Vidyasagar Samabay Krishi Unnayan Samity Ltd Vs ACIT (ITAT Kolkata)
The Kolkata Bench of the Income Tax Appellate Tribunal allowed the appeal filed by Vidyasagar Samabay Krishi Unnayan Samity Ltd against the order dated 18.12.2023 passed by the National Faceless Appeal Centre under section 250 of the Income Tax Act. The dispute concerned an addition of Rs.91,87,680/- made by the Assessing Officer under section 69A in respect of cash deposits in Specified Bank Notes during the demonetisation period.
The assessee was a cooperative credit society engaged in providing loans and advances to its members and in trading fertilizers and allied products. During the demonetisation period, it deposited total cash of Rs.2,20,97,000/-. The assessee explained that the deposits represented repayment of loans received from its members. It furnished details of the deposits and produced books of account and other documents called for by the Assessing Officer.
The Assessing Officer, however, noted that the assessee had made cash sales of Rs.91,87,680/- during the demonetisation period in Specified Bank Notes which had ceased to be legal tender with effect from 09.11.2016 pursuant to Central Government Gazette Notification No.2652 dated 08.11.2016 issued under sub-section (2) of section 26 of the Reserve Bank of India Act, 1934. According to the Assessing Officer, since the assessee had accepted Specified Bank Notes in lieu of cash sales, the amount deposited in the bank account was liable to be treated as unexplained money under section 69A. The CIT(A) confirmed the addition.
Before the Tribunal, the assessee submitted that no cash sales of fertilizer or allied products had been made during the demonetisation period. It explained that fertilizers and allied products were supplied to member-farmers on credit and the resulting amounts were subsequently recovered from debtor members through agents. The Specified Bank Notes in question were already lying with the agents as amounts collected before commencement of the demonetisation period. Following the announcement of demonetisation, the society directed its agents to deposit the already collected amounts with it, after which the society deposited those amounts in its bank account.
The assessee further submitted that the deposits were made during the first three days from commencement of the demonetisation period. According to the assessee, had fresh cash sales been made during the demonetisation period, corresponding deposits would have appeared throughout the period. It therefore contended that there were no fresh cash sales and that the allegation of acceptance of demonetised currency in violation of any rule was incorrect. It also submitted that, in any event, section 69A was not applicable.
The Departmental Representative relied upon the findings of the lower authorities.
The Tribunal found that the assessee had explained that the disputed amount had already been collected by its agents from farmer-members and was subsequently deposited with the society and in the bank account. The Tribunal noted that even from the record and cash sales register there was no evidence that the society had made cash sales by accepting demonetised currency during the demonetisation period. The fact that the amount was collected and deposited during the first three days supported the assessee’s explanation that the agents had been directed to deposit amounts already collected before demonetisation.
The Tribunal further held that, even otherwise, the impugned addition could not be sustained merely because Specified Bank Notes had ceased to be legal tender and the assessee was alleged to have accepted such notes contrary to the applicable notification or RBI directions. The Tribunal distinguished the consequences of any regulatory violation from the question whether the amount constituted unexplained income for purposes of the Income-tax Act.
According to the Tribunal, the assessee had duly explained the source of the deposits and that source had also been accepted by the Assessing Officer. The Assessing Officer’s principal objection was that the assessee had violated the Central Government notification dated 08.11.2016 by accepting Specified Bank Notes against sales. The Tribunal observed that any action for such violation could be taken by the competent authority under the relevant law, but such alleged violation did not by itself make the deposits unexplained income for purposes of section 68 or section 69A.
The Tribunal relied upon the decision of the Coordinate Bangalore Bench in Sri Bhageeratha Pattina Sahakara Sangha Niyamitha vs. ITO, ITA No.646/Bang/2021, order dated 18.02.2022. In that case, the Bangalore Tribunal had held that alleged contravention of RBI notifications concerning collection of demonetised notes did not attract section 68 where the assessee had explained the source of the deposits. The Kolkata Bench found the reasoning applicable to the present case.
Accordingly, the Tribunal held that the addition of Rs.91,87,680/- made and confirmed by the lower authorities was not sustainable and ordered its deletion. The assessee’s appeal was therefore allowed.
Cases Discussed
- Sri Bhageeratha Pattina Sahakara Sangha Niyamitha vs. ITO, ITA No.646/Bang/2021, order dated 18.02.2022 — relied upon for the proposition that alleged contravention of RBI notifications concerning collection of demonetised notes does not, by itself, attract section 68 where the source of the deposits is explained.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
The present appeal has been preferred by the assessee against the order dated 18.12.2023 of the National Faceless Appeal Centre [hereinafter referred to as ‘CIT(A)’] passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’).
2. The assessee in this appeal has agitated against the confirmation of addition by the CIT(A) of Rs.91,87,680/-, which has been made by the Assessing Officer by treating the cash deposits made in Specified Bank Notes during the demonetization period as unexplained income of the assessee u/s 69A of the Act.
