Assessee directed to file depositors’ KYC for cash deposits during demonetisation

ITO Vs Prathamika Krishi Pattina Sahakari Sangh Niyamit (ITAT Bangalore)

ITAT Bangalore in the case of cash deposit during demonetization period directed assessee to file KYC of the depositors and accordingly directed AO to verify the same and allow if found in order.

Facts- During the course of assessment proceedings, it was noticed that the assessee has deposited cash in old currency denomination of Rs.500 & 1,000 in its bank account and it was also noted that from 09.11.2016 the denomination of Rs.500 and 1,000 currency notes were not in operation, in spite of which the assessee accepted from its customers the said amount was deposited in its bank account. Various instructions/notifications were issued by GOI/RBI in this regard and assessee was not authorized to collect money in denomination of Rs.500 & 1,000 in spite of which it accepted. In this regard, it was noticed that the assessee deposited cash totalling to Rs.73,18,542 in old band currency in its three bank accounts. A show cause notice was issued to the assessee. In this regard assessee submitted reply and submitted proof of depositors. After considering the entire submission and Gazette Notification/Instructions issued by Govt. of India and RBI, the AO added the amount u/s. 68 and applied tax rate u/s. 115BBE of the Act.

CIT(A) allowed the appeal. Being aggrieved, revenue has preferred the present appeal.

Conclusion- ITAT Bangalore directed the assessee to file KYC of the depositors i.e., name & address of the customer, account no. in which the amount has been deposited by the customer, PAN, Aadhar, their contact no., denomination in old currency of Rs.500 & 1000 notes and the amount. Further, directed the AO to verify in the above terms and if he finds in order, then he may allow the cash deposits during the demonetisation period.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This appeal is filed by the revenue against the order dated 27.03.2024 of the CIT(Appeals), National Faceless Appeal Centre, Delhi [NFAC], for the AY 2017-18 on the following grounds:-

“a) On the facts and in the circumstances of the case and in law the ld. CIT(A)/NFAC erred in deleting the addition made u/s 68 of the I.T. Act amounting of Rs. 73,18,542/- ignoring the fact that the assessee was not authorized to accept specified bank notes from its members.

b) On the facts and in the circumstances of the case and in law the Id. CIT(A)/NFAC erred in deleting the addition made u/s 68 of the I.T. Act amounting of Rs. 73,18,542/- without appreciating the fad that the assessee society had brought into its books of account entries pertaining to SBNs which were no longer legal tenders at the time of making the said entries after 08.21.2016.

c) The decision of CIT(A)/NFAC is opposed to facts of the case in allowing entire deduction u/s 80P(2))(a)(i) of the Act and in deleting the addition made u/s 68 in respect of demonetized currency accepted after 08.11.2015.

d) Any other ground that may be raised subsequently.”

2. The sole and substantive issue raised by the revenue in grounds is regarding cash deposits during the demonetisation period by the assessee received from its customers and credited in their accounts.

3. Briefly stated the facts of the case are that assessee filed return of income declaring gross total income of Rs.7,98,118. The case was selected for scrutiny and statutory notices issued to the assessee. The assessee submitted reply. During the course of assessment proceedings, it was noticed that the assessee has deposited cash in old currency denomination of Rs.500 & 1,000 in its bank account and it was also noted that from 09.11.2016 the denomination of Rs.500 and 1,000 currency notes were not in operation, in spite of which the assessee accepted from its customers the said amount was deposited in its bank account. Various instructions/notifications were issued by GOI/RBI in this regard and assessee was not authorized to collect money in denomination of Rs.500 & 1,000 in spite of which it accepted. In this regard, it was noticed that the assessee deposited cash totalling to Rs.73,18,542 in old band currency in its three bank accounts. A show cause notice was issued to the assessee. In this regard assessee submitted reply and submitted proof of depositors. After considering the entire submission and Gazette Notification/Instructions issued by Govt. of India and RBI, the AO added the amount u/s. 68 and applied tax rate u/s. 115BBE of the Act.

4. Aggrieved from the above order, the assessee filed appeal before the CIT(Appeals). The ld.CIT(Appeals) noted that details of deposits of 161 bank accounts of customers in respect of SBNs collected by the assessee were verified and he has not pointed out any mistake and the source of cash has been explained by the assessee which were received from members and as per details filed by the assessee source is explained, therefore relying on the judgment of coordinate Bench of ITAT Bangalore in the case of Bhageeratha Pattina Sahakara Sangha Niyamitha (ITA No.646/Bang/2021 dated 18.2.2022 he allowed the appeal of the assessee. He also noted that the above judgment has been relied by ITAT Bangalore in the case of Prathamika Krushi Pattina Sahakari Sangha Niyamitha Itagi [ITA No.593/Bang/2021].

