2024 (6) TMI 656 - AT - Income Tax

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 ... Unexplained cash credit under section 68 read with section 115BBE - acceptance of Specified Bank Notes (SBNs) by Urban Cooperative Banks - applicability of RBI Circular dated 14/11/2016 to District Central Cooperative Banks (DCCBs) only - treatment of SBN deposits in demonetisation periodUnexplained cash credit under section 68 read with section 115BBE - acceptance of Specified Bank Notes (SBNs) by Urban Cooperative Banks - applicability of RBI Circular dated 14/11/2016 to District Central Cooperative Banks (DCCBs) only - Whether cash deposits in the form of SBNs accepted and deposited by the assessee (an Urban Cooperative Bank) during the demonetisation period (15/11/2016 to 30/12/2016) could be treated as unexplained cash credit under section 68 read with section 115BBE. - HELD THAT: - The Tribunal examined the relevant RBI Circular dated 14/11/2016 which clarified that the prohibition on exchange facility against SBNs or deposit of such notes applied to District Central Cooperative Banks (DCCBs). The assessee, being an Urban Cooperative Bank, fell within the class of banks addressed by the Circular but was not subject to the specific restriction placed on DCCBs. The Assessing Officer had treated the deposits as unexplained cash credit by construing the bank as a DCCB, thereby disallowing the SBN deposits. The Tribunal found that the Circular did not bar Urban Cooperative Banks from accepting or depositing SBNs into customer accounts and that the AO's contrary treatment amounted to a misapplication of the RBI instruction. On this basis the Tribunal held that the deposits in SBNs accepted and deposited by the assessee during the specified period could not be regarded as unexplained cash credits under section 68 and sustained additions were not warranted. [Paras 6, 7, 8]Deposits of SBNs accepted and deposited by the Urban Cooperative Bank during the demonetisation period are not unexplained cash credits under section 68; the additions are deleted and the appeal is allowed.Final Conclusion: The Tribunal allowed the appeal, holding that the RBI Circular dated 14/11/2016 restricted exchange and deposit only in respect of DCCBs and did not render SBN deposits made and accepted by the assessee (an Urban Cooperative Bank) unexplained cash credits under section 68; the additions sustained by the revenue were set aside. 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 SBNsThe 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 CircularThe 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 OfficerThe 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.