3. The brief facts of the case are that the assessee is a cooperative credit society. The assessee is engaged in the business of providing loans and advances to its members and also in trading activities in fertilizers and allied products. The Assessing Officer noted that during the period of demonetization, the assessee-society deposited a total cash of Rs.2,20,97,000/-. The assessee-society claimed that this amount of deposits was out of repayment of loans received from the members of the society. The details of such deposits were furnished before the Assessing Officer. Books of accounts and other documents as asked for by the Assessing Officer were also produced by the assessee- society for examination. The assessee-society also furnished a written submission explaining the reasons and source of cash deposits during the demonetization period. The Assessing Officer after scrutiny of the record noted that the assessee-society had made cash sales of Rs.91,87,680/- during the demonetization period for Specified Bank Notes which ceased to be legal tender w.e.f. 09.11.2016 vide Central Government Gazette Notification No.2652 dated 08.11.2016 issued under sub-section (2) of section 26 of the Reserve Bank of India Act, 1934. The Assessing Officer noted that since the aforesaid Specified Bank Notes issued by legal tender w.e.f. 08.11.2016, however, the assessee has accepted the said Specified Bank Notes in lieu of cash sales made by it, therefore, the said amount deposited by the assessee in the bank account was to be treated as unexplained money of the assessee u/s 69A of the Act. Accordingly, the Assessing Officer added the said amount into the income of the assessee.
4. The ld. CIT(A) confirmed the additions so made by the Assessing Officer.
5. At the outset, the ld. counsel for the assessee has explained that no cash sales of fertilizer etc. were made by the assessee during the demonetization period. That the assessee supplies fertilizers and allied products to its members-farmers on credit basis. Thereafter, the amount is recovered from the debtor members-farmers by sending agents. That the amounts in Specified Notes were lying with the agents of the assessee which were collected before the commencement of the date of demonetization period i.e. 08.11.2016. On the announcement of the demonetization period, its agents were directed by the assessee- society to deposit the already collected amount with the assessee- society which was further deposited in the bank account. The ld. counsel in this respect has further submitted that the aforesaid amount was collected from the agents and deposited in the bank account on the first three days from the commencement of demonetization period. That if the assessee would have made cash sales during the demonetization period then the deposits would have been found during the entire demonetization period. The ld. counsel in this respect has submitted that the assessee has deposited only the amount which was lying with its agents and no cash sales were made and therefore, the allegation of the Assessing Officer that the assessee has accepted demonetized currency in violation of any rule etc. was not correct. He has otherwise submitted that even otherwise the provisions of section 69A of the Act were not applicable in this case.
6. The ld. DR however has relied upon the findings of the lower authorities.
5. We have heard the rival contentions and gone through the record. In this case, the ld. counsel has explained that no cash sales were made during the demonetization period. That the amount in question was already collected by the agents of the society from the farmers-members which was deposited by the agents with the assessee-society and the same was further deposited by the assessee-society in the bank account. Even from the record/cash sales register etc., there is no evidence on the file that the assessee-society has made cash sales by accepting demonetized currency during the demonetization period. The ld. counsel has duly explained that the amount in question was collected and deposited during the first three days of the demonetization period which supports the contentions of the assessee that already collected amount by the agents was called for and deposited immediately in the bank account and no fresh cash sales were made and there was no violation of the RBI Circular. Even otherwise, in our view, the impugned additions are not sustainable as deposits cannot be said to be unaccounted income of the assessee u/s 69A of the Act. No doubt, the Specified Bank Notes as per the Reserve Bank of India’s notification ceased to be legal tender w.e.f. 09.11.2016, the assessee made the cash sales accepting the Specified Bank Notes in in violation of the said circular of Reserve Bank of India. The action of violation of the said circular can be taken by the competent authority in this respect. However, for the purpose of Income tax Act, what is to be examined is as to whether the said amount received by the assessee was unexplained income of the assessee u/s 69A of the Act? The assessee has duly explained the source of deposits, which has also been accepted by the Assessing Officer. The only contention of the Assessing Officer is that the assessee has violated the notification of the Central Government dated 08.11.2016 and accepted the Specified Bank Notes in lieu of sales made. For that, it is for the competent authority who may take action against the assessee as may be provided/applicable in relevant law. However, for the purpose of either section 68 or 69 of the Act, the said deposits cannot be treated as unexplained income of the assessee. Our above view is fortified by the decision of the Coordinate Bangalore Bench of the Tribunal in the case of ‘Sri BhageerathaPattinaSahakara Sangha Niyamitha vs. ITO’ in ITA No.646/Bang/2021 order dated 18.02.2022. The relevant part of the order is reproduced as under:
“15. The case of the A.O is that the assessee has collected the demonetized notes after 8.11.2016 in violation of the notifications issued by RBI. Accordingly, he has taken the view that the above said amounts represents unexplained money of the assessee. I am unable to understand the rationale in the view taken by A.O. I noticed that the AO has invoked the provisions of sec.68 of the Act for making this addition. I also noticed that the assessee has also complied with the requirements of sec.68 of the Act. The AO has also not stated that the assessee has not discharged the responsibility placed on it u/s 68 of the Act. Peculiarly, the AO is taking the view that the assessee was not entitled to collect the demonized notes and accordingly invoked sec.68 of the Act. I am unable to understand as to how the contraventions, if any, of the notification issued by RBI would attract the provisions of sec. 68 of the Income tax Act. In any case, I notice that the assessee has also explained as to why it has collected demonetized notes after the prescribed date of 8.11.2016. The assessee has explained that it has stopped collection after the receipt of notification dated 14.11.2016 issued by RBI, which has clearly clarified that the assessee society should not collect the demonetized notes. Accordingly, I am of the view that the deposit of demonetized notes collected by the assessee from its members would not be hit by the provisions of section 68 of the Act in the facts and circumstances of the case. Accordingly, I set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete this disallowance.
16. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.”
6. In view of the above discussion, the addition made/confirmed by the lower authorities in the case of the assessee on this issue is not sustained and the same is accordingly ordered to be deleted.
7. In the result, the appeal of the assessee stands allowed.
Kolkata, the 3rd July, 2024.
