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Facts
The assessee, registered under the Karnataka Souharda Sahakari Act, 1997, claimed deduction under Section 80P(2)(a)(i). The AO disallowed the deduction as the assessee was not registered under the Karnataka Cooperative Societies Act, 1959. The assessee also deposited specified bank notes (SBNs) during demonetization, which the AO treated as unexplained cash credit.
Held
The Tribunal held that societies registered under the Karnataka Souharda Sahakari Act, 1997, are at par with those registered under the Karnataka Cooperative Societies Act, 1959, and are eligible for deduction under Section 80P. Regarding SBNs, the Tribunal noted that while transactions were restricted after a certain date, they were not entirely illegal before the appointed date if the source could be established. The issue was remitted to the AO for fresh adjudication.
Key Issues
Whether the assessee, registered under the Karnataka Souharda Sahakari Act, 1997, is eligible for deduction under Section 80P(2)(a)(i), and whether the deposit of SBNs during demonetization can be treated as unexplained cash credit.
Sections Cited
80P(2)(a)(i), 68, 69A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘A’ BENCH : BANGALORE
Before: SHRI WASEEM AHMED & SHRI PRAKASH CHAND YADAV
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 27/05/2022 vide DIN No. ITBA/NFAC/S/250/ 2024-25/1065165012(1) for the assessment year 2017-18.
The first issue raised by the assessee in ground Nos. 2 and 3 is that the ld. CIT(A) erred in denying the deduction u/s 80P(2)(a)(i) of the Act on the reasoning that the assessee is not a co-operative society.
The necessary facts are that the assessee in the present case claimed to be a cooperative society, registered under the Karnataka Souharda Sahakari Act 1997. According to the AO, since the assessee was not registered under Karnataka Cooperative Societies Act 1959, therefore, the assessee was not entitled for the deduction u/s 80P(2)(a)(i) of the Act. Thus, the AO disallowed the deduction claimed by the assessee u/s 80P(2)(a)(i) of the Act and added the same i.e. Rs. 76,81,273/- to the total income of the assessee.
Aggrieved, the assessee preferred an appeal to the ld. CIT(A) and submitted that the society registered under Karnataka Souharda Sahakari Act 1997 is at par with the Karnataka Cooperative Societies Act 1959. The assessee in support of its contention relied on the judgment of Hon’ble Karnataka High Court in the case of M/s Swabhimani Souharda Credit Co-operative Ltd. Vs. ITO in writ petition No. 48414 of 2018 dated 16/01/2020, where the identical issue was decided in favour of the assessee. The ld. CIT(A) in principle agreed with the submission of the assessee but observed that for having registration under Karnataka Souharda Sahakari Act 1997, it is mandatory to use the word ‘Sahakari’, which is missing from the name of the assessee society. With this observation, the ld. CIT(A) confirmed the order of the AO. The relevant extract of the order of the ld. CIT(A) is reproduced as under: “5.7 Further the appellant has relied upon Karnataka Souharda Sahakari Act, 1997, which defines "Co-operative" which means a co-operative including a cooperative bank doing the business of banking registered or deemed to be registered under Section 5 and which has the words 'Souharda Sahakari' in its name. However, from the name of the appellant society it is only "SREE AMBRANI VIDHYESHA SOUHARDA CREDIT CO-OPERATIVE LTD". The word `Sahakari' is missing in its name. Thus, the appellants objection raised before the Id AO is dealt with now and which does not come in rescue of the appellant. Further, the case laws referred by the appellant in its support also does not come in rescue of them. Thus, considering the discussion made above, I find no infirmity in the order of the Id AO and accordingly confirm the .
disallowance of deduction 80Pof the Act. The grounds No.1 and 2 are, thus, dismissed.”
Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
The ld. AR before us reiterated the submissions made before the ld. CIT(A). The ld. AR further contended that the assessee is registered under Karnataka Souharda Sahakari Act 1997 which is at par with the Karnataka Cooperative Societies Act 1959. The ld. AR further submitted that for the limited purposes, the matter can be set aside to the file of the AO to verify the certificate of registration issued under Karnataka Souharda Sahakari Act in the name of the assessee.
6.1 On the other hand, the ld. DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that an identical issue was raised before the Hon’ble Karnataka High Court in the case of M/s Swabhimani Souharda Credit Co-operative Ltd., (cited supra), which was decided in favor of the assessee vide order dated 16/1/2020. The relevant question before the Hon’ble Karnataka High Court and the finding there on reads as under: “Whether an entity registered. under the Karnataka Souharda Sahakari Act 1997 fits into the definition of "co-operative society" as enacted by sec. 2(19) of the Income Tax Act, 1961 for the purpose of Section 80P thereof?"
