Udaya Souhara Co-operative Society Limited Vs ITO (ITAT Bangalore)
Regulatory Wrong Is Not Unexplained Money—ITAT Deletes ₹2.94 Crore s.68 Addition on Explained SBN Deposits
The controversy
The assessee, Udaya Souharda Co-operative Society Ltd., was registered under the Karnataka Souharda Sahakari Act, 1997. It provided credit facilities to its members by accepting deposits and granting loans.
During the demonetisation period between 9 November & 30 December 2016, the Society deposited Specified Bank Notes comprising old ₹500 & ₹1,000 currency notes aggregating to ₹2,94,47,900. Of this, ₹2,84,41,400 was deposited with IDBI Bank and ₹10,06,500 with Axis Bank.
The AO treated the entire amount as an unexplained cash credit u/s 68 r.w.s. 115BBE, principally on the ground that the Society was not a bank authorised to accept SBNs during demonetisation.
The CIT(A) deleted a separate disallowance of deduction u/s 80P(2)(a)(i) amounting to ₹2,21,05,217 but sustained the addition relating to the SBN deposits. The Society therefore approached the Bangalore ITAT.
Members repaid loans & deposited savings
The Society explained that cash handling was an integral part of its regular business. It accepted deposits from members, maintained their savings accounts & recovered loans granted to them.
According to the Society, the SBNs deposited in its bank accounts represented two identified streams: repayment of loans by members & deposits made by members into their savings accounts.
