KOHINOOR NAGARI SAHAKARI PATHSANSTHA MARYADIT,BHIWANDI vs. ITO WD-1(2), KALYAN

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ITA 2809/MUM/2024Status: DisposedITAT Mumbai16 June 2025AY 2017-1813 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the business model of the assessee and its claim to have legally collected deposits from members and the general public were not sufficiently dealt with by the lower authorities. The Tribunal noted the assessee's submission of a list of depositors with PAN numbers and an application to file affidavits due to the accountant's hospitalization. Considering the interest of justice, the Tribunal decided to grant the assessee one more opportunity to present its case before the AO. The assessee is directed to submit necessary material to the AO to prove that the money deposited on November 10, 2016, was lawful and legal, and that the assessee was entitled to deposit it within the parameters of the law. If the AO is satisfied, they will decide the matter afresh. Consequently, the impugned order was set aside, and the matter was restored to the file of the AO for a fresh decision.

What were the facts?

The assessee, Kohinoor Nagari Sahakari Patasanstha Maryadit, a cooperative credit society, is challenging an order from the CIT(A) which upheld an addition of Rs. 1,74,17,950/- as unexplained money under Section 69A of the Income Tax Act, 1961, for Assessment Year 2017-18. The society accepted deposits from members and provided loans, also conducting money transfer services. On November 8, 2016, the society collected Rs. 1,72,31,950/- in cash, primarily in demonetized Rs. 500 and Rs. 1000 notes, intending to deposit it on November 9, 2016. However, due to the demonetization announcement and subsequent bank holiday, the deposit was made on November 10, 2016. The Assessing Officer (AO) treated this deposit as unexplained money, as cooperative credit societies were not permitted to accept demonetized currency. The CIT(A) confirmed the AO's order.

What were the issues?

1. Whether the cash deposit of Rs. 1,74,17,950/- made on November 10, 2016, primarily comprising demonetized currency (SBNs), constitutes unexplained money under Section 69A of the Income Tax Act, 1961, warranting addition to the assessee's total income? Assessee's Contentions: - The cash received was before the midnight of November 8, 2016, and thus valid legal tender. - The society's regular business includes money transfer services, and it was designated as a business correspondent/facilitator. - The deposit was made on the next working day (November 10, 2016) due to a bank holiday on November 9, 2016, following the routine procedure. - The AO erred in focusing on whether the society was permitted to collect demonetized currency, as this was not the subject matter. - The AO and CIT(A) wrongly concluded that the appellant failed to substantiate the cash deposits. Revenue's Contentions: - The revenue, through the Ld. DR, supported the orders of the lower authorities, implying that the assessee failed to provide satisfactory explanations for the source of the cash deposits, especially in light of the prohibition on accepting demonetized currency by cooperative credit societies.

Which sections of the Income-tax Act were involved?

Section 69A,Section 250,Section 143(2),Section 142(1),Section 271AAC

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI

Before: SHIR OM PRAKASH KANT & SHRI RAJ KUMAR CHAUHAN

O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order of Ld. Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre, Delhi [hereinafter referred to as the “CIT(A)”], passed under Kohinoor Nagari Sahakari Patasanstha Maryadit section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 21.03.2025 for the A.Y. 2017-18 wherein the assessment order was upheld and addition of Rs. 1,74,17,950/- as unexplained money u/s 69A of the Act was confirmed.

