THE VISHWAS CO OP CREDIT SOCIETY LIMITED,BIJAPUR vs. INCOME TAX OFFICER, WARD-1 & TPS, BIJAPUR

We have considered the reasons stated in the application and satisfied with the reasons and condoned the said delay and proceeded to decide the appeal on merits.

The assessee is a co-operative society registered under the provisions of the Karnataka Co-operative Societies Act. The assessee filed their return of income on 24/01/2018 and claimed deduction under Chapter VIA of the Act. Thereafter the case was selected for complete scrutiny under CASS for the reasons that the investments / advances / loans and cash deposits during the demonetisation period. Thereafter notices u/s. 143(2) and 142(1) were issued and during the assessment, the assessee filed the various details as sought for by the AO. The AO had disallowed the deduction claimed u/s. 80P(2)(a) for the reason that the assessee had given loans to associate members who are all not regular members. Similarly, the AO had added a sum of Rs. 4,24,910/- being the 30% of the amount paid by way of pigmy commission to various parties since the assessee had not deducted the TDS. Apart from the two issues, the AO had also treated the cash deposits made in the SB notes during the demonetisation period as unexplained cash credit u/s. 68 of the Act even though the assessee had explained that the SB notes deposited were the monies deposited by the members towards their loan repayments, interest payments, EMIs, deposits etc. and also produced the documents in support of the said claim. The assessee challenged the said order before the Ld.CIT(A) and contended that the giving of loans to associate members would not disentitle the assessee from claiming deduction u/s. 80P(2)(a) of the Act. Insofar as the addition made u/s. 68 of the Act is concerned, the assessee submitted that all the SB notes were deposited by the members into their various accounts which in turn was deposited by the assessee into their bank accounts and all the transactions were entered into their books of accounts and also reflected in the bank statements and therefore the same could not be treated as unexplained cash credit u/s. 68 of the Act. The assessee had not raised any dispute with regard to the disallowance made u/s. 40(a)(ia) of the Act. The assessee also not filed any written submissions before the Ld.CIT(A) and therefore the Ld.CIT(A) had decided the appeal based on the materials available on record. The Ld.CIT(A) had allowed the deduction claimed u/s. 80P(2)(a)(i) of the Act and confirmed the addition made u/s. 68 on the reason that the assessee had not submitted any material documents / evidence in support of their claim.

As against the said order, the assessee is in appeal before this Tribunal.

At the time of hearing, the Ld.AR submitted that the deposit of SB notes are nothing but the repayment of loans by the members to the society as well as the deposits made by the members and all the details of deposits and the loan amounts are properly credited into their books of accounts and therefore section 68 would not be applicable to the facts of the present case. The assessee also filed three paper books. In the first paper book, the assessee furnished the written submissions as well as the cash transaction summary filed before the income tax authorities. In the second paper book, the assessee had furnished the copies of the orders of the Coordinate Benches. In the third paper book, the assessee had furnished the member- wise details with respect to the cash accepted during the demonetisation period and also the members’ KYC details. Based on the said documents, the Ld.AR submitted that the assessee had properly explained the source for the cash deposits made during the demonetisation period and therefore the invoking of section 68 based on the ground that the deposits are in SB notes are not correct and relied on the various orders of the Coordinated Benches and prayed to allow the appeal. The Ld.AR also submitted that the disallowance made u/s. 40(a)(ia) is not correct.

The Ld.DR relied on the orders of the lower authorities and submitted that the assessee had not disputed the disallowance made u/s. 40(a)(ia) of the Act before the Ld.CIT(A) and therefore raising the issue before this Tribunal is not correct and prayed to dismiss the appeal.

We have heard the arguments of both sides and perused the materials available on record.

Even though the assessee had not filed any written submissions before the Ld.CIT(A), we have decided to dispose the appeal on merits since the assessee had furnished all the details before the AO, without remitting this issue again to the Ld.CIT(A), and the facts are clear and to avoid inconvenience to the assessee being a co-operative society.

