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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: Shri Rajpal Yadav & Shri Amarjit Singh
आदेश/ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee’s appeal for A.Y. 2013-14, arises from order of the CIT(A)- 3, Vadodara dated 19-08-2016, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
The assessee has raised following grounds of appeals:- “1. On the facts and circumstances of the case of your appellant, the Ld. CIT(A) has erred in treating the bank FD interest earned by a co-operative society engaged in the business of providing credit facilities to its members as income from other sources u/s 56 of the Act and thereby disallowing deduction u/s 80P of the act on the said FD Interest. Therefore your appellant prays your goodself to consider the interest income earned on the Bank FD as the business income and allow the deduction u/s 80P of the Act.”
I.T.A No. 3518/Ahd/2016 A.Y. 2013-14 Page No 2 Citizens Co-op Credit Society Ltd. vs. ITO
The brief fact of the act is that assesse has filed return of income declaring income at Rs. nil on 10th Dec, 2013. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of 2nd Sep, 2014. During the course of assessment proceedings, the assessing officer has noticed that assessee has earned interest income totaling to Rs. 28,12,358/- from nationalized bank and co- operative banks. He has further noticed that assessee has claimed deduction under chapter VIA of the act u/s. 80P(2)(a)(i) in respect of aforesaid interest income of Rs. 28,12,358/- derived from investment in fixed deposit with commercial and co-operative banks. The assessing officer observed that in the case of assessee exemption u/s. 80P(2)(a)(i) is available on income which is attributable to its business operation of the assessee co-operative society. However, the interest earned on the fund invested with the bank is not operational income of the assessee earned from providing credit facilities to its members. Therefore, he has treated the interest income of Rs. 28,12,358/- as income from other sources u/s. 56 of the act and disallowed the claim of deduction u/s. 80P on the aforesaid income.
Aggrieved assessee filed appeal before the ld. CIT(A). The ld. CIT(A) has sustained the disallowance made by the assessing officer after placing reliance on the decision of Hon’ble High Court of Gujarat in the case of SBI vs. CIT (2016) 72 taxmann.com 64
We have heard the rival contentions and perused the material on record carefully. The assessee is engaged in the business of providing credit facilities to its members. The assessing officer has noticed that in addition to the interest income earned on loan and advances to its members, the assesse has claimed deduction u/s. 80P(2)(a)(i) of the act on interest income earned from the fixed deposit maintained with the commercial bank. The assessee has claimed deduction under the aforesaid provision on interest learned from surplus funds deposited with the nationalized banks in the form of fixed deposit. We are
I.T.A No. 3518/Ahd/2016 A.Y. 2013-14 Page No 3 Citizens Co-op Credit Society Ltd. vs. ITO
inclined with the findings of the ld. CIT(A) that investing surplus funds in a bank is no part of the business of providing credit facilities 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 nationalized bank not being attributable to the business carried on by the assessee and the same cannot be deducted u/s. 80P(2)(a)(i). We find that the Hon’ble jurisdictional high court has decided the identical issue in favour of the Revenue vide State Bank of India vs. CIT (2016) 72 taxmann.com 64 (Gujarat) that interest income on deposit placed with the commercial banks is not exempt u/s. 80P(2)(a)(i) of the act. However as decided in the various decision of the Co-ordinate Benches of ITAT, we direct the assessing officer to verify assessee’s claim on pro rata expenses by examining/recording and affording adequate opportunity to allow it pro rata expenses for computing the deduction u/s. 80P in respect of interest earned from deposit held with nationalized bank.
In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 18-05-2018 Sd/- Sd/- (RAJPAL YADAV) (AMARJIT SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad : Dated 18/05/2018 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद