MUNDUKHOLA BAKSAGARH SKUS LTD.,HOOGLY vs. ITO, WARD-24, HOOGHLY
Before: SHRI RAJESH KUMAR, AM & SHRI PRADIP KUMAR CHOUBEY, JM Mundukhola Baksagarh SKUS Ltd. Baksararh, Panchpara, Hoogly, West Bengal-712501 Vs. ITO, Ward-24 Aaykar Bhavan, G.T. Road, Khadinamore, Chinsurah, Hooghly, West Benga 712101 (Appellant) (Respondent) PAN No. AABAM7385E
Per Rajesh Kumar, AM:
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 16.03.2024 for the AY 2017-18. 02. The ground no.1 is general in nature and does not require any specific adjudication.
03. The issue raised in ground no. 2 is against the confirmation of addition of ₹45,89,500/- by ld. CIT (A) as made by the ld. AO u/s 69A of the Income-tax Act, 1961 (the Act) as unexplained investment.
Mundukhola Baksagarh SKUS Ltd; A.Y. 2017-18
The facts in brief are that the assessee filed the return of income on 19.12.2017, showing total income as Nil, after claiming the deduction u/s 80P of ₹19,97,385/-. The case of the assessee was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS) and statutory notices were duly served upon the assessee along with the questionnaire and were also replied by the assessee by furnishing the necessary details / information. The ld. AO upon perusal of the said details/ information observed that the assessee has deposited cash into its different bank accounts and accordingly, the assessee was required by the AO to furnish the details of cash sales and cash deposits into the bank. The assessee submitted the copies of bank statements, audited accounts, bank loans, Bye laws of the society, details of cash deposited during demonetization period etc. The assessee also submitted the list of members of the society from whom the SBNs were received during the demonetization period. The assessee is a co-operative society engaged in selling fertilizers to its members and does not carrying on any banking business. The assessee has 4,000 members which has been accepted by the ld. Assessing Officer. The assessee submitted before the ld. AO that the money was received from the members of the assessee against sale of fertilizers. However, reply of the assessee was not accepted as satisfactory by the ld. AO for the reasons that the assessee is not allowed to accept SBNs during demonetization period against sale of fertilizers except in banking business and therefore, concluded that the sources of cash deposits remained unexplained. Finally, the ld. AO treated the cash as unexplained investment u/s 69A of the Act and added the same to the income of the assessee and deduction u/s 80P of the Act was also denied. Mundukhola Baksagarh SKUS Ltd; A.Y. 2017-18
In the appellate proceedings, the ld. CIT (A) dismissed the appeal of the assessee simply on the ground that the assessee has taken different view before him that the cash was received from the debtors and therefore held that the ld. AO’s order cannot be faulted with. 06. After hearing the rival contentions and perusing the material available on record, we find that the assessee is coop. credit society is carrying on the business as purchase and sale of fertilizers and pesticides to its members , which was not doubted by the AO. We have examined the books of accounts comprising cash book for the period 08.11.2016 to 31.12.2016 and found that the assessee has received the cash on account of sale of fertilizers and pesticides. 07. The only objection of the ld. AO was that the sales consideration were not received in legal tender as the specified bank notes (SBNs) were not legal tender after 09.11.2016 and therefore, he added ₹45,89,500/- to the income of the assessee and brough to tax u/s 115BBE of the Act at 60%. In the appellate proceedings, the case of the assessee was simply dismissed by the ld. CIT (A) without even perusing the assessment order wherein the said amount has been brought to tax twice i.e. first by way of accepting the books of accounts in which the said cash sales were shown and; duly included in the books of accounts and assessee has offered the same to tax and secondly when the addition was made by the AO. We note that the assessee’s books of accounts have been duly audited and all these information’s were before the ld. AO along with the necessary evidences / details etc. The ld. AO added the same sales for the second time when the addition was made on account of unexplained money u/s 69A of the Act, which is contrary to the provisions of the Mundukhola Baksagarh SKUS Ltd; A.Y. 2017-18
Act. In our opinion, the same amount cannot be subject to tax for two times. We note that even the books of account of the assessee have not been rejected before making the said addition. In our opinion it is not the job of the ld. AO to see whether the sales were made in terms of legal tender and it is in fact for Reserve Bank of India to take the action for the said violation of receiving the sales consideration in non- legal tender post 09.11.2016 as the assessee has received the money in non-legal tender in SBN, in violation of the RBI Circular. The case of the assessee is squarely covered by the decision of the co-ordinate bench in the case of Vidyasagar Samabay Krishi Unnayan Samity
Ltd. vs. ACIT, Circle 38, Kolkata in ITA No. 06/KOL/2024 for A.Y. 2017-18, wherein the co-ordinate bench has held as under:-
“5. We have heard the rival contentions and gone through the record. In this case, the ld. counsel has explained that no cash sales were made during the demonetization period. That the amount in question was already collected by the agents of the society from the farmers-members which was deposited by the agents with the assessee-society and the same was further deposited by the assessee-society in the bank account. Even from the record/cash sales register etc., there is no evidence on the file that the assessee-society has made cash sales by accepting demonetized currency during the demonetization period. The ld. counsel has duly explained that the amount in question was collected and deposited during the first three days of the demonetization period which supports the contentions of the assessee that already collected amount by the agents was called for and deposited immediately in the bank account and no fresh cash sales were made and there was no violation of the RBI
Circular. Even otherwise, in our view, the impugned additions are not sustainable as deposits cannot be said to be unaccounted income of the assessee u/s 69A of the Act. No doubt, the Specified Bank Notes as per the Reserve Bank of India’s notification ceased to be legal tender w.e.f.
