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TMI Blog2023 (8) TMI 1110X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and interest earned to such extent will qualify for deduction u/s. 80P(2)(a)(i) of the Act. However, interest earned on deposits exceeding the statutory requirement will not be considered for allowing deduction u/s. 80P(2)(a)(i) - This issue is partly allowed. Further, the assessee has also raised issue in regard to deduction u/s. 80P(2)(d) on such interest received is also not sustainable because the assessee has not received the interest from cooperative society. Accordingly this issue raised by the assessee is also dismissed. Alternative ground that the expenditure should be allowed towards earning of such income - We are in agreement that the necessary expenditure should be allowed towards earning of such income. As relying on M/S THE TOTGARS' CO-OPERATIVE SALE SOCIETY LTD. VERSUS THE INCOME TAX OFFICER, WARD-1, SIRSI [ 2015 (4) TMI 829 - KARNATAKA HIGH COURT] we hold that the assessee is entitled for cost of funds and only the net interest income is taxable u/s. 56 of the Act. Considering the alternative submissions this issue is remitted to the file of AO for determination of net income after set off of cost of funds/interest expenditure in earning the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report u/s. 44AB as per the provisions of Karnataka Souhard Sahakari Act, 1997. The AO noted that assessee has claimed deduction u/s 80P(2)(a)(i) of the Act and assessee submitted that society is providing credit facilities to its members which is claimed as deduction. It is dealing with members who are employees of the assessee and apart from providing financial services the assessee is also engaged in purchase and supply of daily needs products like grains, edible oils and other daily needs exclusively for its members and maintained separate trading account for consumer business. The AO noted that deduction u/s 80P(2)(a)(i) of the Act is provided to a co-operative society and in the absence of registration under Karnataka Co-op. Societies Act, 1959, the AO disallowed the claim of deduction amounting to Rs. 63,48,443. Further the AO noted that the assessee has received interest income of Rs. 9,93,255 on account of interest on investment with KCC Bank in FD/RFD and disallowed the same u/s. 80P(2)(a)(i). The CIT(Appeals) confirmed the disallowance of Rs. 9,93,255 made by the AO. Aggrieved, the assessee is in appeal before the Tribunal on this issue. 4. The ld. AR reiterated the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table to its business activities and therefore is eligible for deduction u/s. 80P(2) of the Income Tax Act, 1961. . the jurisdictional Hon'ble High Court of Karnataka in the case of M/s. Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO, Ward-5, Tumkuru reported in [2015] 55 taxmann.com 447 (Karnataka), has held as under; 10. In the instant case, the amount which was invested in banks to earn interest was not an amount due to any members. It was not the liability. It was not shown as liability in their account. In fact this amount which is in the nature of profits and gains, was not immediately required by the assessee for lending money to the members, as there were no takers. Therefore they had deposited the money in a bank so as to earn interest. The said interest income is attributable to carrying on the business of banking and therefore it is liable to be deducted in terms of Section 80P(1) of the Act. .. . The Hon'ble ITAT, B Bench, Bengaluru in the case of M/s. Shri Siddasiri Pattina Souharda Sahakari Niyamita reported in [2015] 61 taxmann.com 332 has held as under Where assessee was in business of providing credits to its membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d interest on deposits from DCCB but not the interest from credit facilities provided to members during the ordinary course of business. However the ld. AR submitted that the assessee is required to maintain certain funds as per the relevant Act/Rules but he has not shown under which Act/rules and how much funds are required to deposited. Since the assessee is registered under the Karnataka Souharda Sahakari Act, 1997 therefore the issue is remitted back to the file of the AO and assessee is directed to demonstrate the mandatory requirement for following the mandatory maintaining of funds as per Karnataka Souharda Sahakari Act, 1997. If it is found in order, then the amount of deposits which are required to be maintained as per statutory requirement and interest earned to such extent will qualify for deduction u/s. 80P(2)(a)(i) of the Act. However, interest earned on deposits exceeding the statutory requirement will not be considered for allowing deduction u/s. 80P(2)(a)(i) of the Act. This issue is partly allowed. Further, the assessee has also raised issue in regard to deduction u/s. 80P(2)(d) on such interest received is also not sustainable because the assessee has not received ..... X X X X Extracts X X X X X X X X Extracts X X X X
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