Siddhartha Nautiyal ORDER
Siddhartha Nautiyal, Member (J)
1. This is an appeal filed by the revenue against the order of the ld. Commissioner of Income Tax (Appeals), Gandhinagar, Ahmedabad in Appeal No. CIT(A)/GNR/10198/2018-19 vide order dated 12/07/2019 passed for the assessment year 2016-17.
2. The Revenue has raised the following grounds of appeal:-
"(i) Whether, the Ld. Commissioner of Income- Tax (appeals) has erred in law and on facts in deleting the addition of Rs. 1,46,68,200/- on account of interest earned under section 80P(2)(d) of the Act.
(ii) On the facts and circumstances of the case, the Ld. Commissioner of Income- Tax (Appeals) ought to have upheld the order of the Assessing Officer.
(iii) It is, therefore prayed that the order of the Ld. Commissioner of Income-tax(Appeals) may be set aside and that of the Assessing Officer be restored.
(iv) The appellant prays for leave, to amend or alter any ground or add a new ground which may be necessary."
3. The assessee is a Cooperative Society and is engaged in providing credit facilities to its members only from the deposits received from them. During the year under consideration, the assessee declared net profit of ` 2,13,69,867/- and after adjustment of some items, total income of ` 'Nil' was worked out after claiming deduction section 80P of the Act. During the course of assessment proceedings, the AO noted that the assessee has earned interest income from cooperative banks as well as nationalized banks and claimed deduction under section 80P of the Act on the same. The details of interest earned from cooperative banks as well as nationalized banks during the year under consideration are as under:


3.1. The assessing officer denied the claim of deduction under section 80P of the Act in totality and taxed the interest income as "income from other sources" under section 56 of the Act. Further, the assessing officer also denied deduction of proportionate expenses incurred for earning the aforesaid interest income. While passing the order, the assessing officer observed as under:
On perusal of the above judgment it is clear that the deduction claimed by the co.-op. society on interest income from nationalized banks as well as Co-operative banks of entities other than co-op. society will not be allowed as deduction u/s. 80P of the Act. Hence, the deduction claimed by it on interest earned from entities other than co.-op. societies are disallowed and added to the income of the assessee. Accordingly, addition of Rs. 1,46,98,641/- is made to the total income of the assessee under the head of income from other sources u/s. 56 of the I.T. Act, 1961. As regards arguments of the assessee that proportionate expenses to be allowed in interest income. It is seen that assessee has invested its surplus funds in Nationalized Bank/Co-op. Bank. There is no nexus seen between the surplus fund invested in nationalized bank/Co-op, bank and expenses claimed by the assessee. The assessee has failed to prove that expenses incurred were for earning interest income from nationalized bank/Co-op. Bank in terms of provision of Section 57(iii) of the IT. Act. Therefore, no separate expenses on interest income received from nationalized banks/Co-op, banks needs to be allow........