09.11.2016, the assessee made the cash sales accepting the Specified Bank
Notes in in violation of the said circular of Reserve Bank of India. The action of violation of the said circular can be taken by the competent authority in this respect. However, for the purpose of Income tax Act, what is to be examined is as to whether the said amount received by the assessee was unexplained income of the assessee u/s 69A of the Act? The assessee has duly explained the source of deposits, which has also been accepted by the Assessing Officer. The only contention of the Assessing Officer is that the assessee has violated the notification of the Central Government dated 08.11.2016 and accepted the Specified Bank Notes in lieu of sales made. For that, it is for the competent
Mundukhola Baksagarh SKUS Ltd; A.Y. 2017-18
authority who may take action against the assessee as may be provided/applicable in relevant law. However, for the purpose of either section 68 or 69 of the Act, the said deposits cannot be treated as unexplained income of the assessee. Our above view is fortified by the decision of the Coordinate
Bangalore
Bench of the Tribunal in the case of ‘Sri
BhageerathaPattinaSahakara
Sangha
Niyamitha vs.
ITO’
in ITA
No.646/Bang/2021 order dated 18.02.2022. The relevant part of the order is reproduced as under:
“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.
16. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.”
In view of the above discussion, the addition made/confirmed by the lower authorities in the case of the assessee on this issue is not sustained and the same is accordingly ordered to be deleted.
7. In the result, the appeal of the assessee stands allowed.”
08. Since the facts of the assessee’s case are materially same vis-à-vis the facts of the case as decided by the co-ordinate Bench above, we
Mundukhola Baksagarh SKUS Ltd; A.Y. 2017-18
therefore, respectfully following the same, set aside the order of ld.
CIT (A) and direct the ld. AO to delete the addition.
09. In the third ground of appeal, the assessee has challenged the confirmation of addition of ₹4,74,181/- by ld. CIT (A) as made by the ld. AO by not allowing the deduction u/s 80P of the Act in respect of income earned by the society by way of interest from other co- operative banks.
010. After hearing the rival contentions and perusing the materials available on record, we find the income earned by the society by way of interest on deposits held with co-operative banks which is the income of the society and therefore, in our opinion the assessee is entitled for claiming deduction u/s 80(1) of the Act. The case of the assessee find support from the decision of co-ordinate Bench in the case of Gour Gamin Bank (Presently merged with Bangiya Gramin
Vikash Bank) Vs. DCIT in ITA Nos. 305/Kol/2012 & 320/KOL/2012 for A.Y. 2004-05 vide order dated 31.03.2014, Sagar Gamin Bank
(presently merged with Bangiya Gramin Vikash Bank) Vs. DCIT vide order dated 31.03.2014 in ITA No.304/KOL/2012 for A.Y. 2002-03. The operative part in ITA No. 305 & 320/KOL/2012 is extracted below for the sake of ready reference:-
“3. We have heard rival contentions and gone through facts and circumstances of the case. We find that the assessee is eligible for deduction u/s. 80P of the act and payment of gratuity, payment of leave encashment and provision for doubtful debts is also out of eligible income and that also gross total income of the Co-operative Society. As pointed out by CIT. Counsel for the assessee to the provisions of section 80P(1) of the Act that the gross total income includes any income referred to in sub-section (2) means the deduction will be allowed from gross total income. The relevant provision of section 80P(1) reads as under:
Mundukhola Baksagarh SKUS Ltd; A.Y. 2017-18
“(1) Where in the case of an assessee being a co-operative society, the gross total income includes any income referred to in sub-section (2), there shall be deducted, in accordance with and subject to the provisions of this section, the sums specified in sub-section (2), in computing the total income of the assessee.”
It means the addition made by CIT on account of provision for gratuity, provision for leave encashment eventually which was paid before filing of return of income u/s. 139(1) of the Act and provision for bad and doubtful debts, is eligible for deduction u/s. 80P of the Act in view of the fact that deduction is to be allowed out of gross total income. Accordingly, this disallowance in any way will not affect on income for the reason that this will also be part of gross total income and will be eligible for deduction u/s. 80P of the Act. These three common issues of assessee’s appeal are allowed.
