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2018 (7) TMI 2281 - AT - Income TaxDeduction u/s 80P(2)(a)(i) and 80P(2)(d) - whether interest income earned on fixed deposits with the nationalized bank and cooperative bank would qualify for deduction u/s 80P(2)(a)(i) and 80P(2)(d)? - HELD THAT - The issue in dispute is squarely covered against the assessee by the decision of State Bank of India Vs. CIT 2016 (7) TMI 516 - GUJARAT HIGH COURT wherein Hon'ble Court held that interest earned from the investment made in any bank is not deductible u/s 80P(2)(a)(i) - we dismiss the appeal of the assessee. We direct the AO to exclude the amount of net interest income from the deduction claimed u/s 80P(2)(a)(i) - AO will allow the expenses incurred by the assessee in the earning of such interest income not eligible for deduction u/s 80P(2)(a)(i). Similarly we also note that the income earned by the assessee on the investment made with the any other cooperative society will be eligible for the deduction u/s 80P(2)(d). We direct the AO to exclude the amount of net interest income from the deduction claimed u/s 80P(2)(a)(i) - Thus the AO will allow the expenses incurred by the assessee in the earning of such interest income not eligible for deduction under section 80P(2)(a)(i) - we also direct the AO to allow the deduction to the assessee for the amount of interest earned from the co-operative bank u/s 80P(2)(d). Hence, grounds of appeal filed by the assessee are allowed for statistical purposes.
Issues Involved:
1. Whether interest income earned on fixed deposits with nationalized bank and cooperative bank qualifies for deduction under section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act. Comprehensive Analysis: Issue 1: The primary issue in this case pertains to the eligibility of interest income earned on fixed deposits with nationalized banks and cooperative banks for deduction under section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act. The appellant contended that the interest income should be exempted under section 80P. However, the learned counsel for the assessee acknowledged that the dispute is covered against the assessee by a decision of the jurisdictional High Court. The High Court held that interest earned from investments in any bank is not deductible under section 80P(2)(a)(i) of the Act. Consequently, the appeal of the assessee was dismissed. Nonetheless, the AO was directed to exclude the net interest income from the deduction claimed under section 80P(2)(a)(i) and allow the expenses incurred by the assessee in earning such interest income. The Tribunal referred to previous judgments to support this decision, emphasizing the need to determine the net interest earned by the assessee on bank investments and exclude that income from the deduction under section 80P(2) of the Act. Issue 2: The second aspect of the issue involved the deduction of interest income earned from cooperative banks under section 80P(2)(d) of the Act. The Tribunal cited a case where a Co-ordinate Bench allowed the deduction of interest income derived from deposits with a specific cooperative bank. Following this precedent, the Tribunal held that the assessee was entitled to deduction under section 80P(2)(d) for interest and dividend income derived from deposits with a cooperative bank. Consequently, the impugned disallowance was deleted, and the grounds of appeal filed by the assessee were allowed for statistical purposes. In conclusion, the judgment clarified the treatment of interest income earned on fixed deposits with nationalized banks and cooperative banks under section 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act, respectively. The decision was based on precedents and legal interpretations, ensuring a fair and consistent application of tax laws in similar cases.
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