Explained demonetisation cash deposits and co-operative bank interest were held eligible for tax relief under the Income-tax Act.
Cash deposits representing explained sale proceeds received in specified bank notes during demonetisation were not treated as unexplained investment under section 69A because the books and audited records substantiated the source, and the same receipts could not be taxed again under section 115BBE. Interest earned by a co-operative society on deposits with co-operative banks was treated as income attributable to its qualifying activities and remained eligible for deduction under section 80P(1). The analysis applies the principle that duly explained business receipts do not become unexplained income merely because they were received in demonetised currency, and that qualifying co-operative income continues to attract section 80P relief.
Issues: (i) Whether cash deposits arising from sale proceeds received in specified bank notes during the demonetisation period could be added as unexplained investment under section 69A and taxed under section 115BBE of the Income-tax Act, 1961. (ii) Whether interest earned on deposits with co-operative banks was eligible for deduction under section 80P of the Income-tax Act, 1961.
Issue (i): Whether cash deposits arising from sale proceeds received in specified bank notes during the demonetisation period could be added as unexplained investment under section 69A and taxed under section 115BBE of the Income-tax Act, 1961.
Analysis: The cash book and audited records showed that the receipts represented sale proceeds from the assessee's business with its members. The books were not rejected and the source of the deposits was explained through contemporaneous records. The mere receipt of specified bank notes after the notified date did not convert the sales proceeds into unexplained income for the purposes of section 69A, and the same amount could not be brought to tax twice.
Conclusion: The addition under section 69A and the tax treatment under section 115BBE were not sustainable and were deleted in favour of the assessee.
Issue (ii): Whether interest earned on deposits with co-operative banks was eligible for deduction under section 80P of the Income-tax Act, 1961.
Analysis: The interest income was held to be attributable to the assessee-society's activities and was treated as income eligible for deduction under section 80P(1). The decision followed co-ordinate bench precedent holding that interest derived from such deposits forms part of the gross total income of a co-operative society and qualifies for deduction.
Conclusion: The disallowance of deduction under section 80P was not justified and the deduction was allowed in favour of the assessee.
Final Conclusion: The appeal succeeded in full, with both disputed additions set aside and the assessee granted consequential relief.
Ratio Decidendi: A receipt explained as business sale proceeds cannot be treated as unexplained income merely because it was received in demonetised currency, and interest attributable to a co-operative society's qualifying activity remains deductible under section 80P.
TaxTMI 
AI Drafter ✕
TaxTMI 
