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2017 (4) TMI 652 - AT - Income TaxGranting exemption under section 80P(2)(a)(i) - whether cooperative credit society could claim deduction under section 80P(2) of interest income earned by it with investment in nationalized banks? - Held that:- Deduction under section 80P(2)(1) is not available on the interest income earned on surplus money deposited with Nationalised Banks. But if assessee has incurred any expenditure, which is attributable to the earning of interest income, then, the AO shall examine that aspect and exclude the interest expenditure if any incurred by the assessee for earning this interest from bank. In other words, the only net interest income is to be excluded from the claim of deduction under section 80P(2) of the Act. Respectfully following the judgment in case of State Bank of India Vs. CIT [2016 (7) TMI 516 - GUJARAT HIGH COURT] we set aside by the orders of the Revenue authorities and restore this issue to the file of the AO for re-adjudication. The ld.AO shall work out net interest income earned by the assessee from the FDRs. with nationalized banks. He thereafter disallow that amount only from the exemption admissible to the assessee under section 80P(2). We make it further clear that the assessee is a credit cooperative society. It is entitled for deduction under section 80P(2)(1) on the interest income earned by it from its members. The interest income earned on the investment of surplus fund with nationalized bank is only to be excluded from the claim of 80P(2)(a)(i) of the Act. The ld.AO shall carry out this exercise after providing due opportunity of hearing to the assessee. In the result appeal of the assessee is allowed for statistical purpose.
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