In a recent ruling, the Bangalore Bench of the Income Tax Appellate Tribunal ( ITAT ), which is chaired by Judicial Member George George K. and Accountant Member Laxmi Prasad Sahu, instructed the Assessing Officer to re-adjudicated the case in which the Interest from Investment earned by the Co-operative Society from the Co-operative Bank is at issue.
The assessee, M/s. Gnana Shale Souhardha Co-operative Ltd., filed this appeal in opposition to the PCIT’s (Principal Commissioner of Income-Tax) decision for the A.Y. 2015–16.
The assessee is a cooperative society that extends credit facilities to its members, according to the case’s concise facts. Following the claim of a deduction under Section 80P of the Income Tax Act of 1961, the return of income was filed with a declaration of “Nil” income.
The assessee had earned interest income of Rs.15,08,488 on account of investments made with other cooperative banks, and the PCIT issued notice under Section 263 of the Income Tax Act because, in his opinion, the assessee was not entitled to a deduction for the said income under Sections 80P(2)(a)(i) and 80P(2)(d) of the Income Tax Act.
The PCIT rejected the assessee’s contention and, acting in compliance with the Supreme Court’s ruling in Totagar’s Co-operative Sale Society Ltd. v. ITO (2010) 322 ITR 283 (SC), set aside the AO’s order as erroneous and prejudicial to the revenue’s interests.
S. V. Ravishankar, in representation for the assessee stated that only net interest income obtained from scheduled banks should be subject to tax when income is sought to be assessed under the head “income from other sources.”
The counsel further submitted that the administrative expenses and expenses to earn the said interest income, which is brought to tax under the Section 56 of the Income Tax Act, ought to be allowed for deduction under the same.
Susan D George, counsel for the department, relied on the order of the PCIT.
The Appellate Tribunal remarked that the Assessee had not argued before the PCIT that it was entitled to a deduction for expenses incurred in generating interest income under Section 57 of the Income Tax Act. However, the bench chose to entertain the argument.
The tribunal then instructed the AO to determine if the assessee had incurred any expenses for generating interest income, which are assessed under the head “income from other sources,” and if so, the same shall be allowed as deduction under Section 57 of the Income Tax Act. Also, directed to examine the direction of the PCIT in the impugned order passed under the Section 263 of the Income Tax Act.
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