SHRI VIR TRANSPORT OPERTORS COPO CREDIT & SERVICE SOCIETY LTD.,DAHOD V. THE DY. CIT, ANAND CIRCLE, AHMEDABAD

ITA 1465/AHD/2025

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The case involves Shri Vir Transport Operators Co-op Credit & Services Soc. Ltd., a cooperative credit society, which appealed against the order of the Commissioner of Income Tax (Appeals) that upheld the disallowance of certain expenses claimed against interest income. The Assessing Officer had initially disallowed these expenses, treating the interest income from deposits with cooperative banks as taxable under section 56 of the Income Tax Act, 1961, and not allowing deductions under section 80P(2)(d). The Tribunal, referencing a similar case and considering the detailed workings and audited accounts provided by the assessee, concluded that the expenses were incurred wholly and exclusively for the purpose of earning the interest income and thus should be allowed.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 789948 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 21-07-2025
• Other Referred Cases: Ashapura Co-op. Credit Society Ltd. v. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GIRISH PARIHAR
• Assessee Lawyers: URSVASHI SODHAN
• Keywords: Set aside; Business expenditure; Depreciation; Capital expenditure; Initiation of penalty proceedings; Co-operative Credit Society
• Section: 143(3); 142(1); 56; 32; 234B

Judgement Text

" आयकर अपीलीय अिधकरण, अहमदाबाद Ɋायपीठ “C“, अहमदाबाद। IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD ŵी टी.आर. सŐिथल क ुमार, Ɋाियक सद˟ एवं ŵीमकरंद वसंत महादेवकर, लेखा सद˟ क े समƗ। BEFORE SHRI T.R. SENTHIL KUMAR, JUDICIAL MEMBER & SHRI MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER I.T.A. No.1465/Ahd/2025 (Assessment Year: 2020-21) Shri Vir Transport Opertors Copo Credit & Services Soc. Ltd., Limdi, Godhra Road, Tal Jhalod, Dist: Dahod, Gujarat-389180 Vs. Deputy Commissioner of Income Tax, Anand Circle, Anand [PAN No.AAAAS2228K] (Appellant) .. (Respondent) Appellant by : Ms. Ursvashi Sodhan, AR Respondent by: Shri Girish Parihar, Sr. DR Date of Hearing 25.11.2025 Date of Pronouncement 27.11.2025 O R D E R PER MAKARAND V. MAHADEOKAR, ACCOUNTANT MEMBER: This appeal by the assessee arises from the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as the “CIT(A)”] dated 25.06.2025 for the Assessment Year 2020-21, which in turn emanates from the assessment order passed under section 143(3) read with section 144B of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] by the Assessing Officer on 23.09.2022. Printed from counselvise.com ITA No. 1465/Ahd/2025 Shri Vir Transport Opertors Copo Credit & Services Soc. Ltd. vs. DCIT Asst.Year –2020-21 - 2– Facts of the Case 2. The assessee is a registered co-operative credit society engaged in providing credit facilities to its members. The assessee filed its return of income on 20.01.2021 declaring 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 justification, genuineness, identity and Printed from counselvise.com ITA No. 1465/Ahd/2025 Shri Vir Transport Opertors Copo Credit & Services Soc. Ltd. vs. DCIT Asst.Year –2020-21 - 3– creditworthiness of the recipients, and documentary evidence in support of the expenditure. The Assessing Officer recorded that despite opportunities, the assessee failed to substantiate the claim with supporting documentation. In absence of the said evidence, the Assessing Officer disallowed the expenditure of Rs. 62,57,776/- under section 57 and brought the entire interest income to tax under section 56. The Assessing Officer assessed the total income at Rs. 1,03,34,521/- and also initiated penalty proceedings under section 270A and levied interest under sections 234A, 234B and 234C of the Act. 5. Being aggrieved, the assessee preferred appeal before the CIT(A). The assessee submitted before the CIT(A) that it is a co-operative society engaged in collecting deposits and sanctioning loans to its members and to carry out such activities, the assessee incurs routine business expenditure such as staff salary, interest payment on deposits, administrative expenses, establishment expenses, repairs, electricity, stationery, audit fees and other overheads. It was contended that the entire activity of accepting deposits, maintaining liquidity as per statutory requirements and investing funds in specified securities is part of its banking and credit activity and therefore proportionate expenditure relatable to income assessed under the head income from other sources ought to be allowed. The assessee further submitted that in its own case for earlier years, the jurisdictional Tribunal had held that proportionate expenditure is allowable against income taxed under section 56. Printed from counselvise.com ITA No. 1465/Ahd/2025 Shri Vir Transport Opertors Copo Credit & Services Soc. Ltd. vs. DCIT Asst.Year –2020-21 - 4– 6. The CIT(A), after considering submissions, accepted the assessee’s claim under section 80P(2)(d) and directed deletion of disallowance of Rs. 27,28,675/-. However, as regards the disallowance of proportionate expenditure of Rs. 62,57,776/- claimed under section 57, the CIT(A) upheld the action of the Assessing Officer observing that the assessee failed to furnish requisite evidences, such as bifurcation of investments out of surplus funds and running funds, documentary proof supporting genuineness of expenses, and justification of exclusive nexus of expenditure with earning of income assessed under section 56. The CIT(A) held that in absence of such evidence, quantifiable expenditure cannot be attributed to the said income and therefore confirmed the addition. 