ITAT Remands Cash Deposit Addition as Documentary Evidence Was Not Examined

The Edara Primary Agricultural Cooperative Credit Society Private Limited Vs ITO (ITAT Visakhapatnam)

The Income Tax Appellate Tribunal (ITAT), Visakhapatnam, disposed of three appeals filed by a Primary Agricultural Cooperative Credit Society relating to Assessment Years (AYs) 2015-16, 2016-17 and 2017-18. Since the appeals for AYs 2015-16 and 2016-17 involved identical facts and issues, they were decided through a consolidated order.

AYs 2015-16 and 2016-17

The assessee, engaged in providing credit facilities to its members and selling fertilizers and allied goods, had not filed a regular return of income. Based on information showing cash deposits of ₹1.42 crore in its savings bank account, reassessment proceedings were initiated under Section 147. In response to the notice under Section 148, the assessee filed a return declaring nil income and explained that the cash deposits represented receipts from members, including cash recoveries of loans and advances granted to members in earlier years. However, the Assessing Officer treated the entire cash deposits as unexplained money under Section 69A because supporting documents such as the cash book, audit reports and other evidence were not produced for verification.

The Commissioner (Appeals) dismissed the appeal, observing that the assessee had failed to effectively pursue the appeal or furnish the required books of account, audit reports and financial documents despite several opportunities. The addition of ₹1,42,84,915 under Section 69A was therefore confirmed.

Before the Tribunal, the assessee submitted that the cash deposits comprised collections from registered members, including loan repayments with interest received during the normal course of its business. It relied on documentary evidence such as loan ledger accounts, members’ day books, membership records with identity details, cash receipt books, audited financial statements and tax audit reports. It contended that some of these documents had been filed belatedly before the Assessing Officer but were not properly considered. The assessee requested another opportunity to establish the source of the deposits through documentary evidence.

The Department submitted that the documents contained in the paper book had not been examined by the lower authorities and should first be verified by the Assessing Officer. It had no objection to remanding the matter for fresh assessment.

The Tribunal observed that primary agricultural cooperative credit societies ordinarily receive cash from registered members and recover loans with interest as part of their normal business activities. However, it held that the assessee was still required to establish the identity, genuineness and creditworthiness of the members and explain the source of the funds through supporting documentary evidence such as members’ ledger accounts, day books and related records. Since this verification had not been undertaken, the Tribunal set aside the assessment orders and remanded the matters to the Assessing Officer for fresh de novo assessment after considering all books of account, documentary evidence and tax audit reports. The assessee was directed to fully cooperate and produce all relevant records. The Tribunal clarified that it had expressed no opinion on the merits of the case. The appeals for AYs 2015-16 and 2016-17 were allowed for statistical purposes.

AY 2017-18

For AY 2017-18, the dispute concerned disallowance of deduction under Section 80P amounting to ₹25.89 lakh and disallowance under Section 40(a)(ia) of ₹21.74 lakh on account of alleged non-deduction of tax at source on interest payments. The Assessing Officer had passed an ex parte order under Section 144, holding that no valid return had been filed within time and, therefore, the deduction under Section 80P was not allowable. Thirty per cent of the interest expenditure was also disallowed under Section 40(a)(ia) for non-compliance with TDS provisions. The Commissioner (Appeals) upheld both disallowances.

Before the Tribunal, the assessee contended that it had filed a valid belated return under Section 139(4), which had been accepted on the income tax portal, and that the amended provisions of Section 80AC were not applicable to AY 2017-18. Regarding TDS, it submitted that the interest had been paid only to members of the cooperative society and, therefore, was covered by the exemption under Section 194A(3)(v).

The Department argued that it was necessary to verify whether the interest payments had actually been made only to members and whether a valid return had been filed, since these aspects were not evident from the assessment records due to the ex parte assessment.

The Tribunal held that while interest paid by a cooperative society to its members is exempt from TDS under Section 194A(3)(v), the factual claim required verification from the books of account and supporting documents. It also held that the assessee’s claim regarding the filing of a valid return and deduction under Section 80P required verification from the assessment records. Accordingly, the Tribunal remanded the matter to the Assessing Officer for a fresh de novo assessment after examining all documentary evidence. It kept all legal issues open without expressing any opinion on the merits. The appeal for AY 2017-18 was also allowed for statistical purposes. Consequently, all three appeals were set aside and allowed for statistical purposes.

FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM

These three appeals for above three assessment years are filed by the assessee against different orders of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld.CIT(A)”] and are taken up for disposal together.

The appeals for Asst year 2015-16 and 2016-17, being factually identical with similar grounds and identical issues involved are taken up first and disposed of by this consolidated order, for the sake of convenience.

ITA No. 46/VIZ/2025 (A.Y. 2015-16).

2. This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter in short “Ld. CIT(A)”] passed under section 250 of Income Tax Act, 1961 [hereinafter in short “the Act”] dated 26.12.2024 which has emanated from the order of the Ld. Assessing Officer [hereinafter in short “Ld.AO”] dated 21.03.2022 passed under section 147 r.w.s 144B of Income Tax Act, 1961 [hereinafter in short “the Act”].

3. The grounds of appeal taken by the assessee in Form No. 36 are as under:-

“1. Both in law and in Facts of the case, the order made by the Ld. Commissioner of Income Tax (Appeals), NFAC, is bad in law, arbitrary, contrary to the provisions of law and against the principles of natural justice.

2. On the facts and circumstances of the case and in law the Ld. Commissioner of Income Tax (Appeals), NFAC, erred in sustaining the order of National faceless assessment Centre Delhi, by confirming the addition made of Rs. 1,42,84,915/- towards cash deposits.

3. The Ld. Commissioner of Income Tax (Appeals), NAC, Delhi is wrong in rejecting the contention of the assessee towards cash deposits stating that the assessee failed to furnish the information called for though the assessee provided details of sources for cash deposits.

4. The Ld. Commissioner of Income Tax (Appeals), NAC, Delhi is not justified in confirming the addition made of Rs.1,42,84,915 u/s 69A of the Act. towards cash deposits the sources for the said deposits are collections from members only.

5. The Ld. Commissioner of Income Tax (Appeals), NFAC Delhi ought to have considered that the cash deposits in the bank accounts of the society belong to the members only and assessing the cash deposits as income of the society u/s 69A as unexplained money is against the provisions of law.

6. The Ld. Commissioner ofincome Tax (Appeals), NFAC Delhi, is not justified in making the addition of cash deposits 1,42,84,915 when the assessee maintained books of accounts and the same are subject to the audit of District Co-operative Audit Officer.

7. Additions made on presumptions and surmises without looking into the facts and issues of the case are against the provisions of law.

8. For these reasons and those which may be urged at the time of hearing of appeal and on the facts and circumstances of the case the addition made of Rs.1,42,84,915 shall be deleted.

9. The appellant craves leave to add to alter, amend, modem, substitute, delete and/or rescind all or any of the grounds of appeal on or before the final hearing, if the necessity so arises.”

4. Brief facts emerging from records are that, the assessee is a Primary Agricultural Cooperative Credit Society engaged in providing credit facilities to its members including sales of fertilizers and no return of income has been filed in normal course for the year under appeal. On the basis of information available in the portal (AIMS Module) that the assessee has deposited cash amounting to Rs. 1.42 crores in its savings bank account, during the financial year under appeal, and in absence of any regular return on record, proceedings were initiated under section 147 of the Act vide notice under section 148 dated 29.03.2021 [as per procedure] with prior approval from higher authorities.

5. Return was filed under section 148, disclosing a total income at NIL and the subsequent notice under section 143(2) of the Act, has been replied by the assessee, explaining the deposits of cash in bank to have come out of receipts from the Members of Society and also out of cash recovery of loans and advances made to Members in earlier years. However, in absence of documentary evidences being actually produced and examined, like cash book, audit reports and other supporting evidences, the explanations offered, has not been found to be satisfactory and the assessment was completed on a total income of Rs.1.42 crores (by treating the bank deposits as unexplained under section 69A of the Act).

6. The matter carried in appeal before the Ld. First Appellate Authority has been dismissed in absence of any proper representation on the part of the assessee in course of Appellate Proceedings where the Ld. CIT(A) has observed as follows:-

“x. Also evidently the assessee has neither submitted any satisfactory reply nor taken any initiative to respond to any of the notices despite being given opportunities to do so. It is pertinent to mention here that appeal belongs to Assessment Year 2015-16 and the assessee failed to produce any submission during the appellate proceedings in support of his grounds of appeal. Thus, it is held that the appellant had nothing more to submit except for raising the ground.

xi. In view of the above facts, it is noted that, the Hon’ble lTAT in ITA No. 1025-1027/Chandi/2005 for the A.Y. 2002-03 in the case of M/s Chhabra Land and Housing Ltd. after following the decision of Hon’ble Supreme Court in the case of B. N Bhattachargee, 118 ITR 461 (SC) held that, the appeal does not mean merely filing of the appeal but effectively pursuing it. Keeping in view of the aforesaid factual position, the appeal filed by the appellant is, therefore, being decided on merits.

Further, in a decision in the case of CIT v. Gold Leaf Capital Corporation Ltd. on 02.09.2011 (ITA No. 798 of 2009), the Hon’ble High Court of Delhi had held that, a negligent assessee should not be given too many opportunities just because that quantum of amount involved is high. The necessary course of action is to draw adverse inference; otherwise it would amount to giving premium to the assessee for his negligence. When the assessee is non-cooperative, it can naturally be safely concluded that the assessee did not want to adduce evidence as it would expose falsity and lack of genuineness.

In the light of above discussed facts at point no.-(i) to (x), in the absence of proper books of accounts, audit report, other financial documents and the judicial precedents cited, this Appellate authority is in the view that, the addition made by the Assessing officer for Rs 1,42,84,915/-u/s 69A of the Income Tax Act, 1961 is correct and thus UPHELD. The grounds of appeal no.-1 to 5 are not allowed. And the grounds no.-6 to 8 are general and hence not adjudicated upon further.

In the result, the appeal is NOT ALLOWED.”

7. Now the assessee is in appeal before the Tribunal on the grounds containing in the memorandum of appeal and in course of Appellate Proceedings the assessee has filed a Paper Book containing 119 pages and the Learned Authorized Representative (for short “Ld.AR”) has submitted that assessee is engaged in providing credit facilities to its members only ( and not to any outsiders ) and is also in the business of selling fertilisers, seeds and allied goods to its farmer Members. He further submitted that the entire cash deposits in bank account are the cash that has been received from the Members of the society as deposits and also includes the recovery of loans and advances with interest from the members in cash, which has been deposited in the bank accounts. He further submitted that as per documentary evidences contained in the Paper Book, which includes copy of loan ledger account, Members day book, evidences of registration number of the Members of the society ( with photographs) , members register, along with individual identity, and cash receipts book as maintained by the assessee are enclosed and such books of accounts of the assessee-society are duly audited by the Auditors appointed by the Registrar of cooperative societies as per provisions of the State Cooperative Societies Act, and further report which is the tax audit report as required under section 44AB of the Act 61, has also been obtained and furnished before the AO belatedly which has not been considered.

8. Ld.AR further referred to the trading and profit and loss account and balance sheet, contained in the Paper Book and submitted that all details are contained therein which has been audited and accepted as correct by the auditors and the sources of cash that is deposited in bank has come out of receipts from the Members of the society only which also includes recovery of loans with interest , in the normal course of business activity of the assessee , which for all practical purpose are the core foundational business activity of this agricultural credit society. As such he prayed referring to all the documentary evidences some of which has been filed before the Ld.AO, has not been considered in the proper perspective and if an opportunity is allowed then the entire sources of cash deposits in bank can be satisfactorily explained supported by documentary evidences and books of accounts in possession of the assessee’s society and he prayed for a proper considering the fact that the TAR has never been considered in course of assessment proceedings.

9. Departmental Representative (hereinafter in short “Ld. DR”) relied on the orders of the Ld. CIT(A) and submitted that the documentary evidences which are contained in this Paper Book has not been filed before the lower authorities and none of these are actually mentioned in the Assessment Order and before any such documentary evidences are accepted opportunity of verification of such documents should be allowed to Ld.AO, but considering the fact that this is a case of a primary agricultural cooperative credit society , he has no objection if the matter is remanded back for fresh assessment after considering all documentary evidences.

10. We have heard the rival submissions and considered the materials on record and we find that there are cash deposits in the bank account which has been added back by the Ld.AO under section 69A of the Act ( as unexplained ) and in case of primary agricultural cooperative credit societies, cash are accepted / received from the registered Members of the society and lending of money are its foundational business activity and the recovery of such loans along with interest are carried out in normal course of business activity of providing credit to its members. We also find that it is necessary to prove the identity, genuineness and the creditworthiness of the members and the sources of the funds needs to be established along with the supporting documentary evidences like Members ledgers account, day books and other relevant evidences relating to source of income of the Members and explained by way of documentary evidences which has been not been done in this case.

11. As such in the interest of justice, we set aside the matter back to the file of the AO for fresh assessment ” denovo ” after consideration of all documentary evidences and books of accounts including tax audit reports ( TAR) and the assessee is also directed to file all necessary supporting papers, submissions and documentary evidences along with books of accounts to satisfactorily explain the sources of cash, identity, the genuineness and the creditworthiness of the members to the satisfaction of the AO and to fully cooperate in fresh assessment proceedings.

12. The assessee will be allowed reasonable opportunity of being heard and notice to be issued in e-mail ID in the portal and also in the e-mail ID of the counsel of the assessee as contained in Form No. 36 as “krishnapacs320@gmaiLcom”, as per procedure laid down in section 282 of the Act.

13. We have not expressed any opinion on merits of the case and all legal issues are left open.

14. In the result, appeal of the assessee is allowed for statistical purposes. 8

ITA No. 47/VIZ/2025 (A.Y. 2016-17)

15. The facts of the case are identical to that of the Y. 2015-16 and the grounds of appeal contained in Form No. 36 are also the same. Our observations in ITA No. 46/VIZ/2025 for the A.Y. 2015-16 applies mutatis mutandis to this year also. The appeal for this assessment year is also remanded back to the file of Ld.AO for denovo fresh assessment.

16. In the result, this appeal of the assessee is allowed for statistical purposes. ITA No. 48/VIZ/2025 (A.Y. 2017-18).

17. This appeal is filed by the assessee against order of the Ld. CIT(A) passed under section 250 of Income Tax Act, 1961 dated 30.12.2024 which has emanated from the order of the Ld.AO dated 31.12.2019 passed under section 144 of the Act.

18. Grounds of appeal raised by the assessee in Form No. 36 are as under: –

“1. Both in law and in Facts of the case, the order made by the Ld.Commissioner of Income Tax (Appeals), NFAC, Delhi is bad in law, arbitrary, contrary to the provisions of law and against the principles of natural justice.

2. On the facts and circumstances of the case and in law the Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi, erred in sustaining the order of the Income Tax Officer, Ward 3(2), Vijayawada by confirming the disallowance of claim of deduction of Rs.25,89,908/-u/s 80P and 30 percent of interest of Rs.72,49,186/-amounting to Rs.21,74,756/- u/s 40(a)(ia) aggregating to Rs . 47,64,664/-

3. The Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi is wrong in appraising that “no return of income is deemed to have been filed by the assessee since the assesse fails to make a claim………. ” though the assessee made a claim correctly in a valid return of income filed.

4. The Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi ought to have taken into consideration that provisions of sec 80A(5) are applicable only when the assessee fails to make a claim for deduction u/s 80P in the return of income filed.

5. The Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi is not justified in upholding the decision of ITO though resorting to best judgement u/s 144 by ITO is wrong since the assessee complied with terms of notice issued u/s 142(1), and made a claim for deduction u/s 80P in the return of income filed.

6. The Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi is wrong in stating that no return of income is deemed to have been filed by assessee since there is no watermark of “INVALID” on the Acknowledgement of ITR and the return is filed in response to the notice which is accepted by the portal.

7. The Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi ought to have taken into consideration that “as per 80AC filing of return of income on or before due date specified u/s 139(1) is not mandatory” for claiming deduction u/s 80P for A. Y 2017-18 and earlier years.

8. The Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi erred in confirming addition of Rs. 21,74,756/-made u/s 40a(ia) towards non deduction of TDS since the provisions of 194A(1) are not applicable where amount of interest is credited or paid to the members of the society.

9. For these reasons and those which may be urged at the time of hearing of appeal and on the facts and circumstances of the case the disallowance of deduction claimed u/s 80P amounting to Rs. 25,89,908/- u/s 80P and 30 percent of interest amounting to Rs.21,74,756/- u/s 40(a) (ia) aggregating to Rs.47, 64,664/-Shall be deleted. “

19. In this year under appeal, the issue relates to the disallowance of deduction claimed under section 80P(2)(a)(i) of the Act amounting to 25.89 lakhs and disallowance for non-deduction of TDS under section 40(a)(ia) of the Act amounting to Rs.21.74 lakhs.

