TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 692
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....addition in respect of - (a) differential provision for interest payable on deposits of Rs. 3,00,176/- on the ground that appellant was following Hybrid system of accounting; and (b) debits found in the audited Profit & Loss A/c of the appellant, viz: N.P.A. provision Rs. 1,50,000/-, Pension Fund Rs. 85,000/- and Stamp Duty provision Rs. 19,000/- aggregating to Rs. 5,54,176/- in the impugned order; 2. Whether or not the addition sustained in appeal opposed to Sec. 40A(7) and Sec. 43(2) of the Act and run contrary to : (a) CBDT Circular No. 37/2016 dated 02-11-2016 which gives the relief in respect of any disallowance of business expenditure by way of deduction under Chapter VI A of the Act to the extent p....
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....e assessee submitted that even after this addition, the net profits gets increased and in effect the entire profit will again qualify for deduction and therefore prayed to allow the appeal. The assessee also relied on section 40A(7)(b) of the Act. The Ld.CIT(A) considered the grounds raised by the assessee insofar as the disallowance of interest income earned by the assessee and allowed the same by holding that the business carried on with the nominal members would not be a reason for allowing the disallowance claimed u/s. 80P(2)(a)(i) of the Act. In coming to the said conclusion, the Ld.CIT(A) relied on the orders of the Coordinate Bench of this Tribunal as well as the judgment of the Hon'ble Jurisdictional High Court. Insofar as the exces....
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....d as follows: "7. The third issue raised by the assessee is that whether the provision made for the interest expenses is eligible for deduction u/s 80P of the Act. We perused the provision and the other financial statements filed by the assessee and found that the assessee made provisions for interest expenses on an accrual basis which is in accordance with the accounting policies as prescribed under Karnataka Co-operative Societies Act. The Rule 22 of the Karnataka Co-operative Societies Rules specifies that interest income should be accounted for on an actual receipts basis while interest expenses should be recognized on an accrual basis. Therefore, the assessee, a registered society registered under the Karnataka Act, have to fo....
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....ssessee in the books of accounts by following the mercantile accounting system of book keeping, the claim of assessee cannot be denied. Accordingly, we allow the claim of the assessee." 7.1 We therefore, find that this issue is in favour of the assessee and we allow the appeal of the assessee in so far as the provision made for the interest expenses are concerned." 6. In view of the above said finding given by the Coordinate Bench of this Tribunal, we are also following the principle laid down in that order and thereby delete the addition made in respect of the excess provision of interest. In so for as the other provisions made and claimed u/s 40A(7) (b) of the Act is concerned, we will first consider the relevant provision ....
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....n 40A(7)(b) of the Act. Further there is a clarification issued in Circular No. 37/2016 dated 02/11/2016 which reads as follows: 8. In the above said circular, the Board had clarified that how the disallowances made under the provisions could be claimed under Chapter VIA of the Act since the disallowances would result in enhancement of profits of the eligible businesses and therefore the deduction under Chapter VIA is admissible on the profits so enhanced by the disallowance. The above said circular was not considered by the AO while disallowing the expenses and therefore we are remitting this issue to the file of AO to consider the circular to the facts and circumstances of the case and thereafter decide the issue afresh after giving a ....
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....ve cases upholding this view are as follows: (2) If an expenditure incurred by assessee for the purpose of developing a housing project was not allowable on account of non-deduction of TDS under law, such disallowance would ultimately increase assessce's profits from business of developing housing project. The ultimate profits of assessee after adjusting disallowance under section 40(a)(ia) of the Act would qualify for deduction under section 80-IB of the Act. This view was taken by the courts in the following cases: + Income-tax Officer -Ward 5(1) v. Keval Construction [2013] 33 taxmann.com 277 (Guj.) Commissioner of Income-tax-IV, Nagpur v. Sunil Vishwambharnath Tiwari [2016] 63 taxmann.com 241 (Bom.) (if) If deduction under s....