2022 (12) TMI 1013 - AT - Income Tax

Revision u/s 263 - Deduction u/s 80P - deducting proportionate amount of interest expense while computing taxable interest from the nationalized banks - HELD THAT - Interest income received from Nationalized Bank is not eligible for deduction u/s. 80P - In the Case of State Bank of India Vs CIT 2016 (7) TMI 516 - GUJARAT HIGH COURT wherein it was held that interest derived by depositing surplus funds with bank not being attributable to business carried on by society, cannot be deducted under section 80P(2(a)(i). Hence, ground no. 1 is dismissed. Proportionate amount of interest expenses following in the case of Totagars Co-operative Sales Society Ltd. 2015 (4) TMI 829 - KARNATAKA HIGH COURT wherein it was held that net interest income that is interest income reduced by administrative expenses and other proportionate expenses to said income had to be brought to tax u/s 56. Assessee is entitled for deduction of proportionate expenditure which it has incurred and the same needs to be calculated by the Assessing Authority. We therefore deem it fit to remit the matter back to the file of the AO, who will examine the case of the assessee and quantify the proportionate expenditure and pass appropriate orders by giving due opportunity to the assessee. Therefore we partly allow this ground of appeal.

Summary

Issues:
1. Delay in filing the appeal by the Assessee.
2. Allowance of proportionate amount of interest expenses while computing taxable interest from nationalized banks.

Analysis:
1. The appeal was filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals) under section 143(3) r.w.s. 263 of the Income Tax Act, 1961, pertaining to the Assessment Year 2013-14. The registry initially noted a delay of 513 days in filing the appeal. However, due to the Covid-19 pandemic and subsequent Supreme Court directions, the delay was considered as there was no delay in filing the appeal by the Assessee.

2. The grounds of appeal raised by the Assessee primarily focused on the deduction of proportionate interest expenses while calculating taxable interest from nationalized banks. The Co-ordinate Bench of the Tribunal had previously considered a similar issue in the Assessee's own case for the Assessment Year 2012-13. The Tribunal referred to a Karnataka High Court judgment, stating that only net interest income, reduced by administrative and proportionate expenses, should be brought to tax under section 56. Following this precedent, the Assessee was deemed entitled to deduction of proportionate expenditure incurred in mobilizing funds, and the matter was remitted back to the Assessing Officer for appropriate calculation and orders.

3. The first ground of appeal, concerning interest income received from a Nationalized Bank, was held not eligible for deduction under section 80P of the Act, based on the Tribunal's decision and a Gujarat High Court ruling. However, the second ground, related to proportionate interest expenses, was partially allowed based on the Karnataka High Court judgment, directing the Assessing Officer to quantify the proportionate expenditure incurred by the Assessee and pass appropriate orders after due examination.

4. Ultimately, the appeal filed by the Assessee was partly allowed, with the Tribunal pronouncing the order on 21-12-2022. The decision highlighted the importance of considering proportionate expenses while calculating taxable interest income from nationalized banks, in line with relevant legal precedents and judgments.

This detailed analysis of the judgment showcases the legal intricacies involved in addressing the issues raised by the Assessee and the Tribunal's application of relevant laws and precedents to reach a decision.