2. The brief facts as culled out from the proceedings of lower authorities are that the appellant is a Co operative Credit Society duly registered under Maharashtra Co operative Society Act under serial No. TNA BWI RSR CR 938 1999 doing business as accepting deposits from its members and to give loans to its members in accordance with law and the said society is directly under control of Government of Maharashtra through Inspector General of Registration for the purpose of it's business. The appellant society has its bank account with ICICI Bank Bhiwandi Branch and Kotak Mahindra Bank Bhiwandi Branch. In addition to the regular business of the appellant it has been allowed to do the business of money transfer for local public. Thus the appellant has been doing the business as Co operative Credit Society as well as money transferor. On the crucial day of 08.11.2016 the appellant had collected cash of Rs. 1,72,31,950/- till the closer of the business of the day. The said cash was to be deposited in the bank account of the Page | 2 Kohinoor Nagari Sahakari Patasanstha Maryadit appellant i.e. Kotak Mahindra Bank on the next day. Nevertheless at the mid night of November 8th 2016 the government through Prime minister suddenly declared that from that moment currency note of 500 and 1000 will not be regarded as valid legal tender and the next day i.e. 9th November 2016 was declared as bank holiday. The appellant was taken by surprise since the cash collected by it was mainly consisting of specified bank notes i.e. 500 and 1000 rupees notes which were supposed to be deposited in its bank account on 9th November 2016. However on subsequent date i.e. on 10th November 2016 the entire cash of Rs. 1,72,32,040/- was deposited by the appellant in its account with Kotak Mahindra Bank. Thereafter on the same day i.e. 10th November, 2016 the government of Maharashtra issued a circular to all Co operative Credit Societies stating that Rs. 500 and 1000 currency notes will not be considered as legal tender and as such the Credit Societies should not accept such notes during the course of its business.

3.

The appellant has filed its return of income on 25.10.2017 declaring its income at Rs. 169760/-. The case of the appellant was selected for scrutiny by issuing notice u/s. 143(2) of the Act was issued on 09.08.2018 by the ITO Ward 1(2), Thane. Thereafter the case was Page | 3 transferred to the new ward vide letter dated 03.07.2019 and due to change in incumbency, notice u/s 142(1) of the Act alongwith questionnaire were issued on 16.10.2019 and 09.1.2019 which were duly served upon the assessee. In the meantime, a piece of information was received from the DDIT (Inv), Kalyan vide letter dated 18.07.2019 intimating that the assessee had made huge cash deposits during demonetization period with Kotak Mahindra Bank. It was also noticed that the assessee is an Association of Persons stated to be engaged in the business of accepting daily deposits and paying interest thereon and advancing money to depositors on interest, and also money transfer services to general public. During the course of assessment, bank statement was called for the AY 2016-17 and the details of the cash deposits made during demonetization period i.e. 9th November, 2016 to 30th December, 2016.

4.

On perusal of the bank statements, it is seen that the assessee has deposited the SBN notes of RS. 500/- and Rs. 1000/-. The details of SBN currency deposited during demonetization period is as under:-

S. Name of the Account No. Date of Amount deposited No. Bank Deposit during demonetization period in Rs. 500 and Rs. 1000/- 1. Kotak Mahindra 9811685789 10.11.2016 1,72,31,950/- Bank 21.11.2016 30,000/- Total 1,72,61,950/- 2. ICICI Bank 149305000661 24.11.2016 80,000/- 28.11.2016 76,000/- Total 1,56,000/- Total 1,74,17,950/-

5.

It is noticed in the assessment proceeding that in response to the statutory notice, the authorized representative of the assessee has informed that the source of cash deposits are from general public or non-members for money transfer service. These submissions were found deficient, hence for further justification, show cause notices were issued on 21.12.2019 and 23.12.2019. In response to the same, the assessee made part compliance which was not satisfactory explanation.

6.

