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Facts
The assessee, Iscon Heights Owners Association, filed its return of income declaring Rs. 5,340/-. The Assessing Officer made an addition of Rs. 33,46,244/- on account of interest income from fixed deposits, which was confirmed by the CIT(A). The assessee's appeal was filed against this order.
Held
The Tribunal held that the interest income derived from deposits made from members' contributions was directly used for the maintenance and upliftment of the society, establishing a direct nexus between the expenses and income. Therefore, the addition made by the Assessing Officer was incorrect.
Key Issues
Whether the interest income earned on fixed deposits from members' contributions is taxable when it is utilized for the maintenance and upliftment of the society, and if section 57(iii) is applicable.
Sections Cited
57(iii), 143(2), 142(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH, AHMEDABAD
Before: Ms. Suchitra Kamble
आदेश/ORDER This is an appeal filed against the order dated 20-08-2025 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2018-19.
The grounds of appeal
are as under:- “1. The order passed by lower authorities are invalid, bad in law and required to be quashed.
1. 2. Ld. NFAC erred in law and on facts in confirming addition of Rs. 33,46,244/- by observing that same is not covered by principle of mutuality. 3 Ld. NFAC ought to have computed income on commercial principle as per ratio of various judicial precedents.
Ld. NFAC ought to have considered fact that provision of section 57(iii) is not applicable as there is direct nexus of income and expenditure. Total Tax Effect Rs. 13,04,456” 3. Brief facts of the case are that Iscon Heights Owners Association i.e. IHOA is Association of Persons. The members are residents of Iscon Heights. The assessee e-filed its return of income on 02.08.2018 declaring total income at Rs. 5,340/-. The case of the assessee was selected for scrutiny through CASS and a notice u/s 143 (2) and 142(1) of the Act were issued. The assessment proceedings were undertaken and the Ld. ITO passed the order making the following additions of the following amount: 1. Rs.33,46,244/- on Interest Income on FD
4. The assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
The ld. A.R. submitted that the assessee has not applied the Principle of mutuality related to the interest income earned on fixed deposit credited from the members contribution. In fact, the assessee has offered the said amount for taxation. The ld. A.R. relied upon the decision of the Tribunal in case of Kalhar Co-operative Housing Society Ltd. vs. ITO ( ITA 802/Ahd/2023 order dated 31-01-2024).
The ld. D.R. has submitted that the assessee has not pointed out the nexus between the expenses incurred and the interest income, therefore relied upon the assessment order and the order of the CIT(A).
Heard both the parties and perused all the relevant material available on record. There is a delay of 19 days in filing the present appeal for which the assessee has given the genuine reasons, hence the delay is condoned. It is pertinent to note that the expenses incurred by the assessee society/association has a direct nexus in respect of the common fund collected by the Members of the Society as explained by the assessee. The assessee has collected maintenance charges and also given the details of maintenance expenses of the said building before the Assessing Officer as well as before CIT(A). Thus, the interest derived from the said deposits was directly used for the maintenance and upliftment of the society. Therefore, the Assessing Officer was not right in making the said addition. The ld. A.R. relied upon the decision of the Ahmedabad Tribunal in case of Kalhar Co-operative Housing Society Ltd. (supra) which has direct connection on the said issue.
In the result, the appeal of the assessee is allowed.