ANKLAV MERCANTILE CO.-OP. CREDIT SOCIETY LTD.,ANAND vs. THE INCOME TAX OFFICER, WARD-1(3)(1), ANAND

The assessee has raised following grounds of appeal:- “1. The learned CIT(A)-5,Vadodara has erred in law and on facts in not allowing the claim of deduction u/s 80p(2)(a)(i) of the act on bank interest income treating the same as income from other source. 2. The learned CIT(A),Vadodara has erred in law and on facts in treating Net Bank interest income of Rs.983327/- as income from other sources, which in fact is income from business. 3. The learned CIT(A) has erred in law and on fact in treating interest from co-operative banks as income from other sources.

All the grounds of appeal of the assessee are interconnected, therefore, the same are adjudicated together as below. The assessee has requested for condoning one day delay in filing this appeal because the courier has delivered the appellate order in the office of the authorized representative on 29/11/2016 on account of 26/11/2006 and 27/11/2016 being Saturday and Sunday. After considering the above facts, the delay of one day in filing the appeal is condoned.

The brief fact of the case is that the return of income declaring income of Rs. 18200/- was filed on 22nd August, 2012. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the act on 8th August, 2013. During the course of assessment proceedings, the assessing officer noticed that assessee has claimed deduction u/s. 80P of the act to the amount of Rs. 28,82,987/-. On verification, the assessing officer noticed that asssessee has shown gross receipt of Rs. 82,71,228/- which includes interest income of Rs. 29,80,611/- earned on deposit with commercial banks. He observed that deduction u/s. 80P(2)(a)(i) is allowed on interest earned from credit facilities provided by the assessee society to its members and the said deduction is not allowed on the interest income earned from the deposit maintained with the commercial bank. However, the assessing officer has considered the claim of the assessee for allowing proportionate expenses incurred towards earning the aforesaid interest income. Consequently after allowing proportionate expenses of Rs.19,97,284 the assessing officer has disallowed such net interest of Rs. 9,83,327/- u/s. 80P(2)(a)(i) of the act.

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

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. As per section 80P(2)(a)(i) of the act, the assessee is engaged in providing credit facilities to its members, therefore, the interest income earned on providing credit facility to its members is deductible u/s. 80P(2)(a)(i) of the act excluding the interest earned on deposit maintained with the commercial bank. We are inclined with the findings of the ld. CIT (A) that investing surplus funds in a bank is not 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. Accordingly the appeal of the assessee is dismissed.

In the result, the appeal of the assessee is dismissed.

CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद