Income Tax Appellate Tribunal - Ahmedabad
The Orchid Harmony Co Operative Housing ... vs The Ito, Ward-3(1)(1), Ahmedabad on 24 April, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH
Before: DR. BRR Kumar, Vice President
And Shri T. R. Senthil Kumar, Judicial Member
ITA No: 1258/Ahd/2025
Assessment Years: 2018-19
The Orchid Harmony Income Tax Officer
Co-opertive Housing Ward-3(1)(1),
Service Society Ltd. Vs Ahmedabad
Society Office,
Orchid Harmony,
Apple Wood To Shela
Ahmedabad-380058
Gujarat
PAN: AADAT7927M
(Appellant) (Respondent)
Assessee Represented: Shri Mehul Thakkar, A.R.
Revenue Represented : Shri Rameshw ar P Meena, Sr.D.R.
Date of hearing : 11-02-2026
Date of pronouncement : 24-04-2026
आदे श/ORDER
PER: T.R. SENTHIL KUMAR, JUDICIAL MEMBER This appeal is filed by the Assessee as against appellate order dated 17-03-2025 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as "CIT(A)"), arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') relating to the Assessment Year 2018-19.
I.T.A No. 1258/Ahd/2025 A.Y. 2018-19 2The Orchid Harmony Co.op. Housing Service Society Ltd. Vs. ITO
2. Brief facts of the case the appellant is a cooperative group housing society filed return of income for the Asst. Year 2018-19 belatedly u/s. 139(4) of Act on 09.03.2019. The assessee had disclosed receipts of Rs.1,72,14,082/- u/s. 56 of IT Act under the head "Income from other sources" and claimed the same amount of Rs.1,72,14,082/- as deduction u/s.57 of the Act. Under the receipts, the appellant disclosed interest receipts of Rs.72,96,114/- and other receipts such as maintenance receipts from society members and miscellaneous receipts from the members. The interest income receipts included interest receipts of Rs.42,50,635/-from fixed deposits with Banks, interest income of Rs.29,26,709/- from M/s. Applewood Estate P Ltd., interest on maintenance charges from members amounting to Rs.1,18,436 and interest on income tax refund of Rs. 334/-. Since the appellant has not filed its Return of income within prescribed due date u/s 139(1) of the Act, the AO invoked the provision of 80AC of IT Act and assessed the income Rs.71,77,678/- under the head Income from other sources.
3. Aggrieved against the assessment order, assessee filed an appeal before Ld. CIT(A) who dismissed the appeal on merits of the case by observing as follows:
"... ... In the course of the appellate proceedings, the appellant submitted that the operations of the assessee housing society are governed by the concept of mutuality, hence every income earned by it is outside the scope of the income tax Act. Appellant submitted that interest income earned by the cooperative society cannot be brought to tax u/s 56 of IT Act under the head "Income From Other Sources" on the ground that a charge had been created on the interest income earned from banks and Applewood Estate P Ltd to the extent that it was to be used for maintenance expenses of the assessee society.I.T.A No. 1258/Ahd/2025 A.Y. 2018-19 3
The Orchid Harmony Co.op. Housing Service Society Ltd. Vs. ITO 6.1. The appellant had earned FD interest of Rs.42,50,635/- from Bank and interest income of Rs.29,26,709/- from Apple Wood Estate P Ltd and interest on income tax refund Rs.334/- which are not a member, hence AO has rightly added the income u/s. 56 of the Act as income from other sources, since this is not interest from cooperative society. Further expenditure incurred for administration of the society has been debited against the above income by the appellant. However, on perusal it is seen that the said expenditure is not incurred wholly and exclusively for earing the above interest income. The appellant is trying to adjust the expenses of society against interest income, hence this expenditure is not allowable. The AO has rightly added the said interest income under the head income from other sources and disallowed the claimed for expenditure.
Therefore, in the absence of any reasonable, cogent and valid evidences/arguments/contentions advanced by the appellant the order passed by the AO is upheld.
............
Thus, from the above it is quite evident that for claiming deduction under section 80P of the Act, the law mandates every assessee to file return of income from 01st April. Act.
The provisions of Section 80A(5) of the Act for the year under consideration reads as under-
"(5) Where the assessee fails to make a claim in his return of income for any deduction under section 10A or section 10AA or section 108 or section 10ΘΑ or under any provision of this Chapter under the heading 'C-Deductions in respect of certain incomes, no deduction shall be allowed to him thereunder."
It is clear from the above section that for claiming deduction under Chapter VIA under the head, "Deductions to be made in computing total income, which covers section 80P also, the appellant has not filed return of income u/s 139(1) within stipulated time. However the appellant in the present case filed return of income u/s 139(4) of the Act, therefore the appellant is not eligible for deduction u/s. 80P of the Act.
