2021 (12) TMI 456 - AT - Income Tax

Disallowing claim u/s 80P(2)(a)(i) - assessee has earned income from the investment made with nationalized bank - CIT(A) has held that society would be allowed to claim expenses under section 57 to the extent of 5% of the impugned interest income - HELD THAT - We find merit in the contention of the assessee that expenditure should be allowed in respect of interest income earned from the investments. If the component of income does not qualify for grant of deduction under section 80P(2)(a)(i), then such income should be computed on net basis; any expenditure relatable to earning of such income is to be allowed before calculating exclusion of such amount for the purpose of 80P(2)(a)(i) of the Act. Since interest income earned by the assessee was treated to be income from other sources under section 56, then, the assessee can claim deduction u/s 57 of the Act. Therefore, we direct the AO to allow expenditure for earning such interest income. In other words, the ld.AO has to determine the net interest income earned by the assessee after giving set off expenditure, and only thereafter that net income has to be excluded from the admissibility of deduction under section 80P(2) of the Act. Grounds of appeal of the assessee are thus partly allowed for the statistical purpose.

Summary

Issues:
1. Disallowance of claim under section 80P(2)(a)(i) of the Income Tax Act, 1961.

Analysis:
The appellant, a co-operative credit society, appealed against the order of the ld.CIT(A) confirming the disallowance of its claim under section 80P(2)(a)(i) of the Income Tax Act, 1961 for the Asstt.Year 2011-12. The appellant's grievance was that the ld.CIT(A) erred in upholding the order of the ld.AO in disallowing their claim. The ld.AO disallowed the claim as the appellant had earned interest income from a Nationalised Bank, which was not considered eligible for deduction under section 80P. The appellant argued that the investment made was part of its activities and as per its byelaws. The ld.CIT(A) allowed 5% of the interest income as expenditure, providing a relief of ?8,491, but confirmed the balance amount. The appellant contended that the relief quantification was incorrect, leading to the appeal before the Tribunal.

Upon careful consideration, the Tribunal noted the reliance placed by the ld.CIT(A) on a judgment of the Hon’ble Gujarat High Court in a similar case. The Tribunal acknowledged that income from investments in banks, not being cooperative societies, does not fall within the purview of section 80P(2)(a). However, the Tribunal agreed with the appellant's argument that expenditure should be allowed concerning the interest income earned from investments. The Tribunal directed the AO to determine the net interest income after accounting for expenditure before excluding it from the deduction under section 80P(2). It was emphasized that since the interest income was treated as "income from other sources" under section 56, the appellant could claim deduction under section 57 of the Act. Therefore, the Tribunal partly allowed the appeal for statistical purposes.

In conclusion, the Tribunal recognized the appellant's right to claim expenditure related to interest income earned from investments, even though the income did not qualify for deduction under section 80P(2)(a)(i). The Tribunal's decision aimed to ensure a fair computation of the net income before excluding it from the deduction admissible under the Income Tax Act.