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Facts
The assessee, a co-operative society, had cash deposits during the demonetization period. The AO made an addition under section 68 for these deposits, stating the assessee failed to establish the source and nature of the credit. The assessee also claimed deduction under section 80P(2) but had not filed a return of income.
Held
The Tribunal held that the addition made under section 68 was not proper as the assessee had provided details of depositors and transactions were found to be with members. The Tribunal also held that the assessee is not eligible for deduction under section 80P(2) because it failed to file a return of income, which is a prerequisite for claiming such deductions.
Key Issues
Whether the addition made under section 68 for cash deposits during demonetisation is justified, and whether the assessee is eligible for deduction under section 80P(2) without filing a return of income.
Sections Cited
68, 80P(2), 80A(5), 80AC
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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI LAXMI PRASAD SAHU & SHRI KESHAV DUBEY
Per Laxmi Prasad Sahu, Accountant Member
This appeal is filed by the assessee against the order dated 23.01.2024 of the CIT(Appeals)-1, Delhi for the AY 2017-18 challenging the confirmation of addition made by the AO.
Briefly stated the facts of the case are that from the information it was noticed that assessee has deposited cash for FY 2016-17 of Rs.2,73,60,660 and during the demonetisation period the assessee made cash deposit of Rs.5,35,500 including opening balance of Rs.44,000 as on 09.11.2016 in SBNs. Notice u/s. 142(1) was issued to assessee for filing return of income and various other notices were also issued. The assessee submitted that in the Profit & Loss account net profit was shown at Rs.1,68,438 and after claiming deduction under Chapter VIA the income is Nil and assessee was not required to file return. Income has been earned from giving loan to the nominal and regular members and it has transacted only with the members as defined in section 2(f) of the Karnataka Co-operative Society Act. 1959. The provision of section 80A(5) / 80AC will not apply to the assessee. The assessee also furnished details of cash deposits during the demonetisation period which were received from members in SBNs towards loan repayment, pigmy collection, SB and FD account. The details of members from the amount was received was also furnished. However, at para 4.1, the AO noted that the assessee failed to establish the source and nature of credit entry appearing in the bank accounts including bank deposit made during FY 2016-17 in old SBNs of Rs.1,000 and Rs.500 from 11.11.2016 to 30.12.2016 of Rs.4,99,500 and were not satisfactorily explained with reference to source of SBNs. The AO noted that the claim of assessee that it received amount in SBNs from members is not acceptable as society was prohibited to transaction of business with SBNs. It was added u/s. 68 and total income was assessed at Rs.6,59,958. The other deposits were accepted by the AO. Aggrieved from the order, the assessee filed appeal before the CIT(Appeals).
The CIT(Appeals) confirmed the order of the AO. Aggrieved, the assessee is in appeal before the ITAT.
The ld. AR reiterated submissions made before the lower authorities and submitted that assessee was not required to file return since income was below the threshold limit prescribed under the Act. Even if the assessee did not claim deduction under Chapter VIA, income is still below the threshold limit. Therefore provision of section 80A(5) / 80AC will not apply for AY 2017-18. The total income as per Profit & Loss account is Rs.1,68,438 including interest income. Therefore assessee was not required to file return of income.
The ld. AR further submitted in respect of cash deposit during the demonetisation period that assessee submitted details of members who have deposited cash during demonetisation and AO has accepted that amount has been received from members and the amount has been deposited in the loan account, SB A/c, pigmy account and FD account. It clearly shows that the source was explained. If he had any doubt the AO could have examined the credit worthiness of members directly. The name and address, PAN, mobile no. of members was provided. The assessee has discharged his duty cast u/s. 68 for proving identity and creditworthiness of depositors and genuineness of transaction. In support of his argument, he relied on the following judgments:-
- Prathamika Krushi Pattina Sahakari Sangha Niyamitha, Hassan v. ITO – ITA No.614/Bang/2021. - The Chirakkal Service Cooperative Bank Ltd. v. CIT – of 2013 (Kerala High Court) - Mavilayi Service Cooperative Bank Ltd. v. CIT (2021) Supreme Court. - Merchants Credit Cooperative Society Ltd. v. ITO, ITA No.329/Bang/2023.
