Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: Central Excise rule to resale the machines to a new company :: empanelment :: ACCOUNTING STANDARDS :: due date for vat payment :: ACCOUNTING STANDARD :: articles on VAT and GST in India :: TDS :: VAT RATES :: cpt :: form 3cd :: list of goods taxed at 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TAX RATES - GOODS TAXABLE @ 4% :: ARTICLES ON INPUT TAX CREDIT IN VAT :: VAT Audit
 
 
From the Courts »
 Ravneet Takhar Vs. Commissioner Of Income Tax Ix And Ors.
 Jaiprakash Associates Ltd. Vs. Commissioner Of Income Tax
 Formula One World Championship Limited Vs. Commissioner Of Income Tax, International Taxation-3 And Anr.
 Commissioner Of Income Tax International Taxation-3 Delhi Vs. Formula One World Championship Ltd. And Anr.
 Reliance Communications Ltd vs. DDIT (ITAT Mumbai)
  Sushila Devi vs. CIT (Delhi High Court)
 Ashok Prapann Sharma vs. CIT (Supreme Court)a
  Vatsala Shenoy vs. JCIT (Supreme Court)
  Vatsala Shenoy vs. JCIT (Supreme Court)
 M.K.Overseas Pvt. Ltd. Vs. Pr.Commissioner Of Income Tax-06
 Arshia Ahmed Qureshi Vs. Pr. Commissioner Of Income Tax-21

Addl. Commissioner of Income-tax, Range-9,Hyderabad Vs. The Citizen Co-op. Society Ltd., Hyderabad
July, 05th 2012
          IN THE INCOME TAX APPELLATE TRIBUNAL
             HYDERABAD BENCH `B', HYDERABAD

BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
     SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER

               ITA No. 1003/Hyd/2011 ­ A.Y. 2007-08
               ITA No. 1004/Hyd/2011 ­ A.Y. 2008-09

The Citizen Co-op. Society    Vs. Addl. Commissioner of
Ltd., Hyderabad                   Income-tax, Range-9,
PAN: AAAAT3952F                   Hyderabad
Assessee                          Respondent

               ITA No. 1200/Hyd/2011 ­ A.Y. 2006-07
               ITA No. 1049/Hyd/2011 ­ A.Y. 2007-08
               ITA No. 1201/Hyd/2011 ­ A.Y. 2008-09

Asst. Commissioner of         Vs. The Citizen Co-op. Society
Income-tax, Circle-9(1),          Ltd., Hyderabad
Hyderabad                         PAN: AAAAT3952F
Assessee                          Respondent

                    Assessee by: Shri S. Ravi/
                                 Shri A.V. Raghuram
                    Revenue by: Shri M.S. Rao

                Date of hearing: 03.05.2012
        Date of pronouncement: 02.07.2012




                             ORDER

PER CHANDRA POOJARI, AM:

      These five appeals filed by the assessee and the revenue are
directed against the different orders passed by the CIT(A) for the
A.Y. 2006-07, 2007-08 and 2008-09 as follows:

2.    The grounds raised by the assessee as well as the revenue
are common in nature and hence these appeals are clubbed
together and disposed of by common order for the sake of
convenience.
                                     2              ITA No. 1003/ Hyd/2011 & Ors
                                                     The Citizen Co-op Society Ltd.
                                                    ======================

3.     The revenue has raised the first ground in its appeals ITA
No. 1200/H/2011 for A.Y. 2006-07, ITA No. 1049/H/2011 for A.Y.
2007-08 & ITA No. 1201/H/2011 for A.Y. 2007-08 with regard to
deletion of addition made u/s. 68 of the Income Tax Act in respect
of deposit accepted by the assessee though the assessee not
produced the details namely, address of the depositor or any
particulars of the depositor. 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 the IT Act by holding as follows:

      "6.2 a) The assessee is a Cooperative Society carrying on banking
      business. It is operating its activities through 23 branches
      consisting of about 63,000 members at various places and the
      activities are carried on only by the paid managers of the banks.
      b) There are specific rules and regulations governing the
      acceptance and repayment of the deposits from its members.
                                 3              ITA No. 1003/ Hyd/2011 & Ors
                                                 The Citizen Co-op Society Ltd.
                                                ======================

c) The Society does not accept any deposit from outsiders and
accepts deposits only from its members.

d) At the time of repayment of the deposit the amounts are
transferred to the SB account and thereafter payments were made
to the member.

e) There is no possibility to earn income outside the books of
account as the entire activity carried on by the Society is known to
the public, depositors, members and the Directors. The accounts
are finally placed before the members and the Directors, who are
either paying interest to the bank, or receiving interest from the
bank.

f) The Accounts of the Society are periodically inspected by the
Cooperative Department and also by the auditors. Such accounts
are approved by the members of the Society and also by the
Directors of the Society.

g) The assessee also relied on various decisions of the I.T.A.T. and
High Court with particular reference to the decision of the
Honourable ITAT in its own case for the assessment year 2007-08
rendered in connection with levy of penalties under sec. 271D and
271 E of the Act.

In view of the above factual position and other legal propositions
mentioned in various case laws, the AR of the assessee argued that
provisions of Sec. 68 should not have been applied by the
Assessing Officer.

