Case Law Details
Sri Kanyakaparameshwari Vividoddesha Sahakara Sangha Niyamita Vs ITO (ITAT Bangalore)
Introduction: The case of Sri Kanyakaparameshwari Vividoddesha Sahakara Sangha Niyamita vs. ITO, heard at ITAT Bangalore, revolves around the appeal against the CIT(A)’s order related to the Assessment Year 2011-12. The primary dispute involves the ad-hoc application of a 15% flat rate by the Assessing Officer (AO) on the cost of funds concerning interest income earned by the cooperative society.
Detailed Analysis: Sri Kanyakaparameshwari Vividoddesha Sahakara Sangha Niyamita, a cooperative society, filed its return of income for the Assessment Year 2011-12, declaring ‘Nil’ income after claiming a deduction under section 80P of the Income Tax Act. The AO, during the assessment under section 143(3) r.w.s. 147, partly disallowed the claim of deduction under section 80P, taxing the interest income as ‘Income from Other Sources.’
Upon the assessee’s appeal before the CIT(A), the addition on interest earned on investments was sustained, but the CIT(A) directed the AO to allow the cost of funds. Subsequently, the AO, in the order giving effect to the CIT(A)’s order, applied a flat rate of 15% on an ad-hoc basis to calculate the cost of funds. The CIT(A) upheld this action, confirming the reduction of the cost of funds to the extent of 15% of the interest income.
In the appeal before the Tribunal, the assessee argued that the calculation of cost of funds was based on the procedure followed by nationalized banks, supported by RBI guidelines. The AO’s ad-hoc application of a 15% flat rate lacked a rational basis. The Tribunal, after considering the submissions, found merit in the assessee’s detailed workings for the cost of funds, amounting to 77% of the interest income. It held that the AO’s approach lacked legal basis and directed acceptance of the assessee’s calculation.
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