2011 (9) TMI 1058 - AT - Income Tax

Eligibility for deduction u/s 80P(2)(a)(i) - Held that - Income arising from deposits in bank which could be said to be ready for utilization by the assessee in his business of providing credit facilities to its Members was held to be attributable to the business of providing credit facilities in order to fall within the ambit of section 80P(2)(a)(i) of the Act Disallowance of provisions of NPA is eligible for deduction u/s 80(P)(2) (a)(i) - Held that - There is nothing brought on record to disregard that the interest irrecoverable which is embedded in the NPAs is nothing but interest receivable from members though not regularly received. It is only the defaulted interest income which is sought to be claimed as a deduction. If the said deduction is not allowed the natural corollary is that the enhanced income would become eligible for 80P(2)(a)(i) to which the assessee is otherwise entitled. Addition made on account of disallowance u/s 14A - Held that - The assessee had not claimed any exemption under the provisions of section 10(38) of the Act i.e. in connection with the income which is exempt in the hands of the assessee. The deduction was claimed under chapter VIA of the Income Tax Act which had been allowed by the Assessing Officer while computing the income for the year under consideration. In the totality of facts and circumstances we find no merit in the disallowance computed by Assessing Officer u/s 14A of the Act. Thus where the assessee had not claimed the dividend income exempt u/s 10(38) of the Act we find support from the ratio laid down by Hon ble Punjab & Haryana High Court in the case of CIT v Kings Exports 2009 (8) TMI 54 - PUNJAB AND HARYANA HIGH COURT . Upholding the order of CIT(A) we dismiss the ground of appeal raised by the Revenue.

Summary

Issues:
1. Eligibility of interest income on surplus funds for deduction u/s 80P(2)(a)(i)
2. Eligibility of NPA provisions for deduction u/s 80P(2)(a)(i)
3. Deletion of addition made on account of disallowance u/s 14A

Issue 1:
The first issue revolves around the eligibility of interest income on surplus funds for deduction u/s 80P(2)(a)(i). The Tribunal considered the precedent set in earlier cases and affirmed that income from deposits in banks, ready for utilization in the business of providing credit facilities, falls within the ambit of section 80P(2)(a)(i). The Tribunal upheld the order of the CIT(A) and dismissed the appeal of the Revenue, emphasizing that the interest income is attributable to the business of providing credit facilities.

Issue 2:
The second issue concerns the eligibility of NPA provisions for deduction u/s 80P(2)(a)(i). The Tribunal relied on previous judgments and held that the income resulting from the disallowance of NPA provisions is eligible for deduction under section 80P(2)(a)(i). It was established that even defaulted interest income, when earned from providing credit facilities to members, qualifies for the deduction. Following the precedent, the Tribunal affirmed the order of the CIT(A) and dismissed the appeal of the Revenue.

Issue 3:
The final issue pertains to the deletion of an addition made on account of disallowance u/s 14A. The Tribunal noted that the assessee had not claimed exemption under section 10(38) and had already received deductions under Chapter VIA of the Income Tax Act. Citing a relevant High Court case, the Tribunal upheld the order of the CIT(A) and dismissed the appeal of the Revenue, finding no merit in the disallowance computed by the Assessing Officer under section 14A.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the orders of the CIT(A) on all three issues. The judgments were based on detailed analysis, legal precedents, and interpretations of relevant sections of the Income Tax Act.