2018 (5) TMI 1729 - AT - Income Tax

Disallowance u/s 80P - Whether the income from interest earned on Bank FDRs is eligible for deduction u/s 80P - Held that - The interest income earned by the assessee from its members on account of advance given to them is allowable for deduction u/s 80P(2)(a)(i) of the Act Interest income earned by the assessee from the short term deposits made with the State Bank of India is not eligible for deduction u/s 80P(2)(a)(i) as followed in the case of STATE BANK OF INDIA (SBI) VERSUS COMMISSIONER OF INCOME TAX 2016 (7) TMI 516 - GUJARAT HIGH COURT - Assessee is entitled to claim the deduction of the expenditure incurred by it in connection with such interest income. Therefore, we direct the AO to take the net interest income for the purpose of disallowance of deduction u/s 80P(2)(a)(i) of the Act. Disallowance of interest on deposits made with other cooperative banks - Held that - Assessee is eligible for such deduction u/s 80P(2)(d) - Decided in favor of assessee. Disallowance of income from other sources - Held that - Assessee is not entitled for deduction in respect of such income in view of Judgment of MAFATLAL INDUSTRIES LTD S EMPLOYEES CO-OPERATIVE CREDIT SOCIETY LTD VERSUS THE INCOME TAX OFFICER 2014 (2) TMI 516 - ITAT AHMEDABAD - Decided against the assessee

Issues:
1. Disallowance of deduction claimed under section 80P(2)(a)(i) of the Income Tax Act, 1961.
2. Treatment of interest income earned on bank deposits and other sources as income from other sources.
3. Disallowance of deduction claimed under section 80P(2)(c).
4. Adjustment of income chargeable under the head of business and profession.

Analysis:

Issue 1: Disallowance of deduction claimed under section 80P(2)(a)(i):
The assessee raised multiple grounds of appeal challenging the disallowance of deduction under section 80P(2)(a)(i). The AO disallowed the deduction for certain interest income earned by the assessee, citing precedents. The tribunal held that interest income from advances given to members was eligible for deduction under section 80P(2)(a)(i). However, interest income from short term deposits with banks was not eligible for deduction under the same section. The tribunal directed the AO to consider the net interest income for disallowance under section 80P(2)(a)(i) and allow deduction for the expenditure incurred in connection with such interest income.

Issue 2: Treatment of interest income earned on bank deposits and other sources:
The tribunal addressed the treatment of interest income earned on deposits with cooperative banks and other sources. It held that interest income from deposits with cooperative banks was eligible for deduction under a specific clause of section 80P(2). However, income from other sources, such as the one claimed by the assessee, was not entitled to deduction under section 80P(2)(a)(i). The tribunal directed the AO to disallow any deduction in respect of income earned from other sources.

Issue 3: Disallowance of deduction claimed under section 80P(2)(c):
The assessee also claimed a deduction under section 80P(2)(c). The tribunal directed the AO to allow the deduction in accordance with the provisions specified under this section.

Issue 4: Adjustment of income chargeable under the head of business and profession:
Regarding the adjustment of income chargeable under the head of business and profession, the tribunal directed the AO to consider the issue afresh in accordance with the law and the discussion held during the proceedings. The tribunal allowed the grounds of appeal for statistical purposes.

The tribunal consolidated the issues raised in two separate appeals, as they were identical to the issues addressed in the first appeal. The tribunal directed the AO to adjudicate the issues in the second appeal in light of the decision made in the first appeal, allowing both appeals for statistical purposes.

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