ITAT restores matter to AO for verifying expense apportionment formula under section 57 deduction claims

The ITAT Ahmedabad restored the matter to the AO regarding deduction claimed under section 57 against income returned under section 56. The Revenue authorities had rejected the assessee's apportionment of expenses and allocated them differently. The ITAT directed the AO to verify whether the assessee's formula for apportioning interest expenses to earning interest income was identical to that adopted and accepted in AY 2014-15. If the formula matched, no addition should be made to the assessee's income. The AO was instructed to apportion expenses for section 57 claims in the same manner as done in AY 2014-15. The assessee's appeal was allowed for statistical purposes.

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Issues:
Deduction claimed under section 57 of the Income Tax Act for expenses apportionment against income returned under section 56 of the Act.

Detailed Analysis:

Issue 1: Deduction claimed under section 57 of the Income Tax Act

Summary: The appeal pertains to the deduction claimed under section 57 of the Income Tax Act against income returned under section 56 of the Act. The dispute revolves around the apportionment of expenses by the assessee for earning income under section 56, which was challenged by the revenue authorities.

Analysis: The assessee, a cooperative society engaged in banking and credit facilities, reported total income of Rs. 2,27,56,020 during the relevant assessment year. The dispute arose when the Assessing Officer applied a proportionate rate of 41.1% to the total interest income earned by the assessee, resulting in an addition of Rs. 75,33,834 to the assessee's income. The assessee contended that the expenses should be apportioned based on the Profit & Loss Account, where total expenses were Rs. 2.18 crores, with Rs. 2.05 crores being interest paid on members' deposits. The assessee argued that these expenses should be allocated to the interest income earned on investments, constituting 59.9% of total income.

Judgment: The Tribunal directed the Assessing Officer to verify if the formula adopted by the assessee for apportioning interest expenses was consistent with the approach accepted in a prior assessment year. If found consistent, no further addition should be made to the assessee's income. The issue was remanded to the Assessing Officer to apportion expenses as done in the previous assessment year, thereby allowing the appeal for statistical purposes.

Conclusion: The Tribunal's decision focused on ensuring the correct apportionment of expenses for claiming deductions under section 57 of the Act. By directing the Assessing Officer to follow the previous approach if consistent, the Tribunal aimed to resolve the dispute regarding the allocation of expenses against the income returned under section 56 of the Act.

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