2025 (7) TMI 1843 - AT - Income Tax

Unexplained SBN Deposits Not Enough for Addition Under Section 69A if Source Explained

ITAT Pune deleted the addition under section 69A relating to unexplained cash deposits in SBNs during demonetization, accepting the source of funds as ... Addition u/s 69A - unexplained money - cash deposits in SBNs made during demonetization period out of amount received from members by the assessee credit cooperative society - HELD THAT:- It is surprising to note that on one hand CIT(A) has accepted the source of the cash deposited during the demonetization period from 08.11.2016 to 14.11.2016. The assessee has successfully explained the source of cash deposit before ld.CIT(A) as has been held by this Tribunal in the case of Hudhyashwar Nagari Sahakari Path Sanstha Maryadit [2025 (3) TMI 1511 - ITAT PUNE] that mere deposit of SBNs during the demonetization period in itself cannot be a ground to make the addition u/s. 69A of the Act if the source of such case received is explained. We delete the addition made. Benefit of deduction u/s. 80P - return has been found to be invalid - whether section 80A(5) can be invoked? - Amendment has been made in section 80AC of the Act from the A.Y. 2018-19 which provides that for claiming deduction u/s. 80P of the Act return has to be filed within the due date prescribed u/s. 139(1) of the Act. The assessment year under consideration is A.Y. 2017-18. If the return filed by the assessee in compliance to notice u/s. 142(1) is considered, then assessee’s claim of deduction u/s. 80P of the Act ought to have been allowed to the assessee. Even if the invalid return is considered as nonest return, then the situation will be that no return has been filed and even in such situation also section 80A(5) cannot be invoked because it only comes into effect if the assessee has filed a valid return but fails to make a claim of deduction u/s. 80P of the Act. In both the given situations, assessee deserves to succeed and the deduction u/s. 80P should have been allowed by the AO. In the case of Chirakkal Service Cooperative Bank Ltd. [2016 (4) TMI 826 - KERALA HIGH COURT] and also in the case of Sanchar Gramin Bigarsheti Sahakari Patsanstha Maryadit [2025 (4) TMI 131 - ITAT PUNE] Accordingly, the income of the assessee should be assessed at Rs. 2,49,440/- in place of total income considered by ld.AO at Rs. 5,85,119/-. In other words, total income of assessee should be considered at Rs. 2,49,440/- as was stated in the return of income filed on 08.01.2018 before the Assessing Officer. Ground No.4 raised by the assessee is partly allowed. ISSUES: Whether cash deposits in Specified Bank Notes (SBNs) made during the demonetization period can be added as unexplained money under section 69A of the Income-tax Act, 1961, when the source of such deposits is from members of a cooperative society.Whether acceptance of SBNs by a cooperative society during the demonetization period violated legal restrictions under the Specified Bank Notes (Cessation of Liability) Act, 2017.Whether deduction under section 80P of the Income-tax Act, 1961 is allowable to a cooperative society when the return of income filed is invalid or filed in response to a notice under section 142(1) of the Act.Whether delay in filing appeal before the Tribunal can be condoned based on reliance on professional advice and other reasonable causes. RULINGS / HOLDINGS: Regarding addition under section 69A, the Tribunal held that 'mere deposit of SBNs during the demonetization period in itself cannot be a ground to make the addition u/s. 69A of the Act if the source of such cash received is explained.' The addition of Rs. 4,07,500/- sustained by the CIT(A) was deleted.On the legality of accepting SBNs during the demonetization period, it was observed that the restriction under the Specified Bank Notes (Cessation of Liability) Act, 2017 commenced from 31.12.2016, and acceptance of deposits prior to that date did not constitute a violation.Regarding deduction under section 80P, the Tribunal held that since the return filed in response to notice under section 142(1) contained a claim for deduction, and the assessment year in question was prior to the amendment of section 80AC, the deduction could not be denied merely because the return was invalid or not filed within the prescribed time. The deduction at Rs. 3,35,680/- was allowed, reducing the assessed income to Rs. 2,49,440/-.The delay of 455 days in filing the appeal was condoned on the ground of 'reasonable cause' primarily attributable to reliance on professional advice and delay in receipt of computation sheet, consistent with the liberal approach towards condonation of delay endorsed by the Supreme Court in Inder Singh v. State of Madhya Pradesh. RATIONALE: The Tribunal applied section 69A of the Income-tax Act, 1961, which deals with unexplained money, and held that explanation of source from members negates the presumption of unexplained cash merely due to demonetization timing.The Specified Bank Notes (Cessation of Liability) Act, 2017 was interpreted to restrict acceptance or transfer of SBNs only from 31.12.2016, thus deposits before this date were lawful.Section 80P of the Income-tax Act, 1961, providing deduction to cooperative societies, was considered in light of the amendment to section 80AC effective from A.Y. 2018-19, which mandates timely filing of return for claiming deduction. Since the assessment year was 2017-18, the pre-amendment position applied, allowing deduction even if return was invalid but filed in response to notice with claim.The Tribunal relied on judicial precedents including the Supreme Court's decision in Inder Singh v. State of Madhya Pradesh emphasizing that 'considerations of merits are not to be altogether ignored while considering the issue of condonation of delay' and that a 'meritorious matter should not be rejected adjudication only on the ground of delay.'Reliance was also placed on High Court and Tribunal decisions affirming that legal advice and bona fide reliance thereon constitute sufficient cause for condonation of delay.