Sanjivani Mahila Gramin Bigar Sheti Sahakari Pat Sanstha Vs ITO (ITAT Nagpur)
Income Tax Appellate Tribunal (ITAT), Nagpur Bench, has set aside an order by the Commissioner of Income Tax (Appeals) [CIT(A)], National Faceless Appeal Centre, Delhi, that had confirmed an arbitrary 10% addition to cash deposits of Sanjivani Mahila Gramin Bigar Sheti Sahakari Pat Sanstha Maryadit, a co-operative society. The ITAT ruled that once an assessee’s explanation regarding the source of cash is found to be substantially correct and not disproved, no addition under Section 69A of the Income Tax Act, 1961, can be made merely on suspicion or to ‘safeguard revenue interests’.
The appeal, filed by the assessee for the assessment year 2019-20, primarily challenged the addition of ₹14,57,208, representing 10% of total cash deposits amounting to ₹1,45,72,081, deemed as unexplained money under Section 69A.
Case Background
Sanjivani Mahila Gramin Bigar Sheti Sahakari Pat Sanstha Maryadit, a co-operative society registered under the Maharashtra State Co-operative Societies Act, 1960, filed its income tax return on August 29, 2019, declaring a total income of ₹1,27,000 under Permanent Account Number (PAN) AARAS7485B.
Information from the Income Tax Department’s database indicated significant cash deposits by the assessee: ₹12,00,081 in Central Bank of India and ₹1,33,72,000 in Bhandara District Central Cooperative Bank, totaling ₹1,45,72,081. Additionally, the assessee had earned interest income of ₹1,69,070 from Central Bank of India. As the assessee’s case was flagged in “non-filers” records, the Assessing Officer (AO) re-opened the assessment under Section 147 of the Act.
During the assessment proceedings, the assessee explained that it possessed two PANs: AAVFS6355B (in the capacity of a firm) and AARAS7485B (as a co-operative society). It stated that a request to surrender PAN AAVFS6355B had been made on June 26, 2019, but the Department had not deactivated it, leading to the Automated Information Reporting (AIR) data being flagged under the surrendered PAN. The assessee submitted various details, including cash books, bank statements, and receipt vouchers, to substantiate the sources of the cash deposits and the interest income.
However, the AO remained unsatisfied and proceeded to make additions for both the entire cash deposits (₹1,45,72,081) and the interest income (₹1,69,070).
First Appellate Stage: CIT(A)’s Decision
Upon appeal, the CIT(A) partly allowed the assessee’s appeal. The CIT(A) acknowledged the assessee’s explanations, noting that the cash deposits were “mainly collected due to fresh deposits and cash recoveries of loans.” The CIT(A) also accepted that the interest income of ₹1,69,070 was already included in the assessee’s audited financial statements and, consequently, deleted this addition.
Despite accepting the explanations for the bulk of the deposits, the CIT(A) upheld an addition of 10% of the cash deposits, amounting to ₹14,57,208, as unexplained money under Section 69A. This partial confirmation was justified by the CIT(A) on the grounds that “one-to-one correlation is not possible at this juncture” and “to safeguard the interests of revenue.”
Assessee’s Arguments Before ITAT and Cited Precedents
Before the ITAT, the assessee presented several grounds, fundamentally challenging the arbitrary 10% addition:
1. Erroneous Confirmation of Arbitrary Addition: The assessee argued that the 10% addition was arbitrary, lacked evidential support, and contravened Section 69A. They contended that the explanation provided was substantially correct, prohibiting the deeming provisions of Section 69A in the absence of specific contradictory evidence.
- Judicial Precedent: CIT v. K.Y. Pilliah & Sons [1967] 63 ITR 411 (SC) – The Supreme Court held that once credible evidence explains cash credits, the AO cannot deem them income without cogent rebuttal.
2. Disregard of Unassailable Evidence: The assessee highlighted that comprehensive evidence (cash books, bank statements, receipt vouchers, CA verification) proving the genuineness of the receipts was provided and acknowledged by the CIT(A). Section 68 requires the AO to prove credits are unexplained before taxing them, and here, no specific sum was identified as unexplained.
- Judicial Precedent: CIT v. P.K. Noorjahan [1999] 237 ITR 570 (SC) – The Supreme Court ruled that the AO cannot reject a satisfactory explanation without positive evidence of falsity.
