2018 (7) TMI 1465 - AT - Income Tax

Deduction claimed by the appellant-co-operative society under section 80-P denied - whether interest income earned on fixed deposits with the nationalized bank and co-operative bank would qualify for deduction under section 80P(2)(a)(i), 80P(2)(c) 80P(2)(d)? - Held that - Direct the AO to exclude the amount of net interest income from the deduction claimed u/s 80P(2)(a)(i) of the Act. Thus the AO will allow the expenses incurred by the assessee in the earning of such interest income not eligible for deduction under section 80P(2)(a)(i) of the Act. Similarly, we also direct the Assessing Officer to allow the deduction to the assessee for the amount of interest earned from the co-operative bank under section 80P(2)(d) of the Act. Similarly, we also further direct the Assessing Officer to allow the deduction to the assessee under section 80P(2)(c) of the Act. Hence, grounds of appeal filed by the assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of deduction under section 80-P of the Income Tax Act.
2. Disallowance of deduction under section 80-P(2)(d) for interest earned from cooperative bank.
3. Disallowance of deduction for expenses related to income from banks.
4. Disallowance of deduction under section 80-P(2)(c)(ii) for a specific amount.

Issue 1: Disallowance of deduction under section 80-P of the Income Tax Act:
The appeal was filed against the appellate order of the Commissioner of Income Tax(Appeals) regarding the disallowance of a deduction claimed by the appellant-cooperative society under section 80-P of the Income Tax Act. The grounds of appeal raised by the assessee included challenges to the disallowance and computation of income from banks without allowing proportionate expenses. The Tribunal proceeded with the adjudication despite the absence of the assessee, citing coverage of the issue by judicial pronouncements. The Tribunal dismissed the appeal of the assessee based on a High Court decision that interest earned from investments in banks is not deductible under section 80-P(2)(a)(i) of the Act. However, the Tribunal directed the Assessing Officer (AO) to allow expenses incurred by the assessee in earning such interest income not eligible for deduction.

Issue 2: Disallowance of deduction under section 80-P(2)(d) for interest earned from cooperative bank:
The interconnected issue involved in the grounds of appeal related to whether interest income earned on fixed deposits with nationalized banks and cooperative banks would qualify for deduction under section 80-P(2)(a)(i), 80-P(2)(c), and 80-P(2)(d) of the Income Tax Act. The Tribunal referred to previous decisions and held that interest earned from investments made in any bank is not deductible under section 80-P(2)(a)(i) of the Act. However, the Tribunal directed the AO to exclude the net interest income from the deduction claimed under section 80-P(2)(a)(i) and allow expenses incurred by the assessee in earning such interest income. The Tribunal also allowed the deduction for interest earned from cooperative banks under section 80-P(2)(d) of the Act based on relevant case law.

Issue 3: Disallowance of deduction for expenses related to income from banks:
The Tribunal considered the issue of computing income from banks without allowing proportionate expenses, determining that all expenses incurred by the appellant cooperative society related to income from interest earned on loans advanced to members. The Tribunal dismissed the appeal of the assessee based on the High Court decision mentioned earlier but directed the AO to allow expenses incurred by the assessee in earning interest income not eligible for deduction under section 80-P(2)(a)(i) of the Act.

Issue 4: Disallowance of deduction under section 80-P(2)(c)(ii) for a specific amount:
The Tribunal addressed the issue of disallowance under section 80-P(2)(c)(ii) of the Act for a specific amount claimed by the appellant-cooperative society. Referring to a previous case, the Tribunal directed the AO to allow the deduction to the assessee under section 80-P(2)(c) of the Act. The Tribunal allowed the grounds of appeal filed by the assessee for statistical purposes.

In conclusion, the Tribunal partially allowed the appeal of the assessee for statistical purposes, directing the AO to exclude net interest income from deductions claimed under specific sections of the Income Tax Act and to allow expenses incurred by the assessee in earning such interest income. The Tribunal considered relevant case law and judicial pronouncements to make its determinations on the disallowance of deductions and computation of income from banks for the appellant-cooperative society.