2024 (7) TMI 1084 - AT - Income Tax

Deduction claimed u/s 57 against income returned u/s 56 - manner in which expenses of the assessee were to be apportioned to the earning of income u/s 56 - Revenue authorities rejecting assesses apportionment and allocating expenses on a different basis which is being disputed before us - HELD THAT - The purpose of calculating the correctness of expenses apportioned by the assessee to the earning of interest income returned to tax under the head income from other sources , the issue is restored back to the AO, and the AO is directed to verify as to whether the formula adopted by the assessee for apportioning interest expenses to the earning of interest income returned to tax u/s 56 of the Act is the same as that adopted in AY 2014-15 and accepted by the AO in assessment of that year. If found to be so, no addition is made to the income of the assessee. In sum and substance the AO is directed to apportion expenses for claim u/s 57 of the Act in the manner done in A.Y 2014-15. With the above direction the issue is restored back to the AO. The appeal filed by the assessee is accordingly allowed for statistical purposes.

Summary

Issues:
Deduction claimed under section 57 of the Income Tax Act for expenses apportionment against income returned under section 56 of the Act.

Detailed Analysis:

Issue 1: Deduction claimed under section 57 of the Income Tax Act

Summary: The appeal pertains to the deduction claimed under section 57 of the Income Tax Act against income returned under section 56 of the Act. The dispute revolves around the apportionment of expenses by the assessee for earning income under section 56, which was challenged by the revenue authorities.

Analysis: The assessee, a cooperative society engaged in banking and credit facilities, reported total income of Rs. 2,27,56,020 during the relevant assessment year. The dispute arose when the Assessing Officer applied a proportionate rate of 41.1% to the total interest income earned by the assessee, resulting in an addition of Rs. 75,33,834 to the assessee's income. The assessee contended that the expenses should be apportioned based on the Profit & Loss Account, where total expenses were Rs. 2.18 crores, with Rs. 2.05 crores being interest paid on members' deposits. The assessee argued that these expenses should be allocated to the interest income earned on investments, constituting 59.9% of total income.

Judgment: The Tribunal directed the Assessing Officer to verify if the formula adopted by the assessee for apportioning interest expenses was consistent with the approach accepted in a prior assessment year. If found consistent, no further addition should be made to the assessee's income. The issue was remanded to the Assessing Officer to apportion expenses as done in the previous assessment year, thereby allowing the appeal for statistical purposes.

Conclusion: The Tribunal's decision focused on ensuring the correct apportionment of expenses for claiming deductions under section 57 of the Act. By directing the Assessing Officer to follow the previous approach if consistent, the Tribunal aimed to resolve the dispute regarding the allocation of expenses against the income returned under section 56 of the Act.

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