I.T.A No. 1258/Ahd/2025 A.Y. 2018-19 4The Orchid Harmony Co.op. Housing Service Society Ltd. Vs. ITO Reliance is placed on the judgment of Hon'ble Kerala High Court in the case of Nageshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT [2023] 152 taxmann.com 347 (Kerala) wherein the Hon'ble Court held that without a valid return of income, deduction u/s 80P cannot be allowed.
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Further reliance is also placed on the judgment of the Hon'ble Apex Court in the case of Dilip Kumar & Co. AIR 2018 SC 3606 wherein the Hon'ble Apex Court held that in taxing statute one has to look merely what is clearly said and that there is no room for intendment or presumption. It has further been observed by the Hon'ble Apex Court that in an exemption clause strict interpretation of the statute should be done to ensure that the exemption squarely falls within the parameter enumerated and satisfies all conditions precedent for availing the exemption.
6.3. Respectfully following the above judgments, it is held that appellant is not eligible for deduction u/s. 80P of the Act as the return was not filed within the time stipulated u/s 139(1). Therefore, in the absence of any reasonable cogent and valid evidences/arguments/contentions advanced by the appellant in the instant appeal to counter the AO's decision, I am unable to interfere with the action of the Assessing Officer. The order of the AG is upheld. Therefore, all the grounds raised by the appellant in the present appeal are dismissed."
4. Aggrieved against the appellate order, the assessee is in appeal before us raising the following Grounds of Appeal:
1. The Ld. CIT(A) has grievously erred in law and on fact in not accepting the contention of appellant that once the assessee society is governed by the concept of mutuality, every income earned by it is outside the scope of the Income Tax Act regardless of the head of income under which it falls.
2. The Ld. CIT(A) has grievously erred in law and on fact in not accepting the contention of the appellant that interest income cannot be taxed under section 56 of the Act because the same has been diverted by overriding title.I.T.A No. 1258/Ahd/2025 A.Y. 2018-19 5
The Orchid Harmony Co.op. Housing Service Society Ltd. Vs. ITO
3. The Ld. CIT(A) has grievously erred in law and on fact in upholding the addition of interest income of Rs. 42,50,635/- from Fixed Deposits, interest income of Rs. 29,26,709/-from M/s. Applewood Estate P. Ltd and interest on income tax refund of Rs. 334 under section 56 of the Act.
4. The Ld. CIT(A) has grievously erred in law and on fact in upholding the view of the AO that the appellant is not entitled to the deduction of maintenance expenses Rs.71,77,678/-under section 57 of the Act.
5. The Ld. CIT(A) has grievously erred in law and on fact in confirming the action of AO of not granting deduction under section 80P of the Act in respect of interest income of Rs.42,50,635/-received from Kalupur Commercial Co-operative Bank Ltd.
6. The appellant craves leave to add, alter, amend, or withdraw any of the above grounds of appeal at the time of hearing, and further reserves the right to raise any additional ground that may be considered necessary in the interest, of justice.
5. We have given our thoughtful considerations and perused the materials available on record including Paper Book filed by the assessee.
5.1 Ground No.1: The assessee submits that this ground relating to applicability of the Principle of Mutuality is NOT PRESSED in view of the judgment of the Hon'ble Supreme Court in Secunderabad Club vs. CIT (2023) 457 ITR 263 (SC), wherein it has held that income derived from non-members would not fall within the ambit of mutuality. Recording the above submission, Ground No. 1 raised by the assessee is hereby dismissed.
6. Regarding Ground Nos. 2 & 3 namely the interest of Fixed Deposit of Rs.42,50,635/- and interest income of Rs. 29,26,709/- from M/s. Applewood Estate Pvt. Ltd. not to be taxed, since the same has been diverted by overriding title.
I.T.A No. 1258/Ahd/2025 A.Y. 2018-19 6The Orchid Harmony Co.op. Housing Service Society Ltd. Vs. ITO 6.1 The assessee claims that the interest income has arisen from the maintenance deposits collected from its members of the society which were deposited in the bank under society maintenance and township development. The deposits were collected specifically for the purpose of meeting maintenance and common expenses of the society and the township. Therefore, the interest earned on such deposits is intrinsically linked with the maintenance activity of the society and township. In this regard, Ld. Counsel drawn our attention to the registered Sale Deed entered between the developer and the Buyer (members of the society) of the land, more particularly Clause 4 of the registered Sale Deed which reads as under:
"4. It is hereby agreed by the Purchasers that as owners of said Property in pursuance of this deed they shall deposit with the said Service Society, maintenance deposit of Rs. 35/- per sq. ft. on super built up area basis. Subsequently the Purchasers, shall also pay such amount as may be decided by -the said Service Society for running maintenance interest income of maintenance deposit and the amount paid as the case may be towards common expenses maintenance and other expenses incurred by the said Service Society."
6.2 Similarly, the registered Co-developer Agreement entered between M/s. Applewood Estate Pvt. Ltd. and the developer namely Para 18 which reads as under:
"... 18. The Co-Developer may enter into agreement with the person desirous to acquire Units in the Project on such terms and conditions as it may deem fit and consistent with this Agreement, without binding the Developer and/or the Residential Township in any manner, except as expressly contemplated in this Agreement. The Co-Developer also, may collect such amount as consideration or all other amounts that may be decided by and between the Co-Developer and the Buyer of the Units; except that the amounts collected as upfront Township Infrastructure maintenance deposit and recurring amounts for Township maintenance and Infrastructure use shall be paid over to the Developer."I.T.A No. 1258/Ahd/2025 A.Y. 2018-19 7
The Orchid Harmony Co.op. Housing Service Society Ltd. Vs. ITO
7. We have heard the rival submissions and perused the material available on record. The issue involved in these grounds relates to the taxability of interest income earned by the assessee from Fixed Deposits from M/s. Applewood Estate Pvt. Ltd., which the assessee claims to be not taxable on account of diversion of income by overriding title.
7.1. The primary contention of the assessee is that the maintenance deposits collected from members are earmarked for specific purposes, namely maintenance and common facilities and therefore, the interest accrued thereon is diverted at source by an overriding title. However, we are unable to accept the above contention. The doctrine of diversion of income by overriding title applies only where there exists a superior legal right in a third party, which diverts the income at source before it accrues to the assessee. In the present case, the maintenance deposits are admittedly received and controlled by the assessee society and the interest income accrues in its name. The obligation to utilize such funds for maintenance purposes is only an application of income after accrual and not a case of diversion at source.
7.2. Therefore, it is necessary to distinguish between Diversion and Application of income. It is a settled proposition of law, as laid down by the Hon'ble Supreme Court in CIT vs. Sitaldas Tirathdas (41 ITR
367), that "the correct test is whether the amount sought to be deducted, in truth, never reached the assessee as his income." In the present case I.T.A No. 1258/Ahd/2025 A.Y. 2018-19 8 The Orchid Harmony Co.op. Housing Service Society Ltd. Vs. ITO The interest income is first credited to the assessee The assessee retains full domain and control over such income There is no enforceable claim by any third party at the stage of accrual Thus, the case clearly falls within the category of application of income and not diversion of income as claimed by the assessee.
7.3. Further, the issue is squarely covered against the assessee by the judgment of the Hon'ble Supreme Court in Totgars Co-operative Sale Society Ltd. vs. ITO (322 ITR 283), wherein it has been held that "Interest earned on deposits of surplus funds is assessable under the head "Income from Other Sources". In the present case also:
The funds are deposited in banks and with a third party Interest income arises independently of the core activity Such income cannot be said to be operational income or exempt Therefore, the ratio of the above decision squarely applies.
7.4. The reliance placed by the assessee on clauses of the Sale Deed and Co-developer Agreement does not advance its case. These clauses merely indicate the purpose for which funds are to be utilized, but do not create any overriding legal charge or diversion at source in favour of any third party. The assessee society remains the legal and beneficial owner of the funds and the income arising therefrom.
7.5. In view of the above discussion, we hold that the interest income has accrued to the assessee and there is no diversion by overriding title. Whereas the utilization of such income for maintenance is only application of income. Accordingly, the Assessing Officer has rightly brought the interest income from Fixed deposit of Rs. 42,50,635/-;
deposits with Applewood Estate Pvt. Ltd. of Rs. 29,26,709/- and I.T.A No. 1258/Ahd/2025 A.Y. 2018-19 9 The Orchid Harmony Co.op. Housing Service Society Ltd. Vs. ITO Income tax refund interest of Rs. 334/- to tax under the head "Income from Other Sources" u/s 56 of the Act. Therefore, the Ground Nos. 2 and 3 raised by the assessee are dismissed.
8. Regarding Ground No. 4 relates to the disallowance of expenditure of Rs.71,77,678/- claimed by the assessee under section 57 of the Act against the interest income assessed under the head "Income from Other Sources".
8.1. Ld Counsel for the assessee contended that the expenditure incurred towards maintenance and administrative activities ought to be allowed as deduction against the interest income, as the same is intrinsically connected with the earning of such income.
