2014 (5) TMI 844 - AT - Income Tax

Tribunal confirms exclusion of society from S.68 for member deposits, upholding CIT(A)'s decision.

The Asst. CIT Circle-9(1), Hyderabad Versus M/s. Citizen Co-operative Society Ltd., Hyderabad

The Asst. CIT Circle-9(1), Hyderabad Versus M/s. Citizen Co-operative Society Ltd., Hyderabad - TMI Issues Involved:1. Whether the CIT(A) was correct in law in holding that the assessee followed KYC norms and maintained systematic records.2. Whether the CIT(A) was correct in law in holding that the society is excluded from the purview of section 68 of the Act.Issue-wise Detailed Analysis:1. Whether the CIT(A) was correct in law in holding that the assessee followed KYC norms and maintained systematic records:The Revenue challenged the CIT(A)'s decision that the assessee followed KYC norms and maintained systematic records. The assessee, engaged in banking, filed a return admitting 'nil' income after claiming a deduction under S.80P of the Act. During scrutiny, the AO requested the deposit register and full details of depositors to verify the genuineness of transactions. The assessee provided computerized sheets with limited details, lacking addresses. The AO added Rs. 38,53,72,794 to the income, representing the difference between closing and opening balances, as unexplained income under S.68 of the Act. The CIT(A) deleted this addition, relying on previous Tribunal orders for earlier years, where penalties under S.271D and S.271E were deleted under similar circumstances. The Tribunal noted that the CIT(A) did not perform the necessary verification for the current year and remitted the matter back to the CIT(A) for re-examination. The CIT(A) subsequently confirmed that the assessee maintained systematic records and followed KYC norms, supported by regulatory inspections.2. Whether the CIT(A) was correct in law in holding that the society is excluded from the purview of section 68 of the Act:The CIT(A) observed that the society is registered and recognized by the State Government, engaged in banking activities as approved by RBI, and governed by the Banking Regulation Act, 1949. The society maintained systematic records and followed KYC norms. The AO did not conduct specific inquiries for the current year and relied on findings from previous years. The CIT(A) noted the enormity of information related to 68,000 members and limitations in maintaining and furnishing depositor information. The Tribunal had previously held that the society followed KYC norms and could not be expected to verify the identity and creditworthiness of all depositors. The CIT(A) further stated that the society, engaged in banking activities, captured required information in prescribed formats and was excluded from the purview of Section 68 for member deposits. The Tribunal's earlier decisions supported that the society's onus was deemed discharged with systematic record maintenance and regulatory compliance, without needing to verify depositor creditworthiness. The CIT(A) concluded that the facts remained unchanged from earlier years, and the addition under S.68 was not sustainable. The Tribunal agreed, noting that the society complied with KYC norms and maintained systematic records, distinguishing it from other assessees. The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s deletion of the addition under S.68.Conclusion:The Tribunal upheld the CIT(A)'s decision that the assessee followed KYC norms and maintained systematic records, and that the society was excluded from the purview of section 68 of the Act for member deposits. The Tribunal dismissed the Revenue's appeal, confirming the deletion of the addition under S.68.