Sri Ganesh Credit Co-operative Society , Bangalore V. Principal Commissioner of Income Tax-2, Bangalore

ITA 695/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4651 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-10-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 09-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VANDAN A SAGAR BENGALURU
• Assessee Lawyers: C SANDEEP
• Keywords: Opportunity of being heard; Set aside
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI A K GARODIA , ACCOUNTANT MEMBER IT A NO. 695/BANG/2019 ASSESSMENT YEAR: 2014 - 15 SRI GANESH CREDIT CO-OPERATIVE SOCIETY, NO.47, GROUND FLOOR, N.S. IYENGAR STREET, SESHADRIPURAM, BANGALORE 560 020. PAN: AALAS 7645G VS. THE PRINCIPAL COMMISSIONER OF INCOME TAX, BANGALORE-2, BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI C. SANDEEP, CA RESPONDENT BY : S MT. VANDAN A SAGAR, CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 15 . 1 0.2020 DATE OF PRONOUNCEMENT : 20 . 1 0.2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 31.3.2019 OF THE CIT(APPEALS), BANGALORE-2, BANGALORE PASSED U/S. 263 OF THE INCOME-TAX ACT, 1961 [THE ACT]. 2. THE ASSESSEE IS A CREDIT CO-OPERATIVE SOCIETY E NGAGED IN PROVIDING CREDIT FACILITIES TO ITS MEMBERS. FOR AY 2014-15, THE ASSESSEE FILED RETURN OF INCOME ON 30.9.2015 DECLARING TOTAL INCOME AT NI L, AFTER CLAIMING DEDUCTION OF RS.10,83,853 U/S.80P(2)(A)(I) OF THE A CT. THE ASSESSMENT WAS COMPLETED ACCEPTING THE CLAIM OF ASSESSEE FOR DEDUC TION U/S. 80P(2)(A)(I) IN AN ORDER PASSED U/S. 143(3) OF THE ACT DATE 9.12 .2016. ITA NO. 695/BANG/2019 PAGE 2 OF 6 3. THE PR.CIT IN EXERCISE OF HIS POWERS U/S. 263 OF THE ACT WAS OF THE VIEW THAT THE ASSESSMENT ORDER OF THE AO ALLOWING D EDUCTION U/S. 80P(2)(A)(I) TO THE ASSESSEE WAS ERRONEOUS AND PREJ UDICIAL TO THE INTERESTS OF THE REVENUE FOR THE REASON THAT WHILE ALLOWING D EDUCTION, THE AO FOLLOWED THE DECISION OF HONBLE HIGH COURT OF KARN ATAKA IN THE CASE OF SRI BILURU GURUBASAVA SAHAKARI SANGHA NIYAMITHA, 369 IT R 86 (KARN) ITA NO.5006/2013 DATED 5.2.2014. THE PR.CIT, HOWEVER, FOUND THAT IN THE JUDGMENT RENDERED BY THE HONBLE SUPREME COURT IN T HE CASE OF CITIZEN CO-OPERATIVE SOCIETY LTD. V. ACIT, 397 ITR 1 (SC) , THE HONBLE APEX COURT TOOK THE VIEW THAT INCOME DERIVED FROM PROVIDING CR EDIT FACILITIES TO MEMBERS WHO ARE PRIMARY MEMBERS OF THE SOCIETY ALON E WOULD BE ELIGIBLE FOR DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT AND IF T HE INCOME IS DERIVED FROM PROVIDING CREDIT FACILITIES TO NOMINAL MEMBERS, SUC H DEDUCTION SHOULD NOT BE ALLOWED. ACCORDING TO THE PR. CIT, THE AO DID N OT MAKE ANY ENQUIRES WITH REGARD TO WHETHER THE ASSESSEE PROVIDED CREDIT FACILITIES TO ITS MEMBERS WHO ARE REGULAR MEMBERS AND NOT NOMINAL MEM BERS AND THEREFORE THE ORDER OF AO WAS ERRONEOUS AND PREJUDI CIAL TO THE INTERESTS OF THE REVENUE. ACCORDINGLY, A SHOW CAUSE NOTICE DATE D 11.2.2019 WAS ISSUED U/S. 263 OF THE ACT BY THE PR. CIT. 4. IN REPLY TO THE SHOW CAUSE NOTICE, THE ASSESSEE ADDRESSED A LETTER DATED 18.2.2019 IN WHICH THE ASSESSEE TOOK A STAND THAT THE ASSESSEE HAS ONLY REGULAR MEMBERS AND THERE ARE NO NOMINAL OR AS SOCIATE MEMBERS OF THE SOCIETY. THE ASSESSEE ALSO POINTED OUT TO THE BYELAWS OF THE SOCIETY PROVIDES FOR ONLY ONE TYPE OF MEMBERSHIP. IT WAS S UBMITTED