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Facts
The assessee society filed a return declaring NIL income after claiming deductions. The Assessing Officer (AO) made an addition of Rs. 60,32,500/- on account of cash deposits during demonetization and disallowed deduction of Rs. 6,48,075/- on interest income. The CIT(A) confirmed the assessment order.
Held
The Tribunal held that the cash deposits were collected from members and the assessee had provided their details, fulfilling the onus. The Tribunal also held that interest income earned by a co-operative society from its business activities is eligible for deduction under Section 80P(2)(a)(i).
Key Issues
Whether cash deposits during demonetization can be added under Section 68 without disproving the assessee's submissions and whether interest income earned by a co-operative society is deductible under Section 80P(2)(a)(i).
Sections Cited
250, 143(3), 68, 80P, 80P(2)(d), 80P(2)(a)(i), 69A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “B” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER
PER DR. DIPAK P. RIPOTE, AM:
This appeal filed by the Assessee is against the order of ld.Commissioner of Income Tax(Appeal)[NFAC], passed under section 250 of the Income Tax Act, 1961 for A.Y.2017-18, dated 27.11.2024 emanating from Assessment Order u/s.143(3) of the I.T.Act, dated 15.12.2019. The assessee has raised following grounds of appeal :
“1. On the facts and in the prevailing circumstances of the case and in law, the learned CIT Appeal, erred in disallowing the deduction of Rs.60,32,500/- on account of unexplained cash and Rs.6,48,075/ on account of interest income earned out of Investments with Cooperative/Nationalized Bank and which is eligible for deduction u/s 80P(2)(d) or 80P(2)(a)(i) of the IT Act.
2. On the facts and in the prevailing circumstances of the case and in law, the learned CIT Appeal, erred in not following the jurisdictional ITAT Pune, decision on the similar issue which is binding on the lower Authorities as per the law laid down by Hon'ble Bombay High Court in the case of Bank of Barada vs H C Srivastava (256 ITR 385) and thus the total deduction of Rs.66,80,575/-disallowed u/s 80P(2)(a) (i) or 80P(2)(d) of the IT Act was not justified.
The Appellate craves the right to add, amend, modify, alter, revise, substitute, delete any or all grounds of the appeal, if deemed necessary at the time of hearing of the appeal.” Delay : 1.1 There is a delay of 157 days in filing appeal before this Tribunal. We have perused the Affidavit submitted by the Assessee and are convinced that there is sufficient and reasonable cause for the delay. Therefore, the Delay is condoned.
At the outset of hearing, no one appeared on behalf of the assessee. No adjournment letter or written submission filed.
Basic facts of the case : 3. The assessee society has filed return of its income on 31/10/2017 declaring total income of Rs.NIL after claiming deduction of Rs.26,28,869/- u/s.80P of the Act. The case of the 2 society was selected for scrutiny under CASS. Accordingly, system generated notice u/s 143(2) of the Act was issued on 10/08/2018, which was duly served upon the assessee society through electronic mode as well as through post. Further, notice u/s.142(1) of the Act was issued on 20/05/2019, calling certain details relevant to the assessment.
3.1 In response to the notice as well as subsequent notices issued by Assessing Officer from time to time, the assessee society has filed its online submission through e-filing portal on 24/10/2019 & 14/12/2019. According to the submission of the assessee society, it is a credit co-operative society engaged in the business of providing credit facility to its members only. The society is registered under Maharashtra Co-op. Society Act, 1960 on 30/10/2001.
During the Assessment Proceedings, Assessing Officer asked Assessee to explain the Cash Deposits made during Demonetization. Assessee submitted during the Assessment Proceedings that the cash deposited was collected from its members. The details of the members from whom cash received was submitted before the Assessing Officer. However, Assessing Officer made addition 3 u/s.68 of the Act of Rs.60,32,500/-.
4.1 During the Assessment Proceedings, Assessing Officer noted that Assessee has earned interest of Rs.6,48,075/- from State Bank of India and Bank of India. The Assessing Officer held that the said interest is not eligible for deduction u/s.80P(2)(a)(i) of the Act. Aggrieved by the Assessment Order, Assessee filed appeal before the ld.CIT(A). Assessee made an elaborate submission before the ld.CIT(A). However, ld.CIT(A) confirmed the Assessment Order.
Aggrieved by the order of ld.CIT(A), Assessee has filed appeal before this Tribunal Submission of ld.DR : 6. Ld.Departmental Representative(ld.DR) for the Revenue relied on the order of Assessing Officer and ld.CIT(A).
