IN THE INCOME TAX APPELLATE TRIBUNAL,RAJKOT BENCH, RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER.

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SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER आयकरअपीलसं./ITA No.188/RJT/2024 िनधाªरणवषª/ Assessment Year: (2015-16)

(Hybrid Hearing)

Assistant Commissioner of Income- Vs. Rajkot District Co-Operative Bank tax, Circle-1 (1), Rajkot Limited Room No.502, Aayakar Bhawan, Jilla Bankbhavan, Kasturba Road, Race Course Ring Road, Rajkot- Opp: Chaudhary High School, 360001 Rajkot 360001 Öथायीलेखासं./जीआइआरसं./PAN/GIR No.: AAAAR0564K (Appellant) (Respondent)

Appellant by : Shri D. M. Rindani, Ld. AR Respondent by : Shri Abhimanyu Singh Yadav, Ld.Sr.DR Date of Hearing : 09/06 /2025 Date of Pronouncement : 05/08 /2025 आदशे / O R D E R PER DINESH MOHAN SINHA JM;

Captioned appeal filed by Revenue pertaining to Assessment Year 2015-

16, is directed against order passed by Commissioner Of Income Tax (Appeal), vide order dated 01/02/2024, which in turn arises out of an order passed by the Assessing Officer dated 28/12/2017 u/s 143(3) of the Income Tax Act, 1961.

2. Grounds of Appeals raised by the revenue are as follows: -

1. The learned CIT(A) has erred in law on facts in deleting the disallowance of Rs. 1,87,65,201/- on account of excess claim of deduction u/s 36(1) (viii) of the Act by way of letter/submission during the assessment proceeding.

2. The learned CIT (A) has erred in law on facts in directing to allowed deduction u/s 36(1)(viii) of Rs. 3,75,00,000/- as against Rs. 2,62,50,000/- claimed in return of income.

3. Any other ground that the Revenue may rise before or during the proceedings before the Hon'ble ITAT.

4. It is, therefore, prayed that the order of the Id. CIT (A) be set aside and that of the A.O, be restored to the above extent.

3. Brief facts of the case are that the appellant filed its return of income for the A.Y. 2015-16 on 30.09.3015 declaring total income of 31,24,98,450/-. The case was selected for scrutiny and after detail scrutiny of the case the assessment was completed on 28.12.2017 u/s 143(3) of the Act determining total income at Rs. 32,00,13,650/- by making addition on account of excess claim of deduction u/s 36(1) (viii) of Rs. 75,15,201/-.The appellant is a Co-operative society engaged in the business of providing banking services. During the assessment proceedings, the A.O. noticed that the appellant had claimed deduction u/s 36(1) (viii) at Rs.2,62,50,000/-. The A.O. was not satisfied with the method of computation of profit of the Eligible Business adopted by the appellant. As per the appellant, profit of the Eligible Business (provision of long-term finance for construction or purchase of houses in India) was Rs. 23,26,34,782/-and 20% thereof amounted to Rs. 4,65,26,956/- As against this, the appellant had claimed deduction u/s 36(1)(viii) of Rs.2,62,50,000/- in the return of income. During the assessment proceedings, the appellant raised a claim that since the amount actually carried to the Special Reserve was Rs. 3,75,00,000/-, it was eligible to claim deduction u/s 36(1) (viii) of Rs. 3,75,00,000/- of the Act.The working by the appellant of the profit of the Eligible Business was not accepted by the AO for the following reasons:

(a) There has been a gross error in the allocation of expenditure by the assessee. In this case, the assessee has shown Rs. 127 crore interest income from 97 crore interest expenditure in short term loans. A profit margin of 23%. However, in the case of long-termEligible Business, the assessee has shown 90 crores interest income from 48 crores interest expenditure. A profit margin of

47%. How can the profit margin vary from 23% to 47% unless the allocation of interest expenditure under long term and short term is made incorrectly.

(b) The assessee has somewhat arbitrarily allocated the expenses, not based on proportion but on some assumed weightage. In terms of salary, miscellaneous and other operating expenses, the assessee has claimed 41% as expenditure for short term loans, however, onl