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TMI Blog2000 (2) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... c basis on the total deposits or loans; (3) The AO failed to appreciate that the assessee was engaged in "carrying on the business of banking and also providing credit facilities to its members and, therefore, is eligible to deduction under s. 80P(2)(a)(i)." 3. During the course of search, the Department found that a number of deposit forms were not containing the proper particulars, e.g., they did not contain the detailed addresses, signatures appeared to be made by one person, a number of depositors appeared Benami/bogus. Such FDRs which were found to be of a doubtful nature in the sense that the owner might be bogus/Benami totalled to Rs. 2.73 crores. 4. The assessee was asked to prove the genuineness of such depositors. At that time itself, a few parties owned up such FDRs and disclosed to the IT Department that these bogus deposits were belonging to them. Sanghvi group which was raided around the same time owned up deposits worth Rs. 1.67 crores. Other groups like Jaju group also owned up a substantial amount of such FDRs. The FDRs worth Rs. 79.08 lakhs were owned up by groups other than Sanghvi group. 5. The AO at the time of assessment asked the assessee to produce s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g forms in respect of certain accounts which were closed were burnt. But fire cannot be selective. It cannot destroy one form and leave a similar one. (2) The contention that the account opening forms of close accounts were burnt is also not correct because a large number of persons of whose account opening forms were claimed to have been burnt on 22nd Dec., 1994, took these deposits back after the fire broke. 7. The assessee also filed addresses of around 400 FDR-holders. In para 10 of the assessment order, the AO writes "However, verification of these addresses reveal that they cannot be treated as full address. The address only mentions the area. In a place like Kolhapur no meaningful correspondence can be done if only the name of the area like Rajarampuri, Shahupuri, Gangavesh, etc. is given. Hence, they cannot be treated as genuine address." The AO concludes: "It has not discharged its onus. Hence, the deposits taken has to be treated as unexplained cash credits under s. 68 of the IT Act, 1961, in respective year." The AO accordingly made two additions, i.e., Rs. 4,86,03,396 in the form of fixed deposits and Rs. 10,26,56,836 on account of call deposits as unaccounted cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e went on accepting deposits from any person without verifying the identity and genuineness of the person, did not imply that this was assessee's money. This fact is to be looked in from the nature of business and the activities carried on by the assessee, i.e., banking activity. Whenever deposits are accepted say by post office or bank or treasury (particularly, when the condition of photograph was not there), they would not know whether the money is from accounted source or from unaccounted source and the genuineness of the depositor. In view of this, merely because the deposit was kept by the people in somebody else's name did not imply that this was assessee's money such Benami/bogus deposits, but that did not imply that this was the assessee's money. Accordingly, the learned counsel submitted that from these instances of Sanghvi, Jaju groups it could be said that the money belonged to third parties and hence the AO should have accepted that all such bogus deposits could not constitute the assessee's income under s. 68. The learned counsel pointed out that although Sanghvi, Jajus, Kamats have owned up certain deposits, still the same are not reduced while working out undisclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that if some depositor introduces the deposits in Benami names, the bank officer cannot be put in shoes of an AO and he cannot be expected to question the depositor for explaining the sources of such deposits. In this case also, if the depositors have introduced their black money in some bogus/Benami names, the assessee, as a credit society, should not be punished just because it cannot discharge the burden under s. 68 of the Act. 13. Shri Pathak further submitted that apart from the deposits in the year of search, the AO has asked the assessee the list of the depositors in all past years and made the additions on account of such deposits which were doubtful, according to him, without giving a sufficient opportunity to the assessee. It was submitted that most of the deposits which have been added in the past years by the AO were in the form of call deposits taken by the assessee in the month of March every year and repaid immediately in April/May. These deposits were for a very short period of 30 days to 45 days. The assessee in order to project a rosy picture of the balance sheet to the public in the sense that its deposits were growing every year, accepted such deposits. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt maintained for the purposes of the assessee's business. In view of this background, the learned counsel submitted, that if at all addition is to be made on account of cash credits in the form of alleged bogus deposits, it will fall under the head 'income from business'. For this proposition, he placed reliance on the following decisions: (1) Annamalai Reddiar vs. CIT (1964) 53 ITR 601 (Ker); (2) Daulatram Rawatmal vs. CIT (1967) 64 ITR 593 (Cal); (3) Laxmichand Baijanath vs. CIT (1959) 35 ITR 416 (SC); and (4) Mansfield Sons vs. CIT (1963) 48 ITR 254 (Cal). 15.1. Lastly, without prejudice to the arguments given above, the learned counsel submitted that the addition on account of cash credits, if at all is to be made should be made on peak credit basis and the interest on the deposits which is disallowed by the AO on an estimated basis should be disallowed by exactly computing the figure of such interest as per the books of account. 16. Regarding the applicability of s. 80P(2)(a)(i), the learned counsel submitted that the assessee has given loans only to its members. Shri Patankar, manager, in his statement under s. 132(4) at the time of search itself had stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits from non-members in bogus names, the Government auditor or the registrar after the search, has not held that the assessee ceases to be a co-operative society, nor have they cancelled the registration of the assessee as a co-operative society under the Maharashtra Co-operative Societies Act. The learned counsel placed reliance on the decision of the Tribunal, Ahmedabad in Asstt. CIT vs. Navdeep Co-operative Bank (1993) 46 TTJ (Ahd) 105 : (1992) 43 ITD 697 (Ahd) wherein on similar facts, the Tribunal held that merely because the assessee-society contravened the rules, regulations, directions of the Reserve Bank of India, so long as the registration was enjoyed by it, the AO was not justified in holding that the assessee is not a co-operative society. Accordingly, the learned counsel concluded that the assessee-society continues to enjoy the status of a co-operative society and, therefore, deduction under s. 80P should be granted to the assessee. If this is allowed, there is no undisclosed income which results in the hands of the assessee. In this connection, he placed reliance on the decision of the Settlement Commission, Madras, in the case of IJK Exporters (copy placed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that the same principle has been reiterated by the Supreme Court in CIT vs. Devi Prasad Vishwa Nath Pd. (1969) 72 ITR 194 (SC), by Calcutta High Court in Shankar Industries Ltd. vs. CIT (1978) 114 ITR 689 (Cal), C. Kant Co. vs. CIT (1980) 18 CTR (Cal) 164 : (1980) 126 ITR 63 (Cal), Oriental Wire Industries (P) Ltd. vs. CIT (1981) 20 CTR (Cal) 264 : (1981) 131 ITR 688 (Cal). He also placed reliance on the decision of the Calcutta High Court in Prakash Textiles Agency vs. CIT (1980) 121 ITR 809 (Cal) where the decisions of the same High Court in Basdeo Agarwalla vs. CIT (1980) 121 ITR 901 (Cal), Sri Ram Jhabarmal Ltd. vs. CIT (1967) 64 ITR 314 (Cal), Northern Bengal Jute Tdg. Co. Ltd. vs. CIT (1968) 70 ITR 407 (Cal), Dulichand Om Prakash vs. CIT (1978) 113 ITR 476 (Cal) (1978) 114 ITR 689 (Cal) have been elaborately discussed. He submitted that in view of the above decisions, the entire burden is upon the assessee and the assessee has to prove the following: (1) Identity of the creditor, (2) Genuineness of the transaction, and (3) Capacity of the creditor. Submission of incomplete address cannot be said to be the discharge of the burden lying upon the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee in the chart submitted to the AO. Accordingly, he submitted that the assessee could not be considered as a co-operative society and deduction under s. 80P be denied to it. 21. Further, the learned senior Departmental Representative referred to the petition submitted by the assessee to the Settlement Commission wherein it had accepted the undisclosed income under s. 68 of Rs. 34 lakhs. The Settlement Commission also rejected the admission of the petition itself as it did not amount to full and true disclosure by the assessee. Accordingly, he submitted that the additions made were justified as the assessee itself had admitted the bogus deposits as its income. He drew our attention to the following observations of the Hon'ble Bombay High Court in the writ petition of the assessee: "Several persons, who are not members of the co-operative credit societies have been keeping deposits in fictitious names. In our view, the modus operandi is adopted by these persons, keeping deposits in fictitious names, moreover, and in view of the co-operative credit societies accepting the deposits from non-members. It has, therefore, become necessary for calling for information from co-operativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove decision is the correct state of law, the consequences have to be properly analysed. As per this decision, this presumption holds good only for the purposes of s. 132(5)/132. In that event, on the basis of a loose paper found, addition cannot be made in an assessment under s. 143. If the addition is not made, naturally, penalty under s. 271(1)(c) cannot be levied. But under s. 278, there is a presumption exactly similar to s. 132(4A). This implies that the prosecution can be lodged against the assessee on the basis of the loose paper found during the search. This leads to an anomaly wherein a prosecution can be lodged but no addition can be made. Therefore, according to the learned counsel, it has to be accepted that the presumption under s. 132(4A) is not only for the purposes of s. 132, but also for the purposes of assessment