ACIT, Cir-9(1), Hyderabad V. The Citizen Cooperative Society Limited, Hyderabad

ITA 1201/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61939 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 20-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAO
• Assessee Lawyers: S RAVI SHRI A V RAGHURAM
• Keywords: Deemed to accrue or arise in india; Additional evidence; Onus to prove
• Section: 131; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1003/HYD/2011 A.Y. 2007-08 ITA NO. 1004/HYD/2011 A.Y. 2008-09 THE CITIZEN CO-OP. SOCIETY LTD., HYDERABAD PAN: AAAAT3952F VS. ADDL. COMMISSIONER OF INCOME-TAX, RANGE-9, HYDERABAD ASSESSEE RESPONDENT ITA NO. 1200/HYD/2011 A.Y. 2006-07 ITA NO. 1049/HYD/2011 A.Y. 2007-08 ITA NO. 1201/HYD/2011 A.Y. 2008-09 ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-9(1), HYDERABAD VS. THE CITIZEN CO-OP. SOCIETY LTD., HYDERABAD PAN: AAAAT3952F ASSESSEE RESPONDENT ASSESSEE BY: SHRI S. RAVI/ SHRI A.V. RAGHURAM REVENUE BY: SHRI M.S. RAO DATE OF HEARING: 03.05.2012 DATE OF PRONOUNCEMENT: 02.07.2012 O R D E R PER CHANDRA POOJARI, AM: THESE FIVE APPEALS FILED BY THE ASSESSEE AND THE RE VENUE ARE DIRECTED AGAINST THE DIFFERENT ORDERS PASSED BY THE CIT(A) FOR THE A.Y. 2006-07, 2007-08 AND 2008-09 AS FOLLOWS: 2. THE GROUNDS RAISED BY THE ASSESSEE AS WELL AS THE R EVENUE ARE COMMON IN NATURE AND HENCE THESE APPEALS ARE CL UBBED TOGETHER AND DISPOSED OF BY COMMON ORDER FOR THE SA KE OF CONVENIENCE. ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 2 3. THE REVENUE HAS RAISED THE FIRST GROUND IN ITS APP EALS ITA NO. 1200/H/2011 FOR A.Y. 2006-07, ITA NO. 1049/H/20 11 FOR A.Y. 2007-08 & ITA NO. 1201/H/2011 FOR A.Y. 2007-08 WI TH REGARD TO DELETION OF ADDITION MADE U/S. 68 OF THE INCOME TA X ACT IN RESPECT OF DEPOSIT ACCEPTED BY THE ASSESSEE THOUGH THE ASSE SSEE NOT PRODUCED THE DETAILS NAMELY, ADDRESS OF THE DEPOSIT OR OR ANY PARTICULARS OF THE DEPOSITOR. THE REVENUE ALSO RAI SED THE GROUND THAT THE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE DID NOT ADMIT MINORS AS DEPOSITORS DESPITE CLEAR EVIDENCE ON RECO RD THAT SOME OF THE DEPOSITS ARE IN THE NAMES OF THE MINORS. 4. FOR BREVITY, WE CONSIDER THE FACTS RELATING TO OF A SSESSMENT YEAR 2006-07. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER TREATED THE DEPOSITS ACCEPTED BY THE ASSESSEE AS TH E INCOME OF THE ASSESSEE U/S 68 OF THE IT ACT. ACCORDING TO THE A SSESSING OFFICER THE ASSESSEE HAS NOT FURNISHED THE ADDRESS OF SUCH DEPOSITORS EXCEPT IN A FEW NUMBERS OF CASES. THE ASSESSEE NEIT HER PRODUCED THE DEPOSITORS NOR SUBMITTED THE DEPOSITORS REGISTE R. THE ASSESSING OFFICER STATED THAT SOME OF THE DEPOSITOR S COULD NOT BE CONTACTED AT THE GIVEN ADDRESS. SINCE THE DETAILED ADDRESSES WERE NOT PROVIDED BY THE ASSESSEE, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE PROVISIONS OF SEC. 68 WERE APPLICABLE TO S UCH DEPOSITS AND ACCORDINGLY HE TREATED THE DEPOSITS AS THE INCOME O F THE ASSESSEE IN ALL THESE ASSESSMENT YEARS. THE ASSESSING OFFICE R RELIED ON VARIOUS JUDICIAL DECISIONS AND MENTIONED THE SAME I N THE ASSESSMENT ORDER. ON APPEAL, THE CIT(A) DELETED TH E ADDITION MADE U/S. 68 OF THE IT ACT BY HOLDING AS FOLLOWS: 6.2 A) THE ASSESSEE IS A COOPERATIVE SOCIETY CARRY ING ON BANKING BUSINESS. IT IS OPERATING ITS ACTIVITIES THROUGH 23 BRANCHES CONSISTING OF ABOUT 63,000 MEMBERS AT VARIOUS PLACE S AND THE ACTIVITIES ARE CARRIED ON ONLY BY THE PAID MANAGERS OF THE BANKS. B) THERE ARE SPECIFIC RULES AND REGULATIONS GOVERNI NG THE ACCEPTANCE AND REPAYMENT OF THE DEPOSITS FROM ITS M EMBERS. ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 3 C) THE SOCIETY DOES NOT ACCEPT ANY DEPOSIT FROM OUT SIDERS AND ACCEPTS DEPOSITS ONLY FROM ITS MEMBERS. D) AT THE TIME OF REPAYMENT OF THE DEPOSIT THE AMOU NTS ARE TRANSFERRED TO THE SB ACCOUNT AND THEREAFTER PAYMEN TS WERE MADE TO THE MEMBER. E) THERE IS NO POSSIBILITY TO EARN INCOME OUTSIDE T HE BOOKS OF ACCOUNT AS THE ENTIRE ACTIVITY CARRIED ON BY THE SO CIETY IS KNOWN TO THE PUBLIC, DEPOSITORS, MEMBERS AND THE DIRECTORS. THE ACCOUNTS ARE FINALLY PLACED BEFORE THE MEMBERS AND THE DIREC TORS, WHO ARE EITHER PAYING INTEREST TO THE BANK, OR RECEIVING IN TEREST FROM THE BANK. F) THE ACCOUNTS OF THE SOCIETY ARE PERIODICALLY INS PECTED BY THE COOPERATIVE DEPARTMENT AND ALSO BY THE AUDITORS. SU CH ACCOUNTS ARE APPROVED BY THE MEMBERS OF THE SOCIETY AND ALSO BY THE DIRECTORS OF THE SOCIETY. G) THE ASSESSEE ALSO RELIED ON VARIOUS DECISIONS OF THE I.T.A.T. AND HIGH COURT WITH PARTICULAR REFERENCE TO THE DECISIO N OF THE HONOURABLE ITAT IN ITS OWN CASE FOR THE ASSESSMENT YEAR 2007-08 RENDERED IN CONNECTION WITH LEVY OF PENALTIES UNDER SEC. 271D AND 271 E OF THE ACT. IN VIEW OF THE ABOVE FACTUAL POSITION AND OTHER LEG AL PROPOSITIONS MENTIONED IN VARIOUS CASE LAWS, THE AR OF THE ASSES SEE ARGUED THAT PROVISIONS OF SEC. 68 SHOULD NOT HAVE BEEN APPLIED BY THE ASSESSING OFFICER. 6.3 WITH REFERENCE TO THE SUBMISSIONS MADE BY THE A SSESSEE, THE LD. CIT(A) PERUSED THE RECORDS AND THE OBSERVATIONS OF THE ASSESSING OFFICER AND PUT FORTH HIS VIEWS ON THESE ISSUES AS UNDER: I) IT IS EVIDENT FROM THE RECORD THAT THE SOCIETY I S MAINTAINING A SYSTEMATIC RECORD IN ACCEPTING THE DEPOSIT. THE SOC IETY IS A BANKING INSTITUTION. IT HAS 23 BRANCHES ALL AND A F EW IN OTHER STATES. EACH BRANCH IS HEADED BY A BRANCH MANAGER. TO REGULATE THE TRANSACTIONS, IT IS SEEN THAT THE STAFF ACCEPTS CASH AT THE COUNTER AND ON VERIFICATION OF THE RECEIPT OF THE A MOUNT, THE MANAGER ISSUES A CERTIFICATE. THE AMOUNT SO RECEIVE D IS RECORDED IN THE REGULAR CASH BOOK; THE DEPOSIT REGISTER OF T HE BANK AND ALSO A REPORT IS SUBMITTED TO THE HEAD OFFICE ABOUT THE RECEIPTS PERIODICALLY. THE ACCEPTANCE OF THE DEPOSIT IS PREC EDED BY AN APPLICATION BEING SUBMITTED BY THE MEMBER WHO IS DE POSITING THE AMOUNT WITH THE BANK. EACH APPLICATION CONTAINS THE NAME AND ADDRESS OF THE MEMBER, THE MEMBERSHIP NUMBER, AMOUN T BEING DEPOSITED, THE VOCATION OF THE MEMBER WHO IS DEPOSI TING THE AMOUNT AND THE PERIOD FOR WHICH SUCH DEPOSIT IS MAD E. THEREFORE, ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 4 COMPLETE DETAILS ARE GATHERED BY THE MANAGER WHILE ACCEPTING THE DEPOSIT. PERTAINING TO THIS METHODOLOGY, IT IS SEEN THAT THE A.O DID NOT INTERVENE WITH ADVERSE MATERIAL/ EVIDENCE TO SH OW THAT THERE IS CONTRAVENTION AND VIOLATION OF PROCEDURE WHILE RECE IVING THE DEPOSITS BY THE ASSESSEE. SIMILARLY, THE ASSESSEE I S SUBJECTED TO PERIODICAL INSPECTIONS BY VARIOUS GOVERNMENT AUTHOR ITIES AND THERE IS NO INSTANCE MENTIONED BY THE A.O REGARDING ANY IDENTIFIED ADVERSITY COPY OF THE SAME SENTENCE WHICH IS CORREC TED FOR THE ASST. YEAR 2008-09. II) IT IS SEEN THAT THE COOPERATIVE SOCIETY ISSUES A DEPOSIT CERTIFICATE TO THE DEPOSITOR. THE INTEREST PAYABLE TO THE DEPOSITOR IS CREDITED TO HIS SB ACCOUNT REGULARLY. THERE IS A FA CILITY FOR THE DEPOSITOR TO WITHDRAW INTEREST PORTION OF THE AMOUN T. SUCH INTEREST IS CREDITED TO THE ACCOUNT OF THE MEMBER P ERIODICALLY AS REQUIRED BY HIM. THERE IS NO DISPUTE WITH REGARD TO PAYMENT OF INTEREST TO THE DEPOSITORS. THIS ALSO CLEARLY INDIC ATES THAT THE AMOUNT DEPOSITED BELONGS TO THE DEPOSITORS AND NOT THAT OF THE ASSESSEE. THE SOCIETY ALSO IS SYSTEMATICALLY MAINTAINING THE RECORD WHILE REFUNDING THE AMOUNT. THE DEPOSIT CERTIFICATE ISSUE D BY THE SOCIETY IS TAKEN BACK DULY DISCHARGED BY THE DEPOSI TOR. THE AMOUNT IS CREDITED TO THE SB ACCOUNT OF THE DEPOSIT OR. THE ASSESSEE DOES NOT PAY THE REALIZATION OF THE FDRS D IRECT TO THE MEMBER AND THE SAME IS CREDITED TO HIS SB ACCOUNT. A DEBIT VOUCHER IS PREPARED BY THE BRANCH MANAGER, AND THE SIGNATURE OF THE DEPOSITOR IS OBTAINED BOTH ON THE DEBIT VOUCHER AND THE DEPOSIT CERTIFICATE. ALL THE SAID MATERIAL IS BUNDL ED AND KEPT IN THE DEBIT VOUCHERS FILE. AS MENTIONED EARLIER, LD CIT(A) CALLED FOR THE ABO VE RECORDS AND PERUSED THE SAME AND FOUND THAT THE ASSESSEE IS MAI NTAINING A SYSTEMATIC RECORD OF BOTH THE RECEIPT AND REPAYMENT OF THE LOAN AND OBSERVED THAT THE SOCIETY IS ACTING WITH DUE DI LIGENCE AND CAUTION BOTH IN ACCEPTING THE DEPOSIT AND IN REPAYI NG THE AMOUNT. THEREFORE, LD CIT(A) IS OF THE OPINION THAT THE DEC ISIONS OF THE ITAT PUNE BENCH IN THE CASE OF SRI MAHAVIR NILGARI SAHAKARI PAT SANSTHA LTD., VS. DCIT REPORTED IN 74 TTJ 793 AND T HE DECISION OF THE GUJARATH HIGH COURT IN THE CASE OF CIT VS. PRA GATHI COOPERATIVE BANK LTD., REPORTED IN 278 ITR 170 ARE APPLICABLE TO THE FACTS OF THE CASE AND THEREFORE, THE ONUS ON TH E ASSESSEE TO PROVE THE CREDIT IS LIMITED TO THE MAINTENANCE OF S YSTEMATIC RECORD WITH DUE DILIGENCE AND CAUTION. THEREFORE, LD CIT(A ) HELD THAT THE ASSESSEE DISCHARGED THE ONUS CASTE ON HIM IN THIS R EGARD. IT IS ALSO SEEN THAT