3. Unjustified Demand for One-to-One Correlation: The assessee argued that the CIT(A)’s demand for “one-to-one correlation” was legally untenable, as neither Section 69A nor Section 44AA (maintenance of accounts for audited entities) mandates such transaction-level proof beyond a reasonable explanation.
- Judicial Precedent: CIT v. Orissa Corporation Pvt. Ltd. [1986] 159 ITR 78 (SC) – The Supreme Court ruled that the AO cannot impose additions without evidence disproving the assessee’s explanation, especially when records align with business operations.
4. Impermissible Addition to Safeguard Revenue: The justification of the 10% addition to “safeguard the interests of revenue” was termed ultra vires (beyond the powers) by the assessee. Section 4(1) limits taxation to “income,” meaning tax applies only to real income, not notional or hypothetical figures for revenue protection.
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- Judicial Precedents: CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC) – The Supreme Court emphasized that tax applies only to real income, not hypothetical figures. Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC) – Arbitrary additions without statutory backing are impermissible.
5. Prejudice Due to Departmental Inaction: The assessee contended that the demand partly stemmed from the Department’s failure to deactivate the surrendered PAN (AAVFS6355B), arguing that departmental errors cannot prejudice the assessee, in line with Section 292B (which states no assessment shall be invalid merely by reason of any mistake).
- Judicial Precedent: CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) – Assessments must be fair and not penalize the assessee for administrative lapses.
6. Inconsistency in CIT(A)’s Findings: The assessee pointed out that the CIT(A) inconsistently deleted the interest income addition as accounted for under PAN AARAS7485B, yet retained 10% of proven deposits.
- Judicial Precedent: Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) – Emphasizes consistency in tax treatment as a principle of equity.
ITAT’s Analysis and Decision
The ITAT, after considering the arguments and reviewing the records, noted that the assessee had filed its return under a valid PAN (AARAS7485B), and the Department’s system continued to accept AIR data under a PAN marked “surrendered.”
Crucially, the ITAT observed that the CIT(A) had, in essence, accepted the assessee’s explanation regarding the source of cash deposits but then proceeded to uphold an arbitrary 10% addition without any independent basis or supporting evidence. The ITAT explicitly stated that there is “no concept to safeguard the interest of Revenue by a judicial authority particularly when facts are crystal clear.”
The Tribunal concluded that once the explanation concerning the source of cash is found to be substantially correct and not disproved by the Revenue, no addition under Section 69A of the Act can be made merely on suspicion. It further emphasized that there is “no scope for ad-hoc and estimated addition in case of quantification of deemed income, because it is fact specific.” The ITAT also briefly noted that the assessee is a “pass through entity,” suggesting that any addition, if warranted, should be made in the names of the individual depositors.
The ITAT deemed the action of sustaining an ad-hoc portion, despite the overall acceptance of the explanation, to lack judicial backing. Consequently, the ITAT set aside the impugned order of the CIT(A) and directed the Assessing Officer to delete the entire addition of ₹14,57,208 and re-compute the assessee’s income accordingly.
This decision by the ITAT underscores the principle that tax additions, especially under deeming provisions like Section 69A, must be based on concrete evidence disproving the assessee’s explanation, rather than arbitrary estimations or a general notion of safeguarding revenue.
FULL TEXT OF THE ORDER OF ITAT NAGPUR
The captioned appeal by the assessee is emanating from the impugned order dated 12/02/2025, passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2019–20.
2. In its appeal, the assessee has raised following grounds:–
“1. The Appellant, Sanjivani Mahila Gramin Bigar Sheti Sahakari Pat Sanstha Maryadit, a cooperative society registered under the Maharashtra State Cooperative Societies Act, 1960, respectfully submits the following grounds challenging the order of the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated February 12, 2025, passed under Section 250 of the Income Tax Act, 1961 (hereinafter “the Act”).
2. Erroneous Confirmation of Arbitrary 10% Addition: The CIT(A) erred in law and fact by confirming an addition of Rs. 14,57,208 (10% of cash deposits of Rs. 1,45,72,081) as unexplained money under Section 69A. This addition is arbitrary and lacks evidential support.
