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Facts
The assessee, a cooperative society providing credit facilities, had its assessment for AY 2018-19 reopened by the Assessing Officer based on cash deposits and withdrawals. The AO made additions of ₹.10,24,090/- as unexplained money under Section 69A and ₹.1,04,00,501/- as unexplained expenditure under Section 69C. The Ld. CIT(A) subsequently deleted both additions, prompting the Revenue to appeal.
Held
The Income Tax Appellate Tribunal (ITAT) upheld the Ld. CIT(A)'s decision, confirming that the assessee had sufficiently explained the sources of the cash deposits and withdrawals as part of its normal business operations. The Tribunal also agreed that Section 69C for unexplained expenditure was not applicable, as the assessee did not claim these withdrawals as expenditure but rather as transfers for making further credit to its members.
Key Issues
Whether the Ld. CIT(A) was justified in deleting additions made by the Assessing Officer under Section 69A for unexplained cash deposits and under Section 69C for unexplained cash withdrawals, considering the assessee's explanations of transactions related to its agricultural credit business.
Sections Cited
147, 148, 142(1), 143(2), 143(3), 144, 144(1)(b), 144(1)(c), 69A, 69C
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Before: Shri S.S. Viswanethra Ravi&
O R D E R
PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER:
This appeal filed by the Revenue is directed against the order dated 26.07.2024 passed by the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi for the assessment year 2018-19.
We find that this appeal is filed with a delay of 24 days. The ITO, Ward 1, Tiruvallur filed an affidavit for condonation of delay stating the reasons. Upon hearing both the parties and on examination of the said affidavit, we find the reasons stated by the Appellant-Revenue are bonafide, which really prevented in filing the appeal in time. Thus, the delay is condoned and admitted the appeal for adjudication.
The Appellant-Revenue raised 4 grounds of appeal amongst which, the only short point raised for our consideration as to whether the order of the ld. CIT(A) is justified in giving relief to the assessee considering the alleged additional evidence in the facts and circumstances of the case.
Brief facts of the case are that the assessee is a co-operative society providing credit facilities to rural agriculturists at a marginal rate of interest by borrowing funds from Kanchipuram Co-operative Bank, specifically kissan loans, jewel loans on agricultural credentials as well as general jewel loans, priority loans to women groups and minority community members. On information regarding cash deposits and cash withdrawals, the Assessing Officer reopened the assessment of the assessee. According to the Assessing Officer the cash deposits and withdrawals were at ₹.1,14,24,591/-. In response to the notice under section 148 of the Income Tax Act, 1961 [“Act” in short], the assessee filed return of income declaring income at ₹.NIL. Further, the assessee filed e-reply along with balance sheet, statement of affairs, bank statement, etc. in response to notice under section 142(1) of the Act.
According to the Assessing officer, the assessee could not reconcile the amount of cash deposits and withdrawals with the information on record and completed the assessment by making additions towards cash deposits of ₹.10,24,090/- as unexplained money under section 69A of the Act and withdrawals at ₹.1,04,00,501/- as unexplained expenditure under section 69C of the Act.
