Demonetized currency deposits by primary cooperative society found genuine loan repayments; addition deleted and relief granted

Treatment of demonetized currency collected and deposited by a primary cooperative society as unexplained income was challenged; the receipts were sustained as genuine loan repayments because the identity, source and statements of member debtors were available and the cash book reflected the repayments, thereby proving the genuineness and creditworthiness of the receipts. The assessing officers disregard of depositor identities was untenable, and the addition treating the Specified Bank Notes deposits as unexplained income was deleted, resulting in tax relief for the cooperative society.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether cash receipts in the form of demonetised Specified Bank Notes, received from members and deposited by a credit cooperative society towards members' outstanding loan liabilities, could be treated as the society's unexplained income merely because the society was not an authorised entity to "collect" such notes during demonetisation.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of members' SBN cash repayments as "unexplained income" of the society

Legal framework (as discussed by the Court): The Court noted the assessee's status as a primary cooperative society entitled to deduction under Section 80P, while also recording that it was not a cooperative bank for purposes referred to in Section 80P(4). The determinative question, however, was framed as whether the impugned cash receipts could be treated as unexplained income when they were stated to be loan repayments by identified members.

Interpretation and reasoning: The Court found that the assessee had produced and made available details of the persons (members) from whom the SBNs were collected, and that the assessee consistently admitted and explained the receipts as being against existing loan liabilities owed by those members. The Court emphasised that the repayments were reflected in the assessee's accounts (including the cash book) and that the underlying loan account statements were available to the Assessing Officer. It further reasoned that if the Assessing Officer intended to verify these deposits, it was open to him to examine the identified depositors and the corresponding loan accounts; instead, the Assessing Officer disregarded the identified members and treated the receipts as unexplained income. On the evidentiary aspects, the Court held that the assessee had explained the source of deposits and established the identity of the depositors, as well as the genuineness and creditworthiness of the receipts, based on available member details and linkage to loan repayments.

Conclusion: The Court conclusively held that, on the facts found, the SBN receipts from members towards loan repayments could not be treated as unexplained income in the hands of the credit cooperative society. The addition confirmed by the first appellate authority was held unsustainable and was deleted.

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