2020 (4) TMI 214 - AT - Income Tax

Income from house property - deductions claimed u/s 24(a) - Disallowance of society charges while determining the annual value of the flat - assessee has claimed deductions towards society charges paid to Maple Society out of rental income - HELD THAT - In respect of society charges for maintenance of property no deductions could be allowed, because while computing income under the head house property, the statutory deduction @ 30% has been provided, which take care all expenses related to repairs and maintenance of the property. Therefore, we are of the considered view that the Ld. AO, as well as the Ld.CIT(A) was right in coming to the conclusion that no further deduction is allowed towards any expenses, when statutory deductions @ 30% is provided u/s 24(a) out of rental income. But, the facts remains that, deduction claimed by the assessee includes amount paid towards local taxes is not emanating from the records. It is the claim of the assessee that it includes municipal taxes, whereas the Ld. AO noted that it is paid for maintenance of the property. Therefore, we are of the considered view that the issues needs to go back to the file of the Ld. AO to ascertain the correct facts with regard to nature of expenses. If, the amount paid to society charges includes municipal taxes levied by the local authorities, then to that extent the Ld. AO is directed to allow deductions out of rental income. If the amount relates to maintenance of property, then the Ld. AO is right in denying deductions for said amount out of rental income. Addition as donation to local Ganesh Mandals etc. - assessee has claimed deductions for donations paid to local mandals such as Ganesha mandals etc deductible u/s 37(1) - HELD THAT - Assesee claims that these are compulsory donations one has to paid to local mandal in order to run business smoothly. We find that it is a general practice prevailing in business that in some occasions, the business people needs to pay certain donations to local peoples for celebrations of various festivals and functions and those donations are compulsory in nature in order to smoothly conduct the business of the assessee. Therefore, we are of the considered view that donations paid by the assessee to local Ganesha mandals are necessarily incurred wholly and exclusively for the purpose of the business of the assessee and are deductible u/s 37(1) - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of society charges while determining the annual value of the flat.
2. Disallowance of donations paid to local Ganesh Mandals.

Analysis:

Issue 1: Disallowance of society charges
The assessee claimed society charges of ?83,889 for Maple Society, which was offered as income from house property. The Assessing Officer disallowed the charges, stating that expenses related to income from house property cannot be deducted. The CIT(A) upheld this decision, emphasizing that only statutory deductions of 30% under section 24(a) are permissible for repairs and maintenance. The ITAT found that while municipal taxes can be deducted, society charges for maintenance are not allowed beyond the statutory 30%. The case was remanded to the AO to verify if the claimed amount included municipal taxes, allowing deductions accordingly.

Issue 2: Disallowance of donations
The assessee claimed deductions for donations to local Ganesh Mandals, arguing they were necessary for business operations. The CIT(A) disallowed the deductions, deeming them personal expenses for religious functions. However, the ITAT ruled that such donations, essential for conducting business smoothly, are deductible under section 37(1) of the Income Tax Act, 1961. The AO was directed to delete the disallowances of donations.

In conclusion, both appeals by the assessee were allowed for statistical purposes. The ITAT directed the AO to re-examine the nature of expenses related to society charges and donations in accordance with the findings for the respective assessment years.