and penalty. The learned counsel further submitted that the assessee is like a bank and, therefore, it is not expected that the bank manager while accepting the deposits will look into the source thereof, satisfy himself about the discharge of burden under s. 68 and then only accept the deposits. Accordingly, the addition under s. 68 is not justified on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this aspect in their report and as on today the assessee continues to be recognised as a co-operative society. Hence, such violation cannot come in the way of the assessee getting deduction under s. 80P. 25. On the application to the Settlement Commission and its order, the learned counsel submitted that in order to buy peace, the assessee approached the Commission. As the Commission has not accepted the petition, the assessee is not bound by its petition at this stage. The admission in the petition was made despite the provisions of s. 132(4A) in favour of the assessee and at this stage, no adverse cognizance can be taken of the assessee's petition before the Commission. He further submitted that it is to be noted that even the Commission has taken cognizance of all the facts narrated above and the provisions of s. 132(4A). 26. As regards the deposits in the earlier years, it was submitted by the learned counsel that most of them were call deposits taken in the month of March and repaid in April, so that the assessee could present a rosy picture in the balance sheet. They were hardly utilised for the purposes of advancing loans to the members and hence, no addition can be just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poration vs. CIT 1975 CTR (Pat) 1 : (1975) 103 ITR 344 (Pat). In the case of a company where the cash credit is in the form of share application money, it has been held by the Full Bench of the Delhi High Court in the case of CIT vs. Sophia Finance Ltd. (1993) 113 CTR (Del) (FB) 472 : (1994) 205 ITR 98 (Del) that the onus on the assessee would be discharged, if the identity of the assessee has been proved. The case of a banking concern is rather on the better footing, since the bankers are not supposed to ask the depositors about the source of money. Therefore, for the similar reasons, in the case of banking concerns, it can be said that the onus on the assessee would be discharged if it is established that such assessee has acted with due diligence and caution while accepting the deposits. 30. In the present case, the assessee was asked specifically by the AO to disclose the addresses of the persons in whose names the deposits appeared in the books of the assessee, inasmuch as application forms for making such deposits did not contain the complete addresses of such depositors. However, even this minimum onus of proving the identity has not been established by the assessee in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hands of the assessee. The provisions of s. 68 provide that where the explanation offered by the assessee is not satisfactory, the sum so credited may be charged to income-tax as income of the assessee of that previous year. The word 'may' gives discretion to the AO to assess in the hands of the assessee which should be exercised judicially considering the facts and circumstances of each case. If the facts of the case indicate that such cash credits could not be considered as income of the assessee, then he shall not make addition in this regard. Reference can be made to the recent judgment of the Hon'ble Supreme Court in the case of CIT vs. Smt. P.K. Noorjahan (1999) 155 CTR (SC) 509 : (1999) 237 ITR 570 (SC). In that case, the Supreme Court was considering the provisions of s. 69. According to that judgment, the word 'may' appearing in s. 69 conferred discretion on the AO to treat the unexplained investment as income of the assessee. In that case, the assessee who was of 20 years of age, had invested a sum of Rs. 34,628 in purchase of the property which could not be explained by her satisfactorily. Accordingly, the AO made an addition of Rs. 32,628 after giving credit of Rs. 2, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,56,836. Since we have deleted these additions, there is no justification for the addition of Rs. 1,80,87,128 also. The same is accordingly deleted. 36. As regards the applicability of s. 80P(2)(a)(i), we find that the assessee has given loans only to its members. Shri Patankar, manager, in his statement under s. 132(4) at the time of search itself had stated that for drawing a loan, the person concerned must be a member of the society. Further, the confirmation from the chairman placed at p. 132 of the paper book reveals that the loans were provided only to members. The Hon'ble Supreme Court in the case of U.P. Co-operative Cane Union Federation Ltd. vs. CIT has held that the definition of a member of a co-operative society should be taken from the relevant laws of the concerned state. As the society is incorporated under the Maharashtra Co-operative Societies Act, the definition of a member and nominal member has to be adopted from the said Act. As per these definitions, members include nominal members also who are admitted as per the bye-laws and the bye-laws 74 to 88 of the society clearly state that the society can admit nominal members. In view of the above facts, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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