THE HONBLE ITAT, BENCH-B, HYD ERABAD IN ITS CONSOLIDATED ORDER IN ITA NO. 1156-1159/HYD/09 DATE D 26-02- 2010 WHILE DECIDING THE ISSUE FOR LEVY OF PENALTY U /S 271D AND ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 5 271E OF THE I.T. ACT FOR THE ASSESSMENT YEARS 2006- 07 AND 2007-08 HAD AN OCCASION TO GO INTO THE FACTS WITH REFERENCE TO THE DEPOSITS MADE BY THE MEMBERS OF THE SOCIETY. THE HON'BLE ITA T FOUND THAT THE ASSESSEE IS MAINTAINING A SYSTEMATIC RECORD OF COLLECTING THE DEPOSITS FROM ITS MEMBERS AND ALSO ADVANCING THE LO AN TO THE MEMBERS. THE TRANSACTIONS ARE BOOKS OF ACCOUNT REGU LARLY PAYMENTS ARE OPEN AND TRANSPARENT COUPLED WITH WELL ESTABLISHED ACCOUNTING SYSTEM. THEREFORE, LD. CIT(A) IS OF THE VIEW THAT THERE CAN NOT BE ANY UNEXPLAINED DEPOSITS WHICH WOULD BE GOVERNED BY THE PROVISIONS OF SEC. 68 OF THE I.T. ACT .. IT IS ALSO SEEN THAT THE NUMBER OF DEPOSITORS ARE A BOUT 63,500 AND ALL THE INFORMATION WAS FED IN TO THE COMPUTERS. EA CH BRANCH BEING MANAGED BY A BRANCH MANAGER RECORDS THE NAMES AND ADDRESSES OF THE DEPOSITORS AND THE AMOUNTS RECEIVE D FROM THEM. THE SAID BRANCH MANAGER WHILE COLLECTING THE DEPOSI TS ARE USUALLY NOT REQUIRED TO GO FOR A DETAILED VERIFICAT ION OF THE ADDRESSES, WHEREABOUTS OF ITS MEMBERS AND THE ASSES SEE IS NOT BOUND BY ANY OBLIGATION FOUND TO MAKE ENQUIRIES ABO UT THE DEPOSITORS PARTICULARLY IN A BANKING CONCERN HAVING ABOUT 63,500 MEMBERS. IT IS ALSO FOUND BY THE HON'BLE ITAT IN TH E JUDGEMENT REFERRED TO ABOVE. THERE IS NO INSTANCE FOUND FROM THE RECORDS THAT THERE WAS A DELIBERATE ATTEMPT ON THE PART OF THE A SSESSEE TO ACCOMMODATE ANY TAX DODGERS. THERE WAS NEITHER ANY INCIDENT OR EXAMPLE CITED BY THE A.O ON THIS ISSUE FROM THE REC ORDS NOR BROUGHT ANY MATERIAL TO SUBSTANTIATE WITH EVIDENCE THAT THE ASSESSEE ACCOMMODATED TAX EVADERS. IT IS SEEN THAT THE ASSESSING OFFICER COULD IDENTIFY 30 DEPOSITORS AND ALL OF THE M HAVE ACCEPTED THE DEPOSITS MADE BY THEM INTO THE BANK ACCOUNT. TH E DEPARTMENT ISSUED NOTICES AND IT IS ON RECORD THAT ALL OF THEM FILED THE RETURNS OF INCOME AND PAID THE TAXES. THERE IS NO DATA WITH THE ASSESSING OFFICER TO PROVE THAT ANY OF THE DEPOSIT MADE BY TH E MEMBERS INTO THE BANK REPRESENTS THE INCOME OF THE ASSESSEE, NOR THE A.O COULD ESTABLISH SUCH AN OPINION WITH CLINCHING EVIDENCE. IN THIS REGARD A REFERENCE IS MADE TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. P.K. NOORJAHAN REPORTED IN 237 ITR 576 . IT IS CATEGORICALLY MENTIONED THAT TH E WORD USED MAY LEAVES IT TO THE DISCRETION OF THE ASSESSING OFFICE R WHETHER AN ADDITION UNDER THE DEEMING PROVISIONS COULD BE MADE OR NOT. IN EACH OF THE CASE THE ASSESSING OFFICER HAS TO ANALY SE THE CIRCUMSTANCES AND PROCEED TO APPLY THE PROVISIONS O F 68 OF THE IT ACT. IN THE PRESENT CASE, THE ASSESSEE IS A BANKING INST ITUTION WHOSE MAIN ACTIVITY IS TO ACCEPT THE DEPOSITS AND SUCH DE POSITS WERE ACCEPTED BY THE MANAGER OF THE BRANCHES. TO THE EXT ENT OF THE MAINTENANCE OF THE RECORDS IS CONCERNED, IT IS ALRE ADY SEEN AND HELD THAT A SYSTEMATIC RECORD WAS MAINTAINED BY THE ASSESSEE WITH ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 6 REGARD TO THE TRANSACTIONS BY THE BANK. IN SUCH CIR CUMSTANCES, I AM OF THE VIEW THAT THE DECISION OF THE SUPREME COU RT WOULD APPLY TO THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND THE PROVISIONS OF SEC. 68 ARE NOT APPLICABLE. LD. CIT(A) REFERRED TO THE DECISION OF THE HON'BLE ITAT, AMRITSAR BENCH IN THE CASE OF ACIT VS. CITIZEN URBAN CO-OPER ATIVE SOCIETY LTD., REPORTED IN 314 ITR 91 (AT) WHEREIN IT WAS HE LD THAT DEPOSITS ACCEPTED BY THE BANK ARE NOT COVERED U/S 68 OF THE LT. ACT AS THE BANK IS NOT OBLIGED TO QUESTION THE SOURCE OF THE D EPOSITS OF THE CUSTOMERS WHERE DEPOSITS HAVE BEEN PROPERLY INTRODU CED. THE METHODOLOGY OF ACCEPTING THE DEPOSITS MATTERS AND I T IS NOT THE DUTY OF THE ASSESSEE TO ASK THE DEPOSITOR TO ESTABL ISH THE SOURCE. THE SOURCE OF THE DEPOSIT FOR THE ASSESSEE IS THE D EPOSITOR BUT IT IS IRRELEVANT FOR THE ASSESSEE TO CHECK/ENQUIRE THE SO URCE OF THE DEPOSITOR. IT MAY NOT BE OUT OF PLACE SAY THAT THE A.O EXAMINED THE DEPOSITORS BUT HE COULD NOT ESTABLISH THAT THE SOUR CE OF EXTENDING THE MONEY BY THE DEPOSITOR WAS ORIGINATED AND ROUTE D BACK TO THE ASSESSEE IN A CIRCULAR MOTION. WITHOUT ESTABLISHING ANY SUCH MODUS OPERANDI BEING ADOPTED BY THE ASSESSEE, IT IS INCORRECT TO SAY THAT ALL THE MONEY DEPOSITED BY THE MEMBERS BEL ONG TO THE ASSESSEE. MOREOVER, THE AO DID NOT FIND A SOURCE FR OM WHERE SUCH UNACCOUNTED MONEY IS GENERATED BY THE ASSESSEE TO B RING BACK SUCH AMOUNT AS DEPOSITS BY UNKNOWN DEPOSITORS. THE SYSTEMATIC METHOD FOLLOWED BY THE ASSESSEE IS CRYSTAL CLEAR AN D TRANSPARENT. IF ANY DEPOSIT IS UNEXPLAINED, IT IS THE DUTY OF TH E ASSESSING OFFICER TO EXAMINE THE DEPOSITOR FOR SUCH A SOURCE AND ASS ESS IN THE HANDS OF SUCH DEPOSITOR. BUT SUCH A SOURCE DOES NOT BECOME THE INCOME OF THE ASSESSEE IN ANY WAY. WHILE DEALING WITH THE BANK ONE HAS TO SEE WHETHER A SYSTEMATIC RECORD REQUIRED BY THE BANK WAS MAINTAINED OR NOT. THE PRINCIPLE IN SEC. 68 IS A STATUTORY RECOGNITION OF WHAT WAS A LWAYS UNDERSTOOD IN LAW BASED UPON THE EVIDENCE THAT IT I S FOR A TAX PAYER TO PROVE THE GENUINENESS OF THE CREDITS IN HI S BOOKS OF ACCOUNTS SINCE THE RELEVANT FACTS ARE EXCLUSIVELY I N ITS KNOWLEDGE. THOUGH, ONCE THE BURDEN OF PROOF LIES WITH THE ASSE SSEE YET ONCE HE FURNISHES THE IDENTITY OF THE DEPOSITOR AND SHOW ED THE GENUINENESS BY SUCH DEPOSITOR BEING RECORDED IN THE BOOKS OF ACCOUNTS, THE ONUS TO PROVE TO THE CONTRARY SHIFTS TO THE ASSESSING OFFICER. THE ASSESSEE CAN BE ASKED TO PROVE THE SOU RCE OF THE CREDIT BUT NOT THE SOURCE OF THE SOURCE AS HELD IN CIT VS. ORISSA CORPORATION PVT. LTD. (1986) 159 ITR 79(SC). IN THE PRESENT CASE, THE AO EXAMINED THE MATERIAL SUBMITTED BY THE ASSES SEE FOR ALMOST 1 YEAR 9 MONTHS AND FROM THE RECORD IT IS SEEN THAT HE NEVER ATTEMPTED TO INVESTIGATE OR EXAMINE AND BRING OUT A NY INDEPENDENT CONCLUSIVE EVIDENCE TO SUPPORT HIS VIEWS. EVEN IF H E HAD EXAMINED A SOURCE TO SOURCE AND FOUND ANYTHING ADVERSE HE IS DUTY BOUND TO INFORM THE A.O WHO IS VESTED WITH THE JURISDICTION OF SUCH ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 7 DEPOSITOR PERTAINING TO SUCH AN AMOUNT BUT THE ASSE SSEE CANNOT BE HELD FOR WHAT HE IS NOT LIABLE. THE ASSESSEE SOCIET Y IDENTIFIED ITS MEMBERS AND GAVE THE DETAILS AS REQUIRED BY THE AO. FOR ITS OPERATIONS, THE ASSESSEE SOCIETY ACCEPTS DEPOSITS F ROM THE DEPOSITORS WHO ARE MEMBERS AND IT IS NOT THE DUTY O F THE ASSESSEE TO PROBE THE SOURCE OF MONEY DEPOSITED BY ITS MEMBE RS. 6.4 THE ASSESSEE ALSO PLEADED THE DOCTRINE OF MUTUA LITY. A COOPERATIVE INSTITUTION IS AN INSTITUTION FORMED FO R THE BENEFIT OF ITS MEMBERS. THE MEMBERS OF THE SOCIETY DEPOSIT THE AMO UNT WITH THE BANK AND THE SAME MEMBERS WOULD BE UTILISING THE AM OUNT FOR THEIR OWN PURPOSES. THERE ARE THE DEPOSITORS AND DE BTORS AMONG THE MEMBERS. THE MEMBERS OF THE SOCIETY ARE THE BE NEFICIARIES OF THE SOCIETY. THEY VERIFY THE BOOKS OF ACCOUNT. THEY FORM THE GENERAL BODY WHICH WOULD EXAMINE THE ACCOUNTS OF TH E SOCIETY. THEY ELECT THE DIRECTORS AND THE DIRECTORS WILL BE MANAGING THE AFFAIRS OF THE SOCIETY. TAKING ALL THESE FACTORS IN TO ACCOUNT, THERE IS NO POSSIBILITY OR PROBABLE NEGLIGENCE FOR THE MANAG EMENT TO MAKE ANY WRONG ENTRY IN THE BOOKS OF ACCOUNT. FURTHER, T HE ACCOUNTS SHOWING THE DEPOSIT RECEIPTS, REPAYMENTS AND THE LO ANS PROVIDED ARE ALL APPROVED BY THE MEMBERS IN THE GENERAL BODY MEETING WHO ARE THE PERSONS WHO WOULD DEPOSIT OR TAKE THE L OANS. THEREFORE, IT CAN BE SAID THAT IT IS A MUTUAL SOCIE TY AND THE DOCTRINE OF MUTUALITY IS APPLICABLE AND THEREFORE, IT CAN BE HELD THAT THE PROVISIONS OF SEC. 68 HAVE NO APPLICATION. CONSIDERING ALL THE CIRCUMSTANCES AND THE FACTS ASC ERTAINED, LD CIT(A) IS OF THE EARNEST VIEW THAT THE PROVISIONS O F SEC. 68 OF THE LT. ACT, 1961 WOULD NOT APPLY TO THE ASSESSEE SOCIE TY AND THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING ADDITI ON U/S 68 OF THE IT ACT. ACCORDINGLY THE ADDITION MADE BY THE ASSESS ING OFFICER UNDER SEC. 68 WAS DELETED BY CIT(A) AND DIRECTED TH E ASSESSING OFFICER TO PASS AN ORDER ACCORDINGLY. 5. AGAINST THE ABOVE FINDINGS OF THE CIT(A), THE REVEN UE IS IN APPEAL BEFORE US. 6. THE LD. DR STRONGLY RELIED ON THE ORDER OF THE ASS ESSING OFFICER AND SUBMITTED THAT THE PROVISIONS OF S.68 O F THE ACT IS VERY MUCH APPLICABLE TO THE ASSESSEE AS THE ASSESSEE FAI LED TO PROVE THE GENUINENESS OF THE DEPOSITS, IT IS TO BE CONSIDERED AS DEEMED INCOME OF THE ASSESSEE U/S 68 OF THE I.T ACT. ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 8 7. ON THE OTHER HAND, THE LD. AR REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE CIT(A), AS FOLLOWS: A) THE ASSESSEE IS A CO-OPERATIVE SOCIETY CARRYING ON BANKING BUSINESS. IT IS OPERATING THROUGH 23 BRANCHES AT PR ESENT. EACH OF THE BRANCHES IS HEADED BY MANAGER AND ASSIS TED BY STAFF THE MEMBERS OF THE SOCIETY OPERATE THROUGH TH E COUNTERS OPENED AT EACH OF THE BRANCH. CASH IS ACCE PTED ALONG WITH APPLICATIONS AT THE COUNTERS. THE STAFF MAKES SURE THAT ALL THE COLUMNS OF THE APPLICATION ARTE P ROPERLY FILLED IN AND ACCEPTS THE DEPOSIT B) ANY PERSON WHO WISHES TO DEPOSIT THE AMOUNT WITH TH E ASSESSEE HAS TO BECOME MEMBER OF THE SOCIETY, FOR T HIS PURPOSE AN APPLICATION HAS TO BE MADE TO THE MANAGI NG DIRECTOR OF THE SOCIETY. A SPECIMEN COPY OF THE APP LICATION FOR ADMISSION TO THE MEMBERSHIP IS SUBMITTED. SUCH APPLICATIONS WERE OBTAINED IN RESPECT OF ALL THE DE POSITORS. THE ASSESSEE PRODUCED SOME OF SUCH APPLICATIONS FOR PERUSAL OF THE ASSESSING OFFICER. IT CAN BE SEEN FR OM THE SAID APPLICATIONS THAT THE DETAILS ABOUT EACH OF THE PER SON IS AVAILABLE IN THE SAID APPLICATION. THE NAME AND ADD RESS IS AVAILABLE IN THE SAID APPLICATION. EACH OF THE NEW MEMBER IS INTRODUCED BY EITHER THE STAFF MEMBERS/ MANAGER OR ANY OTHER MEMBER OF THE SOCIETY. C) ONCE THE PERSON IS ADMITTED AS A MEMBER OF THE SOCI ETY, HE WOULD BE PERMITTED TO DEPOSIT THE AMOUNTS EITHER IN THE SB ACCOUNT OR ANY OTHER ACCOUNT BASED ON HIS CONVENIEN CE. FOR THIS PURPOSE, THE SOCIETY PRESCRIBED AN APPLICATION FORM. A COPY OF THE SAID APPLICATION FORM IS SUBMITTED FOR PERUSAL. THE MEMBER OF THE SOCIETY WHO IS DESIROUS OF DEPOSI TING THE AMOUNT HAS TO SUBMIT THE APPLICATION FORM DULY FILL ED AND ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 9 PAY THE AMOUNT IN RESPECTIVE BRANCHES. THE MANAGER OF THE SAID BRANCH ACCEPTS THE DEPOSIT AFTER DUE CONSIDERA TION OF THE APPLICATION. A COPY OF THE BLANK APPLICATION FO RM AND SOME OF THE APPLICATIONS FILLED IN ARE SUBMITTED FO R PERUSAL OF THE ASSESSING OFFICER. THE ASSESSEE IS SUBMITTING B LANK APPLICATION FORMS MEANT FOR EACH OF THE DEPOSIT SEP ARATELY. IT CAN BE SEEN FROM THE ABOVE THAT THE SOCIETY COLLECT S ALL THE DETAILS CONCERNING THE DEPOSITOR THROUGH THE APPLIC ATION FORMS. IT IS SUBMITTED THAT ALL SUCH DETAILS ARE AV AILABLE. D) THE SAID APPLICATION FORMS ARE KEPT AS LONG AS THE DEPOSITS ARE HELD BY THE BANK. THE MEMBER MAY WITHDRAW THE D EPOSIT AFTER COMPLETION OF THE TERM OR AT ANY TIME. MOST O F THE DEPOSITS ARE FOR VERY SHORT TERM. WHEN THE DEPOSIT WAS BEING WITHDRAWN, THE DEPOSITOR MAKES AN APPLICATION TO TH E BANK AND RETAINS THE DEPOSIT CERTIFICATE DULY DISCHARGED . THE SAID APPLICATION IS CONSIDERED AND THE REFUND OF THE DEP OSIT WAS ALLOWED. WHEN THE REFUND WAS BEING ALLOWED, THE APP LICATION FORM; THE APPLICATION FOR WITHDRAWAL AND THE DISCHA RGED CERTIFICATES ARE ALL KEPT ALONG WITH THE DEBIT VOUC HERS AND WOULD FORM PART OF THE (PAID) DEBIT VOUCHERS. SUCH OF THE APPLICATIONS WHERE THE DEPOSITS WERE WITHDRAWN WILL BE AVAILABLE IN SUCH BUNDLES. SOME OF SUCH VOUCHERS WE RE PRODUCED FOR PERUSAL OF THE ASSESSING OFFICER. THE ASSESSEE SUBMITS THAT MOST OF THE DEPOSITS ARE FOR SHORT TER M AND WERE WITHDRAWN. HOWEVER, IT IS SUBMITTED THAT NONE OF THE DEPOSITS ARE PAID DIRECTLY. THE SAID AMOUNTS ARE IN VARIABLY TRANSFERRED TO THEIR S.B. ACCOUNT AND THE MEMBER IS ALLOWED TO WITHDRAW OR RETAIN THE DEPOSIT E) IF ANY OF THE MEMBERS LIKES TO REDEPOSIT THE AMOUNT , THE SOCIETY WILL RECEIVE APPLICATION; CANCEL THE EARLIE R DEPOSIT; PREPARES A DEBIT VOUCHER AND ISSUES A FRESH DEPOSIT ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 10 CERTIFICATE. IT WILL NOT BE THE SAME NUMBER AND A N EW NUMBER FOR THE REDEPOSIT WILL BE ISSUED TO THE MEMB ER. EVEN WHEN THERE IS RENEWAL, THE DISCHARGED DEPOSIT CERTI FICATE BY THE MEMBER AND THE APPLICATION FORM ARE BUNDLED ALO NG WITH THE DEBIT VOUCHERS. THEY WILL NOT BE AVAILABLE ALONG WITH OTHER APPLICATIONS. F) REGISTERS ARE MAINTAINED SEPARATELY FOR EACH OF THE BRANCH. THE DEPOSIT REGISTER CAN BE PRODUCED FOR PERUSAL. I T CAN BE SEEN THAT ALL THE DEPOSITS MADE ARE ENTERED IN THE DEPOSITS REGISTER. IT IS CLEAR THAT THE ASSESSEE IS MAKING A NY EFFORT TO SYSTEMATICALLY RECORD THE TRANSACTIONS. G) FURTHER, WHEN THE AMOUNTS ARE COLLECTED BY THE BRAN CH, THE SAID AMOUNT IS RECEIVED AT THE COUNTER OF THE SOCIE TY OPENED AT THE BANK AND EVEN WHEN IT IS PAID THE SAME WAS P AID THROUGH THE SB ACCOUNT WHICH IS DRAWN LATER. THE BA NKING OPERATIONS ARE RUN BY THE SOCIETY THROUGH ITS THE P AID MANAGERS AND PAID STAFF THEY ENTER THE TRANSACTIONS IN THE REGULAR BOOKS OF ACCOUNT MAINTAINED BY THE SOCIETY. H) THE ENTRIES ARE MADE DURING THE COURSE OF NORMAL BU SINESS ACTIVITY BY THE PAID MANAGERS AND THE PAID STAFF AT BRANCHES. THE SAID TRANSACTIONS ARE PERIODICALLY CERTIFIED BY THE HEAD OFFICE; AUDITORS AND THE CO-OP DEPARTMENT. I) FROM THE ABOVE FACTS IT IS CLEAR THAT ALL THE DETAI LS WITH REGARD TO THE DEPOSITORS ARE AVAILABLE WITH THE BAN K. HOWEVER, IT IS SUBMITTED THAT THE PRESENT NUMBER OF MEMBERS OF THE BANK ARE MORE THAN 65,000 WHO ARE TH E DEPOSITORS OF THE BANK. THEREFORE, IT IS NOT PRACTI CABLE TO PROVIDE COPIES OF ALL THE APPLICATIONS RECEIVED FRO M THE DEPOSITORS IN VIEW OF THE ABOVE PROCESS ADOPTED BY THE SOCIETY. HOWEVER, AS MENTIONED IN THE EARLIER PARAG RAPHS, ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 11 THE ASSESSEE IS SUBMITTING SOME OF SUCH APPLICATION S FOR ADMISSION TO THE MEMBERSHIP AND SOME SUCH APPLICATI ONS FOR ACCEPTANCE OF THE DEPOSITS. THE ASSESSEE IS ALS O SUBMITTING SOME OF THE DEBIT VOUCHERS TO SHOW THAT THE APPLICATIONS WILL BE WITH THE DEBIT VOUCHERS AND AR E NOT SEPARATELY BUNDLED. THE EVIDENCE PRODUCED BEFORE TH E ASSESSING OFFICER WOULD CLEARLY INDICATE THAT ALL T HE DEPOSITS WERE RECEIVED BY THE ASSESSEE HEREIN DURING THE COU RSE OF ITS REGULAR BUSINESS ACTIVITY OF BANKING AND CANNOT BE CONSIDERED AS THE ASSESSEE'S INCOME. THERE IS NO PO SSIBILITY FOR THE SOCIETY TO EARN ANY INCOME IN ADDITION TO W HO IS RECORDED IN THE BOOKS OF ACCOUNT. THE ASSESSEE MAY BE PERMITTED TO SUBMIT THE FOLLOWING EXPLANATION IN TH IS REGARD. J) THE ONLY INCOME DERIVED IS INTEREST, LOCKER CHARGES AND OTHER CHARGES COLLECTED FROM THE MEMBERS OF THE SOCIETY. THE RATES AT WHICH INTEREST IS COLLECTED ON EACH TYPE OF LOAN IS PRESCRIBED. THE SOCIETY CANNOT COLLECT EITHER EXCES S OR LESSER FROM ANY EMBERS. K) THE SOCIETY DEALS WITH ITS MEMBERS ALONE AND ALL TH E MEMBERS ARE WELL AWARE OF THE RULES GOVERNING THE ACCEPTANCE OF DEPOSITS AND ADVANCING AMOUNTS. BOTH THE RECEIPTS AND PAYMENTS ARE THROUGH ITS MEMBERS ALONE . L) AS SUBMITTED EARLIER, THE ACTIVITY IS CARRIED ON BY THE PAID EMPLOYEES OF THE SOCIETY AND THEY ARE BOUND BY BYE- LAWS OF THE SOCIETY. THE MANAGEMENT OF THE SOCIETY WOULD NO T HAVE ANY SAY IN THE DAY-TO-DAY ACTIVITY OF THE SOCIETY. M) THE ACCOUNTS SUBMITTED BY EACH BRANCH ARE CONSOLIDA TED AT THE HEAD OFFICE. THE HEAD OFFICE DOES NOT ACCEPT AN Y DEPOSIT AND ONLY ITS BRANCHES ACCEPT THE DEPOSITS. THE CONS OLIDATED ACCOUNTS DULY APPROVED BY THE BOARD ARE PLACED BEFO RE THE ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 12 GENERAL BODY CONSISTING OF THE MEMBERS OF THE SOCIE TY WITH WHOM THE TRANSACTIONS ARE UNDERTAKEN. AFTER SCRUTIN Y OF ACCOUNTS BY THE MEMBERS, THE ACCOUNTS ARE PASSED. N) THE SOCIETY IS SUBJECT TO INSPECTION PERIODICALLY B Y THE CO- OPERATIVE REGISTRAR AND OTHER CONCERNED AUTHORITIES . THE ACCOUNTS ARE AUDITED BY THE CO-OPERATIVE AUTHORITIE S WITH REFERENCE TO THE APPLICATION FOR ACCEPTANCE AND DISBURSEMENT OF DEPOSITS. THE FINAL ACCOUNTS DULY A PPROVED BY THE GENERAL BODY ARE SUBMITTED TO THE REGISTRAR OF COOPERATIVE SOCIETIES. O) FROM THE ABOVE FACTS IT IS CLEAR THAT THE ASSESSEE HAS NO SCOPE TO EITHER ENHANCE OR REDUCE THE INCOME DERIVE D. THE SOCIETY CAN NOT GENERATE ANY INCOME OUTSIDE THE BOO KS OF ACCOUNT. THERE IS NO SCOPE AT ALL. THE ASSESSEE HUM BLY SUBMITS THAT THE DETAILS AVAILABLE WITH THE SOCIETY PROVE CLEARLY THAT THE DEPOSITS MADE INTO THE BANK BY ALL THE MEMBERS OF THE SOCIETY ARE GENUINE. IT IS SUBMITTED THAT THE ADDRESSES OF ALL THE MEMBERS ARE AVAILABLE WITH THE SOCIETY AND ONLY SUCH MEMBERS DEPOSIT THE AMOUNTS. WHILE DEPOSITING THE AMOUNTS, THE MEMBERS SIGN THE APPLIC ATION FORM CONTAINING THE DATA THAT THEY ARE INTRODUCING THEIR OWN AMOUNT. THE DATA OBTAINED FROM THE APPLICATIONS WOU LD PROVE THE FOLLOWING: A) THE NAME AND ADDRESS OF THE EACH OF THE PERSON AND IN ADDITION THE NAMES AND ADDRESSES OF THE INTRODUCERS ARE AVAILABLE IN THE APPLICATION FORM; B) THE SAID PERSON ALSO PROVIDES PROOF FOR THE ADDRESS PROVIDED BY FILING VOTER'S IDENTITY, DRIVING LICENSE; PAN CA RD ETC., ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 13 C) EACH AND EVERY DEPOSIT IS ACCOMPANIED