TaxTMI 
TaxTMI 
2026 (3) TMI 1182
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....er, for the sake of brevity and convenience, we are not inclined to reproduce the same here. 3. Ground Nos. 1 and 2 are interconnected and relates to provision for interest payable to members. 4. The relevant facts are that the assessee is a society, filed its ROI for captioned AY declaring income as nil after claiming deduction u/s 80P(2)(a)(i) of the Act. The case of the assessee was selected for scrutiny to verify the deduction claimed by assessee u/s 80P(2)(a)(i) of the Act. 5. On perusal of the audit report of assessee, the AO observed that the assessee is following mercantile system of accounting. However, in the profit and loss account, the assessee is following hybrid system of accounting which is not permissible as per the....
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....ies to its members, as already held by the Ld. CIT(A) following the decision of the Hon'ble Supreme Court in Mavilayi Service Co-operative Bank Ltd., the enhanced income would also qualify for the said deduction. Accordingly, the learned AR submitted that the net tax effect would remain NIL, and therefore the disallowance would serve no practical purpose and therefore, the same is liable to be deleted. 9. On the contrary, the learned DR supported the orders of the AO and the Ld. CIT(A). He submitted that the assessee has adopted a hybrid system of accounting, recognizing interest income on cash basis while claiming interest expenditure on accrual basis. According to the learned DR, such selective recognition of income and expenditure res....
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....e Act. In such circumstances, sustaining the disallowance would only lead to a revenue neutral exercise without any tax implication. In view of the above facts and circumstances, we find merit in the alternative plea raised by the assessee. Accordingly, even assuming the disallowance made by the AO is upheld, the resultant income shall be allowed as deduction u/s 80P(2)(a)(i) of the Act. Consequently, the addition does not survive for taxation. The ground raised by the assessee is therefore allowed. 11. Ground No. 3 and 4 relates to interest on mandatory deposits with bank. 12. The relevant facts are that the assessee earned an interest income of Rs. 32,043 from scheduled banks. The AO relying on the judicial of Totgars, Co-operative ....
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....wherein interest from statutory deposits with scheduled banks was held eligible for deduction u/s 80P(2)(a)(i) of the Act. 17. Per Contra, the Ld. DR vehemently supported the orders of the AO and the Ld. CIT(A). He submitted that the interest earned from deposits with scheduled banks cannot be treated as income from the business of providing credit facilities to members. According to the Ld. DR, such interest arises from investment of funds with third parties, i.e., scheduled banks, and therefore the same does not have a direct nexus with the business activity carried on by the assessee with its members. 18. We have considered the rival submissions of both the parties and perused the materials placed on record. The limited issue befor....