Facts of the Case

The assessee, a registered co-operative society engaged in supplying seeds and fertilizers to its members, deposited ₹16,44,100 in cash during the demonetization period and did not file a return within the prescribed time.

Notices under sections 142(1) and 144 were issued. Although a reply along with financial statements was initially submitted, further details and supporting evidence were not furnished. The Assessing Officer examined the bank statement and found total credits of ₹74,61,342 during the year, treated the entire amount as turnover, and applied section 44AD to estimate income at 8%, resulting in assessed income of ₹5,96,910.

The CIT(A), NFAC dismissed the appeal ex parte due to non-compliance, upholding the assessment.

 Issues Involved

  1. Whether presumptive taxation under section 44AD can be applied to a co-operative society.
  2. Whether assessment under section 144 based solely on bank deposits without examining filed return and accounts was justified.
  3. Whether cash deposits during demonetization required fresh verification when claimed to be business receipts.

 Petitioner’s Arguments

The assessee contended that it was a co-operative society governed by the Uttar Pradesh Co-operative Societies Act and not a partnership firm or individual. Therefore, section 44AD was inapplicable.

It was argued that the society had filed a return declaring income of ₹54,980 under the normal provisions and maintained audited accounts. The cash deposits represented sale proceeds of seeds and fertilizers to members in accordance with its bye-laws. The assessment was challenged as arbitrary and based on incorrect legal assumptions regarding status and applicability of presumptive taxation.

 Respondent’s Arguments

The Revenue maintained that due to lack of proper compliance and absence of documentary evidence, the Assessing Officer was justified in invoking section 144 and estimating income on the basis of bank deposits.

It was emphasized that the burden to reconcile cash deposits with business activities lay on the assessee, which had failed to discharge the same during assessment and appellate proceedings.

 Court Order / Findings (ITAT Allahabad)

The Tribunal observed that although the return filed by the assessee was belated and not legally valid, it was still a relevant piece of information available before the Assessing Officer and should have been considered while determining income.

Crucially, the Tribunal held that the provisions of section 44AD are not applicable to a co-operative society. Therefore, estimation of income at 8% on the basis of bank deposits was unsustainable.

However, given the assessee’s failure to provide adequate evidence regarding the source of deposits, the Tribunal set aside the assessment and restored the matter to the Assessing Officer for a de novo assessment, directing examination of whether the demonetization-period deposits were derived from legitimate sales in accordance with the society’s activities.

 Important Clarification

The Tribunal cautioned that failure to substantiate the source of deposits with documentary evidence in the fresh proceedings could result in the amounts being treated as unexplained. The decision does not grant relief on merits but ensures reassessment under correct legal provisions.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1771061685_ITAILISADHANSAHKARISAMITILIMITEDFATEHPURVS.ITO24FATEHPUR.pdf

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