VIDYUT EMPLOYEES CO-OPERATIVE HOUSING SOCIETY,HYDERABAD vs. DCIT, CIRCLE-6(1), HYDERABAD, HYDERABAD

3 ITA.No.1878/Hyd./2025 DR and carefully perused the reasons explained by the assessee in the petition for condonation of delay and the affidavit of the Secretary of the assessee society. The limitation for filing the appeal was expiring in the month of October 2025 which is also the due date of filing the tax audit reports and therefore, I find the reasons explained by the assessee as ‘sufficient cause’ for the delay of 8 days in filing the present appeal before the Tribunal. Accordingly, the delay of 8 days in filing the appeal is condoned.

1. “On the facts and in the circumstances of the case, the order passed u/s 250 of the Act by the learned Commissioner of Income Tax, NFAC, Delhi (hereinafter referred as 'CIT(A)') dated 27/08/2025 for the AY 2018-19 is erroneous and bad in law.

3. On the facts and in the circumstances of the case and on legal/technical grounds, the order passed u/s. 148A(d) of the Act by the JAO for the A.Y. 2018-19 on 31.03.2022 bearing DIN & Notice No: ITBA/AST/F/148A/2021-22/1042358896(1), and the notice u/s 148 of the Act dated 31.03.2022 having DIN & Notice 4 ITA.No.1878/Hyd./2025 No: ITBA/AST/S/148_2021-22/1042359890(1) issued by the JAO instead of the Faceless A.O are contrary to the e-assessment of Income Escaping Assessment Scheme, 2022, read with CBDT notification no. 18/2022/F, No. 370142/16/2022-TPL dated 29- 03-2022. Thus, all proceedings emanating from such invalid notice, including the reassessment proceedings and the assessment order passed u/s 147 r.w.s 144B of the Act dated 13/03/2023 are bad in law, null & void and are liable to be quashed. Hence, the learned CIT(A) erred by confirming the income/additions made by the learned A.O in the invalid assessment order.

4. On facts and circumstances of the case, it is submitted the order passed u/s 148A(d) of the Act dated 31-03-2022 and notice u/s 148 of the Act dated 31-03-2022 are invalid and illegal as the same are contrary to the amended provision of Section 151A read with Section 144B of the IT Act. As per the said Section, the said notice(s)/orders must have been issued by the Faceless Assessing Officer ("FAO") and not by the Jurisdictional Assessing Officer("JAO"), as there is no concurrent jurisdiction of FAO and JAO to issue a notice/order under the Income Tax Act. As the impugned notice(s) must have been issued by the FAO, the issuance of the impugned notice(s) are void & illegal and, therefore, liable to be quashed. Hence, the learned CIT(A) erred by confirming the income/additions made by learned A.O in the invalid assessment order.

5. On the facts and in the circumstances of the case, the notice u/s. 148 of the Act dated 31-03-2022 issued by the Jurisdictional Assessing Officer (JAO) for the AY 2018-19 is invalid in law in view of the decision of the honourable jurisdictional High Court of Telangana in the case of (i) Kankanala Ravindra Reddy vide WP 25903/2022 reported in reported in [2023] 22 ITR-OL 728 (Telangana) & [2023] 156 taxmann.com 178 (Telangana) [14-09- 5 ITA.No.1878/Hyd./2025 2023] and (ii) Kotha Kanthaiah in W.P. no: 344 of 2025 vide order dated 24.02.2025, and also (iii) the Honourable Bombay High Court in the case of Hexaware Technologies Ltd. v. ACIT [2024] 464 ITR 430 (Bombay) [03-05-2024]; wherein it has been held that as per the amended provisions, w.e.f. 1.4.2021 notices u/s 148 of the Act can be only given by the Officers of the faceless assessment unit, and as such the notice u/s 148 of the Act issued by the JAO, being the Assistant Commissioner of Income-tax, Circle-6(1), Hyderabad is without jurisdiction. Hence, the learned CIT(A) erred by confirming the income determined/additions made by the learned A.O. by way of an invalid assessment, which needs to be deleted.

6. On the facts and in the circumstances of the case, the learned CIT(A) erred by upholding the assessment erroneously completed by the learned A.O u/s 147 r.w.s 144B of the Act for the AY 2018- 19 by determining the total income at Rs.34,33,216/- (being the income admitted of 30,92,494/- and an addition of Rs.3,40,494/- incurred by the assessee/appellant towards watch and ward, legal and other administrative expenses).

7. In the alternative, on the facts and in the circumstances of the case, the learned CIT(A) erred by upholding the erroneous addition of Rs.3,40,494/- incurred by the assessee/appellant towards watch and ward, legal and other administrative expenses, and hence, the same needs to be deleted.

8. On the facts and in the circumstances of the case, the learned A.O erred by determining the tax payable at Rs.11,06,642/- by erroneously charging tax at the maximum marginal rate (tax of Rs.8,67,740/- and interest of Rs.5,79,491/- and after reducing TDS of Rs.3,40,589/-. The learned A.O further erred by not giving credit to the self-assessment tax of Rs.8,45,600/- paid on 8/4/2022. Hence, the tax demand needs to be re-worked.