6.3 With reference to the submissions made by the assessee, the ld.
CIT(A) perused the records and the observations of the Assessing
Officer and put forth his views on these issues as under:

i) It is evident from the record that the society is maintaining a
systematic record in accepting the deposit. The Society is a
Banking institution. It has 23 branches all and a few in other
states. Each branch is headed by a Branch Manager. To regulate
the transactions, it is seen that the Staff accepts cash at the
counter and on verification of the receipt of the amount, the
Manager issues a Certificate. The amount so received is recorded
in the regular cash book; the deposit 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,
                                  4              ITA No. 1003/ Hyd/2011 & Ors
                                                  The Citizen Co-op Society Ltd.
                                                 ======================

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 facility for the
Depositor to withdraw interest portion of the amount. Such
interest is credited to the account of the member periodically as
required by him. There is no dispute with regard to payment of
interest to the depositors. This also clearly indicates that the
amount deposited belongs to the depositors and not that of the
assessee.

The Society also is systematically maintaining the record while
refunding the amount. The Deposit Certificate issued by the
Society is taken back duly discharged by the depositor. The
amount is credited to the SB Account of the depositor. The
assessee does not pay the realization of the FDRs direct to the
member and the same is credited to his SB account. A debit
voucher is prepared by the Branch Manager, and the signature of
the depositor is obtained both on the debit voucher and the
Deposit Certificate. All the said material is bundled and kept in
the debit vouchers file.

As mentioned earlier, ld CIT(A) called for the above records and
perused the same and found that the assessee is maintaining a
systematic record of both the receipt and repayment of the loan
and observed that the Society is acting with due diligence and
caution both in accepting the deposit and in repaying the amount.
Therefore, ld CIT(A) is of the opinion that the decisions of the
ITAT Pune Bench in the case of Sri Mahavir Nilgari Sahakari Pat
Sanstha Ltd., Vs. DCIT reported in 74 TTJ 793 and the decision of
the Gujarath High Court in the case of CIT Vs. Pragathi
Cooperative Bank Ltd., reported in 278 ITR 170 are applicable to
the facts of the case and therefore, the onus on the assessee to
prove the credit is limited to the maintenance of systematic record
with due diligence and caution. Therefore, ld CIT(A) held that the
assessee discharged the onus caste on him in this regard.

It is also seen that the Hon'ble ITAT, Bench-B, Hyderabad in its
consolidated order in ITA No. 1156-1159/Hyd/09 dated 26-02-
2010 while deciding the issue for levy of penalty u/s 271D and
                                 5               ITA No. 1003/ Hyd/2011 & Ors
                                                  The Citizen Co-op Society Ltd.
                                                 ======================




271E of the I.T. Act for the assessment years 2006-07 and 2007-08
had an occasion to go into the facts with reference to the deposits
made by the members of the society. The Hon'ble ITAT found that
the assessee is maintaining a systematic record of collecting the
deposits from its members and also advancing the loan to the
members. The transactions are books of account regularly
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 tax evaders. It is seen that the Assessing
Officer could identify 30 depositors and all of them have accepted
the deposits made by them into the bank account. The department
issued notices and it is on record that all of them filed the returns
of income and paid the taxes. There is no data with the Assessing
Officer to prove that any of the deposit made by the members into
the Bank represents the income of the assessee, nor the A.O could
establish such an opinion with clinching evidence.

In this regard a reference is made to the decision of the Hon'ble
Supreme Court in the case of CIT vs. P.K. Noorjahan reported in
237 ITR 576 . It is categorically mentioned that the word used may
leaves it to the discretion of the Assessing Officer whether an
addition under the deeming provisions could be made or not. In
each of the case the Assessing Officer has to analyse the
circumstances and proceed to apply the provisions of 68 of the IT
Act.

In the present case, the assessee is a banking institution whose
main activity is to accept the deposits and such deposits were
accepted by the Manager of the branches. To the extent of the
maintenance of the records is concerned, it is already seen and
held that a systematic record was maintained by the assessee with
                                  6              ITA No. 1003/ Hyd/2011 & Ors
                                                  The Citizen Co-op Society Ltd.
                                                 ======================

regard to the transactions by the Bank. In such circumstances, I
am of the view that the decision of the Supreme Court would apply
to the facts and circumstances of the present case and the
provisions of Sec. 68 are not applicable.

Ld. CIT(A) referred to the decision of the Hon'ble ITAT, Amritsar
Bench in the case of ACIT vs. Citizen Urban Co-operative Society
Ltd., reported in 314 ITR 91 (AT) wherein it was held that deposits
accepted by the bank are not covered u/s 68 of the LT. Act as the
bank is not obliged to question the source of the deposits of the
customers where deposits have been properly introduced. The
methodology of accepting the deposits matters and it is not the
duty of the assessee to ask the depositor to establish the source.
The source of the deposit for the assessee is the depositor but it is
irrelevant for the assessee to check/enquire the source of the
depositor. It may not be out of place say that the A.O examined the
depositors but he could not establish that the source of extending
the money by the depositor was originated and routed back to the
assessee in a circular motion. 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 the books of
accounts, the onus to prove to the contrary shifts to the Assessing
Officer. The assessee can be asked to prove the source of the
credit but not the source of the source as held in CIT Vs. Orissa
Corporation Pvt. Ltd. (1986) 159 ITR 79(SC). In the present case,
the AO examined the material submitted by the assessee for almost
1 year 9 months and from the record it is seen that he never
attempted to investigate or examine and bring out any independent
conclusive evidence to support his views. Even if he had examined
a source to source and found anything adverse he is duty bound to
inform the A.O who is vested with the jurisdiction of such
                                        7               ITA No. 1003/ Hyd/2011 & Ors
                                                         The Citizen Co-op Society Ltd.
                                                        ======================

      depositor pertaining to such an amount but the assessee cannot be
      held for what he is not liable. The assessee society identified its
      members and gave the details as required by the AO. For its
      operations, the assessee society accepts deposits from the
      depositors who are members and it is not the duty of the assessee
      to probe the source of money deposited by its members.

