NILAMBER BELLISSIMO MEMBERS ASSOCIATION,VADODARA, GUJARAT vs. INCOME TAX OFFICER, WARD 1(2)(3),(NOW ITO WARD 1(2)(2)) VADODARA, GUJARAT, VADODARA, GUJARAT
What did the Tribunal hold?
The Tribunal held that for the disallowed expenses under Section 57, there was no direct nexus with the earning of interest income. General maintenance expenditure for upkeeping society premises and amenities cannot be presumed to have a direct nexus with earning bank interest income. Therefore, the disallowance of expenses claimed under Section 57 was upheld for both assessment years, dismissing grounds 1 to 5. However, the Tribunal found merit in the alternative contention that even if disallowed under Section 57, the expenses remain admissible as a statutory deduction in computing income under the head ‘Profits and Gains of Business or Profession’, as the revenue did not challenge the factum of expenses being incurred. Consequently, the deduction of these expenses would result in a net business loss, which the assessee is entitled to set off against its income under the head ‘Income from Other Sources’ pursuant to Sections 70/71 of the Act. Thus, grounds 6, 7, and 8 were allowed, directing the Assessing Officer to re-compute income under ‘Profits & Gains of Business’ and allow set off of the net loss. Ground 9 regarding interest under Section 234B was disposed of as consequential. Ground 10 concerning penalty proceedings under Section 271(1)(c) was disposed of as premature. The appeals were partly allowed.
What were the facts?
The assessee, Nilamber Bellissimo Members Association, filed appeals for Assessment Years (AY) 2015-2016 and 2016-2017 against orders of the National Faceless Appeal Centre (NFAC), Delhi. The NFAC had partly allowed the appeal for AY 2015-2016 against an assessment order passed under Section 143(3) by the Income Tax Officer (ITO), Ward 1(2)(3), Vadodara. For AY 2016-2017, the NFAC had dismissed the appeal against an assessment order passed under Section 144(3). The assessee is an Association of Persons (AOP) maintaining common amenities for a residential complex. For AY 2015-2016, the assessee declared 'Nil' income and a business loss of INR 3,28,311. The ITO disallowed expenses of INR 62,76,415 claimed under Section 57, holding they were not incurred wholly and exclusively for earning interest income. The NFAC partly allowed relief, allowing INR 6,02,455 as deduction, sustaining a disallowance of INR 56,73,960.
What were the issues?
1. Whether the Learned CIT(A) erred in fact and in law in confirming the action of the learned AO in invoking the provisions of Section 57 of the Income Tax Act, 1961, and disallowing expenses of Rs. 56,73,960 (for AY 2015-2016) and Rs. 82,69,601 (for AY 2016-2017) in respect of expenditure incurred for the purpose of maintenance of the Association, without satisfying the condition that such expenditure was incurred for earning income. Assessee's contentions: The interest income was earned from maintenance deposits received from members, which were placed in fixed deposits and utilized to meet day-to-day maintenance expenses, establishing an interlinked nexus. The expenditure was directly linked to the income earned and offered to tax. Without prejudice, the expenditure was incurred wholly and exclusively for earning club income, rent income, etc. Revenue's contentions: Maintenance expenses have no direct nexus with earning interest income, and the assessee failed to establish any direct connection or substantiate the expenditure on facts. The revenue relied on the orders of the Assessing Officer and Learned CIT(A). 2. Whether the Learned CIT(A) erred in fact and in law in not allowing set off of loss incurred from maintenance of association against interest income offered to tax under the head 'income from other sources' as per the provisions of Section 70/71 of the Act. Assessee's contention: Even if disallowance under Section 57 is sustained, the disallowed expenses would be allowable while computing income under the head ‘Profits & Gains of Business’, resulting in a net business loss that could be set off against income under ‘Income from Other Source’ as per Sections 70/71. Revenue's contention: Not recorded. 3. Whether the Learned CIT(A) erred in fact and in law in confirming the action of the learned AO in levying interest u/s 234B of the Act. 4. Whether the Learned CIT(A) erred in fact and in law in confirming the action of the learned AO in initiating penalty proceedings u/s 271(1)(c) of the Act.
