A.O.allows deduction of proportionate cost, administrative and other expenses, if A.O. proposes to assess interest income earned from bank deposits.

This ruling clarifies that if an Assessing Officer (AO) proposes to tax interest income earned by a cooperative society from bank deposits, they must also allow a deduction for proportionate administrative and other expenses. The case involved a cooperative bank claiming deductions under Section 80P, but the AO disallowed them based on lending to 'non-members'. The Tribunal's decision focuses on the principle of allowing related expenses when income is brought to tax.

IN THE INCOME TAX APPELLATE TRIBUNAL
“A’’ BENCH: BANGALORE

BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER
AND
SMT. BEENA PILLAI, JUDICIAL MEMBER

ITA Nos.1288 & 1289/Bang/2019
Assessment Year: 2015-16 & 2016-17

Karkala Co-op S. Bank Ltd.
No.409/2, Ward-III, Town Bank
Ananthashayana Road
Karkala 574 104
PAN NO : AAAAK3861G
APPELLANT 

Vs.

ITO Ward-3
Udupi
RESPONDENT

Appellant by : Shri Ravishankar S.V., A.R.
Respondent by : Shri Kannan Narayanan, D.R.

Date of Hearing : 18.02.2021
Date of Pronouncement : 18.02.2021

O R D E R

PER B.R. BASKARAN, ACCOUNTANT MEMBER:

Both the appeals filed by the assessee are directed against the common order dated 12.06.2019 passed by Ld CIT(A), Mangaluru and they relate to the assessment year 2015-16 and 2016-17. Sincecertain common issues are urged in these two appeals, both the appeals were heard together and are being disposed of by this common order, for the sake of convenience.

2. The first common issue urged by the assessee in both the years relate to rejection of claim of deduction under 80P(2)(a)(i) of the Income-tax Act,1961 ['the Act' for short].

3. The facts relating to the above said issues are stated in brief. The assessee is a cooperative society providing credit facilities to its members. The assessee claimed deduction u/s 80P of the Act in boththe years under consideration. The A.O. noticed that the assesseehas extended credit facilities to nominal members who have no role in the management of the society and also does not have any right to vote. He also observed that many nominal members did not possessany share certificate. Accordingly, the A.O. took the view that thenominal members are “non-members”. He also observed that the assessee has received deposits and lent loan to general public andnominal members. Accordingly, he took the view that the assessee is not entitled for deduction u/s 80P(2)(a)(i) of the Act as per the decision rendered by Hon’ble Supreme Court in the case of Citizen Co-operative Society Ltd. (2017) 397 ITR 1.

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