5. Aggrieved, the revenue is in appeal before the ITAT.

6. Considering the rival submissions, we note that ground (a) & (b) is related to cash deposits during the demonetisation period of Rs.73,18,542. During the course of assessment proceedings the assessee submitted details of 161 customers to which the AO has examined. The CIT(Appeals) has also noted that source of cash is explained and it was received from customers. The ld. CIT(A) has followed judgments of the Tribunal, but there is no examination in the light of section 68 of the At. We note that from both the orders of lower authorities whether assessee has filed KYC details of depositors is not clear. Therefore, we direct the assessee to file KYC of the depositors i.e., name & address of the customer, account no. in which the amount has been deposited by the customer, PAN, Aadhar, their contact no., denomination in old currency of Rs.500 & 1000 notes and the amount. Similar issue has been decided by the coordinate Bench of the Tribunal in ITA No. 1119/Bang/2023 in the case of Shree Jagadguru Mouneshwar Pattin Sahakari Niyamit, vs ITO in which it has been held as under:-

“ 11. Considering the rival submissions, we noted that the assessee is a credit co­operative society dealing with members only. During the demonetisation period, the members of the assessee deposited cash in SBNs in their accounts maintained with the society. The assessee has produced the datewise cash receipts from members and KYC of the members. As per Notification of RBI and Govt. of India dated 08.11.2016 the assessee was not authorised to accept cash deposits in SBNs and the AO had made addition u/s. 68. We note that the assessee has filed details of cash deposits from members in their accounts with society along with KYC details and assessee has discharged the liability by providing details of members. Similar issue has been decided by the coordinate Bench of the Tribunal in the case of Sritherumalleshwara Co-op. Society in ITA No. 187/Bang/2024 dated 27.03.2024 in which it has been held as under:-

“ 6. Considering the rival submissions, we noted that the assessee is a co­operative society and accepted cash from members during the demonetization period which was deposited in Vijaya Bank, Hiriyur Branch out of which Rs.14,32,000 has been added by AO u/s. 69A and taxed u/s. 115BBE of the Act. We note that that during the course of assessment proceedings, the assessee did not file return of income after receiving notice as well as u/s. 139 or 142(1). The assessee had submitted details of cash depositors which is placed at page 1 of PB. It is clear from the details that the assessee has accepted cash from 43 members. A similar issue has been decided by the coordinate Bench in ITA No.329/Bang/2023 for AY 2017-18 dated 24.08.2023 in which it has been held as under:- “7. We have considered the rival submissions. The assessee is a credit co-operative society dealing with the members only. During the demonetisation period the members of the society have deposited cash in pygmie a/c, SB A/c, loan a/c. etc. The assessee has produced a list of depositors and the amount deposited by members with denominations of currency. The assessee has accepted the deposits from its members from 9.11.2016 to 14.11.2016. As per Gazette Notification of RBI & Govt. of India dated 08.11.2016, the assessee was not authorized to accept cash deposits in SBNs. The AO observed that the assessee was not authorized to receive or collect money in SBNs of Rs.1,000 and Rs.500 which were not in legal tender w.e.f. 09.11.2016 and such transactions on or after 09.11.2016 cannot be entered in cash book. The cash deposits made by the members of the society had no value as such. The Assessing Officer issued show-cause notice by observing that the impugned amount should be treated as income of the assessee u/s 69A of the Act., however the AO made addition u/s 68 of the I.T. Act. The assessee has satisfied the requirement of section 69A of the Act and the AO did not give further opportunity to the assessee for addition u/s 68 of the I. T. Act. During the assessment proceedings, assessee filed the details of list of depositors and loanees who made cash deposits. The AO accepted that it was money deposited by the members and noted that the assessee had brought the entries in its books of account, therefore section 68 will apply and accordingly treated it as income u/s. 68. There is no doubt that the assessee has satisfied the identity of the deposits, who are members of the society and genuineness of the transactions because the amounts have been deposited in the members accounts only. If the AO had any doubts that the assessee has not satisfied the ingredients of section 68, he could have asked further details from the assessee, but the AO has not done the same, which clearly shows that the assessee has discharged its duty to satisfy the requirement of section 68. We further note that the SBNs have been deposited in the members accounts, accordingly, the assessee did not get any extra benefit as observed by the AO in his order at para No. 06 which was treated as income us 69A of the Act. In view of this, the provisions of section 68 is not applicable in the present facts of the case and the AO without discussing in detail has made addition u/s. 68 which is not proper. Therefore the addition is deleted.”

7. The details submitted by the assessee was not doubted by the AO. Since in this case the ld. DR submitted that this requires verification, we remit this issue to the AO for verification of the details of cash deposits submitted by the assessee and decide as per law following the above coordinate Bench decision in ITA No.969/Bang/2023 (supra). The assessee is directed to furnish all the details and substantiate its case without seeking any unnecessary adjournment for early disposal of the case.”

12. Following the above decision, we remit this issue in the above terms to the AO. ]

7. Respectfully following the above judgment, we direct the AO to verify in the above terms and if he finds in order, then he may allow the cash deposits during the demonetisation period. The assessee is directed to file necessary documents that would be essential and required for substantiating his case and for proper adjudication by the revenue authorities. Needless to say that reasonable opportunity of being heard be given to the assessee. The assessee is directed to cooperate with the proceedings for early disposal of the case.

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

Pronounced in the open court on this 21^st day of August, 2024.