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TMI Blog2021 (12) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2014-15. 2. The assessee has raised the following grounds of appeal: 1. The assessee is a co-operative credit society carrying on the business of banking and providing credit facilities to its members and is covered u/s.80P of the I.T. Act, 1961. 2. The assessee has filed its return of income on 03.11.2014 declaring total income at Rs.Nil/. The return was processed u/s.143(1) of the I.T Act 1961. The case was selected for scrutiny assessment and accordingly notice u/s.143(2) was issued to the assessee. 3. The Ld.AO has not allowed deduction under section 80P(2)(a)(ia) of the I.T. Act, 1961. 4. The Hon'ble CIT (Appeals)-5 has also allowed deduction under section 80P(2)(a)(i) of the I.T Act, 1961. 3. The only interconnected issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is in appeal before us. 7. The learned AR before us submitted that the amount of interest income from deposit with bank other than cooperative bank 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. The AR alternatively contended if interest income of Rs. 12,61,040/- on deposit with bank excluded from deduction under section 80P(2)(a)(i) of the Act then proportionate expenses of Rs. 9,11,140/- should be allowed against such interest income. 8. On the other hand the learned DR vehemently supported the order of the authorities below. 9. We have heard the rival contentions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 80P(2)(a)(i) of the Act. 9.2 Now coming to the case law cited by the learned AR for the assessee, in the case of Mavilayi Service Co-operative Bank Ltd. v. CIT by the Hon'ble Supreme Court of India wherein, the primary agricultural credit societies were held to be entitled to the benefit of the deduction contained in Section 80P(2)(a)(i) of the Act, notwithstanding the fact that the society may also be giving loans to its members which are not related to agriculture. However, if it is found that there are instances of loans being given to the non-members, profits attributable to such loans obviously were not liable to be deducted. The essence of this decision is that absolute denial of deduction under Section 80P(2)(a)(i) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 9,11,140/- should be allowed as deduction. 9.5 The question 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 assessee under the provisions of section 80P(2)(a)(i) of the Act. It is the net interest income on the deposits from the bank which needs to be excluded from the amount of deduction claimed under section 80P(2)(a)(i) of the Act and the same should be brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. 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 materials. Furthermore, if the assessee has made deposits in the banks out of the money borrowed from the members, then the corresponding interest cost borne by the assessee should be allowed as deduction. 9.7 Moving further, the provisions of section 80P(2)(c) of the Act, provides that a co-operative society engaged in activities other than those specified in clause (a) or clause (b) of section 80P(2) (either independently of or in addition to all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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