2010 (12) TMI 1212 - AT - Income Tax

Summary

Issues Involved:
1. Deduction u/s 80P(2)(a)(i) for interest on surplus funds.
2. Deduction u/s 80P(2)(a)(i) for provisions of Non-Performing Assets (NPA).
3. Allowance of interest on General Provident Fund (GPF) without affording opportunity under Rule 46A(3).
4. Deletion of addition made on account of disallowance u/s 14A.

Summary:

1. Deduction u/s 80P(2)(a)(i) for interest on surplus funds:
The Tribunal upheld the CIT(A)'s decision allowing the deduction u/s 80P(2)(a)(i) for interest income on surplus funds amounting to Rs. 1,22,73,385/-. The Tribunal referenced its earlier decision in the assessee's own case for the assessment year 2006-07, where it was held that interest income from reserve funds is attributable to the business of providing credit facilities to its members and thus eligible for deduction u/s 80P(2)(a)(i).

2. Deduction u/s 80P(2)(a)(i) for provisions of Non-Performing Assets (NPA):
The Tribunal affirmed the CIT(A)'s decision that the disallowance of provisions for NPAs is eligible for deduction u/s 80P(2)(a)(i). The Tribunal referred to its previous order, which concluded that the income resulting from disallowance of NPAs, being interest receivable from members, is eligible for deduction u/s 80P(2)(a)(i) as it is attributable to the business of providing credit facilities to its members.

3. Allowance of interest on General Provident Fund (GPF) without affording opportunity under Rule 46A(3):
The Tribunal found merit in the Revenue's plea that the additional evidence regarding the allowance of Rs. 1,83,87,962/- as interest on GPF was not confronted to the Assessing Officer. The Tribunal remitted the issue back to the Assessing Officer to decide in line with its earlier directions, ensuring compliance with Rule 46A of the I.T. Rules and providing a reasonable opportunity of hearing to the assessee.

4. Deletion of addition made on account of disallowance u/s 14A:
The Tribunal upheld the CIT(A)'s decision to delete the addition of Rs. 1,23,38,110/- made by the Assessing Officer u/s 14A. The Tribunal noted that the dividend income of Rs. 68,200/- received by the assessee was claimed as deductible u/s 80P(2)(d) and not exempt u/s 10(38). Therefore, the provisions of section 14A were not applicable, as supported by the decision of the Punjab & Haryana High Court in CIT v Kings Exports.

Conclusion:
The appeal of the Revenue was dismissed. The Tribunal upheld the CIT(A)'s decisions on all grounds, except for the issue of interest on GPF, which was remitted back to the Assessing Officer for reconsideration.