| SooperKanoon Citation | sooperkanoon.com/70921 |
| Court | Income Tax Appellate Tribunal ITAT Pune |
| Decided On | Feb-18-2000 |
| Judge | B Chhibber, K Singhal |
| Appellant | Shri Mahavir Nagari Sahakari Pat |
| Respondent | Deputy Commissioner of Income Tax |
Aggrieved by the order of the AO, the assessee is in appeal before us.
2. As many as seven grounds have been raised, but the disputes raised by the assessee are summarized as follows.: (1) The AO is not justified in treating the deposits from customers in the form of fixed deposits of Rs. 4,86,03,396 and call deposits of Rs. 10,26,56,836 as unaccounted cash credits as per the provisions of Section 68 and assessing the same as undisclosed income of the assessee-society; (2) The AO is not justified in disallowing the interest of Rs. 1,80,87,128 worked out on estimated/ad hoc 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 Section 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 such doubtful depositors out of the above depositors. The assessee replied that these deposits were mainly owned by the parties mentioned above (details given on pp. 88 and 108 of the paper book). It was further submitted that the balance FDRs also belonged to such parties who deposited the same in bogus names. However, the AO did not accept the contention of the assessee. He further looked into the FDRs/call deposits of the earlier years also and held that the assessee had not proved the identity of the deposit-holders and taxed the same as the unexplained credits in the hands of the assessee. The AO states in para 6 of the assessment order as under : "Verification of ledger showed the same trend as was found during the search. In a large number of cases it was found that no address of the depositors was there. It was also found in all of them the date of deposit and the date of withdrawal will be the same though the number of owners of the FDRs are large. This further strengthen the allegation that the Sanstha is accepting deposits in fictitious names and the deposits are made by one person in various names." 6. When called upon to prove the genuineness of the deposits, the assessee filed a reply on 29th Nov., 1996. It was stated that a fire broke out in the office premises of the assessee on 22nd Dec., 1994, and many of the ledgers, documents, account opening forms were burnt.
After that, the society shifted its office to Bindu Chowk and while shifting, an executive decision was taken to destroy the account opening forms of the depositors whose accounts have been closed. Taking this plea, it was stated that no address could be submitted with regard to Sr. No. 1 to 1283, 1321 to 1385, 1700, 3141, 1386 to 1389 and 1397 to 1401. The total FDRs in this regard will be 2799. The assessee also stated that the names and addresses of FDR-holders appearing at Sr. No.1284 to 1320, 1390 to 1396, 1402 to 1699, 3170, 3190 to 3196 were available in account opening forms. In all these cases, accounts were closed. Total of such numbers was 349. The assessee also tried to give the addresses to 51 FDR-holders, whose deposits were to mature and regarding 10 deposits appearing at Sr. No. 3142 to 3151, the assessee stated that the same were owned up by Shriram Jaju. The AO rejected the explanation of the assessee for the following reasons : (1) The assessee claims that a fire broke out on 22nd Dec., 1994, and account opening 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 Section 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 credits as per the provisions of Section 68. The AO made further addition of Rs. 1,80,87,128 on account of estimated/ad hoc basis on the total deposits or loans, stating in para 15 of the assessment order as under ; "As the abovesaid deposits are treated as income of the assessee, interest paid on these deposits cannot be allowed as expenditure.
The assessee claims payment of interest at the rate of 14.5 per cent. The disallowance on account of interest will be made accordingly." 8. The assessee also submitted before the AO that it was a society registered under the Maharashtra State Co-operative Societies Act, 1960, and was engaged in carrying on the business of banking and also providing credited facilities to its members and therefore, it was eligible for deduction under Section 80P(2)(a)(i) of the Act. This contention was also rejected by the AO as per the discussion in'para 17 of the assessment order. The crux of the finding of the AO is that since the assessee-society had been accepting deposits in Benami/fictitious names who were not in any case members of the society and further that it was accepting deposits even from non-members, it was not entitled to deduction under Section 80P(2)(a)(i) of the IT Act, 1961.
9. Dr. S.U. Pathak, the learned counsel for the assessee, submitted that there is no justification for the impugned additions made by the AO. Firstly, he submitted that out of the doubtful deposits found, the assessee proved to the AO that a major amount of FDRs worth Rs. 2.46 crores was being owned by Sanghvi, Jaju groups, etc. This itself shows that such FDRs did not constitute the assessee's money but they were basically the Benami deposits of some third parties. The assessee in order to grow fast went on accepting deposits from each and every person coming to keep deposit. Since authority was given to the managers at respective branches, proper care does not seem to have been taken to ensure the completion of formalities including the genuineness of the deposits, etc. This fact that deposit are kept by the people in different names got highlighted during the course of action under Section 132. Since at no stage either internal or Government auditor had pointed out this fact, the directors who used to meet only periodically for taking policy decision, did not come to know about such lapse. Therefore, the learned counsel argued, merely because the assessee 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. (Emphasis, italicised is print, supplied) 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 Section 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 undisclosed income in the hands of the assessee. In spite of the rectification letter and the directions from the Tribunal in the order on stay application, no action has been taken by the AO.10. The learned counsel further submitted that the AO in the assessment order, in this context, has observed many times that the assessee is accepting deposits in bogus/Benami names, He drew our attention to the observation of the AO at pp. 8 to 10 in the assessment order. He submitted that it the AO himself has accepted that the assessee is accepting money from various . persons in Benami/bogus names, it itself implies that such deposits belong to somebody else other than the assessee. Accordingly, he submitted that the AO is not justified to tax the same as the unexplained cash credits under Section 68.
11. Shri Pathak further submitted that all the deposit forms and the books of account which contained such deposits were found at the assessee's premises during the course of search. In view of the provisions of Section 132(4A), these documents are to be considered as genuine and their contents are to be considered as true and correct.
Accordingly, he contended that all these deposit forms and books of account must be considered to be true and correct and as the cash books have shown the entries of the deposits received, it must be presumed that the assessee has accepted these deposits from the third parties and also repaid such deposits to them as per the entries in the books of account. According to the learned counsel, in view of this presumption, it must be accepted that the unexplained deposits belonged to some third parties and not the assessee. In view of this presumption under Section 132(4A), according to the learned counsel, the assessee cannot be asked to discharged the burden under Section 68.
12. Shri Pathak further submitted that the assessee's business is to provide loans to its members. If it gets more deposits, it advances a higher amount of loans. It is not a case wherein the assessee was in dire need of money for accounting for the immediate requirement in its business. Generally, the assessees introduce their black money as bogus cash credits in their accounts because cash is required in their business. Here in this case, it was not the fact and hence the unexplained deposits should not be considered for an addition under Section 68 of the Act. The learned counsel further submitted 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 Section 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 we're growing every year, accepted such deposits.
They were not really needed in the business as the accounts themselves show that they were repaid immediately. As the accounts were closed, the assessee was not in possession of any evidence to identify such depositors. Further, from the instances of Jajus and Sanghvis, etc. the assessee had proved that such deposits belonged to third parties and not to the assessee. In the past years, there is no complaint from any depositor about repayment of such deposits and hence making addition on account of the deposits in the past years is not within the purview of Chapter XIV-B because such addition is not on account of any findings out of search operations. In view of this background, the learned counsel submitted that the AO is not justified in making the additions on account of deposits of the past years.
14. Shri Pathak further submitted that after the assessment was over, the assessee has refunded certain deposits which were treated as bogus deposits by the AO and the details of such deposits are given on pp.
117 to 121 of the paper book. He drew our attention to the list of such depositors, their addresses given on these pages and submitted that this fact itself shows that the deposits belonged to third parties and not to the assessee. He further submitted that the assessee had taken guarantees from such depositors. He drew our attention to a sample copy placed at p. 122 of the paper book which also shows that the balance depositors are also genuine and the assessee had undertaken to furnish the names and addresses of such depositors as and when they came for repayment of the deposits. In support of his contentions, the learned counsel relied upon the following decisions : (1) Kantilal Bros. vs. Asstt. CIT (1995) 51 TTJ (Pune) 513 : (1992) 52 ITD 412 (Pune); (3) Chander Mohan Mehta vs. Asstt. CIT (1999) 65 TTJ (Pune) 327 : (1999) 71 ITD 245 (Pune); and 15. The learned counsel further submitted that if at all any addition on account of the above cash credits is to be made, it can be made under the head 'income from business'. The assessee has no other source of income. During the course of search also, no evidence was found to indicate that the assessee was having any other activity than that of providing loans to its members. The deposits are also credited to the books of account 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 : 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 Section 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 Section 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 (p. 66 of the paper book). Secondly, he drew our attention to a confirmation from the chairman that the loans are provided only to the members (p. 132 of the paper book). He also made reference to the Supreme Court decision in the case of U.P. Co-operative Cane Union Federation Ltd. vs. CIT (1999) 103 Taxman 376 (SC), wherein the Court has held that the definition of a member of a co-operative society should be taken from the relevant laws of the concerned state. Accordingly, he drew our attention to p.
90 of the paper book, wherein the definition of a member and nominal member is given as per the Maharashtra Co-operative Societies Act. As per these definitions, members include a nominal member who is admitted as per the bye-laws and our attention was drawn to bye-laws 74 to 88 (English translation on p. 88) wherein it is clearly stated that the society can admit nominal members. The learned counsel submitted that in view of these facts the assessee satisfies the conditions laid down under Section 80P(2)(a)(i) and it is entitled to the deduction under Section 80P of the Act. The interest earned by the assessee will be exempt under this section. He submitted that the cash credits even if taxed will be considered as income from the same business, i.e., providing credit facilities to the members and accordingly, they will also be entitled to deduction under Section 80P and thus, the entire income of the assessee is entitled to deduction under Section 80P and accordingly, no addition in sustainable in its hands.
17. Coming to the charge of the AO that the assessee has violated the bye-laws and hence it ceased to be a co-operative society and accordingly the deduction under Section 80P is not allowable, the learned counsel submitted that the bye-laws do not take the character of the statute. In this connection, he placed reliance on the decision of the Hon'ble Supreme Court in the case of Cooperative Central Bank 1970 AIR SC 245. He further submitted that the violation of bye-laws by the assessee cannot lead to the conclusion that the assessee is not a co-operative society. He further submitted that registration was granted to the society by the registrar of co-operative societies (p.
139 of the paper book). He drew our attention to pp. 25 to 32 of paper book II which show that despite the fact that in the course of action by the IT Department wherein it was held that the society had accepted 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 (And) 105 : (1992) 43 ITD 697 (And) 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 Section 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 UK Exporters (copy placed on record) for the proposition that deduction under Section 80P should be allowed while computing the undisclosed income to the assessee.
18. Shri Naresh Kumar, the learned senior Departmental Representative strongly supported the order of the AO. He submitted that during the course of search, a large number of deposits in various names were found and seized. The names of some popular persons, like Sachin Tendulkar, L.K. Advani, Ravi Shastri, Kapil Dev, etc. were used for the purchase of such fixed deposits. He produced some of the original FDRs for our perusal and submitted that the use of the same pen, ink, continuous numbers of fixed deposits and similar style of writing, proved that all these FDs were purchased at one point of time by one person. The opening forms of the FDs were incomplete and carried neither the statutory introduction nor the complete address of the depositors. He, thus, argued that all these FDs carrying fictitious names were not genuine. He further submitted that it may be relevant to note that a large number of such FDs, i.e., having incomplete address, no introduction, purchased in serial numbers in the names of different persons by one person, were owned by certain groups, like Sanghvi group. Jaju group and Kamat group. He, therefore, argued that in view of the decision of the TM in Overseas Chinese Cuisine vs. Asstt. CIT (1996) 55 TTJ (Bom) (TM) 304 : (1996) 56 ITD 67 (Bom) (TM), rest of such FDs are also to be held to be non-genuine. The learned senior Departmental Representative then read the provisions of Section 68 and argued that Section 68 does not grant exemption to any category of assessee and is applicable equally to all kinds to assessees. There is no discrimination between one kind of assessee and another, so far as Section 68 is concerned. Relying upon the decision of the Hon'ble Supreme Court in the case of A. Govindarajulu Mudaliar vs. CIT (1958) 34 ITR 807 (SC), the learned senior Departmental Representative stated that it is for the assessee to prove the sources and the nature of the receipts appearing in its books of account. The Department has to prove neither the source nor the nature of the receipts, as has been held by the Madhya Pradesh High Court in Seth Kalekhan Mohamed Hanif vs. CIT (1958) 34 ITR 669 (MP) which decision has been affirmed by the Hon'ble Supreme Court in Seth Kalekhan Mohd. Hanif vs. CIT (1963) 50 ITR 1 (SC). He 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. CTT (1978) 114 ITR 689 (Cal), C. Kant & Co. vs. CIT (1980) 126 ITR 63 (Cal), Oriental Wire Industries (P) Ltd. vs. CIT (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 : Submission of incomplete address cannot be said to be the discharge of the burden lying upon the assessee. The Department cannot trace a person with incomplete address. Therefore, the assessee not being able to discharge its initial burden, no burden lies upon the Department to prove the bogus nature or otherwise of the cash credit appearing in the books of account. The learned senior Departmental Representative further stated that it was noticed that even in the earlier years the assessee was accepting the deposits in bogus names and, therefore, the addition made by the AO for the earlier years is justified, in view of Tribunal decision in the case of Overseas Chinese Cuisine (supra).
19. On the point that the documents were found during the search and, therefore, they are to be considered as genuine under Section 132(4A), the learned senior Departmental Representative submitted that this presumption is not available in the assessment, but it is only for the purpose of Section 132. Thus, according to him, despite this section, the assessee has to discharge the burden under Section 68 as regards the bogus depositors. For this proposition, he relied upon the decision in the case of Pushkar Narayan Saraf vs. CIT (1990) 183 ITR 388 (All).
The learned senior Departmental Representative cited the case laws in Sir Padampat Singhania vs. CIT (1957) 32 ITR 33 (All) and CIT vs.
Maduri Rajaiahgari Kistaiah (1979) 120 ITR 294 (AP) to point out that the addition on account of cash credits be made under the head "income from other sources" and it should not be treated as income from business. He further stated that (1979) 120 ITR 294 (AP) (supra) does refer to the various decisions relied upon by the assessee's counsel and it is held therein that addition under Section 68 should be made under the head 'income from other sources'. Accordingly, he submitted that the deduction under Section 80P being allowable on interest earned from the business of giving credit facilities to the members, should not be allowed on the cash credits under Section 68.
20. The next point the learned senior Departmental Representative raised, was that by taking deposits from non-members the asessee has violated the bye-laws, the circulars issued by the registrar, co-operative societies. He further submitted that the assessee had submitted a list of the various members but a member of their names do not appear in the members' register as the said numbers in the register are not stated against their names by the assessee 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 Section SOP 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 Section 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 operand! 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-operative credit societies to investigate the matter in accordance with law." 22. In reply, the assessee's counsel Dr. Pathak submitted that the various bogus deposits in the name of Sachin Tendulkar, Kapil Dev, etc.
