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Facts
The assessee, a co-operative society, received funds to disburse as loans to its farmer members and deposited loan repayments into its accounts. The Assessing Officer (AO) treated cash deposits of Rs. 80,05,399/- as unexplained investment. The assessee contended these were loan repayments and disbursed funds.
Held
The Tribunal held that the cash deposits were collections from members towards loan repayments and not unexplained investments. The AO failed to consider the documents and explanations provided by the assessee.
Key Issues
Whether the cash deposits made by the assessee society into its bank accounts, representing loan repayments from members, could be treated as unexplained investments under Section 69A of the Income Tax Act.
Sections Cited
148A, 148, 80P(2), 69A
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Income Tax Appellate Tribunal, ‘B’ BENCH : BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K.
ORDER PER BENCH
This is an appeal filed by the revenue against the order of NFAC, Delhi dated 11/09/2024 in respect of the A.Y. 2018-19 and the assessee also filed cross objections in the appeal filed by the revenue.
C.O. No. 06/Bang/2025 2. The revenue filed this appeal challenging the relief granted by the Ld.CIT(A) on the following grounds: “
1. The Order of the Learned CIT(A) is opposed to law and facts of the case
2. The CIT(A) erred in not considering the fact that that the assessed failed to furnish the details of its members, failed to submit cash book showing cash collections made, PAN and address of members from whom collections made and deposited in various bank accounts.
3. The CIT(A) erred in not considering the fact that that assessee could neither prove and establish the cash was received from members nor establish the identity of the persons from whom cash received.
4. The CIT(A) erred in relying upon the decisions as the facts and circumstances of the instant case are distinguishable from the cases relied upon by the CIT(Appeals) wherein the assessee have furnished the details called for by the AO to prove that the source of cash deposits are from money remitted by the members of the society towards repayment of loan taken and also towards pigmy deposits, ect.
5. For these and other grounds that may be urged upon, the order of the CIT(A) may be revered and that assessment order to he restored.”
3. The grounds raised by the assessee in its cross objections are as under: “1. The order passed by the learned Commissioner of Income-tax [Appeals] in sofar as it is favourable to the respondent/cross objector. is just and proper andthe same requires to be upheld under the facts and circumstances of the case.
2. The learned CIT(A) has rightly observed that the assessee is merely a facilitator of loan and that the cash deposits made pertained to loan obtained by farmers, on the facts and circumstances of the case.
3. The learned CIT(A) has rightly held that the appellant holds only one bank account and the remaining accounts pertain to loan sanctioned to the farmers for which the C.O. No. 06/Bang/2025 assessee facilitates as a mediator. on the facts and circumstances of the case.
The learned CIT(A) is justified in deleting the addition made by the learned assessing officer u/s 69A as no addition can be made under section 69A of the Act where the assessee is not the owner of the money ,on the facts and circumstances of the case.
Without prejudice, the learned CIT(A) ought to have allowed the appeal of the assessee on the legal grounds also, on the facts and circumstances of the case.
6. The appellant craves to add, alter, amend, substitute, change and delete any of the grounds of appeal
7. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered and the appellant shall be awarded cost in prosecuting the appeal and also order for the refund of institution fees as part of the cost.”
4. The brief facts of the case are that the assessee is a co-operative society registered under the provisions of the Karnataka Co-operative Societies Act. The assessee society consists of the agriculturists as members. The main activity of the society is providing loans / advances / credit facilities under the scheme Kissan Credit Card Loans (KCC Loans) sponsored by National Bank for Agriculture & Rural Development (NABARD) and self-help group (SHG) account. The assessee society received funds from the Hassan District Central Co-operative bank with a direction to disburse the said funds as loans to the members of the society. The assessee distributed the loan amount to the members and the repayments paid by the members was duly accounted in the assessee’s books of accounts. Later on, the said amounts were deposited into the Hassan District Central Co-operative Bank as against the outstanding loans. During the A.Y. 2018-19, the assessee had not filed their return of income. The AO based on the information received that the assessee had made deposits in his bank account, initiated proceedings u/s. 148A of the Act. Thereafter notice u/s. 148 was issued. Subsequently, the assessee filed C.O. No. 06/Bang/2025 their return of income on 18/08/2022 declaring a gross total income of Rs. 3,71,446/-. The assessee had declared a Nil total income on the ground that the entire gross total income is eligible for deduction u/s. 80P(2) of the Act. The assessee filed all the details such as the bank accounts and the financials to the AO. The assessing officer without considering the said facts, had disallowed the deduction claimed u/s. 80P(2) of the Act and also made an addition of Rs. 80,05,399/- as unexplained money u/s. 69A of the Act. The assessee challenged the said order before the Ld.CIT(A) and explained the fact that cash deposit of Rs. 80,05,399/- are Kissan Credit Card Loan amount sponsored by the NABARD and self-help group accounts. The assessee also explained that to distribute the loan amounts, several kissan credit card loan accounts were also open in the Hassan District Central Co-operative Bank and therefore the amounts transferred by the Hassan District Central Co-operative Bank to the various accounts for distributing the said amount to the members of the society would not be an unexplained investment u/s. 69A of the Act. Before the Ld.CIT(A), the assessee explained about the bank accounts and the mode of cash deposits into the said accounts but the AO without considering the said documents / explanations had confirmed the addition made u/s. 69A of the Act. The Ld.CIT(A) considering the issue in detail and also the various documents filed in support of the said contention had accepted that the cash deposits are nothing but the cash received from the members of the society towards the loan repayments, interest payments, EMIs, deposits etc.
