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TMI Blog2024 (8) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... ned AO in making an addition of Rs. 14,60,191/- in relation to the expenses claimed by the Appellant against the income that it earned u/s 57 of the Act. 2 Alternatively and without prejudice to the above, expenses may kindly be allowed u/s 37 of the Act. 3 Learned CIT(A) has erred in law and on the facts of the case in confirming the action of learned AO in not appreciating various evidences and submissions placed on record. 4 Learned CIT(A) has erred in law and on the facts of the case in charging interest u/s 234/B/C/D of the Act. 5 Your appellant craves liberty to add, to alter, to modify, to amend or to withdraw / delete any of the grounds of appeal at any time, on or before the hearing of appeal." 3. The brief facts of the case are that the assessee filed its return of income on 20.03.2018, declaring total income of Rs. 23,520/-. The return of the income was processed by Revenue u/s. 143(1) of the 1961 Act. The case of the assessee was selected for framing limited scrutiny assessment under CASS. Statutory notices u/s. 143(2) and u/s. 142(1) were issued by the AO to the assessee, which were claimed by the AO to have been duly served on the assessee. During the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and entire addition made by the A.O. was deleted by ld. CIT(A). The AO also observed that Hon'ble CIT(A)-3, Ahmedabad has decided appeal in the favour of department on similar issue in the case of Parisar Co-operative Housing Society Limited. The A.O. observed that the interest income earned by assessee on FDR with Nationalized Bank and saving bank interest are also not covered with mutuality, as these are accretion to the surplus fund or maintenance deposit parked with banks. The said interest is generated on the investment of such funds is not an income which is received from the Members of the assessee but from third parties such as the banks with whom the funds are invested. Thus, these income do not fulfill the condition of mutuality, and hence interest income earned by the assessee from the banks will not fall within the ambit of the mutuality principles and would therefore, be chargeable to tax in the hands of the assessee. The A.O. also relied upon decision of Hon'ble Supreme Court in the case of Bangalore Club v.. CIT (2013) 29 taxmann.com 29 (SC). The AO observed that the assessee has itself shown interest income of Rs. 14,60,191/- as interest income by way of income f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meters "laid out or expended wholly and exclusively for the purpose of making or earning such income". It is well settled that the assessee must have incurred expenditure for the purpose of earning income from other sources; this is the condition precedent for allowing deduction under section 57 (iii) of the Act. In other words, it is incumbent upon the assessee claiming the said expenditure to establish nexus between the expenditure and income and in the absence of the same, the assessee is not entitled to the claim of expenditure under section 57(iii) of the Act. For determining the applicability of section 57(iii) of the Act what has to be seen is the purpose of expenditure and the purpose must be for earning the income. The link is between expenditure incurred and income earned. To be eligible for deduction under section 57(iii) of the Act, expenditure incurred should be linked to earning of income. 6.6. The Hon'ble Supreme Court in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 had observed as under:- "What section 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. Accordingly, the disallowance made in the assessment is confirmed, 7. In the result, the appeal is dismissed. 5. Still aggrieved, the assessee has now filed second appeal with the Tribunal, and the Ld. Counsel for the assessee submitted that the assessee is a Co-operative Housing Society. It was submitted that the assessee incurs maintenance expenses for maintaining the society under various heads, and the assessee collects maintenance charges from its members. The ld. Counsel for the assessee submitted that the assessee received interest from FDR with Nationalized Bank as well as rental income was received from Hutch from letting out of common terrace to Hutch(now Vodafone). The assessee has filed its copy of Audited Income and Expenditure account(placed on record in file), and it was submitted that the assessee has incurred total expenses under various heads towards maintenance of the housing society aggregating to Rs. 27,34,671/-, while the total receipts are to the tune of Rs. 28,08,191/- which included general maintenance of Rs. 11,13,600/- collected from its members, maintenance income of Rs. 65,000/- collected from tenants, paid parking of Rs. 1,07,000/-, other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd perused the material on record. I have observed that the assessee is a Co-operative Housing Society engaged in maintaining and upkeep of Residential Housing Society consisting of 80 residential flats constructed by it for its Members. The assessee filed its return of income on 20.03.2018, showing total income of Rs. 23,520/-. During the course of assessment proceedings, the A.O. observed that the assessee is Co-operative Housing Society, its main activity is to collect maintenances charges from all the members and spend the said amounts for meeting of the common expenses of society maintenances and that there is no business activity carried out by the assessee. The assessee has also received FDR interest Rs. 3,82,193/- and received rental income(net) of Rs. 10,62,390/- from letting out of common terrace to Hutch(now Vodafone), Interest From Member of Rs. 3,580/-, the saving bank interest income of Rs. 4,727/- and Torrent Interest income of Rs. 7,301/-. There were income received from Members towards General maintenance to the tune of Rs. 11,13,600/-, Paid Parking of Rs. 1,07,000/-, Tenant Maintenance income of Rs. 65,000/- and income from Transfer Fee of Rs. 40,000/-. The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 50,000/- and offered balance amount of Rs. 23,520/- for taxation. If the other incomes by way of rental and interest income are excluded, there is a deficit of Rs. 13,86,671/- being excess of common expenses incurred by the assessee for maintenance and upkeep of the housing society over the collection from members towards maintenance expenses. There are no surplus in the instant case if the receipts from Members towards maintenance of housing society are corelated with the common expenses incurred by the housing society for maintaining the housing society, and rather there is a deficit of Rs. 13,86,671/-, if interest income and rental incomes are excluded. The assessee has arranged its affairs in the manner that it has kept its regular maintenance charges recoverable from Members towards maintaining housing society at the lower levels, while deficit on account of excess of common maintenance expenses for maintaining housing society over maintenance charges recovered from its members are sought to be recovered from interest and rental income, and it could not be said that this arrangement of affairs are so organized by the assessee as an tax avoidance measure to evade taxes or to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors. So far its collection from members of maintenance charges falling short of incurring of expenses for maintaining the housing society is concerned, there is a deficit of Rs. 13,86,671/- w.r.t. this source of income. In the instant case, the interest income as well rental income has a nexus and attributability with the conduct of affairs of the housing society, as the interest income has mainly arisen from the interest free deposit raised from its members which stood invested in FDR with banks as well rental income is also from letting of common terrace area of the housing society itself, and further that the proceeds of interest income as well rental income are also utilized for furtherance of the main objects of the society i.e. the maintaining the housing society for the benefit of the Members, as could be seen that there is only net surplus of Rs. 73,520/-, of which Rs. 73,520/- has been offered to taxation after claiming deduction u/s 80P(2)(c)(ii). Thus, in my view in the instant case based on peculiar factual matrix as is emerging from the records, I do not find any bar of set off of deficit arising from shortfall in collection from its members towards maintenance of soc ..... 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