were obviously owned by Sanghvi, Jaju groups, etc. Thus, the learned Departmental Representative's apprehension that the same were introduced by the assessee is not justified. The very fact that these groups owned up the bogus deposits, itself is an indication that rest of the deposits also were made by such persons only and by the admission of Sanghvi, Jajus, etc. the assessee has discharged the burden of proving that the bogus deposits were made by third parties and they did not belong to the assessee. The alleged ink, pen, handwriting as pointed out by the learned Departmental Representative were not that of the assessee, but were that of Sanghvi, Jajus, etc. so that no addition should be made in the assessee's hands. As regards the various case laws relied upon by the learned Departmental Representative, the learned counsel submitted that in order to accept cash credit as genuine, the capacity, identity and the genuineness of the transactions need to be established by the assessee. This is the crux of the various case laws cited by the learned Departmental Representative and he did not dispute that the above burden is upon the assessee in a normal case. But in the background of the present case and particularly in view of the provisions of Section 132(4A), no addition can be made by invoking Section 68 in the present case. He submitted that addition under Section 68 cannot be made in the hands of the assessee if the creditor has owned up that the deposits were made by him in bogus names.
23. As regards the decision in the case of Pushkar Narayan Saraf (supra), it was submitted by the learned counsel that this decision is not stating the correct position of law. First of all, it was stated that the above decision states that the presumption under Section 132(4A) is applicable only for the purposes of Section 132(5) and not for the purposes of assessment under Section 143. This view itself is incorrect because having removed the provision of Section 132(5), the legislature has retained Section 132(4A) and it implies that the purpose of this section was not only for the order under Section 132(5) but also for the purposes of assessment under the Act. He further submitted that if it is held that the above 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 Section 132(5)/132. In that event, on the basis of a loose paper found, addition cannot be made in an assessment under Section 143. If the addition is not made, naturally, penalty under Section 271(1)(c) cannot be levied. But under Section 278, there is a presumption exactly similar to Section 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 Section 132(4A) is not only for the purposes of Section 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 Section 68 and then only accept the deposits. Accordingly, the addition under Section 68 is not justified on the facts of this case.
24. In response to the repeated argument of the learned senior Departmental Representative that the assessee was engaged in money-laundering activity and hence no sympathy be shown, it was submitted by the learned counsel that first of all, the case has to be decided as per law and secondly, that the very word "money-laundering" used by the learned Departmental Representative itself implies that the deposits do not belong to the assessee because as per the learned Departmental Representative the assessee engaged in the business of laundering someone else's money and hence the addition is not possible in view of this argument of the learned Departmental Representative under Section 68 of the Act. The learned counsel further submitted that the cash credits are to be taken, on the facts of the case, from the same business as that of the assessee which, in the present case, is of providing credit facilities to the members. The deduction under Section 80P would, therefore, be allowable on such cash credits even if they are taxed. As regards the contention of the learned Departmental Representative that the list of persons who were claimed to be members as submitted by the assessee contained the names which do not figure in the member's register, it was submitted by the learned counsel that these details were given in a hurry to the AO by the assessee as the AO did not give a sufficient time and, therefore, in the cases of certain persons their number as per the member's register was not written.
However, during the reply, the details of such persons in the members' register was given and it was shown that the loans were advanced only to the members and, thus, the assessee has satisfied the tests as laid down under Section 80P(2)(a)(i) and the deduction was allowable. In response to the learned Departmental Representative's contention that the assessee had violated the bye-laws and the circulars of the registrar and hence, deduction under Section 80P should not be allowed, the learned counsel submitted that presuming without admitting that the assessee has violated the bye-laws, necessary action has to be taken by the registrar and there is no provision in the Co-operative Societies Act that violation of such bye-laws leads to cancellation of registration as a society. He reiterated that the auditors for the later years also have not commented adversely on 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 Section 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 Section 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 Section 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 justified on account of such deposits.