Which sections of the Income-tax Act were involved?
Section 57,Section 143(3),Section 144(3),Section 70,Section 71,Section 234B,Section 271(1)(c)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, B” BENCH, AHMEDABAD
Heard together (2 matters)
Read from the judgment's own cause title. This page is filed under one of them.
Per Rahul Chaudhary, Judicial Member:
These are two appeals preferred by the same Assessee for the Assessment Year 2015-2016 and 2016-2017. Since the appeals involved identical issues, the same were taken up together and are being disposed by way of a common order.
We would first take up ITA No. 1850/AHD/2025 preferred by the Assessee against the Order, dated 28/07/2025, passed by the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the ‘CIT(A)’] whereby Learned CIT(A) had partly allowed the appeal against the Assessment Order, dated 28/09/2017, passed under Section 143(3) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’],for the Assessment year 2015-2016. ITA No.1850 and 1851/AHD/2025
The Assessee has raised following grounds of appeal in ITA No.1850/AHD/2025:
The learned Commissioner of Income Tax (Appeals), National Faceless Appellate Centre, Delhi ["CIT(A)"] erred in fact and in law in confirming the action of the learned Income Tax Officer, Ward 1(2)(3), Vadodara ("the AO") in invoking the provisions of Section 57 of the Income Tax Act, 1961 ("the Act").
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in invoking the provisions of Section 57 of the Act without satisfying the condition that expenditure was incurred for earning income.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in invoking the provisions of Section 57 of the Act and thereby making disallowance of Rs.56,73,960 in respect of expenditure incurred for the purpose of maintenance of the Association.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in disallowing expenditure u/s 57 of the Act without appreciating the fact that interest income was earned from maintenance deposit received from the members of the Association.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in disallowing expenditure u/s 57 of the Act despite the fact that expenditure was directly linked to the income earned during the year and offered to tax
Without prejudice to the above, the learned CIT(A) erred in fact and in law in confirming the action of the learned AO in disallowing the expenditure despite the fact that it was incurred wholly and exclusively for the purpose of earning club income, rent income, etc.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in not allowing set off of loss incurred from maintenance of association against interest income offered to tax under the head income from other sources.
The learned CIT(A) erred in fact and in law in not allowing set-off of loss as per the provisions of Section 70 of the Act.
Other Grounds:
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in levying interest u/s 234B of the Act.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in initiating penalty proceedings u/s 271(1)(c) of the Act.
The relevant facts in brief are that the assessee is an Association of Persons (AOP) formed with the primary object of maintaining the common amenities of a residential complex named ‘Nilamber Bellissimo’. The Assessee filed its return of income for Assessment Year 2015-2016 on 31/12/2015 declaring ‘Nil’ income and claiming a business loss of INR.3,28,311/-. The case of the Assessee was selected for scrutiny. The Assessing Officer noted that in the return of income, the Assessee offered income under the head ‘Income from Other Sources’ to the tune of INR.59,48,154/-, which comprised interest income of INR.53,94,546/- (consisting of interest earned on bank fixed deposits of INR.47,92,091/- and interest on loan of INR.6,02,455/-) and other receipts amounting to INR.5,53,398/- (comprising club income, training/fees, transfer fees, rent, and other receipts). Against the said receipts, the Assessee debited total expenses to the tune of INR.72,99,484/- in its Profit & Loss Account, out of which expenses amounting to INR.62,76,465/- were claimed as deduction under Section 57 of the Act. The Assessing Officer held that expenses of INR.62,76,415/- (INR.62,76,465/- minus bank charges of INR.50/-) claimed as deduction under Section 57 of the Act were not eligible for deduction as the same were not incurred wholly and exclusively for the purpose of making or earning interest income within the meaning of Section 57(iii) of the Act relying on the judgment of the Hon'ble Supreme Court in Vijay Laxmi Sugar Mills Ltd. v. CIT [1991] 191 ITR 641 (SC). Accordingly, the Assessing Officer disallowed deduction of INR.62,76,415/- claimed by the Assessee under Section 57 of the Act.
