The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) held that the deduction under Section 57 of the Income Tax Act, 1961 shall be allowed on the cost of funds and proportionate administrative expenses for earning interest income.
The assessee is a co-operative society and the return of income was filed declaring a total income of Rs.2,50,200/-, after claiming a deduction under Section 80P of the Income Tax Act, amounting to Rs.33,00,407/-. The assessment was completed under Section 143(3) of the Income Tax Act.
The Assessing Officer (AO), in the assessment completed under Section 143(3) of the Income Tax Act, disallowed the claim under Section 80P of the Income Tax Act to the extent of Rs.23,94,857/-. Against the said Assessment Order, the assessee filed an appeal and the same is pending before the National Faceless Appeal Centre [CIT(A)].
The AO passed an Order under Section 154 read with Section 143(3) of the Income Tax Act. In the said Order under Section 154 of the Income Tax Act, the AO made an addition of interest income of Rs.9,05,550/- and arrived at the income of Rs.44,56,157/-.
The Single-member bench comprising of George George K (Vice-President) held that the deduction of the cost of funds and proportionate administrative expenses was a deduction under Section 57 of the Income Tax Act for interest income assessed as “Income from Other Sources”.
This prayer of the assessee has been accepted by the jurisdictional High Court in the case of Totgars Co-operative Society Ltd.,Vs. ITO. In light of the above judicial judgment of the High Court, the AO was directed to allow the cost of funds and proportionate administrative expenses for earning interest income to the extent of Rs.9,05,550/- as a deduction under Section 57 of the Income Tax Act. Thus, the appeal of the assessee was allowed.
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