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TMI Blog2018 (6) TMI 1787X X X X Extracts X X X X X X X X Extracts X X X X ..... d.CIT(A) has erred in concluding that there is no nexus between the interest/dividend income earned from the co-op. societies and the interest expenditure incurred by the assessee on borrowed funds on the ground that there is no proof of the investment of such interest bearing funds to earn the said income without appreciating the fact that the assessee has failed to substantiate the above in full measure with proper evidences. 3. Since, the above grounds are inter-connected, hence, these are being considered together. Succinct facts of the case that the assessee is a Co-operative credit society engaged in the business of providing credit facilities exclusively to its members by accepting deposits from its members and lending to them. In the process, it earns interest income from members. Assessee earns income on investment too. Assessee filed return of income on 21.09.2010 declaring total income at Nil income. The case was taken up for scrutiny and notice u/s.143(2) of the Act dated 29.08.2011 was issued and duly served upon the assessee by RPAD. During the year under consideration, assessee has earned gross income of Rs. 5,58,09,858.90/- and after claiming deductions in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has worked out the deduction u/s.80P(2)(d) at Rs. 88,33,839/- by excluding the interest of Rs. 2,45,89,355/- received by appellant from Surat Dist. Co-operative Bank Ltd. This amount is further reduced on proportionate basis by taking into account the total receipts and total expenses as shown by appellant and finally the allowable deduction is worked out by him at Rs. 22,24,361/-. Thus, the AO has not allowed the deduction on the interest and dividend received from Co-operative bank and also on gross amount of interest and dividend received from other Co-operative societies. This stand taken by AO does find support from the facts of the case. As submitted, the appellant society has been statutorily investing its surplus fund from the year 1992 with other Co-operative Societies which include Co-operative Banks. On such investments, the appellant has been receiving interest and dividend which has been claimed as deduction u/s.80P(2)(d) of the Act. It is not a case where this income has derived out of investments made during the year for which the appellant has incurred any expenditure directly or indirectly. An analysis of interest expenses would show that the same has been incurre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of banking of or providing credit facilities to its members. Section 80P(2)(d)- In respect of any income by way of interest or dividends derived by the co-operative society from its investments with any other co-operative society, the whole of such income. After considering the factual as well as legal position on this issue, the appellant had not incurred any expenditure on the earning of the dividend and interest from other cooperative society as this investment was made long back. No new investment had been made by the appellant during the year under consideration. Thus, we confirm the order of the CIT(A) in all the years." In view of the above, Hon'ble ITAT confirmed the order of CIT(A) who had deleted the addition made by AO by disallowing the deduction claimed on account of interest received from other Co-operative societies. Thus, in the case of appellant also, the proportionate disallowance of interest and dividend cannot be held sustainable. 5.1 The next issue, to be decided, is that whether deduction u/s.80P(2)(d) is available on the gross amount or the net amount. The appellant has claimed the gross amount of Rs. 3,34,73,194/- u/s.80P(2)(d) which includes inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. It is evident that there is no direct nexus between such expenses and interest and dividend. The prorate allocation of interest expenditure resulting its part disallowance of deduction has been done without examined the issue in details. Therefore, in absence of any expenses directly or indirectly co-related to such income, the part disallowance of deduction is not satisfied. In view of this matter, we do not find any fault in the order of CIT(A), hence, same is upheld. 9. The issue raised in the present appeal is against the claim of deduction u/s. 80P(2)(d) of the Act on the interest income earned from Co-operative banks. It is undisputed fact that the assessee is a Credit Co-operative Society and received advances and loans from its members, on which interest was being received and paid. We find that the Surat Bench of the Tribunal (camp at Surat), on the similar issue, in assessee's own case vide ITA No.2166/Ahd/2014 dated 18.04.2017 for the A.Y. 2009-10 held the issue in favour of the assessee by dismissing the appeal filed by the Revenue as under: "5. We have heard rival contentions and perused the material furnished by the ld.Counsel containing judicial pronounceme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce is answered against the Revenue in the affirmative and in favour of the assessee." We have further noticed from the finding of the Ld.CIT(A) that the assessee has claimed the gross amount of Rs. 4,05,40,653/- u/s.80P(2)(d) which includes interest income of Rs. 3,24,40,278/- and dividend income of Rs. 81,00,375/- received from other Cooperative societies. However, in the computation of income, assessee has restricted the deduction to Rs. 1,36,41,639/- which was net income. Therefore, we considered that the Ld.CIT(A) is justified in his decision that the net income in the case of assessee of Rs. 1,36,41,639/- allowable as deduction u/s.80P(2)(d) of the Act. In view of the above stated facts and details findings of the Ld.CIT(A) given in his order, we disinclined to interfere in the decision of Ld.CIT(A). 6. In the result, the appeal of the revenue is dismissed." 10. In the light of the above, we find that there is no direct nexus between expenditure related to part disallowance, hence, findings of CIT(A) are upheld. It is further apparent that the assessee is entitled to deduction u/s.80P(2)(d) in respect of the interest income earned from Co-operative Societies are eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X
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