Income Tax Appellate Tribunal - Hyderabad
M/S.Citizen Co-Operative Society ... vs Department Of Income Tax on 1 April, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No. 1194/Hyd/2013
Assessment year 2009-10
The Asst. CIT vs. M/s. Citizen Co-operative
Circle-9(1) Society Ltd., Hyderabad
Hyderabad PAN: AAAAT3952F
Appellant Respondent
Appellant by: Sri D. Sudhakar Rao
Respondent by: Sri S. Rama Rao
Date of hearing: 01.04.2014
Date of pronouncement: 29.04.2014
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 required under the Banking Regulation Act, and also in view of enormity of the 2 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd.
============================ information, where as the society has not obtained license for running the banking business and under such circumstances the society cannot be treated as an assessee engaged in the business of banking.
4. Brief facts of the case are that for the assessment year 2009- 10, the assessee, engaged in the business of banking, has filed return admitting 'nil' income, after claiming deduction under S.80P of the Act at Rs.4,26,37,081. Though the return was initially processed under S.143(1), the case was taken up for scrutiny, and in the scrutiny assessment, the assessee was requested to furnish deposits register along with full details of the depositors, i.e. name and addresses, etc. in order to verity the genuineness of the transactions. There are some cash deposits also. The Authorised Representative for the assessee has furnished some computerized sheets of the Fixed Deposit accounts, which contained only the account number, member's name, opening balance, debit, credit and balance amount, but not addresses of the depositors, which were not made available. Observing that in the absence of the addresses, it is not possible to verify the genuineness of the transactions, the Assessing Officer held that difference between the closing balance as on 31.3.2009 of Rs.
160,24,48,937 and opening balance as on 1.4.2008 of Rs. 121,70,76,143, viz., Rs. 38,53,72,794 represents the income of the assessee. He accordingly treated the said difference of Rs. 38,53,72,794, representing effectively the deposits received during the previous year, as the income of the assessee. He accordingly made an addition of Rs. 38,53,72,794 under S. 68 of the Act, while completing the assessment on a total income 3 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd.
============================ of Rs. 42,80,89,880, vide assessment order dated 19.12.2011 passed under S.143(3) of the Act.
5. On appeal, the CIT(A) deleted the said addition, following the earlier order of the Tribunal for the assessment years 2006-07 and 2007- 08 in ITA Nos. 1556 to 1159/Hyd/2009, whereby the Tribunal, vide its order dated 26.6.2010 deleted the penalties levied under S. 271D and under S. 271E of the Act under similar circumstances, based on the addition made under S. 68 of the Act.
6. The Revenue came in appeal before the Tribunal on earlier occasion. The Tribunal observed that as far as the year under 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 4 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd.
============================ 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 Tribunal for the assessment year 2007-08, and of course, after giving reasonable opportunity of hearing to the assessee.
7. Consequent to this, the CIT(A) once again examined the issue relating to section 68 of the Act and observed as follows:
(a) The assessee is society registered and recognised by State Government.
(b) The Society is engaged in the activity of banking for it's members, as approved by RBI and governed by Banking Regulation Act, 1949.
(c) The Assessee Society was maintaining systematic record, at the time of accepting the deposits as well as refunding the amounts to the member depositors and followed KYC norms, with the Society governed by inspections undertaken by the concerned Regulatory Authorities.
(d) The Assessing Officer merely relied upon the facts of the case for AY 2008-09 and no enquiries were made or details were called for to examine the genuineness of the creditworthiness of the depositors for the year and the addition was made on the net of opening and closing balances of the deposits for the year and the additions were made by falling on the findings and observations of the Assessing Officer for the Assessment Year namely AY 2008-09 and earlier Years. There is no change in the activities and practices from the earlier year and the affidavit filed in this regard and the information filed indicate the same, as such the decisions of the earlier year are applicable to the year under reference, on similar set of facts.
(e) Regarding the enormity of information related to 5 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd.
============================ 68000 and odd number of members of Society and limitations in maintaining and furnishing of information of the depositors, the Hon'ble ITAT, Hyderabad has already made the specific observations, in assessee's own case related to earlier years, vide it's order in appeal bearing ITA No. 1200/Hyd/2011, ITA No. 1201/Hyd/2011 and ITA No. 1049/Hyd/2011, dated 02.07.2012 and ordered the deletion of addition u/s. 68 of IT Act, saying to the effect that the assessee society strictly followed KYC norms and when the Society is having members of 68000, you cannot come to the conclusion that the bank does not have furnished identity and proof of depositors by verifying few numbers.
8. The CIT(A) further observed that the facts of the case indicate and prove that the Society is carrying on the banking activity, as per banking regulations and by 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 :
6 ITA No. 1194/Hyd/2013M/s. Citizen Co-operative Society Ltd.
============================
(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 enquiries about the identity of depositors and their creditworthiness, in view of regulations and inspections by the authorities concerned.
(c) For the year under reference, there is no change in facts, compared to earlier years, in whose case the decisions of the Hon'ble ITAT, as regard to the additions u/s. 68 of IT Act are applicable. Further, the AO relied upon the decisions of his predecessor in the earlier years and as such, the decision of the CIT(A) and Hon'ble ITAT are applicable to the year under reference, with the same set of facts as applicable/relatable to earlier years. No fresh facts, were brought on the record by the AO in assessment order and no new set of facts emerged, based on the information furnished and brought on record either during the course of the assessment proceedings or the set aside appellate proceedings before CIT(A), as regard to the methodology in accepting the deposits by the Society from its member depositors. With the set of facts remaining the same, the decision of ITAT squarely applicable to the year under reference and addition u/s. 68 are not sustainable, since the provisions of Sec. 68 are held to be not applicable to the assessee Society. Thus, on the limited issue of addition u/s. 68, to the extent of Rs. 38,53,72,794/-, as set aside by Hon'ble ITAT stand decided in favour of the assessee and the addition stand deleted. This ground of appeal is treated as allowed.
Against this, the Revenue is in appeal before us.
7 ITA No. 1194/Hyd/2013M/s. Citizen Co-operative Society Ltd.
============================
9. We have heard both the parties and perused material on record. The learned DR tried to distinguish earlier order of the Tribunal by placing reliance on the following judgements:
(a) CIT vs. Devi Prasad Viswanath Prasad (72 ITR 194) (SC):
We have carefully gone through this judgement. This judgement is delivered under Indian Income-tax Act, 1922, wherein their Lordships held that there is nothing in law which prevents the ITO in an appropriate case in taxing both the cash credits, the source and nature of which is not satisfactorily explained, and the business income estimated by him u/s. 13, after rejecting books of account of the assessee as unreliable. Being so, this judgement cannot be applied to the facts of the present case.
(b) Shankar Industries vs. CIT (114 ITR 689) (Cal) &
(c) C. Kant & Co. vs. CIT (126 ITR 63) (Cal):
Wherein it was held that in respect of cash credits 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 8 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd.
============================ 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 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 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 9 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd.
============================ 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 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 10 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd.
============================ 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 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 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 11 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd.
============================ 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 creditworthiness 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 12 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd. ============================ 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 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 13 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd. ============================ 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 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 14 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd. ============================ 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 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 15 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd.
============================ 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 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 16 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd.
============================ 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.
45. Further, undisputedly, the documents so produced were directly related to the additions made. In this 17 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd.
============================ 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 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 facts and circumstances of the present case. Considering the earlier order of the Tribunal (cited supra) in assessee's own case, we are inclined to confirm 18 ITA No. 1194/Hyd/2013 M/s. Citizen Co-operative Society Ltd.
============================ the order of the CIT(A) with regard to deletion of addition u/s. 68 of the Act on the deposits accepted by the assessee from public.
12. In the result, Revenue appeal is dismissed.
Order pronounced in Open Court on 29th April, 2014 Sd/- Sd/-
(SAKTIJIT DEY) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated the 29th April, 2014
tprao
Copy to:
1. The Asst. CIT, Room No. 127, 1B, First Floor, IT Towers, AC Guards, Masab Tank, Hyderabad.
2. M/s. The Citizen Co-operative Society Ltd., 7-133/1, HUDA Colony, Saroor Nagar, Hyderabad.
3. The CIT(A)-VI, Hyderabad.
4. The CIT-VI, Hyderabad
5. The DR, B Bench, ITAT, Hyderabad.