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2016 (5) TMI 811 - ITAT CHANDIGARH

2016 (5) TMI 811 - ITAT CHANDIGARH - TMI - Disallowance of salary expenses - the assessee Society was granted registration u/s 12AA - Held that:- CIT(A) was full y justified in admitting the additional evidence. We may also observe here that Assessing officer has disallowed 50% of the salary expenses on adhoc basis without pointing out any particular instance to show that the part of payment was bogus. Thus, we full y agree with this observation of the C IT(A) that there was no basis for making .....

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applicable in case of charitable trust or institution where income and expenditure is computed in terms of section 11.

Addition of unvouched expenses and expenses of personal nature - Held that:- C IT(A) has correctly observed that the expenses incurred on account of business promotion, Misc. expenses, repair and maintenance office expenses, D.G. set and Printing and stationery expenses are required for smooth running of the educational institution. By any stretch of imagination, the .....

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12AA - Held that:- CIT(A) has deleted various additions made by the Assessing officer and after re-computation condition of application of 85% of income stands satisfied and, therefore, there remains no ground for withdrawal of the registration granted u/s 12AA of the Act. According to Ld. Counsel for the assessee, this ground has been raised by the Revenue considering the additions made by the Assessing officer. In our opinion, the order of the CIT(A) is correct and the ground raised by the Re .....

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, Panchkula dated 9.6.2014 relating to assessment year 2010-11. Ground No.1 of the appeal reads as under:- 1. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in law in restricting the disallowance out of salary expenses without any evidence and by admitting the additional evidence, thoroughly disregarding the findings given by the A.O. 2. Briefly stated the facts of the case are the assessee is a Society, running educational institution in the name and style of 'Pa .....

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employee wise details of salary paid and TDS deducted, with complete PAN numbers and addresses of the employees and supporting evidence. In response to the aforesaid query, the assessee submitted a list of employees to whom salary was claimed to be paid. From this detail, the Assessing officer noticed that the list did not contain the addresses, nor the PAN numbers of the employees and also the designations. The assessee did not deduct the tax at source on these payments and all the payments wer .....

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levant observations of the CIT(A) are as under:- "6. I have gone through the facts of the case, written submission filed by the appellant, remand report of the AO and rejoinder filed by the appellant. It is noted that the assessee is a registered society running an educational institute and has claimed its income as exempt income under the provisions of section 11 of the Act. The assessee has submitted audited account as per section 44AB and shown gross receipts of ₹ 1,57,94,400/-. It .....

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and details of salary expenses were submitted only for few months. 6.1 On the other hand the appellant submitted month wise salary details showing employees wise name, amount and receipt taken on stamp on salary sheets. The appellant has also submitted that college is situated 32 km away from Panchkula where it has its bank account. The fees received from students are in cash, bank of assessee is at far off place and to avoid chances of pilferage of cash or any mis- happening on the route for de .....

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has right to file the additional evidence before the CIT(A) under Rule 46A but the CIT(A) is requested not to accept the additional evidences submitted by the assessee during the appellate proceedings. The AO has not cited any reason that why the additional evidences which were details of salary expenses for all months should not be accepted. On the submission of additional evidence, the appellant has submitted that details of salary expenses of few months were submitted by the counsel of the as .....

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during appellate proceedings was vital and directly related to the ground which led to a disallowance. Further, the AO has not cited any reason for refusal to admit the additional evidence. Considering the facts and having relevance to the disallowance, the additional evidences submitted during appellate proceeding were admitted and considered for decision. Here, reliance is also placed on the decision in the case of Smt. Mahinder Kaur Vs. Central Govt (1976) 104 ITR 120 (AIL), CIT Vs. Subhash .....

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ayments have been shown to be given after taking their signatures on stamps on the salary sheets. Since, the college is a running college and has shown gross receipts of about ₹ 1.58 Crores during the year, it cannot be said that college will run without any proper support of staff performing various kinds of duties. The AO has simply made disallowance of 50% of salary expense on estimation without bringing any defect or any conduct of inquiry for finding that the payments were bogus payme .....

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e basis for disallowance at 50% of salary expenses has not been spelt out. So, the disallowance at 50% of expenses seems to be much higher. At the same time, since all the payments are made in cash, complete details such as PAN, address and IDS was not provided by the appellant and all expenses cannot be verifiable, therefore, on an estimated basis the disallowance out if salary expenses is limited to ₹ 5 lacs. Thus, the assessee gets relief of ₹ 30,35,126/-. This ground of appeal is .....

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s per section 2(15) of the Act also. The entire income of the assessee is exempt u/s 11 of the Act. The accounts of the assessee are audited u/s 44AB of the Act. In this case, it is an admitted fact that the substantial amount of salary was paid in cash. In this regard, the assessee contended that cash payments were made because the bank of the assessee where the account was maintained was situated at the distance of about 32 KMs from the college premises i.e bank was at Panchkula and college wa .....

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er purposes. In this case, the CIT(A) has observed that the salary expenses has been claimed on monthl y basis for about 60 to 66 persons who had given services as lecturers, clerks, lab technicians, sweeper, gate keepers, peons, attendants etc. According to Ld. Counsel for the assessee, the total monthly salary expense varies from ₹ 5.1 lakh to ₹ 6.1 lakhs. He has also stated in clear terms that the payments on account of salary were being given after taking the signatures of the em .....

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ence. The C IT(A) has forwarded the assessee's written submissions and the documents of salary expenses to the Assessing officer for comments. The Assessing officer submitted a remand report stating that the assessee had right to file the additional evidence before the CIT(A) under Rule 46A of but he has requested the Ld. C IT(A) not to admit the additional evidence submitted by the assessee during the appellate proceedings. In this regard, the Ld. CIT(A) has observed that Assessing officer .....

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sis without pointing out any particular instance to show that the part of payment was bogus. Thus, we full y agree with this observation of the C IT(A) that there was no basis for making disallowance of 50% of salary expenses. As regards the disallowance out of salary expenses at ₹ 5 lakhs sustained by the C IT(A), we are of the view, that disallowance of ₹ 5 lakhs is quite reasonable and justified keeping in view the facts and circumstances of the present case. Accordingly, we decli .....

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ment expanses. The Assessing officer required the assessee to explain as to why the amount in question should not be disallowed u/s 40(a)(ia) of the Act. After considering the assessee's reply, the Assessing officer observed that to enjoy privilege of registration u/s 12AA of the Act, the Trust is under obligation to complete various stipulations provided in the relevant provisions of the Act. According to Assessing officer, the assessee failed to comply with the provisions by not deducting .....

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₹ 5,84,071/- made u/s 40(a) (ia) of the Act. 8. After hearing the Ld. representatives of both the parties, we find that the issue is squarely covered in favour of the assessee by the decision of ITAT Mumbai Bench in the case of Mahatma Gandhi Seva Mandir v Deputy Director of Income Tax (Exemptions), Mumbai (2012) 52 SOT 26 (Mumbai)(URO) wherein the Tribunal held as under;- "It is an admitted fact that the assessee is a charitable trust, which is duly registered under Section 12A and a .....

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decide this controversy. Section 11 to 13 is a part of Chapter 3 under the heading "Income which does not form the part of the total income". Section 11 (1) provides that "subject to the provisions of Section 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income". Thereafter it is provided as to how the income and to what extent it can be applied for charitable purposes. The manner in which the inc .....

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usiness or profession. The profits and gains from business or profession are computed under Section 28 and section 29 states that "the income referred to in Section 28 shall be computed in accordance with the provisions contained in Section 30 to 43D". Thus, Section 30 to 43 provides various kinds of deductions which are to be made while computing the profit of the assessee from business or profession. Section 40 provides an exception to such deductions which have been provided in Sect .....

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business profit of an assessee whose income is assessable under section 28 and not otherwise. Hence, provisions of section 40(a) are not applicable in case of charitable trust or institution where income and expenditure is computed in terms of section 11. Accordingly, we do not find any merit in the orders passed by the Assessing Officer as well as by the CIT(A) and delete the disallowance made under Section 40(a)(ia) on account of non-deduction of TDS has to be deleted. " Respectfull y fo .....

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er noticed that assessee claimed expenses totaling to ₹ 9,01,124/- under various heads of account in income and expenditure account. The details are as under;- S. No. Head of account Amounts (Rs.) 1 Business promotion 20,000/- 2 D.G. set expenses 3,22,889/- 3 Misc. expenses 14,475/- 4 Repaid and maintenance 92,845/- 5 Office expenses 5,700/- 6 Printing and stationery 1,03,058/- 7 Vehicle running and maintenance 3,42,157/- Total ₹ 9,01,124 12. The Assessing officer disallowed 1/5 t h .....

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e Assessing officer has not found any evidence regarding bogus claim of any expanses, therefore, he held that these expenses cannot be disallowed. However, the Ld. CIT(A) held that 1/10 t h out of vehicle running and maintenance expenses should be treated as personal in nature. He therefore, restricted the disallowance out of these expenses to ₹ 34,215/-, and allowed a relief of ₹ 1,46,009/- to the assessee. 13. After hearing the Ld. representatives of both the parties, we do not fin .....

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xpenses is to be treated as personal in nature because the element of personal use of vehicle cannot be ruled out in this case. There is no evidence on record to show that the assessee had maintained the log book of the vehicle. Thus, considering the entire facts and circumstances of the case, we uphold the order of C IT(A) and reject ground No3 of the appeal. 14. Ground No.4 of the appeal reads as under;- 4. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in law in ig .....

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