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TMI Blog2024 (10) TMI 1198X X X X Extracts X X X X X X X X Extracts X X X X ..... income as ineligible for deduction u/s. 80P(2)(a)(i) of the Act. As in the case of State Bank of India [ 2016 (7) TMI 516 - GUJARAT HIGH COURT] had categorically held that investing the surplus funds with State Bank of India was no part of business of providing credit to its members and that the character of the interest derived on FDRs with Banks was different from the income attributable to the business of the society of providing credit facilities to its members. No merit in the ground as taken by the assessee and interest derived by the assessee on FDR with Bank of Baroda was rightly disallowed u/s. 80P(2)(a)(i). Alternate claim of the assessee to allow pro-rata expenses on earning this interest - In the present case, the AO had already examined this contention of the assessee and given a categorical finding in the assessment order that the assessee was not eligible for proportionate interest expenditure as the assessee had not made any expenditure towards earning of this interest income from the above bank/institutions. In order to be eligible for any deduction in respect of earning of interest on FDRs, the assessee has to first establish that it had incurred certain expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(d) of the Act. (3) That on facts, in law, and on evidence on record, it ought to have been held that the appellant 1s 80P(2)(a)(i), entitled to deduction u/s 80P(2)(a)(111),80P(2)(a)(iv) and 80P(2)(c) of the Act. (4) The appellant craves leave to add, alter, amend any ground of appeal. 3. Ground No.1 pertains to disallowance of Rs.1,95,850/- under Section 80P(2)(a)(i) of the Income Tax Act, 1961 (in short the Act ). The assessee is a cooperative credit society engaged in providing credit facility to its members. It had claimed deduction of Rs.1,95,850/- in respect of interest received from Bank of Baroda (on FDR) u/s. 80P(2)(a)(i) of the Act, which was disallowed by the AO. Shri Mehul Patel, Ld. AR appearing for the assessee submitted that the assessee was carrying on business of providing credit facilities to its members and, therefore, it was eligible for deduction u/s. 80P(2)(a)(i) of the Act. He further submitted that the surplus funds were invested in FDRs with Bank of Baroda and, therefore, the interest received on such FDRs was part of business activity of the society and should have been allowed as deduction u/s. 80P(2)(a)(i) of the Act. In the alternative, Ld. AR submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has to first establish that it had incurred certain expenditure for earning this income. No such evidence has been brought on record. Further, the assessee has also not controverted the findings as given by the AO. Under the circumstances, we do not find any merit in the claim of the assessee to allow proportionate expense. 7. In view of the above facts, the Ground No.1 as taken by the assessee is dismissed. 8. Ground No.2 pertains to disallowance of Rs.29,01,898/- u/s. 80P(2)(d) of the Act. The assessee had earned interest income of Rs.29,01,898/- from The Mehsana District Central Co-operative Bank Ltd. The AO held that the interest earned on the deposit with Cooperative Bank was not allowable as deduction u/s. 80P(2)(d) of the Act, following the decision of Hon ble Karnataka High Court in the case of PCIT vs. Totagars Cooperative Sale Society (2017) 83 taxmann.com 140 (Kar). The AO held that the assessee had earned interest income from investment with cooperative bank and not a cooperative society and, therefore, it was not eligible for deduction u/s. 80P(2)(d) of the Act. The Ld. CIT(A) had upheld the order of the AO by relying upon the decision of Hon ble Jurisdictional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable in respect of interest or dividend derived by a cooperative society from its investment with any other cooperative society. The AO had disallowed the interest received by the assessee on FDRs with The Mehsana District Central Co-operative Bank Ltd. for the reason that it was a cooperative bank was not a cooperative society. This presumption itself is not found to be valid. The cooperative banks are first registered as a cooperative society and, thereafter, they are engaged in carrying on business of banking after obtaining necessary approval from the competent authorities. The cooperative banks are also registered under the respective State Cooperative Societies Act or the Multi-State Cooperative Societies Act, though they function specifically as financial institutions. In addition to their registration under cooperative laws, cooperative banks are regulated by the Reserve Bank of India (RBI) under the Banking Regulation Act, 1949, which governs their banking operations. Thus, the cooperative banks are registered as cooperative societies but are subject to additional regulations under the Banking Regulation Act, while non-banking cooperative societies are regulated only b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving perused the order and a note placed on record, in para no.19, words other Cooperative Banks after the words other than the Cooperative Societies i.e. is modified and be read as other Banks . (3) The speaking to minutes is accordingly disposed of. 14. Thus, it is clear from the amended order of the Hon ble jurisdictional High Court in the case of Katlary Kariyana Merchant Sahkari Sarafi Mandali Ltd. (supra), that the interest derived on FDRs with other cooperative banks will now be eligible for deduction u/s. 80P(2)(d) of the Act. In view of the amended order of the Jurisdictional High Court and also the fact that the cooperative banks are registered as cooperative societies, the disallowance of interest derived by the assessee from The Mehsana District Central Co-operative Bank Ltd. cannot be sustained. Therefore, the disallowance of Rs.29,01,898/- as made by the AO u/s. 80P(2)(d) of the Act is deleted. The ground taken by the assessee is allowed. 15. Ground No.3 taken by the assessee was an alternate ground and not pressed. Hence, this ground is dismissed. 16. In the result, appeal of the assessee is allowed in part. 17. The grounds taken by the assessee in ITA Nos. 526 527/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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