Elahi Credit Co-Operative Society Vs ITO (ITAT Bangalore)
Deposit of Specified Bank Notes Does Not Automatically Attract Section 68 When Members and Sources Are Identified: Bangalore ITAT
The assessee, a cooperative credit society, claimed a deduction of ₹19,55,438 under section 80P(2)(a)(i). The AO denied the deduction on the ground that the society had nominal members and had earned interest from banks. He also treated deposits made in Specified Bank Notes (demonetised currency) as unexplained cash credits under section 68.
The CIT(A) allowed the section 80P deduction to the extent of ₹16,19,215 and directed that the cost of funds and administrative expenses be allowed against the remaining interest income of ₹3,36,223. However, the addition relating to Specified Bank Notes was confirmed.
Before the ITAT, the society produced details of the members who had deposited the Specified Bank Notes towards their loan accounts and other accounts maintained with the society.
The Tribunal held that the mere receipt or deposit of demonetised currency cannot automatically result in an addition under section 68 when the assessee has satisfactorily identified the members and explained the source of the deposits. It was not the AO’s case that the source remained unidentified.
The ITAT further observed that although the RBI had prohibited receipt of Specified Bank Notes after 8 November 2016, any violation of that prohibition would not, by itself, convert the amount into unexplained income under the Income-tax Act. The Tribunal also questioned the contradictory stand of the AO in treating the notes as having nil value while simultaneously taxing their value as unexplained income.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