5. As against the said order of the Ld.CIT(A) granting relief, the revenue filed this appeal before this Tribunal.
The assessee also field the cross objection petition in the appeal filed by the revenue.
C.O. No. 06/Bang/2025 7. We, therefore proceeded to decide the revenue’s appeal as well as the cross objection filed by the assessee simultaneously for the sake of convenience.
At the time of hearing, the Ld.DR submitted that the Ld.CIT(A) had erred in granting relief when the assessee had not furnished the details of the members who paid the monies to the assessee which in turn were deposited in the bank account. The Ld.DR further submitted that the identity of the persons from whom the cash was received was not established by the assessee and therefore the order of the Ld.CIT(A) is a perverse one and liable to be set aside.
The Ld.AR of the assessee draw our attention to the findings given by the Ld.CIT(A) and from the said finding, it is very clear that the cash deposits are nothing but the collections made from the members and later on deposited into the bank accounts and therefore it could not be treated as an unexplained investment u/s. 69A of the Act. The Ld.AR further submitted that the assessee is having a single current account for their operations and the other accounts maintained with the Hassan District Central Co-operative Bank are nothing but the accounts used for availing the funds for distributing the same as loans to the members of the society under the Kissan Credit Card Loans scheme sponsored by the NABARD. The Ld.AR also submitted that all the records were produced before the AO but the AO without considering the said documents had passed the assessment order which is not in accordance with the principles of natural justice. The Ld.AR further submitted that the said cash deposits are not related to the assessee but the said deposits are the amounts collected from the members and paid into the said loan accounts as against the dues.
We have heard the arguments of both sides and perused the materials available on record.
C.O. No. 06/Bang/2025 11. We have perused the assessment order as well as the Ld.CIT(A) order. In the assessment order, the AO had taken the cash deposits made into the various Kissan Credit Card loan account maintained with the Hassan District Central Co-operative Bank as the unexplained cash deposits and therefore treated the said deposits as unexplained investment u/s. 69A of the Act. The case of the assessee is that all the accounts were maintained for the purpose of obtaining the funds from the Hassan District Central Co- operative Bank for distributing the same under the Kissan Credit Card Loan scheme to its members and thereafter the loan amounts repaid by the members were deposited into the said accounts towards their loan amount and therefore there is no connection to the said amounts reflected in the said bank accounts with that of the assessee. The assessee’s contention is that all the details were placed before the AO but the same was not considered and an order was made.
Before the Ld.CIT(A), the assessee had again explained the facts in detail by relying on the documents and the Ld.CIT(A) after considering the said documents had concluded that the cash deposits made into the bank accounts of the members’ loan account could not be treated as an unexplained investment u/s. 69A of the Act. The Ld.CIT(A) had given a detailed finding in this order in para no. 6 which reads as follows: “6. I have considered the facts of the case, assessment order and appellant's submissions. The AO made the addition of Rs. 80,05,399/- after stating that the assessee failed to provide the details of its members viz. names of members, their addresses and PANs and the amount of cash deposited by the members. In the written submissions uploaded on the ITBA Portal, the appellant has submitted that the activities of the assessee-Society is primarily to provide loans/advances/credit facilities styled under the scheme "Kissan Credit Card Loans (KCC Loans)" sponsored by National Bank For Agriculture & Rural Development (NABARD) to its members depending on the seasonal requirements of its member/farmers, the assessee Society had availed funds from the Hassan District Central Co-operative Bank (HDC Bank), with a mandate to disburse loans to the applicant/constituent farmer-members of the assessee-society and therefore, in C.O. No. 06/Bang/2025 essence, the assessee acted as a bridge between its members on the one hand and the said HDC Bank on the other. The appellant has further submitted that once the said loans or installments thereof are being repaid by the end-borrower i.e. farmer/members, the same is being accounted in the assessee's Cash Book evidenced through Receipt Vouchers, and the same being deposited in to the said HDC Bank against the said outstanding loans. The appellant has clarified that it is very much evident that the assessee society maintained only one current account bearing A/c No. 900510470000010 while the rest of the bank accounts reflected are all KCC Accounts representing Kissan Credit Card Loans (KCC Loans) sponsored by National Bank For Agriculture & Rural Development (NABARD) and SHG (self-help group) Account, the said KCC/SHG Loan accounts are held by the assessee /society only for facilitating the advancing of loans to its constituent farmer members and recovery/repayment of the said loans to the said HDC bank and as such the role of the assessee in no way extends beyond that of a Facilitator/intermediary to facilitate its farmer /members to avail loans and make repayment thereof, therefore, the said KCC accounts cannot be held to be absolutely in the name of the assessee rather a mere 'facilitating account'. Thus. the appellant prayed for deletion of addition of Rs. 80,05,399/-. Considering the facts of the case and details furnished by the appellant, I