THAT THE MEMBERS OF SOCIETY HAVE A RIGHT TO PARTICIPATE AND VOTE IN THE AGM AND RIGHT TO PARTICIPATE IN THE DIVIDEND AND ELECTION O F OFFICE BEARERS. THE ASSESSEE, THEREFORE, BROUGHT TO THE NOTICE OF PR. C IT THAT THE DECISION RENDERED IN THE CASE OF CITIZEN CO-OPERATIVE SOCIETY LTD. (SUPRA) WILL NOT APPLY TO THE CASE OF ASSESSEE AND THEREFORE THE ORD ER OF AO CANNOT BE ITA NO. 695/BANG/2019 PAGE 3 OF 6 TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTERES TS OF THE REVENUE. THE ASSESSEE ALSO EXPLAINED THAT THE FACTS AND CIRCUMST ANCES IN THE CASE BEFORE THE SUPREME COURT IN THE CASE OF CITIZEN CO-OPERATIVE SOCIETY LTD. (SUPRA) AND AS TO HOW THE FACTS OF THE ASSESSEES CASE STAN D ON A DIFFERENT FOOTING. THE ASSESSEE THUS SUBMITTED THAT THE PROC EEDINGS U/S. 263 OF THE ACT WERE MISCONCEIVED AND SHOULD BE DROPPED. 5. THE PR. CIT, HOWEVER, IN THE IMPUGNED ORDER HAS MENTIONED THAT IN THE COURSE OF PROCEEDINGS U/S. 263 OF THE ACT, THE ASSESSEE WAS ASKED TO PRODUCE ALL FINANCIAL TRANSACTIONS OF THE ASSESSEE S SOCIETY WITH ALL THE PERSONS CARRIED OUT DURING THE FINANCIAL YEAR. HE ALSO MADE CERTAIN OBSERVATIONS WITH REGARD TO INTEREST FROM BDC CORPO RATION BANK AND THE REPLY OF THE ASSESSEE THAT SUCH INTEREST WAS ALSO I NCOME DERIVED FROM THE BUSINESS OF PROVIDING CREDIT FACILITIES AND ELIGIBL E TO DEDUCTION U/S. 80P(2)(A)(I) AND A REFERENCE TO THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE SOCIETY LTD. V. ITO, 55 TAXMANN.COM 447 . THEREAFTER, THE PR. CIT FIRSTLY OBSERVED THAT IT NEEDS TO BE VERIFIED AS TO WHETHER THE ASSESSEE HAS ONLY REGULAR MEMBERS AND NO NOMINAL MEMBERS. HE WENT O N TO HOLD THAT INTEREST DERIVED FROM BDC CORPORATION BANK CANNOT B E SAID TO BE A TRANSACTION WITH MEMBER OF THE SOCIETY AND THEREFOR E DEDUCTION U/S. 80P(2)(A)(I) OF THE ACT OUGHT NOT TO HAVE BEEN ALLO WED ON THIS INTEREST INCOME. THEREAFTER, HE GAVE DIRECTIONS WITH REGARD TO THE MANNER IN WHICH THE AO SHOULD CONDUCT ENQUIRY WITH REGARD TO ALL TH E FINANCIAL TRANSACTIONS CARRIED OUT BY THE SOCIETY. FINALLY, THE PR. CIT GAVE THE FOLLOWING CONCLUSION:- 4. IN VIEW OF THE ABOVE DISCUSSION, I FIND THAT TH E ASSESSMENT ORDER IS ERRONEOUS BECAUSE THE ASSESSING OFFICER FA ILED TO MAKE RELEVANT ENQUIRY ABOUT THE NATURE OF MEMBERS AND OT HER PERSONS WITH WHOM THE ASSESSEE CARRIED OUT MOST OF ITS BUSI NESS OF FINANCE WHICH IS NECESSARY IN VIEW OF THE JUDGEMENT OF HON'BLE ITA NO. 695/BANG/2019 PAGE 4 OF 6 SUPREME COURT IN CASE OF CITIZEN CO-OPERATIVE SOCIE TY LTD. VS ACIT, 397 ITR 1 (SC). I FIND THAT THE ASSESSMENT OR DER IS PREJUDICIAL TO THE INTEREST OF REVENUE ON ACCOUNT O F FACTS FOUND DURING THE 263 PROCEEDINGS. I THEREFORE SET ASIDE T HE ASSESSMENT ORDER TO BE REDONE AFRESH AFTER GIVING AN OPPORTUNI TY TO THE ASSESSEE, IN THE LIGHT OF THE OBSERVATIONS IN PARA 3 ABOVE. 6. AGGRIEVED, THE ASSESSEE HAS PREFERRED THE PRESEN T APPEAL BEFORE THE TRIBUNAL. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS SEEN FROM THE REPLY FILED BY THE ASSESSEE TO THE SHOW CAUSE NOTICE U/S. 263 O F THE ACT THAT THE ASSESSEE HAD GIVEN COMPLETE DETAILS OF MEMBERS AND DEPOSITS AND THOSE DETAILS ARE AVAILABLE IN PAGES 58 TO 66 OF ASSESSEE S PB. THE BYE LAWS OF ASSESSEES SOCIETY HAVE ALSO BEEN GIVEN AND THE SAM E ARE AT PAGES 70 TO 118 OF ASSESSEES PB. IN A REPLY DATED 29.3.2019, THE ASSESSEE HAS ALSO EXPLAINED THE TRANSACTION WITH BDC CORPORATION BANK AND AS TO HOW THE SAME HAS TO BE ALLOWED AS A DEDUCTION IN THE LIGHT OF THE DECISION IN TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE SOCIE TY LTD. (SUPRA) . 