BY AN APPLICA TION. IN THE APPLICATION, THE SAID PERSON CONFIRMS THE FACT THAT HE IS DEPOSITING THE AMOUNT FOR A CERTAIN PERIOD AND HE R ECEIVES THE DEPOSIT CERTIFICATE; D) THE DEPOSIT IS ENTERED IN THE BOOKS OF ACCOUNT REGU LARLY MAINTAINED. THE AUDITORS OF THE COOPERATIVE DEPARTM ENT AND THE AUDITORS APPOINTED INSPECTS THE ENTRIES MADE WI TH REFERENCE TO THE REGULAR BOOKS OF ACCOUNT AND THE C ERTIFICATES AND THE APPLICATIONS; P) FROM THE ABOVE IT IS CLEAR THAT THERE CANNOT BE ANY DOUBT ABOUT THE GENUINENESS OF THE CREDIT. IT IS ALSO CLE AR THAT THE ASSESSEE SOCIETY IS TAKING ALL THE REQUIRED DATA FR OM THE PERSONS INTRODUCING THE AMOUNTS. Q) IN VIEW OF THE ABOVE FACTS THE ASSESSEE REQUESTS TO ANALYSE THE PROVISIONS OF SEC.68 OF THE 1. T. ACT. SEC. 68 MAKES IT CLEAR THAT WHERE ANY SUM IS FOUND CREDITED IN THE B OOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOUS YEAR AND NO EXPLANATION IS OFFERED BY THE ASSESSEE FOR THE NATU RE AND SOURCE THEREOF, THE SUM SO CREDITED MAY BE CHARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PR EVIOUS YEAR. ACCORDING TO THE PROVISIONS OF SEC.68 WHAT IS REQUIRED BY THE ASSESSEE IS (A) EXPLANATION HAS TO BE OFFERE D AND (B) THE SOURCE HAS TO BE EXPLAINED. THE ASSESSEE SUBMIT TED DETAILED EXPLANATION AS TO HOW THE AMOUNT IS DEPOSI TED IN THE BANK ACCOUNT. THE SOURCE OF THE DEPOSIT IS FROM ITS MEMBERS. THE ASSESSEE IN THIS REGARD HAS ALREADY SU BMITTED A DETAILED EXPLANATION WHICH MAKES IT CLEAR THAT TH E ASSESSEE EXPLAINED THE SOURCE OF THE DEPOSIT. FURTH ER, A READING OF SEC.68 WOULD MAKE IT CLEAR THAT AN ADDIT ION U/ S 68 IS ALWAYS DISCRETIONARY ON THE PART OF THE ASSES SING ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 14 OFFICER AND FOR THIS PURPOSE THE ASSESSING OFFICER HAS TO CONSIDER ALL THE CIRCUMSTANCES OF THE CASE BEFORE H E COMES TO THE CONCLUSION WHETHER THE ASSESSEE, IN THE CIRCUMSTANCES SUBMITTED EXPLANATION OR NOT. THE ADD ITION MAY EITHER BE MADE OR MAY NOT BE MADE AFTER DULY CONSIDERING THE CIRCUMSTANCES OF EACH CASE. THE SUP REME COURT HAD AN OCCASION TO CONSIDER THE MEANING OF TH E WORD MAY' USED IN SEC.69 (WHICH IS AKIN TO SEC.68) IN T HE CASE OF CIT VS P.K. NOORJEHAN REPORTED IN 237 ITR 570. IT I S HELD BY THE SUPREME COURT THAT THE WORD MAY' MENTIONED IN SEC.69 CANNOT BE INTERPRETED TO MEAN SHALL'. IT IS HELD T HAT EVEN WHEN THE EXPLANATION OFFERED BY THE ASSESSEE IS NOT FOUND SATISFACTORY, THE ASSESSING OFFICER SHOULD USE THE DISCRETION KEEPING IN VIEW THE FACTS AND CIRCUMSTANCES OF THE PARTICULAR CASE. IN THE SAID CASE, THE APEX COURT F OUND THAT THERE WAS NO POSSIBILITY FOR THE ASSESSEE TO EARN A NY INCOME OUTSIDE THE BOOKS AND THEREFORE, DELETED THE ADDITI ON. IN THE LIGHT OF THE OBSERVATIONS MADE BY THE APEX COURT, T HE PROVISIONS OF SEC. 68 HAVE NO APPLICATION TO THE CA SE OF THE ASSESSEE. R) THE ASSESSEE ALSO RELIES ON THE DECISION OF THE PUN E BENCH OF THE ITAT IN THE CASE OF SRI MAHAVIR NIGARI SAHAKARI PAT SANSTHA LTD. V DCIT REPORTED IN 74 TTJ 793. A COPY OF THE SAID DECISION WAS SUBMITTED FOR KIND PERUSAL OF THE ASSESSING OFFICER. IT CAN BE SEEN THAT IN THE SAID DECISION, THE HON'BLE TRIBUNAL HAVE CATEGORIZED THE CASES BAS ED ON THE NATURE OF ONUS AND OBSERVED THAT SUCH ONUS WOUL D DEPEND UPON THE FACTS OF EACH CASE. IT IS ALSO MENT IONED THAT IN THE CASE OF BANKING CONCERNS, IT CAN BE SAID THA T THE ONUS ON THE ASSESSEE WOULD BE TREATED AS DISCHARGED IF I T IS ESTABLISHED THAT SUCH ASSESSEE HAS ACTED WITH DUE D ILIGENCE AND CAUTION WHILE ACCEPTING THE DEPOSIT. AS SUBMITT ED IN THE ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 15 EARLIER PARAGRAPHS, THE SOCIETY HAS BEEN ADOPTING A SYSTEMATIC METHOD IN MAINTAINING THE RECORDS FOR TH E DEPOSITS RECEIVED. S) THE HON'BLE TRIBUNAL IN THE SAME CASE HAS ALSO MENT IONED THAT EVEN IF THE CASH CREDITS WERE TO BE TAXED AND WERE TO BE CONSIDERED AS THE INCOME OF THE SOCIETY, IT WOULD B E THE INCOME FROM BUSINESS AND THE PROVISIONS OF SEC.80P (2) WOULD APPLY EVEN IN RESPECT OF SUCH ITEMS ADDED BY THE ASSESSING OFFICER AND IN THAT VIEW ALSO, THE HON'BL E TRIBUNAL FOUND THAT NO ADDITION U/ S 68 NEED BE MADE. T) THE GUJARAT HIGH COURT IN THE CASE OF CIT VS PRAGAT HI CO- OP. BANK LTD. REPORTED IN 278 ITR 170 OBSERVED THAT THE AMOUNTS REPRESENTING FIXED DEPOSITS MADE BY THE DEP OSIT HOLDERS CANNOT BE TERMED AS THE INCOME OF THE ASSES SEE. THE HON'BLE GUJARAT HIGH COURT RELIED ALSO ON THE DECIS ION OF THE SUPREME COURT IN THE CASE OF CIT VS SMT. P.K. NOORJ EHAN REFERRED TO ABOVE. U) THE HON'BLE ITAT, HYDERABAD IN THE CASE OF THE ASSE SSEE WHILE DECIDING THE QUESTION OF PENALTY U/ S 271D AN D 271E OF THE I. T. ACT FOR THE ASSESSMENT YEARS 2006-07 A ND 2007- 08 OBSERVED AS FOLLOWS: (1) THE ASSESSEE HAS BEEN CARRYING ON THE BANKING OPERATIONS WHICH ARE UNDER AUDIT OF VARIOUS AUTHORITIES AND, THEREFORE, THE ASSESSEE COULD NOT BE PUT ON PAR WITH OTHER CASES OF OTHER CONCERNS SINCE THE ASSESSEE HAVE NO CONTROL IN RESPECT OF THE AMOUNTS RECEIVED FROM THE CUSTOMERS IN THE FORM OF DEPOSITS. ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 16 (2) THERE IS NO DISPUTE IN THESE ASSESSMENT YEARS THAT THE ASSESSEE HAS BEEN CARRYING ON THE BANKING TRANSACTIONS WHICH MAY BE WITH OR WITHOUT APPROVAL OF THE RBI. IF THE CARRYING OF THE OPERATIONS OF TH E BANKING ACTIVITIES IS NOT AT ALL APPROVED BY THE RB I OR THE ASSESSEE IS HAVING NO REQUISITE LICENCE, THE CONCERNED AUTHORITIES COULD HAVE STOPPED THE SAME OR TAKEN ACTION AGAINST THE ASSESSEE, WHICH WAS NOT DONE (3) THE SOCIETY FOR ALL THESE BANKING ACTIVITIES IS STR ICTLY GOVERNED BY THE BANKING REGULATION ACT 1949. THE BANKING IS DESCRIBED AS ACCEPTING FOR THE PURPOSE O F LENDING, OR INVESTMENT OF MONEY, DUE FROM THE PUBLI C REPAYABLE ON DEMAND. (4) THE DEPOSITS HELD BY THE ASSESSEE ARE ITS STOCK-IN- TRADE. (THIS VIEW IS ALSO SUPPORTED BY THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS NAINITAL BANK LTD., REPORTED IN 55 ITR 707 (5) IN CASE OF BANKS LIKE THE PRESENT ASSESSEE, THE CUSTOMER IDENTITY IS REQUIRED TO BE TAKEN WITH PROP ER INTRODUCTION AND ADDRESS, ETC. THIS IS SO BECAUSE A NY PERSON FROM GENERAL PUBLIC CAN COME AND OPEN A DEPOSIT ACCOUNT WITH THE BANK. ACCEPTANCE OF DEPOSITS BY THIS ASSESSEE CANNOT BE EQUATED WITH OTHER KINDS OF APPELLANTS. (6) THE ASSESSEE LIKE THE PRESENT IS NOT OBLIGED TO QUESTION THE SOURCE OF DEPOSIT MADE BY ITS CUSTOMER S. ALSO THE CUSTOMER CAN KEEP THE DEPOSIT FOR A PERIOD ; WHICH IS ACCORDING TO THEIR CONVENIENCE. THE AMOUNT ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 17 HAS TO BE REPAID BY THE ASSESSEE TO ITS CUSTOMER IMMEDIATELY ON DEMAND. (7) THE ASSESSEE IS SUBJECT TO PERIODICAL INSPECTIONS A ND AUDIT BY VARIOUS STATUTORY AUTHORITIES AND IN CASE OF ANY DEFAULT, THE ASSESSEE IS LIABLE FOR PENALTY BES IDES CANCELLATION OF ITS LICENCE. THERE ARE SO SUCH CIRCUMSTANCES IN THE CASE OF THE ASSESSEE. (8) USUALLY THE BANK WAS NOT REQUIRED TO GO FOR DETAILE D VERIFICATION OF ADDRESS AND WHEREABOUTS OF ITS CUSTOMERS. THERE IS NO ABSOLUTE OBLIGATION TO ASSESSEE TO MAKE ENQUIRIES ABOUT THE CUSTOMERS SO AS TO EXAMINE THE GENUINENESS/SOURCE OF DEPOSITS. V) THE ABOVE OBSERVATIONS BY HON'BLE ITAT WITH REGARD TO THE ASSESSEE HEREIN WOULD MAKE IT CLEAR THAT THE DEPOSI TS MADE BY THE MEMBERS CAN NOT BE TERMED AS INCOME OF THE ASSESSEE. IN THE FACTS AND CIRCUMSTANCES AS EXPLAIN ED IN THE ABOVE PARAGRAPHS AND BASED ON THE FACTS AS ASCERTAI NED BY THE HON'BLE TRIBUNAL AS NARRATED BY THE HON'BLE TRI BUNAL IN ITS ORDER, THE ASSESSEE HUMBLY SUBMITS THAT THE PRO OF REQUIRED OF THE ASSESSEE FOR THE PURPOSE OF SEC.68 IS FURNISHED AS MENTIONED BY THE HON'BLE ITAT, PUNE BE NCH REFERRED TO ABOVE, IT CAN BE SAID THAT THE ONUS ON THE ASSESSEE BE DISCHARGED IF IT IS ESTABLISHED THAT SU CH ASSESSEE HAS ACTED WITH DUE DILIGENCE AND CAUTION WHILE ACCE PTING THE DEPOSITS. THEREFORE, THE ASSESSEE HUMBLY SUBMITS TH AT THE PROVISIONS OF SEC. 68 ARE NOT APPLICABLE AND THE AS SESSING OFFICER IS NOT JUSTIFIED IN MAKING ANY ADDITION UND ER THE SAID PROVISION. THE ASSESSEE FURTHER SUBMITS THAT THE RE PAYMENT OF DEPOSITS WERE MADE THROUGH THEIR S.B.ACCOUNTS AN D NOT DIRECTLY'. ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 18 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIALS ON RECORD. WE HAVE CONSIDERED THE ASSESSMENT ORDER, CIT(A) ORDER AND SUBMISSION OF BOTH THE PARTIES. THE ASSESSEE IS A CO-OPERATIVE SOCIETY REGISTERED UNDER THE CO-OPERATIVE SOCIETIES ACT. IT IS GOVERNED BY ITS BY -LAWS, RULES AND REGULATIONS UND ER THE SUPERVISION AND CONTROL OF REGISTRAR OF SOCIETIES. THE SOCIETY IS CARRYING ON THE BANKING BUSINESS FOR ITS MEMBERS. I T IS OPERATING THROUGH 23 BRANCHES AND EACH OF THE BRANCHES IS HEA DED BY A BRANCH MANAGER AND OTHER STAFF. THE SOCIETY IS CARR YING ON THE BANKING BUSINESS TO ITS OWN MEMBERS AND THE BUSINES S IS CARRIED ON WITH CERTAIN SET OF GUIDELINES AND PROCEDURES. A S PER THE BY LAWS OF THE SOCIETY ONLY MEMBERS EITHER PERMANENT O R NOMINAL SHALL TRANSACT IN THE SOCIETY. THE STAFF EMPLOYED I N THE BRANCH ACCEPTS THE CASH DEPOSITS ALONG WITH THE APPLICATIO N AT THE COUNTERS. THE STAFFS MAKES SURE THAT ALL THE COLUM NS OF THE APPLICATION ARE FILLED AND REQUISITE SUPPORTING DOC UMENTS I.E. PROOF OF ADDRESS, PROOF OF IDENTITY AND PHOTOGRAPHS OF TH E APPLICANT AS STIPULATED BY RBI IN KYC (KNOW YOUR CUSTOMER) NORMS . TO REGULATE THE TRANSACTIONS THE STAFF ACCEPTS THE CAS H AT THE COUNTER AND ON VERIFICATION THE BRANCH MANAGER ISSUES THE C ERTIFICATE. THE AMOUNT SO RECEIVED IS RECORDED IN THE CASH BOOK AS WELL AS DEPOSIT REGISTER MAINTAINED FOR THIS PURPOSE. THE APPLICATI ON IS CONTAINING THE DETAILS OF NAME AND ADDRESS ALONG WITH PROOF OF ADDRESS GIVEN AT THE TIME OF OPENING ACCOUNT. FROM THE ABOVE FAC TS IT IS PROVED THAT THE ASSESSES HAS PROVED THE IDENTITY OF THE DE POSITOR. PERTAINING TO THIS THE ASSESSING OFFICER DID NOT BR ING ANY POSITIVE MATERIAL EVIDENCE TO SHOW THAT THERE IS CONTRAVENTI ON AND VIOLATION OF KYC NORMS PRESCRIBED BY THE BANKING REGULATION A CT, WHILE OPENING ACCOUNT WITH ANY BANKING INSTITUTION. MORE OVER IT IS THE DUTY OF THE ASSESSEE TO COLLECTED PROPER PROOF OF A DDRESS AT THE TIME OF OPENING ACCOUNTS. IT IS COMMON PRACTICE THA T ALL ARE HAVING PERMANENT ADDRESS PROOF WITH THEM. THE PERSONS RESI DING IN ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 19 RENTED HOUSE WILL CHANGE THE RESIDENCE FREQUENTLY A ND NOT INFORMED BANK. SUCH BEING THE CASE, IT IS THE DUTY OF THE DEPOSITOR TO INFORM THE CHANGE OF ADDRESS TO THE BANK. IN SUC H CASES THE BANK WILL NOT HAVE PRESENT ADDRESS OF THE DEPOSITOR . THERE MAY BE FEW INSTANCES WHERE THE LETTERS SENT BY THE AO RETU RNED FOR THE REASON NO SUCH ADDRESS. WHEN THE SOCIETY IS HAVING MEMBERS OF 63,000, YOU CANNOT COME TO A CONCLUSION THAT THE BA NK DOES NOT HAVE FURNISHED IDENTITY AND PROOF OF DEPOSITOR BY V ERIFYING FEW NUMBERS. 9. IT IS FURTHER OBSERVED THAT THE SOCIETY HAS OPENED A SB ACCOUNT WHEREVER IT HAS ACCEPTED DEPOSIT FROM ITS M EMBERS TO CREDIT INTEREST PERIODICALLY. THERE IS FACILITY FOR THE DEPOSITOR TO WITHDRAW INTEREST. THERE IS NO DISPUTE WITH REGARD TO PAYMENT OF INTEREST. THE CUSTOMERS HAVE REGULARLY WITHDRAWN TH E AMOUNT FROM THEIR SB ACCOUNTS WHICH ARE PROVED THAT THE AM OUNT DEPOSITED BELONGS TO THE DEPOSITOR AND NOT BELONGS TO THE ASSESSEE. 10. THE SOCIETY HAS MAINTAINED SYSTEMATIC RECORDS AND B OOKS OF ACCOUNTS FOR ITS BUSINESS. IT HAS ACCEPTED ALL THE DOCUMENTS AS REQUIRED UNDER KYC NORMS. IT HAS ISSUED A PROPER DE POSIT CERTIFICATE AND CREDITED THE INTEREST AS WELL AS TH E MATURITY PROCEEDS DIRECTLY CREDITED ITS DEPOSITOR SAVINGS BA NK ACCOUNT. IN NO OCCASION IT HAS DIRECTLY PAID THE DEPOSITS DIREC TLY TO THE DEPOSITOR. IN THE PRESENT CASE THE ASSESSEE SOCIETY IS SUBJECTED TO RULES LAID DOWN BY MULTI-STATE CO-OPERATIVE SOCIETY ACT AND RULES. THE SOCIETY BOOKS OF ACCOUNTS ARE SUBJECTED TO AUDI T BY THE REGULATORY BODIES EVERY YEAR. THEREFORE, THE ASSESS EE CANNOT BE EQUATED WITH OTHER NORMAL BUSINESS CONCERNS. SINCE THE ASSESSEE HAS NO CONTROL OVER THE DEPOSITS AS IT IS THE PROPE RTY OF THE DEPOSITORS AND THE SOCIETY REQUIRED TO PAY ON DEMAN D. THE CUSTOMERS USUALLY GO THE BANK FOR MAKING DEPOSIT TO EARN BETTER INTEREST. THE CUSTOMERS WILL GO THE BANKS WHERE THE Y GET MORE ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 20 INTEREST. THERE IS NO DISPUTE IN THESE ASSESSMENT Y EARS THE ASSESSEE HAS BEEN CARRYING OUT THE BANKING BUSINESS . WHETHER OR NOT THE BUSINESS IS CARRIED OUT WITH OR WITHOUT PER MISSION, IT IS BOUND BY THE BANKING REGULATIONS ACT, 1949. THE DEP OSITS AND LOANS ARE JUST BUYING AND SELLING ACTIVITY FOR THE ASSESSEE. THE AMOUNTS MAINTAINED AT THE CUSTOMERS ACCOUNT IS NOT IN THE CONTROL OF THE SOCIETY AS IT IS REQUIRED TO PAY THE DEPOSITS ON DEMAND. IN THE PRESENT CASE WHAT IS REQUIRED TO BE DONE BEFORE ACCEPTING THE DEPOSIT IS TO TAKE PROPER PROOF OF AD DRESS, IDENTITY, PHOTOGRAPH AND INTRODUCTION FOR OPENING AND ACCEPTI NG THE DEPOSITS. ONCE THE ASSESSEE COMPLIED WITH THE REQUI REMENT IT IS NOT THE ASSESSEE SOCIETY DUTY TO QUESTION ABOUT THE SOURCE OF DEPOSITOR AND IT IS NOT ITS DUTY TO SEEK ANY OTHER PARTICULARS. ONLY THE REQUIREMENT IS, TO REPORT TO THE CONTROLLING AU THORITIES WHEREVER SUSPICIOUS TRANSACTIONS ARE REPORTED OR DO UBT ABOUT THE ANTI MONEY LAUNDERING ACT. THEREFORE THESE FEATURES DISTINGUISH THE CASE OF THE ASSESSEE FROM OTHER NORMAL ASSESSEE . FURTHER THE ASSESSEE HAS TO MAINTAIN THE CONFIDENTIALITY IN RES PECT OF INFORMATION COLLECTED FROM ITS CUSTOMERS, SUCH INFO RMATION CANNOT BE DIVULGED TO OUTSIDERS. THERE IS NO FINDINGS FROM THE ASSESSING OFFICER THAT THE ASSESSEE VIOLATED THE REGULATORY A UTHORITIES. USUALLY THE BANKS ARE NOT REQUIRED TO GO FOR VERIFY ING THE CORRECTNESS OF THE DETAILS FURNISHED BY THE DEPOSIT OR AND SOURCES OF THE AMOUNT DEPOSITS. THE DEPOSITS ACCEPTED AND R EPAID IS PART OF THE ASSESSEE BUSINESS, IF IT PUT HARD RULES AND CONDITIONS ITS BUSINESS MAY NOT BE AS USUAL. THEREFORE IT CANNOT B E SAID THAT IT HAS VIOLATED THE PROVISIONS AND DID COMMIT ANY INFR INGEMENT OR IT IS INCORRECT TO SAY THAT THERE WAS ANY DELIBERATE ATTEMPT TO ACCOMMODATE BLOCK MONEY. THE SOCIETY IS ACTED IN BO N FIDE MANNER AND COMPLIED WITH THE KYC NORMS AS PRESCRIBE D FOR BANKING INSTITUTIONS AND DUE DILIGENCE. THEREFORE, IN OUR OPINION THE SOCIETY DISCHARGED THE ONUS OF PROOF IN RESPECT OF IDENTITY AND ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 21 GENUINENESS OF THE TRANSACTIONS AS FOR AS A BANKING IS CONCERNED. THE FACTS OF THE CASE ARE SIMILAR TO THAT OF ITAT P UNE BENCH IN THE CASE OF SRI MAHAVIR NILGARI SAHAKARI PAT SANSTHA LT D VS. DCIT REPORTED IN 74 TTJ 793 AND THE DECISION OF THE HON BLE GUJARATH HIGH COURT IN THE CASE OF CIT VS. PRAGATHI CO-OPERA TIVE BANK LTD., REPORTED IN 278 ITR 170. THEREFORE THE ONUS ON THE ASSESSEE TO PROVE THE CREDIT IS LIMITED TO THE MAINTENANCE OF S YSTEMATIC RECORDS COMPLY THE KYC NORMS. IT IS NOT OBLIGATORY ON THE PART OF THE ASSESSEE TO VERIFY THE CREDIT WORTHINESS OF THE DEPOSITOR. THEREFORE, WE HOLD THAT THE ASSESSEE DISCHARGED THE ONUS CASTE ON HIM IN THIS REGARD. 11. IT IS SEEN FROM ORDER OF THE TRIBUNAL B BENCH HYDER ABAD IN ITA NO. 1156-1159/HYD/ 09 DATED 26.02.2010 IN ASSES SEE OWN CASE WHILE DECIDING THE ISSUE FOR LEVY OF PENALTY U /S 271D AND 271E AND IT HAD AN OCCASION TO GO INTO THE FACTS W ITH REFERENCE TO THE DEPOSITS MADE BY THE MEMBERS OF THE SOCIETY. TH E ITAT OBSERVED THAT THE ASSESSEE IS MAINTAINED PROPER BOO KS OF ACCOUNTS PERTAINING TO ACCEPTING DEPOSITS FROM ITS MEMBERS A ND ADVANCING LOANS. THEREFORE WE ARE OF THE OPINION THAT THERE C ANNOT BE ANY UNEXPLAINED DEPOSITS WITHIN THE MEANING OF SECTION 68 OF THE INCOME TAX ACT, 196, IF THE ASSESSEE PROVES TO THE SATISFACTION OF THE ASSESSING OFFICER ITS DEPOSITORS IDENTITY BY FU RNISHING PROOF OF ADDRESS, PROOF OF IDENTITY AND PAN NUMBERS. 12. IT IS FURTHER OBSERVED THAT THE MEMBERSHIP OF THE S OCIETY IS HUGE AND THE NUMBER OF MEMBERS OF THE SOCIETY IS AB OUT 63,000. THE SOCIETY HAS COMPUTERIZED ITS OPERATIONS AND ALL THE BUSINESS OF THE SOCIETY IS AVAILABLE IN THE COMPUTER SOFTWAR E. THE SOCIETY HAS COLLECTED ALL THE INFORMATION FROM ITS DEPOSITS AS A NORMAL BANKING INSTITUTION AND COMPLIED THE KYC NORMS. IT IS NOT OBLIGATORY ON THE PART OF THE ASSESSEE TO GO IN CHE CKING THE ADDRESS AND OTHER PROOF OF IDENTITY GIVEN BY THE DE POSITORS. WHAT ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 22 IS REQUIRED TO BE DONE AS PER THE NORMAL BANKING SY STEM IS TO REPORT THE CONTROLLING AUTHORITIES IN CASE ANY SUSP ICIOUS TRANSACTIONS ARE REPORTED. THE PRESENT CASE THE ASS ESSEE HAS COMPLIED WITH ALL THE ELEMENTS AS A BANKING INSTITU TION THUS DISCHARGED ONUS OF PROOF OF IDENTITY OF THE DEPOSIT OR. THERE IS NO SINGLE INSTANCE FOUND OUT BY THE ASSESSING OFFICER THAT THE ASSESSEE IS MAKING DELIBERATE ATTEMPT TO ACCOMMODAT E TAX DODGERS. IT IS SEEN FROM THE ASSESSMENT ORDER THAT OUT OF 30 DEPOSITORS EXAMINED BY THE ASSESSING OFFICER ALL TH E DEPOSITORS ARE IDENTIFIED AND ACCEPTED THE DEPOSITS MADE BY THEM W ITH THE SOCIETY. THE DEPARTMENT EXAMINED THEM, ALL ARE DISC LOSED THE DEPOSITS IN THEIR INCOME TAX RETURNS. THERE IS NO E VIDENCE WITH THE ASSESSING OFFICER THAT, THE DEPOSITS MADE BY THE DE POSITORS REPRESENT THE INCOME OF THE SOCIETY. IN THIS REGARD THE REFERENCE IS MADE TO THE DECISION OF THE HONBLE SUPREME COURT I N THE CASE OF CIT VS. P.K. NOORJAHAN REPORTED IN 237 ITR 576 WHER EIN IT WAS HELD THAT THE WORD MAY LEAVES IT TO THE DISCRETION OF THE ASSESSING OFFICER WHETHER AN ADDITION UNDER THE DEEMING PROVI SIONS COULD BE MADE OR NOT. IN EACH CASE THE ASSESSING OFFICER HAS TO ANALYZE THE CIRCUMSTANCES AND PROCEED TO APPLY THE PROVISIONS O F SECTION 68. 