ITAT Deletes Rs. 4.67 Crore Section 68 Addition Against Cooperative Credit Society

Sree Narayana Guru Cooperative and Credit Society Ltd, a thrift and credit cooperative society, accepts deposits from its members and provides loans to them. For AY 2012-13, the assessment was reopened under Section 147 based on AIR information showing cash deposits of Rs. 1.51 crore in its bank account. During reassessment, the Assessing Officer examined term deposit liabilities of Rs. 3.16 crore and cash deposits, for which the assessee furnished member-wise details, books of account, deposit registers and confirmations explaining that the amounts represented deposits collected from members under various schemes.

The AO, however, held that the identity and creditworthiness of depositors were not proved and treated Rs. 3.16 crore as unexplained term deposits and Rs. 1.51 crore as unexplained cash credits under Section 68, making a total addition of Rs. 4.67 crore. The CIT(A) affirmed the additions.

Issue Before Tribunal: Whether deposits received from members of a cooperative credit society and corresponding bank deposits can be treated as unexplained credits under Section 68.

ITAT’s Ruling: The ITAT deleted the additions, holding that the AO failed to appreciate the nature of a mutual cooperative society. It noted that the opening deposit balance was Rs. 2.24 crore and that fresh deposits during the year were Rs. 94.78 lakh; it was unjustified to treat the entire closing balance as unexplained. The Tribunal observed that detailed member-wise records, books of account and cash books were produced, and many deposits were small amounts, making insistence on income-tax returns or separate confirmations from each depositor unreasonable.

The cash deposits were found to have been sourced from normal member collections during regular business.  The Tribunal deleted the additions and applied the same reasoning to AY 2017-18.

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