1. The addition made under section 68 of the Income Tax Act was not justified.

2. The SBNs have been collected by the assessee prior to the appointed date of December 31, 2016, i.e., only from December 31, 2016.

3. The assessee was precluded from accepting SBNs from its members.

4. The reasoning relating to the contravention of RBI rules failed.

5. The ITAT relied on the decision of the ITAT in the case of Bhageeratha Pattina Sahakara Sangha Niyamitha vs. ITO in which it was ruled that the deposit of demonetized notes collected by the assessee from its members would not be hit by the provisions of section 68.

6. ITAT at Para 15 observed as under:

“The case of the A.O is that the assessee has collected the demonetized notes after 8.11.2016 in violation of the notifications issued by RBI. Accordingly, he has taken the view that the above said amounts represents unexplained money of the assessee. I am unable to understand the rationale in the view taken by A.O. I noticed that the AO has invoked the provisions of sec.68 of the Act for making this addition. I also noticed that the assessee has also complied with the requirements of sec.68 of the Act. The AO has also not stated that the assessee has not discharged the responsibility placed on it u/s 68 of the Act. Peculiarly, the AO is taking the view that the assessee was not entitled to collect the demonized notes and accordingly invoked sec.68 of the Act. I am unable to understand as to how the contraventions, if any, of the notification issued by RBI would attract the provisions of sec. 68 of the Income tax Act. In any case, I notice that the assessee has also explained as to why it has collected demonetized notes after the prescribed date of 8.11.2016. The assessee has explained that it has stopped collection after the receipt of notification dated 14.11.2016 issued by RBI, which has clearly clarified that the assessee society should not collect the demonetized notes. Accordingly, I am of the view that the deposit of demonetized notes collected by the assessee from its members would not be hit by the provisions of section 68 of the Act in the facts and circumstances of the case. Accordingly, I set aside the order passed by Ld. CIT(A) on this issue and direct the A.O. to delete this disallowance.”

7.  The ITAT set aside the order passed by CIT (A) on the issue and directed the A.O. to delete the disallowance.

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