Case Law Details
The Karnataka Cooperative Credit Society Ltd. Vs ITO (ITAT Bangalore)
Cash Deposits by Co-operative Society Members Cannot Be Taxed u/s 69A Merely for Receiving Old Currency Notes-Bengaluru ITAT Deletes Demonetisation Addition
Bengaluru ITAT deleted the addition made under section 69A in the hands of a co-operative credit society in respect of cash deposited during the demonetisation period. The Assessing Officer had treated the entire cash deposit in old currency notes as unexplained money on the grounds that the society had not filed its return of income and was not authorised to receive specified bank notes after demonetisation.
The Tribunal observed that the assessee had, in response to the show cause notice, furnished date-wise details of cash deposits, including the names, share numbers, addresses, occupations and Aadhaar numbers of the members, demonstrating that the deposits represented amounts received from members towards savings accounts, pigmy deposits and loan repayments. It also noted that the accounts of the co-operative society were statutorily audited under the Karnataka Co-operative Societies Act.
The ITAT held that the Assessing Officer was duty-bound to examine the evidence furnished and could not reject the explanation merely because the assessee had not filed its return of income. Once the identity of the members and the source of the deposits were established, the burden cast upon the assessee stood discharged. The Tribunal further clarified that receipt of old currency notes from members during the demonetisation period, even if unauthorised, cannot by itself justify an addition under section 69A. What is relevant is whether the source of the money is explained, and not merely whether the old notes were accepted. Since there was no allegation that the deposits originated from third parties or unaccounted sources, the addition was unsustainable. Accordingly, the Tribunal set aside the orders of the lower authorities and allowed the appeal of the assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee challenging the order of the NFAC, Delhi dated 03/07/2025 in respect of the A.Y. 2017-18.
2. The brief facts of the case are that the assessee is a co-operative society registered under the provisions of the Karnataka Co-operative Societies Act. The assessee had not filed their return of income and therefore a notice u/s. 142(1) was issued on 09/03/2018. The assessee had not filed their return of income to the said notice also and based on the information gathered during the phase of online verification under operation Clean money i.e. during the demonetization period, the AO had alleged that the assessee had deposited cash during the demonetization period in the old currency notes. The assessing officer, therefore proposed to treat the said cash deposits as unexplained one and on that basis, a show cause notice u/s. 144 was issued on 06/09/2019. The assessee filed their reply on 16/09/2019 and explained that the cash deposits are from the opening cash balance as well as the amounts received from the members towards their SB account, pigmy deposits and repayment of loans. The assessee had also furnished the datewise details of the deposits and also the source of deposits by way of an annexure to the said reply. The AO had not accepted the said explanation on the ground that the assessee had neither filed return of income u/s. 139 or pursuant to the notice issued u/s. 142(1) of the Act. The AO therefore, alleged that the assessee was not authorized to receive the old currency notes after the demonetization has been announced and also the assessee has not explained the source for the said cash deposits and therefore treated the deposits as unexplained money u/s. 69A of the Act.
3. As against the order, the assessee filed an appeal before the Ld.CIT(A). The assessee filed their written submissions and also filed the details about the cash deposits and the members from whom the cash was received. The assessee also furnished the copy of the details furnished before the AO on 16/09/2019 and prayed to allow the appeal of the assessee. The Ld.CIT(A) had not accepted the plea made by the assessee and dismissed the appeal on the ground that the assessee had not filed the return of income, audit report or cash book and also not produced any documentary evidence to establish the identity and credit worthiness of creditors.
4. As against the said order, the present appeal has been filed by the assessee.
5. At the time of hearing, the Ld.AR submitted that all the details were filed before the AO along with the reply to the show cause notice dated 06/09/2019 which was also extracted by the AO but unfortunately, the AO had not looked into the said details for the reason that the assessee had not filed their return of income and therefore the order of the AO is liable to be set aside. The Ld.AR further submitted that the assessee being a co-operative society advanced loans to the members and also the members were admitted only after getting the KYC details and therefore the source for the said cash deposits are genuine and therefore the deposits could not be treated as unexplained money u/s. 69A of the Act. The Ld.AR also filed a paper book enclosing the various details about the cash deposits and prayed to allow the appeal.
6. The Ld.DR submitted that the assessee had not filed their return of income and also the audit report and therefore the claim made by the assessee could not be sustained and prayed to dismiss the appeal.
7. We have heard the arguments of both sides and perused the materials available on record.
8. The assessee is a co-operative society registered under the provisions of the Karnataka Co-operative Societies Act and falls under the control of the Registrar of Co-operative Societies and their accounts are statutorily audited by the co-operative audit wing of the department and therefore the allegation that the assessee’s books of accounts were not audited does not holds good. Further, we have noticed that the assessee had filed the details of the members from whom the old currency notes were received and deposited into their bank account but unfortunately the AO had not accepted the said details only for the reason that the assessee had not filed their return of income. This view of the AO is not correct and he is duty bound to consider the said details and grant the relief if the same are in order. Further, as stated by the Ld.AR, the societies would admit new members only after getting the KYC details from the public and therefore when the assessee had furnished the details of the members and their share number and Aadhaar numbers, it is a compliance about the members identity and also their credit worthiness. It is not the case of the revenue that the assessee had received money from the third parties in the old currency and deposited the said amounts into their bank accounts. Therefore, in our opinion, the assessee had discharged his burden that the members amounts were deposited into their bank account and therefore there is no question of treating the said deposits as unexplained money u/s. 69A of the Act.
9. Further, the receipt of old currency notes from the members during the demonetization period would not be a reason to treat the said amount as unexplained money. Even though the assessee was not authorized to receive the old currency notes, the deposits made by the members in the old currency notes into their accounts, would not treat the said amount as unexplained money u/s. 69A of the Act. The details were filed before the AO and also before the Ld.CIT(A) but unfortunately, both the authorities had not accepted the said submissions and relied on the annexure – 1A filed by the assessee and concluded that the assessee had not established the source of the cash deposits. In the annexure to the reply to the show cause notice, the assessee had furnished the statement showing the date wise amount received from the members by mentioning their share number, name, address, occupation and Aadhaar number and therefore the findings given by the authorities are against the facts and therefore we are inclined to set aside the order of the lower authorities.
10. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 03rd July, 2026.
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