TaxTMI 
TaxTMI 
2024 (6) TMI 1470
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....hat the impugned deposits of SBNs of Rs. 1,20,45,000/- is unexplained cash credit and must be added u/s. 68 of the Act. 3. Whether on the facts and circumstances of the case the CIT(A), NFAC has erred in deleting the addition without appreciating the fact that the AO contented that SBNs were just pieces of papers and they bear no value on or after 9th November and transaction done through SBNs were supposed to be disallowed by the assessee once demonetization was declared on 08.11.2016. 4. Whether on the facts and circumstances of the case the CIT(A), NFAC has erred in deleting the addition and not considering the evident fact that the society has accepted cash from its members during the demonetization period. The Act of the society is therefore in the nature of infringement of law and against the policy of government even if the Assistant Sub-Registrar of Co-operative societies had issued clarification on 11.11.2016. 5. The appellant requests that he may be allowed to furnish additional evidences. 6. The appellant craves leave to add, alter, amend and delete any of the above ground of appeal." 3. Both the learned representatives next invited....
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....rect in view of the provisions of section 5 of and Section 2(1)(a) of Specified Bank Notes (Cessation of Liabilities) Act, 2017 as per which any person can transfer or received SBNs upto 30/12/2016. Therefore, the contention of the AO is against the provisions of the Specified Bank Notes (Cessation of Liabilities) Act, 2017. Therefore, the addition u/s 68 is based on incorrect and unjustified reason. (1) The SBNs deposited in bank is from explained source and hence addition of Rs. 1,20,45,000/- u/s 68 of is not justified. The activity of the credit co-op. societies is governed by Co-Operative Department of Government of Maharashtra and also by RBI. The books of accounts of the patsanstha are audited by Government Auditors and the same were accepted to be true and fair by the Auditors. The activity of the pathsanst has & bank are similar and hence all the pathsansthas were under bonafide belief that they are allowed to accept SBNs and accordingly they have accepted SBNs on 10/11/2016 & 11/11/2016. Thereafter to clarify the position, the Assistant Sub-Registrar of Co-operative societies, had issued clarification on 11/11/2016 which was received by the appel....
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.... In view of the above facts, the AO should have verified the impugned members about source of SBNs deposited by them in the patsanstha, particularly in view of the fact that the appellant patsanstha had filed their full details alongwith PANs. It is very much unjustifiable to tax the patsanstha for the SBNs held by its members, details of which are filed with the AO. In short, the impugned members have deposited their SBNs in bank through patsanstha and hence the patsanstha should not be held responsible for their SBNs deposited in bank accounts. The huge demands raised by the Department on patsansthas shall certainly hamper the co-operative movement and if the impugned demands are recovered from patsansthas they will become bankrupt. In any case, in view of the facts of case mentioned above, the addition u/s.68 of the Income-tax is not justified. Further, it is worth mentioning here as under: Addition as per provision of section 68 is not justified in view of the facts of the case and ratio laid down by Honorable Bombay High Court: i) Honorable Bombay High Court had held in the recent decision in the case of Mr. Gaurav Triyugi Singh V/s. The Income....
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....sessee. Thus assessee had discharged the onus which was on him as per the requirement of section 68 of the Act. What the Assessing Officer held was that sources of the source were suspect i.e., he suspected the two sources Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur of the source Smt. Savitri Thakur. 15 In view of discharge of burden by the assessee, burden shifted to the revenue; but revenue could not prove or bring any material to impeach the source of the credit." (ii) Further the Honourable Bombay High court has mentioned in the case of H.R. Mehta V. ACIT (2016) 289 CTR 0561 in pare 12 of the order as under: 12. The Hon'ble Supreme Court in Nemi Chand Kothari (supra) observed that in order to establish the receipt of a cash credit, the assessee must satisfy three conditions i.e. identity of the creditor, genuineness of the transaction and creditworthiness of the creditor. In the case under appeal the Identity of the customers from whom the Patsanstha had received amount toward repayment of loan etc stands proved from their Aadhar cards, PAN and account with the Patsanstha since last many years. The details of customers from whom ....
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....1000/- deposited by members are worthless pieces of papers. This contention of the AO is apparently incorrect as the impugned SBNs became worthless pieces of papers only after 30/12/2016 as the RBI had promised to pay the amount mentioned in the said SBNs and banks have given credit of the SBNs deposited with them upto 30/12/2016. The above contention is supported by provisions of Specified Bank Notes (Cessation of Liabilities) Act, 2017. Section 5 of this Act reads as under: "On and from appointed day, no person shall knowingly or voluntarily, hold transfer or receive any specified bank note." Section 2(1)(a) of this Act defines "appointed day" to mean "31st day of December 2016" Therefore the AO has erred in treating the impugned notes received prior to 31/12/2016 as worthless papers and in making addition on this wrong assumption. The AO had noted that the appellant had accepted SBNs on 10/11/2016 and 11/11/2016. The AO had asked the appellant to explain the source of the SBNs and the appellant had submitted the same vide letter dated 29/11/2019. The AO had unjustifiably treated all the amounts received from the members of the appellant societ....