13. IT IS FURTHER OBSERVED THAT, IN THE PRESENT CASE, T HE ASSESSEE IS A CO-OPERATIVE SOCIETY CARRYING ON BANKING BUSIN ESS FOR ITS MEMBERS AND ITS MAIN BUSINESS IT TO ACCEPT DEPOSITS FROM ITS MEMBERS AND LEND LOAN TO ITS MEMBERS. WHILE ACCEPTI NG THE DEPOSITS IT HAS COMPLIED THE REQUIREMENTS AS A BANK ING INSTITUTION BY COLLECTING DOCUMENTS SPECIFIED BY THE RBI IN KYC NORMS. IT IS NOT OBLIGATORY ON THE PART OF THE ASSESSEE TO VERIF Y THE CORRECTNESS OF THE DETAILS GIVEN BY THE DEPOSITORS, VERIFYING T HE GENUINENESS OF THE TRANSACTION AND CREDIT WORTHINESS OF THE DEPOSI TOR. BUT CERTAINLY IT IS REQUIRED TO HAVE PROPER PROOF OF ID ENTITY OF THE DEPOSITOR. UNDOUBTEDLY THE ASSESSEE BEING CO-OPERAT IVE SOCIETY PROVIDING CREDIT FACILITIES TO ITS BANK NEED NOT TO PROVE THE CREDIT ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 23 WORTHINESS AND THE GENUINENESS OF THE TRANSACTION R ELATING TO ACCEPTANCE OF DEPOSITS, BUT IT SHOULD PROVE THE IDE NTITY OF DEPOSITOR BY FURNISHING THE PROPER PROOF OF ADDRESS AND IDENTITY TO THE SATISFACTION TO THE ASSESSING OFFICER, WHICH HA S BEEN COMPLIED WITH BY THE ASSESSEE. 14. SIMILAR ISSUE CAME FOR CONSIDERATION BEFORE AMRITSA R BENCH IN THE CASE OF ACIT VS. CITIZEN URBAN COOPERATIVE B ANK LTD. (120 ITD 513) (AMRITSAR). AFTER RECORDING THE ENTIRE FA CTS IT WAS HELD AS FOLLOWS: 26. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. THE FACTS ARE NOT IN DISPUTE. THE ISSUE IS AS TO WHETHER THE PROVISIONS OF S. 68 OF THE ACT ARE APPLICABLE A ND WHETHER IT HAS RIGHTLY BEEN APPLIED TO THE ASSESSEE BANK ? THE LEA RNED CIT(A), WHILE DELETING THE ADDITION MADE HAS OBSERVED THAT THE ASSESSEES CASE WAS SUBJECT TO RULES LAID DOWN UNDER THE BANKI NG REGULATIONS ACT, AS ALSO THE REGULATIONS OF THE RBI ; THAT ALL THE BANKING OPERATIONS ARE UNDER AUDIT AND REPORT IN TH IS REGARD GOES TO THE RBI; THAT THEREFORE, THE CASE OF THE ASSESSE E BANK COULD NOT BE PUT AT PAR WITH THE CASES OF OTHER PERSONS, SINC E THE BANK DOES NOT HAVE ANY CONTROL IN RESPECT OF THE AMOUNTS CRED ITED IN ITS ACCOUNTS; THAT THE BANK IS TO MAINTAIN ACCOUNTS OF ITS CUSTOMERS, WHICH ACCOUNTS CAN BE OPERATED ONLY BY THOSE CUSTOM ERS AND THE BANK DOES NOT HAVE ANY CONTROL OVER THE MOUNTS IN T HE ACCOUNTS. WHILE HOLDING IN FAVOUR OF THE ASSESSEE, THE LEARNE D CIT(A) HAS DULY TAKEN INTO CONSIDERATION THE PROVISIONS UNDER S. 68 OF THE ACT, WHICH ARE EXPLICIT. 27. AS PER S. 68 OF THE ACT, WHERE ANY SUM IS FOUND CREDITED IN THE BOOKS OF AN ASSESSEE MAINTAINED FOR ANY PREVIOU S 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 AO, SATISFACTORY, THE SUM SO CREDITED MAY BE CH ARGED TO INCOME-TAX AS THE INCOME OF THE ASSESSEE OF THAT PR EVIOUS YEAR. THE BUSINESS OF THE ASSESSEE BANK IS TO CARRY ON BA NKING TRANSACTIONS. THE BANK, FOR ALL ITS BANKING ACTIVIT IES, IS STRICTLY GOVERNED BY THE BANKING REGULATIONS ACT, 1949. THE SAID ACT DEFINES A BANKING COMPANY AS A COMPANY WHICH TRANSA CTS THE BUSINESS OF BANKING. BANKING IS DESCRIBED AS ACCE PTING, FOR THE PURPOSE OF LENDING OR INVESTMENT OF MONEY, DUE FROM THE PUBLIC REPAYABLE ON DEMAND OR OTHERWISE AND WITHDRAWAL BY CHEQUE, DRAFT ORDER OR OTHERWISE. THUS, THE DEPOSITS HELD B Y THE ASSESSEE ARE ITS STOCK-IN-TRADE. THE AMOUNTS IN THE ACCOUNTS MAINTAINED BY ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 24 THE ASSESSEE BANK WERE NOT IN THE CONTROL OF THE A SSESSEE BANK. THEY ARE THE DEPOSITS IN THE SAVINGS ACCOUNTS OF TH E CUSTOMERS OF THE ASSESSEE BANK. TO THESE DEPOSITS, S. 68 OF THE ACT IS NOT ATTRACTED. IN THE CASES OF BANKING COMPANIES LIKE T HE ASSESSEE, THE CUSTOMERS IDENTITY IS REQUIRED TO BE TAKEN BY THE BANK WITH PROPER INTRODUCTION, PHOTOGRAPHS AND ADDRESS, ETC. THIS IS SO, BECAUSE ANY PERSON FROM THE GENERAL PUBLIC CAN OPEN THE ACC OUNT WITH THE BANK. THE OTHER CASES OF ACCEPTANCE OF DEPOSITS CAN NOT BE EQUATED WITH THAT OF THE BANK. IN THOSE CASES, NORMALLY, DE POSITS ARE ACCEPTED FROM THE PEOPLE CONNECTED WITH OR KNOWN TO THE DEPOSITEES. IT IS IN ACCORDANCE WITH THE TERMS OF S . 131 OF THE NEGOTIABLE INSTRUMENTS ACT THAT THIS REQUIREMENT IS THERE. AS SUCH, IF INTRODUCTION OF THE CUSTOMER HAD BEEN DULY TAKEN BY THE BANK, THE BANK WOULD NOT BE LIABLE IN CASE OF A FRAUD. MO REOVER, PERTINENTLY, IF THE CUSTOMER SEEKS TO OPERATE THE A CCOUNT WITH CASH ONLY, THE BANK CAN OPEN AN ACCOUNT WITHOUT INTRODUC TION AND WITHOUT PROPER IDENTIFICATION. FURTHER, THE BANK IS NOT OBLIGED TO QUESTION THE SOURCE OF DEPOSITS MADE BY ITS CUSTOME RS. ALSO, THE CUSTOMERS CAN RETAIN THE AMOUNT IN HIS SAVINGS BANK ACCOUNT WITH THE ASSESSEE BANK FOR ANY PERIOD. THE AMOUNT HAS TO BE REPAID BY THE BANK TO ITS CUSTOMERS IMMEDIATELY ON DEMAND. TH ESE FEATURES DISTINGUISH THE CASE OF THE BANK FROM OTHER ORDINAR Y ASSESSEES. THEREFORE, THE PROVISIONS OF S. 68 OF THE ACT ARE N OT APPLICABLE TO THE BANK AS THEY ARE IN THE CASES OF THE OTHER ASSE SSEES. STILL FURTHER, UNDER S. 35 OF THE BANKING REGULATIONS ACT , 1949, A BANKING COMPANY IS SUBJECT TO PERIODICAL INSPECTION S AND AUDIT BY THE RBI AND IN CASE ANY DEFAULT IS FOUND, THE BANK IS LIABLE FOR HEAVY MONETARY PENALTY, BESIDES CANCELLATION OF ITS LICENSE. THIS IS NOT THE CASE WITH OTHER ASSESSEES. A BANK, UNDER TH E RBI GUIDELINES, IN ORDER TO MAINTAIN CONFIDENTIALITY IN RESPECT OF THE INFORMATION COLLECTED BY A BANK RELATING TO ITS CUS TOMERS, SUCH INFORMATION IS NOT TO BE DIVULGED TO OUTSIDERS. THE RE IS NO SUCH OBLIGATION WITH OTHER ASSESSEES. 28. DESPITE THE RBI GUIDELINES PROVIDING MAINTENANC E OF SECRECY WITH REGARD TO THE INFORMATION REGARDING TH E CUSTOMERS OF THE BANK, THE ASSESSEE FURNISHED TO THE AO WHATEVER INFORMATION IT HAD IN ITS POSSESSION. THE ADDRESSES OF THE ACCOUNT HOLDERS, AS MENTIONED IN THE BANK LEDGERS, AS ALSO THE ADDRESSE S OF THE INTRODUCERS OF THE ACCOUNTS WERE FURNISHED TO THE A O. NOW IF THE ADDRESSES OF THE CUSTOMERS OF THE ASSESSEE BANK WER E FOUND TO BE INCOMPLETE, THIS CANNOT FORM THE BASIS FOR MAKING T HE ADDITION IN QUESTION. UNDISPUTEDLY, THE ASSESSEE BANK DID NOT V IOLATE ANY OF THE RELEVANT GUIDELINES OF THE RBI. IN THE MASTER C IRCULAR OF THE RBI, (COPY AT P. 75 OF THE ASSESSEES PAPER BOOK), INTRODUCTION BY AN EXISTING ACCOUNT HOLDER BY THE BANK HAS BEEN HEL D TO BE ONE OF THE PROPER METHODS OF INTRODUCTION OF A CUSTOMER TO THE BANK FOR OPENING AN ACCOUNT. THE BANK WAS NOT REQUIRED TO GO FOR DETAILED VERIFICATION OF THE ADDRESSES/WHEREABOUTS OF ITS CU STOMERS, THOUGH ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 25 THIS POSITION HAS NOW CHANGED AND AT PRESENT THE RE QUIREMENT IN THIS REGARD CALLS FOR A MUCH MORE STRINGENT COMPLIA NCE. IN BAPULAL PREMCHAND VS. NATH BANK LTD. AIR 1946 BOM 4 83, AS POINTED OUT, IT HAS BEEN HELD, INTER ALIA, THAT THE RE IS NO ABSOLUTE OBLIGATION ON A BANK TO MAKE INQUIRIES ABOUT A PROP OSED CUSTOMER, SO AS TO AVAIL OF THE PROTECTION UNDER S. 131 OF THE NEGOTIABLE INSTRUMENTS ACT. IN UNION OF INDIA VS. N ATIONAL OVERSEAS & GRINDLAYS BANK LTD. (1978) 48 COMP. CASE S 277 (DEL) REFERRING TO THE BAPULAL PREMCHAND (SUPRA), I T WAS HELD THAT THE BANK COULD RELY ON THE INTRODUCTION OF ANY OLD CUSTOMER AND THAT IF THE BANK BONA FIDE ACTED ON THE REFERENCE O F A CUSTOMER, IT CAN AVAIL OF THE PROTECTION UNDER S. 131 OF THE NEG OTIABLE INSTRUMENTS ACT. SO FAR AS REGARDS NON-OBTAINING OF PHOTOGRAPHS OF THE ACCOUNT HOLDERS, IT IS TRUE THAT THE SAME WE RE NOT OBTAINED IN THE NORMAL COURSE. PERTINENTLY, IN SAVINGS BANK ACCOUNTS WHERE CHEQUE FACILITIES WERE NOT PROVIDED, RBI GUIDELINES (P. 76 OF THE ASSESSEES PAPER BOOK) PROVIDED EXEMPTION. THUS, IN RESPECT OF ACCOUNTS WITH ONLY CASH TRANSACTIONS, EVEN THE RULE OF PROPER INTRODUCTION DID NOT OPERATE STRICTLY. ALL THIS SHO WS THAT THE ASSESSEE BANK DID NOT COMMIT ANY INFRINGEMENT IN TA KING PROPER INTRODUCTION AND, THEREFORE, IT IS INCORRECT THAT T HERE WAS ANY DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO A CCOMMODATE TAX DODGERS. 29. IN CIT VS. NAINITAL BANK LTD. (1965) 55 ITR 707 (SC), THE HONBLE SUPREME COURT, VIDE ITS ORDER DT. 25TH SEPT ., 1964 (COPY AT P. 110 OF THE ASSESSEES PAPER BOOK), HELD THAT CASH IS STOCK-IN- TRADE OF A BANKING BUSINESS AND THAT LOSS IN THE CO URSE OF ITS BUSINESS BY WAY OF DACOITY IS DEDUCTIBLE AS A TRADI NG LOSS IN COMPUTING THE TOTAL INCOME OF THE BUSINESS. THIS ST RENGTHENS THE ASSESSEES CONTENTION THAT THE DEPOSITS ACCEPTED BY IT WERE PART OF ITS TRADING ACTIVITY AND THAT ITS CLIENTS WERE ITS CUSTOMERS. 