AI Drafter 
TaxTMI 
TaxTMI 
2025 (12) TMI 477
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....ring total income of Rs. 13,48,070/- and claiming deduction of Rs. 1,19,38,736/- under section 80P of the Act. The return was processed under section 143(1)(a) on 25.11.2021. The case was selected for Complete Scrutiny under CASS. Notices were issued under section 143(2) and 142(1) along with questionnaires were issued. 3. During the course of assessment proceedings, the Assessing Officer noted that the assessee had earned interest income from deposits kept with co-operative banks amounting to Rs. 27,28,675/- and claimed deduction under section 80P(2)(d). The Assessing Officer treated such income as taxable under section 56 as income from other sources and held that the assessee was not entitled to deduction under section 80P(2)(d) on interest received from co-operative banks and consequently disallowed Rs. 27,28,675/-. 4. The Assessing Officer further observed from Schedule OS of the returned income that the assessee had shown interest income of Rs. 1,02,78,326/- and claimed deduction of Rs. 62,57,776/- under section 57 of the Act towards expenditure incurred for earning such income. The Assessing Officer called for complete details regarding nature of expenditure, its justi....
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....dition. The CIT(A) also held that the ground relating to levy of interest does not require adjudication and further dismissed the ground challenging initiation of penalty proceedings under section 270A as premature. Accordingly, the appeal was partly allowed. 7. The assessee is in further appeal before us and has raised the following grounds: 1. Ld. CIT(A) (NFAC) erred in law and on facts confirming disallowance by AO of Rs. 62,57,776/- proportionate expenses claimed from income earned from other sources for want of evidences. 2. Ld. CIT(A) (NFAC) erred in law and on facts in confirming action of AO in disallowing claim of expenses allowed by Hon'ble ITAT in appellant's own case for the earlier years. 3. Ld. CIT(A) (NFAC) erred in law and on facts not appreciating the fact that a co- operative credit society engaged in providing credit facilities to members involve collecting deposits & sanctioning loans by incurring expenses such as staff salary, interest on deposits, establishment expenses & administrative costs that are reflected in profit & loss account. 4. Ld. CIT(A) (NFAC) erred in law and on facts not considering the submission that whe....
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.... Gross Receipt as per Profit and Loss A/c 3,41,06,842 B. Details of Debit Side of Profit & Loss Account Particulars Amount (Rs.) Total Expenses 2,72,51,731 Net Profit 68,55,111 Total of Debit Side 3,41,06,842 C. Working of Allowable Expenses Particulars Amount (Rs.) Expenses as per Profit and Loss A/c 2,72,51,731 Less : Disallowable Expenses Depreciation Debited in P&L A/c 1,14,711 Income Tax 26,25,940 Building Fund 5,00,000 Bad Debt Provision 20,00,000 Ex Grasia 6,00,000 Gratuity 5,68,210 Festival Celebration Fund 1,86,372 Member Sahkar Prachar Fund 3,00,000 Leave Encashment 2,00,000 Member Maran Sahay 1,05,000 Total Disallowable Expenses 72,02,233 Add: Depreciation as per Chart u/s 32 1,35,581 Education Fund Exp 1,25,500 Ex Grasia Paid 5,07,454 Total Allowable Expenses 2,08,20,033 10. On this basis, the assessee worked out the expenditure ratio by applying the formula [Total Allowable Expenditure / Total Income X 100], resulting in a proportionate expense ratio of 61.04%. Applying this ratio, the assessee c....
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.... the head income from other sources. 16. It is an undisputed position that the assessee is a registered co- operative credit society governed by the Gujarat Co-operative Societies Act and is engaged in accepting deposits from members and advancing credit facilities. The earning of interest income from deposits placed with scheduled banks and co-operative banks forms part of the assessee's regular business cycle for maintaining liquidity, complying with statutory requirements and deploying idle funds. The audited financial statements placed before us indicate that during the relevant year, the assessee had total gross receipts of Rs. 3,41,06,842/- and total expenditure of Rs. 2,72,51,731/-. The assessee has further demonstrated, through a detailed reconciliation, that out of such expenditure, an amount of Rs. 72,02,233/- was disallowable and Rs. 7,68,535/- was required to be added back, thereby resulting in total allowable expenditure of Rs. 2,08,20,033/-. The working of proportionate expenditure has been scientifically computed by applying an expense-income ratio of 61.04 percent, leading to proportionate expenditure of Rs. 20,24,026/- relatable to interest earned from scheduled....
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.... income earned and a portion of the overall administrative expenditure incurred by the assessee society. 20. At the same time, it is also clear that only such proportion of the expenditure as can be reasonably attributed to the earning of interest income chargeable under "Income from Other Sources" can be allowed. The Assessing Officer had rejected the claim on the ground of absence of direct nexus. In our considered view, the existence of direct one-to-one nexus is not required, what is necessary is a proximate and reasonable connection between the expenditure incurred and the income earned. The Hon'ble Courts have consistently held that where the assessee establishes such proximate connection, deduction under section 57(iii) cannot be denied. 19. The present case stands on a similar factual footing, and, in fact, the computation placed here is more elaborate, supported by audit records and detailed working. In absence of any contrary material brought on record by the Revenue, the ratio of the aforesaid decision squarely applies. 20. The Departmental Representative has relied upon the findings of the lower authorities. However, no material has been placed before us ....