      6.4 The assessee also pleaded the doctrine of mutuality. A
      cooperative institution is an institution formed for the benefit of its
      members. The members of the society deposit the amount with the
      bank and the same members would be utilising the amount for
      their own purposes. There are the depositors and debtors among
      the members. The members of the society are the beneficiaries of
      the society. They verify the books of account. They form the
      General Body which would examine the accounts of the society.
      They elect the Directors and the Directors will be managing the
      affairs of the society. Taking all these factors into account, there is
      no possibility or probable negligence for the management to make
      any wrong entry in the books of account. Further, the accounts
      showing the deposit receipts, repayments and the loans provided
      are all approved by the members in the General Body meeting
      who are the persons who would deposit or take the loans.
      Therefore, it can be said that it is a mutual society and the
      doctrine of mutuality is applicable and therefore, it can be held
      that the provisions of Sec. 68 have no application.

      Considering all the circumstances and the facts ascertained, ld
      CIT(A) is of the earnest view that the provisions of Sec. 68 of the
      LT. Act, 1961 would not apply to the assessee society and the
      Assessing Officer is not justified 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.
                                  8           ITA No. 1003/ Hyd/2011 & Ors
                                               The Citizen Co-op Society Ltd.
                                              ======================

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 with the
       assessee has to become member of the society, For this
       purpose an application has to be made to the Managing
       Director of the Society. A specimen copy of the application
       for admission to the membership is submitted. Such
       applications were obtained in respect of all the depositors.
       The assessee produced some of such applications for
       perusal of the Assessing Officer. It can be seen from the said
       applications that the details about each of the person is
       available in the said application. The name and address is
       available in the said application. Each of the new member is
       introduced by either the staff members/ Manager or any
       other member of the society.

     c) Once the person is admitted as a member of the society, he
       would be permitted to deposit the amounts either in the SB
       account or any other account based on his convenience. For
       this purpose, the society prescribed an application form. A
       copy of the said application form is submitted for perusal.
       The member of the society who is desirous of depositing the
       amount has to submit the application form duly filled and
                              9            ITA No. 1003/ Hyd/2011 & Ors
                                            The Citizen Co-op Society Ltd.
                                           ======================

  pay the amount in respective branches. The Manager of the
  said branch accepts the deposit after due consideration of
  the application. A copy of the blank application form and
  some of the applications filled in are submitted for perusal of
  the Assessing Officer. The assessee is submitting blank
  application forms meant for each of the deposit separately. It
  can be seen from the above that the society collects all the
  details concerning the depositor through the application
  forms. It is submitted that all such details are available.

d) The said application forms are kept as long as the deposits
  are held by the bank. The member may withdraw the deposit
  after completion of the term or at any time. Most of the
  deposits are for very short term. When the deposit was being
  withdrawn, the depositor makes an application to the bank
  and retains the deposit certificate duly discharged. The said
  application is considered and the refund of the deposit was
  allowed. When the refund was being allowed, the application
  form; the application for withdrawal and the discharged
  certificates are all kept along with the debit vouchers and
  would form part of the (paid) debit vouchers. Such of the
  applications where the deposits were withdrawn will be
  available in such bundles. Some of such vouchers were
  produced 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
                             10             ITA No. 1003/ Hyd/2011 & Ors
                                             The Citizen Co-op Society Ltd.
                                            ======================

  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 at the counter of the society opened
  at the bank and even when it is paid the same was paid
  through the SB Account which is drawn later. The banking
  operations are run by the society through its the paid
  managers and paid staff They enter the transactions in the
  regular books of account maintained by the society.

h) The entries are made during the course of normal business
  activity by the paid managers and the paid staff at branches.
  The said transactions are periodically certified by the head
  office; auditors and the co-op department.

i) From the above facts it is clear that all the details with
  regard to the depositors are available with the bank.
  However, it is submitted that the present number of
  members of the bank are more than 65,000 who are the
  depositors of the bank. Therefore, it is not practicable to
  provide copies of all the applications received from the
  depositors in view of the above process adopted by the
  society. However, as mentioned in the earlier paragraphs,
                              11            ITA No. 1003/ Hyd/2011 & Ors
                                             The Citizen Co-op Society Ltd.
                                            ======================

   the assessee is submitting some of such applications for
   admission to the membership and some such applications
   for acceptance of the deposits. The assessee is also
   submitting some of the debit vouchers to show that the
   applications will be with the debit vouchers and are not
   separately bundled. The evidence produced before the
   Assessing Officer would clearly indicate that all the deposits
   were received by the assessee herein during the course of its
   regular   business   activity   of   banking   and     cannot       be
   considered as the assessee's income. There is no possibility
   for the society to earn any income in addition to who is
   recorded in the books of account. The assessee may be
   permitted to submit the following explanation in this regard.

j) The only income derived is interest, locker charges and other
   charges collected from the members of the society. The rates
   at which interest is collected on each type of loan is
   prescribed. The society cannot collect either excess or lesser
   from any embers.

k) The society deals with its members alone and all the
   members are well aware of the rules governing the
   acceptance of deposits and advancing amounts. Both the
   receipts and payments are through its members alone.

l) As submitted earlier, the activity is carried on by the paid
   employees of the society and they are bound by Bye-laws of
   the society. The management of the 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
                               12            ITA No. 1003/ Hyd/2011 & Ors
                                              The Citizen Co-op Society Ltd.
                                             ======================

