TMI Blog2020 (10) TMI 878X X X X Extracts X X X X X X X X Extracts X X X X ..... be done would be restricted to verification of nature of membership of the society as per the bye laws and as to whether the income derived 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 members. Assessment vis- -vis section 80P(2)(a)(i) would be a de novo assessment and the AO would be free to adopt his line of enquiry while deciding the issue in the set aside proceedings, limited to the ratio laid down by the Hon ble 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 impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in the case of Citizen Co-operative Society Ltd. v. ACIT, 397 ITR 1 (SC) , the Hon ble Apex Court took the view that income derived from providing credit facilities to members who are primary members of the society alone would be eligible for deduction u/s. 80P(2)(a)(i) of the Act and if the income is derived from providing credit facilities to nominal members, such deduction should not be allowed. According to the Pr. CIT, the AO did not make any enquires with regard to whether the assessee provided credit facilities to its members who are regular members and not nominal members and therefore the order of AO was erroneous and prejudicial to the interests of the revenue. Accordingly, a show cause notice dated 11.2.2019 was issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m BDC Corporation Bank and the reply of the assessee that such interest was also income derived from the business of providing credit facilities and eligible to deduction u/s. 80P(2)(a)(i) and a reference to the decision of the Hon ble 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 on to hold that interest derived from BDC Corporation Bank cannot be said to be a transaction with member of the society and therefore deduction u/s. 80P(2)(a)(i) of the Act ought not to have been allowed on this interest income. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same has to be allowed as a deduction in the light of the decision in Tumkur Merchants Souharda Credit Co-operative Society 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 assessee that as per bye laws of assessee s society, there were no nominal members and all members were regular members entitled to participate in the profits of the society and have also contributed to such profits. In other words, 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 assessee, but has gone on to set aside the order of AO directing him to make enquiry. So also, the Pr.CIT has not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - -vis section 80P(2)(a)(i) would be a de novo assessment and the AO would be free to adopt his line of enquiry while deciding the issue in the set aside proceedings, limited to the ratio laid down by the Hon ble 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 assessee, before making assessment in accordance with the modified directions as contained in this order. 10. In the result, the appeal of the assessee is partly allowed. Pronounced in the open court on this 20th day of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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