7.1 The above question was answered by the Hon’ble High Court which is extracted as under:
“A perusal of these two preambles and various provisions of these two Acts leads one to an irresistible conclusion that both these Acts are cognate statutes that deal with co-operative societies, regardless of some difference in their nomenclature and functionality, the subject matter being the same; (e) the word `co-operative' is defined by sec.2(d-2) of 19i9 Act as under: `2(d-2): `Co-operative' means a Co-operative re9isterd under the Karnataka Souharda Sahakari Act, 1997 (Karnataka Act 17 of 2000), and includes the Union Co-operative and the Federal Co-operative" Similarly, the word `co-operative' is defined by Sec. 2(e) of 1997 Act as follows: "2(e): "Co-operative" means a co-operative including a co-operative bank doing the business of banking registered or deemed to be registered under Section 5 and which has the words 'Souharda Sahakari' in its name (and for the purposes of the Banking Regulation Act;, 1949 (Central Act 10 of 1949), the Reserve Bank of India Act, 1934 (Central Act 2 of 1924), the Deposit Insurance and Credit Guarantee Corporation Act, 1961 (Central Act 47 of 1961) and the National Bank for Agriculture and Rural Development Act, 1981 (Central Act 67 of 1981), it shall be deemed to be a Co-operative Society". A close examination of these two definitions shows that they have abundant proximity with each other in terms of content and contours; it hardly needs to be stated that in both these definitirns the word `co-operative' is employed not as an adjective but as a noun; the definition of other relative concepts in the dictionary clauses of these Acts strengthens this view: this apart, sec.7 of the 1997 Act provides that the entity registered as a `co-operative' shall be a body corporate, notwithstanding the conspicuous absence of the word `society' as a postfix; sec.9 of the 1959 Act makes the entity once registered u/s.8 thereof a body corporate; both the entities have perpetual succession by operation of law; thus on registration be it under the 1959 Act or the 1997 Act, a legal personality is donned by them, so that inter alia they can own and possess the property; (fl the employment of the word "Sahakari" in the very title of the 1997 Act is also not sans any significance; `Sahakaar' in Sanskrit is the equivalent of 'sahakaara' in Kannada which means `co-operation'; as already mentioned above both the 1959 Act and the 1997 Act employ this terminology; the 1997 Act is woven with the principles of co- operation; sec.4 of this Act bars registration of an entity unless its main objects are to serve the interest of the members in the area of co-operation and its bye- laws provide for economic and social. betterment of its members through self- help % mutual airl in accordance with the co-operative principles; this apart, even sub-section (2) of sec.4 is heavily loaded with co-operative substance. In the above circumstances, these writ petitions succeed; a declaration is made to the effect that the entities registered under the Karnataka Souharda Sahakari Act, 1997 fit into the definition of "co-operative society" as enacted in sec.2(19) of the Income Tax Act, 1961 and therefore subject to all just exceptions, petitioners are entitled to stake their claim for the benefit of sec.80P of the said Act; a Writ of Certiorari issues quashing the impugned notice dated 30.03.2018 at Annexure-D in W.P.No.48414/2018; other legal consequences accordingly do follow.
It is needless to mention that the other provisions of sec. 80P of 1961 Act and their effect on the claim of the petitioner-like-societies have been left to be addressed by the concerned authorities.”
7.2 From the above, there remains no ambiguity to the fact that the assessee is a cooperative society eligible for deduction u/s 80P of the Act subject to the conditions specified therein. As such, in the interest of justice and fair play, we set aside the issue to the file of the AO to verify whether the assessee is registered under Karnataka Souharda Sahakari Act 1997 which is at par with the Karnataka Cooperative Societies Act 1959 and to this effect the assessee will produce the certificate of registration. Likewise, the assessee will also justify its claim of deduction u/s 80P(2)(a)(i) of the Act as per the provisions of law. Hence, we set aside the findings of the ld. CIT(A) and remit the issue to the file of the AO for fresh adjudication in the light of the above discussion and as per the provisions of law. Hence, the ground of appeal of the assessee is hereby allowed for statistical purposes.
8. The next issue raised by the assessee in ground Nos. 4 and 5 is that the ld. CIT(A) erred in confirming the addition of Rs. 48,25,000/- u/s 68 of the Act representing the deposits of specified bank notes accepted during demonetization period.
The AO during the assessment proceedings found that the assessee deposited SBN during demonetization period to the tune of Rs. 48,25,000/- only, the source of which was not explained. Likewise, the AO also observed that the assessee was not entitled to accept SBN from the members. Therefore, the AO treated the same as unexplained cash credit u/s 68 of the Act and added to the total income of the assessee.
10. Aggrieved, assessee preferred an appeal to the ld. CIT(A), who has confirmed the order of the AO by observing as under: Since the said submission the appellant did not mention the dates of such receipt therefore, it is presumed that money was collected in. SBN after 9.11.2016 and deposited into its bank account cannot be ruled out. As has been mentioned above that the co-operative society like the appellant was not authorised to accept SBN after 8.11.2016. Therefore, the SBN of Rs. 48,25,0001- so credited in its books of account shall be considered as cash credit u/s 68 of the Act and as the appellant failed to satisfy the three primary condition i.e identity of the subscribers, creditworthiness of the subscribers and genuinity of transactions is to the income of the appellant. Thus, in my considerate view the addition of Rs. 48,25,000/- was justified invoking section 68 of the Act and accordingly confirm the same. The grounds of appeal
taken on this issue are, thus, dismissed.
11. Being aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
The ld. AR before us contended that the source of money in the hands of the assessee was duly explained by stating that it was received from the members. But the same has been treated as unexplained money under section 68 of the Act merely on the reasoning that this money was accepted after 8th of November 2016 when such specified banknotes were no more legal tenders. However, in such facts and circumstances, various Tribunals have deleted the addition made by the revenue authorities. To this effect, the ld. AR before us drawn our attention on the order of the ITAT in the case of M/s Mahaveera Minority Credit Co-operative Society Ltd versus ITO in wherein such addition was deleted by the ITAT vide order dated 13 June 2024.
On the other hand, the ld. DR before us vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the assessee claimed to have received money in SBN after 8 November 2016 which was deposited in the bank account during the demonetization period. As per the revenue, the SBN were not the legal tender during the relevant time and therefore such currency was nothing but a piece of paper having no value. But the assessee by accepting such SBN during demonetization and then depositing such SBN in its bank account during the demonetization period has got the benefit of equivalent value in the new currency which was representing the unexplained money of the assessee and therefore the same was added under the provisions of section 68/69A of the Act.
14.1 It is the admitted position that the specified bank notes (cessation of liabilities) Act 2017 provides that no person shall knowingly or voluntarily hold, transfer, or receive any specified bank note on and from the appointed date i.e. 31st day of December 2016. Before 31st December 2016 i.e. between 9th November 2016 to 31st December, the banks, and other institutions such as petrol pumps, hospitals, and Government Department were allowed to accept SBN with certain restrictions. In other words, up to the appointed date, the Government of India and RBI were bound to exchange the SBN once they are tendered for exchange until 30th December 2016. Accordingly, such SBN cannot be treated as just a piece of paper having no value on or after 9 November 2016 as alleged by the revenue. We also find that the Chennai Tribunal in the case of Raju Dinesh Kumar v. DCIT reported in 159 taxmann.com 1598 involving identical facts and circumstances has held as under:
Having said so, let us come back to the explanation of the assessee with regard to source for remaining cash deposits. The assessee claims that he is into manufacturing of various kinds of dhalls and sells to unregistered dealers in cash. The assessee claims that he has collected cash in demonetized currency from customers even after 09.11.2016 and said cash receipts is not violation of SpecifiedBankNotes (Cessation of Liabilities) Act, 2017. We find that although, the Government of India & RBI issued various notifications and circulars barring people transacting in SBNs, but, as per SpecifiedBankNotes (Cessation of Liabilities) Act, 2017, no person shall accept or transact any SBNs from the appointed date. As per said Act, appointed date is 31.12.2016. From the above, it is very clear that up to appointed date, persons can transact in SBNs. However, the only requirement is, they should be able to establish source for said cash deposits. This principle is further fortified by the decision of the ITAT Chennai Bench in the case of Amar Sparklers Factory v. ITO in [IT Appeal No. 808 (Chny) 2023, dated 11-10-2023], 14.2 In view of the above and after considering the facts in totality, we hold that the SBN deposited by the assessee during the demonetization period cannot be treated as unexplained money under section 68/ 69A of the Act merely because the assessee accepted the same after announcement of demonetization scheme.
14.3 However, it is pertinent to note that the assessee is under the obligation to explain the source of money received during the demonetization period, which has not been verified by the authorities below. Therefore, we are inclined to set aside the issue to the file of the AO for fresh adjudication as per the provisions of section 68/69A of the Act or any other provisions of the Act as applicable to the impugned transaction for the cash received from the parties. Hence, the ground of appeal of the assessee is hereby partly allowed for the statistical purposes.