The only dispute to be decided in this appeal is whether the deposit of cash in SB notes during the demonetisation period would attract section 68 of the Act or not. In the assessment order, the AO had elaborately observed that the assessee has no right to collect the SB notes after the specified date i.e. 09/11/2016 and therefore these amounts are to be treated as unexplained credits u/s. 68 of the Act. Before us, the assessee had produced all the details about the payments made by the members to the society towards their various liabilities and also towards the deposits and therefore the assessee was able to explain the source for all the deposits made into their bank accounts by way of SB notes. We are of the view that under the Income Tax Act, the deposit of the amounts by the members by way of SB notes towards their various liabilities could not be treated as unexplained cash credit. Further the amounts collected from the members were duly recorded in the books of accounts of the assessee and the said amounts were finally deposited into the bank accounts of the assessee. If it is to be proved about the identity of the persons who has deposited the said amounts and the genuineness of the transactions and the credit worthiness of the depositors then such deposits could not be treated as unexplained cash credit. In the present case, the assessee had maintained the books of accounts in which the members’ details were available and the books shows the cash collections from the said members and also the confirmations and therefore the said deposits made into the bank accounts of the assessee would not be treated as unexplained cash credit u/s. 68 of the Act. It is the routine duty of the assessee to disburse the loans and receive the loan repayments and receive the FDs and also receive the cash towards their SB accounts and therefore the transactions could not be doubted. In fact, the assessee had explained the source for the said deposits in SB notes and simply the SB notes looses to be a legal tender, it does not mean that the amount collected by the appellant society would become unexplained money of the society. It is also not the case of the AO that the assessee had indulged in money exchanging activity from the public. All the payments were made available by the members and therefore the assessee had fulfilled their obligations and therefore the said receipt of SB notes from the members and the consequential deposit of the said notes into their bank account could not be treated as unexplained cash credit u/s. 68 of the Act.

In the paper book no. 3 filed by the assessee, all the details about the cash accepted in SB notes from the members were furnished. Similarly, the members’ KYC also furnished in the said paper book. Therefore the assessee had properly explained the source for the cash credits into their books of accounts and therefore no addition u/s. 68 could be made.

We have also gone through the order of the Coordinate Bench of this Tribunal in the case of M/s. Brahmi Credit Co-op Society Ltd. vs. ITO in vide order dated 22/03/2024 in which the similar issue came up for consideration and the Coordinate Bench relied on the earlier order in the case of Merchants Credit Co-operative Society Ltd. in vide order dated 24/08/2023 in which it was held that the addition u/s. 68 could not be made since the assessee had all the documents to show that the SB notes were received from the members and the said receipt was duly recorded in the members accounts.

In the another order of the Coordinate Bench of this Tribunal, in the case of M/s. Kuvempu Co-operative Credit Society Ltd. vs. ITO in & 115/Bang/2024 vide order dated 14/03/2024, this Tribunal had again relied on the earlier order of this Tribunal in dated 24/08/2023 and remitted this issue to the file of the AO for verifying the KYC details furnished by the assessee.

We have also perused the order of the SMC Bench of the Coordinate Bench of this Tribunal in the case of Sri Bhageeratha Pattina Sahakara Sangha Niyamitha vs. ITO in dated 18/02/2022 in which the SMC Bench had given the finding as follows: “15. The case of the A.O is that the assessee has collected the demonetized notes after 8.11.2016 in violation of the notifications issued by RBI. Accordingly, he has taken the view that the above said amounts represents unexplained money of the assessee. I am unable to understand the rationale in the view taken by A.O. I noticed that the AO has invoked the provisions of sec.68 of the Act for making this addition. I also noticed that the assessee has also complied with the requirements of sec.68 of the Act. The AO has also not stated that the assessee has not discharged the responsibility placed on it u/s 68 of the Act. Peculiarly, the AO is taking the view that the assessee was not entitled to collect the demonized notes and accordingly invoked sec.68 of the Act. I am unable to understand as to how the contraventions, if any, of the notification issued by RBI would attract the provisions of sec. 68 of the Income tax Act. In any case, I notice that the assessee has also explained as to why it has collected demonetized notes after the prescribed date of 8.11.2016. The assessee has explained that it has stopped collection after the receipt of notification dated 14.11.2016 issued by RBI, which has clearly clarified that the assessee society should not collect the demonetized notes. Accordingly, I am of the view that the deposit of demonetized notes collected by the assessee from its members would not be hit by the provisions of section 68 of the Act in the facts and circumstances of the case. Accordingly, I set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete this disallowance.”

In the present case also, the assessee had discharged his burden of proving the source of the deposits and the identity of the depositors and the credit worthiness of the depositors and the genuineness of the transactions and therefore definitely it will not be subjected to tax u/s. 68 of the Act. The assessee apart from the various documents furnished before the authorities, had also furnished the KYC details of the members through whom the SB notes were collected. We, therefore of the view that the transactions would not attract section 68 of the Act on the SB notes received from the members. Only, to verify the KYC details, we remit this issue to the AO and on verification if the AO find that the same is in order, not to make any addition u/s. 68 of the Act.

We have not decided about the disallowance made u/s. 40(a)(ia) of the Act since the said issue was not raised before the Ld.CIT(A).

In the result, the appeal filed by the assessee is partly allowed for statistical purposes.