Case Law Details
ITO Vs UK Souharda Credit Cooperative Society Limited (ITAT Bangalore)
The Revenue’s appeal involved deletion of addition of ₹2.14 crore made by the AO under Section 68 on account of deposits of demonetised currency (SBN) received by a co-operative society from its members during the demonetisation period. The AO treated such deposits as unexplained on the ground that SBN had ceased to be legal tender.
The CIT(A) deleted the addition after noting that the assessee had explained the source as receipts from members in the normal course of its credit business and that the AO failed to conduct any meaningful inquiry or bring contrary material on record.
The ITAT upheld this view, emphasizing that once the nature and source of deposits are explained and recorded in books, Section 68 cannot be invoked merely because the receipts were in demonetised currency. It also clarified that any alleged violation of RBI notifications does not automatically trigger addition under the Income Tax Act.
Relying on coordinate bench precedent in similar facts, the Tribunal held that deposits from members in the ordinary course of business cannot be treated as unexplained, and dismissed the Revenue’s appeal.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The present appeal filed, at the instance of the revenue, is directed against the order passed under section 250 of the Income Tax Act 1961 dated 07-08-2023 pertaining to A.Y. 2017-18 at National Faceless Appeal Centre-NFAC, Delhi.
2. This appeal is filed along with an application for condonation of delay of 820 days. The revenue submitted that the delay occurred due to a bona fide mistake regarding jurisdiction, as the matter was initially pursued before Panaji bench of Tribunal, an incorrect forum. It was explained that only after realizing the correct jurisdiction, the present appeal was filed before the appropriate Bench of the Tribunal. The Revenue further submitted that the delay was neither intentional nor due to negligence but occurred due to genuine circumstances beyond control.
3. On the other hand, the Ld. AR did not oppose the condonation of the delay in filing the appeal by the Revenue.
4. We have considered the rival submissions and examined the materials on record. We find that in the present case the order under section 250 of the Act by the learned CIT(A) was passed as on 06thSeptember 2023. The revenue within prescribed time filed appeal. However, appeal was filed before Panaji Bench of Tribunal. The Revenue appeal got dismissed by the Hon’ble bench of Panaji Tribunal vide order dated 10 December 2024 on account of jurisdiction and granted leave to pursue the matter before the correct forum. The department claimed that the said order of the Hon’ble Panaji Tribunal received as on 16th September 2025. Accordingly, the Revenue filed present appeal before this tribunal as on 04th November 2025 which is correct jurisdictional forum but in this process the delay of 820 days from the receipt of order of learned CIT(A) (07-08-2023) has occurred.
4.1 It is a settled position of law that while considering condonation of delay, a liberal approach should be adopted so that substantial justice is not defeated on technical grounds. The Hon’ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji [1987] 167 ITR 471 (SC) has held that justice-oriented approach should be followed in such matters.
4.2 In the present case, the explanation given by the Revenue appears to be reasonable and the delay cannot be said to be deliberate or intentional and the conduct of revenue being filing of appeal before the Panaji Bench under Bonafide belief is showing that the department was vigilant in perusing the mater. If the delay is not condoned, the department will lose the opportunity to contest the case on merits, which will cause prejudice. Therefore, in the interest of justice, we condone the delay of 820 days in filing the appeal and admit the appeal for adjudication on merits.
4.3 The issue raised by the revenue is that the learned CIT(A) erred in deleting the addition made on cash deposit of demonetised currency note received by the assessee during the demonetisation period.
5. The facts in brief are that the assessee, a cooperative society, is engaged in the business of providing credit facilities to the members. During the demonetisation period, the assessee has received/accepted a sum of Rs. 2,14,93,542/- in demonetised currency/SBN from various branches which was band for transaction. Thereafter, the same was deposited into the bank account of the assessee. The AO held such currency was band and have no legal tender. As the assessee has received/accepted zero value currency, the deposit in bank account is treated as unexplained credit under section 68 of the Act. Accordingly, an addition of Rs. 2,14,93,542/- was made to the total income of the assessee.
6. The aggrieved assessee preferred an appeal before the learned CIT(A) and submitted the sources of deposit of SBN was out of receipt/amount accepted from the members. The assessee placed reliance on the decision of Tribunal in the case of Shri Bhageeratha Pattina Sahakari Sangha Niyamitha in ITA No. 646/Bang/2021 wherein under identical facts and circumstances, the deposits of SBN receipts from members was accepted as genuine.
7. The learned CIT(A) deleted the addition made by the AO by holding that there was no bar on collection of cash from members as long the sources are properly explained. The learned CIT(A) found that the AO has not given any convincing reasons for rejecting the assessee’s explanation and also not done any groundwork before making addition under section 68 of the Act.
8. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us.
