THE W.B STATE CO-OP AGRI AND RURAL DEVELOPMENT BANK LIMITED,KOLKATA vs. ACIT,CIR-32/ KOLKATA. , KOLKATA

Present for: Appellant by : Shri Palas Chattopadhya, AR Respondent by : Shri Sailen Samadder, Addl. CIT, Sr. DR Date of Hearing : 05.06.2024 Date of Pronouncement : 02.09.2024 O R D E R

PER RAKESH MISHRA, ACCOUNTANT MEMBER:

“1. That the learned CIT(A) has erred both on facts and in law in sustaining the addition of Rs.11,80,457/- albeit under section 69A of the Act. The learned CIT(A) further erred in sustaining Section 69A of the Act for Section 68 of the Act applied by the Assessing officer while making the impugned addition.

The W.B. State Co-op. Agri and Rural Dev. Bank Ltd. AY: 2017-18. 1.1. That the learned CIT(A) has erred both on fact and in law in not providing opportunity to the co-operative Society when substituting section 69A of the Act for Section 68 of the Act, but retaining the addition of Rs. 11,80,457/- made by the assessing officer by applying Section 68 of the Act.

2. That the learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in not providing sufficient opportunity of being heard to the assessee co-operative Society in re-characterizing the additions made by the Learned Assessing Officer in his assessment order dated 26/12/2019. The learned Commissioner of Income Tax (Appeals) has erred both on facts and in law in not providing sufficient opportunity of being heard to the assessee co-operative Society to represent the case virtually. [the 1st & 2nd sentence says the same thing] 3. That the learned A. O. erred in making addition on account of repayment of loan received in form of SBN form Members of the Co-operative Society being unexplained cash credit u/s 68 of the Act of Rs.11,9O,457/- which is against the Doctrine of Mutuality. For in view of the circumstances the addition of Rs. 11,80,457/- be deleted.

4. That the Ld. CIT(A), NFAC erred in confirming the addition u/s 69A of Rs. 11,80,457/- made by the Ld. ACIT, Circle-32/Kolkata u/s 68 on account of repayment of Loan in form of SBN during demonization period and deposited into Bank by wrongly and illegally computed Income Tax u/s 115BBE of the Income Tax Act, 1961 although on facts and circumstances of the case, such action being arbitrary, fallacious, unwarranted and illegal must be quashed.

5. That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds.”

5. Before proceeding further, it would be appropriate to refer to the provisions of section 68 as well as section 69A of the Act, which are reproduced as under: Section 68. Where any sum is found credited in the books of an assessee 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: Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless,— (a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and The W.B. State Co-op. Agri and Rural Dev. Bank Ltd. AY: 2017-18. (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided also that nothing contained in the first proviso or second proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10. Section 69A. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year. Hence, section 68 is applicable if any sum is found credited in the books of account and the assessee offers no explanation or the explanation offered by him is not satisfactory while section 69A is applicable if the money found under the ownership of the assessee is not recorded in the books of account and the explanation is either not offered or not found to be satisfactory. The assessee claims that the money deposited in the bank account, though in the form of SBNs, was the receipt from the farmers as repayment of the old loans. The assessee however has not specified the compulsion under which it had received the repayment in SBNs although SBNs had stopped being legal tenders after 08.11.2016 and the assessee was not authorised to receive the same under any notification issued by the RBI, yet had violated the provisions and had received the same. Simultaneously, the Assessing Officer has not added the entire amount received during the period of demonetisation as unexplained cash credits but had only added the excess amount received during the period of 08.11.2016 to 31.12.2016. Therefore, there is merit in the contention of the assessee that the Assessing Officer had accepted that the repayment was from the farmers and as per the cases relied upon by the assessee before the Ld. CIT(A), on the principle of mutuality, the repayment of loan from the debtors could not be treated as unexplained cash credit. The Ld. CIT(A) has relied upon the decision of the Hon’ble Hyderabad Bench of The W.B. State Co-op. Agri and Rural Dev. Bank Ltd. AY: 2017-18. the Tribunal in the case of M/s. Vaishnavi Bullion Private Limited, where an addition of about Rs. 100 Cr was upheld as unexplained credit in the batch of appeals involving two jewellery and bullion dealers in the context of post demonetisation cash deposits. However, the same referred to sale proceeds of gold while the case of the assessee is receipt of the repayment of loans from its members, hence the reliance upon the decision cited is not correct. The assessee claims that it had filed the details of loans from the farmers on the portal as well as before the Assessing Officer but the Assessing Officer has not identified as to which repayments were being treated as unexplained cash credits. For the non-applicability of section 68 of the Act, the identity of the creditors, their creditworthiness and the genuineness of the transactions have to be proved and in case of failure of proving any of them, the credits can be treated as unexplained. The Ld. CIT(A) has treated the excess amount deposited during the corresponding period as unexplained money under section 69A. However, this presupposes that the assessee ought to have received the same amount of repayment of loan as in the earlier years during the corresponding period, which may not be possible in any business as the repayment of loan depends upon the availability of money with the debtors and their paying capacity. Since neither the assessee has been able to demonstrate as to under what compulsions or the authority of law it had received the repayment of loans in SBNs, nor the Assessing Officer or even the Ld. CIT(A) has been able to demonstrate how the excess amount is to be treated as unexplained cash credit or unexplained money as the same was not out of the books of account but was entered in the books of account and without identifying the specific transactions as bogus or unexplained, merely by comparing the repayment or receipt of cash during the corresponding period, the excess amount could not be treated as unexplained money. Incidentally, the assessee had deposited less cash The W.B. State Co-op. Agri and Rural Dev. Bank Ltd. AY: 2017-18. during the entire financial year relevant to AY 2016-17 than in the previous financial year relevant to AY 2015-16.

6. Since both the Ld. AO as well as the Ld. CIT(A) have not treated the entire repayments received during the demonetisation period as unexplained money or unexplained cash credits, they ought to have identified the specific transactions or repayments which, in their view, were to be treated as unexplained after examining the evidence filed by the assessee. Similar issue came up for consideration in the case of Prem Prasad Vs. Income Tax Officer, Ward-3(2), Malda in Assessment Year: 2017-18 before the ‘B’ Bench, ITAT, Kolkata, in which vide order dated 23.07.2024, the issue has been decided as under: 11. Similar issue relating to cash deposited during the demonetisation period also came up before the ITAT SMC-'A' Bench, Bangalore in the case of Shri Aijaz Ahmed Suri Vs. The Income Tax Officer, Ward – 1, Bagalkot, in which the following procedure has been prescribed for assessing the unexplained deposit:

8. Instruction 21/02/2017 issued by the CBDT suggests some indicators towards verifying the suspicion of backdating of cash. It also suggests indicators to identify abnormal jump in cash trials on identifiable persons as compared to earlier history in the previous year. Therefore, in our opinion it is important to examine whether assessee falls into any of these The W.B. State Co-op. Agri and Rural Dev. Bank Ltd. AY: 2017-18. categories and transfer of deposit of cash is not in line with history of transactions in the preceding assessment years.

The W.B. State Co-op. Agri and Rural Dev. Bank Ltd. AY: 2017-18.

7. Hence in order to be fair to both the assessee as well as the assessing officer, the order of the Ld. CIT(A) is hereby set aside to the Ld. AO who shall frame the assessment order afresh as per law after analysing the reply of the assessee and the evidences filed by it. The assessee shall file evidence of the outstanding balance with the farmers, the evidence for the receipt of loans and the compulsion under which the receipts were obtained in old SBNs while, as is rightly pointed by the Ld. AO as well as the Ld. CIT(A), the farmers had the option to deposit the money in the banks specified for the purpose and the assessee could have also postponed or rescheduled the repayment of the loans and not treated the farmers under default. Hence for statistical purposes, the appeal is allowed and the Ld. AO is directed to reframe the assessment order afresh as per law keeping in view the guidelines and the instructions of the CBDT and the legal provisions.