2011 (4) TMI 1422 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the denial of deduction u/s 36(1)(viii) for various incomes, the application of netting principle for interest income, the challenge to the charging of interest u/s 234B, and the withdrawal of interest u/s 244A(3).

Denial of Deduction u/s 36(1)(viii):
The appellant contested the denial of deduction u/s 36(1)(viii) for income received from cooperatives, interest from banks, and interest on advances/deposits on loans to employees. The appellant argued that as the corporation's objective is to provide long-term loans/advances to cooperatives and State Governments, the income in question should be eligible for the deduction u/s 36(1)(viii) of the Income-tax Act, 1961.

Application of Netting Principle for Interest Income:
The appellant contended that the entire interest income should be adjusted against interest expenditure, as the corporation relies on long-term borrowings and other sources for funds. The appellant emphasized that only the net profit should be considered for the purpose of disallowance u/s 36(1)(viii), and provided a working of disallowance for consideration.

Challenge to Charging of Interest u/s 234B:
The appellant argued that the charging of interest u/s 234B was incorrect and not legally permissible, asserting that the interest should not be levied at all.

Withdrawal of Interest u/s 244A(3):
The appellant challenged the withdrawal of interest u/s 244A(3) as being erroneous and contrary to law.

Decision Summary:
The Tribunal noted that the issues raised were similar to a previous decision and directed the AO to work out the net profit for disallowance u/s 36(1)(viii) after considering the appellant's contentions. The Tribunal emphasized the need for a direct nexus between income earned and expenditure incurred, and allowed specific deductions for interest from bank deposits, dividend income, and miscellaneous receipts/interest on advances. The appeal was treated as partly allowed for statistical purposes, with consequential revisions to the interest calculations under u/s 234B and u/s 244A(3).