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TMI Blog2021 (12) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... he Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2016-17. First, we take up ITA No. 1696/AHD/2019, an appeal by the assessee. 2. The only interconnected issue raised by the assessee is that the learned CITA erred in confirming the order of the AO in part by disallowing the deduction of Rs. 11,97,716.00 claimed under the provisions of section 80P(2)(a)(i) of the Act. 3. The AO during the assessment proceedings found that the assessee has shown interest income amounting to Rs. 14,15,454.00 which was received from the non-members. The impugned income of interest was earned by the assessee from the co-operative banks as well as from the nationalized bank. As per the AO the impugned income is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is in appeal before us. 7. The learned AR before us filed a paper book running from pages 1 to 22 and contended that the amount of interest income from non-members is eligible for deduction under section 80P(2)(a)(i) of the Act in view of the judgment of Hon'ble Supreme Court in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT reported in 123 taxmann.com 161. 7.1 The ld. AR without prejudice to the above also submitted that if the impugned amount of interest income is treated as taxable under the provisions of section 56 of the Act, then the assessee should be allowed the pro rata expenses against such income instead of 5% allowed by the learned CIT (A) in an ad hoc manner. As per the learned counsel for the assessee the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of India was not exempt under section 80P(2)(a)(i) of the Income Tax Act, 1961. 9.1 In view of the above, it is only the interest derived from the credit provided to its members which is deductible under section 80P(2)(a)(i) of the Act and the interest derived by depositing surplus funds with the State Bank of India is not being attributable to the business as envisaged under the provisions of the Act. Thus the same cannot be deducted under section 80P(2)(a)(i) of the Act. 9.2 In view of the above, there remains no ambiguity that income received by the assessee on the money deposited with the bank is not eligible for deduction under section 80P(2)(a)(i) of the Act. 9.3 Now coming to the case law cited by the learned AR for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 9.4 Thus, the profits and gains attributable to non-members arising as a result of advancement of loans was held to be not an allowable deduction under Section 80P(2)(a)(i) of the Act. In view of the above, we do not find any merits in the argument advanced by the learned counsel for the assessee. 9.5 The next aspect arises how to determine the income which is not eligible for deduction under section 80P(2)(a)(i) of the Act. It is for the reason that the assessee is not maintaining any separate books of accounts qua the income on the deposits from the bank as discussed above. The income on the deposits from the bank has been treated as income from other sources but the gross income cannot be excluded from the deduction available to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenses such as electricity, rental, audits, printing and stationery which cannot be said to have been incurred wholly and exclusively for the purpose of earning the interest income. Thus, we are not in agreement with the contention of the learned AR for the assessee. But it is also equally important to note that there is no mechanism provided under the provisions of section 57 of the Act for making the disallowance on ad hoc manner as done by the ld. CIT-A. Thus, we direct the AO to work out the interest income on the deposits from the bank after deducting the corresponding expenses incurred by the assessee in generating the interest income. To our understanding such expenses have to be brought on record by the assessee based on cogent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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