SRIDHARPUR CO-OPERATIVE BANK,BARDHAMAN vs. ITO, WARD-3(2), BURDWAN

Brief facts of the case are that the assessee is a Primary Agricultural Co-operative Credit Society (PACCS) registered under the West Bengal Co-operative Societies Act in the year 2018 and engaged in the business of accepting deposits and providing credit facilities from/to members and non-members, dealing in fertilizer, pesticides, seeds, cold storage/warehousing, LPG, consumer goods, etc. Its activities are mainly confined to semi-urban and village level and the customers are also mainly small farmers, traders and villagers who mainly depend on ITA No.: 672/KOL/2024 Assessment Year: 2017-18 Sridharpur Co-Operative Bank. the assessee for their banking activities and a large section of them had no bank account other than that with the assessee, it is stated by the assessee. The assessee submitted its return of income on 07.11.2017 declaring NIL income, which was subsequently revised on 13.11.2017 declaring NIL income after claiming deduction u/s 80P of the Act at ₹2,71,78,477/- on both the occasions. The case was selected for scrutiny under Computer Assisted Scrutiny Selection (in short 'CASS') and notices u/s 143(2) and 142(1) of the Act were issued and served, in response to which the Ld. AR of the assessee appeared before the Assessing Officer (hereinafter referred to as Ld. 'AO') on several dates and several documents, information and explanations were submitted through e-proceeding portal. The legal tender character of existing ₹500/- and ₹1000/- Specified Bank Notes (SBNs) was withdrawn with effect from 09.11.2016 in terms of Gazette Notification No. 2652 dated November 08, 2016 issued by the Government of India. It is stated that at the initial stage of demonetization, there was huge confusion about the entity who could accept or exchange SBNs. Immediately no written instruction was made available to the assessee regarding the entity who could accept/exchange SBNs. At that time, other than media coverage, the only source of information/instruction was concerned Burdwan Central Co-operative Bank Ltd (BCCB). Since the assessee was mobilising deposits on the basis of the authorisation from Burdwan Central Co-operative Bank Ltd., the assessee had verbally consulted them for necessary guidance. At that time all over India all co-operative Banks including Primary Agriculture Co-Operative Societies (PACS) and ARDBs engaged in the business of banking and providing credit facilities had accepted old ₹1000/- and ₹500/- notes. It was only on 14.11.2016, when the Reserve Bank of India came out with a ITA No.: 672/KOL/2024 Assessment Year: 2017-18 Sridharpur Co-Operative Bank. clarification that District Central Co-operative Banks cannot accept or exchange SBN with effect from 15.11.2016 that after the said clarification of RBI, the assessee had also stopped accepting/exchanging SBN on and from 15.11.2016. As the assessee was not holding any Licence other than the authorisation from BCCB Ltd. and under the rules of Co-operative Societies Act, RBI had not made any direct communication with the assessee, during the period from 10.11.2016 to 14.11.2016, the assessee had accepted SBNs of ₹10,07,14,500/- from its members and depositors and deposited in its bank accounts. The assessee submitted the details of all depositors who had deposited SBNs during the demonetization period. During the course of hearing, the Ld. AO had asked the assessee to explain under which authority it had accepted SBNs from 09.11.2016. In response to that query, the assessee had made a written explanation clarifying the circumstances and the authority under which it had accepted SBNs. The Ld. AO rejected the explanation of the assessee and invoked the provisions of section 68 of the Act and added the total amount of SBNs received at ₹10,07,14,500/- as income from other sources. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who considered the facts of the case, the observations of the Ld. AO and the assessee’s submissions. The Ld. CIT(A) perused the documents available on record and dismissed the appeal of the assessee after holding as under: “5.5 In less than five days, the appellant assessee received demonetized currency notes totalling over Rs. 10 crores, which raises suspicion that there may be anomalies, in cash receipts worthy of investigation. It has been already stated that the appellant the appellant that the appellant could not demonstrate that the money they received during the demonetization period was not from its unaccounted cash. ITA No.: 672/KOL/2024 Assessment Year: 2017-18 Sridharpur Co-Operative Bank.

6 The decision made by the Hon'ble Bangalore Tribunal, which has been previously mentioned is directly applicable to the facts of this case. Thus, respectfully following the Hon'ble Bangalore Tribunal decision wherein it has been held that the burden of proof lies with the appellant and as they have failed to establish the genuineness of the deposits, identity of the depositors and their creditworthiness and also failed that cash so deposited fall outside the scope unaccounted cash and in view of my observation made above, the addition of Rs. 10,07,14,500/- is confirmed. The ground of appeal on the issue is, thus, dismissed.

