2021 (6) TMI 446 - AT - Income Tax

Exemption u/s 11 - salary payments to the specified persons under section 13(3) - there was increase in the salary of the specified persons from year to year which was not reasonable since the increase was in the cases of the specified persons and not in the case of other employees - onus to prove the excessiveness of the salary/remuneration paid to the specified persons - CIT-A allowed the claim of the assessee for the salary - HELD THAT:- In the instant case, it is relevant to point out that the A.O. although mentioned that the salary paid was not reasonable, however, he disallowed the entire salary paid to the specified persons without pointing out excessive salary, if any.

All the specified persons are having the educational qualifications required for the job assigned to them and they are whole time employees of the assessee society for achieving the object of education for which the assessee society had been formed and are not carrying on any other business/profession. Sarvshri Sanjay Sardana and Sandeep Sardana apart from working as Principals of the schools at Chandigarh and Panchkula respectively are also having additional assignment of Directors of all the schools. The remunerations paid to the specified persons were considered to be genuine in the preceding years however, for the first time, the disallowance was made by the A.O. for the year under consideration.

The assessee society had been maintaining regular books of accounts which were duly audited and the returns of income had been filed on the basis of such books of accounts. The payments of salary to the specified persons were made through banking channel and the issue had been examined years to years since A.Y. 1997-98 U/s 143(3) of the Act till the A.Y. 2012-13. Copies of the assessment orders framed u/s 143(3) of the Act for those assessment years are placed of the assessee’s compilation. It is relevant to point out that the different Assessing Officers, after proper examination, accepted the salary paid to the specified persons in the earlier years and the first time, the disallowance was made in the assessment framed for the A.Y. 2013-14 by assigning the reason that the salary paid to the specified persons was not reasonable and undue benefit was given to those related persons.

No material is brought on record to substantiate that how and in what manner, the salary paid to the specified persons considering their qualifications and the duty assigned to them was not reasonable since no comparable case was brought on record by the A.O. In the present case, the A.O. did not doubt the services rendered and qualifications of the specified persons, he disallowed the salary by observing that it was not reasonable, however, nothing is brought on record to suggest how and in what manner, it was not reasonable or was excessive.

As the specified persons possessed the requisite qualifications and rendered the services, therefore, it cannot be held that payment of salary to the specified persons was unreasonable particularly when no comparable case was cited by the A.O.

As the salary had been paid to the specified persons against the services provided by them the income from salary had been shown in their individual return of income and nothing is brought on record by the A.O. to substantiate that any extra salary was paid for the administrative function and that the salary was excessive in comparison to any similar case, therefore, the disallowance made by the A.O. was rightly deleted by the ld. CIT(A).

The assessee furnished all the details relating to the payment of salary, tuition fee received from the students and nothing is brought on record to substantiate that the expenditure on salary or facilities to the relatives of the trustees of the assessee society were excessive having regard to the fair market value of the services provided by them. Therefore, the A.O. was not justified in making disallowance U/s 13(3) - Decided against revenue.

Disallowance on account of rent paid to the specified persons by invoking provisions of Section 13(3) - CIT-A deleted the addition - HELD THAT:- In the present case, it is not in dispute that the assessee provided accommodation to the Principals-cum-Directors of the assessee society who were also managing administrative work from the residential premises. It was not the case of the A.O. that the rent paid was excessive as compared to the similar accommodation. The contention of the ld. Counsel for the assessee that the specified persons had shown the value of the rent as perquisites in their respective hands which has been accepted by the department has not been rebutted and that in earlier years also for the similar payments, no disallowance was made by the department.

The payment of rent was not doubted and the A.O. did not bring any material on record to substantiate that the rent paid was excessive and the specified persons to whom accommodation was provided had shown the valuation of the said properties as perquisites in their respective hands. Therefore, the ld. CIT(A) rightly deleted the disallowance made by the A.O. particular when the rent paid for the same accommodation has been accepted in the preceding years - No valid ground to interfere with the findings given by the ld. CIT(A) on this issue.

Disallowance on account of interest on unsecured loans paid to the specified persons - CIT-A deleted the addition - HELD THAT:- As assessee was paying interest at a higher rate than the interest paid to the specified persons and Members of the assessee society. In other words, the interest paid by the assessee society to its Members and specified persons was not excessive, therefore, the disallowance made U/s 13(1)(c) of the Act was not justified and the ld. CIT(A) rightly deleted the same. We do not see any valid ground to interfere with the findings of the ld. CIT(A) on this issue.

Exemption u/s 11 - Claim denied for the reason that the assessee society was earning high profit year after years - HELD THAT:- In the present case, it is noticed that the issue relating to the exemption U/s 11 of the Act has been settled by the ITAT Chandigarh Bench for the A.Y. 2003-04 which was affirmed by the Hon’ble Jurisdictional High Court and the SLP against the judgment of the Hon’ble Jurisdictional High Court was dismissed by the Hon’ble Apex Court [2010 (7) TMI 1196 - SC ORDER] therefore, we do not see any merit in the arguments put forth by the ld. CIT-DR on the issue relating to exemption U/s 11 of the Act.

Disallowance of running expenses of the Mercedes cars - Mercedes Cars were purchased and used by the Directors - HELD THAT:- In the present case, nothing is brought on record by the A.O. that the Mercedes Cars given to the Directors for the administrative work relating to the assessee society were used for personal purposes - this contention of the ld. Counsel for the assessee that perquisite values of the cars was being disclosed by the Directors in their individual returns as per the law and accepted by the department was not rebutted. We, therefore, do not see any merit in the submissions of the ld. CIT-DR.

Reopening of assessment u/s 147 - salary, rent and interest paid to the specified persons - HELD THAT:- In the present case, it is an admitted fact that the A.O. framed original assessment U/s 143(3) of the Act and before completing the original assessment, the A.O. asked the assessee about the payment of salary, rent and interest by issuing questionnaire - A.O. vide question No. 9 specifically asked the assessee to furnish the details of payments made to the specified persons and vide question No. 12, the details were asked relating to the total receipts as well as the expenditures. The A.O. vide Q.No. 17also asked the details of loans borrowed or repaid, therefore, it is clear that the A.O. asked the assessee specific informations.

A.O. properly examined all the details furnished by the assessee and made disallowance also for those expenses which in his view were personal in nature - A.O. considered the expenses relating to the salary to the specified persons amounting to ₹ 1,09,12,261/- as non-genuine. However, the same were considered to be genuine while framing the assessment U/s 143(3) of the Act, so it was a change of opinion. Similar was the position with regard to the rent and the interest. Now the question arises as to whether the assessment can be reopened on the basis of change of opinion.

A.O. accepted the claim of the assessee, not only in the earlier years but also in the later years and considered the expenses on account of salary, rent and interest paid to the specified persons as genuine. Moreover, the A.O. for the year under consideration did not bring any material on record to substantiate that the expenses incurred for the specified persons by the assessee were excessive in comparison to the expenses incurred by another comparable cases.

A.O. not only asked the assessee to furnish the details relating to the payment made to the specified persons on account of salary, rent and interest but also examined those and thereafter framed the assessment U/s 143(3) of the Act, therefore, the issuance of the notice U/s 148 r.w.s. 147 of the Act, on the basis of the same issue was a mere change of opinion which was not permissible. CIT(A) was not justified in confirming the action of the A.O. in reopening the assessment, therefore, the reassessment framed by the A.O. is quashed. - Decided in favour of assessee.