   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 all the
   members of the society are genuine. It is submitted that the
   addresses of all the members are available with the society
   and only such members deposit the amounts. While
   depositing the amounts, the members sign the application
   form containing the data that they are introducing their own
   amount. The data obtained from the applications would
   prove the following:

a) the name and address of the each of the person and in
   addition the names and addresses of the introducers are
   available in the application form;


b) the said person also provides proof for the address provided
   by filing voter's identity, driving license; pan card etc.,
                             13          ITA No. 1003/ Hyd/2011 & Ors
                                          The Citizen Co-op Society Ltd.
                                         ======================

c) each and every deposit is accompanied by an application. In
  the application, the said person confirms the fact that he is
  depositing the amount for a certain period and he receives
  the deposit certificate;


d) the deposit is entered in the books of account regularly
  maintained. The auditors of the cooperative department and
  the auditors appointed inspects the entries made with
  reference to the regular books of account and the certificates
  and the applications;


p) From the above it is clear that there cannot be any doubt
  about the genuineness of the credit. It is also clear that the
  assessee society is taking all the required data from the
  persons introducing the amounts.

q) In view of the above facts the assessee requests to analyse
  the provisions of Sec.68 of the 1. T. Act. Sec. 68 makes it
  clear that where any sum is found credited in the books of
  an assessee maintained for any previous year and no
  explanation is offered by the assessee for the nature and
  source thereof, the sum so credited may be charged to
  Income-Tax as the income of the assessee of that previous
  year. According to the provisions of Sec.68 what is required
  by the assessee is (a) explanation has to be offered and (b)
  the source has to be explained. The assessee submitted
  detailed explanation as to how the amount is deposited in
  the bank account. The source of the deposit is from its
  members. The assessee in this regard has already submitted
  a detailed explanation which makes it clear that the
  assessee explained the source of the deposit. Further, a
  reading of Sec.68 would make it clear that an addition u/ s
  68 is always discretionary on the part of the Assessing
                             14             ITA No. 1003/ Hyd/2011 & Ors
                                             The Citizen Co-op Society Ltd.
                                            ======================

   Officer and for this purpose the Assessing Officer has to
   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 Vs P.K. Noorjehan reported in 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 reported in 74 TTJ 793. A copy of the
   said decision was submitted for kind perusal of the
   Assessing Officer. It can be seen that in the said decision,
   the Hon'ble Tribunal have categorized the cases based on
   the nature of onus and observed that such onus would
   depend upon the facts of each case. It is also mentioned that
   in the case of banking concerns, it can be said that the onus
   on the assessee would be treated as discharged if it is
   established that such assessee has acted with due diligence
   and caution while accepting the deposit. As submitted in the
                                 15          ITA No. 1003/ Hyd/2011 & Ors
                                              The Citizen Co-op Society Ltd.
                                             ======================

  earlier    paragraphs, the      society   has been adopting             a
  systematic method in maintaining the records for the
  deposits received.

s) The Hon'ble Tribunal in the same case has also mentioned
  that even if the cash credits were to be taxed and were to be
  considered as the income of the society, it would be the
  income from business and the provisions of Sec.80P (2)
  would apply even in respect of such items added by the
  Assessing Officer and in that view also, the Hon'ble Tribunal
  found that no addition u/ s 68 need be made.

t) The Gujarat High Court in the case of CIT Vs Pragathi Co-
  op. Bank Ltd. Reported in 278 ITR 170 observed that the
  amounts representing fixed deposits made by the deposit
  holders cannot be termed as the income of the assessee. The
  Hon'ble Gujarat High Court relied also on the decision of the
  Supreme Court in the case of CIT Vs Smt. P.K. Noorjehan
  referred to above.

u) The Hon'ble ITAT, Hyderabad in the case of the assessee
  while deciding the question of penalty u/ s 271D and 271E
  of the I. T. Act for the assessment years 2006-07 and 2007-
  08 observed as follows:

     (1) The assessee has been carrying on the banking
            operations   which    are   under    audit     of    various
            authorities and, therefore, the assessee could not be
            put on par with other cases of other concerns since
            the assessee have no control in respect of the
            amounts received from the customers in the form of
            deposits.
                        16            ITA No. 1003/ Hyd/2011 & Ors
                                       The Citizen Co-op Society Ltd.
                                      ======================

(2) There is no dispute in these assessment years that
   the assessee has been carrying on the banking
   transactions which may be with or without approval
   of the RBI. If the carrying of the operations of the
   banking activities is not at all approved by the RBI or
   the assessee is having no requisite licence, the
   concerned authorities could have stopped the same
   or taken action against the assessee, which was not
   done

(3) The 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 Vs Nainital
   Bank Ltd., reported in 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
                                17             ITA No. 1003/ Hyd/2011 & Ors
                                                The Citizen Co-op Society Ltd.
                                               ======================

         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 besides
         cancellation    of   its licence.     There     are     so    such
         circumstances in the case of the assessee.

     (8) Usually the bank was not required to go for detailed
         verification   of    address    and    whereabouts           of   its
         customers.     There    is     no   absolute     obligation       to
         assessee to make enquiries about the customers so
         as to examine the genuineness/source of deposits.

v) The above observations by Hon'ble ITAT with regard to the
  assessee herein would make it clear that the deposits made
  by the members can not be termed as income of the
  assessee. In the facts and circumstances as explained in the
  above paragraphs and based on the facts as ascertained by
  the Hon'ble Tribunal as narrated by the Hon'ble Tribunal in
  its order, the assessee humbly submits that the proof
  required of the assessee for the purpose of Sec.68 is
  furnished as mentioned by the Hon'ble ITAT, Pune Bench
  referred to above, it can be said that the onus on the
  assessee be discharged if it is established that such assessee
  has acted with due diligence and caution while accepting the
  deposits. Therefore, the assessee humbly submits that the
  provisions of Sec. 68 are not applicable and the Assessing
  Officer is not justified in making any addition under the said
  provision. The assessee further submits that the repayment
  of deposits were made through their S.B.Accounts and not
  directly".
                                18           ITA No. 1003/ Hyd/2011 & Ors
                                              The Citizen Co-op Society Ltd.
                                             ======================


8.    We have heard both the parties and perused the materials
on record. We have considered the assessment order, CIT(A) order
and submission of both the parties. The assessee is a co-operative
society registered under the Co-operative societies Act. It is
governed by its by -laws, Rules and Regulations under the
supervision and control of Registrar of Societies. The Society is
carrying on the banking business for its members. It is operating
through 23 branches and each of the branches is headed by a
Branch Manager and other staff. The Society is carrying on the
Banking business to its own members and the business is carried
on with certain set of guidelines and procedures. As per the By ­
Laws of the Society only members either permanent or Nominal
shall transact in the Society. The staff employed in the branch
accepts the cash deposits along with the application at the
counters.   The staffs makes sure that all the columns of the
application are filled and requisite supporting documents i.e. proof
of address, 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
                                19           ITA No. 1003/ Hyd/2011 & Ors
                                              The Citizen Co-op Society Ltd.
                                             ======================

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. In such cases the
bank will not have present address of the depositor. There may be
few instances where the letters sent by the AO returned for the
reason no such address. When the Society is having members of
63,000, you cannot come to a conclusion that the bank does not
have furnished identity and proof of depositor by verifying few
numbers.

9.    It is further observed that the Society has opened a SB
account wherever it has accepted deposit from its members to
credit interest periodically. There is facility for the depositor to
withdraw interest. There is no dispute with regard to payment of
interest. The customers have regularly withdrawn the amount
from their SB accounts which are proved that the amount
deposited belongs to the depositor and not belongs to the assessee.

10.   The society has maintained systematic records and books of
accounts for its business. It has accepted all the documents as
required under KYC norms. It has issued a proper deposit
certificate and credited the interest as well as the maturity
proceeds directly credited its depositor savings bank account. In
no occasion it has directly paid the deposits directly to the
depositor. In the present case the assessee Society is subjected to
rules laid down by multi-state Co-operative society Act and Rules.
The society books of accounts are subjected to audit by the
regulatory bodies every year. Therefore, the assessee cannot be
equated with other normal business concerns. Since the assessee
has no control over the deposits as it is the property of the
depositors and the Society required to pay on demand. The
customers usually go the bank for making deposit to earn better
interest. The customers will go the banks where they get more
                                20           ITA No. 1003/ Hyd/2011 & Ors
                                              The Citizen Co-op Society Ltd.
                                             ======================

interest. There is no dispute in these assessment years the
assessee has been carrying out the Banking business. Whether or
not the business is carried out with or without permission, it is
bound by the Banking Regulations Act, 1949. The deposits and
loans are just buying and selling activity for the assessee. The
amounts maintained at the customers account is not in the
control of the society as it is required to pay the deposits on
demand. In the present case what is required to be done before
accepting the deposit is to take proper proof of address, identity,
photograph and introduction for opening and accepting the
deposits. Once the assessee complied with 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 bon fide
manner and complied with the KYC norms as prescribed for
banking institutions and due diligence. Therefore, in our opinion
the Society discharged the onus of proof in respect of identity and
                                21            ITA No. 1003/ Hyd/2011 & Ors
                                               The Citizen Co-op Society Ltd.
                                              ======================

genuineness of the transactions as for as a banking is concerned.
The facts of the case are similar to that of ITAT Pune Bench in the
case of Sri Mahavir Nilgari Sahakari Pat Sanstha Ltd vs. DCIT
reported in 74 TTJ 793 and the decision of the Hon'ble Gujarath
High Court in the case of CIT vs. Pragathi Co-operative Bank Ltd.,
reported in 278 ITR 170. Therefore the onus on the assessee to
prove the credit is limited to the maintenance of systematic
records comply the KYC norms. It is not obligatory on the part of
the assessee to verify the credit worthiness of the depositor.
Therefore, we hold that the assessee discharged the onus caste on
him in this regard.

11.   It is seen from order of the Tribunal B Bench Hyderabad in
ITA No. 1156-1159/Hyd/ 09 dated 26.02.2010 in assessee own
case while deciding the issue for levy of penalty u/s 271D and
271E and it had an occasion to go into the facts with reference to
the deposits made by the members of the Society. The ITAT
observed that the assessee is maintained proper books of accounts
pertaining to accepting deposits from its members and advancing
loans. Therefore we are of the opinion that there cannot be any
unexplained deposits within the meaning of section 68 of the
Income Tax Act, 196, if the assessee proves to the satisfaction of
the assessing officer its depositors identity by furnishing proof of
address, proof of identity and PAN numbers.

12.   It is further observed that the membership of the Society is
huge and the number of members of the Society is about 63,000.
The Society has computerized its operations and all the business
of the Society is available in the computer software. The Society
has collected all the information from its deposits as a normal
banking institution and complied the KYC norms. It is not
obligatory on the part of the assessee to go in checking the
address and other proof of identity given by the depositors. What
                                    22             ITA No. 1003/ Hyd/2011 & Ors
                                                    The Citizen Co-op Society Ltd.
                                                   ======================

is required to be done as per the normal banking system is to
report     the   controlling   authorities   in   case    any     suspicious
transactions are reported. The present case the assessee has
complied with all the elements as a banking institution thus
discharged onus of proof of identity of the depositor. 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 vs. P.K. Noorjahan reported in 237 ITR 576 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 and lend loan to its members. While accepting the
deposits it has complied the requirements as a banking institution
by collecting documents specified by the RBI in KYC norms. It is
not obligatory on the part of the assessee to verify the correctness
of the details given by the depositors, verifying the genuineness of
the transaction and credit worthiness of the depositor. But
certainly it is required to have proper proof of identity of the
depositor. Undoubtedly the assessee being co-operative society
providing credit facilities to its bank need not to prove the credit
                                      23              ITA No. 1003/ Hyd/2011 & Ors
                                                       The Citizen Co-op Society Ltd.
                                                      ======================

worthiness and the genuineness of the transaction relating to
acceptance of deposits, but it should prove the identity of
depositor by furnishing the proper proof of address and identity to
the satisfaction to the assessing Officer, which has been complied
with by the assessee.

14.   Similar issue came for consideration before Amritsar Bench
in the case of ACIT Vs. Citizen Urban Cooperative Bank Ltd. (120
ITD 513) (Amritsar). After recording the entire facts it was held as
follows:

      "26. We have heard the parties and have perused the material
      on record. The facts are not in dispute. The issue is as to whether
      the provisions of s. 68 of the Act are applicable and whether it has
      rightly been applied to the assessee bank ? The learned CIT(A),
      while deleting the addition made has observed that the assessee's
      case was subject to rules laid down under the Banking
      Regulations Act, as also the regulations of the RBI; that all the
      banking operations are under audit and report in this regard goes
      to the RBI; that therefore, the case of the assessee bank could not
      be put at par with the cases of other persons, since the bank does
      not have any control in respect of the amounts credited in its
      accounts; that the bank is to maintain accounts of its customers,
      which accounts can be operated only by those customers and the
      bank does not have any control over the mounts in the accounts.
      While holding in favour of the assessee, the learned CIT(A) has
      duly taken into consideration the provisions under s. 68 of the Act,
      which are explicit.

      27.     As per s. 68 of the Act, where any sum is found credited in
      the books of an assessee maintained for any previous year and the
      assessee offers no explanation about the nature and source
      thereof, or the explanation offered by him is not, in the opinion of
      the 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
                                24              ITA No. 1003/ Hyd/2011 & Ors
                                                 The Citizen Co-op Society Ltd.
                                                ======================

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 deposits cannot be equated
with that of the bank. In those cases, normally, deposits are
accepted from the people connected with or known to the
depositees. It is in accordance with the terms of s. 131 of the
Negotiable Instruments Act that this requirement is there. As such,
if introduction of the customer had been duly taken by the bank,
the bank would not be liable in case of a fraud. Moreover,
pertinently, if the customer seeks to operate the account with cash
only, the bank can open an account without introduction and
without proper identification. Further, the bank is not obliged to
question the source of deposits made by its customers. Also, the
customers can retain the amount in his savings bank account with
the assessee bank for any period. The amount has to be repaid by
the bank to its customers immediately on demand. These features
distinguish the case of the bank from other ordinary assessees.
Therefore, the provisions of s. 68 of the Act are not applicable to
the bank as they are in the cases of the other assessees. Still
further, under s. 35 of the Banking Regulations Act, 1949, a
banking company is subject to periodical inspections and audit by
the RBI and in case any default is found, the bank is liable for
heavy monetary penalty, besides cancellation of its license. This is
not the case with other assessees. A bank, under the RBI
guidelines, in order to maintain confidentiality in respect of the
information collected by a bank relating to its customers, such
information is not to be divulged to outsiders. There is no such
obligation with other assessees.

28.     Despite the RBI guidelines providing maintenance of
secrecy with regard to the information regarding the customers of
the bank, the assessee furnished to the AO whatever information it
had in its possession. The addresses of the account holders, as
mentioned in the bank ledgers, as also the addresses of the
introducers of the accounts were furnished to the AO. Now if the
addresses of the customers of the assessee bank were found to be
incomplete, this cannot form the basis for making the addition in
question. Undisputedly, the assessee bank did not violate any of
the relevant guidelines of the RBI. In the Master Circular of the
RBI, (copy at p. 75 of the assessee's paper book), introduction by
an existing account holder by the bank has been held to be one of
the proper methods of introduction 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
                                25              ITA No. 1003/ Hyd/2011 & Ors
                                                 The Citizen Co-op Society Ltd.
                                                ======================

this position has now changed and at present the requirement in
this regard calls for a much more stringent compliance. In
Bapulal Premchand vs. 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 vs. 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's paper book) provided exemption. Thus, in respect of
accounts with only cash transactions, even the rule of proper
introduction did not operate strictly. All this shows that the
assessee bank did not commit any infringement in taking proper
introduction and, therefore, it is incorrect that there was any
deliberate attempt on the part of the assessee to accommodate tax
dodgers.

29.     In CIT vs. Nainital Bank Ltd. (1965) 55 ITR 707 (SC), the
Hon'ble Supreme Court, vide its order dt. 25th Sept., 1964 (copy
at p. 110 of the assessee's paper book), held that cash is stock-in-
trade of a banking business and that loss in the course of its
business by way of dacoity is deductible as a trading loss in
computing the total income of the business. This strengthens the
assessee's contention that the deposits accepted by it were part of
its trading activity and that its clients were its customers.

30.    In CIT vs. Pragati Co-operative Bank Ltd. (2005) 197 CTR
(Guj) 505 : (2005) 278 ITR 170 (Guj), it was held that the
provisions of s. 68 of the IT Act would not apply to the case of a
banking company working under the control of the RBI,
particularly when the deposits were not stated to have been made
either by the directors of the bank or by any relative of the
directors.

31.      In Shri Mahavir Nagari Sahakari Pat Sanstha Ltd. vs. Dy.
CIT (2002) 74 TTJ (Pune) 793 (copy at pp. 95 to 104 of the
assessee's paper book), it was held that addition could not be
made under s. 68, even though the minimum onus of proving the
identity of depositors had not been discharged by the assessee.