7 It is observed from the assessment that the ld AO has allowed deduction u/s 80P of the Act on the interest received from investment of its surplus fund with other co-operative bank which is as per the latest decision of the hon'ble Supreme Court in the case of The Mavilayi Service Co-operative Bank Ltd & Ors. v. CIT in Civil Appeal no. 7343 to 7350 of 2019 reported in 123 taxmann.com 161 held that the interest income derived from non-members is assessable u/s 56 as income from other sources and therefore, not eligible for benefit u/s 80P(2)(a)(i). However, the same has not been applied in the present case. The AO may initiate action as per law for the same as it is seen that in the subsequent assessment year the issue has been dealt with in the light of the other decision on similar line and the appeal for the same is pending with me.

The appellant's remaining two grounds of appeal are general and consequential and do not require any discussion, so they are dismissed.

In the final result, the appeal filed by the appellant is treated as Dismissed.”

Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal.

Rival contentions were heard and the submissions made have been examined. The Ld. AR drew our attention to page 2 para 4 of the assessment order. It was stated that the assessee is a Society and not a bank. The assessee, after receipt of the RBI Circular, had stopped receiving the SBNs as by virtue of the circular, the cooperative banks and the Societies were not allowed to accept Specified Bank Notes. During the period from 8 to 14 November, 2016, the SBNs were exchanged by the RBI. The assessee had received a sum of ₹10 Crore from about 10,000 individuals within a period of 4 days, the details of ITA No.: 672/KOL/2024 Assessment Year: 2017-18 Sridharpur Co-Operative Bank. which were filed. The assessee has relied upon the decision of the Coordinate Bench of ITAT in the case of Malda Co-operative Agriculture & Rural Development Bank vs. ITO in ITA No. 1138/KOL/2024 order dated 30.04.2025. 6. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). The assessee had received a sum of ₹10,07,14,500/-. A perusal of the assessment order shows that the assessee cooperative society had submitted a list of depositors from whom the demonetized currency notes had been received; the total of which comes to ₹10,07,14,500/- with the assessee having opening balance of ₹1,11,33,500/- and the total amount of ₹11,18,48,000/- was deposited in the Burdwan Central Co-operative Bank Ltd. In the documents filed along with Form No. 36, the assessee has enclosed a list of the depositors, the amount received from each of them as well as the PANs of the depositors in most of the cases for amounts exceeding ₹50,000/-, which was also acknowledged by the Ld. AO. A perusal of the assessment order shows that the Ld. AO added the sum only in view of the fact that the assessee had no authority to receive demonetized notes of ₹1000/- and ₹500/- during this period. The relevant extract from the assessment order paras 4, 5, 6 & 7 is as under: “4 The assessee co-operative society submitted a list of depositors from whom the demonetised currency notes of Rs. 1000 and Rs. 500 were received during the period of demonetisation, on 12.11.2016, 13.11.2016 and 15.11.2016. The total of such sum of demonetised cash received was Rs. 10,07,14,500. They have opening balance of demonetised currency notes of Rs. 1000 and Rs.500 for an amount of Rs. 1,11,33,500. They deposited the total amount of Rs. 11,18,48,000 to The Burdwan Central Co- operative Bank Ltd.

The assessee co-operative society failed to bring into record any justification of accepting demonetised currency notes of Rs. 1000 and ITA No.: 672/KOL/2024 Assessment Year: 2017-18 Sridharpur Co-Operative Bank. Rs.500 during the period of demonetisation from 09.11.2016 to 30.12.2016 for an amount of Rs. 10,07,14,500. The assessee co-operative society failed to discharge their onus to bring into record in support of tendering demonetised currency notes and the submission in this regard is not satisfactory. So the amount of money received in the form of demonetized currency notes amounting to Rs. 10,07,14,500 is hereby treated as "Unexplained Cash Credit" in terms of section 68 of the Income Tax Act, 1961. 6. The assessee co-operative society having no authority to receive demonetized currency notes of Rs. 1000 and Rs.500 during the period 09.11.2016 to 30.12.2016. So the demonetized currency notes collected/received by the assessee co-operative society, is not valid in the eyes of law. When someone made any cash deposit in bank account and he fails to explain its valid and cogent reason in spite of his liability, the Assessing Officer has to make an inference about that deposits in bank account within the ambit of the relevant provisions of the Income Tax Act, 1961 and on the basis of information available on record. The amount credited in the bank account of the assessee amounting to Rs. 10,07,14,500 during the demonetization period 09.11.2016 to 30.12.2016, is therefore treated as "Unexplained Cash Credit" within the purview of Section 68 read with Section 115BBE of the Income Tax Act, 1961. 7. Since in the instant case the addition is made under Section 68 and tax is payable under Section 115BBE of the Income Tax Act, 1961, the assessee co-operative society is liable for penalty proceedings under Section 271AAC of the of the Income Tax Act, 1961, which is reproduced below :- "Section 271AAC (1) The Assessing Officer may, not withstanding anything contained in this Act other than the provisions of section 271AAB, direct that, in a case where the income determined includes any income referred to in section 68, section 69, section 69A, section 69B, section 69C or section 69D for any previous year, the assessee shall pay by way of penalty, in addition to tax payable under section 115BBE, a sum computed at the rate of ten per cent of the tax payable under clause (i) of sub-section (1) of section 115BBE." In view of the above, penalty proceedings under Section 274 read with Section 271AAC of the Income Tax Act, 1961 has been initiated separately.”

