Urban Cooperative Bank wins appeal against Section 68 addition for accepting Specified Bank Notes during demonetization

The ITAT Visakhapatnam allowed the assessee's appeal against addition under Section 68 read with Section 115BBE for accepting cash in the form of Specified Bank Notes (SBNs). The tribunal held that since the assessee was an Urban Cooperative Bank, it was not covered by RBI Circular dated 14th November 2016, which restricted SBN exchange facility only to District Cooperative Central Banks, not Urban Cooperative Banks. Therefore, acceptance of SBNs could not be treated as unexplained cash deposits warranting addition under Section 68.

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Issues:
1. Addition of cash deposits in Specified Bank Notes (SBNs) as unexplained cash credit under section 68 of the Income Tax Act.
2. Interpretation of RBI Circular dated 14/11/2016 regarding acceptance of SBNs by Urban Cooperative Banks during demonetization.
3. Contradictory treatment of similar cases by the Assessing Officer.

Analysis:

Issue 1: Addition of cash deposits in SBNs
The assessee, a Cooperative Bank, filed its return for AY 2017-18 admitting a total income. The Assessing Officer (AO) observed cash deposits in SBNs and treated a specific amount as unexplained cash credit under section 68 of the Act. The assessee appealed to the Ld. CIT(A)-NFAC, who dismissed the appeal. The primary issue was the addition of Rs. 4,68,39,000/- deposited in SBNs during a specific period.

Issue 2: Interpretation of RBI Circular
The appellant argued that as an Urban Cooperative Bank, it was authorized to accept SBNs based on RBI Circulars. The Circular dated 14/11/2016 restricted exchange facilities against SBNs only for District Cooperative Central Banks (DCCBs), not Urban Cooperative Banks. The appellant presented a similar case where SBN deposits were accepted, highlighting the contradictory treatment by the AO. The Tribunal agreed that the appellant, being an Urban Cooperative Bank, was not covered by the Circular restricting SBN acceptance, and thus, the additions were not justified under section 68 of the Act.

Issue 3: Contradictory treatment by the Assessing Officer
The Tribunal noted the contradictory treatment of similar cases by the AO, where SBN deposits were accepted in one case but disallowed in the appellant's case. By analyzing the RBI Circular and the nature of the appellant's banking operations as an Urban Cooperative Bank, the Tribunal concluded that the additions made by the Revenue Authorities were not sustainable. The Tribunal allowed the appeal, setting aside the additions made by the AO.

In conclusion, the Tribunal held that the appellant, as an Urban Cooperative Bank, was authorized to accept SBNs during demonetization based on RBI Circulars. The Tribunal found the AO's treatment of the case contradictory and ruled in favor of the appellant, allowing the appeal and setting aside the additions made under section 68 of the Income Tax Act.

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