As per the observation of the AO, the credit co-operative societies were not permitted to collect the demonetized currency of Rs. 500 and Rs. 1000 in lieu of any transaction. Since the assessee was neither a Bank nor permitted to receive the demonetized SBN currency, the assessee society cannot claim to have received the demonetized currency as Kohinoor Nagari Sahakari Patasanstha Maryadit deposit from general public or non-members. It was observed that the assessee has accepted monies from un-identifiable persons whose details have not been provided. Therefore, it was concluded that that the assessee society has deposited its undisclosed money in the bank in guise of collection from members. It was also observed that the transaction made in SBN on or after 9th November 2016 would not entered into cash book as has been done by the assessee, hence the same is treated as unexplained money u/s 69A of the Act and has been brought to tax because the assessee‟s case does not come under the exempt category as notified by the RBI and therefore the assessee is not allowed to receive the SBN during the demonetization and to enter the same in books of accounts. Thus, it was concluded that the assessee has failed to bring sufficient material with respect to cash deposits of SBN currency of Rs. 1,74,17,950/- appearing in his bank accounts and the same was treated as unexplained money u/s 69A of the Act and added to the total income of the assessee. Penalty proceedings u/s 271AAC of the Act was also initiated.

7.

Being aggrieved, the assessee preferred the appeal before Ld. CIT(A) who in turn confirmed the order of AO and dismissed the appeal of the Page | 6 assessee. Ld. CIT(A) has observed that the assessee was required to maintain the records of receipt of SBNs from various person including general public containing name, address, PAN, phone number, etc. During the assessment proceedings, the assessee has failed to substantiate the sources with basic details and assessee has failed to produce any details during the appellate proceedings. Therefore, Ld. CIT(A) concluded that assessee has failed to substantiate the sources of receipt of SBN, accordingly AO has rightly brought to tax u/s 69A of the Act.

8.

Aggrieved by the impugned order, the assessee preferred the appeal before us raising the following grounds:-

1. That the appellant has filed the present appeal against the order of the Ld. Commissioner of the Income Tax (Appeal), Income Tax Department dated 21/03/2024, under section 250 of Income Tax Act, 1961, which is hereinafter referred to as the said order" for the sake of brevity and convenience.

2.

Being aggrieved and dissatisfied with the said order the appellants have preferred the present appeal before this tribunal on the following grounds as under:

i. The Ld. CIT (A) has erred in dismissing the said appeal and has failed to appreciate the merits of the case of the appellant. Page | 7 ii. The Ld. CIT (A) has erred in treating the cash deposit as unexplained money under section 69(A) of the Income Tax Act, 1961. iii. The Ld. CIT (A) failed to appreciate that the regular business of the appellant is of money transfer and as such it has been designated as business correspondent and business facilitator iv. The Ld. CIT (A) erred in not appreciating that the cash received by the appellants was before the midnight of 08/11/2016, thus the same is valid legal tender. v. The Ld. CIT (A) failed to consider that as per the routine procedure of the appellant, the total collection of the appellant is deposited in its bank on the next day, however, the next day being the bank holiday, the entire cash has been deposited on 10/11/2016. vi. The Ld. CIT (A) erred in dismissing the said appeal on fancy and hypothetical grounds without any basis for the same. vii. The Ld. CIT (A) has erred in rejecting the submission of the appellant solely on hypothesis that the average maximum cash deposits of the appellant society was allegedly of Rs.37,47,350/-whereas, the appellants has deposited Rs,1,72,31,950/- on 10/11/2016, which in the opinion of the Ld. CIT indicated that the appellants has accepted the SBN's against the instruction provided by the Central Government. viii. The Ld. CIT (A) has erred in forming the opinion that the appellant has failed to substantiate the sources for receipt of the SBN's. ix. At the outset the Ld. CIT (A) erred in holding that the said deposit were SBN's, as the same has been received prior to midnight of 08/11/2016. x. The Ld. CIT (A) and A.O as well have wrongly considered that the appellant has failed to substantiate the cash deposit in question. xi. The Ld. CIT (A) has erred in upholding the unnecessary venturing of the A.O. into the issue of whether the appellant was entitled to SBN's not being on institution allowed by RBI to accept the demonetize currency of Rs.500/- and Rs.1000/-. xii. The Ld. A.O. lost the site of the fact that whether the appellant is allowed to collect the demonetized currency is not at all the subject matter of the case and the same nothing but a hypothesis created by A.O. xiii. The Ld. CIT (A) has erred in not appreciating the fact that the appellant has even previously made deposit the amount of the equal magnitude if at all that is only the yardstick to determine whether the amount in question is cash received before the midnight of 08/11/2016. xiv. The Ld. CIT (A) has erred in applying the provisions of 69(A) of income Tax Act, against the appellants. xv. The Ld. CIT (A) has erred in applying the ratio of the judgments cited in the said order and none of the citations or any ration thereof is applicable to the facts and circumstances of the present case.

