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TMI Blog2014 (5) TMI 844X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of address/whereabouts of the customers - addition u/s 68 cannot be made merely because the address of the customers are incomplete - CIT(A) rightly deleted the addition - the order of the CIT(A) is upheld with regard to deletion of addition u/s 68 of the Act on the deposits accepted by the assessee from public – Decided against Revenue. - ITA No. 1194/Hyd/2013 - - - Dated:- 29-4-2014 - Shri Chandra Poojari And Shri Saktijit Dey,JJ. For the Appellant : Sri D. Sudhakar Rao For the Respondent : Sri S. Rama Rao ORDER Per Chandra Poojari, A.M. This appeal by the Revenue is directed against the order of the CIT(A)-VI, Hyderabad dated 23.05.2013 for assessment year 2009-10. 2. The Revenue raised the following effective grounds: 2. Whether the ld. CIT(A) is correct in law in holding that the assessee has followed the KYC norms and maintained systematic record, whereas the assessee has not submitted the requisite details before the AO, during the course of scrutiny proceedings. 3. Whether the Ld. CIT(A) is correct in law in holding that the society is excluded from the purview of section 68 of the Act, as the society is following KYC norms as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r appeal is concerned, the CIT(A) has merely relied on the order of the Tribunal dated 26th June, 2010 in assessee's own case for the assessment years 2006-07 and 2007-08 in ITA Nos. 1156 to 1159/Hyd/2009, wherein the issue relates to deletion of penalties levied under S. 271D and 271E of the Act, and not with regard to the additions made under S. 68 of the Act, and the CIT(A) not justified in straight away deleting the additions based on the decision for the other years noted above. She has not done the exercise which the CIT(A) has done for the earlier years, discussed in the earlier order of the Tribunal. As such, it is appropriate, in the facts and circumstances of the case for the year under appeal, to set aside the order of the CIT(A) and remit the mater back to the file of the CIT(A), who shall bring on record, the facts relating to the assessment year under consideration. The assessee is directed to file the relevant details, including the names and addresses of the depositors with PAN number, as per the KYC Scheme, as collected by the assessee. The CIT(A) shall thereafter decide the matter afresh in accordance with law and also keeping in making the decision of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capturing all the required information in the prescribed formats, while accepting the deposits from its members. Even in a case where such information is not verifiable for the reasons of enormity of information, the society was excluded from the purview of Section 68, as far as the deposits from members are concerned, as the acceptance of deposits by assessee Society cannot be equated with other kind of assesses, in whose cases normally the deposits are accepted from the people connected with the terms of Sec. 131 of Negotiable Instruments Act and the assessee Society is not obliged to question the source of deposits made by its member customers. Thus the decisions of Tribunal and the first appellate authority for earlier assessment years, in assessee's own case has upheld the issue holding that : (a) The assessee's Society cannot be equated with other assesses who are in the line of banking activity and that the Society's onus is deemed to have been discharged with maintenance of regulated and systematic accounting record and it is not concerned with the creditworthiness of depositor members; (b) The assessee Society is not expected to cause independent enquiri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts the assessee should not only prove identity of creditors but also creditworthiness of the creditors and genuineness of the transactions. On the proposition laid down by the Calcutta High Court, we have no dispute. 10. In case of credit appearing in books of account, the assessee is bound to explain identity of the parties, creditworthiness of the parties and genuineness of the transactions. These are the basic requirements of provisions of section 68 of the Act. In the present case the assessee is in banking business and assessee has complied with KYC norms. The Tribunal in its earlier order in ITA No. 1003/Hyd/ 2011 Ors. in assessee s own case dated 2.7.2012, after elaborately discussing the entire facts and circumstances of the case observed as follows: 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 me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Cooperative 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 interest. There is no dispute in these assessment years the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss 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 109 of the assessee's paper book), it was held that the deposits received by the assessee, which was a non-banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count No. 8268 of Shri J.P. Singh, which fact was got 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 bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 11. Being so, in our opinion, the case law relied on by the learned DR in the case of Shankar Industries (cited supra) cannot be applied to the f ..... 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