2023 (7) TMI 860 - AT - Income Tax

Appeal outcome: deduction under Section 80P partly allowed, pro-rata expenses for interest income considered

Shri Laxmi Co. Operative Credit Society Ltd. Versus ITO Ward-1 (3) (3), Vadodara

Shri Laxmi Co. Operative Credit Society Ltd. Versus ITO Ward-1 (3) (3), Vadodara - TMI Issues involved:The appeal involves the disallowance of deduction under section 80P and confirmation of an addition, as well as the allowance of pro-rata expenses for earning interest income.Deduction under Section 80P:The assessee, a cooperative society providing credit facilities to members, claimed deduction under Section 80P(2)(a)(i) of the Income Tax Act, 1961. The Assessing Officer disallowed the deduction on the grounds that interest income from a Nationalized Bank was not justifiable for claiming the deduction. The CIT(A) partly allowed the appeal, prompting the assessee to argue that the interest income on surplus fund investments should be eligible for deduction under Section 80P(2)(a)(i). The assessee contended that the funds were operational and not surplus, as they were collected from members for providing credit facilities. Citing relevant case law, the assessee asserted that the interest income should be considered part of business income and therefore eligible for deduction under Section 80P(2)(a)(i).Pro-rata expenses for earning interest income:The assessee also raised a ground regarding the allowance of pro-rata expenses for earning interest income. The assessee argued that total expenditure for the year, total income, and interest income on investments warranted the allowance of pro-rata expenses. Relying on a previous Tribunal decision, the assessee sought the calculation of pro-rata expenses based on the income generated. The Tribunal found merit in this argument and directed the Assessing Officer to verify the claim of pro-rata expenses, ensuring the principle of natural justice is followed. Consequently, the appeal of the assessee was partly allowed for statistical purposes.