We have considered the submissions made. The addition was confirmed by the Ld. CIT(Appeals), as in few cases incomplete addresses are there while in most of the cases, there was no address of the persons who made deposits of ₹ 50,000 more. It is mentioned in paragraph 5.2 of the appeal order that the assessee provided the AO with a list of its ITA No.: 672/KOL/2024 Assessment Year: 2017-18 Sridharpur Co-Operative Bank. members and the PANs. It is stated that for the amount of ₹5,07,55,500/- received from 3,173 persons, the same was received in 3 days, one of which was a Sunday and the balance amount of ₹4,99,59,000/- was also received during these 3 days and the number of persons must be few times more. It is also inferred by the Ld. CIT(A) that the assessee could not have increased the infrastructure to accept the demonetised currency unless some other arrangement was made by the assessee. According to him, it was humanly impossible with limited infrastructure of the assessee, to receive this much amount. Such an inference is not based upon any objective analysis as this was an exceptional period. Reference is also made to the CBDT issuing standard operating procedures in the form of instruction and circular for assessment of cash deposits in demonetised currency which was not taken into account by the Ld. AO. The Ld. CIT(A) has mentioned in paragraph 5.5 that the assessee received demonetised currency totalling over ₹ 10 Crores which raises suspicion that there may be anomalies in cash receipts worthy of investigation, however, no such investigation was carried out resulting into any adverse findings. It is stated that the assessee could not demonstrate that the money received during the demonetisation period was not from unaccounted cash while on the other hand, the assessee had submitted the details of the members from whom the amount was received. Relying upon the decision of the Bangalore criminal in the case of Bhavana Co-operative Credit Society NIyamita Vs ITO in ITA No. 739/Bang/2021, the addition was confirmed. The Ld. DR relied upon the order of the Ld. CIT(A) and requested that the same may be upheld. The Ld. AR also brought to our notice the decision in the case of Malda Co-operative Agriculture & Rural Development Bank (supra) decided by the same constitution of ITA No.: 672/KOL/2024 Assessment Year: 2017-18 Sridharpur Co-Operative Bank. “A” Bench of the ITAT, Kolkata (the Ld. Judicial Member being the author) and para 6 of which is extracted as under:

Before the Ld. AO, the assessee had relied upon the decisions in the case of Shree Mahadeshwar Sahakari Patpedhi Marydit vs. ITO, 21(2)(2), Mumbai, ITA No. 374/Mum/2018 order dated 13.03.2019 Mumbai, 'D' Bench and ITO, Bundi vs. Shree Keshorai Patan Sahakari Sugar Mill, ITA No. 418 & 419/JP/2017 order dated 31.01.2018 Jaipur Benches, Jaipur which did not find any favour with him. ITA No.: 672/KOL/2024 Assessment Year: 2017-18 Sridharpur Co-Operative Bank.

We have considered the submissions made and also gone through the documents relied upon. Since after the assessee was specifically not permitted to exchange the SBN, the assessee stopped accepting the SBNs and the Specified Bank Notes received from 8 to 14 November, 2016 were exchanged by the RBI as it stated, therefore, merely because the assessee had received the money from a number of members, the details of which are also available on record, therefore, it cannot be said that the amount received was unexplained so as to render the same as liable to be added u/s 69A of the Act. Therefore, following the findings in Malda Co-operative Agriculture & Rural Development Bank (supra), there is no justification for the addition made and the addition made is hereby deleted as the assessee had details and evidence of the persons in the form of their PANs who had deposited the money with the assessee and merely because the assessee had received SBNs, there was no justification for making the addition u/s 69A of the Act.

In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 20th November, 2025. .- .- [George Mathan] [Rakesh Mishra] Judicial Member Accountant Member Dated: 20.11.2025 Bidhan (Sr. P.S.) ITA No.: 672/KOL/2024 Assessment Year: 2017-18 Sridharpur Co-Operative Bank. Copy of the order forwarded to:

CIT(A)-NFAC, Delhi.

CIT-

CIT(DR), Kolkata Benches, Kolkata.

Guard File. //// By order