Basaveshwar Housing Co-operative Society Limited Vs ITO (ITAT Bangalore)
Software Migration Cannot Migrate Cash into Unexplained Money—ITAT Restores ₹1.63 Crore Addition u/s 69A for Member-Wise Verification
Summary:
The controversy
The assessee, Sri Basaveshwar Housing Co-operative Society Ltd., was engaged in providing credit facilities to its members. For AY 2022-23, its case was selected for scrutiny under CASS because of high-value cash deposits reported through SFT.
During assessment, the AO noticed aggregate cash deposits of ₹1,63,29,392 in three bank accounts. The deposits comprised ₹86,80,390 in an Axis Bank current account, ₹57,08,827 in an account with CBS Sahakari Bank & ₹19,40,175 in another CBS Sahakari Bank account allegedly standing in the name of the Society’s manager.
The Society explained that the cash came from its members in the ordinary course of business, primarily towards repayment of loans & deposits into members’ savings accounts.
However, it failed to produce complete books, member-wise particulars & supporting evidence. The AO consequently treated the entire amount as unexplained money u/s 69A.
Basic particulars were not furnished
The Society claimed that cash acceptance formed an integral part of its business as a co-operative credit institution. The deposits did not represent its undisclosed money but amounts collected from identifiable members and recorded in the regular accounts.
Despite this explanation, neither before the AO nor the CIT(A) did the Society furnish essential details such as:
names, addresses, PANs, transaction dates, individual amounts, mode of receipt, corresponding loan accounts or savings-account ledgers of the members.
The cash book produced during the earlier proceedings was also stated to be incomplete. Therefore, the authorities could not reconcile the member-wise collections with the subsequent deposits made into the three bank accounts.
The CIT(A) sustained the addition, holding that the Society had failed to substantiate the nature & source of the cash.
Challenge to invocation of s.69A
Before the ITAT, the Society raised a legal objection to the use of s.69A.
It argued that s.69A could be applied only where the assessee was found to be the owner of money that was not recorded in the books of account, if any, maintained by it.
According to the Society, neither statutory condition existed. The money belonged economically to the members who had deposited savings or repaid loans, while the corresponding transactions were stated to be recorded in the Society’s books.
The mere fact that cash was deposited into the Society’s bank account did not establish that it was the owner of unexplained money. Further, where entries were reflected in the books, the AO had to examine those entries and the supporting records rather than mechanically invoke s.69A.
As an alternative, the Society contended that even if any portion were treated as income, it arose from and was attributable to its business of providing credit facilities to members. Consequently, deduction u/s 80P should be considered.
Accounting-software migration caused non-production
The Society candidly admitted before the Tribunal that it had not produced the complete documents, records, accounts & information before either of the lower authorities.
The explanation was that it was in the process of migrating to new accounting software, owing to which the required records could not be properly compiled and presented during assessment and appellate proceedings.
The assessee therefore sought one final opportunity to place the complete evidence before the AO.
The Revenue opposed the request. It emphasised that the assessee had failed to furnish even the elementary details necessary to verify a cash deposit of more than ₹1.63 crore. A general statement about member deposits could not discharge the evidentiary burden when member-wise identities and accounts were missing.
Fresh evidence produced before ITAT
Before the Tribunal, the Society filed a paper book containing material that had not been properly produced earlier.
The documents included details of members, KYC documents, an extract of the cash book for April 2021, cash scrolls for April 2021 & a summary of cash deposits and withdrawals.
These documents indicated that relevant evidence might now be available, but the Tribunal could not accept the Society’s explanation merely on the basis of a limited set of papers. The complete books and the member-wise transaction trail required verification by the AO.
The evidence had to establish not only that the Society had members, but also that each identified cash receipt was credited to a particular member’s savings or loan account and thereafter formed part of the amount deposited in the bank.
ITAT’s ruling
In the interest of justice, equity & fair play, the ITAT restored the entire dispute to the AO for fresh adjudication.
The Society was specifically directed to produce complete books of account along with the names, addresses & PANs of members, transaction amounts, dates, modes of receipt and any further material required by the AO.
The AO was directed to examine the evidence, reconcile the cash receipts with member accounts and bank deposits & decide the matter afresh in accordance with law after granting a reasonable opportunity of hearing.
The Tribunal did not express any conclusion on whether s.69A was correctly invoked, whether the deposits were genuine member transactions or whether deduction u/s 80P was allowable on any amount ultimately assessed.
The appeal was partly allowed for statistical purposes.
Author’s comments
The order grants an opportunity, not exoneration. Migration to new accounting software may explain temporary difficulty in retrieving data, but it does not, by itself, prove the source of cash or erase the obligation to maintain books.
The Society must now prepare a complete reconciliation linking each receipt through the following chain:
identified member → savings deposit or loan repayment → cash scroll → cash book → bank deposit.
