Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, AHMEDABAD “C” BENCH
Before: Ms. Annapurna Gupta & Shri Mahavir Prasad
Appellant by : Shri Parimalsinh Parmar, A.R. Respondent by : Shri V.K. Singh, Sr. D.R. Date of hearing : 21-03-2022 Date of pronouncement : 23-03-2022 आदेश/ORDER PER : ANNAPURNA GUPTA, ACCOUNTANT MEMBER:-
The present appeal has been filed by the Assessee against the order passed by the Commissioner of Income Tax (Appeals), Gandhinagar, Ahmedabad, (in short referred to as CIT(A)), dated 16-08-2019, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2016- 17.
The solitary issue in the present appeal relates to the denial of deduction u/s. 80P on the interest income earned by the assessee from Nationalized Bank.
Page No 2 The Co.Op. Credit Society of Visnagar vs. ACIT 3. As transpires from the orders of the authorities below, the asessee is a Co.Op. Society providing financing to its members on interest. During the impugned year, the assessee had claimed deduction u/s. 80P of the Act, both on the interest received from Co.Op. Banks and from Nationalized Banks ,which was denied by the Assessing Officer (A.O) following the decision of the Hon’ble Apex Court in the case of Totgars Co-operative Sales Society Ltd. vs. ITO reported in 188 Taxmann.
The Ld. CIT(A) in turn upheld the claim of the assessee to deduction u/s. 80P of the Act on the interest received from Co.Op. Banks ,while he denied the claim of the assessee to deduction u/s. 80P on the interest received from the Nationalized Banks which amounted to Rs. 21,19,273/-. At the same time, however, he allowed the assessee the benefit of expenses incurred for the purposes of earning interest income from banks to the extent of 5% of the interest income which amounted to Rs. 1,05,964/- and directed the balance to be subjected to tax u/s. 56 of the Act as income from other sources. It is against this order of the Ld.CIT(A) that the assessee has come up in appeal before us raising the following ground: 1. The Ld. CIT (A) has erred both in law and on facts in confirming addition of Rs. 2013310/- by giving deduction @ 5% of interest earned on account of expenditure incurred for generating income without appreciating facts that the appellant has incurred expenditure @ 84.6% after certain disallowances. The addition made on estimate basis is unwarranted and actual expenditure incurred to generate gross income is required to be allowed for deduction to meet the ends of justice.
The contention of the Ld. Counsel for the assessee was that the allowance of benefit of 5% expenditure against the interest income earned was not reasonable and that considering the fact that the percentage of its taxable income to the gross income worked out to 15.4%, resulting in expenses being to the extent of 84.6%. the assessee be allowed benefit of expenses to the said extent which according to the ld.counsel for the assessee tantamounted to Rs. 17,92,905/- and only thereafter, the balance remaining after reduction of the said expenses from the interest earned from Nationalized Bank of Rs. 21,19,273/-, be subjected to tax.
Page No 3 The Co.Op. Credit Society of Visnagar vs. ACIT 5. Ld. D.R. on the other hand relied on the order of the Ld. CIT(A) and drew our attention to the findings of the Ld. CIT(A) at Para 4.2 onwards as under: 4.2 If anybody reads the above decision of the Hon'ble High Court, though quoted by the appellant in its contention that the interest earned on deposits made with Co.Op. banks is entitled for deduction u/s 80P(2)(d) of the Act; the clear mandate is that the interest earned on deposits made with nationalized banks would not be entitled for deduction u/s 80P(2)(d) of the Act. Therefore, considering the negative effect of this decision of the Hon'ble High Court, the appellant has made an alternative claim that once it is decided that such interest is taxable in the hands of the appellant, then the proportionate expenditure is to be allowed. As per the working provided by the appellant, it had gross income of Rs.1,87,53,950/- and taxable income (as per the return of income) was of Rs.28,89,444/- and the percentage of gross income-vis-a-vis taxable income works out to 15.40%. Thus, it is the contention of the appellant that expenses to the extent of 84.60% be allowed and the taxable interest of Rs.3,26,368/-only be added to the total income. In other words, the appellant had claimed expenses of Rs.17,92,905/- to be allowed. However, this contention cannot be accepted for the reason that once the particular income is decided to be taxed under the head "Income from other sources" and not "profit & gains of business or profession", the provisions of section 57 would apply which govern the allowing of expenses from earning of interest income and other similar incomes chargeable u/s 56 of the Act. Therefore, the allowing of expenses would be allowed strictly in view of the provisions of section 57 of the Act. For the instant reference, the same are reproduced as under:- "57. The income chargeable under the head "Income from other sources" shall be computed after making the following deductions, namely :— (i) in the case of dividends, —[other than dividends referred to in section 115-O,] —[or interest on securities], any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such dividend -[or interest] on behalf of the assesses ; [(ia) in the case of income of the nature referred to in sub-clause (x) of clause (24) of section 2which is chargeable to income-tax under the head "Income from other sources", deductions, so far as may be, in accordance with the provisions of clause (va) of sub- section (I) of section 36 ;] (ii) in the case of income of the nature referred to in clauses (ii) and (Hi) of sub-section (2) of section 56, deductions, so far as may be, in accordance with the provisions of sub- clause (ii) of clause (a) and clause (c) of section 30. section 31 and-[sub-sections (I) -[***] and (2)] of section 32 and subject to the provisions of-[section 38] ; [(iia) in the case of income in the nature of family pension, a deduction of a sum equal to thirty-three and one-third per cent of such income or-[fifteen] thousand rupees, whichever is less.