4. The only issue in this appeal of revenue is against the order of CIT(A) deleting the disallowance of deduction u/s. 80P of the Act in respect of receipts of interest on non-SLR funds For this, revenue has raised following grounds:
“1.On the facts and circumstances of the case, the CIT. CIT(A) has erred in ignoring the aims and objectives enshrined in the Preamble of the RRB
Act, 1976, in terms of the principle laid down in Keshavanand Bhartis case.
2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in not taking cognizance of the fact that the assessee, a creation of RRB Act, in view of violation of section 3(1) of the RRB Act cannot be granted tax benefits u/s. 80P(2)(a)(i) on the plea that Regulatory Bodies have not acted against it which would be contrary to the principle laid down in Bihari LaI Jaiswal & Ors 217 ITR 746 (SC).
3. On the facts and circumstances of the case Ld. CIT(A) has erred in not considering the prime issue that public policy laid down by the Parliament can not be overlooked and tax benefits be granted, despite objection of the Revenue, on the ground that regulatory body has not taken any action against the assessee for its violation.
4. On the facts and circumstances of the case Ld. CIT(A) has erred in not considering the fact that the legislature has not given deduction to all banks but only to RRB to promote target area and group for upliftment and in such a situation , all other banking activity of RRB not be given the benefit of deduction except the income which is in conformity with the aims and objects enshrined in sec. 3(1) and the preamble of the RRB Act.
5. On the facts and circumstances of the case Ld. CIT(A) has erred in concluding that expenses incurred in connection with or apportionable to activities in violation of the RRB Act or in violation of public policy can be allowed as a deduction.
Mundukhola Baksagarh SKUS Ltd; A.Y. 2017-18
On the facts and circumstances of the case Ld. CIT(A) has erred in not taking cognizance of the fact that section 18 of the RRB Act is simply an enabling provision and can neither act to the prejudice of provision laid down in section 3(1) of the said Act, nor can defeat the aims and objectives enshrined in the Preamble of the RRB Act.” 5. At the outset Ld. Counsel for the assessee filed copy of Tribunal’s order in assessee’s own case in ITA No. 1771/K/2008 for AY 2005-06 and submitted that the issue is squarely covered in favour of assessee. We find that the Tribunal in ITA No. 1771/K/2008 for AY 2005-06 in assessee’s own case has held as under: “11. We have heard rival contentions and gone through facts and circumstances of the case. We find that the assessee bank has deployed total deposits into three types of income earning instruments i.e. CRR, SLF funds and non-SLR funds. The investments of the above funds are made as per RRB Act, 1976 and violations of the Act have been determined as SLR fund and non-SLR fund. Income has been determined according to the funds deployed as per RRB Act. We have gone through the above case laws and find that whether income is attributable to SLR or non-SLR funds would not make any difference for the purpose of quantifying deduction on interest by Cooperative Bank u/s. 80P(2)(a)(i) of the Act as deposits of surplus idle money available from working capital i.e. reserves, excess collection of interest and other incomes all attributable to banking business. Therefore, the interest earned on non-SLR funds will also qualify for deduction u/s. 80P(2)(a)(i) of the Act. Hon’ble Allahabad High Court in the case of CIT Vs. Muzaffarnagar District Co-operative Bank Ltd. (2013) 214 Taxman 498 (All) relying on the decision of Hon’ble Supreme Court in the case of Bihar State Cooperative Bank Ltd. Vs. CIT (1960) 39 ITR 114 (SC) and of Hon’ble Bombay High Court in the case of CIT Vs. Goa Urban Cooperative Bank Ltd., (Tax Appeal Nos. 6 & 8 of 2005, and in Tax Appeal No. 54 of 2008, decided on 15.07.2009) have held that interest earned out of deposits of surplus fund and interest earned on SLR or non-SLR funds will qualify for deduction u/s. 80P(2)(a)(i) of the Act. The relevant paras 8, 9 and 10 reads as under: “8. The Supreme Court in Bihar State Co-operative Bank Ltd. (supra) explained in para 12 and 13 that the interest earned out of deposits of surplus fund has to be treated as interest earned in the banking business. Paras 11.12 and 13 of the judgement are quoted as below. …………………………………………………… In view of the above, we are of the view that the issue is squarely covered in favour of assessee and assessee is eligible for deduction u/s. 80P(2)(a)(i) of the Act on interest earned on non-SLR funds. This issue of revenue’s appeal is dismissed. Mundukhola Baksagarh SKUS Ltd; A.Y. 2017-18
In the result, appeal of assessee is allowed and that of revenue is dismissed.” 011. We therefore respectfully following the decision of the co-ordinate Bench in ITA Nos. 305 & 320/KOL/2012 hold that the interest earned from the co-operative banks is eligible for deduction u/s 80P(1) of the Act. 012. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 15.01.2025. (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER)
Kolkata, Dated: 15.01.2025
Sudip Sarkar, Sr.PS
Copy of the Order forwarded to :
The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, 5. Guard file. BY ORDER,//
Sr. Private Secretary/ Asst.