ITAT Relief to Gujarat Farmer Cooperative: Demonetisation Addition Deleted After Proper Loan Records Verified

The Income Tax Appellate Tribunal (ITAT) Ahmedabad Bench has recently decided on an appeal filed by the Income Tax Officer (ITO) against a company named Chikhodara Sewa Sahakari Mandali Limited, challenging an order dated June 03, 2025, passed by the CIT(A)/NFAC Delhi. The case is related to the Assessment Year 2017-18.

The impugned order has deleted the addition amounting to Rs. 93.75 lakh made by the Assessing Officer (AO). The assessee company is a cooperative society registered under the Gujarat Cooperative Societies Act. The assessee is a farmer-focused cooperative working under the Kisan Credit Card (KCC) scheme, a government agricultural loan programme supported by NABARD and the Ministry of Agriculture & Farmers Welfare. It acts only as an intermediary, distributing loans to farmers and collecting repayments. During demonetisation, the assessee had accepted some repayments (amounting to Rs. 93,75,500 in total) in the form of old demonetised currency during the period of demonetisation, i.e., in 2016.

During the assessment, the AO treated the said amount as unexplained income and made an addition of the same to the assessee’s income. When the assessee, aggrieved with the decision of the AO, approached the lower appellate authority, the CIT(A) deleted the impugned addition.

Thereafter, the income tax authorities challenged the same order of the CIT(A) before the ITAT Ahmedabad. During the hearing, the revenue claimed that accepting demonetised money during the period of demonetisation was illegal, and CIT(A) had mistakenly deleted the impugned addition. However, the tribunal noted that the assessee had furnished all the relevant details of who repaid loans, and the transactions were properly recorded in its books. The department did not dispute the identity of the farmers, the purpose of the deposits, or the genuineness of the transactions.

The tribunal thereafter flagged that once the assessee explained the source and nature of the cash, the entire burden transferred to the tax department, which failed to prove otherwise. Further stated that only accepting cash in demonetised cash makes the amount unexplained. In conclusion to the aforesaid findings, the tribunal dismissed the tax department’s appeal and ruled in favour of the assessee.