Demonetisation Cash Deposits by Co-operative Society Members Cannot Attract Section 69A Addition — ITAT Bangalore Allows Appeal

Case Overview

The Karnataka Cooperative Credit Society Ltd. Vs ITO (ITAT Bangalore)
Assessment Year: 2017-18
Order Date: 3rd July, 2026

The Income Tax Appellate Tribunal, Bangalore, delivered a significant ruling in favour of a co-operative credit society by deleting an addition made under Section 69A of the Income Tax Act, 1961, in relation to cash deposited during the demonetisation period. The Tribunal firmly held that merely receiving old currency notes from registered members, even if technically unauthorised post-demonetisation, cannot be the sole basis for characterising such deposits as unexplained money under Section 69A.

Background and Facts of the Case

The assessee, The Karnataka Cooperative Credit Society Ltd., is a co-operative society duly registered under the provisions of the Karnataka Co-operative Societies Act and operates under the supervision of the Registrar of Co-operative Societies.

Since the assessee had not filed its return of income, the Assessing Officer issued a notice under Section 142(1) of the Income Tax Act, 1961 on 09/03/2018. The assessee failed to respond to this notice as well. Subsequently, during the course of the Operation Clean Money exercise — an online verification initiative undertaken during the demonetisation period — the Assessing Officer gathered information indicating that the society had deposited substantial cash in old currency notes during the demonetisation window.

Show Cause Notice and Assessee's Response

A show cause notice under Section 144 was issued on 06/09/2019, proposing to treat the said cash deposits as unexplained. The assessee filed its reply on 16/09/2019, clearly setting out that:

  • The deposits comprised opening cash balance carried forward from prior periods.
  • A significant portion represented savings bank account contributions from members.
  • Additional amounts came from pigmy deposit collections from members.
  • The remaining deposits pertained to repayment of loans by members.

Along with the reply, the assessee submitted an annexure containing date-wise details of every deposit, including the following particulars of each depositing member:

  • Share number
  • Full name
  • Residential address
  • Occupation
  • Aadhaar number

Despite the detailed information submitted, the Assessing Officer refused to accept the explanation. The rejection was premised on two grounds:

  1. The assessee had not filed a return of income under Section 139 or pursuant to the notice issued under Section 142(1).
  2. The assessee, being a co-operative society, was allegedly not authorised to accept specified bank notes after the demonetisation announcement.

Accordingly, the Assessing Officer treated the entire cash deposit as unexplained money under Section 69A of the Income Tax Act, 1961.

Proceedings Before the First Appellate Authority