32.   In Dy. CIT vs. Sahara India Financial Corpn. Ltd. (2003)
81 TTJ (Luck) 389 : (2004) 2 SOT 733 (Luck) (copy at pp. 105 to
                                 26              ITA No. 1003/ Hyd/2011 & Ors
                                                  The Citizen Co-op Society Ltd.
                                                 ======================

109 of the assessee's paper book), it was held that the deposits
received by the assessee, which was a non-banking financial
institution, recognised by the RBI, were not in the nature of taking
of any loan or deposit for the purposes of its business, that rather,
it was in the business of accepting deposits and that in view of the
nature of such business, the scrutiny of the deposits could not be
the same as in the case of an assessee making entries of deposits
on account of loan etc.

33.     In CIT vs. Steller Investment Ltd. (1991) 99 CTR (Del) 40 :
(1991) 192 ITR 287 (Del), it was held that even if the subscriber to
capital was not 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 vs. 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 summons under s. 131 of the Act. He
admitted knowing the account holders personally. The onus with
regard to these accounts thus stood amply discharged.

36.    S. Swaran Singh was the account holder of account No.
1108. He was one of the directors of the bank and so he needed no
independent introduction to open his account with the assessee
firm. His independent existence also stands proved by the entries
through clearing in his account.

37.    Shri Pawan Sharma was the introducer to account No.
1658. His statement was recorded by the AO under s. 131 of the
Act. He also confirmed knowing the account holder.

38.   Smt. Harsimranjit Kaur, Prop. M/s H.S. Gas Service
owned up account No. 8268 of Shri J.P. Singh, which fact was got
                                 27              ITA No. 1003/ Hyd/2011 & Ors
                                                  The Citizen Co-op Society Ltd.
                                                 ======================

confirmed by the learned CIT(A) through the AO assessing the
said lady.

39.    The above facts were duly taken into consideration by the
learned CIT(A) while admitting the appeal. We do not find
anything erroneous with the order of the learned CIT(A).

40.     Not only this, in pursuance to the directions issued by the
learned CIT(A), the assessee located further details/addresses of
account holders. These details were furnished to the AO vide letter
dt. 4th Oct., 2005. A copy of this letter had been placed at pp. 90-
91 of the assessee's paper book. This also boosts the stand taken
by the assessee.

41.     In view of the above, we find ourselves to be in agreement
with the observations recorded by the learned CIT(A) while
allowing the appeal of the assessee. The grievance of the
Department in this regard is found to carry no force whatsoever
and is, as such, rejected.

42.    Apropos the objection of the Department that the learned
CIT(A) erroneously admitted additional documentary evidence
when before the AO, the assessee had denied producing the bank
account holders on the plea that this would adversely affect its
banking business. Here also, we find no case made out by the
Department.

43.     Before the learned CIT(A), the assessee, inter alia, filed
copies of accounts of various account holders and other
supporting documents, as additional evidence. The AO objected to
the same. The learned CIT(A), however, allowed such evidence to
be produced as additional evidence. In this regard, the assessee
did not produce such evidence before the AO under the bona fide
belief that it was not obliged to do so, as it would adversely affect
its business. 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.
                                      28             ITA No. 1003/ Hyd/2011 & Ors
                                                      The Citizen Co-op Society Ltd.
                                                     ======================

      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
activities cannot be considered as `loan' or `deposit' so as to attract
s. 269SS or s. 269T as the assessee is working on the concept of
mutuality and its director or member is not covered by the
expression `any other person' occurring in s. 269SS and, therefore,
penalty under s. 271D or S. 271E is not leviable, more so, when
the AO has accepted the genuineness of such deposits and the
assessee was under bona fide belief that the provisions of s. 269SS
and 269T are not applicable to it.

16.   Further, it was held by the Tribunal that the Society is
dealing like a bank while accepting deposits from its members. 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.

17.   Being so, in our humble opinion, 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
                                      29            ITA No. 1003/ Hyd/2011 & Ors
                                                     The Citizen Co-op Society Ltd.
                                                    ======================

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. In
view of this, we are in agreement with the findings of the CIT(A) on
this issue. Hence, this ground raised by the             revenue in all its
appeals is dismissed.

18.       The next common ground for consideration in assessee's
appeals in ITA No.1003 & 1004/Hyd/2011 and revenue appeals in
ITA No. 1200 /Hyd/2011 & 1049/Hyd/2011 with regard to
allowability of deduction u/s 80P(2)(a)(i) of the income tax Act,
1961.

19.       The   authorized    representative     appeared       for   assessee
submitted that the assessee is co-operative society proving credit
facilities to its members only. He further submits that, none of the
activities of society is violating any provisions of co-operative
principles. The credit facilities provided solely for the members
only and in no case it was extended to non ­members. the
amounts deposited by depositors 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    Shethi       Kharedi      Vikri
            Sanstha Ltd vs. ITO reported in 3 ITD 410, 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 vs. Punjab State Co-operative Bank Ltd,
                                  30          ITA No. 1003/ Hyd/2011 & Ors
                                               The Citizen Co-op Society Ltd.
                                              ======================

           reported in 300 ITR 24, 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 Societies providing credit facilities to members for
better understanding we reproduce the provisions of section 80P.
Section 80P(1) where, in the case of assessee being co-operative
society, the gross total income includes any income referred to in
sub section (2), there shall be deducted, in accordance with and
subject to the provisions of this section, the sums specified in sub­
section (2) in computing the total income of the assessee.