9. The learned DR before us submitted that the assessee had accepted Specified Bank Notes after the date on which they ceased to be legal tender, which was in clear violation of the notifications issued by the Government of India and the RBI. It was contended that once the currency ceased to be legal tender, it had no legal value and, therefore, any acceptance of such currency cannot be regarded as a valid business receipt. The learned DR further argued that the assessee failed to establish the genuineness of the transactions and the identity and creditworthiness of the members from whom such cash was allegedly received. Accordingly, the AO was justified in treating the deposits as unexplained cash credits under section 68 of the Act.
10. Per contra, the learned AR submitted that the assessee had received the amounts from its members in the normal course of its business activities, such as loan repayments and deposits, and all such transactions were duly recorded in the books of account. It was further submitted that the assessee had discharged the onus cast upon it under section 68 of the Act by explaining the nature and source of the deposits. The learned AR contended that the AO had not brought any adverse material on record to disprove the explanation furnished by the assessee. Reliance was placed on the decision of the coordinate bench in the case of Shri Bhageeratha Pattina Sahakari Sangha Niyamitha (supra), wherein under identical circumstances, the Tribunal held that such deposits cannot be treated as unexplained merely because they were in SBN during the demonetisation period.
11. We have heard the rival contentions of both the parties and perused the materials available on record. The short issue before us is whether the cash deposits made by the assessee during the demonetisation period, representing Specified Bank Notes (SBN) received from the members, can be treated as unexplained u/s 68 of the Act.
11.1 At the outset, we note that the assessee is a co-operative society engaged in providing credit facilities to its members. It is not in dispute that the assessee has accepted cash from its members and subsequently deposited the same in its bank account. The AO has made the addition primarily on the ground that SBN had ceased to be legal tender and, therefore, the deposits out of receipts of SBN from the members represent unexplained credits.
11.2 However, we find that the learned CIT(A), after examining the facts, has recorded a finding that the assessee has explained the source of deposits as receipts from its members. The AO has not brought any material on record to show that these receipts are not genuine or that they are from unexplained sources. No enquiry appears to have been conducted by the AO to disprove the explanation of the assessee.
11.3 We further note that an identical issue has been considered by the coordinate bench of the Tribunal in the case of Shri Bhageeratha Pattina Sahakari Sangha Niyamitha in ITA No. 646/Bang/2021, wherein under similar facts and circumstances, the Tribunal held that cash deposits out of receipts from members cannot be treated as unexplained merely because the same were in SBN during the demonetisation period. For ready reference, the relevant findings of the coordinate bench are reproduced below:
14. I heard Ld. D.R. on this issue and perused the record. I notice that the A.O. has not doubted the submissions of the assessee that the above said amount of Rs.24,47,500/- represents collection of money in the normal course of carrying on of business of the assessee, i.e., it represents money remitted by the members of the assessee society towards repayment of the loan taken by them and also towards pigmy deposits, etc. The Ld A.R submitted that the assessee has duly recorded in its books of account the transactions of collections of money as well as deposits made into bank account. Thus, I notice that the assessee has explained the nature and source of the above said amount of Rs.24,47,500/-, which was in-turn deposited by the assessee society in its bank account and further, all these transactions have been duly recorded in the books of account. Hence, the above said deposits cannot be considered as “unexplained money” in the hands of the assessee.
15. The case of the A.O is that the assessee has collected the demonetized notes after 8.11.2016 in violation of the notifications issued by RBI. Accordingly, he has taken the view that the above said amounts represents unexplained money of the assessee. I am unable to understand the rationale in the view taken by A.O. I noticed that the AO has invoked the provisions of sec.68 of the Act for making this addition. I also noticed that the assessee has also complied with the requirements of sec.68 of the Act. The AO has also not stated that the assessee has not discharged the responsibility placed on it u/s 68 of the Act. Peculiarly, the AO is taking the view that the assessee was not entitled to collect the demonized notes and accordingly invoked sec.68 of the Act. I am unable to understand as to how the contraventions, if any, of the notification issued by RBI would attract the provisions of sec. 68 of the Income tax Act. In any case, I notice that the assessee has also explained as to why it has collected demonetized notes after the prescribed date of 8.11.2016. The assessee has explained that it has stopped collection after the receipt of notification dated 14.11.2016 issued by RBI, which has clearly clarified that the assessee society should not collect the demonetized notes. Accordingly, I am of the view that the deposit of demonetized notes collected by the assessee from its members would not be hit by the provisions of section 68 of the Act in the facts and circumstances of the case. Accordingly, I set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete this disallowance.
11.4 Respectfully following the above decision of the coordinate bench, we hold that once the assessee has established that the cash deposits represent amounts received from its members in the regular course of business, and the Revenue has failed to bring any contrary material on record, no addition u/s 68 of the Act is warranted.
11.5 The mere fact that the SBN accepted by the assessee during the demonetisation period cannot, by itself, lead to an inference that the amounts are unexplained, especially when the source stands explained and accepted as part of regular business activity. In view of the above, we find no infirmity in the order of the learned CIT(A) in deleting the addition made by the AO. Accordingly, the grounds raised by the Revenue are dismissed.
12. In the result, the appeal of the Revenue is hereby dismissed.
Order pronounced in court on 16th day of April, 2026
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