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Facts
The assessee, an Indian Co-operative Credit Society, filed its return for AY 2016-17 declaring a loss. The AO assessed the assessee as a company instead of an AOP and added Rs. 39,26,960 as unexplained cash in hand. The CIT(A) upheld the AO's order.
Held
The Tribunal held that the assessee's initial mistake in applying for PAN as a company was corrected, and it should be recognized as a co-operative society from AY 2017-18 onwards. Regarding the unexplained cash, the Tribunal upheld the CIT(A)'s direction to the AO to verify the source and application of funds.
Key Issues
Whether the assessee's status should be recognized as a co-operative society retrospectively, and the addition of unexplained cash in hand is justified.
Sections Cited
69A, 44AA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI GEORGE GEORGE K. & SHRI LAXMI PRASAD SAHU
Per Laxmi Prasad Sahu, Accountant Member
This appeal is filed by the assessee against order dated 29.12.2023 of the CIT(Appeals), National Faceless Appeal Centre, Delhi [NFAC], for the AY 2016-17 on the following grounds of appeal:-
“1. Ld. CIT (A), NFAC, Delhi, has erred in law and on fact to upheld action of the A.O. to assessed the appellant under a status of "Company" instead of correct status "AOP- Co-operative Society.
Ld. CIT (A), NFAC, Delhi, has erred in law and on fact to verify cash on hand Rs. 39,26,960/- which is already appearing in audited books of accounts of the appellant for A.Y. 2016-17, ignoring the fact that it was not a case of the AO that actual physical cash was not recorded in the books of accounts.” 2. The brief facts of the case are that the assessee filed return of income on 31.3.2017 declaring loss of Rs.2,60,765. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessee did not file any reply. Summons u/s. 131 along with show cause notice dated 21.12.2018 was issued to the assessee to furnish cash book to very the cash in hand disclosed in balance sheet, ledger account and evidence of interest expenses, etc. The assessee submitted its response on 25.12.2018 with certain details. In respect of interest expenses a list containing 14086 entries was submitted without documentary evidence. A list reflecting name of branch and amount of cash in hand as on 31.3.2016 was furnished, but cash book was not furnished by the assessee. The AO visited the Head Office of the assessee for examination of books of accounts and sworn statement of Shri Venkataramana, MD was recorded which is as per page 3 of the assessment order. In Q.No.16 with regard to furnishing of cash book to verify branch wise cash balance, ledger account and evidence of interest expenses, the answer is as under:-
“Sir, no books are available in head office. The books are maintained at Vadodara, Gujarat. So, I am unable to furnish the required details for examination.”
For want of cash book and detailed observations in the assessment order, Rs.39,26,960 shown as cash in hand was treated as unexplained money u/s. 69A of the Act.
The assessee filed appeal before the CIT(Appeals) against the assessment order. The assessee raised the issues of status of assessee as company instead of AOP – Co-op. Society in the assessment order and submitted during the course of assessment proceedings it was informed to the AO that the counsel while filing the return has mentioned the status as private company, however the correct status is AOP and furnished evidence in support of the same. The CIT(Appeals) observed that assessee filed return with PAN in the status of company and the assessee changed the PAN status to AOP from AY 2017-18. Therefore he upheld the action of the AO in assessing the assessee in the status of company and dismissed this ground of assessee.
Regarding the addition of Rs.39,29,960 as unexplained money u/s. 69A, the CIT(Appeals) held as under:-
“ 6.3.3 After the perusal of the submission of the appellant and the assessment order of the AO it is seen that the appellant could not submit any evidence in support of us claim. The appellant during the appellate proceedings has again given the balance sheet but has not given any evidence in support of his claim. In the interest of the justice the appellant is directed to produce the cash book of the various branches along with evidence in the form of the deposit slips proving that the cash has been deposited by the members. The AO is directed to verify the claim of the appellant and to give relief to the extent the appellant is able to prove the source of the cash deposited along with the cash in hand. The grounds of appeal
2 and 3 are allowed for statistical purpose. 6.4 The appellant vide its ground of appeal 4 has submitted that the AO has erred by not allowing the set off of the deemed income of Rs. 39,26,960/- against the business loss of Rs. 2,27,90,69/-. The AO is directed to examine the claim of the appellant if any addition is made after the verification as adjudicated above for grounds of appeal 2 and 3. The AO may allow the claim of the appellant as per the law. The ground of appeal 4 is allowed for statistical purpose.”
6. Against the order of the CIT(A), the assessee is in appeal before the Tribunal.
The ld. AR of the assessee submitted that the assessee society when applied for PAN in Form 49A wrongly classified the status because of lack of knowledge. When it realized the mistake, immediately it applied for new PAN in the status of co-operative society. The CIT(Appeals) has noted the facts and earlier documents and subsequently on the basis of same documents, the income tax department has allotted new PAN in the status of co-operative society. Now the assessee is in the status of co-operative society from AY 2017-18 onwards. Therefore he submitted that retrospective effect should be given to the assessee.
Regarding addition u/s. 69A, the ld. AR submitted that the assessee is a co-operative society and it was maintaining books of account in computer system and the computer system got corrupt, therefore the assessee was unable to produce the cash book and submitted details of cash branch wise which has not been accepted by the AO. He further submitted that if a chance is given to the assessee, it will be able to explain the source of cash as well as closing cash in hand at the end of the year as appearing in the financial statements.
On the other hand, the ld. DR relied on the order of lower authorities and submitted that the status of assessee should not be changed because the assessee was allotted PAN and in the return of income the status was quoted as company as per PAN allotted to assessee. Subsequent PAN allotted in the status of co-operative society cannot be given retrospective effect. Further in the case of addition u/s. 69A, the ld. DR relied on the statements recorded by the AO and submitted that AO himself visited the Head Office and recorded statements in which it has been clearly stated that no books are available in the Head Office and books are maintained at Vadodara, Gujarat. So the statement submitted by the ld. AR that computer got corrupt cannot be accepted. As per section 44AA of the Act the assessee is required to maintain necessary books. The assessee was unable to satisfy the source of cash and cash in hand at the year end.
Considering rival submissions, we note that earlier PAN allotted to the assessee was in the status of company on the basis of Form No. 49A filed by the assessee with necessary documents. Subsequently on the same documents, the assessee was allotted another PAN classified as a co-operative society. There is no dispute that it was mistake of the assessee while applying PAN for first time it applied as company, now it has been corrected as co-operative society. The CIT(Appeals) has noted that from AY 2017-18 the assessee has quoted correct PAN. Since the basis for allotment of PAN is on the basis of documents i.e. the rules and regulations ( Bye-laws) of the society, therefore we direct the AO to give the benefit of status of co-operative society. Accordingly this ground is allowed.
We further note that during the course of assessment proceedings, the assessee was unable to explain the source of cash and closing cash in hand and the AO added it u/s. 69A of Rs.39,28,560. During the course of hearing, the ld. AR tried to reconcile the closing cash in hand and we also note that assessee has submitted details of opening cash, cash received, cash withdrawn, cash deposited in the bank, cash payment of expenses and others and the closing cash in hand in a summary manner. The ld. AR also submitted at page 67 of PB, the branch wise closing cash in hand as on 31.03.2016. The CIT(A) at para 6.3.3 & 6.4 has directed the AO to verify the source of cash and application of cash and to decide the issue as per law. We uphold the order of the CIT(Appeals) on this issue.