8. THE PR. CIT IN EXERCISE OF HIS POWERS U/S. 263 OF THE ACT HAS NOT GIVEN ANY FINDING WITH REGARD TO THE CLAIM OF ASSES SEE THAT AS PER BYE LAWS OF ASSESSEES SOCIETY, THERE WERE NO NOMINAL MEMBER S AND ALL MEMBERS WERE REGULAR MEMBERS ENTITLED TO PARTICIPATE IN THE PROFITS OF THE SOCIETY AND HAVE ALSO CONTRIBUTED TO SUCH PROFITS. IN OTHER WO RDS, THE ASSESSEE HIGHLIGHTED AS TO HOW THE PRINCIPLE OF MUTUALITY IS NOT VIOLATED IN ITS CASE. THE PR. CIT HAS NOT FOUND FAULT WITH THIS PLEA OF A SSESSEE, BUT HAS GONE ON TO SET ASIDE THE ORDER OF AO DIRECTING HIM TO MAKE ENQUIRY. SO ALSO, THE PR.CIT HAS NOT COMMENTED UPON THE APPLICABILITY OF DECISION OF TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE SOCIETY LTD. (SUPRA) . HE HAS, HOWEVER, GONE AHEAD TO DIRECT THE AO TO CONDUCT A R OVING & FISHING ITA NO. 695/BANG/2019 PAGE 5 OF 6 ENQUIRY. IN OUR VIEW, THOUGH THERE IS JUSTIFICATIO N FOR INVOKING POWERS U/S. 263 OF THE ACT TO MAKE VERIFICATION AS TO WHETHER T HE PRINCIPLE OF MUTUALITY IS SATISFIED IN THE CASE OF ASSESSEE IN THE LIGHT OF D ECISION OF HONBLE SUPREME COURT IN CITIZEN CO-OPERATIVE SOCIETY LTD. (SUPRA), THE OTHER DIRECTIONS CONTAINED IN PARA 3.3 IN THE IMPUGNED ORDER, IN OUR VIEW, IS UNCALLED FOR. WHEN THE ASSESSMENT IS SET ASIDE FOR EXAMINATION OF THE CLAIM OF ASSESSEE U/S. 80P(2)(A)(I) OF THE ACT IN THE LIGHT OF THE DE CISION OF HONBLE SUPREME COURT IN CITIZEN CO-OPERATIVE SOCIETY LTD. (SUPRA) , THE EXERCISE TO BE DONE WOULD BE RESTRICTED TO VERIFICATION OF NATURE OF ME MBERSHIP OF THE SOCIETY AS PER THE BYE LAWS AND AS TO WHETHER THE INCOME DERIV ED BY THE ASSESSEE ON WHICH DEDUCTION U/S. 80P(2)(A)(I) HAS BEEN CLAIMED, IS ATTRIBUTABLE TO THE BUSINESS OF PROVIDING CREDIT FACILITIES TO ITS MEMB ERS. 9. WE ARE, THEREFORE, OF THE VIEW THAT THE ORDER U/ S 263 OF THE ACT SHOULD BE UPHELD BECAUSE OF THE SUBSEQUENT DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CITIZEN CO-OPERATIVE SOCIETY LTD. (SUPRA) , BUT AT THE SAME TIME, THE DIRECTIONS CONTAINED IN PARA 3.3 OF THE IMPUGNED ORDER SHOULD NOT WEIGH IN THE MIND OF THE AO WHILE COMPLETING THE SET ASIDE ASSESSMENT. IN OTHER WORDS, THE ASSESSMENT VIS--V IS SECTION 80P(2)(A)(I) WOULD BE A DE NOVO ASSESSMENT AND THE AO WOULD BE FREE TO ADOPT HIS LI NE OF ENQUIRY WHILE DECIDING THE ISSUE IN THE SET ASID E PROCEEDINGS, LIMITED TO THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN CITIZEN CO-OPERATIVE SOCIETY LTD. (SUPRA) UNINFLUENCED BY THE DIRECTIONS OF THE PR.CIT AS CONTAINED IN THE IMPUGNED ORDER IN PARAGRAPH 3.3 . ACCORDINGLY, WE MODIFY THE DIRECTIONS OF THE PR. CIT IN THE IMPUGNED ORDER AS INDICATED ABOVE. THE AO WILL AFFORD OPPORTUNITY OF BEING HEARD TO THE AS SESSEE, BEFORE MAKING ASSESSMENT IN ACCORDANCE WITH THE MODIFIED DIRECTIO NS AS CONTAINED IN THIS ORDER. ITA NO. 695/BANG/2019 PAGE 6 OF 6 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 20 TH DAY OF OCTOBER, 2020. SD/- SD/- ( A K GARODIA ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 20 TH OCTOBER, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.