Tribunal allows appeal, directs AO to verify interest income exemption under Section 80P(2)(a)(i)

The appeal was partly allowed for statistical purposes. The Tribunal directed the Assessing Officer to verify if interest income from investments made out of the reserve fund is exempt under Section 80P(2)(a)(i) of the IT Act, 1961. Additionally, the claim of proportionate expenditure related to earning interest income was allowed by the Tribunal, citing relevant case law principles. The Tribunal upheld the claim of proportionate expenditure, providing specific directions for the verification of certain issues and allowing the expenditure claimed by the assessee.

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Issues:
The appeal is filed against the order passed by the CIT(A), Gandhinagar for the Assessment Year 2017-18.

Issue 1: Disallowance under Section 80P of the IT Act, 1961
The assessee, a Co-operative Credit Society, claimed deduction under Section 80P of the Act, which was disallowed by the Assessing Officer. The Assessing Officer observed interest income from various banks, leading to disallowance of a specific amount. The CIT(A) partly allowed the appeal. The Ld. AR argued that the assessee, being a Credit Co-operative Society, should not be denied the benefit of deduction under Section 80P. Reference was made to the decision of the Hon'ble Supreme Court in a similar case. The Tribunal remanded the issue to verify if the interest income derived from investments made out of the reserve fund is exempt under Section 80P(2)(a)(i) of the Act. The Assessing Officer was directed to adjudicate the matter after verification, giving the assessee an opportunity of hearing.

Issue 2: Claim of Proportionate Expenditure
The assessee claimed proportionate expenditure related to earning interest income, which was not allowed by the Assessing Officer. The Ld. AR argued that the expenditure has a proximate connection with earning interest income, citing relevant case law. The Tribunal allowed this claim, considering the principle that expenditure spent on earning interest income should be allowed. Reference was made to decisions of the Hon'ble Karnataka High Court and ITAT Ahmedabad Bench. The Tribunal upheld the claim of proportionate expenditure.

In conclusion, the appeal filed by the assessee was partly allowed for statistical purposes, with specific directions given for the verification of certain issues and allowance of proportionate expenditure.

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