The Commissioner of Income Tax (Appeals), through the National Faceless Appeal Centre (NFAC), Delhi, has deleted a ₹7.77 lakh addition made against a cooperative credit society, holding that depositing demonetised currency does not, by itself, establish that the money is unexplained under Section 69A of the Income Tax Act, 1961.
The appellate authority found that the society’s explanation regarding the source of the deposits was supported by receipts and ledger records. The Assessing Officer had produced no contrary evidence to establish that the deposits represented unexplained money.
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However, the society received only partial relief. The appellate authority upheld the Assessing Officer’s treatment of its income tax return as invalid and sustained the denial of the deduction claimed under Section 80P. Order u:s 250 of Income Tax Act…
The appellant was a cooperative credit society registered under the Madhya Pradesh Cooperative Societies Act, 1960, and engaged in providing credit facilities to its members. According to its statement of facts, the society was operated by employees of a department and functioned as a mutual organisation.
The society stated that it had not filed its income tax return under Section 139 because of ignorance of the legal provisions.
Information received through the AIMS module of the Income Tax Business Application showed that the society had deposited ₹13,36,500 in cash into its bank accounts. The Income Tax Department subsequently initiated proceedings and issued a notice under Section 142(1) requiring it to file a return for Assessment Year 2017–18.
The appellate order records that the society failed to comply with the notice dated March 9, 2018. It eventually filed its return on June 27, 2019.
During the assessment proceedings, the society’s manager appeared in response to a summons under Section 131 and gave a statement on oath. Following a show-cause notice dated September 16, 2019, the society submitted an application on September 19, 2019, seeking further time to compile the required information.
The Income Tax Officer, Ward-1(2), Ujjain, completed the assessment under Section 144 on November 13, 2019, assessing total income at ₹12,53,510 and raising a demand of ₹11,01,660. The society challenged the assessment by filing an appeal on December 24, 2019.
The society contested three principal findings in the assessment order: the treatment of its return as invalid, the denial of its claimed deduction under Section 80P, and the addition of ₹7,77,000 as unexplained money under Section 69A.
It maintained that it was eligible for the deduction because it was a registered cooperative credit society providing credit facilities to members. It also argued that the disputed cash deposits came from members and did not represent unexplained funds.
During the appellate proceedings, the society furnished copies of receipts issued for members’ savings and loan payments, along with handwritten ledger records relating to its members.
The appellate authority noted that the total cash deposits of ₹13,36,500 included ₹7,77,000 deposited in demonetised currency.
The manager had explained on oath that the cash was received from members of the society. He also explained the cash balance and subsequent bank deposits. According to his statement, the society accepted the demonetised notes because it lacked knowledge of the applicable restrictions and the bank was accepting such currency.
The authority further recorded that the society had furnished bank statements, an audit report, a list of members and its registration certificate before the Assessing Officer and during the appellate proceedings.
A significant factor in the decision was that the Assessing Officer had not disputed the entire amount deposited. The remaining cash deposits had been accepted as explained, while the addition was confined to the ₹7.77 lakh deposited in demonetised notes.
The appellate authority therefore observed that the Assessing Officer had accepted the society’s explanation that the deposits originated from members to the extent of the undisputed amount.
The disputed addition, the authority found, had been made only because the money was deposited in demonetised currency after the announcement of demonetisation.
Rejecting that basis for the addition, the Commissioner of Income Tax (Appeals) held that the source of the cash had to be examined against the surrounding facts and available records.
The authority found no material on record establishing that the demonetised cash deposits represented unexplained money belonging to the society. The fact that the deposits consisted of demonetised notes was insufficient, by itself, to justify an addition under Section 69A.
In this case, the receipts and ledger records supported the explanation that the funds had been received from members. The Assessing Officer had brought no contrary evidence on record.
Accordingly, the appellate authority deleted the entire ₹7,77,000 addition and allowed the society’s ground of appeal on this issue.
The society’s challenge to the treatment of its return as invalid was unsuccessful.
The appellate authority observed that the return filed on June 27, 2019, was beyond the time permitted under Sections 139(1) and 139(4). It also recorded the society’s failure to comply with the earlier notice under Section 142(1).
Since the society had not demonstrated that it had filed a valid return within the prescribed period, the authority found no error in the Assessing Officer’s decision to treat the return as invalid and complete the assessment under Section 144.
The authority also upheld the denial of the Section 80P deduction. It reasoned that registration as a cooperative society did not, by itself, establish entitlement to the deduction. Eligibility depended on compliance with the applicable filing requirements, fulfilment of the conditions under Section 80P and the nature of the income earned.
The registration certificate, audit report and membership details furnished by the society did not alter the finding that its return had been filed beyond the prescribed time.
The appeal was partly allowed, with relief confined to deletion of the ₹7.77 lakh addition under Section 69A. The findings concerning the invalid return and denial of the Section 80P deduction remained intact.
The order underscores the need to examine the actual source of demonetisation-period cash deposits. On the facts of this case, documentary support for receipts from members, coupled with the absence of contrary evidence, made the addition unsustainable.
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