Shrinidhi Pattin Sahakari Sangh Niyamit, Vijayapur V. Income-Tax Office, Ward-3, Bijapur

ITA 616/BANG/2024

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 6825 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2024
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 01-05-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 01-04-2024
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; TDS
• Section: 68; 56; 142(1); 40(a)(ia); 133(6); 80P; 69A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH : BANGALORE BEFORE SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER AND KESHAV DUBEY, JUDICIAL MEMBER ITA No.616/Bang/2024 Assessment Year : 2017-18 Shrinidhi Pattin Sahakari Sangh Niyamit, At Post : Sindagi – 586109. PAN – AAIAS 5123 P Vs. The Income Tax Officer, Ward-3, Bijapur. APPELLANT RESPONDENT Assessee by : Smt. Pratibha R, Advocate Revenue by : Shri Ganesh R Gale, Standing Counsel for Department (DR) Date of hearing : 02.05.2024 Date of Pronouncement : 31.05.2024 O R D E R PER SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER This appeal is filed by the assessee against the DIN & Order No.ITBA/NFAC/S/250/2023-24/1060403430(1) dated 10.02.2024 by the NFAC, New Delhi for the AY 2017-18 with the following grounds of appeal:- “The ld. CIT(A) erred in confirming the addition made by AO by applying the provision of sec.69A Unexplained investment and denied the exemption u/s 80P(2)(a)(i) in the manner which he did ITA No.616/Bang/2024 Page 2 of 7 The learned CIT(A) erred in not considering the submissions made by the appellant and went ahead to make a disallowance u/s.80P(2)(a)(i) without appreciating the fact that the Hon'ble Supreme Court decision in the case of Citizen Co-op Society is not squarely applicable to the appellant's case. The learned CIT(A) ought to have appreciated that the appellant was entitled to the exemption under section 80P(2)(a)(i) of the Act since it is a society providing credit facilities to its members only and the society was not carrying on business of banking. The learned CIT(A) ought to have appreciated the fact that the appellant society has not violated any provisions u/s.80P(2)(a)(i) of the Act and the same are enforced in the by- laws of the society. The learned CIT(A) erred in confirming the addition made u/s.69A of the Act without considering the facts submitted by the appellant.S The learned CIT(A) ought to have accepted the explanation given by the appellant regarding cash deposits made in BDCC Bank and as such should have refrained from confirming the additions made u/s.69A of the Act. The learned CIT(A) erred in not. appreciating the fact the cash deposits made were genuine and that the appellant was not given adequate opportunity to prove the source of such deposits and therefore should not have confirmed the additions made by the AO and the same has to be deleted in full. Without prejudice, the disallowance as made in excessive and arbitrary and liable to be deleted. The ld. AO erred in applying the provision of section 115BBE of the Act For these and other grounds that may be urged at the time of hearing of the appeal the appellant prays that the appeal may be allowed.” 2. The brief facts of the case are that the assessee did not file return of income within the time prescribed in Rule 12 of the Income Tax Rules, 1962, on or before the 31.03.2018 and within the period of time allowed of 30 days in notice issued u/s 142(1) dated 06.02.2018. During the phase of online verification under “Operation Clean Money” the assessee had deposited cash of Rs. 19,61,000/- during the period of demonetization in its bank account maintained with BDCC Bank Sindagi Branch in old ITA No.616/Bang/2024 Page 3 of 7 currency note Rs. 500 & Rs. 1000 notes (SBNs). As per e-filling portal of Income Tax department, the assessee has not filed ITR for AYs 2012-13 to 2018-19. The assessee did not respond the notices issued by the Income Tax department , accordingly notice u/s 133(6) was issued to the BDCC Bank calling for bank account statement. The opportunity was provided to the assessee but it did not respond. Accordingly, the AO added the entire cash deposits in old currency note during the demonetization period was added u/s 69A of the Act. A further notice u/s 133(6) was issued to Deputy Director of Registrar of Co-Operative Societies , Allpur Oni, Sindagi Road, Vijaypur calling for Bye Laws of the society, detailed address of the Directors with PAN, Audit Report for the financial year 2016- 17 as per society Act and these were provided. From the financial statements the AO noted that the assessee has earned interest on its investments of Rs. 1,31,468 and further noted that there were debit of Rs. 35,000/- towards audit fee and Pigmy Commission of Rs. 4,52,542 on which no TDS was made accordingly, the AO disallowed u/s 40(a)(ia) and added 30% of Rs. 4,87,542 (Rs. 35,000+4,52,542) into the total income of the assessee. The AO made addition of Rs. 2,77,730/- ( Rs. 1,46,262+Rs.1,31,468). The AO assessed the total income at Rs. 22,38,700/-. On appeal before the First Appellate Authority (FAA), in remand proceedings the AO admitted that there was cash balance of Rs. 3,10,000/- as on 08.11.2016 accordingly the FAA allowed to that extent of Rs. 3,10,000 and rest amount of Rs. 16,51,000/- was confirmed. He further deleted the addition made u/s 40(a)(ia). The deduction u/s 80P(2) was not allowed. 3. Considering the rival submissions we noted that the AO issued notice u/s. 142(1) on 08.08.2019 calling for details and ITA No.616/Bang/2024 Page 4 of 7 documents mentioned in the notice. As there was no response one more notice u/s 142(1) dated 05.09.2019 was issued, calling for details and documents. The AO noticed that the assessee is a cooperative society mainly involved in the business of providing credit facilities to its members. The interest received from Other Societies/Banks/Co-operative Banks is to be assessed under the head income from other sources u/s. 56 of the Act., since it does not satisfy the requirement of section 80P(2)(a)(i) because it is not attributable to the business income of the assessee. The assessee is also not eligible for deduction u/s 80P(2)(d) on two counts. The interest income received is from Co-operative bank and in the light of judgment of Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. vs ITO reported in [2021] 123 taxmann.com 161 (SC). Since the assessee did not file the return of income and, therefore, as per section 80A(5) and 80AC of the Act, the assessee is not eligible for deduction u/s. 80P(2) on its income at all following the judgment of Hon’ble Kerala High Court in the case of Nileshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT [2023] 152 taxmann.com 347 (Kerala) where it is held that without a valid return of income, deduction u/s. 80P cannot be allowed. 4. We further note that the assessee has received interest from other co-operative banks/commercial banks on its investments. The revenue authorities have considered the entire interest as income from other sources u/s. 56 including the interest received from co-operative bank and no expenses u/s. 57(iii) has been allowed to the assessee for earning of such income. While calculating the income, the net income should be considered as ITA No.616/Bang/2024 Page 5 of 7 taxable income after reducing the expenditure incurred towards earning of such income. Therefore relying on the judgment of Hon’ble Jurisdictional High Court in case of Totgars’ Co-operative Sales Society Ltd. vs ITO Sirsi, reported in (2015) 58 taxmann.com 35 (Karnataka), the assessee is eligible for claim of its cost of funds on the interest income received from banks. Reliance is also placed on the judgment of Co-ordinate Bench of the Tribunal in case of The West Coast Paper Mill Employees Souharda Credit Co- op. Ltd. Accordingly, the assessee is directed to provide the details of cost of funds before the assessing officer. Therefore for allowing cost of funds, we are remitting this issue to the assessing officer for determining the cost of funds for earning entire interest income from bank (co-operative bank and scheduled bank). 5. Further in respect of cash deposits during the demonetization period the assessee had submitted that the amount was deposited in the members account and no new accounts were opened. The KYC norms such as PAN/Aadhar copies were submitted however these documents have not been examined by any of the authorities below in the light of section 68. A similar issue have been decided by the co-ordinate bench in ITA No. 329/Bang/2023 order dated 24.08.2023 in the case of Merchants Credit Co-operative Society Ltd., vs ITO in which it has been held as under. 7. We have considered the rival submissions. The assessee is a credit co-operative society dealing with the members only. During the demonetisation period the members of the society have deposited cash in pygmie a/c, SB A/c, loan a/c. etc. The assessee has produced a list of depositors and the amount deposited by members with denominations of currency. The assessee has accepted the deposits from its members from 9.11.2016 to 14.11.2016. As per Gazette Notification of RBI & Govt. of India dated 08.11.2016, the assessee was not authorized to accept cash deposits in SBNs. The AO observed that the ITA No.616/Bang/2024 Page 6 of 7 assessee was not authorized to receive or collect money in SBNs of Rs.1,000 and Rs.500 which were not in legal tender w.e.f. 09.11.2016 and such transactions on or after 09.11.2016 cannot be entered in cash book. The cash deposits made by the members of the society had no value as such. The Assessing Officer issued show-cause notice by observing that the impugned amount should be treated as income of the assessee u/s 69A of the Act., however the AO made addition u/s 68 of the I.T. Act. The assessee has satisfied the requirement of section 69A of the Act and the AO did not give further opportunity to the assessee for addition u/s 68 of the I. T. Act. During the assessment proceedings, assessee filed the details of list of depositors and loanees who made cash deposits. The AO accepted that it was money deposited by the members and noted that the assessee had brought the entries in its books of account, therefore section 68 will apply and accordingly treated it as income u/s. 68. There is no doubt that the assessee has satisfied the identity of the deposits, who are members of the society and genuineness of the transactions because the amounts have been deposited in the members accounts only. If the AO had any doubts that the assessee has not satisfied the ingredients of section 68, he could have asked further details from the assessee, but the AO has not done the same, which clearly shows that the assessee has discharged its duty to satisfy the requirement of section 68. We further note that the SBNs have been deposited in the members accounts, accordingly, the assessee did not get any extra benefit as observed by the AO in his order at para No. 06 which was treated as income us 69A of the Act. In view of this, the provisions of section 68 is not applicable in the present facts of the case and the AO without discussing in detail has made addition u/s. 68 which is not proper. Therefore the addition is deleted. 6. Respectfully following the above judgment we direct the assessee to file details before the AO for the verification in the light of above judgment to satisfy the ingredients of section 68 of the Act. 7. In the result, the appeal by the assessee is partly allowed for statistical purposes. Order pronounced in court on 31 st day of May, 2024 Sd/- Sd/- (KESHAV DUBEY) (LAXMI PRASAD SAHU) Judicial Member Accountant Member Bangalore, Dated : 31.05.2024 ITA No.616/Bang/2024 Page 7 of 7 Vms Copyto: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.