PRATHAM VAHINI VISBAL SAKH SAHKARITA MY,INDORE vs. ITO5(2), INDORE

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ITA 142/IND/2020Status: DisposedITAT Indore14 October 2022AY 2016-173 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that interest income earned on funds statutorily required to be kept as reserves is business income and eligible for deduction. It also directed that expenditure incurred for earning such interest income should be allowed.

What were the facts?

The assessee claimed deduction under Section 80P(2) for interest income earned from providing banking facilities to its members. The Assessing Officer disallowed this deduction.

What were the issues?

Whether interest income earned on statutory reserves is eligible for deduction under Section 80P(2) and if expenditure incurred for earning such income is deductible.

Which sections of the Income-tax Act were involved?

Section 80P(2)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, INDORE BENCH, INDORE

Before: Ms. MADHUMITA ROY & SHRI BHAGIRATH MAL BIYANI

For Appellant: Shri Atik Bansal, A.R
For Respondent: Shri Ashish Porwal, Sr.D.R

The instant appeal filed by the assessee is directed against the order dated 16.01.2020 passed by the Ld. Commissioner of Income Tax (Appeals)-II, Indore (in short ‘CIT(A)’), arising out of the order dated 12.12.2018 passed by the Income Tax Officer-5(2), Indore under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 2016-17.

2.

The disallowance of deduction claimed under Section 80P(2) of the Act in respect of the interest income earned during the normal course of (Pratham Vahini Visbal vs. ITO) Asst.Year.– 2016-17 - 2 - carrying out its principal activity of providing banking facilities to its members is the subject matter before us.

3.

At the time of hearing of the instant appeal, the Ld. Counsel appearing for the assessee submitted before us that the issue is squarely covered by the order passed by the Co-ordinate Bench in & 649/Ind/2019 in case of M.P. Police Sakh Sahkarita Maryadit vs. ITO for A.Ys. 2013-14 & 2014-15 vide its order dated 17.12.2019 the copy whereof has also been submitted before us. The Ld.DR with all his fairness has not raised any serious objection to such submission made by the Ld.AR.

4.

We have heard the respective parties and materials available on record and also perused the order passed by the Co-ordinate Bench in & 649/Ind/2019 (supra), while granting the relief to the assessee, the Co-ordinate Bench has been pleased to observe as follows:

“9. In the present case, the undisputed fact is that the assessee society is required to deposit 25% of its profit as mandated by section 43(2) of the M.P./Chattisgarh Societies Act, 1960. Hence, the assessee is under legal obligation to keep 25% of its profits as reserves. Any interest accrued there on would certainly, in our considered view partake character of business income of the assessee. Hence, it would be eligible for deduction. Therefore, the A.O. is directed to allow deduction on the interest earned out of amount so reserved by the assessee i.e. 25% of profit transferred to reserves.

10.

Another ground of the assessee that the A.O. ought to have allowed the expenditure incurred for the earning of the interest income, when he treated the same as 'income from other sources'. We find merit into the contention of the assessee that the set off of expenditure incurred ought to have been allowed by the A.O. When the interest income is charged to tax, the expenditure incurred for earning of such income would certainly be deductible. We direct accordingly. The A.O. would allow the deduction of expenditure incurred for earning of the interest income. We would like to clarify that the allowance of expenditure is restricted to the interest income, which has not been treated as a business income, in view of the discussion herein above. Both the grounds of the assessee are allowed in terms indicated herein above. Appeal of the assessee is allowed.”

(Pratham Vahini Visbal vs. ITO) Asst.Year.– 2016-17 - 3 -

In the absence of any changed circumstance, we do not find any reason to deviate from the stand taken by the Co-ordinate Bench and respectfully relying upon the same, we allow the appeal preferred by the assessee by granting relief as claimed for.

5.

In the result, assessee’s appeal is allowed.

This Order pronounced on 14 /10/2022

Sd/- Sd/- (BHAGIRATH MAL BIYANI) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Indore; Dated 14 /10/2022 S. K. Sinha, Sr. PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)- 5. �वभागीय ��त�न�ध, / DR, ITAT, Indore 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

(Sr. Private Secretary) ITAT, Indore 1.Date of dictation on 26.09.2022 2.Date on which the typed draft is placed before the Dictating Member .10.2022 3.Date on which the approved draft comes to the Sr.P.S./P.S. 4.Date on which the fair order is placed before the Dictating Member for pronouncement 5.Date on which the fair order comes back to the Sr.P.S./P.S 6.Date on which the file goes to the Bench Clerk 7.Date on which the file goes to the Head Clerk…………. 8.The date on which the file goes to the Asstt. Registrar for signature on the order…………………… 9.Date of Despatch of the Order………Date on which the typed draft is placed before the Dictating Member 19.12.2019 1. Other Member………………Date on which the approved draft comes to

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