ITAT Visakhapatnam remands additions on cash deposits and Section 80P/40(a)(ia) issues for fresh assessment

Background of the dispute

The Visakhapatnam Bench of the Income Tax Appellate Tribunal (ITAT) adjudicated three connected appeals filed by The Edara Primary Agricultural Cooperative Credit Society Private Limited Vs ITO for AY 2015-16, AY 2016-17 and AY 2017-18. All three appeals arose from orders passed by the National Faceless Appeal Centre (Ld. CIT(A)), Delhi.

  • For AY 2015-16 and AY 2016-17, the primary controversy was an addition of cash deposits in the assessee’s bank account as unexplained money under Section 69A.
  • For AY 2017-18, the issues related to denial of deduction under Section 80P and disallowance under Section 40(a)(ia) for alleged non-deduction of tax at source on interest payments.

In all three years, the Tribunal ultimately set aside the orders of the lower authorities and remanded the matters to the Assessing Officer (AO) for de novo assessment after detailed verification of books and records.

Appeals for AY 2015-16 and AY 2016-17 – Cash deposit addition under Section 69A

Reassessment trigger and AO’s addition

The assessee is a Primary Agricultural Cooperative Credit Society, engaged in:

  • Granting credit facilities to its members; and
  • Trading in fertilizers, seeds and allied products for farmer members.

For AY 2015-16, no regular return of income had been filed in the ordinary course. Information available on the departmental portal (AIMS Module) indicated cash deposits of ₹1.42 crore (Rs. 1,42,84,915) in a savings bank account during the relevant financial year.

Relying on this information and in the absence of a regular return, the AO:

  1. Initiated reassessment proceedings under Section 147 by issuing notice under Section 148 dated 29.03.2021, with requisite approval.
  2. The assessee then filed a return in response to Section 148, declaring nil income.
  3. During the ensuing proceedings under Section 143(2), the assessee explained that:
    • The entire cash deposits represented amounts collected from members;
    • These included deposits, as well as cash recoveries of loans and advances (with interest) granted to members in earlier periods.

However, according to the AO, the assessee failed to produce key primary records, such as:

  • Cash book;
  • Audit reports;
  • Comprehensive supporting documents and ledgers.

Holding the explanation as unsubstantiated, the AO treated the entire cash deposit of ₹1,42,84,915 as unexplained money under Section 69A and completed the assessment accordingly.

For AY 2016-17, the facts and pattern of addition were materially identical; therefore, the Tribunal applied the same reasoning for both years.

Order of the CIT(A) – Appeal dismissed for lack of cooperation

The assessee challenged the addition before the Ld. CIT(A). However, the appellate authority recorded that:

  • The assessee did not meaningfully engage with the appeal;
  • Despite multiple statutory notices and opportunities, no proper submissions, books of account, audit reports or financial statements were produced;
  • Given the prolonged non-compliance, the appeal had to be decided on the basis of material available on record.

Relying, inter alia, on:

  • The principle that an appeal is not merely the act of filing but requires effective prosecution (referring to ITAT Chandigarh decision in M/s Chhabra Land and Housing Ltd. in ITA No. 1025-1027/Chandi/2005 following B. N Bhattachargee, 118 ITR 461 (SC)), and
  • The Delhi High Court decision in CIT v. Gold Leaf Capital Corporation Ltd. (ITA No. 798 of 2009) that discourages granting repeated opportunities to negligent assessees,

the Ld. CIT(A) upheld:

  • The addition of ₹1,42,84,915 under Section 69A as unexplained cash deposits; and
  • Rejected the assessee’s grounds relating to the nature and source of deposits, noting absence of verified books and evidence.

Assessee’s contentions before ITAT

Aggrieved, the assessee carried the matter to the ITAT. During the hearing, the assessee submitted a detailed Paper Book (119 pages) and advanced the following key arguments:

  1. Nature of business and receipts

    • The society operates only for its members; it does not lend to outsiders.
    • The cash deposits in the bank account were nothing but:
      • Cash deposits received from members; and
      • Cash collections towards repayment of earlier loans and advances along with interest, forming part of its regular banking/credit operations.

  2. Documentary trail available
    The Paper Book contained, inter alia: