Case Law Details
Adarsh Sahakari Ghar Bandhnari Mandali Ltd Vs ACIT (ITAT Surat)
The case involves Adarsh Sahakari Ghar Bandhnari Mandali Ltd, a co-operative housing society, which claimed expenses on internet subscription and Airtel subscription as deductions under Section 57 of the Income Tax Act for the assessment year 2013-14. The Assessing Officer disallowed the deductions, and the decision was upheld by the National Faceless Appeal Centre, Delhi (NFAC) or the Commissioner of Income Tax (Appeals) [CIT(A)]. The society appealed to the ITAT Surat.
The ITAT Surat considered the submissions made by the society, which argued that the expenses were incurred for the benefit of its members and should be allowed as deductions. However, the tribunal observed that Section 57 allows deductions only for expenses incurred solely for the purpose of earning the income and when there is a nexus between the expenses and the income. In this case, the tribunal found that such nexus was absent, and therefore, the expenses were not eligible for deduction.
Conclusion: The ITAT Surat dismissed the appeal of Adarsh Sahakari Ghar Bandhnari Mandali Ltd, upholding the disallowance of expenses on internet subscriptions and Airtel subscriptions under Section 57 of the Income Tax Act. The tribunal concluded that there was no merit in the society’s argument that the expenses were incurred for the benefit of its members, as there was no nexus between the expenses and the interest income earned by the society.
FULL TEXT OF THE ORDER OF ITAT SURAT
1. This appeal by assessee is directed against the order of National Faceless Appeal Centre, Delhi [for short to as “NFAC/ or Ld. CIT(A)”] dated 04.08.2022 for assessment year 2013-14, which in turn arises from the addition made by the Assistant Commissioner of Income-tax, Circle-1(1)(2), Surat / Assessing Officer in assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.02.2016. The assessee has raised the following grounds of appeal:-
“1. On the facts and circumstances of the case as well as law on the subject, the learned CIT(A), NFAC has erred in confirming the action of Assessing Officer in disallowing Rs.9,16,828/- u/s 57 of the I.T. Act, 1961.
2. On the facts and circumstances of the case as well as law on the subject, even otherwise there will be loss of Rs.9,16,828/-under the head ‘Income from other source’ if the expenses are treated as not deductible against interest income and same is available for set off against the interest income.
3. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of appeal.”
2. Brief facts are that assessee is a co-operative housing, filed its return of income for assessment year 2013-14 on 27.07.2013 declaring nil income. The case was selected for scrutiny. During assessment, the Assessing Officer noted that assessee claimed expenses of Rs.2,72,830/- on account of internet subscription and Rs.6,43,998/- on account of Airtel subscription. The assessee claimed such expenses under section 57 of the Act. The Assessing Officer was of the view that such expenses are not eligible for deduction under section 57 of the Act and made disallowance/ addition of aggregating of both the expenses of Rs. 9,16,828/-.
3. Aggrieved by the additions in the assessment order the assessee filed appeal before Ld. CIT(A). The appeal of assessee migrated before NFAC/Ld. CIT(A). Before NFAC/Ld. CIT(A) the assessee filed its submission as recorded in pages 7 to 9 of the order of NFAC/Ld. CIT(A). The assessee in its submission, submitted that expenses on internet subscription were incurred for the members as assessee is a mutual benefit society and such expenses were paid for the benefit of its members, who are directly related to the objects of the society and for benefit to members. So the internet subscription is allowable. Similarly, on Airtel subscription the assessee claimed being a mutual benefit society and expense was paid for the benefit of its members also. The assessee further explained that now-a-days it is common practice to provide such type of service to its members for providing facility to the members of the housing society and all ancillary services to its main object and assessee and prayed to allow such expenses.
4. The NFAC/Ld. CIT(A) after considering the submission of assessee held that Assessing Officer has correctly observed that such expenses are not covered under section 57 of the Act and does not require interfere with the action of Assessing Officer. Further aggrieved the assessee has filed present appeal before the Tribunal.
5. I have heard the submission of Ld. Authorized Representative (Ld. AR) for the assessee and Ld. Senior Departmental Representative (Ld. Sr-DR) for the Revenue. The Ld. AR for the assessee submits that assessee is a mutual association though, registered under the provision of Co-Operative Society Act. He has filed copy of receipt of Airtel TV/Dish TV charge for one year for 106 units @ 6000/- per unit and activation kit of Rs.999, aggregating of Rs.6,36,999/-. The Ld. AR for the assessee submits that assessee has also filed payment slip of Rs. 2,45,780/-paid to hathway Cable Operator. The Ld. AR for the assessee submits that both the expenses are allowable expenses as assessee is working for mutual association without any motive of earning. Interest income earned by the assessee is the only income, thus, such expenses are allowable expenses.
6. On the other hand, Ld. Sr-DR for the Revenue supported the order of lower authorities. The ld Sr DR for the revenue submits that only those expenses which were incurred for earning interest income can be allowed under section 57.
7. I have considered the submissions of both the parties and have gone through the orders of lower authorities carefully. I find that case of assessee claimed expenses of Rs.2,72,830/- on account of internet subscription and Rs.6,43,998/- on account of Airtel subscription under section 57 of the Act. The Assessing Officer disallowed by taking view that such expenses are not allowable under section 57. The ld CIT(A) confirmed the action of assessing officer with similar view. Before me, the ld AR for the assessee could not show any decision in his favour supporting his submissions, except arguing that such expenses were incurred for the benefits of its members. I am unable to accepts the submissions of the ld AR for the assessee. It is settled position of law that under section 57 (in the head ‘other source’), deduction is to be made in respect of expenditure incurred solely for the purpose of earning such income, provided the expenditure are not capital expenditure or personal in nature. To be more specific there should be some nexus between the expenditure incurred and the interest income. Such nexus is totally missing in the present case. Therefore, I do not find any merit in the grounds of appeal raised by the assessee.
8. In the result, the appeal of the assessee is dismissed.
Order pronounced on 05/06/2023 in open court.
