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2021 (11) TMI 527 - AT - Income TaxDisallowance of deduction u/s 80P being interest income - HELD THAT - The provisions of sub-section 1 of section 80P of the Act provides certain benefits to the co-operative societies. Likewise sub-section 2 of section 80P of the Act puts the restriction on the activities which are eligible for deduction of profit to the co-operative societies. The last para of clause (a) of sub-section 2 of section 80P of the Act uses the expression 'attributable to' which indicates the profit attributable to such activity. The word attributable is wider term than the expression 'derived from'. This has been held in the series of judgments of the Hon'ble Courts. But for the sake of brevity, we not inclined to repeat the same. Admittedly, this fact has not been doubted by the authorities below that the impugned income by way of interest was arising from the event attributable to such activity as discussed above. In other words, the assessee was under the obligation to deposit the money with the bank in order to secure the work for the disposal of labours collectively. Accordingly, we are of the view that such income is also eligible for deduction under section 80P(2)(a)(vi) of the Act. Consequentially, we set aside the order of the learned CIT(A) and direct the AO to allow the deduction to the assessee with respect to the interest income under consideration under the provisions of section 80P(2)(a)(vi) of the Act. Hence the ground of appeal of the assessee is allowed. Disallowing the expenses on the reasoning that corresponding income was not offered to tax - HELD THAT - The income of the current year will get increased by the amount of disallowance whereas the income of the subsequent year will get decreased by the impugned amount. The tax rate of the assessee in the year under consideration viz a viz in the subsequent year is uniform. Thus, there will not be any impact on the revenue except the difference of time in identifying the income and the loss of interest/opportunity cost. Had the revenue been collected by the revenue in the very 1st year, then there would not have been any opportunity cost of such amount on account of deferment of the income to the subsequent year. Assessee under the income tax Act claim the expenses if corresponding income has been booked in the books of accounts. This is the matching principles of the accounting treatment - part of the activity of the project which has been completed after incurring such expenses, the same should be classified as work-in progress and the same should not be claimed as deduction in pursuance to the principles of matching concept. Accordingly, we hold that there is no infirmity in the order of the learned CIT(A) and therefore we decline to interfere in his order up-to this extent. However, it is important to note that the assessee should be allowed deduction on the enhanced income on account of the disallowance of the expenses as discussed above. Thus the ground of appeal of the assessee is allowed in terms of the above. Disallowing the expenditure incurred under the head repair of JCB on account of no corresponding income offered by it - HELD THAT - As assessee owns certain machineries known as JCB machines which are reflecting in the balance sheet of the assessee as on 31st March 2010. It was contended by the assessee that it has incurred certain expenses on the repairs and maintenance of such JCB machines. However, the learned CIT(A) did not allow the deduction of the expenses on the reasoning that there was no corresponding income shown by the assessee in the books of accounts. In our considered view the finding of the learned CIT(A) is not tenable for the reason that the JCB repairing expenses were not incurred against any project wherefrom some income was expected to arise. These expenses have been incurred by the assessee in a routine manner as wear and tear expenses. As such, there was no necessity for the income to accrue to the assessee against such expenses. Accordingly, we disagree with the finding of the learned CIT(A). Accordingly, the ground of appeal of the assessee is allowed. Disallowing the deduction of the expenses only incurred with respect to the project where the income was earned for ₹ 1,058/- only - HELD THAT - As the project expenses incurred against the gross project receipt which was outsourced cannot be disallowed. It is for the reason that such project expenses was never claimed by the assessee as deduction under section 80P(2)(a)(vi) of the Act. What has been prohibited under the provisions of section 80P(2)(a)(vi) of the Act is to make the disallowance of the deduction of the income and not the disallowance of the expenses incurred by the assessee with respect to the outsourced project - assessee has shown gross income in its profit and loss account of the outsourced project and therefore the expenses corresponding to such income are eligible for deduction under the provisions of section 37(1) - Accordingly, we are not in agreement with the finding of the learned CIT(A). Thus we direct the AO to allow the expenses incurred by the assessee for ₹ 56,500/-. The income generated by the assessee for ₹ 1,058/- with respect to the outsourced project cannot be allowed as deduction under the provisions of section 80P(2)(a)(vi) of the Act. Hence the ground of appeal of the assessee is partly allowed.
Issues Involved:
1. Deduction under section 80P of the Act for interest income. 2. Disallowance of expenses due to lack of corresponding income. 3. Disallowance of repair expenses for JCB machines. 4. Deduction of expenses for outsourced projects. Detailed Analysis: 1. Deduction under section 80P of the Act for interest income: The first issue raised by the assessee concerns the denial of deduction under section 80P(2)(a)(vi) of the Income Tax Act for interest income amounting to ?4,09,735/-. The assessee, a co-operative society engaged in labor contract activities, argued that the interest income was incidental to its business activities, as it was earned on security deposits made with the bank to secure government projects. The CIT(A) had disallowed this deduction, reasoning that the interest income did not arise from the collective disposal of labor. However, the Tribunal found that the interest income had a direct nexus with the business activities of the assessee and was therefore eligible for deduction under section 80P(2)(a)(vi). The Tribunal set aside the CIT(A)'s order and directed the AO to allow the deduction. 2. Disallowance of expenses due to lack of corresponding income: The second issue pertained to the disallowance of expenses amounting to ?1,96,614/- incurred for the Bhramanvada Talav project, which was initiated at the end of the financial year. The CIT(A) disallowed these expenses due to the absence of corresponding income in the same year. The assessee contended that the income from this project was recognized in the subsequent year, making the disallowance a tax-neutral exercise. The Tribunal upheld the CIT(A)'s decision, emphasizing the matching principle of accounting, which requires expenses to be matched with corresponding income. However, the Tribunal noted that the assessee should be allowed a deduction on the enhanced income due to the disallowance of these expenses. 3. Disallowance of repair expenses for JCB machines: The third issue involved the disallowance of ?22,032/- for repairs to JCB machines due to the lack of corresponding income. The assessee argued that these were routine wear and tear expenses incurred in the course of business and did not require corresponding income. The Tribunal agreed with the assessee, stating that the repair expenses were not linked to any specific project and were routine in nature. Therefore, the Tribunal allowed the deduction for these expenses. 4. Deduction of expenses for outsourced projects: The fourth issue concerned the disallowance of ?56,500/- incurred on an outsourced project, where the income earned was only ?1,058/-. The CIT(A) disallowed the deduction, arguing that the income from outsourced activities is not eligible for deduction under section 80P(2)(a)(vi). The Tribunal clarified that while the income from outsourced activities is not deductible under section 80P(2)(a)(vi), the corresponding expenses should be allowed under section 37(1) of the Act. The Tribunal directed the AO to allow the expenses incurred for the outsourced project but disallowed the deduction of the net income of ?1,058/- under section 80P(2)(a)(vi). Conclusion: The appeal filed by the assessee was partly allowed. The Tribunal directed the AO to allow the deduction of interest income under section 80P(2)(a)(vi), upheld the disallowance of expenses for the Bhramanvada Talav project, allowed the repair expenses for JCB machines, and allowed the expenses for the outsourced project while disallowing the deduction of the net income under section 80P(2)(a)(vi).
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