Cooperative society wins appeal on demonetization deposits and section 80P deduction for AY 2017-18

ITAT Mumbai allowed the appeal of a registered cooperative credit society. The tribunal held that cash deposited during demonetization belonged to members, not the society acting as custodian, making addition under section 69A improper. The AO wrongly treated member deposits as undisclosed income despite the society providing member details and PAN numbers. Regarding section 80P(2)(a)(i) deduction denial, the tribunal ruled that section 80AC restrictions on timely return filing apply only from AY 2018-19 onwards, not AY 2017-18. The society was entitled to the deduction as no other Revenue objections existed.

---

---

Issues Involved:
1. Adequate opportunity of being heard before passing order under section 144.
2. Validity of the return of income.
3. Addition of Rs. 27,82,985 under section 69A read with section 115BBE.
4. Disallowance of deduction under section 80P(2)(a)(i).
5. Confirmation of addition by the CIT(A) without considering detailed facts and misinterpretation of section 80AC.

Detailed Analysis:

1. Adequate Opportunity of Being Heard:
The assessee argued that the Assessing Officer (AO) erred in passing the order under section 144 without granting adequate opportunity of being heard, despite the details being furnished during the assessment. The Tribunal found that the AO issued notices under section 142(1) and 133(6) for furnishing details, which the assessee responded to. However, the AO did not find these details acceptable and proceeded with the order.

2. Validity of the Return of Income:
The AO treated the return of income as invalid because it was filed after the prescribed date under Rule 12 of the Income Tax Rules, 1962. The Tribunal noted that the return was filed on 08/08/2019, which was beyond the prescribed date of 22/02/2018, making it invalid.

3. Addition under Section 69A read with Section 115BBE:
The AO added Rs. 27,82,985 to the total income, including Rs. 18,07,000 as undisclosed income under section 69A and an estimated business income of Rs. 9,75,985. The Tribunal found that the actual cash deposit during the demonetization period was Rs. 17,90,500, not Rs. 18,07,000, and this amount was fully accounted for in the audited books. The Tribunal held that the provisions of section 69A apply only if the assessee is found to be the owner of the money, which in this case belonged to the members of the Co-operative Credit Society. Therefore, the addition under section 69A was incorrect.

4. Disallowance of Deduction under Section 80P(2)(a)(i):
The AO disallowed the deduction under section 80P(2)(a)(i) due to the invalid return. The Tribunal clarified that the restriction under section 80AC, which mandates filing the return on or before the due date specified under section 139(1), applies only from the assessment year 2018-19 onwards. Since the assessment year in question is 2017-18, the assessee is entitled to the deduction under section 80P(2)(a)(i).

5. Confirmation of Addition by CIT(A):
The CIT(A) confirmed the addition without considering the detailed facts submitted by the assessee and misinterpreted section 80AC. The Tribunal noted that the CIT(A) upheld the AO's decision based on the invalid return and the estimated business income. However, the Tribunal found that the CIT(A) failed to consider the correct interpretation of section 80AC and the valid deductions under section 80P(2)(a)(i).

Conclusion:
The Tribunal allowed the appeal by the assessee, directing the AO to delete the impugned addition and grant the deduction under section 80P(2)(a)(i). The order was pronounced in the open Court on 05/09/2022.

---