Section 69A states: “Where… the assessee offers no explanation about the nature and source of such money… or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the money… may be deemed to be the income of the assessee. Here, the explanation was accepted as substantially correct prohibiting deeming provisions absent specific evidence.
CIT v. K.Y. Pilliah & Sons [1967] 63 ITR 411 (SC) – The Supreme Court held that once credible evidence explains cash credits, the AO cannot deem them income without cogent rebuttal.
3. Disregard of Unassailable Evidence of Genuineness: The Appellant provided comprehensive evidence cash books, bank statements, receipt vouchers, and CA verification proving the Rs. 1,45,72,081 as genuine business receipts. The CIT(A) acknowledged this yet upheld a 10% addition without basis.
Section 68 requires the AO to prove credits are unexplained before taxing them: “Where any sum is found credited… and the assessee offers no explanation… or the explanation offered is not satisfactory…” Here, no specific sum was identified as unexplained, barring such addition.
CIT v. P.K. Noorjahan [1999] 237 ITR 570 (SC): The AO cannot reject a satisfactory explanation without positive evidence of falsity.
4. Unjustified Demand for One-to-One Correlation: The CIT(A)’s reliance on a “one-to-one correlation” is legally untenable:
Section 69A does not mandate transaction-level proof beyond reasonable explanation, nor does Section 44AA (maintenance of accounts) impose such a burden on audited entities like the Appellant.
CIT v. Orissa Corporation Pvt. Ltd. [1986] 159 ITR 78 (SC) – The Supreme Court ruled that the AO cannot impose additions absent evidence disproving the assessee’s explanation, especially when records align with business operations.
5. Impermissible Addition to Safeguard Revenue The CIT(A)’s justification of the 10% addition to safeguard the interests of revenue” is ultra vires:
Section 4(1) limits taxation to “income”: “”Income-tax shall be charged… in respect of the total income of the previous year. Notional additions for revenue protection violate this principle.
CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 (SC) – The Supreme Court emphasized that tax applies only to real income, not hypothetical figures.
Union of India v. Dharmendra Textile Processors [2008] 306 ITR 277 (SC) Arbitrary additions without statutory backing are impermissible.
6. Prejudice Due to Departmental Inaction: The demand stems from the Department’s failure to deactivate PAN AAVFS6355B, despite the Appellant’s application on June 26, 2019:
Section 292B-No assessment shall be invalid merely by reason of any mistake The Department’s error cannot prejudice the Appellant.
CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) – Assessments must be fair and not penalize assessee for administrative lapses.
7. Inconsistency in CIT(A)’s Findings: The CIT(A) deleted Rs. 1,69.070 as accounted under PAN AARAS7485B but inconsistently retained 10% of proven deposits:
Radhasoami Satsang v. CIT [1992] 193 ITR 321 (SC) Consistency in tax treatment is a principle of equity.
8. The CIT(A) noted the deposits were “mainly collected due to fresh deposits and cash recoveries of loans” aligning with the Appellant’s evidence. Yet, a 10% addition was upheld without evidence which is unjustified and unwarranted and without basis.
Section 69A- Deeming applies only if the explanation is unsatisfactory, not when accepted as substantially correct.
CIT v. K.Y. Pilliah & Sons [1967] 63 ITR 411 (SC) The AO must disprove credible evidence, which was not done here.”
3. Though the assessee has raised as many as nine grounds of appeal with interconnected sub–grounds, however, the only issue that I need to adjudicate here relates to the addition of Rs. 14,57,208, i.e., 10% of cash deposits of Rs. 1,45,72,081, as unexplained money under section 69A of the Income Tax Act, 1961 (“the Act”) and interest income of Rs. 1,69,070.