- Prathamika Krushi Pattina Sahakari Sangha Niyamitha, Itagi v ITO – ITA No.593/Bang/2021. - Bhageeratha Pattina Sahakari Sangha Niyamitha v. ITO – ITA No.646/Bang/2021.
The ld. DR relied on the orders of lower authorities and submitted that the assessee did not file its return of income, therefore as per judgment of High Court of Kerala in the case of Nileshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT, [2023] 152 taxmann.com 347 (Kerala), the assessee is not eligible for deduction u/s. 80P(2). Further, in respect of cash deposits during the demonetisation period, assessee was unable to prove the ingredients of section 68 and assessee was not authorised to collect money as per Govt. and RBI notifications during the demonetisation period.
Considering the rival submissions we note that the assessee has not filed return of income. During the demonetisation period assessee deposited cash of Rs.5,35,500 including opening balance as on 09.11.2016 of Rs. 44,000/- and submitted that the amounts were received during demonetisation period from the members. The AO has accepted it at one place that the amount has been received from members in SBNs and it was deposited in the members account only, whereas he has observed that the assessee is unable to satisfy the ingredients of section 68. We also note from the chart submitted by the assessee giving details of members, full address, PAN, mobile no. and amount with denomination in SBNs. A similar issue has been decided by the coordinate Bench of the Tribunal in the case of Merchants Credit Co-operative Society Ltd., dated 24.08.2023 in which it is held as under:-
“ 7. We have considered the rival submissions. The assessee is a credit co- operative society dealing with the members only. During the demonetisation period the members of the society have deposited cash in pygmie a/c, SB A/c, loan a/c. etc. The assessee has produced a list of depositors and the amount deposited by members with denominations of currency. The assessee has accepted the deposits from its members from 9.11.2016 to 14.11.2016. As per Gazette Notification of RBI & Govt. of India dated 08.11.2016, the assessee was not authorized to accept cash deposits in SBNs. The AO observed that the assessee was not authorized to receive or collect money in SBNs of Rs.1,000 and Rs.500 which were not in legal tender w.e.f. 09.11.2016 and such transactions on or after 09.11.2016 cannot be entered in cash book. The cash deposits made by the members of the society had no value as such. The Assessing Officer issued show-cause notice by observing that the impugned amount should be treated as income of the assessee u/s 69A of the Act., however the AO made addition u/s 68 of the I.T. Act. The assessee has satisfied the requirement of section 69A of the Act and the AO did not give further opportunity to the assessee for addition u/s 68 of the I. T. Act. During the assessment proceedings, assessee filed the details of list of depositors and loanees who made cash deposits. The AO accepted that it was money deposited by the members and noted that the assessee had brought the entries in its books of account, therefore section 68 will apply and accordingly treated it as income u/s.
There is no doubt that the assessee has satisfied the identity of the deposits, who are members of the society and genuineness of the transactions because the amounts have been deposited in the members accounts only. If the AO had any doubts that the assessee has not satisfied the ingredients of section 68, he could have asked further details from the assessee, but the AO has not done the same, which clearly shows that the assessee has discharged its duty to satisfy the requirement of section 68. We further note that the SBNs have been deposited in the members accounts, accordingly, the assessee did not get any extra benefit as observed by the AO in his order at para No. 06 which was treated as income u/s 69A of the Act. In view of this, the provisions of section 68 is not applicable in the present facts of the case and the AO without discussing in detail has made addition u/s. 68 which is not proper. Therefore the addition is deleted.”
Following the above decision of the coordinate Bench, we delete the addition made by the AO u/s. 68 of the Act.