In appeal preferred by the Assessee, the Learned CIT(A) held that general society maintenance expenses had no direct nexus with earning bank interest income. However, the Learned CIT(A) granted partial relief by allowing deduction of INR.6,02,455/- under Section 57 of the Act in respect of interest paid on the bank overdraft facility utilized to extend an equivalent loan to M/s Arcadia Developers observing that it was directly attributable to earning loan interest income. The Learned CIT(A) also rejected Assessee's alternative contention for set-off of maintenance loss against interest income under Section 70/71 of the Act. Thus, the Learned CIT(A) sustained the disallowance under Section 57 to the extent of INR.56,73,960/- (INR.62,76,415/- minus INR.6,02,455/-).
Being aggrieved by the above order of the Learned CIT(A), the Assessee has preferred the present appeal before the Tribunal on the grounds reproduced in paragraph 2 above.
Ground No. 1 to 5
The Learned Authorised Representative for the Assessee submitted that interest income was earned from maintenance deposits collected from members and placed in fixed deposits, which were utilized to meet day-to-day maintenance expenses of the society, thereby establishing an interlinked nexus.
On the other hand, the Learned Departmental Representative relied upon the orders of the Assessing Officer and Learned CIT(A), contending that maintenance expenses have no direct nexus with earning interest income and that the Assessee failed to establish any direct connection or substantiate the expenditure on facts.
We have heard the rival submissions and have perused the material on record.
Section 57(iii) of the Act stipulates that deduction is allowable only in respect of expenditure laid out or expended wholly and exclusively for the purpose of making or earning income under the head "Income from Other Sources". There is nothing on record to show that expenses aggregating to INR. were incurred for the purpose of making or earning the interest income. In the absence of any evidence to establish any direct nexus between the expenses incurred and the interest income earned, the general maintenance expenditure incurred for upkeeping society premises and amenities cannot be presumed to have direct nexus with the earning of bank interest income. Therefore, we do not find any infirmity in the order passed by the Learned CIT(A) in disallowing the deduction of INR. claimed by the Assessee under Section 57 of the Act. Accordingly, Ground Nos. 1 to 5 raised by the Assessee are dismissed.
Ground No. 6, 7 and 8
Having concluded as above, we do find merit in the alternative contention advanced on behalf of the Assessee. It was contended by the Learned Authorised Representative for the Assessee that even if the disallowance made by the Assessing Officer is sustained, the deduction for disallowed expenses would be allowable while computing income under the head ‘Profits & Gains of Business’. The same would result in net business loss which the Assessee would be entitled to set off with the income under the head ‘Income from Other Source’. Reliance in this regard was placed on the provisions contained in Section 70 and 71 of the Act. It was contended the Learned CIT(A) failed to appreciate the aforesaid contention of the Assessee.
Per contra, the Learned Departmental Representative supported the concurrent findings of the Assessing Officer and the CIT(A). It was submitted that the expenses claimed as a deduction under the head ‘Income from Other Sources’ bore no direct nexus or correlation with the interest income earned by the Assessee and that the Learned CIT(A) had correctly dismissed the Assessee’s alternative plea. Thus, there was no infirmity in the order passed by the Learned CIT(A).