The account allegedly standing in the manager’s name requires particularly careful explanation regarding ownership, control, authorisation & accounting treatment.
The legal distinction between ss.68 & 69A may also become relevant. Section 68 addresses unexplained credits in books, whereas s.69A ordinarily concerns money owned by the assessee but not recorded in its books. If the disputed receipts are duly recorded, the precise charging provision and satisfaction of its statutory ingredients must be examined.
Finally, deduction u/s 80P cannot be assumed merely because the assessee is a co-operative society. Its availability will depend upon the character of any income ultimately determined and its direct nexus with eligible member-credit activities.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against the order of the ld. CIT(A)/NFAC dated 01.08.2025 vide DIN & Order No. ITBA/NFAC/S/250/2025-26/1079189387(1) passed u/s 250 of the Income Tax Act, 1961 (in short “the Act”) for the assessment year 2022-23.
2. The assessee has raised the following grounds of appeal:-
The Appellant objects to the order of the Ld. CIT(A) on the grounds:
| Grounds Raised | Tax Effect in INR |
|---|---|
| 1. That the impugned order is opposed to facts and law insofar as it is prejudicial to the interests of the Appellant. | General |
| 2. The Ld. CIT(A) erred in upholding the addition made by the Ld. AO u/s 69A of the Income-tax Act,1961 and in doing so:
a. He erred in law by invoking Section 69A of the Act without establishing that the Appellant was the “owner” of any money which was “not recorded in the books of account,” both being mandatory conditions for the application of the said section. b. He failed to appreciate that the cash deposited into the Appellant’s bank accounts represented amounts received from its members as deposits in the ordinary course of its business of providing credit facilities, which are duly recorded in the books of accounts. c. He failed to consider the evidences furnished by the Appellant in this regard in support of its claims that these were deposits in the ordinary course of itsbusiness. |
Rs. 1,27,36,925/- approximately excluding interest |
| 3. Without prejudice to the above grounds, that the Ld CIT(A) erred in not directing the AO to grant the consequential deduction u/s 80P of the Act on the income so assessed u/s 69A, given that the alleged income, if any, is inextricably linked to and attributable to the Appellant’s business of providing credit facilities to its members. | Same as Ground 2 above |
3. At the outset, the ld. AR of the assessee vehemently submitted that before both the authorities below the assessee society could not produce any documents/records/Accounts/information as the assessee society was shifting to new accounting software and accordingly requested that one more opportunity of being heard may be granted before the AO in the interest of Justice & equity.
3.1 The ld. DR on the other hand vehemently submitted that the assessee before both the authorities below did not file even basic details of sources of cash deposits such as names, addresses, PANs of members with amount, dates & mode of transactions etc. Further the cash book maintained was also incomplete & therefore the assessee failed to explain the entire cash deposits in its bank accounts amounting to Rs.1,63,29,392/- & accordingly prayed to dismiss the appeal of the assessee.
4. We have heard the rival submissions & perused the material available on record. It is an undisputed fact that the case of the assessee society was selected for scrutiny assessment (CASS) for the reason “high value cash deposits reported in SFT (business cases)”. During the course of assessment proceedings, the AO observed that during the year under consideration, the assessee co-operative society had deposited large sums of cash in its bank accounts as under:
| Sl. No. | Name of Bank | A/c No. | Amount of Deposits (Rs.) |
|---|---|---|---|
| 1 | Axis Bank Ltd (current account) | 915020038110288 | 86,80,390 |
| 2 | CBS Sahakari Bank | 2002100001639 | 57,08,827 |
| 3 | CBS Sahakari Bank (Claimed to be in the name of Manager) | 2037000065 | 19,40,175 |
| TOTAL | 1,63,29,392 |
The assessee before both the authorities below contended that the source of cash deposits were from the members on account of repayment of loan and savings deposits, however could not produce complete books of accounts along with the basic details of sources of cash deposits such as names, addresses, PANs of members with amount, dates & mode of transactions etc. Before us, the ld. AR of the assessee submitted that the assessee could not produce any documents/records/Accounts/information as the assessee was shifting to new accounting software and accordingly prayed that one more opportunity of being heard may be granted before the AO in the interest of Justice & equity. Before us, the assessee Co-operative Society by way of paper book filed the details of members, KYC documents, Cash book extract for the month of April,2021, Cash Scrolls for the month of April,2021 as well as summary of cash deposits & cash withdrawals.
5. This being so, in the interest of justice, equity & fair play and as requested by the ld. AR of the assessee, we deem it fit & proper to remit the entire issue in dispute to the file of AO to decide afresh in accordance with law. Needless to say, reasonable opportunities of being heard must be granted to the assessee. The assessee is also directed to produce complete books of accounts before the AO along with names, addresses, PANs of members with amount, dates & mode of transactions etc or as may be directed by the AO for concluding the assessment. It is ordered accordingly.
6. In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 7th Sept, 2026
