by the person concerned, income earned during past years, source of such income,

11 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO filing of ROI and income shown therein, cash withdrawals made from accounts etc., before quantifying the undisclosed amount, if any. In case the person under verification has filed return of Income, a reasonable quantum can be considered as explained while quantifying the undisclosed amount, if any. 1.4 In case of persons engaged in business or requirement to maintain books of accounts, no additional information is required to be submitted by the person under verification if total cash out of earlier income or savings (sum of responses for all cash transactions) is not more than the closing cash balance as on 31st March 2016 in the return for AY 2016-17. However, if the AO has reason to believe that the closing cash balance as on 31st March 2016 has been increased by revising the return or backdating transactions in the books of account, further verification may be carried out. 1.5 In case of persons engaged in business or required to maintain books of accounts, if total cash out of earlier income or savings (sum of responses for all cash transactions) is more than the closing cash balance as on 31st March 2016 in the return for AY 2016-17, the AO needs to consider the remarks provided by the taxpayer and seek relevant information, i.e. closing balance as on 31st March 2016 as reflected in the books of account. During verification, the AO may consider the information Spandana Sphoorty Financial Ltd. provided by the person under verification, income earned during past years, source of such income, filing of ROI and income shown therein, cash withdrawals made from accounts etc, before quantifying the undisclosed amount, if any. 1.6 If the person under verification has claimed that the cash deposit has been disclosed in IDS 2016 and if the same is found to be correct, no further verification should be made. 1.7 In case, there is information or apprehension/suspicion that a particular bank account(s) has been misused for money laundering/tax evasion/entry operations in shell companies, the monetary cut-off or cash-balance based cut off prescribed in clauses above requiring no-verification, shall not be applicable. 2. Cash out of receipts exempt from tax 2.1 If the cash is explained to be out of receipts exempt from tax, and the same is not in line with the earlier returns filed by the person under verification, the AO needs to consider the remarks provided by the person and seek relevant information (e.g. records of land-holding and other relevant evidences etc. in case of agricultural income), to form appropriate view and quantify unexplained income. 3. Cash withdrawn out of bank account 3.1 The AO needs to consider the remarks provided by the person under verification and seek relevant information ie., copy of bank statement/passbook to form appropriate view and quantify unexplained income.

12 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO 3.2 Bank statement/passbook may be verified to confirm the name of the account holder. The date and amount of cash withdrawals and cash deposits in the bank account may be matched to verify whether claim that the cash deposited is out of cash withdrawn out of bank account is acceptable. Further removed in time the withdrawal is from the date of demonetization i.e. 8th November, 2016, the more suspicious it looks. The AO should take a balanced view in analyzing the time gap from the point of view of normal human behaviour and specific circumstances of the case. 4. Cash received from identifiable persons (with PAN) 4.1 No additional information is required to be submitted by the person under verification as the information will be pushed to the AO of the identifiable persons (with PAN). 4.2 In case the identifiable person (with PAN) does not confirm the transaction, the response will be referred back for further verification. Spandana Sphoorty Financial Ltd. 4.3 In case of a gift, it may be seen whether the same is taxable in the hands of the recipient under section 56(2) of the Act. 5. Cash received from identifiable persons (without PAN) 5.1 The AO needs to verify if the cash receipts are not in line with the normal practices of concerned business as mentioned in the earlier returns of Income after considering the remarks provided by the taxpayer, nature of business and earlier history before seeking additional information. 5.2 In case of other cash receipts, strategies for verification may be made in consultation with the Pr. CIT so that consistency is maintained in the entire charge based on nature of transaction. 6. Cash received from un-identifiable persons 6.1 The AO needs to verify if the cash transactions or its quantum are not in line with the normal practices of concerned business as mentioned in the earlier returns of Income. 6.2 During verification, the AO may seek relevant information e.g. monthly sales summary (with breakup of cash sales and credit sales), relevant stock register entries, bank statement etc. to identify cases with preliminary suspicion of back-dating of cash sales or fictitious sales. Some indicators for suspicion of back dating of cash sales or fictitious sales could be; i. Abnormal jump in the cash sales during the period Nov to Dec 2016 as compared to earlier history. ii. Abnormal jump in percentage of cash sales to unidentifiable persons as compared to earlier history.

13 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO iii. More than one deposit of specified bank notes in the bank account late in the demonetization period. iv. Non-availability of stock or attempts to inflate stock by introducing fictitious purchases. v. Transfer of deposited cash to another account/entity which is not in line with earlier history. 6.3 In case of receipt of cash on account of donation, indicators similar to above may be kept in mind. 6.4 In case of other cash receipts, strategies for verification may be made in consultation with the Pr. CIT. 7. Cash Disclosed/To be disclosed under PMGKY 7.1 In case the taxpayer mentions that the Cash Disclosed to be disclosed under PMGKY, the same may be verified. Spandana Sphoorty Financial Ltd. 7.2 If the process of disclosure is informed to be pending, verification can be kept pending till the evidence is furnished. 7.3 The verification should be closed on the basis of evidence of disclosure made under PMGKY." (emphasis supplied by us) 16. We find that the CBDT has provided the aforesaid SOP for verification of cash transactions relating to the demonetization period, viz., (i) cash received from identifiable persons (with PAN); (ii) cash received from identified persons (without PAN); and (iii) cash received from unidentified persons. Considering the CBDT Instruction No.3/2017 (F.No.225/100/2017/ITA-II), dated 21/02/2017, we are of the view that the matter requires to be set aside to the file of the AO with a direction to apply the aforesaid SOP before drawing any inferences regarding the subject cash deposits of Rs.28.85 lakhs (supra) made by the assessee society in its bank account during the subject year.

14 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO 17. Resultantly, the order passed by the CIT(A) is set aside, and the matter is restored to the file of the AO with a direction to decide both the aforementioned issues afresh in terms of our aforesaid observations.

18.

In the result, the appeal filed by the assessee society is allowed for statistical purposes in terms of our aforesaid observations.

Order pronounced in the open court on 29th April, 2026.

Sd/- Sd/- Sd/- Sd/- (मधुसूदन साविडया) (रवीश सूद) (MADHUSUDAN SAWDIA) (RAVISH SOOD) लेखासद�/ACCOUNTANT MEMBER �ाियकसद�/JUDICIAL MEMBER Hyderabad, Dated: 29th April, 2026. ***OKK / SPS Copy to: S.No Addresses 1 Andhra Pragati Farmers Service Cooperative Society Limited, Ramdurgam C/o. Katrapati & Associates, 1-1-298/2/B/3, Sowbhagya Avenu Apts, 1st Floor, Ashok Nagar, Street No.1, Hyderabad, Telangana-500020. 2 Income Tax Officer, Ward-1, Adoni, O/o. ITO, Ward-1, Aayakar Bhavan, Near RTC Bus Stand, Aspari Road, Adoni, Andhra Pradesh-518301. 3 The Pr. CIT, Kurnool. 4 The DR, ITAT Hyderabad Benches 5 Guard File

15 ITA No. 2226/Hyd/2025 Andhra Pragati Farmers Service Cooperative Society Limited vs. ITO By Order Digitally signed by KAMALA KAMALA KUMAR KUMAR ORUGANTI ORUGANTI Date: 2026.04.29 16:00:45 +05'30' Sr. Private Secretary, ITAT, Hyderabad.

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