30. IN CIT VS. PRAGATI CO-OPERATIVE BANK LTD. (2005 ) 197 CTR (GUJ) 505 : (2005) 278 ITR 170 (GUJ), IT WAS HELD T HAT THE PROVISIONS OF S. 68 OF THE IT ACT WOULD NOT APPLY T O THE CASE OF A BANKING COMPANY WORKING UNDER THE CONTROL OF THE RB I, PARTICULARLY WHEN THE DEPOSITS WERE NOT STATED TO H AVE BEEN MADE EITHER BY THE DIRECTORS OF THE BANK OR BY ANY RELAT IVE OF THE DIRECTORS. 31. IN SHRI MAHAVIR NAGARI SAHAKARI PAT SANSTHA LT D. VS. DY. CIT (2002) 74 TTJ (PUNE) 793 (COPY AT PP. 95 TO 104 OF THE ASSESSEES PAPER BOOK), IT WAS HELD THAT ADDITION C OULD NOT BE MADE UNDER S. 68, EVEN THOUGH THE MINIMUM ONUS OF P ROVING THE IDENTITY OF DEPOSITORS HAD NOT BEEN DISCHARGED BY T HE ASSESSEE. 32. IN DY. CIT VS. SAHARA INDIA FINANCIAL CORPN. LT D. (2003) 81 TTJ (LUCK) 389 : (2004) 2 SOT 733 (LUCK) (COPY A T PP. 105 TO ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 2 6 109 OF THE ASSESSEES PAPER BOOK), IT WAS HELD THAT THE DEPOSITS RECEIVED BY THE ASSESSEE, WHICH WAS A NON-BANKING F INANCIAL INSTITUTION, RECOGNISED BY THE RBI, WERE NOT IN THE NATURE OF TAKING OF ANY LOAN OR DEPOSIT FOR THE PURPOSES OF ITS BUSI NESS, THAT RATHER, IT WAS IN THE BUSINESS OF ACCEPTING DEPOSITS AND TH AT IN VIEW OF THE NATURE OF SUCH BUSINESS, THE SCRUTINY OF THE DEPOSI TS COULD NOT BE THE SAME AS IN THE CASE OF AN ASSESSEE MAKING ENTRI ES OF DEPOSITS ON ACCOUNT OF LOAN ETC. 33. IN CIT VS. STELLER INVESTMENT LTD. (1991) 99 CT R (DEL) 40 : (1991) 192 ITR 287 (DEL), IT WAS HELD THAT EVEN IF THE SUBSCRIBER TO CAPITAL WAS NOT GENUINE, THE AMOUNT OF SHARE CAPITA L COULD NOT, UNDER ANY CIRCUMSTANCE, BE REGARDED AS THE UNDISCL OSED INCOME OF THE COMPANY. THIS DECISION WAS UPHELD BY THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. STELLER INVESTMENT LTD . (2000) 164 CTR (SC) 287 : (2001) 251 ITR 263 (SC). 34. FURTHER, EVEN ON MERITS, THE ADDITION WAS UNCAL LED FOR. CONCERNING ACCOUNT NOS. 8211, 8212 AND 8213, THE IN TRODUCER WAS SHRI VIJAY SETHI, THE DECEASED MANAGING DIRECTO R OF THE ASSESSEE BANK ITSELF. THE ORIGINAL INVESTMENTS WERE MADE IN RMRD ACCOUNTS OR SAVINGS BANK ACCOUNTS WITH THE MIT HAPUR BRANCH OF THE ASSESSEE. THESE INVESTMENTS WERE MADE WAY BACK IN 1992. IT WAS ONLY ON MATURITY THAT THEY WERE TRANSF ERRED TO THE ACCOUNTS UNDER CONSIDERATION. IT HAS RIGHTLY BEEN C ONTENDED THAT THE ORIGIN OF THESE AMOUNTS FALLING IN THE EARLIER YEARS, WHICH FACT HAS ALSO BEEN ADMITTED BY THE AO, THEY COULD NOT BE BROUGHT TO TAX IN THE YEA R UNDER APPEAL, IN THE HANDS OF THE ASSESSEE. THE LEARNED CIT(A) TH US RIGHTLY DELETED THE ADDITION IN THIS REGARD. 35. THE INTRODUCER OF ACCOUNT NOS. 954, 955 AND 956 WAS SHRI PARMOD SHARMA, ACCOUNTANT OF THE ASSESSEE BANK. HE APPEARED BEFORE THE AO IN RESPONSE TO SUMMONS UNDER S. 131 O F THE ACT. HE ADMITTED KNOWING THE ACCOUNT HOLDERS PERSONALLY. TH E ONUS WITH REGARD TO THESE ACCOUNTS THUS STOOD AMPLY DISCHARGE D. 36. S. SWARAN SINGH WAS THE ACCOUNT HOLDER OF ACCOU NT NO. 1108. HE WAS ONE OF THE DIRECTORS OF THE BANK AND S O HE NEEDED NO INDEPENDENT INTRODUCTION TO OPEN HIS ACCOUNT WITH T HE ASSESSEE FIRM. HIS INDEPENDENT EXISTENCE ALSO STANDS PROVED BY THE ENTRIES THROUGH CLEARING IN HIS ACCOUNT. 37. SHRI PAWAN SHARMA WAS THE INTRODUCER TO ACCOUNT NO. 1658. HIS STATEMENT WAS RECORDED BY THE AO UNDER S. 131 OF THE ACT. HE ALSO CONFIRMED KNOWING THE ACCOUNT HOLDER. 38. SMT. HARSIMRANJIT KAUR, PROP. M/S H.S. GAS SERV ICE OWNED UP ACCOUNT NO. 8268 OF SHRI J.P. SINGH, WHICH FACT WAS GOT ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 27 CONFIRMED BY THE LEARNED CIT(A) THROUGH THE AO ASSE SSING THE SAID LADY. 39. THE ABOVE FACTS WERE DULY TAKEN INTO CONSIDERAT ION BY THE LEARNED CIT(A) WHILE ADMITTING THE APPEAL. WE DO NO T FIND ANYTHING ERRONEOUS WITH THE ORDER OF THE LEARNED CI T(A). 40. NOT ONLY THIS, IN PURSUANCE TO THE DIRECTIONS I SSUED BY THE LEARNED CIT(A), THE ASSESSEE LOCATED FURTHER DETAIL S/ADDRESSES OF ACCOUNT HOLDERS. THESE DETAILS WERE FURNISHED TO TH E AO VIDE LETTER DT. 4TH OCT., 2005. A COPY OF THIS LETTER HAD BEEN PLACED AT PP. 90- 91 OF THE ASSESSEES PAPER BOOK. THIS ALSO BOOSTS T HE STAND TAKEN BY THE ASSESSEE. 41. IN VIEW OF THE ABOVE, WE FIND OURSELVES TO BE I N AGREEMENT WITH THE OBSERVATIONS RECORDED BY THE LEARNED CIT(A ) WHILE ALLOWING THE APPEAL OF THE ASSESSEE. THE GRIEVANCE OF THE DEPARTMENT IN THIS REGARD IS FOUND TO CARRY NO FORC E WHATSOEVER AND IS, AS SUCH, REJECTED. 42. APROPOS THE OBJECTION OF THE DEPARTMENT THAT TH E LEARNED CIT(A) ERRONEOUSLY ADMITTED ADDITIONAL DOCUMENTARY EVIDENCE WHEN BEFORE THE AO, THE ASSESSEE HAD DENIED PRODUCI NG THE BANK ACCOUNT HOLDERS ON THE PLEA THAT THIS WOULD ADVERSE LY AFFECT ITS BANKING BUSINESS. HERE ALSO, WE FIND NO CASE MADE O UT BY THE DEPARTMENT. 43. BEFORE THE LEARNED CIT(A), THE ASSESSEE, INTER ALIA, FILED COPIES OF ACCOUNTS OF VARIOUS ACCOUNT HOLDERS AND O THER SUPPORTING DOCUMENTS, AS ADDITIONAL EVIDENCE. THE A O OBJECTED TO THE SAME. THE LEARNED CIT(A), HOWEVER, ALLOWED SUCH EVIDENCE TO BE PRODUCED AS ADDITIONAL EVIDENCE. IN THIS REGARD, THE ASSESSEE DID NOT PRODUCE SUCH EVIDENCE BEFORE THE AO UNDER T HE BONA FIDE BELIEF THAT IT WAS NOT OBLIGED TO DO SO, AS IT WOUL D ADVERSELY AFFECT ITS BUSINESS. THE LEARNED CIT(A) FOUND THAT THE DOC UMENTS PRODUCED AS ADDITIONAL EVIDENCE WERE IN REGARD TO T HE ADDITIONS MADE AND COULD NOT BE PRODUCED AT THE TIME OF ASSES SMENT PROCEEDINGS, IN THE BONA FIDE BELIEF WHICH WAS, AS AFORESAID, NURTURED BY THE ASSESSEE. 44. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LE ARNED CIT(A). IN THIS REGARD, IT HAS NOT BEEN MADE OUT TH AT THE PLEA OF THE ASSESSEE OF NOT BEING OBLIGED TO FILE SUCH DOCU MENTS IN RESPECT OF ITS DEPOSITORS, WHO HAD BEEN INTRODUCED EITHER B Y THE BANKS OWN STAFF MEMBERS OR BY SOMEONE ALREADY HAVING A BA NK ACCOUNT WITH THE ASSESSEE BANK, WAS MALA FIDE. ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 28 45. FURTHER, UNDISPUTEDLY, THE DOCUMENTS SO PRODUCE D WERE DIRECTLY RELATED TO THE ADDITIONS MADE. IN THIS VIE W OF THE MATTER, THE DEPARTMENTS GRIEVANCE IN THIS REGARD ALSO STAN DS REJECTED. 15. FURTHER, THE TRIBUNAL, ASSESSEES IN ITS OWN CASE V IDE ORDER DATED 26.02.2010 IN ITA NO. 1156 TO 1159/HYD/2009 F OR THE ASSESSMENT YEARS 2006-07 TO 2007-08 WHILE DELETING THE PENALTY LEVIED U/S 271D & 271E HELD THAT MONEY RECEIVED BY ASSESSEE COOPERATIVES SOCIETY FROM ITS MEMBERS AND THEIR REL ATIVES BY WAY OF DEPOSITS AND THE SUMS REPAID TO THEM AS PART OF ITS BANKING ACTIVITIES CANNOT BE CONSIDERED AS LOAN OR DEPOS IT SO AS TO ATTRACT S. 269SS OR S. 269T AS THE ASSESSEE IS WORKING ON T HE CONCEPT OF MUTUALITY AND ITS DIRECTOR OR MEMBER IS NOT COVERED BY THE EXPRESSION ANY OTHER PERSON OCCURRING IN S. 269SS AND, THEREFORE, PENALTY UNDER S. 271D OR S. 271E IS NOT LEVIABLE, M ORE SO, WHEN THE AO HAS ACCEPTED THE GENUINENESS OF SUCH DEPOSIT S AND THE ASSESSEE WAS UNDER BONA FIDE BELIEF THAT THE PROVIS IONS OF S. 269SS AND 269T ARE NOT APPLICABLE TO IT. 16. FURTHER, IT WAS HELD BY THE TRIBUNAL THAT THE SOCIE TY IS DEALING LIKE A BANK WHILE ACCEPTING DEPOSITS FROM I TS MEMBERS. IF THE CARRYING ON BANKING BUSINESS IS NOT APPROVED BY THE RBI OR THE ASSESSEE IS NOT HAVING REQUISITE LICENSE TO CAR RY OUT THE BANKING BUSINESS, THE AUTHORITIES COULD HAVE TAKEN ACTION AGAINST THE SOCIETY OR STOP THE SOCIETY ACTIVITY. ONCE THE ASSESSEE IS ALLOWED TO CARRY ON THE BANKING BUSINESS, THEN THE ASSESSEE IS BOUND BY THE RELEVANT PROVISIONS OF THE BANKING REG ULATIONS ACT. THE BANK FOR ALL ITS BANKING ACTIVITIES IS STRICTLY GOVERNED BY THE BANKING REGULATIONS ACT 1949. 17. BEING SO, IN OUR HUMBLE OPINION, AMOUNTS IN THE ACC OUNTS MAINTAINED BY THE ASSESSEE ARE DEPOSITS OF THE CUST OMERS AND/OR NOT UNDER THE CONTROL OF THE ASSESSEE, AND THEREFOR E, PROVISIONS OF S.68 ARE NOT APPLICABLE TO THE BANK. FURTHER, SOCI ETY/BANK NOT ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 29 REQUIRED TO GO FOR DETAILED VERIFICATION OF ADDRESS /WHEREABOUTS OF THE CUSTOMERS AND THEREFORE, ADDITION U/S 68 CANNOT BE MADE MERELY BECAUSE THE ADDRESS OF THE CUSTOMERS ARE INC OMPLETE. IN VIEW OF THIS, WE ARE IN AGREEMENT WITH THE FINDINGS OF THE CIT(A) ON THIS ISSUE. HENCE, THIS GROUND RAISED BY THE REVEN UE IN ALL ITS APPEALS IS DISMISSED. 18. THE NEXT COMMON GROUND FOR CONSIDERATION IN ASSESSE ES APPEALS IN ITA NO.1003 & 1004/HYD/2011 AND REVENUE APPEALS IN ITA NO. 1200 /HYD/2011 & 1049/HYD/2011 WITH REGARD TO ALLOWABILITY OF DEDUCTION U/S 80P(2)(A)(I) OF THE I NCOME TAX ACT, 1961. 