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2021 (10) TMI 971 - HC - Income TaxDeduction u/s 80P(2)(i)(a) - Additions u/s 68 - whether the CIT(Appeals) and the Tribunal are correct in extending the deduction availed under Chapter VI A to the 5% disallowed by the Income Tax Officer on interest paid to the depositors? - HELD THAT:- The Society is entitled to claim deduction u/s 80P(2)(i)(a) - The exclusion of 5% from the expenditure disallowed is treated as a deduction permissible under 80P(2)(a)(i) of the Act. The argument of the Department is that the said disallowed portion will have to be treated as 'income earned from other sources'. The foundation for such argument is that the Circular relied by the Tribunal is inapplicable, and secondly the dis-allowance forms part of a situation contemplated by Section 68 of the Act. Applicability of the Circular to the case on hand. Circular Dated 02.11.2016 refers to Section 32, 40(a)(ia), 40A(3), 43B, etc. The appreciation of Revenue that it is applicable only to the sections stated therein, is unacceptable and stated so without noticing the word 'etc' used in the Circular. Therefore, the objection now raised against the Tribunal that the Tribunal relied on an inapplicable Circular is incorrect and accordingly rejected. The Circular comprehensively sets out the procedure for treating such items of expenditure. The assessee/Society, in view of the recent Supreme Court judgment in Mavilayi Service Co-operative Bank Ltd. Case [2021 (1) TMI 488 - SUPREME COURT] is entitled to be treated as a Society satisfying the definition of Section 2(19) of Income Tax Act read with Kerala Societies Registration Act, 1860. The primary business of assessee/Society is accepting deposits and providing benefits to the members of the Society. The income, therefore, received by the Society is from the interest it earns on the amount lent to the members. The Society, likewise, is paying interest on the deposits it has accepted. For a reason recorded and accepted by all the authorities, the 5% of the expenditure booked against interest paid to depositors is disallowed and once disallowed portion is accepted by all the authorities, the said disallowed portion forms part of the interest earned by the Society on the amount lent by the Society to its members, vis-a-vis in other words, income earned from business carried on by the Society. Therefore, the Society is entitled to deduction u/s 80P(2)(i)(a) of the Income Tax Act. Section 68 of the Act in terms is not applicable to an entry warranted consequent to the disallowed expenditure by the Assessing Authority. - Decided in favour of assessee.
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