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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI RAJESH KUMAR, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 31.12.2015 passed by the Commissioner of Income Tax (Appeals)-24, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y. 2010-11.
The assessee has raised the following grounds: - "
1. The order of the CIT(A) is against the facts and circumstances of the case and against the preponderances of probability of the circumstantial evidences. 2) Whether on the facts and circumstances of the case, the CIT(A) is justified in confirming the addition of Rs. 18,731,000/- u/s 68 made by A.O which is against the submission made by the Appellant Company during the course of assessment proceedings. 3) For these and other reasons which may be adduced at the time of hearing, the appellant prays before Your Honour to delete the addition confirmed by the CIT(A) to meet the justice end. 4) Appellant craves leaves to add, to alter, to amend and to delete any other grounds during the course of hear.”
3. The brief facts of the case are that the assessee filed its return of income on 29.09.2011 declaring total income to the tune of Rs.94,86,834/- for the A.Y. 2010-11. The case of the assessee was reopened. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee was engaged in the business of Providing various types of financial services for the rural, poor and under privileged classes so as to make them become economically self-reliant. The operation income shown at Rs.40,98,992,785/- and other income at Rs.57,55,484/-. Net loss has been computed at Rs.1,94,91,665/-. The balance-sheet showed an amount of Rs.2,67,07,914/- under the Sundry Creditors. The break-up was asked and it was found that an amount of Rs.2,34,47,334/- was outstanding. After considering the reply of the assessee an amount in sum of Rs.11,87,31,000/- was not properly explained, therefore, was added to the income of the assessee u/s 68 of the Act. The total income of the assessee was assessed in sum of Rs.98,73,818/-. Feeling aggrieved, the assessee filed an appeal before CIT(A) who confirmed the addition, therefore, the assessee has filed the present appeal.
We have heard the arguments advanced by the Ld. Representative of the parties and perused the record. At the very outset, the Ld. Representative of the assessee has argued that the issue has duly been covered in the assessee’s own case by the decision of the Hon’ble ITAT for the A.Y.2010-11 in dated 28.11.2019, therefore, the claim of the assessee is liable to be allowed. However, on the other hand, the Ld. Representative of the Department has refuted the said contention. Before going further, we deem it necessary to advert the finding of the Hon’ble ITAT in the assessee’s own case (supra) on record.:-
“4. The issue raised in ground No.2 is against the confirmation of addition of Rs.47,15,244/- by Ld. CIT(A) as made by the A.O under section 68 of the Act.
The facts in brief are that the AO during the course of assessment proceedings observed that assessee is carrying businesses of banking and financial services and is carrying out its business in the rural area as per RBI directions. The AO noted that assessee has also appointed agents to carry out cash transactions on day to day basis and for that purpose the assessee company has obtained deposits from the authorised agents ranging from of Rs.5,000/- to 10,000/-. During the course of assessment proceedings the assessee was asked to furnish the name and addresses of such agents as the amounts shown as outstanding on account of security deposits was Rs.47,15,244/-. The AO also issued notice under section 133(6) agents out of which all the notices were retuned back by the Postal Authority except to Ujwal Yadav and Dev Prakash. Accordingly, the AO asked the assessee to produce the said parties for verification of genuineness of the transactions failing which the same would be treated as unexplained cash credit which was replied by the assessee vide letter 27.07.2012 by submitting that assessee was incorporated under Companies Act under section 25 after following guidelines from Reserve Bank of India with the sole aim of providing business correspondent services on behalf of banks in the rural areas. The assessee submitted that the Government of India has taken it a prime objective to bring the maximum of the rural population under banking channel so that their savings could be channelised into banking system. Under this model the banks appoint “Nor for profits” organizations to do banking activities in the rural areas. The business correspondent engages people from villages itself to act as Customer Service Point (CSP) on its behalf. The appointed person is given a hand held device called as Point of Transaction (POT) Machine. The said POT is updated on daily basis by connecting to the server using internet connectivity of the banks with the balances in the individual banks of that particular