Co-op Bank Fails to Prove Identity and Creditworthiness of Depositors: ITAT upholds S. 68 addition and dismisses claim u/s 80P(2)(i)(a) [Read Order]

The Cochin bench of the Income Tax Appellate Tribunal (ITAT) dismissed the appeals filed by Peeroorkada Service Co-operative Bank Ltd and upheld the additions made under Section 68 of the Income Tax Act, 1961, and rejected the bank’s claim for deduction under Section 80P(2)(i)(a) of the Act by noting that the assessee failed to discharge its onus of proving the identity, creditworthiness, and genuineness of depositors whose cash credits were brought to tax.

In this case, the assessee has appealed against the order passed by the Commissioner of Income Tax [CIT(A)] for the assessment years (AY) 2016-17 to 2018-19.

Coming to the facts of the case, for the AY 2016-17, the assessee bank filed its income tax returns declaring nil income after claiming deductions under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Assessing Officer (AO) completed the assessment on 24.12.2018, disallowing the deduction under Section 80P by holding that the bank was a cooperative bank hit by sub-section (4) of the same provision. The AO also added Rs. 40.66 crore under Section 68, citing unexplained cash deposits and other additions. The bank appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who allowed the deduction under Section 80P(2)(a)(i) of the Income Tax Act, by following the Supreme Court’s decision in Mavilayi Service Co-operative Bank Ltd. v. CIT [2021] 431 ITR 1 (SC), but confirmed the Section 68 addition due to the bank’s failure to prove the legitimacy of the deposits.

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The assessee, who was aggrieved by the above order, appealed before the ITAT, but there was a 17-day delay.

The Tribunal condoned the delay after accepting the assessee’s explanation that its auditors were preoccupied with year-end filings. During the hearing, the assessee repeatedly sought adjournments and failed to appear, leading the tribunal to proceed ex parte.

The ITAT upheld the CIT(A)’s decision on the Section 68 addition, rejecting the bank’s argument that maintaining customer secrecy prevented it from disclosing depositor details. The Tribunal noted that banking regulations mandate Know Your Customer (KYC) records, and the bank’s failure to provide such details justified the AO’s action. The ITAT dismissed the bank’s claim that the addition under Section 68 should qualify for deduction under Section 80P(2)(i)(a), noting that the bank had not proven the deposits originated from disclosed business income.

The Tribunal, comprising Inturi Rama Rao (Accountant Member) and Prakash Chand Yadav (Judicial Member), upheld the impugned order and dismissed the assessee’s appeal.

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