2023 (12) TMI 865 - AT - Income Tax

Rectification u/s 154 - AO is seeking to disallow the claim of deduction u/s 80P to the extent of interest income, earned from banks - HELD THAT - It is admitted fact that interest income received from Corporation Bank. Interest income received from a Bank cannot be allowed as a deduction under sections 80P(2)(a)(i) or 80P(2)(d) of the Act in the light of the judgment of PCIT Vs. Totgars Co-operative Society Ltd 2017 (7) TMI 1049 - KARNATAKA HIGH COURT Limited prayer of the assessee in this appeal is to be provide deduction of cost of funds and proportionate administrative expenses as a deduction under section 57 of the Act for interest income assessed as Income from Other Sources . This prayer of the assessee has been accepted by the jurisdictional High Court in the case of Totgars Co-operative Society Ltd., Vs. ITO 2015 (4) TMI 829 - KARNATAKA HIGH COURT In light of the above AO is directed to allow cost of funds and proportionate administrative expenses for earning interest income as deduction under section 57 of the Act. It is ordered accordingly.

Summary

Issues:
The issues involved in the judgment are the validity of the notice issued under section 154 of the Income Tax Act, the justification of the Assessing Officer in initiating rectification proceedings, the classification of interest income as business income or income from other sources, the denial of liability to pay interest under sections 234A, 234B, and 234C, and the disallowance of deduction under section 80P of the Act.

Rectification Proceedings - Section 154:
The appellant challenged the validity of the notice issued under section 154 of the Act, arguing that there was no apparent mistake on record. The Assessing Officer's jurisdiction was questioned, and it was contended that the interest income should be deductible under section 80P(2)(a)(i) of the Act. The appellant also denied liability to pay interest under sections 234A, 234B, and 234C, claiming that the interest levied was not in accordance with the law. The Tribunal directed the AO to allow the cost of funds and proportionate administrative expenses for the interest income assessed as "Income from Other Sources," based on relevant judicial precedents.

Disallowed Deduction under Section 80P:
The Assessing Officer disallowed the claim under section 80P of the Act to the extent of Rs. 23,94,857. The appellant contested this disallowance, asserting that the interest income should be considered as part of business profit and eligible for deduction under section 80P(2)(a)(i). The AO's rectification order under section 154 of the Act added the interest income again, resulting in a higher total income. The CIT(A) upheld the AO's decision based on a High Court judgment. The appellant appealed to the Tribunal, presenting computations and arguments to support their position.

Judicial Interpretation and Relief Granted:
The Tribunal, after considering the submissions and relevant case law, directed the AO to allow the deduction of cost of funds and administrative expenses against the interest income assessed as "Income from Other Sources." This decision was based on a previous High Court judgment. The Tribunal allowed the appeal for statistical purposes, emphasizing the correct application of deductions and expenses in determining the taxable income. The judgment provided relief to the appellant by granting the requested deductions under section 57 of the Act for the interest income in question.

This summary highlights the key issues addressed in the judgment, including challenges to rectification proceedings, disallowed deductions under section 80P, and the application of judicial interpretations to provide relief to the appellant.