SRI.GIRISH URBAN CO-OPERATIVE CREDIT SOCIETY LIMITED ,HUBLI vs. INCOME TAX OFFICER, WARD-2(1), HUBLI

Assessee was asked to furnish the details of cash receipt, deposit and withdrawals. The assessee submitted necessary information. As the assessee deposited the sum in Specified Bank Notes (SBN) of Rs.31,13,500 during the demonetisation period, the AO was of the view that such amount deposited by the assessee is not a valid tender and assessee was not authorised to collect the same. Therefore, he applied the provisions of section 68 and made the addition of Rs.31,10,500 and charged the same to tax u/s. 115BBE of the Act.

Assessee aggrieved with the same, preferred appeal before the ld. CIT(A). With respect to the addition u/s. 68 of the Act, the ld. CIT(A) confirmed the addition holding that as assessee has deposited SBNs into his bank account, there is no infirmity in the addition. The assessee is in appeal before me.

The assessee submits that the only dispute in this appeal is the addition of Rs.31,10,500 u/s. 68 of the Act as unexplained cash credit. Ground Nos.2 to 7 are on this aspect only. It was submitted that assessee is a cooperative society which has deposited cash during the demonetisation period amounting to Rs.31,10,500 with 3 banks. The same have been added by the AO as unexplained income u/s. 68 of the Act. She submitted that the amount is recorded in the books of account as collected members etc. The assessee has filed complete details of copy of cash book, details of cash receipt, deposit and withdrawals in the required proforma. This is in old currency notes which is collected from several members in cash and cash against loan recovery. The assessee has furnished the list of all members from whom amount in SBNs have been accepted. Therefore assessee has explained the source and nature of receipts. In view of this, provisions of section 68 applied by the AO is incorrect. Even the ld. CIT(A) without appreciating the facts of the case that when the identity and creditworthiness of the persons who have deposited the money with the assessee as well as repaid the loan has not at all been doubted as the assessee has furnished the complete details, the same could not have been added to the total income of the assessee u/s. 68 of the Act. It was therefore submitted that the orders of the ld. lower authorities in making the above addition is not correct.

The ld. DR vehemently supported the orders of the ld. lower authorities and submitted that when the assessee has deposited SBNs which were not a valid tender, the addition has been correctly made in the hands of the assessee. It was further stated that the assessee is not authorised to collect the same from its members during the demonetisation period.

I have carefully considered the rival contentions and perused the orders of the ld. lower authorities. I find that when the assessee is a members' urban cooperative credit society which has deposited a sum of Rs.31,10,500 in SBNs during the demonetisation period with Hubli Urban Cooperative Bank, Bank of Baroda, Hubli and SVC Cooperative Bank. The funds were from the books of the cooperative society. To support the same the assessee has furnished the details of cash balance, copy of cash book, details of cash receipt, deposits and withdrawals in the proforma as desired by the ld. AO. The assessee also submitted that collection of small deposits from members in cash and collection of cash loan against recovery were deposited to the bank accounts during the demonetisation period. To support this contention, assessee also furnished a list of members from whom the SBNs have been accepted and the same were deposited. The ld. AO has merely on the basis that when the assessee was not authorised to collect SBNs and same were deposited in the bank account of the assessee with 3 other banks which is not a valid tender, made the addition. The above amount of Rs.31,10,500 is deposited in the bank account and the bank with whom it has deposited have also accepted the same and given the assessee credit of the same amount. Thus, the banks where the money is deposited have also accepted the same valid tender and giving full credit to the assessee. Admittedly assessee may not be authorised to collect the same, but this is not in the realm of taxation u/s. 68 of the Act. The provisions of section 68 says that if the nature and source of the sum deposited in the books of account of the assessee is not explained to the satisfaction of the ITO, then it can be added as unexplained cash credit in the hands of the assessee. In the present case, the nature of the cash deposit is explained to be receipt of deposits from the members and repayment of loan by those members. The source is also the members only, supported by cash book. The list of members are furnished to the AO which was neither examined nor doubted. Further the ld. CIT(A) has held that the members of the society got undue benefit of enrichment by depositing the illegal tender with the assessee and in turn the assessee deposited the same with the bank cannot be considered as legal and genuine transaction. This argument is not sustainable for the reason that if it is non-genuine or illegal transaction, there are respective authorities who would have taken action against the society. In this case, the assessee has explained wherefrom the SBN notes have come and such notes have been deposited in the respective banks. Therefore the addition made by the ld. AO and confirmed by the ld. CIT(A) is not sustainable for the reason that assessee has given the list of members whose KYC is not doubted or examined and further it is not the case of the ld. AO that the members are non-existent or it is unaccounted money of the assessee which has been deposited in the bank account. The money is deposited from the books of the assessee. Thus, ld AO is directed to delete the addition u/s 68 of the Act of Rs. 31,10,500/-. Accordingly ground Nos. 2 &7 of the appeal of the assessee are allowed.

In the result, the appeal by the assessee is allowed.