Page No 4 The Co.Op. Credit Society of Visnagar vs. ACIT Explanation.—For the purposes of this clause, "family pension" means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death :] (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose- of making or earning such income; [(iv) in the case of income of the nature referred to in clause (viii) of sub-section (2) of section 56, a deduction of a sum equal to fifty per cent of such income and no deduction shall be allowed under any other clause of this section.]" Since the appellant had earned taxable income on the deposits made with non co- operative banks(nationalized banks) and the deduction u/s 80P(2)(d) of the Act has been denied, the same is held to be taxed u/s 56 of the Act. Therefore, as per the provisions of section 56 of the Act, the appellant would be allowed the deduction by way of expenditure being any reasonable sum paid by way of commission or remuneration to a banker or any other person for the purpose of realising such dividend *[or interest] on behalf of the appellant. Since the appellant did not furnish the copies of Profit & Loss Account and the balance-sheet so as to ascertain as to whether it had paid any commission or remuneration to the banker or any other person(may be the employees who are carrying out multiple tasks on behalf of the appellant for carrying out its objects and purposes). Therefore, it is difficult to identify the amount of such commission or remuneration. Further, as per clause (iii) of section 57 of the Act, the appellant would be entitled to get deduction by way of any other expenditure(not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income. However, the appellant did not come with specific details of expenses so incurred wholly and exclusively for earning the interest on the deposits with nationalized banks. However, considering the fact of maintaining the accounts with the banks, visiting the bankers, maintaining the books of accounts etc, there might be some expenditure which can' be said to be incurred wholly and exclusively for the purpose of earning such income, 5% of the interest of Rs.21,19,273/- worked out to Rs.1,05,964/- is allowed so as to meet with the end of justice. Considering these facts, the appellant would get relief of Rs.1,05,964/- whereas the balance amount of Rs.20,13,3107- being net interest on deposits made with nationalized bank is sustained. The ground no.1 in relation to this disallowance is thus partly allowed.
We have heard both the parties and we have also gone through the order of the Ld. CIT(A). The solitary issue before us is the quantum of benefit of claim of expenses to be allowed to the assessee against the interest income earned by it from Nationalized Bank amounting in all to Rs. 21,19,273/- for the purposes of subjecting the balance to tax u/s. 56 of the Act. That the said interest is taxable and no Page No 5 The Co.Op. Credit Society of Visnagar vs. ACIT deduction u/s. 80P is permissible in law to the assessee is not disputed before us. It is also evident that the Ld.CIT(A) has estimated the expenses to be allowed against the said income without any basis at all. Having said so, on going through the order of the Ld. CIT(A) we agree with his findings that since the interest income from Nationalized Bank is to be subjected to tax as income from other sources u/s./ 56 of the Act, the provisions of Section 57 would govern the allowability of expenses. We have further noted that before the Ld. CIT(A), the assessee had neither furnished copies of Profit and Loss account nor Balance Sheet so as to enable him to arrive at a proper and reasonable basis for determining the extent of expenditure relatable to earning of this income. The said financial statements have been filed before us at paper book page no. 15 to 20 and we have noted from the profit and loss account of the assessee for the impugned year placed before us at paper book page no. 22 that out of the total income earned by the assessee of Rs. 1.87 crores, majority of which related to interest income against loan being 1.14 crores and the balance being interest income from Co.Op. Bank and from Nationalized Bank being 44.49 lakhs and 21.19 lakhs, the major expenditure incurred related to fixed deposit interest expenditure amounting to 1.36 crores. Meaning thereby that out of total income reflected by the assessee of 1.87 crores, the majority expense relate to fixed deposit interest expenditure of 1.36 crores, 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 Page No 6 The Co.Op. Credit Society of Visnagar vs. ACIT in this regard. Needless to add the assessee be granted due opportunity of hearing in this regard.
6.1 Ground of appeal no.1 raised by the assessee is allowed for statistical purposes.
In effect, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open court on 23 -03-2022 Sd/- Sd/- (MAHAVIR PRASAD) (ANNAPURNA GUPTA) JUDICIAL MEMBER True Copy ACCOUNTANT MEMBER Ahmedabad : Dated 23/03/2022 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद