ITO MEHSANA WARD 5 KADI, KADI V. THE GOZARIA PEOPLES CO OPERATIVE CREDIT SOCIETY LIMITED, GOZARIA

ITA 1820/AHD/2024

AI Insights

The case involves the Income Tax Department (Revenue) appealing against the order of the CIT(A) which had deleted various additions made by the Assessing Officer to the income of The Gozaria Peoples Co-operative Credit Society Ltd. for the assessment year 2020-21. The additions included unverified current liabilities, disallowed personal expenditures, unexplained increases in loans/advances, and disallowed deductions under section 80P(2)(a)(i) of the Income-tax Act, 1961. The CIT(A) found that these items were either regular business transactions or already accounted for in the society's financial statements. The Tribunal, referencing a similar case for the assessment year 2018-19, agreed with the CIT(A) and dismissed the Revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 361339 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2020-2021
• Other Referred Cases: Co-ordinate Bench in assessee's own case for A.Y. 2018-19 in ITA No. 1819/Ahd/2024
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DURG A DUTT
• Assessee Lawyers: B. K. PATEL
• Keywords: Additional evidence; Bad and doubtful debts; Corroborative evidences; Unexplained cash credit; Co-operative Credit Society
• Section: 143(3); 142(1); 68

Judgement Text

"आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण,अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ अहमदाबाद \bयायपीठ ‘A’ अहमदाबाद। अहमदाबाद। अहमदाबाद। अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH, AHMEDABAD BEFORE S/SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER AND MAKARAND V.MAHADEOKAR, ACCOUNTANT MEMBER ITA No.1820/Ahd/2024 Asstt.Year : 2020-21 ITO, Mehsana Ward-5 Kadi. Vs The Gozaria Peoples Co-operative Credit Society Ltd. 2, Main Bazar At Gozariya Ta. Mehsana 383 825 Gujarat. PAN : AAAJT 1283 G (Applicant) (Responent) Assessee by : Shri B.K. Patel, AR Revenue by : Shri Durga Dutt, CIT-DR सुनवाई क तारीख/Date of Hearing : 02/04/2025 घोषणा क तारीख /Date of Pronouncement: 22/05/2025 आदेश आदेश आदेश आदेश/O R D E R PER MAKARAND V.MAHADEOKAR, AM: This appeal by the Revenue is directed against the order dated 19.08.2024 passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “Ld. CIT(A)”], for the A.Y. 2020–21, whereby the Ld. CIT(A) deleted several additions made by the Assessing Officer vide his order dated 12.09.2022 passed under section 143(3) r.w.s. 144B of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] Facts of the Case 2. The assessee is a credit co-operative society engaged in accepting deposits from and advancing loans to its members. It filed ITA No.1820/Ahd/2024 2 its return of income for A.Y. 2020–21 on 11.02.2021 declaring total income of Rs.1,54,560/- and claimed deduction under section 80P(2)(a)(i) amounting to Rs.89,91,830/-. The return was selected for complete scrutiny under CASS. During the assessment proceedings, the assessee failed to comply with notices issued under sections 142(1) and 143(2) as well as with the show cause notice dated 29.08.2022, despite specific queries and proposed additions communicated therein. Consequently, the AO framed the assessment under section 143(3) r.w.s. 144B on 12.09.2022 and made the following additions: • Rs.15,14,46,954/- on account of unverified current liabilities u/s 68 r.w.s. 115BBE • Rs.40,00,000/- disallowed as personal expenditure • Rs.19,39,776/- added as unexplained increase in loans/advances u/s 68 • Rs.70,000/- disallowed u/s 40A(7) on account of gratuity provision • Rs.89,91,830/- disallowed deduction u/s 80P(2)(a)(i) Thus, the AO assessed total income at Rs.16,66,03,120/- and initiated penalty proceedings u/s 270A and 271AAC(1) of the Act. 3. The assessee preferred an appeal before CIT(A). The Ld. CIT(A) condoned the delay of 183 days in filing the appeal, considering the rural nature of the assessee's operations and the impact of ex parte assessment. On merits, the Ld. CIT(A) deleted the entire additions on the following reasoning: i. The liabilities of Rs.15.14 crore were deposits and interest payable to members, part of the regular business of the society, duly disclosed in the audited balance sheet. ITA No.1820/Ahd/2024 3 ii. The sum of Rs.40 lakhs was not personal expenditure but comprised provisions for bad debts, sabhasad protsahan fund, sahayak fund, etc., and had already been added back in the computation of income. iii. The increase in loans and advances of Rs.19.39 lakh represented normal credit operations of the society with identifiable members and was duly reflected in books and audit reports. iv. The gratuity provision of Rs.70,000/- was already disallowed in the return filed by the assessee. v. The deduction u/s 80P(2)(a)(i) was allowable as the income arose from credit facilities provided to members, and interest from co- operative banks qualified under section 80P(2)(d). 