3. In view of the abovementioned grounds, present appeal deserves to be allowed in favor of the appellant and the said addition amount of Rs. 1,74,17,950/- deserves to be deleted and the order passed by the Ld. CIT (A) deserves to be cancelled and set aside.

4. It is therefore prayed that i. The Hon'ble ITAT may be pleased to admit the present appeal. ii. The Hon'ble ITAT may be pleased to recall the proceedings from the Ld. CIT (A). iii. The Hon'ble ITAT may be pleased to delete the impugned addition amounting to Rs. 1,74,17,950/- in A.Y. 2017-18 or in alternative the Hon'ble Members may be pleased to pass any such other order or orders in favor of the appellant in the interest.”

9.

We have heard Ld. AR and Ld. DR and examined the record. At the very outset, Ld. AR on behalf of the assessee submitted that the application for production of documents has been filed before the Tribunal stating that assessee is willing to submit the list of depositors or the persons from whom the money was deposited alongwith PAN no. of the concerned depositors. It is further stated that the affidavits of the concerned depositors could not be sought due to paucity of time and because the accountant of the assessee has met with an accident and he is hospitalized at Varangal, Telangana. Ld. AR further submitted that the assessee shall make an endeavour to obtain and file the same if the Tribunal is pleased to grant some more time. The list of such persons is annexed as Exhibit „A‟ stating to be depositors alongwith their PAN nos. Accordingly, Ld. AR in the application prayed to allow the assessee to file

10.

During the appellate proceedings vide order dated 19.12.2024, assessee was asked to file within 10 days, the details of persons alongwith affidavit from whom SBN were received and thereafter deposited in the bank. Since the assessee has failed to comply those directions, hence the matter was adjourned to 10.01.2025. Further on 2102.2025, the above application was moved wherein Ld. AR sought time for clarification, whether the documents sought to the produced are additional evidence or the same was already filed before the lower authorities? Despite 5-6 dates the clarification was not done, hence we have proceeded to decide the matter on the basis of material available on record. None has appeared on behalf of the assessee. We have heard Ld. DR who has supported the judgment of lower authorities.

11.

We have considered the submission of Ld. DR and examined the record. On perusal of the application of the assessee filed before the Tribunal alongwith annexure Exhibit „A‟, the list of depositors alongwith their PAN Nos., it is noticed that the assessee intends to file the affidavit of the Kohinoor Nagari Sahakari Patasanstha Maryadit concerned depositors which could not be filed due to paucity of time alongwith their PAN no., etc. We have also gone through the impugned order as well as assessment order and it is noticed that the business model of the assessee and the claim of the assessee that he was legally justified in collecting the deposits from the members as well as from the general public has not been sufficiently dealt with by the lower authorities. Therefore, we find it expedient in the interest of justice that one more opportunity be given to the assessee to present his case in that regard before the AO to prove that the money deposited on 10th November 2016 was lawful and legal deposit and that the assessee is entitled to deposit the same within the parameter of law. The assessee shall submit the necessary material before the AO to prove these facts and if the AO is satisfied, he will act as per law and decide the matter afresh with respect to SBN deposited by the assessee which has been added to the total income of the assessee by the assessment order and confirmed by the impugned order. For these reasons, impugned order is accordingly set aside and matter is restored to the file of the AO to decide the matter afresh as directed above.

12.

In the result, appeal filed by the assessee is allowed for statistical purposes in above terms.

Order pronounced in the open court on 16.06.2025.

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