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Facts
The assessee, a cooperative society acting as a nodal agency for Public Distribution System (PDS) in Haryana, had its assessment for AY 2018-19 reopened under sections 147/144. An addition of Rs.35,72,679/- was made under section 68, treating cash deposits from PDS sales by depot holders as unexplained. The Ld. CIT(A) dismissed the assessee's appeal ex parte for non-compliance, thereby confirming the addition.
Held
The Tribunal noted the assessee's nature as a government-controlled cooperative society involved in welfare schemes and emphasized that greater caution is required before invoking section 68 for such entities due to their unique functioning and statutory audit. Finding that the CIT(A) dismissed the appeal ex parte without adjudicating on merits, the Tribunal set aside the CIT(A)'s order and restored the matter to the Assessing Officer for fresh examination, with directions to grant proper opportunity to the assessee.
Key Issues
Whether the addition under section 68 for unexplained cash deposits was justified considering the assessee's nature as a government-controlled cooperative society, and whether the CIT(A) erred in dismissing the appeal ex parte without considering the merits of the case.
Sections Cited
147, 144, 68
AI-generated summary — verify with the full judgment below
Order PER LALIET KUMAR, J.M This appeal by the assessee is directed against the order dated 11.03.2025 passed by the Ld. CIT(A)/ NFAC, Delhi, for the assessment year 2018-19 arising from assessment order framed under section 147 read with section 144 of the Income-tax Act, 1961.
The brief facts of the case are that the assessee is a cooperative society registered under the Haryana Cooperative Societies Act, wholly owned and controlled by the Government of Haryana. It acts as a nodal agency for implementation of the Public Distribution System (PDS) for supply of food grains, sugar and kerosene to the weaker sections of society. The Assessing Officer reopened the assessment in the status of a “company” and made an addition of Rs.35,72,679/- under section 68 of the Act treating certain cash deposits as unexplained.
Aggrieved, the assessee carried the matter before the Ld. CIT(A), who dismissed the appeal ex parte for want of compliance, thereby confirming the addition.
2 4. Against the order of the Ld. CIT(A) the assessee preferred an appeal before the Tribunal.
During the course of hearing the Ld. AR submitted that the assessee federation was set up in 1966 and has consistently been assessed in the status of a cooperative society. Owing to an inadvertent error, a PAN was initially allotted in the status of a company, but subsequently a corrected PAN was issued. The cash deposits reflected under the old PAN were nothing but proceeds deposited by thousands of depot holders spread across the districts of Haryana, who deposited the sales collections of PDS items directly into the bank accounts of the society. These deposits were duly reconciled, reflected in the books of account and subjected to statutory audit. It was further submitted that audited accounts, income-tax returns, reconciliations and confirmations had been produced before the Assessing Officer, but the same were not properly appreciated. The learned AR contended that the order of the Ld. CIT(A) is bad in law as it has been passed without affording effective opportunity of hearing, which is in violation of principles of natural justice.
The Ld. DR, on the other hand, supported the orders of the lower authorities and submitted that despite being given sufficient opportunities, the assessee failed to pursue the appeal before the Ld. CIT(A). She argued that no conclusive reconciliation was placed on record, and therefore, the Ld. AO was justified in invoking section 68 of the Act.
I have heard the rival submissions and perused the record. It is undisputed that the assessee is a cooperative society, wholly owned and controlled by the Government of Haryana, and functions as an extended arm of the Government in implementing welfare schemes. The very nature of its functioning involves collection of sale proceeds from a large number of depot holders across the State, and such cash collections are deposited directly into bank accounts of the assessee society and subjected to statutory audit under the Cooperative Societies Act. In such circumstances, before invoking the deeming fiction of section 68, the Revenue is required to exercise greater care and caution. 7.1 I also find that the Ld. CIT(A) has dismissed the appeal ex parte without adjudicating the matter on merits, despite the assessee’s explanation that relevant 3 reconciliations and audited accounts were already available on record. In my considered view, the interest of justice requires that the matter be restored to the file of the Assessing Officer for fresh examination. 7.2 I, therefore, set aside the impugned order and restore the issue to the file of the Ld. AO with a direction to re-examine the matter afresh after granting due opportunity to the assessee. While doing so, I make it clear that since the assessee is a cooperative society run by the nominees of the State Government and functions as an extended arm of the Government, the Revenue should be cautious in invoking section 68 of the Act, bearing in mind the peculiar nature of the assessee’s activities and the statutory audit mechanism to which it is subjected.
In the result, the appeal of the assessee is allowed for statistical purposes.
(Order pronounced in the open Court on 25/08/2025 )