20. In absence of any representation before the Ld.AO in the course of assessment proceedings and in absence of valid return on record, proceedings were initiated by issue of notice under section 142(1) of the Act on 30.10.2019, against which reply has been filed by the assessee enclosing copies of day books only (which cannot be termed as a proper response). Return of income has been filed belatedly by the assessee society claiming deduction under section 80P(2)(a)(i) of the Act which has been disallowed by the Ld.AO in absence of any valid return being filed within proper time, resulting in violation of provisions of section 80A(5) of the Act ( read with 80AC).

21. It was further observed by the Ld.AO that interest expenses has been claimed amounting to 72.44 lakhs and such payment of interest has not been subjected to TDS as per provisions of section 194A of the Act. In absence of compliance with the TDS provisions 30% of the entire interest expenditure has been disallowed under section 40(a)(ia) of the Act, resulting in an addition of Rs.21.74 lakhs.

22. Both the issues were agitated in appeal before the Ld. CIT(A) and the Ld. First Appellate Authority has dismissed the appeal on both the counts.

23. Now the assessee is before the Tribunal, on the grounds contained in the memorandum of appeal and the Ld AR has submitted that the assessee has filed return of income belatedly which is absolutely valid and the said return has been duly accepted in the income tax department portal claiming deduction under section 80P , as allowable to cooperative societies , and the substitution of section 80AC by insertion of clause (ii) is effective from 1st day of April 2018 and is not applicable to the year under appeal and there is no reason with the AO to have disregarded the same.

24. Regarding the issue of non-deduction of TDS, the Ld.AR submitted that the assessee being a cooperative society payment of interest has been made only to Members of the society and not to any outsiders and as per provisions of the Act , interest paid by cooperative society , to the members of the society are specifically exempted from deduction of TDS as per provisions of section 194A(3)(v) of the Act which reads as follows: –

(3) The provisions of sub section (1) shall not apply – Clause (v): to such income credited or paid by a co-operative society (other than a co-operative bank) to a member thereof or to such income credited or paid by a co-operative society to any other co-operative society.”

Referring to the above, Ld.AR prayed for deletion of the additions and has prayed for adequate relief.

25. Departmental Representative (hereinafter in short “Ld. DR’) relied on the order of the Ld. CIT(A) and submitted that it needs to be verified whether the interest has been paid to the Members of the society or to any outsiders because the same is not apparent from record in absence of any documents being filed before the Ld.AO where the order has been passed exparte. He further submitted that assessee claim to have filed return of income u/s 139(4) which has been accepted by the portal , but the same is not apparent from the Assessment Order and in absence of any valid return on record, claim for deduction under section 80P cannot be allowed and he further submitted that both the issues needs to be verified from assessment records.

26. We have heard the rival submissions and considered the materials on record and we are of the opinion that interest paid / payable to the Members of the cooperative society are exempt from deduction of TDS as per provisions of section 194A(3) (v) of the Act, but the issue raised by the Ld. DR regarding the verification , particularly as to whether interest has been paid only to the Members or outsiders needs to be verified from the books of accounts and other documentary evidences and in the instant case the same was not possible as the Assessment order being passed exparte, in absence of any representation by the assessee.

27. Similarly, considering the submission of the Ld AR that the return being filed by the assessee claiming the deduction from income under section 80P(2)(a)(i) of the Act, also needs to be verified from assessment records regarding existence of a valid return u/s 139(4), because for the Asst year 2017-18 under appeal the substituted clause (ii) of section 80AC was not in effect. As such in the interest of justice, we are of the opinion that the matter may be remanded back to the file of Ld.AO for a fresh assessment denovo also considering the exparte order at the original stage, after consideration of all materials and documentary evidences to be furnished in support of his contention by the assessee and the assessee is also directed to file and produce necessary books of accounts and fully cooperate in the assessment proceedings. As a result, this appeal of the assessee is also set-aside back to the file of Ld.AO for fresh adjudication

28. We have not expressed any opinion on merits and all legal issues are kept open.

29. In the result, appeal of the assessee is allowed for statistical purposes.

30. To sum-up, all the appeals are set-aside and allowed for statistical purposes.

Order pronounced in the open court on 12th June, 2026.