Aggrieved by the order of the Assessing Officer against such additions, the assessee preferred an appeal before the first appellate authority. The ld. CIT(A), considering the submissions of the assessee, deleted the addition of ₹.10,24,090/- by stating that the assessee duly explained the cash deposits before the Assessing Officer, but, however, the Assessing Officer, without giving proper consideration made the addition. The relevant part at para 6 of the impugned order are reproduced herein below: 6. I have considered the facts of the case, assessment order, appellant's submissions and details furnished by the appellant. The AO made the addition of Rs. 10,24,090/- after stating that the assessee failed to provide the details of its members viz. name of the members, their Aadhar and PAN and the amount of cash deposited by the members. In the written submissions uploaded on the ITBA Portal, the appellant has furnished details of cash deposited on various dates and submitted that the predominant sources for cash deposits into bank are the opening balances on each day, collection of loan and collection of interest for which day to day book was maintained. The appellant has furnished relevant bank statement. 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 u/s. 144 of the Act. As per section 144, the Assessing Officer, after taking into account all relevant material which he has gathered, is under an obligation to make an assessment of the total income or loss to the best of his judgment and determine the tax payable by the assessee. Best judgment assessment should be made with fair-play and justice. In making a best judgment assessment, the Assessing Officer does not posses absolutely arbitrary authority to assess at any figure he likes and that although he is not bound by strict judicial principles he should be guided by rules of justice, equity and good conscience [Abdul Qayum & Co., Vs. CIT, (1933) 1 ITR 375, 378 (Oudh)]. A best judgment assessment is not by way penalty for non-compliance [Jot Ram Sher Singh Vs. CIT, (1934) 2 ITR 129 (All) and it cannot be made capriciously in utter disregard to the material on record [Gunda Subbayya Vs. CIT, (1939) 7 ITR 21, 26-7 (Mad-- FB); CIT Vs. S. Sen, (1949) 17 ITR 355 (Orissa)]. Here, I may quote the relevant para 11 from the judgment dated 13- 05-2011 of the Hon'ble ITAT Pune Bench in the case of Pravin Pandurang Patil vs. vs. JCIT (ITA No. 850/PN/08 AY 2005-06) as under:- "11. A perusal of the aforesaid reveals that it is not a case where the details and the information called for have not been complied with, but is a case where all the queries raised on examination of the information filed, was not said to have been provided by the assessee. As per the aforesaid discussion by the Commissioner of Income-tax (Appeals), which is not in dispute, it emerges to be a case where the Assessing Officer was not satisfied with the response to the queries raised by him on examination of the information filed by the assessee. The same, in our view, would not constitute a failure to comply with all the terms of the notice issued under section 142 or 143(2) of the Act, as mandated in terms of clauses (b) and (c) of section 144(1) of the Act. In our opinion, non-satisfaction with the answer to the queries raised cannot enable the Assessing Officer to invoke clauses (b) and (c) of section 144(1) of the Act. Thus, factually speaking, in the present case, we find no justification for the Commissioner of Income-tax (Appeals) to uphold the invoking of section 144 of the Act by the Assessing Officer under section 144 of the Act. Thus, on this aspect assessee partly succeeds." 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 assessee's principal object is to undertake agricultural credit activities and to provide loans and advances for 5 I.T.A. No.2781/Chny/24 agricultural purposes to its members and in due course of its business, the assessee received cash from its members and deposited the same into its bank 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 deposit 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 (ITA No.646/Bang/2021 for the AY 2017-18) wherein the Hon'ble ITAT decided the 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. 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. 10,24,090/-, the same is directed to be deleted. Grounds raised
by the appellant regarding this issue are allowed.
6. On perusal of the above, we note that the assessee specifically explained that the cash deposits were duly recorded and there was 6 I.T.A. No.2781/Chny/24 sufficient cash balance on each day. Further, the said details of cash collections on various heads are entered in Cash column, Receipts Side and the summary of various cash payments are entered in Cash column, Payments Side. We note that same set of submissions were made before the Assessing Officer also as is evident in para 5 of the assessment order, which clearly shows that the assessee furnished balance sheet/ statement of affairs and bank statement. The ld. CIT(A), by considering the same, observed that the assessee furnished every details in respect of alleged cash deposits and explained the same by relevant evidence. Therefore, we agree with the reasons recorded by the ld. CIT(A) in para 6 of the impugned order in holding that the assessee furnished every details, but, however, the Assessing officer could not consider the same. Thus, we find no infirmity in the order of the ld. CIT(A) and is justified. Thus, we hold that there was no additional evidence, as stated to have been contended by the Revenue, is rejected.
