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Facts
The assessee, a co-operative society, filed a NIL return claiming Section 80P deduction. The AO made an addition of ₹45,89,500/- under Section 69A for unexplained cash deposits (Specified Bank Notes - SBNs) received during the demonetization period, despite the assessee's explanation that the cash was from members for fertilizer sales. The Section 80P deduction was also denied. A further addition of ₹4,74,181/- was confirmed by the Ld. CIT(A) by denying Section 80P deduction on interest income from other co-operative banks.
Held
Regarding the Section 69A addition, the Tribunal held that since the assessee's books were not rejected and the source of deposits was explained, the violation of RBI circulars regarding SBNs is an issue for RBI, not for the AO to make an unexplained investment addition. It deleted the addition, stating the amount could not be taxed twice. For the Section 80P deduction on interest income from co-operative banks, the Tribunal, relying on precedents, held that such income is eligible for deduction under Section 80P(1) of the Act and directed the AO to delete the addition.
Key Issues
Whether cash deposits, being Specified Bank Notes (SBNs) received during demonetization for fertilizer sales, can be treated as unexplained investment under Section 69A of the Income-tax Act. Whether interest income earned by a co-operative society from deposits held with other co-operative banks is eligible for deduction under Section 80P(1) of the Income-tax Act.
Sections Cited
80P, 80(1), 80P(1), 80P(2)(a)(i), 80P(7)(a)(i), 69A, 115BBE, 139(1), 68, 69, 3(1), 18
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
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.
The ground no.1 is general in nature and does not require any specific adjudication.
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.
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.
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 “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
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.
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 & 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 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:
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 15.01.2025.