ITAT: Cash Deposits From Members Not Unexplained Without Proper Verification:

ITAT: Cash Deposits From Members Not Unexplained Without Proper Verification The Pune Bench of the Income Tax Appellate Tribunal (ITAT) has dismissed the Revenue’s appeal against Kothali Vividh Karyakari Sahakari (Vikas) Seva Society Ltd for Assessment Year 2011-12. The Tribunal upheld the order of the CIT(A) which deleted an addition of Rs.2,94,43,991 made u/s 68 of the Income Tax Act and allowed the society’s claim for deduction u/s 80P.

The assessee, a registered co-operative credit society, filed its return of income declaring nil income after deduction under section 80P. During scrutiny, the AO noticed cash deposits of Rs.2,94,43,991 in the society’s bank account with Kolhapur District Central Co-operative Bank. The AO considered the deposits to be unexplained cash credits under section 68 as the assessee did not respond to the notices during assessment and also disallowed the deduction under section 80P. In the appeal before the CIT (A), the society submitted detailed records explaining the cash deposits were money received from its members. It produced a list of members along with their account numbers and details of the cash deposits. The society also explained that it was engaged only in providing credit facilities to its members and was duly registered under the Maharashtra Co-operative Societies Act. The CIT(A) sought a remand report from the Assessing Officer. However, the AO did not verify the details submitted by the society, and no further enquiry was made. The CIT(A) after considering the evidence deleted the addition made u/s. 68. The Tribunal agreed with the CIT(A) and held that the burden of proof stood discharged when the assessee furnished the names, account numbers and details of deposits of its members. If the AO had any doubts he should have checked the information or made further enquiries. Since such verification was not done and Revenue could not establish that the documents were not correct, the addition under Section 68 could not be sustained.

The Tribunal also examined the issue of deduction under Section 80P(2)(a)(i). It observed that the assessee was carrying on the business of providing credit facilities to its members and was earning interest by depositing surplus funds with a bank. The Tribunal while deciding the issue relied on various judicial precedents including the decision of the Supreme Court in CIT vs. Karnataka State Co-operative Apex Bank, the decision of the Andhra Pradesh and Telangana High Court in Vavveru Co-operative Rural Bank Ltd. and decision of the Kerala High Court in Pr. CIT vs. Sahyadri Co-operative Credit Society Ltd. The Tribunal observed that these decisions consistently hold that interest earned by a co-operative credit society from surplus funds deposited with banks continues to be business income attributable to its primary activity of providing credit facilities to members. Therefore, such income remains eligible for deduction under Section 80P(2)(a)(i). The Bench also referred to its earlier decision in ITO v. Dhanshri Multi State Cooperative Society Ltd. where a similar view has been taken. Having regard to the said precedents, the Tribunal held that assessee was entitled to deduction u/s. 80P on interest earned on surplus funds. It did not find any mistake in the order of the CIT(A) and dismissed the appeal of the Revenue.

Accordingly, the ITAT held that the deletion of the addition made under Section 68 and the deduction made under Section 80P were valid and granted full relief to the co-operative credit society.