Case Law Details
Proceedings under Section 263 of the Act was initiated for two reasons. First was for allowing deduction of Rs.50,000/- to the assessee u/s.80P(2) (c) (ii) of the Act, when it had a trading loss of Rs.1,11,097.76. Assessee has no grievance on this. Its grievance is limited to revisionary powers exercised by the Id. CIT on interest expenditure claimed and allowed against interest income assessed under the head income from other sources. It is not disputed that assessee had received interest income of Rs.5,44,500/- on its deposits placed with treasury. During the course of original assessment proceedings, assessee had given a reply on this proposal of the Id. Assessing Officer. Pertinent part of the said reply is reproduced hereunder:-
‘Without prejudice to our claim of deduction u/s.80P(2) (a) (i) for the whole interest income on deposits with other institutions we have to state that the deposit with Treasury is part of the amount we have accepted as interest bearing deposits from members. So, we are eligible to claim that portion of interest as expense, which we have paid to the depositors.
In fact, bank deposited Rs.5,00,000/- at Treasury on 31.03.2007 for 78 months at 12% per annum at compound interest and it was matured on 08.10.2007. On maturity we got Rs.5,44,500/- as interest and it is included under interest received on deposits. As per the audited accounts, during the FY 2007-08 we paid Rs.1,25,g800/- as interest on deposits and the total deposit accepted from members as on 31.03.2008 was Rs15,57,94,539/-. Thus the average rate of interest comes to 8.03%. Hence, we are eligible to get deduction @8.03% per annum on Rs.5,00,000/- for 78 months as cost of funds deposited. This comes to Rs.2,60,975/- which may be deducted from the interest received on treasury deposits.. Over and above that we are eligible for deduction of Rs.50,000/- u/s. 80P(2) (c) also’:
A reading of the above reply clearly indicate that assessee had brought to the notice of the Id. Assessing Officer the tenure of the deposits on which it had earned interest of Rs.5,44,500/-. It had also stated that such deposits were made out of funds received from its members on which it paid interest of Rs.1,25,12,800/-, during the relevant previous year. Crux of the reply of the assessee was that if
interest income for 78 months was to be considered for assessment in one go, then cost of funds also was to reckoned for 78 months. What Id. Assessing Officer has stated in the assessment order dated 24.01.2014 which is subject matter of revision by the Principal Commissioner of Income Tax is reproduced hereunder:-
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