2000 (2) TMI 234 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of deposits as unaccounted cash credits u/s 68.
2. Disallowance of interest on deposits.
3. Eligibility for deduction u/s 80P(2)(a)(i).

Summary:

Issue 1: Treatment of Deposits as Unaccounted Cash Credits u/s 68
The AO treated fixed deposits of Rs. 4,86,03,396 and call deposits of Rs. 10,26,56,836 as unaccounted cash credits u/s 68, citing the lack of proper particulars and the presence of Benami/bogus depositors. The assessee argued that these deposits belonged to third parties like Sanghvi and Jaju groups, who owned up significant amounts during the search. The Tribunal held that the provisions of s. 68 are applicable to banking concerns and block assessments. However, it concluded that the deposits belonged to third parties and not the assessee, following the principle from CIT vs. Smt. P.K. Noorjahan. Consequently, the additions of Rs. 4,86,03,396 and Rs. 10,26,56,836 were deleted.

Issue 2: Disallowance of Interest on Deposits
The AO disallowed interest of Rs. 1,80,87,128 on an estimated basis, arguing that since the deposits were treated as income, the interest paid on them could not be allowed as expenditure. The Tribunal found this addition to be consequential to the earlier deletions and thus deleted the disallowance of Rs. 1,80,87,128.

Issue 3: Eligibility for Deduction u/s 80P(2)(a)(i)
The AO rejected the assessee's claim for deduction u/s 80P(2)(a)(i), arguing that the society accepted deposits from non-members and Benami names, violating its bye-laws. The Tribunal found that the assessee provided loans only to its members, satisfying the conditions of s. 80P(2)(a)(i). It was held that the violation of bye-laws does not lead to the automatic conclusion that the assessee is not a co-operative society. The Tribunal cited the Supreme Court decision in U.P. Co-operative Cane Union Federation Ltd. vs. CIT and the Ahmedabad Tribunal's decision in Navdeep Co-operative Bank Ltd., affirming the assessee's status as a co-operative society and its eligibility for deduction u/s 80P. Consequently, no addition was sustainable in the hands of the assessee-society.

Conclusion:
The Tribunal allowed the appeal, deleting the additions of Rs. 4,86,03,396 and Rs. 10,26,56,836, disallowance of Rs. 1,80,87,128, and upheld the assessee's eligibility for deduction u/s 80P(2)(a)(i).