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2023 (12) TMI 333 - ITAT BANGALOREDeduction u/s 57 while computing interest income - bringing to tax the interest income as ‘Income from Other Sources’ rejecting the assessee’s claim as business income - CIT(A) confirmed the action of the AO in reducing the cost of funds to the extent of 15% of the amount of interest income earned and balance amount was brought to tax - DR submitted that on the interest income earned out of providing credit facilities to its members, the assessee is allowed deduction u/s 80P(2)(a)(i) and that the interest paid on deposit made by members of the assessee cannot be allowed as cost of funds. HELD THAT:- Assessee is a co-operative society primarily engaged in providing credit facilities to its members. Naturally, the cost of funds will be primary cost for any entity engaged in such business / activities. It is well accepted that banking institutions which have similar operation to that of the assessee will also operate on “net interest income” which is arrived at by subtracting the interest they have to pay out of the interest income generated. The assessee had furnished detailed working with respect to the cost of funds which is coming to 77% of the interest income. The claim of assessee is backed by detailed workings which had not been refuted by the authorities. AO / CIT(A) had allowed deduction by restricting the of cost of funds to the extent of 15% on ad-hoc basis of the interest income without any legal basis. The working of the cost of funds as provided by the assessee on facts of the instant case has not been refuted. Therefore, direct the AO to accept the same as cost of funds for earning the interest income which was assessed as ‘Income from Other Sources’. Appeal of assessee allowed.
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