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Facts
The assessee, a non-filer, made substantial cash deposits in bank accounts (Rs. 1.71 Cr for AY 2016-17, Rs. 4.40 Cr for AY 2017-18). The AO treated these as unexplained income under Section 69A and denied Section 80P deduction, also levying a penalty under Section 271(1)(c). The CIT(A) deleted these additions and the penalty, primarily relying on Section 80P provisions without adequately verifying the source of funds or books of accounts.
Held
The Tribunal found the CIT(A)'s order unsustainable as it failed to verify the source of cash deposits or examine the assessee's books, despite the assessee's non-compliance. Consequently, the Tribunal restored the entire matter, including quantum additions and penalty, back to the AO for fresh examination. The AO is directed to ascertain if the funds were received from members with proper KYC and to provide the assessee an opportunity of hearing.
Key Issues
Whether the CIT(A) was justified in deleting additions under Section 69A and penalty under Section 271(1)(c) without verifying the source of cash deposits made by a non-filer cooperative credit society and without examining the books of accounts and KYC compliance of members.
Sections Cited
147, 144B, 148, 142(1), 144, 80P, 69A, 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH: BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI SOUNDARARAJAN K.
Per Prashant Maharishi, Vice President 1.
& 1139/Bang/2025 for AYs 2016-17 & 2017-18 are filed by the ITO, Ward 1 TPS, Vijayapur [ The Ld. AO ] against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 21.3.2025 wherein the appal filed by the assessee against the reassessment order passed u/s. 147 r.w.s. 144B of the Income Tax Act, 1961 [the Act] , were allowed. Therefore the ld. AO is in appeals before us.
The facts for AY 2016-17 show that assessee did not file any return of income and therefore the case of the assessee was a non-filer as there was a huge cash deposit of Rs.1,71,32,728. This verification was further done by the AO and noted that assessee has deposited such sum in IDBI Bank and Vijayapur District Central Coop. Bank [VDCC]. As no return of income was filed, after recording the reasons and getting statutory approval, notice u/s. 148 of the Act was issued on 27.3.2021. The assessee also did not file any return of income in response to that notice. Notice u/s 142(1) was also issued to the assessee and subsequently a request was also made to the verification unit for physical service of the notice. The assessee did not file any response. Accordingly the case was converted into ex parte assessment and show cause notice was issued u/s. 144 of The Act on 14.3.2022. Accordingly the reassessment order was passed wherein the addition of Rs.1,71,32,728/- was made to the total income of the assessee and further it was held that assessee is not entitled to deduction u/s. 80P of the Act.
Aggrieved, the assessee preferred appeal before the ld. CIT(A) wherein the written submission was made by the assessee and it was stated that the cash deposits are made out of day to day activity of the assessee. The relevant extract of the cash book was also furnished along with bank account extract. The assessee pleaded that it cannot be held to be unexplained income of the assessee. The ld. CIT(A) thereafter passed the appellate order wherein he following the decision of the coordinate Bench on the issue of deduction u/s. 80P, deleted the addition u/s. 69A of the Act of Rs.1,71,32,728.
Similarly for AY 2017-18, the facts also show that assessee was a non- filer and the assessee has deposited various amounts totaling to Rs.13,62,29,544/-. As the assessee did not furnish any answer, the ld. AO on verification of cash withdrawal, investments and cash deposits, worked out the total transaction of Rs.4,40,48,554/- and made addition u/s. 69A of the Act by assessment order dated 24.3.2022. The ld. CIT(A) vide order dated 21.3.2025 was like AY 2016-17 deleted the above addition. Therefore, the AO is in appeals before us.
The ld. DR, Shri Subramanian, vehemently submitted that the orders of the ld. CIT(A) are not sustainable as the additions have been deleted without verifying any fact that wherefrom the assessee has held so much of cash. Assessee is a non-filer, no books of accounts etc. were examined. The ld. CIT(A) did not give any finding that how the order of the ld. AO is incorrect. He submitted that there is not even a single line in the appellate order that how the addition made by the ld. AO is incorrect. He referred to the appellate order and assessment order. He submitted that ld. AO made addition u/s 69 of the Act, the ld. CIT (A) without considering that provision has deleted the addition, by giving findings on section 80 P of the act. He submits that when the assessee has not filed any Return of Income, how CIT (A) could have given an opinion on allowability of deduction u/s 80 P of the act. Therefore the order of the ld. CIT (A) cannot be upheld and order of ld. AO deserves to be upheld.
The ld. AR, Dr. Sheetal Borkar, Advocate vehemently supported the order of the ld. CIT(A). She further stated that assessee is a members’ co-operative credit society and therefore the funds are received from the members. The cash deposit is out of regular books of account and hence the ld. CIT(A) is correct in deleting the addition.
We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The facts show that assessee has deposited cash in IDBI Bank and VDCC Bank to the tune of Rs.1.71 crore. Assessee is a non-filer of return of income, the assessee did not reply to notice u/s. 148, 142(1) as well as verification made by the verification unit. The return of income was neither available before the AO nor before the ld. CIT(A). Due to consistent non-compliance by the assessee, the ld. AO passed an order u/s 144 of the Act making the above addition. The ld. CIT(A) has written 20 pages order discussing the provisions of section 80P of the Act. There is not a single line mentioned by the ld. CIT(A) with respect to the source of funds or the provision of section 69A of the act or why the provisions are not applicable to the assessee. He deleted the addition u/s. 69A of the Act without having a look at the books of account, availability of cash, whether the funds have been received from the members and whether the complete KYC of such members is available with the assessee
1. society or not. He has merely looked into the cash book extract and bank book extract. Thus, looking at the cash book extract and bank book extract does not help at all whether the deposit in the bank account of the assessee in cash is received from the members or not. This fact was also reported by the ld. AO that assessee has deposited this sum from its cash book. But, however, whether the source of funds available with the assessee are genuine sources or not was not at all examined and decided by the ld. CIT(A). Therefore, the order passed by the ld. CIT(A) for these assessment years are not sustainable.
As the assessee is required to prove that the funds available with it in cash are received from its members who are having due KYC compliance or not. If the funds are received from the members having their PAN, their membership with the society and such cash so accumulated is deposited into bank account of the assessee, naturally there could not be any addition in the hands of the assessee u/s. 69A of the Act. However, if the source of funds is from deposits other than the members, naturally the assessee is duty bound to explain how it has received such funds. As these details are not produced before us or before any of the lower authorities, hence, we restore the whole issue back to the file of the ld. AO with a direction to the assessee to produce the books of account and show the source of funds deposited in the bank account vis-à-vis its receipt from its members. The ld. AO may examine the same and then decide the issue afresh, after giving the assessee opportunity of hearing. Accordingly, & 1139/Bang/2025 are allowed for statistical purposes. is filed by the AO for AY 2016-17 against the order passed by the ld. CIT(A) deleting the penalty levied u/s. 271(1)(c) of the Act of Rs.60,10,450becauset the quantum addition of Rs.1,71,32,728 is deleted. As we have restored the issue of quantum addition back to the file of the ld. AO, we also restore this appeal to the ld. AO to be decided after deciding on the merits of addition for AY 2016-17. In view of this, this appeal filed by the AO is also allowed for statistical purposes.
In the result, all the 3 appeals filed by the Revenue are allowed for statistical purposes.
Pronounced in the open court on this 30th day of December, 2025.