INCOME TAX OFFICER, WARD 1(1), NASHIK, NASHIK vs. AMBIKA GRAMIN BIGARSHETI SAHAKARI, NASHIK

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ITA 1104/PUN/2023Status: DisposedITAT Pune04 June 2024AY 2017-18Bench: SHRI RAMA KANTA PANDA (Vice President), SHRI SATBEER SINGH GODARA (Judicial Member)16 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the NFAC's order deleting the addition of Rs. 1,20,45,000/-. The Tribunal noted that there was no dispute that the assessee made cash deposits of Rs. 1,20,45,000/- in SBNs during the demonetization period, attributing the source to receipts from its members. The Revenue's sole contention was that since SBNs were demonetized, the assessee was not entitled to receive them, and thus Section 68 was rightly invoked. However, the Tribunal found this stand unconvincing because the assessee had fully proved the identity, genuineness, and creditworthiness of its members who deposited these SBNs. The Tribunal referred to its coordinate bench's decision in Shrijeet Finance (P) Ltd. vs. ACIT, which held that for Section 68 to be invoked, the AO must prove the assessee's failure to establish the identity, genuineness, and creditworthiness of the depositors. In the present case, the assessee had submitted details of members, and the AO had not challenged these aspects. Therefore, the addition under Section 68 was not sustainable. The Tribunal adopted the NFAC's detailed discussion and reasoning mutatis mutandis. The addition of Rs. 1,20,45,000/- was treated as unsustainable and directed to be deleted.

What were the facts?

The Revenue is in appeal against the order of the National Faceless Appeal Centre (NFAC) for Assessment Year 2017-2018. The Assessing Officer (AO) made an addition of Rs. 1,20,45,000/- under Section 68 of the Income Tax Act, 1961, treating cash deposits of Specified Bank Notes (SBNs) made by the assessee society from its members during the demonetization period as unexplained cash credit. The assessee contended that these deposits were from its members and supported by its audited records. The AO rejected this, stating that accepting SBNs during demonetization was against the law and policy, and that SBNs had no value after November 9, 2016. The NFAC deleted the addition, which is now under challenge by the Revenue.

What were the issues?

1. Whether, on the facts and in law, the CIT(A), NFAC, erred in deleting the addition of Rs. 1,20,45,000/- made by the AO. 2. Whether, on the facts and circumstances, the CIT(A), NFAC, erred in deleting the addition without appreciating that the impugned deposits of SBNs of Rs. 1,20,45,000/- constitute unexplained cash credit and should be added under Section 68 of the Act. 3. Whether, on the facts and circumstances, the CIT(A), NFAC, erred in deleting the addition without appreciating that the AO contended that SBNs were worthless pieces of paper after November 9, 2016, and transactions through them should have been disallowed. 4. Whether, on the facts and circumstances, the CIT(A), NFAC, erred in deleting the addition and not considering that the society accepted cash from its members during demonetization, which was an infringement of law and against government policy, even with a clarification from the Assistant Sub-Registrar of Co-operative Societies. Assessee's Contentions: The credit entries were from members, supported by cash book and audited records. The source of deposits was not disputed by the AO. The AO's rejection of SBN acceptance was legally unjustified in view of the Specified Bank Notes (Cessation of Liabilities) Act, 2017, which allowed transfer or receipt of SBNs up to December 30, 2016. The assessee society acted under a bonafide belief that accepting SBNs was permissible, especially after a clarification from the Assistant Sub-Registrar on November 11, 2016, and stopped accepting them after 6:15 p.m. on that day. The assessee provided details of members, their ledger extracts, and was willing to produce members for verification. The identity, creditworthiness, and genuineness of transactions were proved. The AO ignored these facts. The Revenue's stand fails as the assessee proved the identity, genuineness, and creditworthiness of its members, as per Section 68 requirements and supported by the coordinate bench's decision in Shrijeet Finance (P) Ltd. vs. ACIT. Revenue's Contentions: The AO correctly invoked Section 68 as the assessee was not entitled to receive demonetized SBNs after they ceased to be legal tender, and the AO contended that SBNs were worthless pieces of paper after November 9, 2016. The society's acceptance of cash during demonetization was an infringement of law and against government policy.

Which sections of the Income-tax Act were involved?

Section 68,Section 143(3),Section 80P

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, PUNE “A” BENCH : PUNE

Before: SHRI RAMA KANTA PANDA & SHRI SATBEER SINGH GODARA

2018, arises against the order of the National Faceless Appeal Centre [in short the “NFAC”] Delhi’s Din and Order No. ITBA/NFAC/S/250/2023-24/1055403648(1), dated 24.08.2023, in proceedings u/s.143(3) of the Income Tax Act, 1961 (in short “the Act”).

Heard both the parties. Case file perused.

2.

The Revenue pleads the following substantive grounds in the instant appeal :

2 I.T.A.No.1104/PUN./2023 1. “On the facts and in law the CIT(A), NFAC has erred in deleting the addition made by AO of Rs.1,20,45,000/.

2. On the facts and circumstances of the case the CIT(A), NFAC has erred in deleting the addition without appreciating the fact that the impugned deposits of SBNs of Rs.1,20,45,000/- is unexplained cash credit and must be added u/s. 68 of the Act.

3.

Whether on the facts and circumstances of the case the CIT(A), NFAC has erred in deleting the addition without appreciating the fact that the AO contented that SBNs were just pieces of papers and they bear no value on or after 9th November and transaction done through SBNs were supposed to be disallowed by the assessee once demonetization was declared on 08.11.2016.

4. Whether on the facts and circumstances of the case the CIT(A), NFAC has erred in deleting the addition and not considering the evident fact that the society has accepted cash from its members during the demonetization period.

The Act of the society is therefore in the nature of infringement of law and against the policy of government even if the Assistant Sub-Registrar of Co-operative societies had issued clarification on 11.11.2016. 5. The appellant requests that he may be allowed to furnish additional evidences.

3 I.T.A.No.1104/PUN./2023 6. The appellant craves leave to add, alter, amend and delete any of the above ground of appeal.”

3. Both the learned representatives next invited our attention to the learned NFAC’s detailed discussion reversing the Assessing Officer’s findings making sec.68 unexplained cash credit addition in question of Rs.1,20,45,000/- as under :

4 I.T.A.No.1104/PUN./2023 5 I.T.A.No.1104/PUN./2023 6 I.T.A.No.1104/PUN./2023 7 I.T.A.No.1104/PUN./2023 8 I.T.A.No.1104/PUN./2023 9 I.T.A.No.1104/PUN./2023 10 I.T.A.No.1104/PUN./2023 11 I.T.A.No.1104/PUN./2023 12 I.T.A.No.1104/PUN./2023

4.

We have given our thoughtful consideration to the Revenue’s foregoing pleadings and assessee’s vehement contentions raised during the course of hearing challenging correctness of the NFAC’s impugned findings deleting sec.68 addition herein. There is hardly any dispute between the parties that the assessee had indeed made cash deposits of 13 I.T.A.No.1104/PUN./2023 Rs.1,20,45,000/- during demonetization in the nature of specified bank notes; in the relevant previous year. It’s stand all along has attributed source thereof to the receipts realized from it’s members in the regular course of business activity(ies) only. We make it clear that even Revenue is fair enough in not raising any ground to this clinching effect that these cash deposits have not been realized or received from the assessee’s members concerned. It’s only case is that once these specified bank notes stood demonetized w.e.f.

01.01.2016; and the assessee was not entitled to receive the same in any capacity; whatsoever; the Assessing Officer had rightly invoked sec.68 of the Act.

5.

This Revenue’s stand fails to evoke our concurrence in the foregoing terms once it has come on record that the assessee had fully proved identity, genuineness and creditworthiness of it’s members having deposited these specified bank notes. We deem it appropriate to observe here that the Income-tax Act is a self-contained code wherein an assessee has to prove the foregoing three limbs in order to get out of the rigor of sec.68 of the Act. This tribunal’s recent coordinate bench’s order in Shrijeet Finance (P) Ltd., vs. ACIT [2024] 162 taxmann.com 243 (Pune-Tribu.) has also rejected the Revenue’s identical stand as under :

14 I.T.A.No.1104/PUN./2023 “5. During the assessment proceedings, the AO observed that the assessee has received cash in old currency during the demonetization period between 08.11.2016 to 13.12.2016 of Rs.12,34,000/-. The assessee submitted before the AO that these amounts were deposited by their customers towards the loan installments. Assessee submitted list of customers. Assessee also submitted that all the customers were having proper KYC Documents.

However, the AO made addition under section 68 of the Act, on the ground that as per the RBI Guidelines assessee being an NBFC was not permitted to accept the old currencies which were no-more legal tender after 08.11.2016. Ld.CIT(A) confirmed the said addition. The only plea taken by the AO, ld.CIT(A) and ld.DR that as per the notification no.S.O. 3407(E) dated 08/11/2016 & S.O.

3418(E) of Ministry of Finance (Department of Economic Affairs), New Delhi dated 08/11/2016 (F. No. 10/03/2016-cy.l) only banking company defined under the Banking Regulation Act were allowed to accept demonetized currency after 08.11.2016, and NBFCs were not allowed to accept impugned currencies.

5.1 The AO made addition under section 68 of the Act.

To invoke section 68 of the Act, the AO has to prove that assessee failed to file identity of the depositors, genuineness of the transaction and creditworthiness. In 15 I.T.A.No.1104/PUN./2023 this case, the assessee had submitted the names of the persons from whom cash was received during the demonetization period in the form of demonetized currency. Assessee also submitted that assessee maintains all KYC documents of all these persons. The AO had not asked the assessee to produce the said KYC Documents. Rather AO has not challenged the identity of the depositors, genuineness of the transactions and creditworthiness of the depositors. In these facts and circumstances of the case, we are of the opinion that no addition can be made under section 68 of the Act. We find support from the order of ITAT Pune Bench authored by then Hon’ble Vice-President, Shri R.S.Syal in the case of M/s.Bhagur Urban Credit Co-operative Society Ltd., Vs. ITO in for A.Y.2017-18 dated 03.01.2023. Therefore, the AO is directed to delete the addition of Rs.12,34,000/- made under section 68 of the Act. Accordingly, Ground No.2 and 3 are allowed.”

6.

We adopt the foregoing detailed discussion mutatis mutandis to uphold the learned NFAC’s order deleting the impugned addition. Ordered accordingly.

7.

This Revenue’s appeal is dismissed in above terms.

16 I.T.A.No.1104/PUN./2023 Order pronounced in the open Court on 04.06.2024

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