4. Aggrieved by the order of CIT(A), the Revenue is in appeal before us raising following grounds of appeal: a) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.15,14,46,954/- made u/s 68 of the Act on account of current liabilities reflected in the Balance Sheet. b) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.40,00,000/- made on account of expenditure of personal nature reflected in the Tax Audit Report. c) The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs.19,39,776/- made u/s 68 of the Act on account of increase in loans and advances. d) The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.70,000/- made u/s 40A(7) of the Act on account of gratuity provision. e) The Ld. CIT(A) has erred in law and on facts in allowing the deduction u/s 80P(2)(a)(i) of the Act of Rs.89,91,830/- claimed under Chapter VI- A of the Act. f) The Ld. CIT(A) has erred in law and on facts in admitting the additional evidences filed by the assessee without remanding the matter back to the AO for verification and ignoring the fact that the assessee had not filed any reply during assessment proceedings despite issuance of various statutory notices. g) The appellant craves leave to add, alter and/or to amend all or any of the grounds before the final hearing of the appeal. 5. During the course of hearing before us the Learned DR submitted that the assessee had not filed any reply or supporting evidence during assessment proceedings, and the additions were ITA No.1820/Ahd/2024 4 made only after giving a final opportunity through show cause notice. It was contended that the Ld. CIT(A) entertained submissions and materials without calling for a remand report from the AO, in violation of Rule 46A. The DR strongly relied on the assessment order and sought restoration of the matter for de novo adjudication. 6. The Learned AR, in response, supported the well-reasoned order of the CIT(A) and contended that no fresh or additional evidence was filed. The CIT(A) adjudicated the appeal solely based on the financials, audit report, and computation already forming part of the return. It was highlighted that all provisions (e.g., Rs.40 lakh and Rs.70,000) were suo motu disallowed in computation. The AR placed reliance on the decision of Co-ordinate Bench in assessee’s own case for A.Y. 2018–19 in ITA No. 1819/Ahd/2024 (order dated 18.02.2025), wherein similar additions u/s 68 and disallowance u/s 80P were deleted after detailed examination. 7. We have heard the rival submissions and carefully perused the orders of the authorities below. We have also taken note of the submissions made by both parties before us and the decision of Coordinate Bench in assessee’s own case for A.Y. 2018–19 as relied on by the assessee. Ground (a): Addition of Rs.15,14,46,954/- under section 68 on account of current liabilities 8. The Assessing Officer made an addition of Rs.15,14,46,954/- stating that the assessee failed to submit any details to substantiate the current liabilities shown in its balance sheet. The liabilities comprised the following: ITA No.1820/Ahd/2024 5 Sr. No. Particulars Balance on 31.03.2020 in Rs. 1 Current Deposit A/c 2,63,177/- 2 Monthly Recurring Deposit — 3 Recurring Deposit 2,26,850/- 4 Fixed Deposit 5,77,491/- 5 Kayami Fixed Deposit 11,02,53,120/- A Sub-total – Member Deposits 14,20,24,987/- B Interest accrued but not due 94,21,967/- Total Current Liabilities 15,14,46,954 9. These were claimed as regular deposits from members and interest accrued thereon, duly audited and disclosed in the balance sheet. The CIT(A) accepted the assessee’s contention that the said liabilities represent bona fide deposits and interest accrued payable to members and form part of the regular credit operations of the co- operative society. Since the assessee is engaged in the business of mobilizing deposits and granting loans to its members, the existence of liabilities in this form is inherent to its functioning. The details were part of the audited financials and there is no material brought by the AO to suggest that these amounts are unexplained credits. Therefore, the CIT(A) rightly treated them as genuine liabilities, not falling within the purview of section 68. Ground (a) is, accordingly, dismissed. 10. Ground (b): Disallowance of Rs.40,00,000/- on account of personal expenditure 11. The AO noted that the tax audit report referred to personal expenditure of Rs.40,00,000/-, while the return disclosed ‘NIL’. On verification, the CIT(A) found that this amount represented various provisions made by the assessee and the same were already added ITA No.1820/Ahd/2024 6 back in the computation of total income. The breakup of the amount is as under: Sr. No. Particulars Amount (in Rs.) 1 Bad and Doubtful Provision 13,00,000/- 2 Sabhasad Protsahan Fund Provision 7,00,000/- 3 Sabhasad Sahayak Fund Provision 5,00,000/- 4 Interest Provision 15,00,000/- Total 40,00,000/- 12. The CIT(A) verified from the computation of income that the above amount had been disallowed under item 23 of Part A–P&L in the return of income. The AO’s addition amounted to duplication, and the CIT(A) rightly deleted the same. No infirmity is found in the CIT(A)’s reasoning. Ground (b) is dismissed. 