2022 (3) TMI 1136 - AT - Income Tax

Denial of deduction u/s. 80P on the interest income earned by the assessee from Nationalized Bank - quantum of benefit of claim of expenses to be allowed to the assessee against the interest income earned by it from Nationalized Bank for the purposes of subjecting the balance to tax u/s. 56 - HELD THAT - Out of total income reflected by the assessee the majority expense relate to fixed deposit interest expenditure which accounts for 73% of the total income. What exactly is the nature of the fixed deposit interest expenditure, there is no clarity, whether this has any relation with the earning of interest income from Nationalized Bank. Since the benefit of the Balance sheet and Profit and Loss account of the assessee was not there before the Ld. CIT(A) who therefore made an adhoc estimate of allowable expenses and in view of the fact as stated above by us, noting that majority expenses have been incurred on fixed deposit interest alone, We consider it fit to restore this issue back to the Ld. CIT(A) to adjudicate the issue of expenses to be allowed against the interest income earned from Nationalized Bank to be adjudicated afresh after considering the facts of the case and in accordance with law in this regard. Assessee appeal allowed for statistical purposes.

Summary

Issues:
Denial of deduction u/s. 80P on interest income earned from Nationalized Bank.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) pertaining to the denial of deduction u/s. 80P on interest income earned from Nationalized Bank for A.Y 2016-17. The Assessing Officer denied the deduction based on a decision of the Hon'ble Apex Court. The CIT(A) upheld the deduction on interest from Co.Op. Banks but denied it on interest from Nationalized Banks, allowing only 5% of expenses against the interest income for tax under section 56 of the Act.

The contention of the assessee was that the 5% expenditure benefit was unreasonable, arguing for a higher percentage based on actual expenses incurred. The Departmental Representative supported the CIT(A)'s order. The CIT(A) referred to the decision of the Hon'ble High Court and the provisions of section 57 of the Act to justify the denial of further deduction beyond 5% of interest income from Nationalized Banks.

The Tribunal found the CIT(A) had estimated expenses without a proper basis due to lack of financial statements from the assessee. Upon reviewing the financial statements submitted during the appeal, it was noted that a significant portion of the income related to fixed deposit interest expenditure. As the nature of this expenditure was unclear, the Tribunal decided to remand the issue back to the CIT(A) for a fresh adjudication, emphasizing the need for a proper determination of expenses against interest income earned from Nationalized Bank.

The appeal of the assessee was allowed for statistical purposes, and the case was remanded back to the CIT(A) for a reevaluation of the expenses to be allowed against interest income from Nationalized Bank, ensuring the assessee receives a fair opportunity for a hearing.

In conclusion, the Tribunal acknowledged the need for a more detailed assessment of expenses against interest income from Nationalized Bank and directed the CIT(A) to reconsider the issue based on the facts and in accordance with the law, granting the assessee a due opportunity for a hearing.