Deduction u/s 57 was allowable on cost of funds and proportionate administrative expenses for earning Interest Income

Bharath Credit Co-operative Society Ltd. Vs ITO (ITAT Bangalore)

Deduction u/s 57 was allowable on cost of funds and proportionate administrative expenses for earning Interest Income

Conclusion: Deduction under Section 57 was allowable on the cost of funds and proportionate administrative expenses for earning interest income to the extent of Rs.9,05,550/-.

Held: Assessee-co-operative society filed return of income declaring total income of Rs.2,50,200/-, after claiming deduction under section 80P amounting to Rs.33,00,407/-. AO, in the assessment completed under section 143(3), disallowed the claim under section 80P to the extent of Rs.23,94,857/-. Against the said Assessment Order, assessee filed appeal and the same was pending before the National Faceless Appeal Centre [CIT(A)]. In the meanwhile, AO passed an Order under section 154 r.w.s. 143(3). In the said order under section 154, AO made an addition of interest income of Rs.9,05,550/- and arrived at the income of Rs.44,56,157/-. AO in the assessment completed under section 143(3), had disallowed a sum of Rs.23,94,857/- under section 80P. Against the said disallowance under section 80P, assessee had filed an appeal before CIT(A) and was pending adjudication. Therefore, the issue of disallowance under section 80P for Rs.23,94,857/- did not arise in the present appeal. The present appeal arose out of the order passed under section 154. In the order passed under section 154, the AO was seeking to disallow the claim of deduction under section 80P to the extent of Rs.9,05,550/-. It was held that Rs.9,05,550/- was interest income received from Corporation Bank. Interest income received from a Bank could not be allowed as a deduction under sections 80P(2)(a)(i) or 80P(2)(d) in the light of the judgment of the Hon’ble jurisdictional High Court in the case of PCIT Vs. Totgars C0-operative Society Ltd.,. However, the limited prayer of the assessee in this appeal was to provide deduction of cost of funds and proportionate administrative expenses as a deduction under section 57 for interest income assessed as “Income from Other Sources”. This prayer of the assessee had been accepted by the jurisdictional High Court in the case of Totgars Co-operative Society Ltd., Vs. ITO reported in (2015) 58 taxmann.com 35 (Karnataka). AO was directed to allow cost of funds and proportionate administrative expenses for earning interest income to the extent of Rs.9,05,550/- as deduction under section 57.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

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