TMI Blog2012 (9) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... does not have furnished identity and proof of depositor by verifying few numbers. Being so, amounts in the accounts maintained by the assessee are deposits of the customers and/or not under the control of the assessee, and therefore, provisions of S. 68 are not applicable to the Bank. Further, Society/Bank not required to go for detailed verification of address/whereabouts of the customers and therefore, addition u/s 68 cannot be made merely because the address of the customers are incomplete. CIT(A) rightly deleted the addition - Decided in favor of assessee Deduction u/s 80P(2)(a)(i) - denial - Held that:- It is the fact that certain activities carried on by the assessee not complying with the requirements of the principles of Cooperative Society, more so, the assessee also engaged in the activity of bill discounting, providing accommodation cheques by taking cash from the member, being so, for the AY 2006-07 the claim of the assessee u/s 80P(2)(a)(i) cannot be allowed. For AY 2007-08 & 2008-09, it is observed that Society is carrying on the Banking business and for all practical purpose it acts like a co-op bank. It is governed by the Banking Regulations Act. Therefore the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Revenue also raised the ground that the CIT(A) erred in holding that the assessee did not admit minors as depositors despite clear evidence on record that some of the deposits are in the names of the minors. 4. For brevity, we consider the facts relating to of assessment year 2006-07. Brief facts of the case are that the Assessing Officer treated the deposits accepted by the assessee as the income of the assessee u/s 68 of the IT Act. According to the Assessing Officer the assessee has not furnished the address of such depositors except in a few numbers of cases. The assessee neither produced the depositors nor submitted the depositors register. The Assessing Officer stated that some of the depositors could not be contacted at the given address. Since the detailed addresses were not provided by the assessee, the Assessing Officer was of the view that the provisions of Sec. 68 were applicable to such deposits and accordingly he treated the deposits as the income of the assessee in all these assessment years. The Assessing Officer relied on various judicial decisions and mentioned the same in the assessment order. On appeal, the CIT(A) deleted the addition made u/s. 68 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposit register of the bank and also a report is submitted to the Head Office about the receipts periodically. The acceptance of the deposit is preceded by an application being submitted by the Member who is depositing the amount with the bank. Each application contains the name and address of the Member, the Membership number, amount being deposited, the vocation of the Member who is depositing the amount and the period for which such deposit is made. Therefore, complete details are gathered by the Manager while accepting the deposit. Pertaining to this methodology, it is seen that the A.O did not intervene with adverse material/evidence to show that there is contravention and violation of procedure while receiving the deposits by the assessee. Similarly, the assessee is subjected to periodical inspections by various Government Authorities and there is no instance mentioned by the A.O regarding any identified adversity copy of the same sentence which is corrected for the Asst. Year 2008-09. (ii) It is seen that the Cooperative Society issues a Deposit certificate to the depositor. The interest payable to the depositor is credited to his SB account regularly. There is a facili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments are open and transparent coupled with well established accounting system. Therefore, ld. CIT(A) is of the view that there can not be any unexplained deposits which would be governed by the provisions of Sec. 68 of the I.T. Act . It is also seen that the number of depositors are about 63,500 and all the information was fed in to the computers. Each Branch being managed by a Branch Manager records the names and addresses of the depositors and the amounts received from them. The said Branch Manager while collecting the deposits are usually not required to go for a detailed verification of the addresses, whereabouts of its members and the assessee is not bound by any obligation found to make enquiries about the depositors particularly in a banking concern having about 63,500 members. It is also found by the Hon'ble ITAT in the judgement referred to above. There is no instance found from the records that there was a deliberate attempt on the part of the assessee to accommodate any tax dodgers. There was neither any incident or example cited by the A.O on this issue from the records nor brought any material to substantiate with evidence that the assessee accommodated ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Without establishing any such modus operandi being adopted by the assessee, it is incorrect to say that all the money deposited by the members belong to the assessee. Moreover, the AO did not find a source from where such unaccounted money is generated by the assessee to bring back such amount as deposits by unknown depositors. The systematic method followed by the assessee is crystal clear and transparent. If any deposit is unexplained, it is the duty of the Assessing Officer to examine the depositor for such a source and assess in the hands of such depositor. But such a source does not become the income of the assessee in any way. While dealing with the bank one has to see whether a systematic record required by the bank was maintained or not. The principle in Sec. 68 is a statutory recognition of what was always understood in law based upon the evidence that it is for a tax payer to prove the genuineness of the credits in his books of accounts since the relevant facts are exclusively in its knowledge. Though, once the burden of proof lies with the assessee yet once he furnishes the identity of the depositor and showed the genuineness by such depositor being recorded in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in making addition u/s 68 of the IT Act. Accordingly the addition made by the Assessing Officer under sec. 68 was deleted by CIT(A) and directed the Assessing Officer to pass an order accordingly. 