8.2. We have considered the submissions. The allowability of deduction under section 57 is governed by the condition that the expenditure must be "laid out or expended wholly and exclusively for the purpose of making or earning such income." In the present case, the interest income has arisen from investment of funds in fixed deposits and advances. The expenditure claimed pertains to maintenance of society, administrative expenses and common facilities. There is no direct nexus between the expenditure incurred and the earning of interest income.
8.4. Thus, the expenditure incurred by the assessee is primarily for:
Maintenance of property
Common amenities
Administrative functioning of the society
I.T.A No. 1258/Ahd/2025 A.Y. 2018-19 10
The Orchid Harmony Co.op. Housing Service Society Ltd. Vs. ITO These are application of funds and not expenses incurred for earning interest income. Even otherwise, once it is held (as in Ground Nos. 2 & 3) that the interest income is independently taxable under section 56, the corresponding expenditure must satisfy the strict test of section 57, which the assessee has failed to do. In absence of any direct and exclusive nexus between the expenditure claimed and the earning of interest income, the Assessing Officer was justified in disallowing the same. Accordingly, Ground No. 4 raised by the assessee is devoid of merits and liable to be dismissed.
9. Regarding Ground No.5 namely claim of deduction under Section 80P(2)(d) of the Act. The assessee submitted that interested income of Rs.42,50,635/- earned from Kalupur Commercial Co- operative Bank Ltd. is eligible for deduction under Section 80P(2)(d) of the Act. However, the lower authorities denied the same since the assessee failed to file the Return within the due date prescribed under Section 139(1) of the Act but filed belated return under Section 139(4) of the Act. Ld. Counsel relied upon the Co-ordinate Bench decision of this Tribunal in the case of Lunidhar Seva Sahkari Mandali Ltd. vs. Assessing Officer (CPC), reported in (2023) 149 taxmann.com 28 (Rajkot - Trib.), wherein it is held as follows:
"7.3 We note that in the case of Chirakkal Service Co-Operative Bank Ltd. Kannur v. CIT 2016] 68 taxmann.com 298 (Kerala), the Kerala High Court held that a return filed by assessee beyond period stipulated under section 139(1) or 139(4) or under section 142(1) or section 148 can also be accepted and acted upon for entertaining claim raised under section 80P provided further proceedings in relation to such assessments are pending in statutory hierarchy of adjudication in terms of provisions of Act. In the case of ASR Engg. & Projects Ltd. [2019] 111 taxmann.com 49 (Hyderabad - Trib.), the ITAT held that to be eligible to make claim under section 80-IA or any other section of I.T.A No. 1258/Ahd/2025 A.Y. 2018-19 11 The Orchid Harmony Co.op. Housing Service Society Ltd. Vs. ITO Chapter VI A, assessee should have filed return of income under section 139(1) and even if it did not make claim for deduction in original return and subsequently file revised return making such claim, its claim for deduction under section 80-IA is maintainable. Therefore, where assessee had filed return under section 139(1), it was entitled to claim deduction under section 80-IA even if such claim was not made in original return but subsequently in revised return filed in response to notice issued under section 153A. In the case of Lanjani Co-Operative Agri Service Society Ltd. (CPC) v. DCIT [2023] 146 taxmann.com 468 (Chandigarh - Trib.), the ITAT held that the enabling provisions of subclause (v) of section 143(1) providing for disallowance of deduction under section 80P due to late filing of return having been introduced by Finance Act, 2021 effective from 1-4-2021, disallowance of deduction claimed under section 80P during relevant years 2018-19 and 2019-20 on grounds of late filing of return was unjustified.
7.4 We note that the instant case, there was a delay in filing the return of income by the assessee for the assessment year 2019-20 and return of income was filed within due date permissible u/s 139(4) of the Act, in which the claim for deduction u/s 80P of the Act was made. Therefore, looking into the totality of facts, we are of the view that claim of deduction u/s 80P of the Act cannot be denied to the assessee only on the basis that the assessee did not file return of income its return of income within due date u/s 139(1) of the Act, in light of the discussion and judicial precedents highlighted above."
9.1. Respectfully following the above decision the Jurisdictional Assessing Officer is directed to grant deduction u/s. 80P(2)(d) of the Act by giving one more opportunity of hearing to the to the assessee. Ground No. 5 raised by the assessee is partly allowed.
10. In the result, the appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 24-04-2026
Sd/- Sd/-
(DR. BRR KUMAR) (T.R. SENTHIL KUMAR)
VICE PRESIDENT JUDICIAL MEMBER
Ahmedabad : True Copy
Dated 24/04/2026
I.T.A No. 1258/Ahd/2025 A.Y. 2018-19 12
The Orchid Harmony Co.op. Housing Service Society Ltd. Vs. ITO आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपील य अ धकरण, अहमदाबाद