27. Rival submissions of the parties, case law referred to and the material placed before us have been considered carefully. The first question to be considered is whether the provisions of Section 68 can be applied to the facts of the present case. In our opinion, the answer is in affirmative. The learned senior Departmental Representative is right in contending that Section 68 does not make any distinction between a banking concern and non-banking concern. Where the accounts were maintained by the assessee and cash credits appear in such books of account, then provisions of Section 68 would become applicable and the initial burden to prove the genuineness of the cash credits would be on the assessee, though the nature of onus may vary from case to case.
28. We also do not find any force in the contention of the learned counsel for the assessee that provisions of Section 68 cannot be applied to block assessment. Sub-section (2) of section 158BB provides that provisions of Section 68 would be applicable. Besides this, section 158BH also provides that "Save as otherwise provided in this chapter, all other provisions of this Act shall apply to assessment made under this chapter." Since there is no exclusion of section 68, it is held that provisions of section 68 would be applicable to block assessment.
29. Having held that provisions of Section 68 are applicable to banking concerns, the next question would be whether the initial onus has been discharged by the assessee. At this stage, it would be useful to mention that the nature of onus would depend upon the facts of each case. In some cases, it may be very heavy, while in some cases, it may be very light. For example, where the cash credit is in the name of relatives or friends of the assessee, the burden would be heavy one and the assessee would have to prove the identity, capacity and genuineness of the cash credits. However, where the cash credit is in the name of third parties, the onus of the assessee may not be heavy and it would be sufficient if the identity of the cash creditor is established and the said creditor confirms trie same. The assessee cannot be asked to prove source of the source. Reference may be made in this connection to the decision of the Bombay High Court in the case of Orient Trading Co.
Ltd. vs. CIT (1963) 49 ITR 723 (Bom) and the decision of the Patna High Court in the case of Sarogi Credit Corporation vs. CIT (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. (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 present case, despite specific request made by the AO. Accordingly, it cannot be said that the initial onus has been discharged by the assessee.
31. The contention of the learned counsel for the assessee that as per the presumption under Section 132(4A), records found in the course of search should be presumed to be correct and true, also cannot be accepted on the facts of the case. In our opinion, such presumption can be raised only with reference to the incriminating material found in the course of search which was never intended by the assessee to be disclosed to the Department. The reason is obvious. Three presumption are raised under Section 132(4A). Firstly, the books of account, documents and assets found in the search belong to the assessee.
Secondly, contents of such books of account and documents are correct.
Thirdly, the handwriting is of the assessee. These presumptions have been raised against the assessee as a rule of evidence, so that the Department is relieved of impossible burden which otherwise would have been on the Revenue. As far as regular books of account are concerned, the assessee cannot deny the ownership. Therefore, there was no need of raising such presumption. Therefore, in our opinion, the presumption raised under Section 132(4A) cannot be applied to the records regularly maintained by the assessee. In the present case, what has been found is a record regularly maintained by the assessee. The application, forms for deposits are part of regular record of the assessee. Therefore, no such presumption can be raised with reference to such record. It is for the assessee to prove the genuineness of the same.
32. The decision of this Bench in the case of Chander Mohan Mehta vs.
Asstt. CIT (supra) is distinguishable on the facts and the ratio laid down in that case cannot be applied to the facts of the present case.
In that case, it has been held that where an incriminating document is found, then it should be either accepted or rejected in toto. In the present case, no incriminating material has been found in the course of search. Further, the genuineness of application forms has been rejected in toto where the assessee has not been able to prove the same.
Accordingly, that decision cannot be applied.