We note that in paragraph 7.3.5 of the order impugned, the Learned CIT(A) had recorded as under:
“7.3.5 Also, the argument that expenditure incurred towards maintenance charges may be treated as loss and allowed to be set off u/s 70/71 of the Act, against the interest income from bank is not acceptable, as these expenses have not been incurred for the purpose of earning any income. Rather, these are maintenance expenses of the housing society. The only expense which is directly attributable to earning of any income of the assessee is the interest amount of Rs. 6,02,455/- paid by it to the Bank on overdraft facility availed, to extend equivalent amount of loan to M/s Arcadia Developer. This finding is noted as para 5.2.(a), page 9 of the assessment order. To that extent, an amount of Rs. 6,02,455/- shall be allowed to the appellant as deduction under the head income from other sources. In no other case, any nexus could be demonstrated by the appellant between the claim of expenditure incurred with the incomes earned from other sources. Therefore, no other deduction is allowed to the assessee” (Emphasis Supplied)
We find substance in the alternative contention raised by the Assessee. Even if the expenditure incurred by the Assessee are regarded as connected to its regular operational activities (as opposed to earning of interest income), such expenditure remains admissible as a statutory deduction in computing income under the head ‘Profits and Gains of Business or Profession’ since the Revenue has not challenged the factum of expenses having been incurred. Consequently, the deduction of the aforesaid expenses would result in a net business loss which the Assessee would be legally entitled to set-off against its income under the head ‘Income from Other Sources’, pursuant to the provisions contained in Sections 70/71 of the Act. Therefore, we hold that the Learned CIT(A) erred in rejecting the alternative contention of the Assessee. Accordingly, we direct the Assessing Officer to re-compute income under the head ‘Profits & Gains of Business’ and allow set off the net loss with the income computed under the head ‘Income from Other Sources’ giving effect to the present order. In terms of aforesaid, Ground No.6, 7 and 8 raised by the Assessee are allowed.
Ground No. 9
Ground No. 9 relates to the levy of interest under Section 234B of the Act and the same is disposed as being consequential in nature.
Ground No. 10
Ground No. 10 challenges the initiation of penalty proceedings under Section 271(1)(c) of the Act and the same is disposed off as being premature at this stage.
In result, the ITA No. 1850/AHD/2025 preferred by the Assessee for the Assessment Year 2015-2016 is partly allowed.
We would next take up ITA No. 1851/AHD/2025 preferred by the Assessee against the Order, dated 28/07/2025, passed by the Learned CIT(A) whereby the Learned CIT(A) had dismissed the appeal against the Assessment Order, dated 27/11/2018, passed under Section 144(3) of the Actfor the Assessment year 2016-2017. 19. The Assessee has raised following grounds of appeal in ITA No.1851/AHD/2025:
The learned Commissioner of Income Tax (Appeals), National Faceless Appellate Centre, Delhi ["CIT(A)"] erred in fact and in law in confirming the action of the learned Income Tax Officer, Ward 1(2)(3), Vadodara ("the AO") in invoking the provisions of Section 57 of the Income Tax Act, 1961 ("the Act").
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in invoking the provisions of Section 57 of the Act without satisfying the condition that expenditure was incurred for earning income.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in invoking the provisions of Section 57 of the Act and thereby making disallowance of Rs.82,69,601 in respect of expenditure incurred for the purpose of maintenance of the Association.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in disallowing expenditure u/s 57 of the Act without appreciating the fact that interest income was earned from maintenance deposit received from the members of the Association.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in disallowing expenditure u/s 57 of the Act despite the fact that expenditure was directly linked to the income earned during the year and offered to tax.
Without prejudice to the above, the learned CIT(A) erred in fact and in law in confirming the action of the learned AO in disallowing the expenditure despite the fact that it was incurred wholly and exclusively for the purpose of earning club income, rent income, etc.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in not allowing set off of loss incurred from maintenance of association against interest income offered to tax under the head income from other sources.
The learned CIT(A) erred in fact and in law in not allowing set-off of loss as per the provisions of Section 70 of the Act. Other Grounds: 9. he learned CIT(A) erred in fact and in law in confirming the action of the learned AO in levying interest u/s 234B of the Act.
The learned CIT(A) erred in fact and in law in confirming the action of the learned AO in initiating penalty proceedings u/s 271(1)(c) of the Act.
