Co-operative Society Entitled to Claim Deduction u/s 57 for Expenditure Incurred on Interest Income from Banks: ITAT Remits Income Tax Matter [Read Order]
Observing that an assessee is legally entitled to deduct expenses incurred in earning income taxable under the head "Income from Other Sources," the Tribunal allowed the Co-operative Society's claim for a deduction u/s 57 for costs related to earning interest income from banks
Interest Income, Co-operative Society
Interest Income, Co-operative Society
The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) remitted the matter back to the Assessing Officer (AO) to verify the actual expenditure incurred by the assessee to earn interest income from investments made with banks and allowed the claim for deduction under Section 57 of the Act.
Sri Venugopalakrishna Credit Co-operative Society (assessee), a society engaged in providing credit facilities to its members, filed its return of income for the Assessment Year (AY) 2011-12, declaring Nil income after claiming a deduction under Section 80P of the Act.
During the assessment proceedings, the AO disallowed the entire deduction claimed under Section 80P. Aggrieved by the AO’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)].
The CIT(A) did not allow the deduction under Section 80P(2)(d) on the interest income of ₹13,83,452, which included ₹12,06,264 earned from deposits with a scheduled co-operative bank.
The CIT(A) also did not allow a corresponding deduction for the incidental charges attributable to earning this interest income under Section 57 of the Income Tax Act. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the ITAT.
The Counsel for the assessee argued that while the interest income earned from the co-operative bank deposits might not qualify for deduction under Section 80P(2)(d), but the assessee was entitled to a deduction for the corresponding expenditure incurred in earning that income, as mandated by Section 57(iii) of the Act.
The counsel also brought to the bench's attention a co-ordinate bench order in the assessee's own case for subsequent assessment years (AYs 2013-14 to 2017-18), where a deduction for such expenditure under Section 57 was allowed.
The counsel of the Revenue supported the disallowance of the Section 80P(2)(d) deduction but could not offer any substantive rebuttal or contrary judgment regarding the claim for the cost of funds under Section 57 of the Income Tax Act.
The Single Member Bench, comprising Laxmi Prasad Sahu (Accountant Member), noted that the issue regarding the deduction on expenditure was covered by the Tribunal's own judgment in the assessee's case for AYs 2013-14 to 2017-18.
The Tribunal observed that it is a well-established principle that an assessee is entitled to deduct the expenses incurred in earning income taxable under the head "Income from Other Sources" under the provisions of Section 57 of the Act.
The bench held that the assessee cannot be denied the benefit of deducting the costs incurred in earning the interest income from the co-operative bank under Section 57, subject to the assessee substantiating the claim with adequate evidence.
The Tribunal set aside the CIT(A)’s finding on this issue and remitted the matter back to the file of the Assessing Officer. In the result, the appeal filed by the assessee was partly allowed for statistical purposes.
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