area. The reply of the assessee filed before the AO is extracted as under: "As discussed personally, Fino Fintech Foundation, a section 25 company, was incorporated in line with Reserve Bank of India's guidelines with a sole aim of providing business correspondent services on behalf of banks in the rural area. Government has taken it a prime objective to bring the maximum of the rural population under the banking channel so that their saving can be channelized into the banking system as also they are provided support of banks to meet their credit requirements. Under the model, banks appoint "nor for profit" organization to do the banking activities in the rural area. The BC engages people from the villages itself to act as Customer Service Point (CSP) on their behalf. The person appointed is given a hand held device called as Point of Transaction (POT) machine. The POT is updated on daily basis by connecting to the server using internet connectivity of banks with the balances in individual's bank account of that particular area People m the rural areas, desirous of doing the bank account operation of withdrawal and deposit of cash approaches to the CSP and by inserting the cards in the POT, and by putting his figure print on the cards can do the desired transaction Thus, the CSP is required to maintain cash in hand which is kept with him for facilitating withdrawal of cash in the field. The one of the condition of the appointment as CSP is that he is required to provide security deposit as he is in custody of the POT machine as also he handles cash in the field. On his disengagement, on full and final settlement, the amount of security deposit is returned back to the CSP. Provide below summary of the amounts collected and also refunded during the current financial year as well as subsequent financial years for your reference: Financial year Opening Addition Refund Closing 2009-10 4791334 - 4716334 2010-11 4716334 20253800 1522800 23447334 From the above, you will please observe that there are additions as well as refunds on account of CSP's disengagements. Please note that as on date we have a filed force of 18110 CSP's in various states in the extreme rural and backward area of the country. As regards samples selected by for confirmation of deposits, we wish to inform you that out of those 70 CSP's. 32 have already be disassociated with us and the security deposit have already been refunded by way of issuing account payee cheques. Payments details in respect of 10 remaining CSP's are being compiled from the field and shall be shared separafe/y Two of them, who directly responded, though have shared some grievances, have not denied having provided the security deposit to the company as such their confirmations may please be taken on record. Please note that the CSP's are daily wage earners: their livelihood is dependent on the payouts we do which is in the meagre range of Rs.750/- to Rs.1500/- per month, as such were dismayed on receipt of the notices and thus either refused to receive or did not reply to the notice. In view of this we would request you to please do away with the requirement of their physical presence as they will result into disturbance in the transacting activities and a/so their absence will not be taken into the right sense which may have bearing on the image of the concerned bank as well. Still, if you want to get their physical presence, we may produce some of the active CSP's who are based in the nearby areas to substantiate our submission. Please note that appointment of CSP is the basic requirement of the business model we are into. Collecting security deposit is just to ensure that they handle the equipment properly as also give the account of cash transacted on time. As such we hope this explains the credits which are genuine and cannot in any case, be treated as unexplained credit. 4.3 In response to this office letter dt.05.12.2012, the assessee company vide letter dt.04.01.2013 further submitted as follows: "Further, to our letter dt.27.12.2012 wish to inform you that people are hesitant to appear before the Income Tax Officer and inspite of every efforts we could arrange only one of the active CSP Mr. Rajesh Kumar Vishwakarma to present before you for verification. You may please record his statement to your satisfaction. As stated earlier, security deposit is a precondition to the business model we are into: thus we can produce CSP's who are working in the nearby Thane, Bhiwandi and other Maharashtra location for the confirmation of the security deposits being provided by them as per the business model."
6. Finally, the AO rejected the contention of the assessee by holding that the notices under section 133(6) of the Act could not be served and therefore genuineness of the transactions remained in doubt and held that the said security deposits as unexplained cash credit under section 68 of the Act and consequently added the entire amount to the income of the assessee.
In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by observing as under: “2.3 Decision After careful perusal of the assessment order and written submissions of the A/R of the appellant it has been observed that the addition of Rs.47,57,441 /- has AO u/s 68 on account of security deposits obtained by the appellant from its authorised agents for which the appellant has failed to prove that these have been actually received from the agents. The appellant has filed an appeal on this issue. According to the AO the appellant was informed by him vide letter dated 05.12.2012 that requisition u/s 133(6) was sent to the parties for verification of the genuineness of security deposits claimed to have been received by the appellant company but all notices were returned by the postal authorities except in the case of two parties mentioned at sr.no.9 & 25 in the detailed reproduced supra. The appellant has filed two detailed replies in response to the notice which have also reproduced supra. The appellant also produced Mr. Rajesh Kumar Vishkarma but his postal address was different then the postal address in the records of the company. The person who was produced as Rajesh Kumar Vishkarma did nut confirm the deposit given to the company. His statement has been enclosed with the assessment order as Annexure 1. The AO has also relied on the reply of Sh. Dev Prakash in response to notice u/s 133(6) in which he has not confirmed the payment of deposit to the appellant. During the course of appellate proceedings the A/R of the appellant has relied on the written submissions placed on record during the course of assessment proceedings and has further asked for opportunity to produce the customer service point (CSP) who has deposited the security to prove the genuineness of the transactions. He has relied on the judgement of Kanpur Coal Syndicate in which it has been held that the CIT(A) has powers coterminus with the AO. The assessment record and the contentions of the A/R of the appellant has carefully perused and it has been observed that the appellant has miserably failed to prove any credible evidence either before the AO during the course of assessment proceedings or before me during the course of appellate proceedings to prove the source of security deposit. The explanation of the appellant that Customer Service Point to collect the deposits is without any documentary evidence or material to accept the explanation of the appellant. The request of the A/R of the appellant to allow another opportunity to produce the persons appointed as CSP cannot be accepted at this stage as sufficient opportunities were provided to the appellant by the AO during the course of assessment proceedings and the appellant has also failed to give any explanation that why the CSP's from whom security deposit was obtained could not be produced before the AO. Hence the addition made by the AO is confirmed and the grounds of appeal no.2 is dismissed.”
8. After hearing both the parties and perusing the material on record, we observe that the AO has added the amount of security deposits received from customer service point engaged by the assessee company at the local level in the villages. It is undisputed that the assessee is a business correspondent (BC) which has been launched by the RBI to expand the banking network in the rural areas and villages where it is not economical for the banks to open branches in full-fledged manner. Only those companies registered under section 25 of the Act can act as business correspondent to assist banks to do these activities. The system of operation of this scheme is that an agent is provided with a handheld device called point of transaction machine (POT). The customer service point begins his day by updating the POT machine with the records of the beneficiary by connecting the POT with bank server and thus the account holder can transact withdrawal or deposit of money in his/her account by inserting his biometric card which is M/s. Fino Fintech Foundation Tarun Bharat 7 similar to ATM. In this system the beneficiary has to validate his identity by putting his figure print on POT rather than inserting pin. The customer service point has to connect with the POT with the banks server and transfer the transactions to bank server on daily basis. The money so collected will be handed over to the company’s representative on regular interval. This was the modus operandi for doing this business. In order to become (CSP) customer service point a person is required to deposit certain amount with the assessee as security deposit in order to safeguard the interest of the assessee against any embezzlement. The said interest deposit is to be refunded once the person is disengaged from CSP activity . The cost of POT machines is approximately Rs.18,000 to Rs.25,000. The AO has made addition mainly on account of non production of CSP. It was also contended before us that confirmations of the CSP could not be produced in view of the huge number and also the fact that CSPs were daily wage earner and pay out is very meager which ranges between 750 to 1500 per month. Considering the peculiar nature of the business and circumstances in which the assessee operates, we are of the view that the addition under section 68 can not be made in respect of security deposits which is accumulated over the years on the ground that no confirmations were produced especially when the cause is to spread banking facilities in the far flung areas . The assessee is doing non profit business and bridges the gap between the banks and the rural masses which are residing in the difficult terrain where the banks can not open their full-fledged branches because of economic consideration. We further note that out of 70 business correspondents, the were already left and their security deposits were refunded by account payee cheques.Under these circumstances, we are of the view that addition made by the AO is wrong and can not be sustained as it is not a case of accepting the huge money from the other companies or corporates or hawala transaction. The order of Ld. CIT(A) is set aside and the AO is directed to delete the addition..”
5. Since the issue squarely covered by the decision of the Hon’ble ITAT in the assessee’s own case for the A.Y. 2010-11 in ITA.
No.3686/Mum/2015 dated 28.11.2019, therefore, we set aside the finding of the CIT(A) and allowed the claim of the assessee.
In the result, the appeals filed by the assessee are hereby allowed.