Findings & Analysis : 7. We have heard ld.DR for the Revenue and perused the records. In this case, Assessee had deposited cash of Rs.60,32,500/- during Demonetization. Assessee made an elaborate submission before the Assessing Officer(AO) and ld.CIT(A). Assessee submitted before the Assessing Officer that these amounts were collected from 4 members of the Assessee-Society who were its customers. Assessee also submitted list of the customers. However, the Assessing Officer has not accepted Assessee’s contention. Once assessee has submitted list of members who claimed to have deposited cash during demonetization period the onus shifted to the AO. The Assessing Officer rejected the submission of the assessee without giving any reasons. Assessee is a cooperative credit society and regularly accepting deposits or repayment of Loans from its members. Similarly, it accepted cash deposits during demonetization. Most important fact is that the demonetized cash was subsequently deposited in RBI with all details by all such entities and RBI has not taken any action. In this fact of the case once Assessee provided List of members the onus casted on Assessee is fulfilled.
7.1 On identical facts the ITAT Pune in the case of Shrijeet Finance (P.) Ltd Vs. ACIT [2024] 162 taxmann.com 243 (Pune - Trib.)[22-04-2024] held as under : Quote, “5.1 The AO made addition under section 68 of the Act. To invoke section 68 of the Act, the AO has to provethat assessee failed to file identity of the depositors, genuineness of the transaction and creditworthiness. Inthis case, the assessee had submitted the names of 5 the persons from whom cash was received during thedemonetization period in the form of demonetized currency. Assessee also submitted that assessee maintainsall KYC documents of all these persons. The AO had not asked the assessee to produce the said KYC Documents. Rather AO has not challenged the identity of the depositors, genuineness of the transactions andcreditworthiness of the depositors. In these facts and circumstances of the case, we are of the opinion that noaddition can be made under section 68 of the Act. We find support from the order of ITAT Pune Bench authored by then Hon'ble Vice-President, Shri R.S.Syal in the case of Bhagur Urban Credit Co-operative Society Ltd. v. ITO [ITA No.561/PUN/2022, for A.Y. 2017-18, dated 3-1-2023]. Therefore, the AO is directedto delete the addition of Rs.12,34,000/- made under section 68 of the Act. Accordingly, Ground No.2 and 3are allowed. ”
7.2 Similarly in the case of ITO vs Shri Kshetra Bhimashankar Gramin Bigar Sheti Sahakari Patsanstha Maryadit in ITAT Pune held as under : Quote “8. The Commissioner of Income Tax(appeal) has discussed in the order that the cash deposits were out of the daily cash depositedby various members in their respective accounts maintained withAssessee Cooperative society . The Assessee had filed copies ofcash book, bank books, ledgers etc. The AO or Pr.Commissoner of Income Tax -3, Pune (who has authorised this appeal) has notcontravened the findings of the Commissioner of Income Tax(appeal). It is clear that the AO or Pr.Commissioner Income Tax -3, Pune has not bothered to verify the documents filed by the assessee, they have not brought on record any defect in the documents. It is anadmitted fact that the Assessee is a cooperative credit society dulyregistered under Maharashtra Co- 6 Operative Societies Act. TheAssessee has explained that the cash was [A] out of daily deposits madeby its customers for which the Assessee had submitted copy of Cash book. This explains that the cash was recorded in the books of account. The Revenue has not brought to our notice any defect inthese documents. The AO has also added the Cash withdrawals too.We specifically asked the Ld.DR how cash withdrawals will be income of the Assessee. Ld.DR could not explain. The AO has added Cash Withdrawals and cash deposits u/s 69A of the Act.
Section 69A of the Act is reproduced here under : “…………. ”
9. In this case Revenue has not disputed the fact that these amounts were duly recorded in the Books of the assessee which were daily deposits made by various members. The Books of Accounts have been audited. Revenue has not brought on record anyevidence to prove that the Deposits were not made by various members of the society.
10. Therefore, in our considered view the decision of Commissioner of Income Tax (appeal) cannot be faulted with. Therefore, in our considered view there is no merit in the Ground No.2 and 3 raised by the revenue. Accordingly, the Ground No. 2 and raised by the revenue are dismissed.” Unquote
Since the facts are identical,respectfully following the decision of ITAT Pune (supra) we direct the Assessing Officer to delete the addition of Rs.60,32,500/-.
9. The Assessing Officer has denied deduction u/s.80P(2)(a)(i) on the interest earned by Assessee of Rs.6,48,075/- from State Bank of 7 India and Bank of India. This issue is also covered in favour of Assessee.
9.1 The Hon’ble High Court of Andhra Pradesh and Telangana in the case of Vavveru Co-operative Rural Bank Ltd. [2017] 396 ITR 371 analysed the provisions of Section 80P, succinctly distinguished the decision of Hon’ble Supreme Court in the case of Totagars Cooperative Sale Society, and held as under : Quote,“8. Therefore, the real controversy arising in these writ petitions is as to whether the income derived by the petitioners by way of interest on the fixed deposits made by them with the banks, is to be treated as profits and gains of business attributable to any one of the activities indicated in sub-clauses (i) to (vii) of clause (a) of sub-section (2) of section 80P or not.
While the petitioners place strong reliance upon a decision of the Division Bench of this court in CIT v. Andhra Pradesh State Co- operative Bank Ltd. [2011] 12 taxmann.com 66/200 Taxman 200/336 ITR 516, the Revenue places strong reliance upon the decision of the Supreme Court in Totgar's Co-operative Sale Society Ltd. v. ITO [2010] 188 Taxman 282/322 ITR 283. …………………… 34. The case before the Supreme Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) was in respect of a co-operative credit society, which was also marketing the agricultural produce of its members. As seen from the facts disclosed in the decision of the Karnataka High Court in Totgars, from out of which the decision of the 8 Supreme Court arose, the assessee was carrying on the business of marketing agricultural produce of the members of the society. It is also found from paragraph-3 of the decision of the Karnataka High Court in Totgar's Co-operative Sale Society Ltd.'s case (supra) that the business activity other than marketing of the agricultural produce actually resulted in net loss to the society. Therefore, it appears that the assessee in Totgars was carrying on some of the activities listed in clause (a) along with other activities. This is perhaps the reason that the assessee did not pay to its members the proceeds of the sale of their produce, but invested the same in banks. As a consequence, the investments were shown as liabilities, as they represented the money belonging to the members. The income derived from the investments made by retaining the monies belonging to the members cannot certainly be termed as profits and gains of business. This is why Totgar's struck a different note.
But, as rightly contended by the learned senior counsel for the petitioners, the investment made by the petitioners in fixed deposits in nationalised banks, were of their own monies. If the petitioners had invested those amounts in fixed deposits in other co-operative societies or in the construction of godowns and warehouses, the respondents would have granted the benefit of deduction under clause (d) or (e), as the case may be.
The original source of the investments made by the petitioners in nationalised banks is admittedly the income that the petitioners derived from the activities listed in sub-clauses (i) to (vii) of clause (a). The character of such income may not be lost, especially when the statute uses the expression "attributable to" and not any one of the two expressions, namely, "derived from" or "directly attributable to".
Therefore, we are of the considered view that the petitioners are entitled to succeed. Hence, the writ petitions are allowed, and the order of the Assessing Officer, in so far as it relates to treating the interest income as something not allowable as a deduction under section 80P(2)(a), is set aside.” Unquote.
9.2 Thus, the Hon’ble High Court of AP & TS held that Interest Income earned by investing Income derived from Business of providing credit facilities, Loans by a Co-Operative Society was eligible for deduction u/sec.80P(2)(a) of the Act.
9.3 No contrary decision of the Hon’ble jurisdictional High Court has been brought to our notice. Therefore, as per rule of precedence, the proposition of law laid down by the Hon’ble High Court of AP & TS (supra) are binding precedents for us.
The Hon’ble ITAT Pune Bench in the case of Kolhapur District Central Co-op. Bank Kanista Sevakanchi Sahakar Pat Sanstha Ltd. Vs. Income-tax Officer 158 taxmann.com 322 (Pune Tribunal) has held as under : Quote “7………………………..I am of the considered opinion that even the interest income earned by cooperative society on deposits made out of surplus funds with cooperative banks as well as schedule bank qualifies for deduction both under the provisions of section 80P(2)(a)(i) and section 80P(2)(d) of the Act, therefore, the reasoning given by the 10 lower authorities on this issue cannot be accepted. Therefore, I direct the Assessing Officer to allow deduction u/s 80P(2)(a)(i) and 80P(2)(d) in respect of interest income earned from cooperative bank/scheduled bank. Thus, the ground of appeal filed by the assessee stands allowed.”Unquote
11. Respectfully following the judicial precedent (supra), we direct the Assessing Officer to allow deduction u/sec.80P(2)(a)(i) of the Act on the interest earned of Rs.6,42,075/-. Accordingly, Ground No.1 and 2 raised by Assessee are allowed.
11.1 Ground No.3 is consequential, hence, dismissed as unajudicated.
11.2 Ground No.4 is general in nature, needs no adjudication, hence, dismissed