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, Printed from counselvise.com ITA No. 1465/Ahd/2025 Shri Vir Transport Opertors Copo Credit & Services Soc. Ltd. vs. DCIT Asst.Year –2020-21 - 5– 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 when a portion of income is categorized & taxed as income from other sources than corresponding proportionate amount of expenses should be allowed as deduction from such income. 5. Ld. CIT (A) (NFAC) erred in law and on facts not following binding decisions of jurisdictional ITAT erroneously observing that appellant failed to provide bifurcation of amount invested from surplus funds and from running funds ignoring audited accounts giving complete details of investment. 6. Levy of interest u/s 234A/234B & 234C of the Act is unjustified. 7. Initiation of penalty proceedings u/s 270A of the Act is unjustified. 8. During the course of hearing before us, the learned Authorised Representative (AR) submitted that the entire disallowance sustained by the CIT(A) proceeds on an erroneous assumption that the assessee failed to furnish supporting documentary evidence. It was contended that throughout the assessment as well as the first appellate stage, the assessee had submitted all details called for. The assessee explained its nature of business as a co-operative credit society providing finance to its members and submitted copies of the audited balance sheet, profit and loss account, tax audit report under section 44AB of the Act, computation of income and detailed workings of allowable expenditure vis a vis income from members, interest income from scheduled banks and co-operative banks. It was further submitted that complete particulars of expenditure incurred were produced and it stood established that the expenditure was incurred wholly and exclusively for earning all income including interest income from co-operative and scheduled banks. Printed from counselvise.com ITA No. 1465/Ahd/2025 Shri Vir Transport Opertors Copo Credit & Services Soc. Ltd. vs. DCIT Asst.Year –2020-21 - 6– 9. The learned AR further placed on record a detailed working of proportionate expenditure to demonstrate the scientific basis of the claim. The same is reproduced below: A. Details of Credit Side of Profit & Loss Account Particulars Amount (Rs.) Interest Income From Members 2,36,39,787 Interest From Banks Baroda Gujarat Gramin Bank 17,42,778 Bank of Baroda 15,71,128 Axis Bank 1,995 Total Interest From Scheduled Banks 33,15,901 Gujarat State Co Op Bank A’bad 61,83,270 Panchmahal Dist. Co Op Bank 7,52,255 Total Interest From Co Op Banks 69,36,025 Commission Income and Other Income 1,88,729 Dividend Income 26,400 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 Printed from counselvise.com ITA No. 1465/Ahd/2025 Shri Vir Transport Opertors Copo Credit & Services Soc. Ltd. vs. DCIT Asst.Year –2020-21 - 7– 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 computed proportionate expenditure relatable to interest income from scheduled banks at Rs. 20,24,026/- and proportionate expenditure relatable to interest income from co- Printed from counselvise.com ITA No. 1465/Ahd/2025 Shri Vir Transport Opertors Copo Credit & Services Soc. Ltd. vs. DCIT Asst.Year –2020-21 - 8– operative sector was computed at Rs. 42,33,750/-, resulting total expenses of Rs. 62,57,776/-. 11. It was submitted that the above ratio was consistently applied for determining eligible deduction under section 80P(2)(a)(i) and section 80P(2)(d) and for computing income taxable under the head income from other sources under section 56. 12. It was argued that the above computation was filed before the Assessing Officer as well as the CIT(A), supported by audited accounts, and demonstrates that the expenditure was incurred wholly and exclusively for the purposes of business operations of the society, including managing deposits, complying with statutory liquidity conditions, servicing members, earning interest income from banks and carrying on day-to-day lending activities. It was submitted that the authorities below failed to appreciate the said working and incorrectly concluded that no evidence was furnished. 13. In further support of the claim, the learned AR placed reliance on the recent order of the co-ordinate bench in Ashapura Co-op. Credit Society Ltd. v. DCIT in ITA No. 490/Ahd/2025 for A.Y. 2017-18, order dated 28.08.2025. The AR submitted that the present case stands on a stronger footing because the proportionate expenditure working, along with supporting ledgers, schedules and statutory audit records, was filed before both lower authorities, yet was summarily rejected without pointing out any inaccuracy or calling for further explanation. It was Printed from counselvise.com ITA No. 1465/Ahd/2025 Shri Vir Transport Opertors Copo Credit & Services Soc. Ltd. vs. DCIT Asst.Year –2020-21 - 9– therefore urged that applying the ratio of the aforesaid co-ordinate bench decision, the disallowance sustained by the CIT(A) deserves to be deleted. 14. In response, the learned Departmental Representative supported the orders of the Assessing Officer and the CIT(A). 