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2023 (5) TMI 794 - AT - Income TaxDeduction u/s. 80P(2)(a)(i) - AO concluded that interest received from cooperative bank and commercial banks do not qualify for deduction u/s. 80P(2)(d) - HELD THAT:- Hon’ble jurisdictional High Court in the case of PCIT v. Totagars Co-operative Sale Society [2017 (1) TMI 1100 - KARNATAKA HIGH COURT] has decided in the issue in favour of the revenue wherein it is held that the person or body corporate from which such interest income is received will not change its character, viz. interest income not arising from its business operations, which made it ineligible for deduction under Section 80P - The case in hand is also similar and the character of income will not change. Accordingly interest received on investments with cooperative bank as well as other banks shall be treated as income from other sources and it is not the business income of the assessee, therefore does not quality for deduction u/s. 80P(2)(d) of the Act. Since the entire interest received has been taxed as income from other source, fundamental principle under Income-tax Act being that only net income has to be taxed and not the gross income, especially in the light of the judgment of Totagars Sale Cooperative Society [2015 (4) TMI 829 - KARNATAKA HIGH COURT] Accordingly, the case is restored to the file of the A.O. with a direction to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head `income from other sources’. If so, the same shall be allowed as deduction u/s 57 - AO is directed to decide the issue as per law. The assessee is directed to co-operate with the department and furnish the necessary evidence for expeditious disposal of the matter. It is ordered accordingly. This ground is partly allowed for statistical purpose. Deduction u/s. 80P(2)(a)(i) on other receipts under different heads in the Profit & Loss account - AO has not considered the nature of receipts and whether it is part and parcel of the business income of the assessee or not. CIT(Appeals) has also not discussed this issue. Therefore, this issue should go back to the AO for examining the nature of receipts and whether it is connected to the regular business activity carried on by the assessee. This issue is accordingly remitted to the AO for fresh consideration. Assessee is directed to substantiate its case before the AO. If the AO finds the receipts are part and parcel of the business income of the assessee, the AO is directed to allow deduction u/s. 80P(2)(a)(i) to that extent. Accordingly this issue is allowed for statistical purposes.
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