UTTAR PRADESH DIPLOMA ENGINEERS MAHASANGH,LUCKNOW vs. DY/ASSISTANT COMMISSIONER OF INCOME TAX-1, LUCKNOW

Alternate Ground:

5. Without prejudice , the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in law and on facts and circumstances of the case in not allowing the credit of Loss arising from activities of the appellant ( u/s 28) against the interest income (u/s 56), within the meaning of section 71 of the I. T. Act.” (A.Y. 2018-19)

“1. That the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in law and on facts and circumstances of the case in enhancing the Income of the appellant by an amount of Rs.25,14,082/- by treating the Interest Income Earned on Fixed deposits as income from other sources instead of income from the main activities of the appellant.

2. That the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in law and on facts and circumstances of the case in enhancing the Income of the appellant by an amount of Rs.25,14,082/- without appreciating the fact that the bylaws of the appellant institution duly mandate the investments of receipts in fixed deposits, thereby running the day-to-day activities of the institution out of the interest earned on such fixed deposits .

3. That the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in law and on facts and circumstances of the case in not understanding that this is not the case where the appellant had invested surplus funds in fixed deposits and earned interest, instead it is case where the majority part of the receipts are invested in fixed deposits and the day to day activity is carried out from the interest earned by the appellant, hence the expenses incurred are fully allowable against interest income.

4. That the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in law and on facts and circumstances of the case in disallowing the total expenses Rs.25,29,305/- without understanding that the said expenses were incurred towards the activities of the appellant organization.

Alternate Ground:

“1. That the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in law and on facts and circumstances of the case in enhancing the Income of the appellant by an amount of Rs.26,73,720/- by treating the Interest Income Earned on Fixed deposits as income from other sources instead of income from the main activities of the appellant.

Alternate Ground:

5. Without prejudice , the Learned Commissioner of Income Tax (Appeals), NFAC, Delhi has erred in law and on facts and circumstances of the case in not allowing the credit of Loss arising from activities of the appellant ( u/s 28) against the P a g e | 5

interest income (u/s 56), within the meaning of section 71 of the I. T. Act.”

(A.1) These appeals have been filed by the assessee, beyond time limit prescribed under section 253(3) of IT Act. The assessee has submitted applications, duly supported by affidavits, for condonation of delay in filing of these appeals pleading that the delay was unintentional and beyond the control of the assessee and has requested to admit the appeals for hearing. The learned Sr. Departmental Representative for Revenue did not express any objection to assessee’s application for condonation of delay in filing of the appeals. In view of the foregoing, and in specific facts and circumstances of the present appeals before us, the delay in filing of these appeals is condoned; and the appeals are admitted for hearing. first. The assessment order dated 15/02/204 was passed u/s 147 read with section 144B of the Act whereby the assessee’s total income was determined at Rs.34,23,910/- as against returned income of nil. The assessee’s appeal was partly allowed by the learned CIT(A) vide impugned appellate order dated 18/09/2024. The present appeal has been filed by the assessee against the aforesaid impugned appellate order dated 18/09/2024. In the present appeal, all the grounds pertain to the issue regarding the head of income under which the interest income amounting to Rs.23,78,296/- is to be assessed. While the assessee showed this income under income & expenditure account, the learned CIT(A) classified this amount as income under the head income from other sources. Further no expenditure was attributed by the learned CIT(A) to the earning of the aforesaid interest income. Moreover, the expenditure claimed by the assessee under income & expenditure account were not allowed by the learned. This resulted in enhancement of assessee’s income by the aforesaid

P a g e | 6 amount of Rs.23,78,296/- vide aforesaid impugned appellate order of the learned CIT(A).

(B.1) In the course of appellate proceedings in Income Tax Appellate Tribunal, a paper book containing the following particulars was filed from the assessee’s side:

(B.2) The aforesaid paper book contained copies of written submissions dated 04/09/2024, 15/07/2024 and dated 18/06/2024 filed by the assessee in the office of the learned CIT(A). For the purpose of resolving the controversy in the present appeal before us, the aforesaid written submissions dated 15/07/2024 are relevant and are reproduced below:

P a g e | 8 (C) At the time of hearing, learned A.R. for the assessee submitted that the only income of the assessee was by way of interest income (aforesaid amount of Rs.26,73,720/-) earned by depositing the contribution received from the members of the assessee association, in bank. The interest so earned is used for running the expenses of the association. He further submitted that the contribution received from the members by way of enrollment fee, is treated by assessee as capital receipt, and forms the corpus of the assessee association. Further, he submitted, the membership fees received is also treated by the assessee as capital receipt, and forms the corpus of the assessee association. The amount in the corpus is being treated as capital receipt in the books of account of the assessee and is reflected in the balance sheet and not in Income and Expenditure Account; he submitted. In view of P a g e | 9 the foregoing, he submitted that there was no justification on the part of the learned CIT(A) to attribute different heads of income for interest income and for the expenses of the assessee association. Both expenses as well as income are to be assessed under the same head of income, he submitted. He referred to the aforesaid written submissions dated 15/07/2024 (referred to in foregoing paragraph B.2 of this order) and placed reliance on this.

(D) Learned Departmental Representative submitted that the assessee’s claim that contribution received from the members of the assessee by way of enrollment fee and membership fees are capital receipts and need to be verified at the level of the Assessing Officer. He also submitted that the assessee’s claim that the income by way of interest from bank deposit as well as expenses claimed in income and expenditure account should be considered under the same had of income, is also required to be verified at the level of the Assessing Officer.

(E) We have heard both sides. We have perused materials on record. It is found that the method of accounting adopted by the assessee by treating enrollment fee and membership fee from members of the assessee association, as capital receipts, forming part of the corpus, has not been considered or examined either by the Assessing Officer or by the learned CIT(A). Further it is found that in the aforesaid written submissions dated 15/07/2024 (referred to in foregoing paragraph B.2 of this order) the assessee has specifically submitted that the enrollment fee, forming part of the corpus fund of the association, was not considered by the learned CIT(A) in the impugned appellate order and has escaped his attention. Moreover, the claim of the assessee that the interest income from bank deposit as well as expenditure claimed in income and expenditure account should be P a g e | 10 considered under the same head of income has also not been examined either by the Assessing Officer or by the learned CIT(A). In view of the foregoing, the impugned appellate order of the learned CIT(A) is set aside and the dispute raised in the present appeal is restored to the file of the Assessing Officer with the direction to pass de novo order on the specific issues in accordance with law after providing reasonable opportunity to the assessee. Moreover, the Assessing Officer is also directed to examine the claim of the assessee (by way of alternate ground no. 5 of the appeal) to allow set off; and pass suitable order in accordance with law after providing reasonable opportunity to the assessee in case the Assessing Officer takes the view that the assessee’s interest income from bank deposit and expenses claimed under income & expenditure account are to be considered under different heads of income.

(F) The facts in respect of appeals in & 427/Lkw/2025 are similar to the facts of aforesaid appeal . The facts being same in pari materia, the appeals vide and are also restored to the file of the Assessing Officer with the same direction as the same reasoning will apply mutatis mutandis in these two appeals also.

(G) In the result, all the appeals are partly allowed for statistical purposes.

(Order pronounced in the open court on 05/02/2026)