   Sub section (2) ­ the sums referred to in sub ­section (1) shall
   be the following: -
   (a) In the case of Co-op society engaged in
       (i)   Carrying on the business of banking or providing
             credit facilities to its members or
       (ii)  -----
       (iii) -----

21.    Section 80P(2)(a)(i) provides for deduction from gross total
income for co-operative societies providing banking or credit
facilities to its members. In the present case the assessee is a Co-
operative Society providing credit facilities to its members. The
Society is having 63,000 members spread over 23 branches mainly
its activity is doing banking business for its members. The
observations made by the assessing Officer in his order are that
the beneficiaries and the contributors are different. It is not
                                       31             ITA No. 1003/ Hyd/2011 & Ors
                                                       The Citizen Co-op Society Ltd.
                                                      ======================

necessarily the contributors and beneficiaries are same in the case
of co-operative society. What is required to be observed is that the
depositors as well as the borrowers shall be the members of the
Society. In the present case all the depositors and borrowers are
member of the society. However, 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 assessment year 2006-07 the claim of the assessee u/s
80P(2)(a)(i) cannot be allowed.

22.       For assessment year 2007-08 & 2008-09, we have to
consider the amendment brought out to the section with effect
from    01/04/2007 by Finance Act, 2006 whereby section 80P(4)
was inserted. The amendment clearly barred all the co-operative
banks other than primary agricultural credit society or a primary
co-operative agricultural and rural development banks from
claiming exemption under the section. The primary activity of the
society is to provide banking facilities to its members. The Society
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
                                  32              ITA No. 1003/ Hyd/2011 & Ors
                                                   The Citizen Co-op Society Ltd.
                                                  ======================

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 u/s 80P(2)(a)(i). Therefore we are
of the opinion that the assessee is not entitled for deduction u/s
80P(2)(a)(i) for assessment year 2006-07, 2007-08 & 2008-09 and
allowed the ground raised by the revenue and dismiss the ground
taken by the assessee on this issue.

25.      Thus, the issue relating to the disallowances of deduction
u/s 80P(2)(a)(i), is decided in favour of the revenue.

26.      The   next   issue   raised   by   the     assessee       regarding
confirmation of additions of Rs. 5,93,756/- being disallowances of
advertisement expenditure u/s 40a(i)(a) for no deduction of TDS.
The CIT(A) in his order observed that even in the appellate
proceedings the assessee not furnished the details for deduction of
TDS on advertisement charges. Considering the facts of the case
and order of the Special Bench dated 29th, March, 2012 in the
case of M/s Merilyn Shipping & Transports, Visakhapatnam in ITA
No.477/Viz/2008 for the assessment year 2005-06 wherein held
that section 40(a)(ia) of the Act is applicable only to the
expenditure which is payable on 31st March of every year and
cannot be invoked to disallow the amounts which are already been
paid during the previous year, without deducting tax at sources. In
view of the above, we direct the assessing officer to examine the
issue in the light of the order of the Special Bench. Accordingly,
this issue set aside to the file of the assessing officer for
reconsideration.
                                 33           ITA No. 1003/ Hyd/2011 & Ors
                                               The Citizen Co-op Society Ltd.
                                              ======================

27.      The last ground for consideration in assessee's appeal in
ITA No. 1003/Hyd/2011 is with regard to direction given by the
CIT(A) to verify the interest on NPAs.

28.      The assessee claimed an interest of Rs. 1,26,29,963/- on
account of interest receivable on the loans advanced which are
pending recovery for more than 6 months.                According the
judgment of Supreme Court in the case of UCO Bank Vs. CIT (237
ITR 889) (SC) wherein held that interest credited to the suspense
account and NPAs is to be excluded from the income. The CIT(A)
while adjudicating this issue, given a direction to the assessing
officer to verify the said expenditure incurred by the assessee and
decide thereupon. Against this the assessee is in appeal before us.

29.      We have heard both the parties on this issue and we have
gone through the order of the CIT(A) in para 6.12(b) at page 34 of
the order. In our opinion, the CIT(A) given a direction to verify the
nature of interest whether it is on non performing assets or not
and decide thereupon. In this finding, we don't find any infirmities
and inclined to confirm the same.          This ground of assessee
dismissed.

30.      In the result, assessee appeal in ITA No. 1003/Hyd/2011
is partly allowed and appeal in ITA No. 1004/Hyd/2011 is
dismissed.   The revenue appeal in ITA No. 1200/Hyd/2011 &
1049/Hyd/2011 are partly allowed and revenue appeal in ITA No.
1201/Hyd/2011 is dismissed.

      Order pronounced in the open court on 2nd July, 2012.

            Sd/-                                Sd/-
   (ASHA VIJAYARAGHAVAN)                  (CHANDRA POOJARI)
      JUDICIAL MEMBER                    ACCOUNTANT MEMBER

Hyderabad, dated the 2nd July, 2012
                                  34           ITA No. 1003/ Hyd/2011 & Ors
                                                The Citizen Co-op Society Ltd.
                                               ======================




Copy forwarded to:

1.      The Citizen Co-op. Society ltd., c/o. Shri S. Rama Rao,
        Advocate, Flat No. 102, Shriya's Elegance, 3-6-643, St. No.
        9, Himayatnagar, Hyderabad-29.
2.      The Addl. Commissioner of Income-tax, Range-9,
        Hyderabad.
3.      The Asst. Commissioner of Income-tax, Circle-9(1), 1st Floor,
        B-Block, I.T. Towers, AC Guards, Hyderabad.
3.      The CIT(A)-VI, Hyderabad.
4.      The CIT-VI, Hyderabad.
5.      The DR ­ B Bench, ITAT, Hyderabad.
Tprao
 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Achievements

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions