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2022 (2) TMI 40 - AT - Income TaxRevision u/s 263 by CIT - eligibility for deduction u/s 80P(2)(a)(i) - HELD THAT:- A.O. in the original assessment order has not taken note of the judgment of the Hon’ble jurisdictional High Court in the case of Pr.CIT & Anr. v. Totagars Co-operative Sale Society [2017 (7) TMI 1049 - KARNATAKA HIGH COURT] while granting deduction u/s 80P(2)(a)(i) of the I.T.Act in respect of the entire claim wherein as categorically held that interest income earned out of investment with co-operative banks are not entitled to deduction u/s 80P(2)(a)(i) nor u/s 80P(2)(d) of the I.T.Act. Since the A.O. has not taken notice of above mentioned jurisdictional High Court judgment, the CIT has correctly exercised the revisionary powers u/s 263 of the I.T.Act. Majority of the interest income is earned out of investments made with Central Co-operative Banks and is in compliance with the requirement under the Karnataka Co-operative Societies Act and Rules. If the amounts are invested in compliance with the Karnataka Co-operative Societies Act, necessarily, the same is to be assessed as income from business, which entails the benefit of deduction u/s 80P(2)(a)(i) of the I.T.Act. Insofar as deduction u/s 80P(2)(d) of the I.T.Act is concerned, we make it clear that interest income received out of investments with cooperative societies alone is to be allowed as a deduction. AR had claimed that if interest income is to be assessed as income from other sources, necessarily, the cost incurred for earning such interest income should be allowed as deduction u/s 57 of the I.T.Act. We find an identical issue was considered by the Hon’ble jurisdictional High Court in the case of Totagars Co-operative Sale Society Ltd. v. ITO [2015 (4) TMI 829 - KARNATAKA HIGH COURT]. The assessee has not raised the plea before the Income Tax Authorities that it has to be given deduction u/s 57 of the I.T.Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the lower authorities, we are of the view that since the fundamental principle under Income-tax Act being that only net income has to be taxed (i.e. after deducting expenditure incurred for earning such income), this plea of the assessee has to be necessarily entertained. Therefore, in the light of the judgment of the Hon’ble Apex Court in the case of Mavilayi Service Co-operative Bank Ltd. & Ors. v. CIT & Anr. [2021 (1) TMI 488 - SUPREME COURT] AND the judgment of Totagars Co-operative Sale Society [Supra] and order of the Tribunal in the case of M/s.Vasavamba Co-operative Society Ltd [2021 (8) TMI 706 - ITAT BANGALORE], the matter needs to be examined afresh by the A.O. de hors the observations of the CIT. The A.O. is directed to follow the dictum laid down by the above mentioned judicial pronouncements, while framing the fresh assessment. Appeal filed by the assessee is partly allowed.
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