In a recent case, The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) ordered detailed verification of “KYC” ( Know Your Customer) of the members of the assessee-cooperative society in relation to the assessee’s acceptance of Specified Bank Notes (SBNs) as deposits after the demonetization announcement on November 8, 2016
The assessee/appellant, Prathamika Krishi Pattina, a cooperative society, had filed a return of income declaring a gross total income of Rs. 7,98,118. The case was selected for scrutiny, and during the assessment proceedings, it was revealed that the assessee had deposited cash amounting to Rs. 73,18,542 in old currency notes of Rs. 500 and Rs. 1,000 in its bank accounts.
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The Assessing Officer (AO) noted that after November 9, 2016, these denominations were no longer legal tender. Despite this, the assessee continued to accept such notes from its members, and these were subsequently deposited into its bank accounts.
The AO, relying on various notifications and instructions issued by the Government of India and the Reserve Bank India (RBI), concluded that the assessee was not authorized to accept these demonetized notes. As a result, the AO issued a show cause notice to the assessee, who then provided explanations and submitted proofs regarding the depositors.
However, the AO was not satisfied with the explanation and added the amount of Rs. 73,18,542 under Section 68 of the Income Tax Act 1961 (ITA). Additionally, the AO applied the tax rate under Section 115BBE of the tax statute, which deals with unexplained income.
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Aggrieved by this order, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)]
The CIT(A) examined the details provided by the assessee, including the deposit information of 161 bank accounts held by the assessee’s members and noted that the source of the cash deposits had been adequately explained, as the cash was received from the members, and the AO did not identify any discrepancies in the details provided.
The CIT(A) relied on the decisions of the ITAT Bangalore in similar cases, such as Bhageeratha Pattina Sahakara Sangha Niyamitha and Prathamika Krushi Pattina Sahakari Sangha Niyamitha Itagi, to conclude that the assessee had satisfactorily explained the source of the deposits. Thus the CIT(A) deleted the addition made by the AO under Section 68 of the income tax statute.
Dissatisfied with the CIT(A)’s decision, the Revenue brought the case before the ITAT.
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Before the tribunal, the Revenue maintained that the deletion was inappropriate, arguing that the acceptance of SBNs was unauthorized and that the CIT(A) failed to examine the case thoroughly in light of Section 68 of ITA. They also raised concerns that it was unclear whether the assessee had provided KYC details (Know Your Customer) of the depositors, which would include crucial information like the names, addresses, account numbers, PAN, Aadhaar, contact details, and the denominations of the old currency deposited.
The bench of Mr Laxmi Prasad Sahu and Mr Keshav Dubey, after considering the submissions from both sides, noted that the AO and CIT(A) orders did not explicitly clarify whether the assessee had submitted the KYC details of the depositors. Given this ambiguity, the tribunal directed the assessee to submit these KYC details, including information such as the name and address of each customer, the account number where the amount was deposited, PAN, Aadhaar, contact numbers, and the denomination of the old Rs. 500 and Rs. 1,000 notes.
The bench also referred to a similar issue decided by its coordinate Bench in the case of Shree Jagadguru Mouneshwar Pattin Sahakari Niyamit, where the Tribunal had directed the AO to verify the details of cash deposits submitted by the assessee. In that case, it was held that the assessee, being a credit cooperative society, had provided sufficient details, including KYC of its members, and thus had discharged its obligation under Section 68 of ITA.
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It was further noted that although the RBI and Government of India had not authorized the acceptance of SBNs post-demonetization, the transactions’ genuineness and the identities of the depositors were not in doubt.
Following this precedent, the ITAT remitted the present issue back to the AO, directing them to verify the details of the cash deposits as per the guidelines provided. The ITAT also instructed the assessee to cooperate fully and submit the necessary documents to substantiate their case for a proper adjudication by the revenue authorities. The Tribunal emphasized the need for reasonable opportunities to be given to the assessee to present their case.
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In result, the tribunal allowed the Revenue’s appeal for statistical purposes, remitting the matter back to the AO for further verification and ordered the AO to make a fresh decision based on the additional evidence provided by the assessee.
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