The Income Tax Appellate Tribunal (ITAT), Bangalore bench deleted calculations made by AO on cost funds by applying a 15%flat ratio, the ad-hoc basis on interest income earned by cooperative society through providing credit facilities to its members.
The assessee, Kanyakaparameshwari Vividoddesha a co-operative society registered under the Karnataka Cooperative Societies Act, 1959. It is engaged in the business of providing credit facilities to its members. After filing the return of income For the Assessment Year 2011-12, assessee claimed deduction under section 80P of the Act of Rs.7,83,109/
Accordingly the AO had partly disallowed the claim of deduction under section 80P of the Act to the extent of Rs.4,27,472/- by bringing to tax the interest income as ‘Income from Other Sources’, rejecting the assessee’s claim as business income.
Aggrieved, the assessee filed further appeal before the CIT(A)sustained the addition on account of interest earned on investments with Co-operative Banks and other scheduled Banks
However, the CIT(A) directed the AO to allow the cost of funds after considering the submission of assessee AO held that cost of funds calculated by the assessee is not acceptable. The AO worked out the cost of funds by applying a flat rate of 15% on an ad-hoc basis on the interest income earned. Again Aggrieved the order of AO on cost of fund , the assessee filed further appeal before the CIT(A).
The CIT(A) confirmed the action of the AO in reducing the cost of funds to the extent of 15% of the amount of interest income earned and balance amount of Rs.3,28,321/- was brought to tax
Aggrieved by the order of the CIT(A), assessee has filed the present appeal before the Tribunal.
During the proceedings V. Srinivasan,Counsel for assesee argued that calculation of cost of funds is based on the procedure adopted by the nationalized banks following the RBI guidelines. The AO had on ad-hoc basis arrived at 15% of the cost of interest income without explaining any rationale behind the same
Ganesh R Ghale, Counsel for Revenue, interest income earned out of providing credit facilities to its members, the assessee is allowed deduction under section 80P(2)(a)(i) of the Act. Therefore, it was submitted that the interest paid on deposit made by members of the assessee cannot be allowed as cost of fund
The tribunal observed that the Assessee is a co-operative society primarily engaged in providing credit facilities to its members. Naturally, the cost of funds will be the primary cost for any entity engaged in such business / activities. The assessee had furnished detailed working with respect to the cost of funds which is coming to 77% of the interest income.
The working of the cost of funds as provided by the assessee on facts of the instant case has not been refuted. Thus the the tribunal direct the AO to accept the same as cost of funds for earning the interest income to the extent of Rs.4,27,472/- which was assessed as ‘Income from Other Sources
After reviewing the facts and records, the single -member bench Of George George K, (Vice President) deleted calculations made by AO on cost funds by applying a 15%flat ratio, the ad-hoc basis on interest income earned through providing credit facilities to its members.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