Further considering the rival submissions in respect of deduction under section 80P(2), we note that during the impugned assessment year, the assessee has calculated income as per profit & loss account to the tune of Rs. 1,68,438/- and ld. AR of the assessee submitted that the assessee was not required to file return of income because of its income below the threshold limit of tax and assessee is eligible for deduction under section 80P(2). We reject this arguments of the ld. AR since the deduction can be claimed under section 80P(2) only if the assessee has fulfilled the requirement of section 80A(5)/80AC, relying on the judgment of the co-ordinate bench of the Tribunal in the case of Madhu Souharda Pathina Sahakari Niyamitha in dated 2.1.2024 where it is held as under:-
“7. Considering the rival submissions, we note that the during the impugned assessment year, the assessee has received interest of Rs.3,57,185 on deposits with DCC and earned profit at Rs.26,00,809 inclusive of interest income, but did not file return of income u/s. 139(1) or 139(4). Notice u/s. 142(1) was issued by the AO to the assessee for filing return of income on 09.03.2018 within 08.04.2018. Further notice u/s. 142(1) and show cause notice was issued to the assessee, but the assessee did not file the return of income except written submissions. Accordingly the AO denied deduction u/s. 80P as per section 80A(5) and completed the assessment u/s. 144 of the Act. Section 80A(5) of the Act reads as under:- “(5) Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 10B or section 10BA or under any provision of this Chapter under the heading "C.—Deductions in respect of certain incomes", no deduction shall be allowed to him thereunder.” It is clear from the above section that for claiming deduction under Chapter VIA under the head, “Deductions to be made in computing total income”, which covers section 80P also, the assessee has to file return of income. However, the assessee did not file return of income at all and therefore the assessee is not eligible for deduction u/s. 80P of the Act. The Hon’ble Kerala High Court in the case of Nileshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT [2023] 152 taxmann.com 347 (Kerala) has held as under:- “11. On a consideration of the rival submissions and on a perusal of the statutory provisions, we find that a reading of section 80A(5) and Section 80AC of the IT Act as they stood prior to 1-4-2018, when the latter provision was amended by Finance Act 2018, would reveal that the statutory scheme under the IT Act was to admit only such claims for deduction under section 80P of the IT Act as were made by the assessee in a return of income filed by him. That return can be under sections 139(1), 139(4), 142(1) or section 148, and to be valid, had to be filed within the due date contemplated under those provisions. Under section 80A(5), the claim for deduction under section 80P could be made by an assessee in a return filed within the time prescribed for filing such returns under any of the above provisions. The amendment to Section 80AC with effect from 1- 4-2018, however, mandated that for an assessee to get a deduction under section 80P of the IT Act, he had to furnish a return of his income for such assessment year on or before the due date specified in section 139(1) of the IT Act. In other words, after 1-4-2018, even if the assessee makes his claim for deduction under section 80P in a return filed within time under sections 139(4), 142(1) or section 148, he will not be allowed the deduction, unless the return in question was filed within the due date prescribed under section 139(1). Thus, it is clear that the statutory scheme permits the allowance of a deduction under section 80P of the IT Act only if it is made in a return recognised as such under the IT Act, and after 1-4-2018, only if that return is one filed within the time prescribed under section 139(1) of the Act. As the return in these cases, for the assessment years 2009-10 and 2010-11, were admittedly filed after the dates prescribed under sections 139(1) and 139(4) or in the notices issued under section 142(1) and section 148, the returns were indeed non-est and could not have been acted upon by the Assessing Officer even though they were filed before the completion of the assessment.
There is yet another aspect of the matter. The requirement of making the claim for deduction in a return of income filed by the assessee can be seen as a statutory pre- condition for claiming the benefit of deduction under the IT Act. It is trite that a provision for deduction or exemption under a taxing Statute has to be strictly construed against the assessee and in favour of the Revenue. Thus viewed, a failure on the part of an assessee to comply with the pre-condition for obtaining the deduction cannot be condoned either by the statutory authorities or by the courts.”
10. Respectfully following the above judgment, we hold that the assessee is not eligible for deduction u/s. 80P of the Act.”
During the course of hearing, the ld. AR relied on the coordinate Bench decision in the case of Prathamika Krishi Pattina Sahakara Sangha Ltd. in dated 13.06.2022 which will not support the case of the assessee because the Hon’ble Kerala High Court, which is a higher forum, in a later judgment dated 14.03.2023 has dealt with this issue as noted above. Therefore the issue raised by the assessee regarding deduction u/s. 80P is dismissed.
In the result, we partly allow the appeal of the assessee.
Pronounced in the open court on this 27th day of May, 2024.