Further, the Assessing Officer treated the withdrawals at ₹.1,04,00,501/- as unexplained expenditure under section 69C of the Act. Before the ld. CIT(A), it was contended that there was no claim of expenditure and the question of disallowance under section 69C of the Act does not arise. The ld. CIT(A) considered the said issue in detail in 7 para 7 to 9 of the impugned order and relevant part therein are reproduced herein below: 7. The next issue to be decided is regarding the addition of Rs. 1,04,00,501/- u/s. 69C of the Act. Facts of the case as extracted from the assessment order reveal that the AO received information that the assessee made withdrawals in cash amounting to Rs. 1,04,00,501/- from its bank account maintained with Kancheepuram DCC Bank Ltd. The assessee submitted its reply on 13-03-2023 by furnishing details of withdrawals and deposits which were not found proper by the AO. Accordingly, the AO made the addition of Rs. 1,04,00,501/- treating withdrawals as unexplained expenditure u/s, 69C of the Act.
The appellant's written submissions regarding this issue are reproduced as under:- "Cash Withdrawal: As raised through our grounds the Assessing Officer (AO) erred in adding the cash withdrawal from bank as unexplained expenditure. Withdrawal from bank cannot result in income or unexplained expenditure. On this count itself we request your goodselves to allow our appeal. Anyhow even though it was not asked the source for cash withdrawal we voluntarily submit the following. Please find enclosed copy of bank statements for two accounts maintained with Kanchipuram District Central Co-operative Bank (KCC Bank). 1. Jewel Loan Cash Credit (JLCC) Account Number 220099860. 2. Current Account (CA) -Account Number 220079377. Apart from the above three find attached the statement issued by KCC Bank for KISAN Loan account with the product code of 82010411. 1. The KCC Bank sanctions loan and disburse the same by crediting into JLCC account. The opening balance in JLCC account is Rs. 39,03,042 which is a debit balance. That means we owe to the bank. After credit of Rs. 2,80,000 on 25-05-2017 the debit balance comes down to Rs. 36,23,042. These loans are transferred from JLCC account to Current account. On the following days the amounts were transferred from JLCC account to Current account.
Date Amount 13.10.2017 Rs. 8,45,360 28.12.2017 Rs.11,38,323 03.03.2018 Rs.9,88,530 Total Rs.29,72,213 Further the above transactions you will see entry on the debit side of JLCC account. The corresponding credit on the same day you will find entry on the credit side of Current Account.
2. As per KISAN Loan account statement the following amounts were credited in current account on the respective dates. Date Amount 13.10.2017 Rs. 14,39,548 13.10.2017 Rs.85,258 10.11.2017 Rs.6,69,003 19.12.2017 Rs.18,21,030 19.02.2018 Rs.12,25,878 14.03.2018 Rs.14,02,569 14.03.2018 Rs.92,701 Total Rs.67,35,987 Apart from that as explained above the total cash deposited into current account Rs.10,24,090. Hence the source for the total cash withdrawal of Rs.1,04,00,051 is KISAN Loan Rs.67,35,987, Jewel loan Rs.29,72,213 and cash deposit Rs.10,24,090. The total source is Rs.1,07,32,290 whereas the total cash withdrawal was Rs.1,04,00,501 only. Thus the source is explained along with evidence. From the above it may be clear that the source for cash withdrawal and cash deposit are properly explained. Hence we pray that the additions made and the resultant demand created may please be deleted."
