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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV, VICE- & SHRI T.S. KAPOOR
आदेश/O R D E R
PER RAJPAL YADAV, VICE-PRESIDENT
Revenue is in appeal before the Tribunal against order of the ld.CIT(A)-4, Vadodara dated 16.3.2018 passed for the Asstt.Year 2015-16.
Sole ground taken by the Revenue reads asunder: “1. The CIT(A) erred in facts and law in directing AO to verify the assessee’s claim of pro-rata/proportionate expenditure from interest income shown by the appellant and allow the said claim of expenditure after due verification, as the assessee has failed to prove the nexus between the expenses claimed to be incurred to earn the interest income disallowed of Rs.2,33,99,303/-
2 3. In response to the notice of hearing, none has come present on behalf of the assessee. Since the assessee did not appear in response to the notice of hearing, we are not aware whether the assessee is in appeal or not against the decision of ld.CIT(A). Considering the limited issue involved in the appeal of the Revenue we proceed to decide this appeal ex parte qua the assessee- respondent.
Brief facts of the case are that the assessee has filed its return of income electronically on 15.9.2015 declaring total income at NIL. The assessee is a cooperative society engaged in the business of accepting deposits from own members of the society and make loan/advance to its members, and invest surplus fund with other bank. It has computed gross total income of Rs.2,33,99,303/- which has been claimed as exempt under section 80P(2) of the Income Tax Act. The case of the assessee was selected for scrutiny assessment, and notice under section 143(2) was issued on 26.9.2016. On scrutiny of the accounts it revealed to the AO that the assessee has interest income from scheduled bank. Such interest income has been noticed by the AO as under:
Sr. Name of Bank Interest Received (Rs.) No. 01 State Bank of India 99,86,363/- 02 Dena Bank 75,71,187/- 03 Bank of Baroda 29,79,285/- 04 Bank of India 4,04,455/- 05 Baroda Gujarat Gramin Bank 3,88,425/- 06 Central Bank of India 1,33,272/- Total 2,14,62,987/- 3 5. The AO thereafter found that the assessee has earned interest income from cooperative bank at Rs.28,02,626/-. Thus, according to the AO, the assessee has total interest income of Rs.2,42,65,613/-. He issued a show cause notice vide letter dated 20.7.2017 inviting explanation of the assessee as to why deduction claimed by it under section 80P(2) be not declined. Show cause notice was reproduced at para 4.1.2 of the assessment order. It reads as under: “4.1.2 Accordingly, it was show caused vide letter dated 20.07.2017 as to why deduction of interest income of Rs.2,42,65,613/- ( Rs. 2,14,62,987/- from nationalized banks +28,02,626/- from co-operative banks) on fixed deposit claimed u/s 80P on account of interest received from non members should not be disallowed in view of latest decision of Hon’ble jurisdictional Gujarat high court in the case of State Bank of India Co-op Society (SBI) Vs CIT[2016] 72 Taxman.com 64(Guj). The contents of show cause notice are reproduced here under :- "On verification of balance sheet and P&L it is seen that you have placed fixed deposits with State Bank of India, Dena bank, Bank of Baroda, Baroda Gujarat Gramin Bank, Lunawada People's Co- operative Bank, Lunawada Nagrik Sahakari Bank and Panchmahal District Co-operative Bank and earned interest income of Rs.2,42,65,613/- from the fixed deposits with these banks and claimed deduction of Rs.2,33,99,303/- u/s SOP of the IT Act.
In connection with the above, it is brought to your notice that listed banks are not members of M/s The Lunawada Taluka Primary School Teachers Co Op Credit Society Ltd and therefore you are not eligible to claim deduction of Rs.2,33,99}303/- u/s 80P (2)(a)(i) and 80P(2)(d) of the IT Act. In view of this, it is show caused as to why deduction claimed u/s SOP should not be disallowed in view of latest decision of jurisdictional Gujarat High Court in the case of State Bank of India (SBI) Vs CIT [2016] 72 Taxman.com 64(Guj).”
After hearing the assessee, the ld.AO did not grant deduction under section 80P(2) and determined taxable income of the assessee at Rs.2,33,99,303/-. Dissatisfied with the assessment order, the assessee carried the matter in appeal before the ld.CIT(A). The ld.CIT(A) after putting reliance upon the judgment of Hon’ble Gujarat High Court in the case of State
4 Bank of India Employees Cooperative Credit Society Vs. ITO, reported in 72 taxmann.com 64 (Guj) has held that interest income earned on deployment of surplus fund with nationalized bank will not qualify for grant of deduction under section 80P(2)(a)(i) of the Act. Accordingly, in principle, the ld.CIT(A) concurred with the AO and upheld the disallowance made by him. However, an alternative argument was raised before the ld.CIT(A) pleading therein that only net interest income is to be considered for exclusion from the grant of deduction under section 80P(2)(a)(i) and 80P(2)(d) of the Act. The ld.CIT(A) has accepted this alternative contention by way of following observations:
“3.4. The A.R of the appellant has brought to the notice of the undersigned the latest judgment of Hon'ble ITAT, Ahmedabad vide ITAT No. 2814/Ahd/2016 in the case of Vadodara Mahanagar Seva Sadan Employees' Co-Op. Credit Society Ltd. Vs. ITO, the Hon'ble ITAT held that "we direct the Assessing Officer to verify the assessee's claims of pro-rata expenses by examination the record to be shown for verification by the assessee and accordingly, netting to be allowed".
Respectfully following the above said order, I direct the AO to verify the assessee's claim of pro-rata/proportionate expenditure from interest income shown by the appellant and allow the said claim of expenses after due verification. The appellant is also directed to furnish necessary documentary evidences along the working of the expenses claimed before the Assessing Officer. Subject to verification the appeal is allowed to the extent of the claim of proportionate expenditure from interest income only.”
The limited issue involved in the present appeal is whether, the ld.CIT(A) has committed any error by accepting alternative contentions of the assessee i.e. whether net interest income from the bank deserves to be excluded from grant of deduction under section 80P(2) or its gross income is to be excluded. After due consideration of the findings of the ld.CIT(A), we are of the view that if the component of income does not qualify for grant of 5 deduction under section 80P(2)(a)(i), then such income should be computed on net basis; any expenditure relatable to earning of such income is to be allowed before calculating exclusion of such amount for the purpose of 80P(2)(a)(i) of the Act. In view of the above discussion, we do not find any merit in the appeal of the Revenue. It is dismissed.
In the result, appeal of the Revenue is dismissed. Order pronounced in the Court on 3rd March, 2020 at Ahmedabad.