2018 (5) TMI 1491 - HC - Income Tax

Stay of recovery of demand - Taxation of unexplained cash credits u/s 68 - whether assessee is entitled for exemption u/s 80P - the assessee has has credited in their books of account cash receipts and despite of several notices, the assessee has not divulged the source thereof - Held that - if the asessee divulged the sources of the cash credits referred to by the assessing officer when called for, a situation of this nature would not have arisen - if the assessee is compelled to pay 50% of the demand as ordered by the appellate authority, the business of the assessee is likely to be crippled and in that event, the customers of the petitioner including their depositors would also suffer - thus assessee to pay 20% of the demand in 6 equal monthly instalments - decided partly in favor of assessee

Summary

Issues:
1. Revision of self-assessment by assessing officer under sections 143(3) and 147 of the Income Tax Act.
2. Disallowance of exemption claimed under Section 80P(2)(a)(i) and (d) of the Act.
3. Taxation of unexplained cash credits under Section 68 of the Act.
4. Challenge to the condition imposed on the stay petition by the appellate authority.

Analysis:
1. The petitioner, a primary agricultural credit cooperative society, challenged the revision of self-assessment by the assessing officer under sections 143(3) and 147 of the Income Tax Act for the assessment year 2011-12, which resulted in a significant increase in taxable income and a demand of ?17,76,92,090. The petitioner filed an appeal against the revision.

2. The assessing officer disallowed the exemption claimed by the petitioner under Section 80P(2)(a)(i) and (d) of the Act related to business and interest income received from surplus funds deposited in District Cooperative Banks. The appellate authority granted a stay on 50% of the demand, pending the appeal, based on a prima facie case made by the petitioner regarding the first two grounds.

3. The assessing officer brought to tax an amount of ?27,67,41,372 as unexplained cash credits under Section 68 of the Act. The petitioner contended that these cash credits, being deposits received in cash, should be exempted under Section 80P of the Act. However, the assessing officer found the petitioner at fault for not disclosing the source of the cash credits, leading to the tax liability under Section 68.

4. The petitioner relied on decisions of ITAT Cochin, Pune, and Nagpur to support their claim for exemption under Section 80P(2)(a)(i). The court disagreed with the interpretation of these decisions and emphasized that allowing exemption in such cases could lead to misuse. The court modified the stay condition, reducing the payment to 20% of the demand in monthly installments, considering the potential impact on the petitioner's business and customers. The appellate authority was directed to expedite the appeal process.