2023 (7) TMI 560 - AT - Income Tax

Nature of expenses - Expenditure on fencing on compound wall - capital or revenue expenses - assessee is a co-operative housing society - HELD THAT - The expenditure that has been debited for fencing wall is for fencing the boundary wall which does not have a permanent enduring effect and it is definitely perishable and subject to natural wear and tear, therefore it cannot be said that it is a capital expenditure. DR supported the findings of the revenue authorities. We are of the considered view that this fencing done on the boundary wall is open to the perils of nature and definitely does not have a permanent enduring effect and, therefore, cannot be termed as a capital expenditure. The assessee is doing no business activities and it is a co-operative housing society where principle of mutuality would apply. We direct the AO to delete this addition from the hands of the assessee. Ground No.1 of the assessee s appeal is allowed. Deduction u/s 80P(2)(d) - funds were invested in nationalized banks i.e. Bank of Maharashtra Oriental Bank of Commerce and not in co-operative bank - HELD THAT - We have perused the return of income filed by the assessee for the relevant year and it is observed that the claim of deduction u/sec. 80P(2)(d) is not emanating from the return of income, meaning thereby, the assessee has never claimed any deduction u/sec. 80P(2)(d) - As earlier observed, CIT(A) has not dealt with on the merits of both the additions made by the AO and had simply said that since the issues were debatable, it was not a subject matter of rectification u/sec. 154 and had thus dismissed the appeal of the assessee. But here we find that since the assessee has never claimed deduction u/sec. 80P(2)(d) it was beyond the jurisdiction of the AO to travel beyond the scope of return of income filed by the assessee and in the first place since deduction u/sec. 80P(2)(d) was never claimed in the return of income, the AO necessarily cannot make addition implying the applicability of sec. 80P(2)(d) - We, therefore, direct the AO to delete this addition from the hands of the assessee. Appeal of the assessee is allowed.

Summary

Issues involved:
The judgment involves issues related to condonation of delay in filing the appeal, rectification petition under section 154, addition of expenditure on fencing of boundary wall, and disallowance of interest income deduction under section 80P(2)(d) of the Act.

Condonation of delay:
The appeal was found to be time-barred by 34 days, but the delay was condoned after considering the reasons provided in the condonation petition. The delay was deemed beyond the control of the assessee and not deliberate or intentional.

Rectification petition under section 154:
The assessment was completed under sections 147 and 143(3) of the Act. The assessee's rectification petition was rejected on the grounds that no mistake was apparent from the assessment order. The first appellate authority dismissed the appeal stating that the additions were made on debatable issues and could not be rectified under section 154.

Addition of expenditure on fencing of boundary wall:
The AO added Rs. 65,000 as expenditure on fencing of the boundary wall to the total income of the assessee-society, considering it as capital expenditure. The assessee argued that as a cooperative housing society, functioning on the principle of mutuality, the fencing expenditure was not capital in nature but perishable and subject to wear and tear. The tribunal directed the AO to delete this addition, stating that the fencing did not have a permanent enduring effect.

Disallowance of interest income deduction under section 80P(2)(d):
The AO disallowed a deduction claimed under section 80P(2)(d) for interest income earned by the assessee-society, as the funds were invested in nationalized banks and not in cooperative banks. However, it was found that the deduction was never claimed by the assessee in the return of income. The tribunal directed the AO to delete this addition, as it was beyond the jurisdiction to make such an addition when the deduction was not claimed in the first place.

Separate Judgment:
The appeal of the assessee was allowed, and the additions made by the AO were directed to be deleted in both the issues related to expenditure on fencing and disallowance of interest income deduction.