SHREE SAMPRAT COOP HSG SOC LIMITED,AHMEDABAD vs. INCOME TAX OFFICER WARD 3(3)(5), AHMEDABAD

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ITA 470/AHD/2025Status: DisposedITAT Ahmedabad01 May 2025AY 2017-185 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the CIT(A) passed the impugned order without adjudicating the appeal on merits. The order merely recorded non-compliance and dismissed the appeal without analysing the facts or legal grounds. The Tribunal found that the interest of natural justice demanded that the assessee be granted an opportunity to substantiate its claim before the CIT(A). This was particularly in light of the assessee's plea that non-compliance was due to communication lapses and that the assessee had now taken steps to furnish relevant documents and case law support. Therefore, without going into the merits of the case, the Tribunal deemed it appropriate to restore the matter back to the file of the CIT(A) for fresh adjudication on merits. The assessee was directed to appear before the CIT(A) and file all relevant submissions, and the CIT(A) was directed to grant a reasonable opportunity of being heard and pass a speaking order. The order of the CIT(A) was set aside.

What were the facts?

The assessee, Shree Samprat Coop HSG Society Ltd., is a co-operative housing society. For Assessment Year 2017-18, it declared Nil income. The Assessing Officer (AO) noted interest income of Rs.12,95,860/- on bank fixed deposits, offered under 'Income from Other Sources'. The assessee claimed a deduction of Rs.38,15,283/- under Section 57 for maintenance and administrative expenses. The AO disallowed the deduction, holding that no expenditure was incurred wholly and exclusively for earning the interest income and that the interest income did not fall within the principle of mutuality. The assessee's appeal before the CIT(A) was dismissed ex parte due to non-compliance, upholding the AO's disallowance. The assessee then appealed to the ITAT.

What were the issues?

1. Whether the learned CIT(A) erred in confirming the order of the AO making disallowance of claim of expenses under Section 57 to the extent of Rs.12,95,860/-? (Question of law and fact, concerning Section 57 of the Income-tax Act, 1961). Assessee's Contention: The order passed by the CIT(A) was ex parte and did not deal with the merits of the case. Notices were sent to the accountant's email address and not directly to the assessee, leading to non-compliance. The assessee is willing to pursue the appeal diligently if granted another opportunity and has compiled necessary documents and judicial precedents. The issue regarding the allowability of expenditure under Section 57(iii) against interest income has been decided in favour of the assessee by various Tribunal benches. Revenue's Contention: The Departmental Representative raised no objection to restoring the matter back to the file of the CIT(A).

Which sections of the Income-tax Act were involved?

Section 57,Section 143(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD

Before: S/SHRI T.R. SENTHIL KUMAR & MAKARAND V.MAHADEOKAR

For Appellant: Shri Prashant Shrivastav, AR
Hearing: 30/04/2025
1.

This appeal by the assessee is directed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-3, Ahmedabad [hereinafter referred to as “CIT(A)”], dated 15.01.2025, for the assessment year 2017–18, confirming the disallowance of deduction of Rs.12,95,860/- claimed by the assessee under section 57 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] arising out of the order dated 20.11.2019 passed by the Income Tax Officer, Ward 3(3)(5),

2.

Facts of the Case

The assessee is a co-operative housing society registered under the Gujarat Co-operative Societies Act,1961. It filed its return of income for A.Y. 2017–18 on 03.11.2017 declaring total income at Rs.Nil. The case was selected for scrutiny and notice under section 143(2) followed by notice under section 142(1) was issued. However, despite repeated notices and reminders, there was minimal compliance by the assessee during assessment proceedings. From the Income and Expenditure Account, the Assessing Officer observed that the assessee had received interest income of Rs.12,95,860/- on fixed deposits made with banks, which was offered under the head "Income from Other Sources". The assessee claimed deduction of Rs.38,15,283/- under section 57, comprising various maintenance and administrative expenses. The AO held that no expenditure was incurred wholly and exclusively for the purpose of earning the said interest income. It was further held that the interest income earned on deposits with banks does not fall within the principle of mutuality, relying on the judgment of the Hon’ble Supreme Court in Bangalore Club v. CIT [(2013) 350 ITR 509 (SC)] and Totgars Co-operative Sale Society Ltd. v. ITO [(2010) 322 ITR 283 (SC)]. Accordingly, the AO disallowed the deduction of Rs. 12,95,860/- and assessed the same as taxable income.

3 3. The assessee challenged the assessment before the learned CIT(A) by filing appeal. However, the CIT(A) recorded that despite issuance of multiple notices dated 08.01.2021, 27.12.2024, and 07.01.2025 fixing hearings on 08.02.2021, 03.01.2025, and 13.01.2025 respectively, there was no compliance by the assessee. As a result, the appeal was decided ex parte and dismissed, observing that the assessee had not prosecuted the appeal and failed to submit any evidence or arguments in support of the grounds raised. The CIT(A) accordingly upheld the disallowance made by the Assessing Officer.

4.

Aggrieved by the order of CIT(A) the assessee is in appeal before us raising following grounds:

a. The Ld. CIT(A) erred in confirming the order of the AO making disallowance of claim of expenses u/s 57 to the extent of Rs.12,95,860/-. b. Any other ground which may be urged before or during the time of hearing of the appeal.

5.

During the course of hearing before us, the learned Authorised Representative (AR) submitted that the order passed by the CIT(A) is ex parte and has not dealt with the merits of the case. It was submitted that the notices issued during the appellate proceedings were not received by the assessee directly but were sent to the accountant’s email address mentioned in Form No. 35. Due to this lapse, the assessee could not make effective representation before the CIT(A). The learned AR submitted that the assessee has now compiled all necessary documents and is willing to pursue the appeal diligently if one 4 more opportunity is granted. It was further submitted that the issue regarding allowability of expenditure under section 57(iii) against interest income has been decided in favour of assessee by various benches of the Tribunal. The paper book filed by the assessee includes registration details of the society, audited financials, income computation, and extracts of judicial precedents.

The Departmental Representative raised no objection in restoring the matter back to the file of CIT(A).

6.

We have carefully considered the rival submissions, the material available on record. It is evident that the CIT(A) has passed the impugned order without adjudicating the appeal on merits. The order merely records non-compliance and proceeds to dismiss the appeal without analysing the facts or legal grounds. In our view, the interest of natural justice demands that the assessee be granted an opportunity to substantiate its claim before the CIT(A), particularly in light of the plea that non- compliance was due to communication lapses, and the assessee has now taken steps to furnish relevant documents and case law support.

7.

In such circumstances, without going in the merits of the case, we deem it appropriate to restore the matter back to the file of the CIT(A) for fresh adjudication on merits. The assessee is directed to appear before the CIT(A) and file all relevant submissions in support of its claim. The learned CIT(A) shall

8.

In view of the above discussion, the order of the CIT(A) is set aside, and the matter is restored to his file for fresh adjudication in accordance with law.

9.

The appeal of the assessee is allowed for statistical purposes.

Order pronounced in the Court on 1st May, 2025 at Ahmedabad.

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