13. Ground (c): Addition of Rs.19,39,776/- u/s 68 on account of increase in loans and advances 14. The AO treated the increase in “loans and advances” from Rs.19,02,16,651 to Rs.19,21,56,427 as unexplained and added Rs.19,39,776/- u/s 68. The CIT(A), however, accepted that these advances were part of the core activity of the co-operative society, and the increase was normal and verifiable from the balance sheet. It was further noted that the assessee is audited under the Gujarat Co- operative Societies Act, Advances are made only to members after completing formalities and there is no indication of fictitious or benami advances. 15. Importantly, in assessee’s own case for A.Y. 2018–19, the Co- ordinate Bench dismissed Revenue’s appeal on a similar addition of Rs.97,45,404/- made u/s 68, holding that such balances in the balance sheet arising from regular credit operations do not attract ITA No.1820/Ahd/2024 7 section 68. Respectfully following the said decision and in the absence of any fresh evidence brought by the Revenue, we uphold the CIT(A)’s deletion. Ground (c) is dismissed. 16. Ground (d): Disallowance of Rs.70,000/- u/s 40A(7) 17. The AO disallowed Rs.70,000/- under section 40A(7) on the ground that it was not reported in the return, although it was mentioned in the tax audit report. The CIT(A) has verified that the assessee had already disallowed this provision in its computation under Part A–P&L, item 23. Since the amount stood already disallowed, there was no cause for a further addition. The AO’s action clearly results in duplication. Ground (d) is dismissed. 18. 6.5 Ground (e): Disallowance of deduction u/s 80P(2)(a)(i) – Rs.89,91,830/- 19. The AO denied the claim under section 80P(2)(a)(i) for want of evidence. The CIT(A), however, evaluated the components of income and held that the following interest incomes were derived from members and hence eligible: Sr. No. Nature of Income Amount (Rs.) 1 Interest on Festival Loan 1,78,934 2 Interest on Vehicle Loan 22,739 3 Interest on ODAP Loan 1,14,27,306 4 Interest on Staff Loan 55,372 5 Interest on Fix Loan 8,52,084 6 Penalty Income from members 10,809 20. Further, out of Rs.43,13,281/- of total bank interest income, Rs.41,40,282/- earned from investments with co-operative banks was held allowable u/s 80P(2)(d), as supported by the decision of Co- ordinate Bench in assessee’s own case for A.Y. 2018–19 and the ITA No.1820/Ahd/2024 8 Hon’ble Gujarat High Court decision in Ashwinkumar Arban Co-op. Society Ltd. (168 taxmann.com 314). In absence of any contrary material, we find no merit in the Revenue’s challenge. Ground (e) is dismissed. 21. Ground (f): Admitting additional evidence in violation of Rule 46A 22. The grievance of the Revenue is that the CIT(A) admitted additional evidence furnished by the assessee during the course of appellate proceedings without calling for a remand report from the Assessing Officer, thereby violating the mandate of Rule 46A of the Income-tax Rules, 1962. It is undisputed that the assessment was completed ex parte under section 143(3) r.w.s. 144B due to non- compliance by the assessee with multiple statutory notices, including the final show cause notice dated 29.08.2022. We have carefully examined the record and the appellate order passed by the CIT(A). Although the CIT(A) has not expressly recorded a finding that no additional evidence was furnished, we note that the factual submissions made by the assessee before the appellate authority were based entirely on documents and financial statements that were part of the return of income, such as audited financial statements, the tax audit report filed under section 44AB, computation of income, and break-up of provisions and interest income which were either disclosed in the tax audit report or reconciled with the audited accounts. These records were not disputed to be new documents brought in for the first time, nor was any specific material cited by the Revenue to suggest that new documentary evidence had been admitted by the CIT(A). The CIT(A) adjudicated the appeal on the basis of explanations and reconciliations derived from the return and its annexures which were available to the Assessing Officer but were not ITA No.1820/Ahd/2024 9 examined by him due to lack of response from the assessee and the consequent best judgment nature of the assessment. It is also well settled that the first appellate authority is empowered under section 250(4) of the Act to make further inquiries or call for additional information as deemed necessary and is not constrained by the provisions of Rule 46A where the factual basis of adjudication is already present in the record and no new documentary evidence is relied upon. In these circumstances, the action of the CIT(A) cannot be held to be in violation of Rule 46A, as the explanations considered were contextual clarifications supported by existing financials, and no factual prejudice has been demonstrated to have been caused to the Revenue. Accordingly, we uphold the CIT(A)’s action. Ground (f) is dismissed. 23. In view of the foregoing detailed findings and consistent with the order of Co-ordinate Bench in assessee’s case for A.Y. 2018–19, we find no reason to interfere with the well-reasoned order of the CIT(A), NFAC. 24. Accordingly, all grounds raised by the Revenue are dismissed, and the appeal stands dismissed. Order pronounced in the Court on 22nd May, 2025 at Ahmedabad. Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER Ahmedabad, dated 22/05/2025 vk* "