2022 (4) TMI 1347 - AT - Income Tax

Disallowance of deduction u/s 80P(2)(d) on account of interest income - HELD THAT - As relying on South Eastern Railway Employees Cooperative Credit Society Ltd. 2016 (9) TMI 814 - CALCUTTA HIGH COURT clearly states that such interest income which is earned from other banks and not earned from members of the Society or from deposits with any other cooperative Society no deduction is allowable u/s 80P(2) of the Act. Only any expenditure incurred to earn such income not eligible for deduction u/s 80P(2) of the Act can be claimed. In the instant case the interest income from banks other than cooperative banks/cooperative Societies/members is Rs. 23, 00, 239/-. The net profit shown in the profit loss account is only Rs. 6, 96, 233/-. Though details of profit loss account have not been placed on record but even otherwise against the interest income from banks deduction of Rs. 16, 04, 006/- has already been claimed by the assessee there hardly remains any case for the assessee to claim any other benefit. The ld. AO has already allowed deduction of Rs. 50, 000/- against the net profit of Rs. 6, 96, 233/-. The alternative submission of the assessee is that the disallowance should be restricted only to 3.12% being the net profit rate to be applied on the interest income of Rs. 23, 00, 239/- cannot stand for as the assessee has already claimed an expenditure of Rs. 16, 04, 006/- against the interest income of Rs. 23, 00, 239/-. We therefore confirm the finding of the ld. CIT(A) sustaining the addition of Rs. 6, 46, 233/- made by the AO and dismiss the ground nos. 2 3 raised by the assessee. For rest of addition assessee had made general submissions and has not placed any material on record to claim that ld. CIT(A) erred in confirming the addition. We on perusal of the finding of the ld. CIT(A) observe that the assessee had admitted during the course of assessment proceedings that the interest income was understated in the return of income and similarly with regard to the addition of Rs. 8, 760/- the assessee admitted before the AO that there was a difference between the closing bank balance as per bank statement and closing balance as per books of account and the said difference was reconciled and shown in the accounts of the next year. This finding of the ld. CIT(A) remained uncontroverted by the ld. Counsel for the assessee. We therefore confirm the finding of the ld. CIT(A) sustaining the addition of Rs. 29, 053/- Rs. 8, 760/- made by the AO. Thus ground nos. 4 5 of the assessee are dismissed.

Summary

Issues Involved:
1. Additions made beyond the reasons for scrutiny.
2. Disallowance of deduction under Section 80P(2)(d) on account of interest income.
3. Alternative submission regarding the restriction of disallowance to the profit element.
4. Addition of interest income of Rs. 29,053.
5. Addition of Rs. 8,760 as alleged undisclosed investment.

Issue-wise Detailed Analysis:

1. Additions made beyond the reasons for scrutiny:
The assessee argued that the additions made were beyond the scope of the reasons for scrutiny and should be deleted. However, this issue was not separately adjudicated in the judgment.

2. Disallowance of deduction under Section 80P(2)(d) on account of interest income:
The assessee contended that the interest income of Rs. 6,46,233/- earned from term deposits with banks other than cooperative banks should be deductible under Section 80P(2)(a)(i). The Tribunal, referencing the jurisdictional High Court's judgment in the case of South Eastern Railway Employees’ Cooperative Credit Society Ltd., clarified that interest income earned from term deposits with scheduled banks does not qualify for deduction under Section 80P(2)(a)(i). The Tribunal upheld the CIT(A)'s decision, noting that there was no evidence linking the interest income to the Society's members. The Tribunal confirmed that the deduction claimed by the assessee was not allowable and sustained the addition of Rs. 6,46,233/-.

3. Alternative submission regarding the restriction of disallowance to the profit element:
The assessee alternatively argued that the disallowance should be restricted to the profit element, i.e., 3.12% of the interest income of Rs. 23,00,239/-, amounting to Rs. 71,767/-. The Tribunal rejected this argument, stating that the assessee had already claimed an expenditure of Rs. 16,04,006/- against the interest income. The Tribunal found no merit in restricting the disallowance to the profit element and dismissed this ground.

4. Addition of interest income of Rs. 29,053:
The assessee challenged the addition of Rs. 29,053/- as interest income. The Tribunal noted that the assessee admitted during the assessment proceedings that this interest income was understated in the return of income. The Tribunal found no material evidence to support the assessee's claim against the addition and upheld the CIT(A)'s decision to confirm the addition of Rs. 29,053/-.

5. Addition of Rs. 8,760 as alleged undisclosed investment:
The assessee disputed the addition of Rs. 8,760/- as an undisclosed investment. The Tribunal observed that the assessee admitted a discrepancy between the closing bank balance as per the bank statement and the books of account, which was reconciled and shown in the accounts of the next year. The Tribunal found no error in the CIT(A)'s decision to confirm the addition and upheld the addition of Rs. 8,760/-.

General Grounds:
Grounds 1 and 6 were deemed general in nature and did not require separate adjudication.

Conclusion:
The appeal filed by the assessee was dismissed in its entirety. The Tribunal upheld the CIT(A)'s order, confirming the additions made by the Assessing Officer.