The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) observed that addition under Section 68 of the Income Tax Act, 1961, cannot be made without examining source of cash deposit
The assessee, a cooperative society registered under the Karnataka Cooperative Societies Act, 1959, filed its return of income for the Assessment Year 2017-18 on 27.03.2018, declaring Nil income after claiming a deduction of Rs. 2,63,202 under Section 80P of the Income Tax Act, 1961.
The assessment underwent scrutiny, and a notice under Section 143(2) of the Income Tax Act, 1961, was issued on 07.09.2018. Eventually, the assessment was completed under Section 143(3) of the Act, with the denial of the deduction under Section 80P of the Income Tax Act, 1961. Additionally, the Assessing Officer (AO) added Rs. 18,33,678 as unexplained income related to cash deposits during the demonetization period under section 68 read with Section 115BBE of the Income Tax Act, 1961
The assessee appealed to the First Appellate Authority. The Commissioner of Income Tax (Appeals) [CIT(A)] partially favored the assessee. Citing the Supreme Court’s judgment in Mavilayi Service Cooperative Bank Ltd. & Ors. v. CIT, the CIT(A) directed the AO to allow deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. However, concerning the cash deposits, the CIT(A) upheld the AO’s addition of Rs. 18,33,672.
The counsel for the assessee Veeranna M. Murgod submitted that during the demonetization period the assessee had received cash from its members for depositing in loan account, SB account, etc. It was submitted that on identical facts in the case of Merchants Credit Co-operative Society Ltd., Vs. ITO the Bangalore Bench of the Tribunal had deleted the addition under Section 68 of the Income Tax Act, 1961
The counsel for the revenue Ganesh R Ghale asserted that the contested addition was solely based on the assessee’s unauthorized acceptance of SBNs after the demonetization date (i.e., 08.11.2016). Hence, the matter requires fresh examination by the Assessing Officer (AO), as the source of cash deposits was not previously scrutinized by either the AO or the CIT (A).
The Commissioner of Income Tax (Appeals) [CIT(A)] justified the contested addition on the grounds that the assessee was not authorized to accept Specified Bank Notes (SBNs), particularly old notes of Rs. 500 and Rs. 1000, following demonetization, as these notes were no longer considered legal tender. However, in a similar case, the Bangalore Bench of the Tribunal ruled differently in the matter of Merchants Credit Co-operative Society Ltd. vs. ITO, where they annulled the addition made under section 68/69A of the Income Tax Act, 1961. In that instance, since the assessee met the conditions mandated under section 68 of the Act, the addition was nullified.
The single member bench of the tribunal comprising George George K (Vice President) observed that an addition under section 68 of the Income Tax Act, 1961, cannot be made without scrutinizing the source of the cash deposit. Consequently, for the limited purpose of scrutinizing the cash deposit’s source, the matter was referred back to the Assessing Officer. The assesse was instructed to provide evidence of the identity/source of the cash deposit and must satisfy the AO regarding the conditions stipulated under Section 68 of the Income Tax Act, 1961.
In the result, an appeal filed by the assessee was allowed for statistical purposes.
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