5. Against the above findings of the CIT(A), the Revenue is in appeal before us. 6. The ld. DR strongly relied on the Order of the assessing officer and submitted that the provisions of s. 68 of the Act is very much applicable to the assessee as the assessee failed to prove the genuineness of the deposits, it is to be considered as deemed income of the assessee u/s 68 of the I.T. Act. 7. On the other hand, the ld. AR reiterated the same submissions as made before the CIT(A), as follows: (a) The assessee is a co-operative society carrying on banking business. It is operating through 23 branches at present. Each of the branches is headed by Manager and assisted by staff. The members of the society operate through the counters opened at each of the branch. Cash is accepted along with applications at the counters. The staff makes sure that all the columns of the application arte properly filled in and accepts the deposit. (b) Any person who wishes to deposit the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for perusal of the Assessing Officer. The assessee submits that most of the deposits are for short term and were withdrawn. However, it is submitted that none of the deposits are paid directly. The said amounts are invariably transferred to their S.B. Account and the member is allowed to withdraw or retain the deposit. (e) If any of the members likes to redeposit the amount, the society will receive application; cancel the earlier deposit; prepares a debit voucher and issues a fresh deposit certificate. It will not be the same number and a new number for the redeposit will be issued to the member. Even when there is renewal, the discharged deposit certificate by the member and the application form are bundled along with the debit vouchers. They will not be available along with other applications. (f) Registers are maintained separately for each of the branch. The deposit register can be produced for perusal. It can be seen that all the deposits made are entered in the deposits register. It is clear that the assessee is making any effort to systematically record the transactions. (g) Further, when the amounts are collected by the branch, the said amount is received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e society would not have any say in the day-to-day activity of the society. (m) The accounts submitted by each branch are consolidated at the Head Office. The Head Office does not accept any deposit and only its branches accept the deposits. The consolidated accounts duly approved by the Board are placed before the General Body consisting of the members of the society with whom the transactions are undertaken. After scrutiny of accounts by the members, the accounts are passed. (n) The society is subject to inspection periodically by the Co-operative Registrar and other concerned authorities. The accounts are audited by the Co-operative authorities with reference to the application for acceptance and disbursement of deposits. The final accounts duly approved by the General Body are submitted to the Registrar of Cooperative Societies. (o) From the above facts it is clear that the assessee has no scope to either enhance or reduce the income derived. The society can not generate any income outside the books of account. There is no scope at all. The assessee humbly submits that the details available with the society prove clearly that the deposits made into the bank by al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consider all the circumstances of the case before he comes to the conclusion whether the assessee, in the circumstances submitted explanation or not. The addition may either be made or may not be made after duly considering the circumstances of each case. The Supreme Court had an occasion to consider the meaning of the word may used in Sec. 69 (which is akin to Sec. 68) in the case of CIT v. P.K. Noorjehan 237 ITR 570. It is held by the Supreme Court that the word may mentioned in Sec. 69 cannot be interpreted to mean shall . It is held that even when the explanation offered by the assessee is not found satisfactory, the Assessing Officer should use the discretion keeping in view the facts and circumstances of the particular case. In the said case, the apex court found that there was no possibility for the assessee to earn any income outside the books and therefore, deleted the addition. In the light of the observations made by the apex court, the provisions of sec. 68 have no application to the case of the assessee. (r) The assessee also relies on the decision of the Pune Bench of the ITAT in the case of Sri Mahavir Nigari Sahakari Pat Sanstha Ltd. v. DCIT 74 TTJ 793. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... society for all these banking activities is strictly governed by the Banking Regulation Act 1949. The banking is described as accepting for the purpose of lending, or investment of money, due from the public repayable on demand. (4) The deposits held by the assessee are its stock-in-trade. (This view is also supported by the decision of the Supreme Court in the case of CIT v. Nainital Bank Ltd. 55 ITR 707. (5) In case of banks like the present assessee, the customer identity is required to be taken with proper introduction and address, etc. This is so because any person from general public can come and open a deposit account with the bank. Acceptance of deposits by this assessee cannot be equated with other kinds of appellants. (6) The assessee like the present is not obliged to question the source of deposit made by its customers. Also the customer can keep the deposit for a period; which is according to their convenience. The amount has to be repaid by the assessee to its customer immediately on demand. (7) The assessee is subject to periodical inspections and audit by various statutory authorities and in case of any default, the assessee is liable for penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, proof of identity and photographs of the applicant as stipulated by RBI in KYC (Know Your Customer) norms. To regulate the transactions the staff accepts the cash at the counter and on verification the branch manager issues the Certificate. The amount so received is recorded in the cash book as well as deposit register maintained for this purpose. The application is containing the details of name and address along with proof of address given at the time of opening account. From the above facts it is proved that the assesses has proved the identity of the depositor. Pertaining to this the assessing officer did not bring any positive material evidence to show that there is contravention and violation of KYC norms prescribed by the banking Regulation Act, while opening account with any banking institution. More over it is the duty of the assessee to collected proper proof of address at the time of opening accounts. It is common practice that all are having permanent address proof with them. The persons residing in rented house will change the residence frequently and not informed bank. Such being the case, it is the duty of the depositor to inform the change of address to the bank. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the requirement it is not the assessee Society duty to question about the source of depositor and it is not its duty to seek any other particulars. Only the requirement is, to report to the controlling authorities wherever suspicious transactions are reported or doubt about the Anti-Money Laundering Act. Therefore these features distinguish the case of the assessee from other normal assessee. Further the assessee has to maintain the confidentiality in respect of information collected from its customers, such information cannot be divulged to outsiders. There is no findings from the assessing officer that the assessee violated the regulatory authorities. Usually the banks are not required to go for verifying the correctness of the details furnished by the depositor and sources of the amount deposits. The deposits accepted and repaid is part of the assessee business, if it put hard rules and conditions its business may not be as usual. Therefore it cannot be said that it has violated the provisions and did commit any infringement or it is incorrect to say that there was any deliberate attempt to accommodate block money. The society is acted in bona fide manner and complied with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... positor. There is no single instance found out by the assessing Officer that the assessee is making deliberate attempt to accommodate tax dodgers. It is seen from the assessment order that out of 30 depositors examined by the assessing officer all the depositors are identified and accepted the deposits made by them with the society. The department examined them, all are disclosed the deposits in their income tax returns. There is no evidence with the assessing officer that, the deposits made by the depositors represent the income of the Society. In this regard the reference is made to the decision of the Hon'ble Supreme court in the case of CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570/103 Taxman 382 wherein it was held that the word may leaves it to the discretion of the assessing Officer whether an addition under the deeming provisions could be made or not. In each case the assessing Officer has to analyze the circumstances and proceed to apply the provisions of section 68. 13. It is further observed that, in the present case, the assessee is a co-operative society carrying on banking business for its members and its main business it to accept deposits from its members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year. The business of the assessee bank is to carry on banking transactions. The bank, for all its banking activities, is strictly governed by the Banking Regulations Act, 1949. The said Act defines a banking company as a company which transacts the business of banking. 'Banking' is described as accepting, for the purpose of lending or investment of money, due from the public repayable on demand or otherwise and withdrawal by cheque, draft order or otherwise. Thus, the deposits held by the assessee are its stock-in-trade. The amounts in the accounts maintained by the assessee bank were not in the control of the assessee bank. They are the deposits in the savings accounts of the customers of the assessee bank. To these deposits, s. 68 of the Act is not attracted. In the cases of banking companies like the assessee, the customer's identity is required to be taken by the bank with proper introduction, photographs and address, etc. This is so, because any person from the general public can open the account with the bank. The other cases of acceptance of depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of a customer to the bank for opening an account. The bank was not required to go for detailed verification of the addresses/whereabouts of its customers, though this position has now changed and at present the requirement in this regard calls for a much more stringent compliance. In Bapulal Premchand v. Nath Bank Ltd. AIR 1946 Bom. 483, as pointed out, it has been held, inter alia, that there is no absolute obligation on a bank to make inquiries about a proposed customer, so as to avail of the protection under s. 131 of the Negotiable Instruments Act. In Union of India v. National Overseas Grindlays Bank Ltd. [1978] 48 Comp. Cases 277 (Del.) referring to the Bapulal Premchand ( supra ), it was held that the bank could rely on the introduction of any old customer and that if the bank bona fide acted on the reference of a customer, it can avail of the protection under s. 131 of the Negotiable Instruments Act. So far as regards non-obtaining of photographs of the account holders, it is true that the same were not obtained in the normal course. Pertinently, in savings bank accounts where cheque facilities were not provided, RBI guidelines (p. 76 of the assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot genuine, the amount of share capital could not, under any circumstance, be regarded as the undisclosed income of the company. This decision was upheld by the Hon'ble Supreme Court in the case of CIT v. Steller Investment Ltd. [2000] 164 CTR (SC) 287 : [2001] 251 ITR 263 (SC). 34. Further, even on merits, the addition was uncalled for. Concerning account Nos. 8211, 8212 and 8213, the introducer was Shri Vijay Sethi, the deceased managing director of the assessee bank itself. The original investments were made in RMRD accounts or savings bank accounts with the Mithapur Branch of the assessee. These investments were made way back in 1992. It was only on maturity that they were transferred to the accounts under consideration. It has rightly been contended that the origin of these amounts falling in the earlier years, which fact has also been admitted by the AO, they could not be brought to tax in the year under appeal, in the hands of the assessee. The learned CIT(A) thus rightly deleted the addition in this regard. 35. The introducer of account Nos. 954, 955 and 956 was Shri Parmod Sharma, accountant of the assessee bank. He appeared before the AO in response to summo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss. The learned CIT(A) found that the documents produced as additional evidence were in regard to the additions made and could not be produced at the time of assessment proceedings, in the bona fide belief which was, as aforesaid, nurtured by the assessee. 44. We do not find any error in the order of the learned CIT(A). In this regard, it has not been made out that the plea of the assessee of not being obliged to file such documents in respect of its depositors, who had been introduced either by the bank's own staff members or by someone already having a bank account with the assessee bank, was mala fide. 45. Further, undisputedly, the documents so produced were directly related to the additions made. In this view of the matter, the Department's grievance in this regard also stands rejected. 15. Further, the Tribunal, assessee's in its own case vide Order dated 26.02.2010 in ITA No. 1156 to 1159/Hyd/2009 for the assessment years 2006-07 to 2007-08 while deleting the penalty levied u/s 271D 271E held that money received by assessee cooperatives society from its members and their relatives by way of deposits and the sums repaid to them as part of its banking a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were advanced to members on interest. Thus the society is clearly providing credit facilities to its members in so as its activities is concerned. He further relied on the following judgments: ( i ) The Hon'ble ITAT, Nagpur bench in the case of Hinganghat Tahsil Sahakari Shetki Kharedi Vikri Sanstha Ltd. v. ITO [1983] 3 ITD 410 (Nag.), wherein it was held that all categories of members including the nominal members are members of the Society and no distinction can be drawn between the members. ( ii ) Similarly the Hon'ble Punjab Haryana High Court in the case of CIT v. Punjab State Co-operative Bank Ltd. [2008] 300 ITR 24/169 Taxman 290, nominal members even they do not contribute to the capital would be members of the Society. ( iii ) The AR further relied on the order of the CIT(A) and requested to upheld the CIT(A) order. 19.1 The DR relied on the order of the Assessing Officer. 20. We have heard both the parties and perused the materials on record. The assessee is a co-operative society providing banking or credit facilities to its members. The provisions of section 80P(2)(i)(a) makes provision for exemption of income from tax for Co-operative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is dealing like a bank while accepting deposits from its members. This issue was examined by the Hon'ble ITAT in the assessee own case while deleting the penalty u/s 271D and 271E. The Hon'ble ITAT held as under. If the carrying on banking business is not approved by the RBI or the assessee is not having requisite license to carry out the banking business, the authorities could have taken action against the society or stop the Society activity. Once the assessee is allowed to carry on the banking business, then the assessee is bound by the relevant provisions of the Banking Regulations Act. The bank for all its banking activities is strictly governed by the Banking Regulations Act 1949 23. The Society is carrying on the Banking business and for all practical purpose it acts like a co-op bank. The ITAT observed that the society is governed by the Banking Regulations Act. Therefore the Society being a co-op bank providing banking facilities to members is not eligible to claim the deduction u/s 80P(2)(i)(a) after the introduction of sub-section (4) to section 80P. 24. In view of the above we are of the opinion that the society is not eligible to claim deduction ..... 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