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2022 (12) TMI 216 - AT - Income TaxRevision u/s 263 - assessee had earned interest income on investments made with co-operative bank - PCIT directed the A.O. to bring to tax the aforesaid interest income by denying the claim u/s 80P - submission of the learned AR is that when income is sought to be assessed on the said interest income, the expenses incurred for earning such income would be entitled to deduction u/s 57 - HELD THAT - The Hon ble jurisdictional High Court in the case of Totagars Co-operative Sale Society Ltd. v. ITO 2015 (4) TMI 829 - KARNATAKA HIGH COURT had held when the assessee-co-operative society earned interest on deposits kept with scheduled banks only the net interest, i.e., the interest income reduced by the administrative expenses and other proportionate expenditure to earn the said income had to be brought to tax u/s 56. The assessee has not raised the plea before the PCIT that it has to be given deduction u/s 57 of the I.T.Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the PCIT, we are of the view that since the Act prescribes for taxing only the net income (i.e. total income minus the expenses incurred for earning such income), this plea of the assessee has to be necessarily entertained, especially in the light of the judgment of Totagars Sale Co-operative Society Supra - Accordingly, the case is restored to the files of the A.O. The A.O. is directed to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head income from other sources . If so, the same shall be allowed as deduction u/s 57 of the I.T.Act. The A.O. shall examine the aforesaid issue untrammeled by the direction of the PCIT in the impugned order passed u/s 263 - Appeal filed by the assessee is partly allowed for statistical purposes.
Issues:
1. Condonation of delay in filing appeal due to COVID-19 pandemic. 2. Validity of PCIT's order under section 263 of the Income Tax Act. 3. Applicability of deduction under section 57 of the Income Tax Act for expenses incurred in earning interest income. Issue 1: Condonation of Delay in Filing Appeal: The appeal was filed with a delay of 115 days, attributed to the outbreak of the COVID-19 pandemic. The assessee filed a condonation petition, explaining the delay and stating that they became aware of the impugned order only later. The Tribunal, after considering the reasons presented and relevant judicial pronouncements, condoned the delay of 115 days, finding sufficient cause and no fault on the part of the assessee. Issue 2: Validity of PCIT's Order under Section 263: The PCIT set aside the Assessing Officer's order, citing that the interest income earned by the assessee from investments with cooperative banks was not entitled to deduction under sections 80P of the Income Tax Act. The PCIT relied on judicial precedents to support this decision. The Tribunal upheld the PCIT's order, stating that the Assessing Officer's order allowing the interest income was erroneous and prejudicial to the revenue's interest, as per the judgments of the Supreme Court and the jurisdictional High Court. Issue 3: Applicability of Deduction under Section 57: The assessee contended that expenses incurred in earning interest income should be allowed as a deduction under section 57 of the Income Tax Act. The Tribunal referred to a judgment of the jurisdictional High Court, which supported this contention. Despite the plea not being raised before the PCIT, the Tribunal held that the Act mandates taxing only the net income after deducting expenses. Therefore, the case was remanded to the Assessing Officer to examine and allow any expenditure incurred for earning interest income as a deduction under section 57, disregarding the PCIT's direction. In conclusion, the Tribunal partly allowed the appeal for statistical purposes, directing the Assessing Officer to reexamine the expenditure issue in light of section 57. The judgment emphasized the importance of considering expenses for earning income and upheld the PCIT's decision regarding the interest income from cooperative banks not being eligible for deduction under section 80P.
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