15. We have considered the rival submissions, perused the assessment order, the appellate order, the material placed in the paper book, including audited financial statements, computation of income, proportionate expenditure working, and the judicial precedents relied upon. The issue for adjudication before us is confined to whether the assessee is eligible for deduction of Rs. 62,57,776/- under section 57 of the Act against interest income brought to tax under 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 Printed from counselvise.com ITA No. 1465/Ahd/2025 Shri Vir Transport Opertors Copo Credit & Services Soc. Ltd. vs. DCIT Asst.Year –2020-21 - 10– 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 banks and Rs. 42,33,750/- relatable to interest earned from co-operative banks, aggregating to Rs. 62,57,776/-. 17. The assessee has also placed on record ledger extracts, audited statements, expenditure schedules, and computation workings filed before the Assessing Officer and the CIT(A). We find merit in the assessee’s contention that the authorities below have neither doubted the genuineness of the expenditure nor rejected the books of account maintained and audited under section 44AB. The disallowance has been confirmed merely on the premise that the assessee failed to establish one-to-one nexus between expenditure and income assessed under section 56. In our considered view, such an approach is not in accordance with section 57(iii), which requires the expenditure to have a proximate and reasonable nexus with the earning of income and not an exclusive or direct attribution. A co-operative credit society necessarily incurs various administrative, operational, managerial and financial expenses to carry on its statutory activities and earning of interest income is an integral part of such activities. Once the Revenue Printed from counselvise.com ITA No. 1465/Ahd/2025 Shri Vir Transport Opertors Copo Credit & Services Soc. Ltd. vs. DCIT Asst.Year –2020-21 - 11– taxes such income under the head income from other sources, the corresponding expenditure incurred for earning the said income cannot be ignored. 18. We further note that on identical facts and comparable working of proportionate expenditure, the co-ordinate bench in Ashapura Co-op. Credit Society Ltd. v. DCIT, ITA No. 490/Ahd/2025, order dated 28.08.2025, has held that where the assessee earns interest from deployment of funds arising out of its business activities and such income is assessed under section 56, expenditure attributable to earning such income is allowable under section 57. Relevant paras are reproduced below for the sake of clarity – 19. It is a settled principle that deduction under section 57(iii) is admissible only in respect of such expenditure (not being capital expenditure) which is laid out wholly and exclusively for the purpose of making or earning such income. In the present case, it is evident that the funds placed in deposits with banks were sourced from interest-bearing deposits collected from members. The management of such funds, including decisions relating to their placement and maintenance, involves administrative effort and expenditure. Thus, there exists a reasonable nexus between the interest 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. Printed from counselvise.com ITA No. 1465/Ahd/2025 Shri Vir Transport Opertors Copo Credit & Services Soc. Ltd. vs. DCIT Asst.Year –2020-21 - 12– 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 to show that the expenditure claimed is fictitious, unrelated, capital in nature, or unsupported by records. There is also no finding that the working submitted by the assessee is erroneous, inflated or arbitrary. Therefore, the mere absence of a granular, transactional bifurcation cannot be a ground to deny deduction when the expenditure is otherwise established and audited. 21. In view of the factual matrix and the judicial position discussed above, we hold that the assessee is entitled to deduction of Rs. 62,57,776/- under section 57 of the Act against interest income assessed under the head income from other sources. We, therefore, set aside the order of the CIT(A) to that extent and direct the Assessing Officer to delete the disallowance. 22. Ground relating to levy of interest under sections 234A, 234B and 234C is consequential and does not call for separate adjudication. The ground challenging initiation of penalty proceedings under section Printed from counselvise.com ITA No. 1465/Ahd/2025 Shri Vir Transport Opertors Copo Credit & Services Soc. Ltd. vs. DCIT Asst.Year –2020-21 - 13– 270A is premature and therefore dismissed with liberty to the assessee to contest the same, if and when penalty is levied. 23. In the result, the appeal of the assessee is partly allowed. This Order pronounced in Open Court on 27/11/2025 Sd/- Sd/- (T.R. SENTHIL KUMAR) JUDICIAL MEMBER (MAKARAND V. MAHADEOKAR) ACCOUNTANT MEMBER Ahmedabad; Dated 27/11/2025 TANMAY, Sr. PS TRUE COPY आदेश की Ůितिलिप अŤेिषत/Copy of the Order forwarded to : 1. अपीलाथŎ / The Appellant 2. ŮȑथŎ / The Respondent. 3. संबंिधत आयकर आयुƅ / Concerned CIT 4. आयकर आयुƅ(अपील) / The CIT(A)- 5. िवभागीय Ůितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाडŊ फाईल / Guard file. आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपीलीय अिधकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 27.11.2025(Dictated on dragon software by Hon’ble Member) 2. Date on which the typed draft is placed before the Dictating Member 27.11.2025 3. Other Member………………… 4. Date on which the approved draft comes to the Sr.P.S./P.S .11.2025 5. Date on which the fair order is placed before the Dictating Member for pronouncement .11.2025 6. Date on which the fair order comes back to the Sr.P.S./P.S 27.11.2025 7. Date on which the file goes to the Bench Clerk 27.11.2025 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Dispatch of the Order…………………………………… Printed from counselvise.com "