6 ITA.No.1878/Hyd./2025 9. On the facts and in the circumstances of the case, the Hon. Commissioner of Income Tax (Appeals) is requested to admit additional grounds/evidence, if any, as per the decision of the honourable Supreme Court in the case of NTPC vs. CIT (229 ITR 383) and consider the same in the interest of justice.

10. The assessee is a Cooperative Housing Society and was formed with the object of construction of houses for the members of the assessee society who are the employees of the power sector of the combined State of Andhra Pradesh. The assessee did not file any return of income u/sec.139 of the Act. On the basis of the information received regarding the interest income received by the assessee, the Assessing Officer reopened the assessment by issuing notice u/sec.148 of the Act dated 31.03.2021. In response to the said notice, the assessee filed its return of income declaring total income of Rs.30,92,722/-. During the assessment proceedings, the Assessing Officer noted that the assessee has claimed deduction of Rs.3,40,494/- against the interest income of 8 ITA.No.1878/Hyd./2025 Rs.34,33,216/-. Accordingly, the Assessing Officer issued show cause notice to the assessee regarding the allowability of the said claim of deduction with supporting evidence. In response, the assessee filed its reply. The Assessing Officer while passing the assessment order u/sec.143(3) r.w.s.147 of the Act dated 13.03.2023 has made an addition of Rs.3,40,494/- on account of disallowance of the claim of expenditure against the interest income. The assessee challenged the action of the Assessing Officer before the learned CIT(A) but could not succeed.

9 ITA.No.1878/Hyd./2025 Aggrieved by the Judgment of the Hon’ble High Court, the Government filed writ appeal which is pending for adjudication. However, during the pendency of the case before the Hon’ble High Court, the Government of Andhra Pradesh issued G.O.No.166 dated 16.02.2008 issuing order for transfer of unassigned Government land to the individuals on payment basis as per the value of the land as on 31.12.2023. The assessee with an intention to bring the litigation to an end collected the amount from its members towards the payment of the amount to the Government as per G.O.No.166 dated 16.02.2008 but the Government again stalled to implement the orders issued in G.O.No.166. Hence, the assessee society had no option but to keep the money collected from the members in the bank account with a view to meet the expenditure towards legal expenses to fight the case, development work and to meet day-to-day work expenses. The assessee has earned interest from the fixed deposit made with the State Bank of India against which, the assessee has claimed the expenses incurred by the assessee towards watch and ward charges, GB expenses, Postage,

10 ITA.No.1878/Hyd./2025 Bank charges, Election expenses, Conveyance, Remuneration to IT Consultant, Stationery, Electricity charges and audit fees. Thus, the learned Authorised Representative of the Assessee has submitted that all these expenses which were claimed by the assessee against the interest income are day-to-day expenditure incurred on the establishment of the society and to discharge the statutory obligation of holding Annual General Body meeting, election as well as watch and ward of the asset and properties of the society. These are general administrative expenses which are deductible against the only income of the assessee society from interest on deposits and therefore, the assessee has declared the correct income. The accounts of the assessee are audited by the statutory Auditor. Therefore, the expenditure incurred by the assessee for general administration as well as the statutory compliance are allowable. In support of his contention, he has relied upon decision of ITAT, Ahmedabad in the case of The Venus Parkland Co-Op Housing Service Society Ltd., vs. ITO, Ward-3(3)(5), Ahmedabad in ITA.No.1039/Ahd./2023, Order dated 07.08.2024.

11 ITA.No.1878/Hyd./2025 12. On the other hand, the learned DR has submitted that all these expenses claimed by the assessee are not incurred for earning the interest income in question which was declared by the assessee as income from other sources. Therefore, the claim of the assessee is not allowable as per the provisions of sec.57 of the Act. He has referred to the finding of the Assessing Officer as well as the learned CIT(A) and submitted that the Assessing Officer has examined all these facts and the claim of the assessee and found that the same is not allowable against the interest income. Thus, the learned DR has relied upon the Orders of the authorities below.

“3.8 Conclusion drawn: In view of the above facts discussed in para no.3.4, it is seen that there were some court cases opened in High Court against the title ship of land of assessee society. To meet court and other miscellaneous expenses on account of litigation procedure, the assessee had collected some amount from its members Further assessee has deposited a sum which collected from its members in their bank as fixed deposit. During the year under consideration, assessee has kept their aforesaid collected money of Rs.5,00,16,607/- in fixed deposit and on the same fixed deposit assessee earned interest of Rs.34,22,005/- as on 31.03.2018. The same income was offered by the assessee in its return of income u/s.148 of the I.T. Act dated 09.04.2022 and paid tax accordingly. But while offering total interest income of Rs.34,33,216, assessee has claimed deduction of Rs.6000/- towards watch and ward charges and other item of Rs.3,34,494/- aggregating to Rs.3,40,494/-. In response to show cause notice dated 13.02.2023, assessee has submitted its reply on 06.03.2023 with submitting copies of ledgers of various expenses which are not related to interest income. Since the expenses of Rs.3,40,494/- claimed by assessee against interest income are not acceptable and the same is added under the head income from other sources. Penalty proceeding u/s.270A of the I.T. Act is initiated for underreporting of income.”