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....ugned members before the AO for verification, if needed. The appellant has also submitted to the AO vide submissions dated 20/04/2019, 27/08/2019, 21/11/2019 and 09/12/2019 that in view of the facts of the case and submission filed, the identity & creditworthiness of the members stands proved and genuineness of the transaction is also proved. 5.4 The details of total deposits in bank of Rs. 1,20,45,800/- during demonetization period is as under: Particulars Amount Out of balance as on 8/11/2016 Rs. 6,34,689/- SBNs deposited 2,29,500 SBNs deposited on 8/11/2016 i.e. before demonetization period 6,50,000 Out of deposits / loans repayments received from members 1,11,66,300 Total 1,20,45,800 The appellant submitted that the addition as per provision of section 68 is not justified in view of the facts of the case. The appellant has also relied on a number of judicial decisions. 5.5 The appellant also submitted that the AO had incorrectly assumed that the transactions of SBNs were not permitted during demonetization period . The appellant submitted that the impugned SBNs became worthless pieces of papers only after 30/12/2016 as th....
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....ans, pigmy deposits, etc. Accordingly, he submitted that the assessee has discharged its responsibility u/s 68 of the Act. Further, the collections and deposits have been duly recorded in the books of account and hence, there is no reason to treat the same as unexplained money of assessee. The Ld. A.R. further submitted that merely because demonetized notes ceased to be legal tender, it does not mean that the amount collected by the assessee from its members would become unexplained money of the assessee. The Ld. A.R. also submitted that the Reserve Bank of India issued a series of notifications with regard to the deposit of demonetized notes from 8.11.2016 onwards. He submitted that the RBI, vide notification dated 14.11.2016, clarified that District Central Co-operative Banks can allow their existing customers to withdraw money from their accounts up to Rs. 24,000/- per week. It further clarified that no exchange facility against demonetized notes or deposit of such notes should be entertained by them. In view of the above said notification, the assessee has stopped collecting the demonetized notes from 14.11.2016 onwards. Accordingly, the Ld. A.R. submitted that the above said d....
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....ification dated 14.11.2016 issued by RBI, which has clearly clarified that the assessee society should not collect the demonetized notes. Accordingly, I am of the view that the deposit of demonetized notes collected by the assessee from its members would not be hit by the provisions of section 68 of the Act in the facts and circumstances of the case. Accordingly, I set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete this disallowance." 5.7 In the case of Prathamika Krushi Pattina Vs ITO [Appeal Number : ITA No. 593/Bang/2021 Date of Judgement/Order : 01/06/2022 Related Assessment Year : 2017-18] the Honble ITAT Banglaore has held as under:- "6. In the instant case, there is no dispute with regard to the fact that sources for making deposit of Rs. 36.36 lakhs by the assessee into its bank account are the money collected from its members. The AO is also not doubting that all the SBNs have been collected by the assessee from its members. Accordingly, following the above said decision, I hold that the addition made u/s 68 of the Act is not justified. The Ld A.R also submitted that the SBNs have been collected by the assessee prior to t....
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.... not been proved by the AO that the cash deposited did not belong to the members. Therefore, I find that the identity & creditworthiness of the members stands proved and genuineness of the transaction is also proved. Hence, the above said deposits cannot be considered as "unexplained money" in the hands of the appellant. 5.9 Section 3 of the Specified Bank Notes (Cessation of Liabilities) Act, 2017 clearly states that the specified bank notes shall cease to be liabilities of the Reserve Bank under section 34 and shall cease to have the guarantee of the Central Government under sub-section (1) of section 26 of the said Act from the appointed date, i.e. 31st December, 2016. 2. Therefore, the contention of the AO that SBNs were just pieces of papers and they bear no value on or after 9th November appears incorrect in law. The SBNs of 500 and 1000 rupee denominations can be measured in monetary terms since the guarantee of Central Government and liability of Reserve Bank of India does not cease to exist until 31st December 2016 in lieu of the 500 and 1000 rupee SBNs. Due to the sudden announcement of demonetization, there is merit in the claim of the appellant that all the pat....
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....d currency during the demonetization period between 08.11.2016 to 13.12.2016 of Rs. 12,34,000/ -. The assessee submitted before the AO that these amounts were deposited by their customers towards the loan installments. Assessee submitted list of customers. Assessee also submitted that all the customers were having proper KYC Documents. However, the AO made addition under section 68 of the Act, on the ground that as per the RBI Guidelines assessee being an NBFC was not permitted to accept the old currencies which were no-more legal tender after 08.11.2016. Ld.CIT(A) confirmed the said addition. The only plea taken by the AO, ld.CIT(A) and ld.DR that as per the notification No. S.O. 3407(E) dated 08/11/2016 & S.O. 3418(E) of Ministry of Finance (Department of Economic Affairs), New Delhi dated 08/11/2016 (F. No. 10/03/2016-cy.l) only banking company defined under the Banking Regulation Act were allowed to accept demonetized currency after 08.11.2016, and NBFCs were not allowed to accept impugned currencies. 5.1 The AO made addition under section 68 of the Act. To invoke section 68 of the Act, the AO has to prove that assessee failed to file identity of the depositors, genuin....