am inclined to agree with its claim. In the instant case, the AO's assessment order sounds like it is completed ex-parte for want of the assessee's reply and details in support of cash deposits. However, from some instances recorded in the assessment order itself, it is clear that the appellant duly explained source of deposits along with supporting evidences but the AO without giving proper consideration to them, further asked the assessee to furnish names of members who deposited the cash. The AO without appreciating the material available on record in their true sense passed the assessment order. In the instant case, the appellant duly responded to queries raised by the AO during the course of assessment proceedings. But the AO totally ignored the fact that the assesses acted as a mediator/agent primarily to provide loans/advances/credit facilities styled under the scheme "Kissan Credit Cara Loans (KCC Loans)" sponsored by National Bank For Agriculture & Rural Development (NABARD) to its members depending on the seasonal requirements of its member/farmers and in due course of C.O. No. 06/Bang/2025 its business, the appellant society had availed funds from the Hassan District Central Cooperative Bank and disbursed loans to the applicant/constituent farmer- members of the assessee-society. The appellant- has explained that it maintained only one current account bearing A/c No. 900510470000010 while the rest of the bank accounts are all KCC Accounts representing Kissan Credit Card Loans (KCC Loans)" sponsored by National Bank For Agriculture & Rural Development (NABARD) and SHG (self-help group) Account. As per details furnished by the appellant, all cash deposits were made out of the cash received from the members of the society, who deposited cash towards loan repayments, interest payments, EMIs, deposits, etc. The appellant society possesses all the details which prove that the cash deposits are very much explained. Here I may refer to the decision of the Hon'ble ITAT "SMC"C' Bench, Bangalore in the case of Sri Bhageeratha Pattina Sahakara Sangha Niyamitha TakukUppara Sanga vs. ITO ( for the AY 2017-18) wherein the Hon'ble ITAT decided similar issue in favour of the assessee. The relevant para 14 is reproduced as under:- “14. I heard Ld. D.R. on this issue and perused the record. I notice that the A.O. has not doubted the submissions of the assessee that the above said amount of Rs.24,47,500/- represents collection of money in the normal course of carrying on of business of the assessee, i.e.. it represents money remitted by the members of the assessee society towards repayment of the loan taken by them and also towards pigmy deposits, etc. The Ld A.R submitted that the assessee has duly recorded in its books of account the transactions of collections of money as well as deposits made into bank account. Thus, I notice that the assessee has explained the nature and source of the above said amount of Rs.24,47,500/-, which was in- turn deposited by the assessee society in its bank account and further, all these transactions have been duly recorded in the books of account. Hence, the above said deposits cannot be considered as "unexplained money" in the hands of the assessee.” Similar view has been expressed by the Hon'ble ITAT BENGALURU "C" BENCH, BENGALURU in the case of Prathamika Krushi Pattina Sahakari Sangha Niyamitha Itagi Pkpssn Itagi Vs. The Income Tax Officer ( ITA No.
C.O. No. 06/Bang/2025 593/Bang/2021 for AY 2017-18) wherein the Hon'ble ITAT deleted the addition on account of unexplained bank deposits in case of co-operative society holding that the source of making deposit of Rs.36.36 lakhs by the assessee into its bank account are the money collected from its members. In view of the facts of the case and judicial precedents cited supra, it is held that the AO is not justified in making the addition of Rs. 80,05,399/-, the same is directed to be deleted. Grounds raised by the appellant regarding this issue are allowed.”
13. We have considered the submission made by the Ld.DR that the assessee had not furnished the details and the members from whom the money had been collected and deposited into the bank account of the Kissan Credit Card Loan accounts. From the perusal of the finding given by the Ld.CIT(A), the Ld.CIT(A) had considered the peculiar facts involved in the present case and concluded that the cash deposits are not related to the assessee but the said amounts were collected from the members and entered into their cash book and thereafter the said amounts were deposited into the Hassan District Central Co-operative Bank in the loan accounts. It is the case of the assessee that the amount collected is being accounted in the assessee’s cash book evidenced through receipt vouchers which contains the details of the members from whom the money has been collected and later on deposited into the Hassan District Central Co-operative Bank loan account. No other evidence was placed by the revenue to show that the finding arrived by the Ld.CIT(A) is a perverse one. In such circumstances, we are of the view that the order of the Ld.CIT(A) is a well considered one and requires no interference.
We have also considered the cross objection petition filed by the assessee which is nothing but the supporting statement given by the assessee to the findings of the Ld.CIT(A). Further, we are dismissing the appeal filed by the revenue and therefore the cross objection petition filed by the assessee could be treated only as a counter to the grounds of appeal C.O. No. 06/Bang/2025 filed by the revenue and therefore we are of the view that nothing is to be adjudicated at the cross objection petition filed by the assessee.
In the result, the appeal filed by the revenue as well as the cross objection filed by the assessee are dismissed.
Order pronounced in the open court on 29th September, 2025.