13 ITA.No.1878/Hyd./2025 13.1. Thus, the only reason for making the disallowance of these expenses by the Assessing Officer is that these are not incurred for earning the interest income or related to the interest income. There is no dispute that these expenses claimed by the assessee were incurred towards the establishment of the assessee society and keeping the assessee society in existence and alive by holding elections and General Body meetings in compliance with the Cooperative Societies Act. Further, since the expenses are incurred towards the establishment of the assessee society, therefore, theses expenses are not incurred for any other purpose than keeping the assessee society alive and to work towards objects and purpose of the assessee society of making available the housing accommodation to its members. Even otherwise, these expenses are considered as incurred towards the business activity of the assessee society, then, the income from the business of the assessee society would be net loss of Rs.3,40,494/- and as per the provisions of sec.71 of the Act, the same is eligible to set off against the income of any other head including the income

14 ITA.No.1878/Hyd./2025 from interest. Accordingly, I find substance in the assessee’s claim that only the net and real income has to be assessed to tax. The Ahmedabad Bench of the Tribunal in the case of The Venus Parkland Co-Op Housing Service Society Ltd., vs. ITO, Ward-3(3)(5), Ahmedabad (supra), has considered an identical issue in Para nos.7 to 7.1 as under:

“7. We have given our thoughtful consideration and perused the materials available on record. It is seen from Page No. 7 of the Paper Book namely Profit and Loss account for the year under consideration, income earned by way of interest on bank Fixed Deposits as well as Rent Receipt charges on Community Hall Charges, Festival Charges Income, Other Misc. Income have been applied for the maintenance of the property namely Electrical Expenses, House Keeping Charges, Repair & Maintenance of Bore well, Lift Maintenance, Road Repairing Expenses, Repairing and Maintenance of Plumbing works, Security Charges, Water Tank Cleaning expenses, etc. for the residential property of Venus Parkland'. Thus the net surplus shown by the assessee is Rs.4,64,486/-. Thus the income earned from various sources have been spent for the maintenance and up-keepment of the residential premises of 'Venus Parkland'. Thus the interest income earned from fixed deposits is directly linked with the activity of maintenance of the Society. Further this interest income certainly reducing the burden of contribution for maintenance by the Member of the Society. Therefore, we do not find any justification by the Lower Authorities denying the benefit to the assessee simply on the ground that the assessee shown the Bank interest income

15 ITA.No.1878/Hyd./2025 under "other sources". Therefore the assessee Society has rightly set off the interest income against the income of the assessee Society. Thus the addition made on this account is liable to be deleted. This view of ours is supported by the judgment of the Apex Court in the case of Venkatesh Premises Co-operative Society Ltd. (cited supra) wherein it was held as follows:

"...14. The doctrine of mutuality, based on common law principles, is premised on the theory that a person cannot make a profit from himself. An amount received from oneself, therefore, cannot be regarded as income and taxable. Section 2(24) of the Income Tax Act defines taxable income. The income of a co-operative society from business is taxable under Section 2(24)(vii) and will stand excluded from the principle of mutuality. The essence of the principle of mutuality lies in the commonality of the contributors and the participants who are also the beneficiaries. The contributors to the common fund must be entitled to participate in the surplus and the participators in the surplus are contributors to the common fund. The law envisages a complete identity between the contributors and the participants in this sense. The principle postulates that what is returned is contributed by a member. Any surplus in the common fund shall therefore not constitute income but will only be an increase in the common fund meant to meet sudden eventualities. A common feature of mutual organizations in general can be stated to be that the participants usually do not have property rights to their share in the common fund, nor can they sell their share. Cessation from membership would result in the loss of right to participate without receiving a financial benefit from the cessation of the membership."

16 ITA.No.1878/Hyd./2025 7.1. Respectfully following the judicial precedents, the Ground Nos. 1,2,4,5 and 6 raised by the assessee are allowed in favour of the assessee. Therefore the addition on account of interest income earned on fixed deposits from Banks and rental income earned by the Society are eligible to set off of maintenance expenses.”

13.2. Accordingly, in the facts and circumstances of the case as discussed above, the claim of deduction of Rs.3,40,494/- is allowed and the addition made by the Assessing Officer on this issue is deleted.

18 ITA.No.1878/Hyd./2025 Officer has given the credit of TDS amount of Rs.3,40,589/- only and has not given any credit on account of self-assessed tax. The computation sheet prepared by the Assessing Officer is placed at Pages-39 to 41 of the paper book is as under:

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21 ITA.No.1878/Hyd./2025 17.1. Thus, it is clear from the computation sheet of the Assessing Officer that he has committed a mistake in not allowing the credit of self-assessed tax which was paid by the assessee at the time of filing the return of income. Accordingly, the Assessing Officer is directed to verify this claim of the assessee and then allow the same.