2025 (7) TMI 1154 - AT - Income Tax

Cooperative society's cash deposits from trading and loan recoveries accepted under section 68

Income Tax Officer, Ward – 1, Mehsana Versus Shri Meu Juth Vividh Karyakari Sahakari Mandali Limited

The ITAT Ahmedabad ruled in favor of the assessee regarding additions under section 68 for unexplained cash deposits. The assessee, a cooperative society, ... Addition u/s 68 - unexplained source of cash deposits in banks - HELD THAT:- The assessee’s claim all along has been that the source of cash deposit is attributable to its activities of trading in quota items and recovery of KCC loan given to its members. It is a fact on record that the assessee had furnished its audited financial statements, cash book, bank statements, sales and KCC Loan recovery list, certificate of Registration as cooperative society, confirmation of KCC loan taken from Mehsana Cooperative Bank. These documents,CIT(A) we hold has rightly found, clearly demonstrate the assessee society to be indulging in trading activities and KCC loan distribution to its members and also collection of cash from the said activities and recovery of loan, as also deposit of the said cash in its bank accounts. CIT(A), has rightly held the assessee to have explained the source of cash deposits in bank duly supported with evidence. The contention of the DR was that in the absence of ledger account of members from whom loan was recovered and in the absence of any substantiation of opening cash in hand, the assesses explanation could not be said to be duly substantiated. We do not find any merit in the same. With audited results furnished by the assessee, there is no need for any further justification of opening balance of cash. Also the assessee having furnished confirmation from bank of having received KCC Loan; its audited results reflecting distribution of KCC loans to its members; cash book being furnished reflecting recovery of such loans from members; bank book being furnished corroborating entries in cash book of deposits in bank from loan recoveries and trading activities of the assessee, and list of members being furnished from whom loan was recovered, the factum of cash deposits in bank account out of loan recoveries, has been sufficiently demonstrated. There was no need therefore, we hold, for any further evidence being filed by the assessee by way of ledger account of members. The arguments of DR, we find, are devoid of any merits and hence rejected. Decided against revenue. ISSUES: Whether the addition under Section 68 of the Income Tax Act, 1961, of unexplained cash deposits in the assessee's bank accounts is justified where the assessee claims the source as loan recoveries and trading in quota items.Whether the assessee discharged the burden of proof in explaining the nature and source of cash deposits by furnishing relevant documents such as audited financial statements, bank statements, cash book, and loan recovery lists.Whether the absence of ledger accounts of members and substantiation of opening cash balance justifies the addition under Section 68. RULINGS / HOLDINGS: The addition under Section 68 of the Income Tax Act was deleted as the assessee 'has discharged the initial burden cast on it of demonstrating the source of cash deposited in its bank account during the year' through documentary evidence including audited financial statements and bank confirmations.The assessee's explanation that the cash deposits arose from 'trading in quota items and recovery of KCC loan given to its members' was found to be 'sufficiently explained' and supported by evidence, thus negating the justification for addition.The absence of ledger accounts of members from whom loan recovery instalments were received and lack of separate substantiation for the opening cash balance did not warrant addition, given the comprehensive documentary evidence furnished by the assessee. RATIONALE: The Court applied the statutory framework under Section 68 of the Income Tax Act, which places the burden on the assessee to explain the nature and source of unexplained cash credits.The Court relied on documentary evidence such as audited accounts, bank statements, cash books, loan recovery lists, and registration certificates to conclude that the assessee's explanation was credible and adequately substantiated.The ruling emphasized that 'with audited results furnished by the assessee, there is no need for any further justification of opening balance of cash' and that the absence of ledger accounts was not fatal where other corroborative evidence was provided.No doctrinal shift or dissent was recorded; the Court upheld the principle that the burden of proof shifts to the assessee under Section 68, but once discharged with sufficient evidence, addition is unwarranted.