I have considered the facts of the case, assessment order, appellant's submissions and details furnished by the appellant. The AO made the addition of Rs. 1,04,00,501/- after stating that the assessee failed to reconcile the withdrawals made during the FY 2017-18 with the information on record. In the written submissions uploaded on the ITBA portal, the appellant has furnished copies of bank statements for two accounts maintained with Kanchipuram District Central Co-operative Bank (KCC Bank) i.e. Jewel Loan Cash Credit (JLCC) Account Number 220099860 and Current Account (CA) -Account Number 220079377 and submitted that the KCC Bank sanctioned loan and disbursed the same by crediting into JLCC account, the opening balance in JLCC account is Rs. 39,03,042/- which is a debit balance, after credit of Rs. 2,80,000/- on 25-05-2017 the debit balance came down to 9 I.T.A. No.2781/Chny/24 Rs. 36,23,042 and these loans were transferred from JLCC account to Current account. Further, the appellant has provided details of KISAN Loan account statement showing amounts which were credited in current account on various dates. Thus, the appellant has submitted that the source for the total cash withdrawal of Rs. 1,04,00,501/- is Kisan Loan Rs. 67,35,987/-, Jewel Loan Rs.29,72,213/- and cash deposit Rs. 10,24,090, the total deposit is Rs. 1,07,32,290/- whereas the total cash withdrawal was Rs. 1,04,00,501/- only. Considering the facts of the case and details uploaded by the appellant, I am inclined to agree with the appellant's claim. In the instant case, the appellant has brought on record sufficient number of evidences to prove the source of withdrawals made from its bank account which were treated as unexplained expenditure by the AO. Besides this, it is noted that the appellant has not claimed any expenditure so as to attract provisions of sec. 69C of the Act. Section 69C is reproduced as under:- Unexplained expenditure, etc. 69C. Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part thereof, or the explanation, if any, offered by him is not, in the opinion of the [Assessing) Officer, satisfactory, the amount covered by such expenditure or part thereof, as the case may be, may be deemed to be the income of the assessee for such financial year :) [Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.]" A plain reading of this section reveals that sec. 69C of the Act is applicable only where an assessee has incurred any expenditure during the year and he offers no explanation about the source of such expenditure or part thereof. The provisions of sec. 69C provide that where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure, the amount covered by such expenditure may be deemed to be income of the assessee for such financial year. Thus, in order to invoke this provision, the foremost condition, first the expenditure should be incurred in the financial year, and if assessee fails to explain the source of the expenditure, then such unexplained expenditure is deemed to be the income of the assessee for such financial year. From the appellant's explanation, it is clear that it did not claim any expenditure for which it was required to offer any explanation rather withdrawals were in due course of 10 I.T.A. No.2781/Chny/24 appellant society's business to make further credit to its members. Once there is no expenditure, question of disallowance u/s. 69C does not arise. The Hon'ble Delhi High Court in the case of CIT vs. Lubtec India Ltd. (2009) 311 ITR 175 (Del.) held that what is postulated in section 69C of the Income-tax Act, 1961, is that first of all the assessee must have incurred that expenditure. The Hon'ble Delhi ITAT in the case of ACIT, vs. Kishan Lal Jewels (P) Ltd. [2013] 33 taxmann.com 656 (Delhi - Trib.), held that in the absence of any material whatsoever with Assessing Officer to show that assessee had actually incurred any expenditure on purchases outside its books of account, Assessing Officer was unjustified in making addition under section 69C on account of unaccounted purchases. Considering the facts and circumstances of the case and legal position as discussed above, it is held that the AO is not justified in making the addition of Rs. 1,04,00,501/- u/s 69C of the Act, the same is directed to be deleted. The grounds raised
by the appellant regarding this issue are allowed.
8. On perusal of the above, the primary contention of the assessee is that the total cash withdrawals consist of kisan loan, jewel loan and cash deposits. Further, the details of amounts transferred from jewel loan and cash credit to current account is reflected in pages 9 and 10 of the impugned order. Further, kisan loan account statement crediting into current account is also reflecting in page 10 of the impugned order. As per assessee, jewel loan cash credit as well as kisan loan account are at ₹.29,72,213/- and ₹.67,35,987/- totalling to ₹.1,07,32,290/- for which the ld. CIT(A) held the source for withdrawals stands explained. We note that the assessee availed loan facility from Kanchipuram District Central Co- operative Bank Ltd. on interest at 9% and gives advance loans to its members @ 11% and it is vehemently contended that it is a running entity that of the day-today transactions of issuing loans and collecting loan instalment of kisan loan cash credit and jewel loan cash credit and the same are being deposited in current account and withdrawals for payment of above cash credit. It was also contended that the EMI of repayment of loans by the members in generally by cash as village people are not adapted to bank transaction till date. The ld. CIT(A) accepted the submissions of the assessee and given relief by examining credits made from jewel loan cash credit and kisan loan account to current account. Therefore, we agree with the reasons recorded by the ld. CIT(A) in para 7, 8 & 9 in giving relief to the assessee. Accordingly, the contention of the Revenue is rejected that the assessee furnished additional evidence in this regard. Thus, the grounds raised by the Revenue are dismissed.