2018 (12) TMI 601 - AT - Income Tax

Not allowing deduction u/s. 80P(2)(a)(i) in respect of MSEB commission income and interest received on FDRs with bank - Held that - Hon ble Bombay High Court in CIT VS. Asian Cable Corporation Ltd. ( 2003 (3) TMI 87 - BOMBAY HIGH COURT after applying the provisions of section 80AB, has held that deduction under s. 80-O should be allowed with reference to net receipts and not on gross receipts. It, ergo, becomes palpable that the eligible amount for deduction can be the income and not the gross receipts from the specified source. Since the amount of gross receipt from MSEB commission in this case is less than the amount of expenses incurred for earning such commission and deduction has been separately allowed by the AO in respect of such expenses, there can be no distinct deduction u/s. 80P because of the negative income earned by the assessee from this activity. Therefore, countenance the view point of the first appellate authority on this point. The second component of the disallowance of deduction is interest received by the assessee on FDR with IDBI bank amounting to ₹ 3,01,034/-. Here again, it is noticed that the assessee earned interest income of ₹ 3,01,034/-. As per assessee s own version given to the authorities, it incurred cost of funds at ₹ 3,32,967/- for earning such interest income. Once again, it is clear that the deduction for a sum of ₹ 3,32,967/- has been allowed by the AO. The amount of gross interest income, being less than the amount of expenses incurred, cannot entitle the assessee to qualify for separate deduction u/s. 80P on the amount of gross interest received. Approve the view taken by the CIT(A) on this score. Expenses incurred against earning of MSEB commission and cost of funds incurred against the interest received on FDRs should be allowed as deduction - Held that - In this regard, it is observed that the CIT(A) has categorically noticed that the assessee was allowed deduction for these two expenses. It would be just and fair if the AO verifies the assessee s contention for allowing deduction of these two expenses. In case, the deduction is found to have been allowed for these two sums, then there is no scope for allowing any further deduction. In case, the finding of the ld. CIT(A) is found to be wanting, then the deduction should be allowed to the extent of expenses incurred, namely, ₹ 1,50,000/- and ₹ 3,32,967/-.

Summary

Issues:
1. Deduction u/s. 80P(2)(a)(i) for MSEB commission income and interest on FDRs.

Analysis:
1. The appeal concerned the denial of deduction u/s. 80P(2)(a)(i) for MSEB commission income and interest on FDRs. The assessee, a cooperative society, claimed the deduction based on its activities related to banking services. The AO disallowed the deduction on MSEB commission income as the expenses exceeded the income. The CIT(A) upheld this decision, emphasizing that no further deduction was permissible due to the loss in this activity. The ITAT considered the provisions of section 80AB, distinguishing between gross receipts and income, citing relevant case laws. It concluded that since the gross receipt was less than the expenses incurred, no separate deduction u/s. 80P was allowed for negative income, aligning with the CIT(A)'s view.

2. The second issue involved interest income on FDRs with a bank. The assessee received interest income but incurred higher costs of funds, resulting in a net loss. The AO allowed the deduction for the cost of funds. The ITAT concurred with the CIT(A)'s decision that no separate deduction u/s. 80P was permissible for the gross interest received, considering the net loss incurred by the assessee. The ITAT suggested the AO verify the deduction allowed for expenses related to MSEB commission and interest on FDRs. If the deductions were already granted, no further deduction was warranted. Otherwise, deductions should be allowed for the actual expenses incurred.

3. The ITAT partially allowed the appeal for statistical purposes, indicating that the deductions for expenses should be verified by the AO. The judgment highlighted the importance of distinguishing between gross receipts and income for determining eligibility for deductions under section 80P. The decision emphasized aligning deductions with the net income derived after accounting for expenses incurred in earning the respective incomes.