INCOME TAX OFFICER, WARD 1, BELAGAVI, BELAGAVI V. JAGRUTI URBAN CREDIT SOUHARD SAHAKARI NIYAMIT, HARUGERI

ITA 184/PAN/2023

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 5542 (ITAT-PANAJI)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: WT(D)
• Next Hearing Date: 09-06-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 06-11-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N SHRIKANTH
• Keywords: Competent authority
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PANAJI BENCH : PANAJI [THROUGH VIRTUAL HEARING AT ITAT : PUNE] BEFORE SHRI RAMA KANTA PANDA, VICE PRESIDENT AND SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER ITA.No.184/PAN./2023 [E-APPEAL] Assessment Year 2017-2018 The Income Tax Officer, Ward-1, 1 st Floor, Firoj Khimajibhai Complex, Opp. Civil Hospital, Dr. Ambedkar Road, BELGAVI – 590 001. Karnataka. vs. Jagruti Urban Credit Souhard Sahakari Niyamit, No.1, Harugeri HARUGERI -591220 Karnataka. PAN AACAJ1802G (Appellant) (Respondent) For Assessee : Shri U.G. Ammangi For Revenue : Shri N Shrikanth Date of Hearing : 10.06.2024 Date of Pronouncement : 29.07.2024 ORDER PER SATBEER SINGH GODARA, J.M. : This Revenue’s appeal for assessment year 2017-18, arises against the National Faceless Appeal Centre [in short the “NFAC”) Delhi’s Din and Order No.ITBA/NFAC/S/250/ 2023-24/1056413734(1), dated 22.09.2023, 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 ITA.No.184/PAN./2023 1. “The decision of CIT(A)/NFAC is opposed to facts of the case in allowing entire deduction u/s 80P(2)(a)(i) of the Act and in deleting the addition made u/s 68 in respect of demonetized currency accepted after 08.11.2016. 2. The CIT(A)/NFAC has erred in not distinguishing the fact that the assessee Mavilayi Service Co-op Bank Ltd was registered under the Kerala State Co-operative Act and the assessee under the Karnataka State Souharda Sahakari Act, 1997. Under the Kerala State Co-operative Act there is no restriction on admission of any type of member, whereas the Karnataka State Souharda Sahakari Act places restriction on the admission of associate & nominal members. It states that associate / nominal members cannot be admitted in excess of 15% of the total membership. 3. The CIT(A)/NFAC has not appreciated the findings of the AO wherein it has been brought on record that the assessee souharda has admitted and transacted with associate/nominal members in excess of 15% of the total membership thereby violating the law under which the souharda has been registered. 4. In view of the above, the decision of CIT(A)/NFAC to allow entire deduction u/s 80P(2)(a)(i) of the Act is opposed to facts of the case. The Hon'ble Supreme Court in the case of Mavilayi Service Co-op Bank Ltd vs CIT has held that 3 ITA.No.184/PAN./2023 proportionate deduction u/s 80P(2)(a)(i) of the Act needs to be allowed if the society had transacted with non members. The CIT(A) ought to have considered the transactions made with associate/nominal members in excess of 15% of membership as transactions with non members. 5. On the facts and in the circumstances of the case and in law the ld. CIT(A)/NFAC erred in deleting the addition made u/s.68 of Rs.1,29,34,238/- ignoring the fact that the assessee was not authorized to accept specified bank notes from its members. 6. On the facts and in the circumstances of the case and in law the ld.CIT(A)/NFAC erred in deleting the addition made u/s 68 of Rs1,29,34,238/- without appreciating the fact that the assessee society had brought into its books of account entries pertaining to SBNs which were no longer legal tenders at the time of making the said entries after 08.11.2016. 7. The appellant requests to add, alter, and amend any other grounds of appeal during the course of appellate proceedings.” 3. Learned DR vehemently argued during the course of hearing that the assessee is not entitled for sec.80P(2) detailed discussion on the ground that it is only a “Souhardha” society than a regular cooperative society u/sec.2(19) of the Act. We 4 ITA.No.184/PAN./2023 find that case law [2022] 134 taxmann.com 170 (Kar.) Government of India Ministry of Finance vs. Karnataka State Souhardha Federal Co-operative Ltd., has settled the very issue in assessee’s favour and against the department whilst holding that a ‘Souhardha’ society is a cooperative society u/sec.2(19) of the Act. Mr. Shrikanth next submitted that the Assessing Officer had rightly disallowed the assessee’s sec.80P deduction once he found to have violated the corresponding membership norms vis-à-vis it’s regular and nominal/ associate members under the state cooperative law. 4. We find first of all that case law Mavilayi Service Co- operative Bank Ltd., vs., CIT [2021] 431 ITR 1 (SC) has rejected the Revenue’s stand seeking to carve-out a distinction between foregoing twin categories of the society’s membership(s). This is indeed coupled with the fact that there is no material on record before us wherein it could be inferred that the competent authority under the state cooperative law has taken or finalised any action regarding the alleged violation. We thus find no merit in the Revenue’s vehement contentions qua the instant former issue of sec.80P deduction. Rejected accordingly. 5. Next comes the latter issue of sec.68 addition of Rs.1,29,34,238/- representing the assessee’s cash deposits made during demonetization period. The Revenue’s case inter 5 ITA.No.184/PAN./2023 alia is that neither the assessee was competent to accept such demonetized currency notes nor it has proved source thereof to rebut the impugned addition. 6. We find that this tribunal in Shrijeett Finance Private Limited vs. ACIT, Jalna [2024] 162 taxmann.com 243 (Pune.) has rejected the Revenue’s arguments regarding the concerned assessee’s entitlement to receive demonetized currency as under : “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 6 ITA.No.184/PAN./2023 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 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 ITA No.561/PUN/2022 for A.Y.2017-18 dated 03.01.2023. Therefore, the AO is directed to delete the 7 ITA.No.184/PAN./2023 addition of Rs.12,34,000/- made under section 68 of the Act. Accordingly, Ground No.2 and 3 are allowed.” 7. The very outcome follows regarding the latter aspect of the impugned addition once the assessee herein had duly proved the source of the impugned cash deposits in course of it’s regular business activity. We accordingly reject the Revenue’s instant latter sole substantive ground as well. Ordered accordingly. 8. This Revenue’s appeal is dismissed in above terms. Order pronounced in the open Court on 29.07.2024. Sd/- Sd/- [RAMA KANTA PANDA] [SATBEER SINGH GODARA] VICE PRESIDENT JUDICIAL MEMBER Pune, Dated 29 th July, 2024 VBP/- Copy to 1. The applicant 2. The respondent 3. The Pr. CIT, Panaji concerned 4. D.R. ITAT, Panaji-Bench, Panaji. 5. Guard File. //By Order// //True Copy // Sr. Private Secretary, ITAT, Pune Benches, Pune.