M/S KHANYAN MULTIPURPOSE CO-OP AGRICULTURAL SERVICE SOCIETY LTD.,MANDI GOBINDGARH vs. ACIT, CIRCLE, MANDI GOBINDGARH

That the Worthy CIT (A) has erred in not considering that the impugned interest has been received on funds deposited by the members in accordance with the by-laws of the Society and no part of it was from its trading activity.

That the Worthy CIT(A) has also erred in not considering that statutory auditors in the report had also not pin-pointed any such disallowance as made by the Assessing Officer and also books of account have not been rejected.

Notwithstanding above facts, it is submitted that even otherwise while upholding disallowance of interest of Rs. 67,68,696/- and assessing the income from other sources as above, the Assessing Officer as well the Ld. CIT(A) has erred in not allowing deduction of corresponding allowance for interest paid, as bank interest has been earned on account of interest bearing deposits received from its members.

That the addition as above has been upheld against the facts and circumstances and detailed submissions filed during the course of hearing has not been considered properly. 3. At the outset, the ld. counsel for the assessee has

At the outset, Shri Sudhir Sehgal, Ld. Counsel for the assessee has submitted that he does not press the other grounds except the ground relating to the setting off of the interest expenditure incurred by the assessee on deposits made by the members with the bank in the shape of FDRs. 3. The Ld. Counsel for the assessee has submitted that the assessee had collected deposits from its members upon which it has paid interest to them. The said deposits were placed in the shape of FDRs whereupon interest income has been earned. That the Assessing officer has treated the entire interest income from the FDRs as taxable income of the assessee without setting off of the interest expenditure incurred by the assessee on the deposits collected from Members upon which FDR interest was earned. 4. We find merit in the above submissions of the Ld. Counsel for the assessee. If there is a direct nexus between the deposits taken from the members and the interest income earned by the assessee on the FDRs on such deposits, then the assessee will be entitled to claim interest expenditure, incurred / paid to the members from whom the deposits were collected. Accordingly, we restore the matter back to the file of Assessing officer with the direction that if the assessee will be able to establish the direct nexus between the interest income earned and interest expenditure incurred on deposits, then assessee will be given set off of the expenditure against interest income of the assessee. No other ground or issue was pressed.