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2025 (5) TMI 956 - AT - Income TaxAddition of commission income and other income of the society allowed as deduction u/s.80P(2)(c) and u/s.80P(2)(d) - CIT(A) allowed the claim of assessee u/s.80P(2)(c) after verifying all the relevant documents and details in respect of the deduction claimed - HELD THAT - As noted that the commission income earned by the assessee is towards collection from MSEDCL bills service rendered by the assessee to its members and customers. The Ld.CIT(A) noted that the expenses incurred towards the collection of bills of MSEDCL such as salary of employees electricity charges cash insurance printing charges computer and painter system maintenance etc. were directly attributable to the income and was verified by the Ld.CIT(A). It is further noted that the locker rent charges collected from the members were received towards services given to its members for providing locker space in credit society branches throughout the year. Nominal charges were taken from the members which were duly reported in audit report. CIT(A) noted that the accounts of the assessee separately audited by the Ministry Of Corporation Maharashtra State and there is no intentional misstatement or misreporting of information. CIT(A) thus allowed the claim of assessee u/s.80P(2)(c) after verifying all the relevant documents and details in respect of the deduction claimed correctly. Cash deposits during demonetization period - CIT(A) deleted the addition - AR furnished the summary bank accounts of assessee in which the cash deposited are correlated with the money deposited to the MSEDCLalong with the agreement entered into MSEDCL to render these services. It is noted that the MSEDCL collection report from 08/11/2016 and 06/12/2016 wherein reconciliation is drawn in respect of the cash deposited by the assessee also reflected in the bank account of MSEDCL account. In our opinion the assessee has established to the hilt doubt the cash collected and deposited during the demonetization as per the mandate of Govt. of Maharashtra during the demonetised period based on the agreement entered into with MSEDCL supported by circulars issued in respect of the that permitted assessee accept electricity bill in specified bank notes. Decided against revenue.
The core legal questions considered in this appeal pertain to the tax treatment of commission income earned by a cooperative society from bill collection services, the applicability of exemption under section 80P of the Income Tax Act, 1961, and the legitimacy of additions made under section 69A regarding unexplained cash deposits in Specified Bank Notes (SBNs) during the demonetization period.
First, the Tribunal examined whether the commission income earned by the cooperative society from Maharashtra State Electricity Distribution Company Limited (MSEDCL) bill collections and locker rent income qualifies for deduction under section 80P(2)(c) and 80P(2)(d) of the Income Tax Act. The relevant legal framework includes the provisions of section 80P, which grants tax exemption to cooperative societies on income derived from specified activities, including profits and gains from activities other than those specified under clauses (a) or (b), subject to prescribed limits. The Court noted that the society's commission income arose from services rendered to its members and customers by collecting MSEDCL bills through dedicated counters with specific infrastructure and staff. Expenses directly attributable to this activity-such as salaries, electricity, cash insurance, printing, and maintenance-were documented and verified. Similarly, locker rent charges collected from members for providing locker space were nominal and duly reported. The society's accounts were audited by the Ministry of Cooperation, Maharashtra State, and no intentional misstatement was found. Applying the law to facts, the Tribunal concurred with the first appellate authority's reasoning that the net surplus from commission and locker rent income, being below the prescribed threshold (Rs. 50,000 for cooperative societies other than consumer cooperatives under section 80P(2)(c)), is eligible for exemption. The Tribunal rejected the revenue's contention that such income should be taxed under "Income from Other Sources," emphasizing that the income was incidental to the society's cooperative activities and supported by detailed expense records. The Tribunal thus upheld the deletion of the addition of Rs. 6,62,088/- made by the Assessing Officer. Second, the Tribunal addressed the addition of Rs. 94,18,271/- under section 69A as unexplained cash deposits in SBNs during the demonetization period. The Assessing Officer had disallowed the cash deposits, contending that the society was not a specified entity authorized to accept SBNs per RBI guidelines and that the onus to explain and prove the genuineness of the transaction lay with the assessee, which was not fulfilled. The Court analyzed the facts in detail, noting that the society operated as an authorized collection agent for MSEDCL, a government undertaking, with which it had entered into an agreement. The society collected cash payments, including SBNs, for electricity bills from members and customers, supported by multiple circulars issued by MSEDCL permitting collection of bills in old currency notes up to specified dates during the demonetization period. The society maintained detailed records of collections, daily reconciliations, bank deposit confirmations, and cash balances as on 08/11/2016, including SBNs and other currency notes. The Tribunal observed that the Assessing Officer's addition was based on a flawed premise, as the total cash deposit figure included amounts in denominations inconsistent with SBNs, and the society had credible documentary evidence, including bank confirmations and MSEDCL circulars, validating the legitimacy of the cash collections and deposits. The Court emphasized that the society's cash transactions were an integral part of its business activity and that the addition under section 69A was unwarranted. In evaluating competing arguments, the Tribunal gave significant weight to the documentary evidence presented by the assessee, including agreements, circulars, bank confirmations, and reconciliations, which established the lawful receipt and deposit of SBNs during the demonetization period. The Tribunal also noted that the society ceased accepting SBNs after the prescribed dates, adhering to the MSEDCL instructions. Consequently, the Tribunal upheld the first appellate authority's deletion of the addition of Rs. 94,18,271/- under section 69A, concluding that the cash deposits were neither unexplained nor unauthorized. Significant holdings of the Tribunal include the following verbatim excerpts capturing the legal reasoning: "The commission income earned by the appellant society towards collection from MSEDCL bills is service rendered by the society to its members and customers... The surplus arising from MSEDCL commission and locker rent is eligible for claim of deduction u/s 80(P)(2)(C) and thereby non-taxable up to the limit of Rs. 50,000 as per provisions of the Act." "The appellant was required to collect SBN currency as part of their business activity... The addition made by the Assessing Officer appears to be not justified and unwarranted considering the facts and circumstances of the case as submitted by the appellant with detailed reasoning." Core principles established include:
Final determinations on each issue are: 1. The addition of Rs. 6,62,088/- on account of commission income and other income was rightly deleted, as the income qualifies for exemption under section 80P(2)(c) and (d). 2. The addition of Rs. 94,18,271/- under section 69A as unexplained cash deposits during demonetization was unjustified and rightly deleted, given the society's authorization to collect SBNs and the supporting documentary evidence. Accordingly, the appeal filed by the revenue was dismissed, affirming the order of the first appellate authority.
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