4. Facts in Brief:– The assessee is a Co–operative Society formed in the year 1998 under Maharashtra State Co–operative Societies Act, 1960, and had filed its return of income on 29/08/2019, disclosing total income at Rs. 1,27,000, under the Permanent Account Number – AARAS7485B. From the information available with the Department’s database, it is seen that there were cash deposits of ` 12,00,081, in Central Bank of India and Rs. 1,33,72,000, in the Bhandara District Central Cooperative Bank aggregating to ` 1,45,72,081. The assessee also earned interest income from Central Bank of India to the tune of Rs. 1,69,070, but the assessee’s case flagged in non-filers case, therefore, the Assessing Officer re–opened the assessment under section 147 of the Act and notice was issued under section 148 of the Act. However, the assessee submitted that it owns two Permanent Account Numbers, one in the capacity of firm which is AAVFS6355B and one more as Co–operative Society l.e., AARAS7485B. On 26/06/2019, the assessee made request to the Department to surrender PAN no. AAVFS6355B. However, the Department did not de–activate the said PAN– AAVFS6355B and, therefore, the AIR information filed in this PAN number was showing information to the Department. Accordingly, the Assessing Officer received information that the assessee had made cash deposit in the bank account which was not shown by it. The assessee also received interest income of Rs. 1,69,070, which was not shown in its return of income. The assessee filed various details during the course of assessment proceedings. However, the Assessing Officer was not satisfied with the assessee’s explanations and proceeded to conclude the assessment by making addition of cash deposits of Rs. 1,45,72,081 and interest income of Rs. 1,69,070.
5. On appeal, the learned CIT(A) partly allowed the assessee’s appeal confirmed the addition of ` 14,57,208, i.e., 10% of cash deposits of ` 1,45,72,081, as unexplained money under section 69A of the Act and interest deleted the addition of ` 1,69,070, on account of interest income. While partly allowing the assessee’s appeal, the learned CIT(A) observed as under:–
“3. Adjudication & Decision:-
3 (a) The assessee raised many grounds but all are pointing towards the addition made by the AO on account of cash deposits of RS. 1,45,72,081/- and interest income of Rs. 1,69,070/- received from the Central Bank of India.
3 (b) I have considered the facts and circumstances of the case. From the facts of the case, it is understood that the assessee made cash deposits in the Central Bank of India to the tune of Rs. 12,00,081/- and Rs. 1,33,72,000/- in the Bhandara District Central Cooperative bank totally amounting to Rs. 1,45,72,081/-. In this regard, the assessee submits that the receipts are are mainly received from various members towards fresh deposits made by them and also loan repayments were received from borrowers. The assessee further submits that he is operating in a small place. The assessee filed cash books to support the sources of the cash deposits. He has also filed receipts given to various customers towards cash collections and recovery of loans.
3 (c) I have gone through the details and it was found that the cash deposits were mainly collected due to fresh deposits and cash recoveries of loans. However, one to one correlation is not possible at this juncture. Therefore, to safeguard the interests of revenue, 10% of the deposits are hereby confirmed and the addition to this extent is hereby upheld and the balance addition is hereby deleted.
3 (d) However, the addition towards interest income of Rs.1,69,070/- received from Central Bank of India was already included in the audited financial statements of the assessee. Therefore, there is no reason to make any addition on this account.
Accordingly, the assessee’s grounds of appeal are hereby partly allowed.
In the result, the assessee’s appeal is hereby partly allowed.”
6. Having heard both the parties and on a perusal of the material available on record, I find that the assessee had filed its return of income under valid Permanent Account Number AARAS7485B and furnished the relevant records. The Department’s own system continued to accept AIR data no a Permanent Account Number PAN no.AAVFS6355B, which was already marked as “surrendered”. I further find that the learned CIT(A) accepted the explanation but proceeded to uphold an arbitrary 10% addition without any independent basis or placing any evidence on record. There is no concept to safeguard the interest of Revenue by a judicial authority particularly when facts are crystal clear. In my considered opinion, once the explanation regarding source of cash is found substantially correct and not disproved, no addition under section 69A of the Act can be made merely on suspicion. There is no scope for ad–hoc and estimated addition in case of quantification of deemed income, because it is fact specific. Further the assessee is a pass through entity and addition if any can be done in the name of the depositors. The action of sustaining an ad–hoc portion despite acceptance of overall explanation lacks judicial backing. In this view of the matter, the entire addition sustained on account of addition of Rs. 14,57,208, on account of unexplained money under section 69A of the Act sustained by the learned CIT(A) is liable to be deleted. Consequently, I set aside the impugned order passed by the learned CIT(A) and direct the Assessing Officer to delete the addition of Rs. 14,57,208, and re– compute the income of the assessee accordingly.
7. In the result, assessee’s appeal is allowed.
Order pronounced in the open Court on 27/05/2025