During the course of hearing both the sides agreed that since there is no change in facts and circumstances, and the grounds raised and the submission advanced are identical, our finds/adjudications in corresponding grounds in appeal for the Assessment Year 2015-2016 shall apply mutatis mutandis to the grounds raised in the present appeal for the Assessment Year 2016-2017. Therefore, adopting the reasoning given while adjudicating the corresponding grounds raised in appeal for the Assessment Year 2015-2016 hereinabove: (a) Ground No. 1 to 5 raised in the present appeal are dismissed,
(b) Ground No. 6,7 and 8 are allowed with directions identical to those contained in paragraph 14 above,
(c) Ground No. 9 is disposed as being consequential and (d) Ground No. 10 is disposed as being premature.
In result, the ITA No. 1851/AHD/2025 preferred by the Assessee for the Assessment Year 2016-2017 is partly allowed.
In conclusion, both appeals preferred by the Assessee are partly allowed.
The order is pronounced on 29.10.2026 (R. Govindarajan) Judicial Member िदनांक Dated :29.10.2026 अहमदाबाद Ahmedabad;H.C. PS आदेशक""ितिलिपअ"ेिषत/Copy of the Order forwarded to : DEVENDRABHAI UPADHYAY
JEETENDRA अपीलाथ"/ The Appellant DN: c=IN, o=PERSONAL, title=6087,
""यथ"/ The Respondent. 2.5.4.20=7e5568a89b633f174b2 DEVENDRA 8a80f5e63c638da40b7313fb47e baefda841cf59d1703, 3. संबंिधतआयकरआयु"/ Concerned CIT postalCode=380059, st=Gujarat, BHAI serialNumber=816dc56e896211 4. आयकरआयु"(अपील) / The CIT(A) a1a21ccc4abc94ddc94458f4a1b 37be8e1854e9399295106d4, UPADHYAY 5. िवभागीय"ितिनिध, आयकरअपीलीयअिधकरण/ DR, ITAT, cn=JEETENDRA DEVENDRABHAI UPADHYAY Date: 2026.10.30 17:14:46 6. गाड"फाईल /Guard file. +05'30' आदेशानुसार/BY ORDER, उप/सहायकपंजीकार (Dy./Asstt.
More judgments on Section 57
- Dattatraya Prakash Wankar, Solapur vs ITO WD-2(3), SolapurITA 2210/PUN/2026[2020-21]Status: Disposed5 Oct 2026AY 2020-21
- Aurelia Housing Coperative Society Ltd… vs I.T.O., Ward - 49(4), KolkataITA 2198/KOL/2026[2017-2018]Status: Disposed29 Sept 2026AY 2017-2018
- Ramkrishna Bajaj Charitable Trust, Mumbai vs Deputy Commissioner of Income-Tax, Circle…ITA 66/MUM/2026[2016-17]Status: Disposed29 Sept 2026AY 2016-17
- Zidni Ilma Charitable Trust, Vadodara vs The ITO, Ward-Exemp, VadodaraITA 914/AHD/2026[2018-19]Status: Disposed28 Sept 2026AY 2018-19
- Zidni Ilma Charitable Trust, Vadodara vs The ITO, Ward-Exemp, VadodaraITA 913/AHD/2026[2016-17]Status: Disposed28 Sept 2026AY 2016-17
Recent GST High Court judgments
Search GST case law →- Biswanath Rana vs. The Commissioner, CT And GST, Odisha, CuttackOrissa · 28 Oct 2026
- Sushama Mishra vs. The Commissioner Of CT And GST, Odisha, KatakOrissa · 28 Oct 2026
- Saudamini Samantray vs. Assistant Commissioner Of State Tax, CT And GST, Bhubaneswar IiOrissa · 28 Oct 2026
- M/S. Keshav Rice Mill, Ganjam vs. Chief Commissioner, CT And GST, Odisha, KatakaOrissa · 28 Oct 2026
- M/S. Nanda Contruction PVT. LTD., Angul vs. Additional Commissioner, GST And Central Excise Commissionerate, SundergarhOrissa · 28 Oct 2026