33. Despite all these findings as given in the preceding paragraphs, we are of the view that still on the facts of the case additions cannot be made in the hands of the assessee. The provisions of Section 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) 237 ITR 570 (SC). In that case, the Supreme Court was considering the provisions of Section 69. According to that judgment, the word 'may1 appearing in Section 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. 2,000. The addition was confirmed by the AAC but the Tribunal deleted the addition as, according to it, it was not possible for the assessee to earn such amount. According to the Tribunal, the AO had not exercised the discretion properly keeping in view of facts of that case. The said decision of the Tribunal has been upheld by the Hon'ble Supreme Court. 34. In the present case, it has been established on the record that deposits with the assessee were in fictitious names. This is the finding of the AO as is apparent from various observations in the assessment order. When the AO himself has accepted that the assessee is accepting money from various persons in Benami/bogus names, it itself implies that such deposits belong to somebody other than the assessee. Further, the learned Departmental Representative, submission that the assessee was engaged in "money-laundering" implies that the assessee was engaged in the business of money-laundering of somebody else's money and hence the addition is not possible in the hands of the assessee. The fact that Sanghvi group, Jaju group and Kamat group have owned up substantial deposits of Rs. 2,46,08,000 in various fictitious names and declared as their income either in own name or under Voluntary Disclosure Scheme itself proves this fact. This clearly proves that the money deposited with the assessee is in noway connected with the assessee and it belongs to other persons. The decision of the TM in the case of Overseas Chinese Cuisine (supra) relied upon by the Revenue rather helps the assessee. It has been held in that case that where a modus operandi is established on the basis of seized material, then similar modus operandi can be inferred for all the years. On the basis of this decision, the only inference that can be drawn in the present case is that all the deposits where identity is not established belonged to other persons and the money cannot be said to belonging to the assessee. Therefore, following the Supreme Court decision in the case of Smt. P.K. Noorjahan (supra), no additions can be made in the hands of the assessee. Accordingly, the addition of Rs. 4,86,03,396 being fixed deposits and Rs. 10,26,56,836 being call deposits made by the AO under Section 68 are hereby deleted.
35. As regards the disallowance of interest of Rs. 1,80,87,128, this addition is consequential on the above two additions of Rs. 4,86,03,396 and Rs. 10,26,56,836. 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 Section 80P(2)(a)(i), we find that the assessee has given loans only to its members. Shri Patankar, manager, in his statement under Section 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 (p. 66 of the paper book). 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 (supra) 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 (p. 90 of the paper book), 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 assessee satisfies the conditions laid down under Section 80P(2)(a)(i) of the Act and hence, it is entitled to deduction under Section 80P of the Act. The interest earned by the assessee accordingly will be exempt under this section. The cash credits, even if taxed, will be considered as income from the same business, i.e., providing credit facilities to the members and, accordingly, they will also be entitled to deduction under Section 80P and thus, the entire income of the assessee is entitled to deduction under Section 80P and, accordingly, no addition is sustainable in the hands of the assessee-society.
37. Corning to the charge of the AO and the learned Departmental Representative that the assessee had violated the bye-laws and hence, it ceased to be a co-operative society and accordingly, deduction under Section 80P is not allowable, we hold that the bye-laws do not take the character of the statute as held by the Hon'ble Supreme Court in the case of Co-operative Central Bank case (supra). Violation of bye-laws by the assesses cannot lead to the automatic conclusion that the assessee is not a co-operative society. The society was granted registration by the registrar of co-operative societies which shows that despite the fact that in the course of action by the IT Department where it was held that the society had accepted 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. Hence, we do not agree with the arguments of the AO and the learned Departmental Representative that the society is not a co-operative society. In this, we are supported by the order of the Ahmedabad Bench of the Tribunal in the case of Navdeep Co-operative Bank Ltd. (supra), wherein on similar facts, the Tribunal has 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, we hold that the assessee-society will continue to enjoy the status of a co-operative society and, therefore, deduction under Section 80P will be available to the assessee.
38. As regards the contention of the learned Departmental Representative that since the assessee had approached the Settlement Commission with an undisclosed income of Rs. 34 lakhs, some addition should be confirmed, we do not find any merit in the same. It is true that in order to buy peace, the assessee approached the Settlement Commission, but as the Settlement Commission did not accept the petition, the assessee is not bound by its petition at this stage and, hence, any adverse cognizance cannot be taken of the assessee's petition before the Commission in view of our finding given in paras 33 & 34.