19. THE AUTHORIZED REPRESENTATIVE APPEARED FOR ASSESSEE SUBMITTED THAT THE ASSESSEE IS CO-OPERATIVE SOCIETY PROVING CREDIT FACILITIES TO ITS MEMBERS ONLY. HE FURTHER SUBMITS THAT, NONE OF THE ACTIVITIES OF SOCIETY IS VIOLATING ANY PROVISIONS O F CO-OPERATIVE PRINCIPLES. THE CREDIT FACILITIES PROVIDED SOLELY F OR THE MEMBERS ONLY AND IN NO CASE IT WAS EXTENDED TO NON MEMBERS . THE AMOUNTS DEPOSITED BY DEPOSITORS WERE ADVANCED TO ME MBERS ON INTEREST. THUS THE SOCIETY IS CLEARLY PROVIDING CRE DIT FACILITIES TO ITS MEMBERS IN SO AS ITS ACTIVITIES IS CONCERNED. HE FU RTHER RELIED ON THE FOLLOWING JUDGMENTS: (I) THE HONBLE ITAT, NAGPUR BENCH IN THE CASE OF HINGANGHAT TAHSIL SAHAKARI SHETHI KHAREDI VIKRI SANSTHA LTD VS. ITO REPORTED IN 3 ITD 410, WHEREIN IT WAS HELD THAT ALL CATEGORIES OF MEMBERS INCLUDING T HE NOMINAL MEMBERS ARE MEMBERS OF THE SOCIETY AND NO DISTINCTION CAN BE DRAWN BETWEEN THE MEMBERS. (II) SIMILARLY THE HONBLE PUNJAB & HARYANA HIGH COURT I N THE CASE OF CIT VS. PUNJAB STATE CO-OPERATIVE BANK LTD, ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 30 REPORTED IN 300 ITR 24, NOMINAL MEMBERS EVEN THEY D O NOT CONTRIBUTE TO THE CAPITAL WOULD BE MEMBERS OF THE SOCIETY. (III) THE AR FURTHER RELIED ON THE ORDER OF THE CIT(A) AN D REQUESTED TO UPHELD THE CIT(A) ORDER. 19.1 THE DR RELIED ON THE ORDER OF THE ASSESSING OFFICER . 20. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIALS ON RECORD. THE ASSESSEE IS A CO-OPERATIVE SOCIETY P ROVIDING BANKING OR CREDIT FACILITIES TO ITS MEMBERS. THE PROVISIONS OF SECTION 80P(2)(I)(A) MAKES PROVISION FOR EXEMPTION OF INCOM E FROM TAX FOR CO-OPERATIVE SOCIETIES PROVIDING CREDIT FACILITIES TO MEMBERS FOR BETTER UNDERSTANDING WE REPRODUCE THE PROVISIONS OF SECTION 80P. SECTION 80P(1) WHERE, IN THE CASE OF ASSESSEE BEING CO-OPERATIVE SOCIETY, THE GROSS TOTAL INCOME INCLUDES ANY INCOME REFERRED TO IN SUB SECTION (2), THERE SHALL BE DEDUCTED, IN ACCORD ANCE WITH AND SUBJECT TO THE PROVISIONS OF THIS SECTION, THE SUMS SPECIFIED IN SUB SECTION (2) IN COMPUTING THE TOTAL INCOME OF THE AS SESSEE. SUB SECTION (2) THE SUMS REFERRED TO IN SUB SECT ION (1) SHALL BE THE FOLLOWING: - (A) IN THE CASE OF CO-OP SOCIETY ENGAGED IN (I) CARRYING ON THE BUSINESS OF BANKING OR PROVIDING CREDIT FACILITIES TO ITS MEMBERS OR (II) ----- (III) ----- 21. SECTION 80P(2)(A)(I) PROVIDES FOR DEDUCTION FROM GR OSS TOTAL INCOME FOR CO-OPERATIVE SOCIETIES PROVIDING BANKING OR CREDIT FACILITIES TO ITS MEMBERS. IN THE PRESENT CASE THE ASSESSEE IS A CO- OPERATIVE SOCIETY PROVIDING CREDIT FACILITIES TO IT S MEMBERS. THE SOCIETY IS HAVING 63,000 MEMBERS SPREAD OVER 23 BRA NCHES MAINLY ITS ACTIVITY IS DOING BANKING BUSINESS FOR ITS MEMB ERS. THE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN HIS O RDER ARE THAT THE BENEFICIARIES AND THE CONTRIBUTORS ARE DIFFEREN T. IT IS NOT ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 31 NECESSARILY THE CONTRIBUTORS AND BENEFICIARIES ARE SAME IN THE CASE OF CO-OPERATIVE SOCIETY. WHAT IS REQUIRED TO BE OBS ERVED IS THAT THE DEPOSITORS AS WELL AS THE BORROWERS SHALL BE THE ME MBERS OF THE SOCIETY. IN THE PRESENT CASE ALL THE DEPOSITORS AND BORROWERS ARE MEMBER OF THE SOCIETY. HOWEVER, IT IS THE FACT THAT CERTAIN ACTIVITIES CARRIED ON BY THE ASSESSEE NOT COMPLYING WITH THE R EQUIREMENTS OF THE PRINCIPLES OF COOPERATIVE SOCIETY, MORE SO, THE ASSESSEE ALSO ENGAGED IN THE ACTIVITY OF BILL DISCOUNTING, PROVID ING ACCOMMODATION CHEQUES BY TAKING CASH FROM THE MEMBE R, BEING SO, FOR THE ASSESSMENT YEAR 2006-07 THE CLAIM OF TH E ASSESSEE U/S 80P(2)(A)(I) CANNOT BE ALLOWED. 22. FOR ASSESSMENT YEAR 2007-08 & 2008-09, WE HAVE TO CONSIDER THE AMENDMENT BROUGHT OUT TO THE SECTION W ITH EFFECT FROM 01/04/2007 BY FINANCE ACT, 2006 WHEREBY SECT ION 80P(4) WAS INSERTED. THE AMENDMENT CLEARLY BARRED ALL THE CO-OPERATIVE BANKS OTHER THAN PRIMARY AGRICULTURAL CREDIT SOCIET Y OR A PRIMARY CO-OPERATIVE AGRICULTURAL AND RURAL DEVELOPMENT BAN KS FROM CLAIMING EXEMPTION UNDER THE SECTION. THE PRIMARY A CTIVITY OF THE SOCIETY IS TO PROVIDE BANKING FACILITIES TO ITS MEM BERS. THE SOCIETY IS DEALING LIKE A BANK WHILE ACCEPTING DEPOSITS FRO M ITS MEMBERS. THIS ISSUE WAS EXAMINED BY THE HONBLE ITAT IN THE ASSESSEE OWN CASE WHILE DELETING THE PENALTY U/S 271D AND 271E. THE HONBLE ITAT HELD AS UNDER. IF THE CARRYING ON BANKING BUSINESS IS NOT APPROV ED BY THE RBI OR THE ASSESSEE IS NOT HAVING REQUISITE LICENSE TO CARRY OUT THE BANKING BUSINESS, THE AUTHORITIES COULD HAVE TAKEN ACTION AGAINST THE SOCIETY OR STOP THE SOCIETY ACTIVITY. ONCE THE ASSESSEE IS ALLOWED TO CARRY ON THE BANKING BUSINESS, THEN THE ASSESSEE IS BOUND BY THE RELEVANT PROVISIONS OF THE BANKING REG ULATIONS ACT. THE BANK FOR ALL ITS BANKING ACTIVITIES IS STRICTLY GOVERNED BY THE BANKING REGULATIONS ACT 1949 23. THE SOCIETY IS CARRYING ON THE BANKING BUSINESS AND FOR ALL PRACTICAL PURPOSE IT ACTS LIKE A CO-OP BANK. TH E ITAT OBSERVED ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 32 THAT THE SOCIETY IS GOVERNED BY THE BANKING REGULAT IONS ACT. THEREFORE THE SOCIETY BEING A CO-OP BANK PROVIDING BANKING FACILITIES TO MEMBERS IS NOT ELIGIBLE TO CLAIM THE DEDUCTION U/S 80P(2)(I)(A) AFTER THE INTRODUCTION OF SUB SECTION (4) TO SECTION 80P. 24. IN VIEW OF THE ABOVE WE ARE OF THE OPINION THAT THE SOCIETY IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 80P(2)(A)(I) . THEREFORE WE ARE OF THE OPINION THAT THE ASSESSEE IS NOT ENTITLED FO R DEDUCTION U/S 80P(2)(A)(I) FOR ASSESSMENT YEAR 2006-07, 2007-08 & 2008-09 AND ALLOWED THE GROUND RAISED BY THE REVENUE AND DISMIS S THE GROUND TAKEN BY THE ASSESSEE ON THIS ISSUE. 25. THUS, THE ISSUE RELATING TO THE DISALLOWANCES OF DE DUCTION U/S 80P(2)(A)(I), IS DECIDED IN FAVOUR OF THE REVEN UE. 26. THE NEXT ISSUE RAISED BY THE ASSESSEE REGARDING CONFIRMATION OF ADDITIONS OF RS. 5,93,756/- BEING D ISALLOWANCES OF ADVERTISEMENT EXPENDITURE U/S 40A(I)(A) FOR NO DEDU CTION OF TDS. THE CIT(A) IN HIS ORDER OBSERVED THAT EVEN IN THE A PPELLATE PROCEEDINGS THE ASSESSEE NOT FURNISHED THE DETAILS FOR DEDUCTION OF TDS ON ADVERTISEMENT CHARGES. CONSIDERING THE FACTS OF THE CASE AND ORDER OF THE SPECIAL BENCH DATED 29 TH , MARCH, 2012 IN THE CASE OF M/S MERILYN SHIPPING & TRANSPORTS, VISAKHAP ATNAM IN ITA NO.477/VIZ/2008 FOR THE ASSESSMENT YEAR 2005-06 WHE REIN HELD THAT SECTION 40(A)(IA) OF THE ACT IS APPLICABLE ONL Y TO THE EXPENDITURE WHICH IS PAYABLE ON 31 ST MARCH OF EVERY YEAR AND CANNOT BE INVOKED TO DISALLOW THE AMOUNTS WHICH ARE ALREADY BEEN PAID DURING THE PREVIOUS YEAR, WITHOUT DEDUCTING TA X AT SOURCES. IN VIEW OF THE ABOVE, WE DIRECT THE ASSESSING OFFICER TO EXAMINE THE ISSUE IN THE LIGHT OF THE ORDER OF THE SPECIAL BENC H. ACCORDINGLY, THIS ISSUE SET ASIDE TO THE FILE OF THE ASSESSING O FFICER FOR RECONSIDERATION. ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 33 27. THE LAST GROUND FOR CONSIDERATION IN ASSESSEES APP EAL IN ITA NO. 1003/HYD/2011 IS WITH REGARD TO DIRECTION G IVEN BY THE CIT(A) TO VERIFY THE INTEREST ON NPAS. 28. THE ASSESSEE CLAIMED AN INTEREST OF RS. 1,26,29,963 /- ON ACCOUNT OF INTEREST RECEIVABLE ON THE LOANS ADVANCE D WHICH ARE PENDING RECOVERY FOR MORE THAN 6 MONTHS. ACCORDING THE JUDGMENT OF SUPREME COURT IN THE CASE OF UCO BANK V S. CIT (237 ITR 889) (SC) WHEREIN HELD THAT INTEREST CREDITED T O THE SUSPENSE ACCOUNT AND NPAS IS TO BE EXCLUDED FROM THE INCOME. THE CIT(A) WHILE ADJUDICATING THIS ISSUE, GIVEN A DIRECTION TO THE ASSESSING OFFICER TO VERIFY THE SAID EXPENDITURE INCURRED BY THE ASSESSEE AND DECIDE THEREUPON. AGAINST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 29. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND WE HAVE GONE THROUGH THE ORDER OF THE CIT(A) IN PARA 6.12(B ) AT PAGE 34 OF THE ORDER. IN OUR OPINION, THE CIT(A) GIVEN A DIRE CTION TO VERIFY THE NATURE OF INTEREST WHETHER IT IS ON NON PERFORMING ASSETS OR NOT AND DECIDE THEREUPON. IN THIS FINDING, WE DONT FI ND ANY INFIRMITIES AND INCLINED TO CONFIRM THE SAME. THIS GROUND OF A SSESSEE DISMISSED. 30. IN THE RESULT, ASSESSEE APPEAL IN ITA NO. 1003/HYD/ 2011 IS PARTLY ALLOWED AND APPEAL IN ITA NO. 1004/HYD/20 11 IS DISMISSED. THE REVENUE APPEAL IN ITA NO. 1200/HYD/ 2011 & 1049/HYD/2011 ARE PARTLY ALLOWED AND REVENUE APPEAL IN ITA NO. 1201/HYD/2011 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND JULY, 2012. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 2 ND JULY, 2012 ITA NO. 1003/ HYD/2011 & ORS THE CITIZEN CO-OP SOCIETY LTD. ====================== 34 COPY FORWARDED TO: 1. THE CITIZEN CO-OP. SOCIETY LTD., C/O. SHRI S. RA MA RAO, ADVOCATE, FLAT NO. 102, SHRIYA'S ELEGANCE, 3-6-643, ST. NO. 9, HIMAYATNAGAR, HYDERABAD-29. 2. THE ADDL. COMMISSIONER OF INCOME-TAX, RANGE-9, HYDERABAD. 3. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-9(1 ), 1 ST FLOOR, B-BLOCK, I.T. TOWERS, AC GUARDS, HYDERABAD. 3. THE CIT(A)-VI, HYDERABAD. 4. THE CIT-VI, HYDERABAD. 5. THE DR B BENCH, ITAT, HYDERABAD. TPRAO