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Facts
The assessee, a cooperative housing society, did not file a return of income. The AO made additions based on an unaudited balance sheet, which were later confirmed by the CIT(A). After a remand, a fresh assessment was made, and the CIT(A) again confirmed the additions. The assessee appealed to the Tribunal.
Held
The Tribunal held that the addition made by the AO under Section 68 was not justified as it was based on an unaudited balance sheet, and the audited balance sheet showed a much lower receivable amount from members. The disallowance under Section 40(a)(ia) was deleted as it was a mutual undertaking not carrying out business. The disallowance of expenses due to non-production of evidence was also deleted based on the principle of mutuality.
Key Issues
Whether additions made under Section 68 based on an unaudited balance sheet are justified when an audited balance sheet is available? Whether disallowances under Section 40(a)(ia) and for non-production of evidence are applicable to a cooperative society operating on the principle of mutuality?
Sections Cited
68, 148, 144, 143(3), 254, 40(a)(ia)
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Income Tax Appellate Tribunal, “F” BENCH
Before: MS. KAVITHA RAJAGOPAL & SMT. RENU JAUHRIShri. Satyanarayan Desai/ Shri
O R D E R PER RENU JAUHRI [A.M]: This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as "CIT(A)"] dated 28.03.2025 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as "Act"] for Assessment Year [A.Y.] 2006-07.
The assessee has raised the following grounds of appeal:
“Ground No. 1 On the facts and in the circumstances of the case the Commissioner of Income tax (appeals) erred in allowing the addition of Rs. 1,09,12,957.00 made by the Assessing Officer under section 68 of the Income tax Act, without appreciating the fact that there has been an apparent error in the working of the Assessing Officer for arriving at the figure of Rs. 1,09,12,957.00. The Appellant prays that the addition of Rs. 1,09,12,957.00 made under section 68 of the Income tax Act be deleted. The Appellant craves leave to add, amend, alter, vary and or withdraw any or all the above grounds of appeal.
AY 2006-07 Versova Sandeep Sarovar CHS Ltd
Ground No. 2 On the facts and in the circumstances of the case the Commissioner of income tax (appeals) erred in allowing the addition of expenses of Ra. 3,33,093.00 under section 40(a)(ia) of the Income tax Act, for non-deduction of TDS, without appreciating the fact that the section was amended in 2015 with retrospective effect to disallow only 30 percent of the expenses under section 40(a)(ia). Therefore, the Appellant prays that the addition to the extent of 70 per cent of the expenses amounting to Rs. 2,33,165.00 be deleted. The Appellant craves leave to add, amend, alter, vary and or withdraw any or all the above grounds of appeal
. Ground No.
3. On the facts and in the circumstances of the case the Commissioner of Income tax (appeals) erred in allowing the addition of expenses of Rs. 1,25,970.00 on account of non-production of documentary evidences relating to the expenses without appreciating the fact that the Appellant is a co-operative housing society collecting contributions from the members for making expenses for the benefit of the same members under the principle of mutuality. Therefore, the Appellant prays that the addition of Rs. 1,25,970.00 made in respect of expenses be deleted. The Appellant craves leave to add, amend, alter, vary and or withdraw any or all the above grounds of appeal.”
Brief facts of the case are that the assessee is a co-operative housing society registered under the Maharashtra State Cooperative Society Act. The society did not file any return of income and, therefore, a notice u/s. 148 was issued by the Ld. AO. Thereafter the assessment was completed u/s. 144 on the basis of information available on record by making an addition of Rs. 2,95,86,909/- on the basis of the balance sheet prepared by the internal audit. Aggrieved with the order, the assessee preferred an appeal before the Ld. CIT(A), who confirmed the addition made by the Ld. AO, vide order dated 28.03.2013. Aggrieved, the assessee filed an appeal before the coordinate bench who restored the matter back to the file of the Ld. AO for d-novo assessment, vide order dated 13.11.2013. Subsequently, assessment order u/s. 143(3) r.w.s. 254 of the Act, was passed on 31.03.2015 at an income of Rs. 1,13,72,020/-. Aggrieved with this order, the assessee again preferred an appeal before the Ld. CIT(A). Vide order dated 28.03.2025. Ld. CIT(A) has decided both the issues AY 2006-07 Versova Sandeep Sarovar CHS Ltd raised by the assessee against it and upheld the order of the Ld. AO. Aggrieved with the order Ld. CIT(A), the assessee has again filed an appeal before the Tribunal.
Ground No. 1: Addition u/s. 68 -- Rs. 1,09,12,957/- 4. Brief facts of the issue are that the society was allotted a plot of land in 1994, for construction of the building. However,disputes arose among the members in 1999 and, thereafter, an administrator was appointed who was managing the affairs of the society till 2009. The original assessment was made on the basis of untallied balance sheet prepared by the internal auditor, on the basis of which impugned addition u/s. 68 had been made. Subsequently, as per the directions of the coordinate bench, Ld. AO while making d-novo assessment, considered the audited balance sheet filed subsequently by the assessee. However, at the time of finalising assessment order, he reverted to the earlier unaudited balance sheet and adopted the figures mentioned therein. In this regard the assessee has furnished its explanations as under: “In the de novo proceedings before the Assessing Officer, the appellant furnished the audited balance sheet for the year ended 31.03.2000 and pleaded that being a mutual undertaking the surplus in the income Expenditure Account is exempted from tax. A cash flow statement was also prepared on the basis of audited balance sheets and placed before the ПО showing inflow and outflow of cash during the year ended 31.03.2006, which figures were accepted by the Assessing officer. However, while framing the assessment order, Assessing Officer has referred to the asset side of the audited balance sheet for the year ended 31.03.2006 as per tallied accounts and has worked out the addition to the cost of construction of the land and building made during the year ended 31.03.2006 by deducting the opening balance as at 01.04.2005 of construction cost of Rs.8,61,78,752/- from the closing balance as at 31.03.2006 of Rs.10,46,19,433/- namely, Rs. 1,84,40,681/- and has rightly concluded that this amount of Rs.1,84,40.681/- has received during the year from the members. Surprisingly, subsequently for reasons beyond our understanding. he has reverted towards untallied balance sheet of the Government Auditor, Mr. Shirali for the period 06.09.1994 to 31.03.2006 where a tentative figure of a sum of Rs.2,93,53,638/ has been shown as contribution receivable from members and has AY 2006-07 Versova Sandeep Sarovar CHS Ltd deducted Rs.1,84,40,681/-as per audited records of the appellant and has arrived at Rs. 1,09,12,957/-as the alleged unexplained funds received from members. The figure of construction cost received from members of Rs.2,93,53,638/- is absolutely wrong for reasons cited herein below: There is no justification for referring to the untallied balance sheet of the internal auditors, Mr. Shirali which are not reliable when the audited accounts were produced before the Assessing Officer for the year ended 31.03.2006. Even otherwise there is a serious mistake in arriving at a figure of Rs,2,93,53,638/- as contribution receivable from members as of 31.03.2006 if one goes through the original Marathi translation in which on page 12, 13 and 16 report of Mr. Shirali reads as under: "In the office of the society there is a list of members showing the amount receivable from individual member towards construction of building as of 31 March 2004. Thereafter from 1st April 2004 to 30th September 2005 there are various deposits and withdrawals in the Appellant's account with Mumbai District Co-operative Bank, Andheri West Branch and Society has debited and credited the same to suspense account. Hence any amount received from members towards construction cost after 31.03.2004 cannot be ascertained. However, as the member wise details about amount received towards construction of building is not available and therefore it cannot be ascertained." This is an indelible proof of the fact that the figure of Rs.2,93,53,638/- is not the figure of the contributions receivable from members as of 31.03.2006.”
We have heard the rival submissions and perused the material available on record. We are of the considered view that once audited balance sheet and accounts have been submitted, the Ld. AO should have considered the amounts mentioned in the audited balance sheet. As per this balance sheet, the members receivable amount is only Rs. 2,48,943/- and, therefore, the addition of Rs. 1,09,12,957/- by adopting the figure of Rs. 2,93,53,638/- as amount received from the members (from the unaudited balance sheet) is not justified. Accordingly,the addition made by the Ld. AO u/s. 68 in respect of Rs. 1,09,12,957/- is here by deleted.
Ground No. 2: Disallowance u/s. 40(a)(ia) -- Rs. 3,33,093/- 6. With respect to the disallowance made by the Ld. AO of Rs. 3,33,093/- in respect of lift maintenance charges (Rs. 1,53,335/-) and security charges (Rs.
AY 2006-07 Versova Sandeep Sarovar CHS Ltd 1,77,758/-) it is seen that the disallowance was made by invoking the provisions of section 40(a)(ia) of the Act. It has been argued by the Ld. AR that the provisions of this section are not applicable in the case of the assessee since it is a mutual association and does not carry out on any business. In this regard, reliance has been placed on the decision of the coordinate bench in the case of DCIT vs Ganesh Khan Udyog in wherein the coordinate bench as held as under: “Cooperative society enjoys special status that it has own individuality and distinctness in the scheme of the IT Act. A Co-operative society is a voluntary AOP, it is economic institution formed for social purpose and not motivated by entrepreneurial profits by distinguishes from the association of business”.
Ld. DR on the other hand, has relied on the orders of lower authorities.
After careful consideration of the facts and circumstances of the case, we are of the view that the disallowance u/s. 40(a)(ia) in respect of Rs. 3,33,093/- should not be made in the case of assessee which is a mutual undertaking not carrying aany business activity and the same is accordingly deleted.
Ground No. 3: Disallowance of expenses -- Rs. 1,25,970/- 8. Ld. AO has further made a disallowance in respect of certain expenses amounting to Rs. 1,25,970/- on the groundthat supporting documentary evidences were not produced. In this regard, Ld. ARhas argued that since the assessee is a cooperative housing society and its income is exempt,therefore, no disallowance should have been made on account of non-availability of supporting documentary evidences since, in any case, the entire income of the AY 2006-07 Versova Sandeep Sarovar CHS Ltd assessee would be exempt under the principle of mutuality. Ld. DR on the other hand, has strongly relied on the orders of lower authority.
After careful consideration of the rival submissions we are of the view that disallowance of expenses relating to the society for the benefit of its members by collecting the contribution from the members was not called for. Accordingly, the disallowance of expenses of Rs. 1,25,970/- is hereby deleted.
In the result, assessee’s appeal is allowed.
Order is pronounced in the open court on 30.09.2025