Case Law Details
The Bar Association City Civil Court Hyderabad Vs ITO (ITAT Hyderabad)
The assessee society appealed against the CIT(A)’s order dated 12.02.2026 arising from an assessment made under Sections 147, 144 and 144B of the Income-tax Act. The Assessing Officer initiated reassessment proceedings after noticing substantial financial transactions and non-filing of the return of income. As the assessee did not file its return despite notices under Sections 148 and 142(1), the AO completed the assessment on the basis of available records and determined the income at Rs.33,09,635, taxing it at the Maximum Marginal Rate (MMR) of 30%.
Before the Tribunal, the assessee contended that it was a society registered under the Societies Registration Act, 1860 and, therefore, although treated as an Association of Persons (AOP), it could not be subjected to tax at the Maximum Marginal Rate under Section 167B. The assessee also claimed credit of TDS amounting to Rs.1,00,547.
The Tribunal observed that the AO had computed tax at the Maximum Marginal Rate by treating the assessee as an AOP with indeterminate or unknown shares but had overlooked that the assessee was registered under the Societies Registration Act, 1860. During the hearing, the assessee produced its Registration Certificate dated 04.03.1972, evidencing registration with the Registrar of Societies, Hyderabad. The Tribunal held that, under Section 167B, the Maximum Marginal Rate was not applicable to such a registered society. It set aside the CIT(A)’s order and directed the AO to determine the tax liability at the rates applicable to an individual in accordance with law.
Regarding the claim for TDS credit of Rs.1,00,547, the Tribunal directed the AO to verify the claim and allow credit if it was found in order and the corresponding income had been deducted by the assessee in its return of income. The appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
The present appeal filed by the assessee society is directed against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (for short, “CIT(A)”), dated 12/02/2026, which in turn arises from the order passed by the Assessing Officer (for short, “AO”) under section 147 r.w.s 144 r.w.s 144B of the Income Tax Act, 1961 (for short, “the Act”), dated 08/03/2024. The assessee society has assailed the impugned order of the CIT(A) on the following grounds of appeal:
“1. On the facts and in the circumstances of the case, the order of the ld. CIT(A) is erroneous both on facts and in law and is passed in gross violation of principles of natural justice. The Id. CIT(A) failed to appreciate that the notices were not properly served on the appellant.
2. Without prejudice to the above, the Id. CIT(A) erred in sustaining the addition made by the AO of Rs.33,09,635 as income from other sources. The authorities below failed to appreciate that income was determined without allowing basic exemption limit of Rs.2,50,000 available.
3. The authorities below failed to appreciate that the appellant could not file return of income in response to the notice issued u/s.142(1) of the Act, as the option for filing was disabled.
4. The authorities below erred in not giving credit for TDS of Rs.1,00,547 while arriving to the demand.
5. The authorities below erred in not granting depreciation of Rs.7,30,511 u/s.32 of the Act.
6. Any other ground that may be urged at the time of hearing.”
2. Succinctly stated, the AO observed that as the assessee society during the subject year had carried out substantial financial transactions, viz., (i) cash deposits of Rs.10,00,000/- or more in its savings bank account with State Bank of Hyderabad, Gunfoundry Branch: Rs.58,52,943/-; and (ii) time deposits exceeding Rs.2,00,000/-with State Bank of Hyderabad, City Civil Court Branch: Rs.1,16,10,663/-, but had not filed its return of income for the subject year, initiated proceedings under section 147 of the Act. Thereafter, the AO passed an order under section 148A(d) of the Act, dated 20/03/2023. Notice under section 148 of the Act, dated 23/03/2023 was issued to the assessee society. However, the assessee society failed to furnish its return of income in compliance to the aforesaid notice. Ostensibly, as the assessee failed to comply with the notices under section 142(1) of the Act, it was called upon by the AO to explain as to why the assessment in its case be not framed to the best of his judgment under section 144 of the Act.
3. During the course of the assessment proceedings, the assessee society furnished its reply to some of the notices issued under section 142(1) of the Act.
4. The AO, on perusal of the details furnished by the assessee society and those gathered from the bank under section 133(6) of the Act, observed that it had during the subject year made cash deposits of Rs.1,16,10,663/-. As the assessee society had failed to come forth with any explanation regarding the source of the aforesaid investment aggregating to Rs.1,77,99,986/-, the AO called upon it to explain as to why the same may not be treated as having been sourced out of its unexplained money under section 69A of the Act. In reply, it was the claim of the assessee society that as the submission of return of income in response to notice under section 142(1) of the Act was disabled in its login credentials, it could not for the said reason furnish its return of income for the subject year. In response, the AO vide his letter, dated 20/02/2024 advised the assessee society to contact with e-filing portal, for filing its return of income for the year under consideration and also enclose its computation of income for the subject year, but the latter same failed to do the needful.
5. The AO observed that the assessee society, despite having been issued notice under section 148 of the Act, dated 23/03/2023 had failed to file its return of income in compliance thereto. However, it was observed that the assessee society had though submitted before him, financial statements, cash books, copies of bank statement, but failed to place on record the computation of income despite specific direction. Also, the assessee society had filed before the AO its receipt and payment account for the subject year. The AO in absence of computation of income computed the income of the assessee as per the details available on his record at Rs.33,09,635/-. Accordingly, the AO based on his deliberations vide his order under section 147 r.w.s 144 r.w.s 144B of the Act, dated 08/03/2024 determined the income of the assessee at Rs.33,09,635/-.
6. Aggrieved, the assessee society carried the matter in appeal before the CIT(A). As the assessee society, despite having been afforded sufficient opportunity, had failed to participate in the appellate proceedings, the CIT(A) finding no infirmity in the well-reasoned speaking order passed by the AO upheld the same and dismissed the appeal.
7. The assessee society, aggrieved with the order of the CIT(A) has carried the matter in appeal before us.
8. Shri AV Raghuram, Advocate, Learned Authorized Representative (for short, “Ld. AR”) for the assessee society, at the threshold of hearing of the appeal, submitted that both the authorities below had grossly erred in law and facts of the case in making/sustaining the addition of Rs.33,09,635/- under the head “income from other sources” without allowing the basic exemption limit of Rs.2.50 lakhs. The Ld. AR submitted that both the authorities below had grossly erred in saddling the assessee society with a tax liability determined at the Maximum Marginal Rate (MMR) and computing its tax liability (including interest) at Rs.9,92,892/-, i.e., at a flat rate of 30%. Elaborating on his contention, the Ld. AR submitted that as the assessee is a society registered under the Societies Registration Act, 1860 (21 of 1860), the same being an Association of Persons (AOP) was not exigible to tax at the Maximum Marginal Rate (MMR) as per the mandate of section 167B of the Act. The Ld. AR submitted that the chargeability to tax on the income of an AOP at the Maximum Marginal Rate (MMR) in a case where the individual shares of the members are indeterminate or unknown is not applicable in case of a society registered under Societies Registration Act, 1860 (21 of 1860). The Ld. AR to buttress his contention had taken us through section 167B(i) of the Act which clearly contemplates an exception to the applicability of the Maximum Marginal Rate in case of an Association of Persons (AOP) which is registered under the Societies Registration Act, 1860 (21 of 1860). The Ld. AR submitted that considering the aforesaid clear mandate of law, the tax liability on the assessee society be determined as per the normal rates of tax applicable in the case of an individual. Apart from that, the Ld. AR submitted that both the authorities below had also erred in not giving credit for tax deducted at source (TDS) of Rs.1,00,547/- while computing the tax liability.
9. Per contra, Shri Vamshi Krishna, Learned Senior Departmental Representative (for short, “Ld. Sr-DR”) relied upon the orders of the authorities below.
10. We have given thoughtful consideration to the contentions advanced by the Learned Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record.
11. Admittedly, it is a matter of fact discernible from the record that the income of the assessee society as computed by the AO at Rs.33,09,635/- had been subjected to tax as per the Maximum Marginal Rate (MMR) of 30%, i.e., Rs.9,92,892/-. Ostensibly, the AO while computing the tax liability in the case of the assessee society had treated it as an Association of Persons (AOP) wherein the individual shares of its members in the whole or any part of the income of such association was indeterminate and unknown. However, it transpires on a perusal of the record that though the AO had determined the tax liability of the assessee society per the mandate of section 167B of the Act, but while so doing he had lost sight of the fact the assessee society is registered under the Societies Registration Act, 1860 (21 of 1860). We find that as per section 167B of the Act, the chargeability to tax as per Maximum Marginal Rate (MMR) on the income of such Association of Persons (AOP) is, inter alia, not applicable in a case of a society registered under Societies Registration Act, 1860 (21 of 1860).
12. At this stage, we may herein observe that the Ld. AR for the assessee society during the course of the hearing of the appeal had stated at Bar that the assessee society is registered under the Societies Registration Act, 1860 (21 of 1860) and had stated that the Registration Certificate shall be placed on record. Thereafter, the Ld. AR has filed before us a Certificate of Registration of the assessee society, dated 04/03/1972, bearing Society Registration No.149/1972, which reveals that the assessee society is registered with Registrar of Societies, Hyderabad.
13. We thus, considering aforesaid facts are of firm conviction that there is substance in the Ld. AR’s contention that as the assessee society is registered with the Registrar of Societies, Hyderabad, the same could not be subjected to tax as per the Maximum Marginal Rate (MMR), as has been so done by the AO. We thus, set aside the order of the CIT(A) and direct the AO to determine the tax liability of the assessee society as per the rates applicable in the case of an individual, i.e., as per the extant law.
14. Apropos the Ld. AR’s claim that the AO had erred in not allowing the credit of the tax deducted at source (TDS) of Rs.1,00,547/-, we are of the view that as the same would require factual verification, the AO is directed to look into the said aspect and in case the claim of the assessee society is found in order and the income corresponding to the aforementioned amount of TDS had been deducted by the assessee society in its return of income, then credit of the aforesaid amount of tax deducted at source (TDS) be allowed to him.
15. In the result, appeal filed by the assessee society is allowed for statistical purposes in terms of our aforesaid observations.
Order pronounced in the open court on 17th June, 2026.
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