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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri Satbeer Singh Godara & Shri Amarjit Singh
Appellant by: Shri R. Krishnan, CA Respondent Shri Sanjit Kumar Das, CIT- by: DR Date of Hearing: 13.08.2024 Date of 25.09.2024 Pronouncement: O R D E R Per Bench These assessee’s twin appeals arise against orders of the National Faceless Appeal Centre, Delhi [CIT(A] in proceedings u/s. 250 of the Income Tax Act, 1961 (the Act) as below: - DIN & Order No. Date No . 1 863/Coch/2 2017- ITBA/NFAC/S/250 18.10.20 023 18 /2023- 23 24/1057185745(1) 2 792/Coch/2 2018- ITBA/NFAC/S/250 22.08.20 023 19 /2023- 23 24/1055332576(1) Heard both parties at length. Case files perused.
The assessee’s former appeal ITA.No.792/Coch./2023 pleads the following substantive grounds :
“1) The learned Commissioner of Income Tax (Appeals) erred in his finding that no notice as mandated u/s 144B(XI) is required for completion of the assessment.
2) The learned Commissioner of Income Tax (Appeals) overlooked the fact that such a procedure is mandatory as has been held by the Hon. High Court of Delhi, in the case of Anju Jalaj Batra Vs. National E-Assessment and many other cases.
3) The learned Commissioner of Income Tax (Appeals) erred in denying deduction u/s 80P(2)(d) of the Income Tax Act in respect of interest received from Co- operative banks, overlooking the 4) The learned officers below erred in denying deduction u/s 80 (P)(2) in respect of business income of the appellant. Having regard to the ratio of the decision. of the apex court in Mavilayil in all fairness, the Commissioner of Income Tax (Appeals) ought to have directed the Assessing Officer to verify the claim of the appellant rather than summarily rejecting the claim of the appellant.
5) The learned Assessing Officer erred in taxing a sum of Rs. 7,08,52,017/- u/s 68 of the Income Tax Act, more so when the books were audited by the Co-operative auditor and there was nothing to give such an adverse inference.
6) Without prejudice to the above ground, the learned Assessing Officer ought to have appreciated that the amounts being relatable to the business, even though assessable in the hands of the appellant, was exempt u/s 80P(2) of the Income Tax Act.
7) The leaned Assessing Officer erred in applying the provisions of Section 40A(3) of the Income Tax Act, without entering into a finding that there is failure to deduct tax in respect of each item.
Appellant prays that the Assessing Officer may be directed to modify the assessment.”
Learned counsel is fair enough in pressing for the assessee’s above extracted grounds only on merits than on various technical aspects therein. His first and foremost argument is that both the learned lower authorities have erred in law and on facts in holding that the assessee’s interest income of Rs.41,08,686/- derived from cooperative bank(s) is not eligible for sec.80P deduction. We note in this factual backdrop that the Revenue’s vehement contentions accordingly is that such an interest income from deposits of surplus funds made in cooperative bank(s) could not be held to have been derived from the eligible business in light of Totagars Co-operative Sales Society vs. ITO [2010] 322 ITR 283 (SC) and Pr. CIT & Anr. v. Totagars Co-operative Sales Society reported in (2017) 395 ITR 611 (Kar.). We note in this factual backdrop that hon'bleble jurisdictional high court’s recent landmark decision in PCIT v. Peroorkada Service & 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. Co-op. Bank Ltd. [2022] 442 ITR 141 (Ker) has already settled the issue in assessee’s favour and against the department as under:
“12.2 Section 80P deals with Co-operative Societies' computation of income. As already noted, it has four sections and several sub- sections and clauses. The Parliament has considered the various situations in which the exigible income and the deductable income of the assessee is considered while computing the income of the assessee. For getting deduction, in our considered view, the assessee must also establish that the interest income earned by the assessee is from a Co-operative Society. As a matter of fact, in the case on hand, there is no dispute that it is not from a Co- operative Society registered under Kerala Co-operative Societies Act. The interest income earned from District Co-operative Bank/State Co-operative Bank, in the facts and circumstances of the case, do come within Section 80P(2)(d). Therefore, the income constitutes income from other sources and the only eligible deduction is covered by Section 80P(2)(d) viz. Interest or dividend derived by the assessee from its investments with any other Co- operative Society. The source of interest income is from Bank and & 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. Treasury, interest income received from Treasury be included in the computation of total income of the assessee. In other words, interest earned from Treasury is inadmissible for deduction and interest income from Co-operative Societies registered under the Kerala Co-operative Societies Act are eligible for deduction. The contra consideration of Commissioner of Income Tax (Appeals) and the Tribunal is incorrect and liable to be modified as stated above. Hence, it is held that the interest income earned by the assessee does not come within the ambit of Section 80P(2)(a)(i) and permissible deduction of interest income is limited to Co-operative Societies/Banks registered under Kerala Co-operative Societies Act under clause (d) of the Act and effect order on the above lines is made by the Assessing Officer. The questions are accordingly answered.”
We accordingly conclude that the assessee is indeed eligible for claiming sec.80P(2) deduction qua it’s interest income derived from deposits made with cooperative bank(s). Ordered accordingly.
& 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. 4. Next comes the assessee’s second substantive grounds seeking to delete sec.68 unexplained cash credit addition amounting to Rs.7,08,52,017/- in both the lower proceedings.
4.1. Learned counsel invites our attention to the CIT(A)-NFAC’s lower appellate discussion affirming assessment findings to this effect as under :
“7. Ground No. 6 & 7 of the appeal are against the addition made by the la. AD u/s 68 of the Income Tax Act, 1961. The appellant has stated that the learned Assessing Officer went wrong in taxing a sum of Rs.7,08,52,017/- as unexplained income u/s. 68 r.w.s. 115BBE, when the accounts were subject to audit and no adverse findings were reported. Mere increase in deposits would not constitute undisclosed income. Further, the appellant has also stated that the learned Assessing Officer ought to have noted that the appellant is a Cooperative Society for the welfare of its members who are all Govt. Employees and to merely treat huge deposits of such employees as unexplained income is absolutely against the spirit of Faceless assessment and cannons of the taxation. The Id. AO has discussed the & 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. reasons for addition under reference in the assessment order. The relevant part of the assessment order is reproduced as under: -
"10.1 As per the Balance Sheet as uploaded, the assessee had an amount of Rs.94,08,54,604/- as fixed deposit as on 31.03.2015. On verification of materials available on record showed that the assessee had an opening balance of Rs. 87,00,02,587/- under the same head, for the relevant financial year. This would define that there had been considerable increase in deposts during the financial year 2017-18, which amounts to Rs. 7.08,52,017. Although the assessee was requested to provide details of depositors, including their name. Permanent Account Number, address and amount of deposits, no particulars in this respect were provided for verification, The assessee was given opportunity vide this office notice dated 01.03.2021 and 16.03.2021 to fumish the details, in view of natural justice, which the assessee has not utilized, Hence, it is clear that the assesses failed to fumish any & 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. documents called for evidencing that the source of deposits was from the customers. Therefore, it is undisputable that assessee failed to fumish the details and has offered no explanation about the nature and source of such sum. Hence, it would be appropriate at this time to discuss Section 68 of the Act which is re-produced as under "Cash credits: Section 68 of Income Tax Act, 1961 states that, Where any sum is found credited in the books of an assesses maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the [Assessing] Officer. satisfactory the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
10.2 The bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee, such credit has to be of a sum during the previous year, and the assessee offers no explanation about the nature and source of such credit found in the & 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. books: or the explanation offered by the assessee in the opinion of the Assessing Officer is not satisfactory, it is only then the sum so credited may be charged to income tax as the income of the assessee of that previous year. The expression the assesses offers no explanation" means where the assessee offers no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee.
10.3 Without prejudice to the above, the Hon'ble Supreme Court, in the case of A. Govindarajulu Mudallar v. C1T (34 ITR 807) (SC) came to the conclusion that. "There is ample authority for the position that where an assessee fails to prove satisfactonly the source and nature of certain amount of cash received during the accounting year, the Income Tax Officer is entitled to draw the inference that the receipt are of an assessable nature. Also, in Kale Khan Mohammad Hanif v. Commissioner of income-tax (50 1TR 1) (SC) the Hon-ble Supreme Court, in answering the question Whether the burden of proving the source of the & 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. cash credit is on the assessee" observed that, It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax it is for him to show either that the receipt was not income or that it it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof the Income Tax Officer is entitled to treat it as taxable income.
10.4 The onus of proving the source of a sum of money found to have been received by an assessee is on the assessee itself. Where the nature and source of a receipt, whether it be of money or other property, cannot be satisfactorily explained by the assessee. It is open to the Revenue to hold that it is the income of the assessee and no further burden lies on the Revenue to show that the income is from any particular source.
10.5. Therefore, based on proper appreciation of material available on record and facts of the case and in the absence of reasonable and acceptable explanation with & 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. supporting evidence showing either that the sums found credited in the books maintained by the assessee was not income or that if it was exempt from taxation under the provisions of the Act, it is concluded that in the absence of such proof, the amount of Rs, 7,08,52,017/- Is treated as taxable income and assessed as unexplained cash credits u/s 68 of the Act The penalty proceedings u/s 271AAC 3f the Act is warranted in the case of assessee in addition to the tax payable under section 1 15BBE of the Act as the total income of the assessee includes income u/s 68 of the Act."
7.1 During the appellate proceedings, the appellant has contended the above addition strongly in its written submission. The relevant part of the written submission is reproduced as under:- "Ground No. 6: The Assessing officer ought to have note that the books of accounts of the appellant was subject to audit and no adverse findings were reported by the tax auditor. The & 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. action of the AO is treating the entire increase in deposit as unexplained without considering the fact that the appellant is running a bank and deposits are made by customers is wrong. The learned AO ought to have understood that mere increase in deposits would not constitute undisclosed income. Ground No. 7: The learned AO clearly made a mistake in treating the entire deposits made by government employees in the Co- operative bank as unexplained. The assessment made is absolutely against the spirit of Faceless assessment and cannons of the taxation.
Appellant prays that the order of assessment be annulled for the procedural lapses. In the altemative, the Assessing officer may be directed to allow deduction u/s 80P and the addition made u/s 68 be deleted."
7.2. I have considered the submission of the appellant carefully. This is very strange that why the appellant did not provide any reply to the simple query raised by the Id.AO with & 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. respect to substantial increase in fixed deposits with the appellant during the year under reference. The Id. AO is absolutely justified in raising query regarding the substantial increase in the amount of fixed deposits during the year under consideration. But the appellant society did not provide even basic information such as Name, PAN and Address of the depositors. During the appellate proceedings too, instead of providing requisite information, the appellant has claimed that since books of account are audited and the auditor has not pointed out any deficiency in the books, the query raised by the Id. AO is unnecessary and against the spirit of Faceless Assessment Scheme. Every taxpayer having turnover more than prescribed limit as per the provisions of section 44AB of the Income Tax Act, 1961, gets their books of account audited, meaning thereby, as per appellant submission, there should not be scrutiny assessment in the cases where books of account are audited. It appears that the appellant has just avoided to provide the details asked by the Id. AO. I am therefore of considered opinion that the appellant has failed to explain the & 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. source of amount by which fixed deposit with the appellant society has increased during the year under reference. Thus, the addition made by the Id. AO u/s 68, to be taxed as per provision of section 115BBE of the Income TaxAct, 1961 deserves to be upheld. Accordingly, the grounds no. 6 & 7 of the appeal are dismissed and not allowed.”
Suffice to say, the assessee’s case all along is that the source of these funds forming subject matter of sec.68 addition was duly explained in it’s audited books; whereas the Revenue’s vehement contentions in light of the above extracted detailed discussion that it had failed to even place on record the basic information of the depositors involving their names; PAN and address(es). Faced with this situation, we deem it appropriate in the larger interest of justice to restore the assessee’s instant latter 5th and 8th substantive grounds back to the Assessing Officer for his afresh appropriate adjudication, preferably within three effective opportunities of hearing, subject to the rider that it shall be the taxpayer’s onus and responsibility only to file and prove all the relevant facts in consequential proceedings. Ordered accordingly.
& 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. 6. Coming to the assessee’s 7th substantive ground, we do not see any such disallowance in the assessment order dated 19.04.2021. Rejected accordingly.
This assessee’s instant former appeal ITA.No.792/Coch./2023 for the “lead” assessment year 2018-2019 is partly accepted in above terms.
The assessee’s latter appeal ITA.No.863/Coch./2023 also pleads the following identical substantive grounds :
The learned Commissioner of Income Tax (Appeals) erred in sustaining the Order of the Assessing Officer without properly appreciating the case factually and legally.
The learned Commissioner of Income Tax (Appeals) erred in denying deduction under various subsections of Section 80P(2) of the Income Tax Act.
The learned Commissioner of Income Tax (Appeals) erred in overlooking the decisions of the Apex Court and the jurisdictional High Court in so far as allowability of deduction u/s 80P(2)(a) and 80P(2)(d) of the Income Tax Act are concerned.
& 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. 4. The manner of computation as done by the Assessing Officer and approved by the Commissioner of Income Tax (Appeals) is bad in law.
The learned Commissioner of Income Tax (Appeals) erred in sustaining the disallowance of Rs.5,43,520/- made u/s 40(a)(ia) of the Income Tax Act in the absence of concrete finding that the provisions of said sections are attracted
The learned Commissioner of Income Tax (Appeals) erred in sustaining the addition of Rs. 3,50,44,001/- as unexplained income u/s 68 of the Income Tax in respect of deposit accepted from the members.
The learned officers erred in invoking the provision of the Section 115BBE of the Income Tax Act which is not warranted in this case.
The learned Commissioner of Income Tax (Appeals) erred in concluding that the appellant was not carrying on business of providing credit facilities to its members.
There is denial of natural justice as far as the Commissioner of Income Tax (Appeals) is concerned in that he has not considered the submission made by the appellant on 16th October, 2023 vide Acknowledgement Number & 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. 414976291171023 wherein the appellant had relied on the decision of the Cochin Bench in ITO Vs. Adichanalloor Farmer's Service Co-Operative Bank, following the Hon. Kerala High Court decision.
The appellant prays that the order of the CIT (A) may be set aside and the prayer of the appellant be allowed.”
Learned DR could hardly dispute that we have already held the assessee eligible for sec.80P(2) deduction. So far as it’s sec.40(a)(ia) disallowance of Rs.5,43,520/- is concerned, we quote CBDT’s landmark circular no.37/2016 that such an addition only results in enhancement of assessee’s business profits already eligible for sec.80P deduction. Accepted accordingly.
Assessee’s last substantive ground of sec.68 addition amounting to Rs.3,50,44,001/- is hereby restored back to the learned Assessing Officer as per preceding directions in assessment year 2018-2019 (supra). This assessee’s latter appeal ITA.No.863/Coch./2023 is partly partly accepted in above terms.
& 792/Coch/2023 The Trivandrum Employees Co-operative Society Ltd. 12. These assessee’s twin appeals ITA.Nos.792 & 863/Coch./2023 are partly accepted in above terms. A copy of this common order be placed in the respective case files.
Order pronounced in the open Court on 25th day of September, 2024.