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TMI Blog2020 (9) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... in law in confirming the disallowance of Rs. 15,90,480/- on account of alleged excess payment of salary to specified persons u/s 13 of IT Act, 1961 ITA No. 70/JP/2020 - A.Y. 2015-16- Revenue (i) On the facts, the circumstances of the case and in law the Ld. CIT(A) has erred in allowing the benefit of exemption u/s 11 of the Act to the assessee without appreciating the fact that the assessee trust has provided undue benefit in lieu of salary to the persons specified u/s 13(3) of the Act and thus provisions of section 13(1)(c)(ii) r.w.s. 13(2)(c) of the Act were clearly attracted. (ii) On the facts, the circumstances of the case and in law the Ld. CIT(A) has erred in allowing the benefit of exemption u/s 11 of the Act to the assessee by relying upon the order of Hon'ble ITAT dt. 18.07.2017 in ITA No.300/JP/2018 ignoring the fact that department has proceeded for further appeal before Hon'ble Rajasthan High Court against the order which is pending. (iii) On the facts, the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition of surplus amounting to Rs. 3,52,40,552/- made on account of rejection of exemption u/s 11 of the Act by invoking provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that in some case increase in salary is almost 40% , accordingly the AO made disallowance of Rs. 27,83,520/- in respect of five persons in the order of assessment. It was further held that excess salary so paid amounts to benefit given to the trustee specified u/s 13(3) of the Act and thus Section 13(1)(ii) is attracted. Accordingly, the AO disallowed the claim of exemption u/s 11 of the Act and taxed the income at maximum marginal rate (MMR) under the head income from Business and Profession in the status of AOP u/s 164(2) of the Act. 2.2 In first appeal, the ld. CIT(A), after considering the explanation of the assessee restricted the disallowance of salary paid to the trustees by comparing salary paid to these persons in A.Y. 2012-13 with an increase of 10% and further observed that exemption u/s 11 cannot be denied in totality rather the disallowed part can be subjected to tax at MMR. 2.3 Aggrieved by the order of the ld. CIT(A), the Revenue has filed the present appeal before us on the grounds mentioned herein above. 2.4 The Ground No. 1 to 3 raised by the Revenue are interrelated and interconnected and relates to challenging the order of the ld. CIT(A) in allowing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese persons was only Rs. 58,49,909/-. He further observed that in some cases increase in salary is almost 40% whereas to other employees the increase in salary is around 10%-15%. Accordingly, after accepting the salary payment to Mr. Deepak Choudhary he disallowed salary of Rs. 27,83,520/- to the remaining 5 persons as mentioned at Pg 5, Para 6.2 of the assessment order. He further held that the excess salary so paid amounts to benefit given to the trustees specified u/s 13(3) of the Act and thus section 13(1)(c)(ii) r.w.s. 13(1)(ii) is attracted. Accordingly, he disallowed the claim of exemption u/s 11 of the Act and after disallowing the claim of capital expenditure computed the total income at Rs. 5,77,58,981/- (surplus Rs. 3,52,40,552/- + excess salary paid Rs. 27,83,520/- + capital expenditure Rs. 1,97,34,909/-). He further taxed such income at maximum marginal rate under the head income from business and profession in the status of AOP u/s 164(2) of the Act. 3. The Ld. CIT(A) after considering the explanation of assessee restricted the disallowance of salary paid to the trustees at Rs. 11,02,000/- by comparing salary paid to these persons in AY 2012- 13 with an increase of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racts the provisions of Sections 13(1) and 13(2) of the Act however, only to the extent of the payment which is found to be excess of what may be reasonably paid for such service. In case no services were rendered then the entire payments to such persons would be treated as the application of income of the trust in violation of the provision of Section 13(1) r.w.s. 13(3) of the Act and therefore, to the extent of the payment the benefit of Section 11 will not be available. Since neither the AO nor the ld. CIT(A) has examined the relevant facts on the point whether all these persons possess the requisite qualification for holding the position as shown by the assessee and further whether they have rendered any services to the trust. 6. Accordingly, in the facts and circumstances of the case and in the interest of justice, we set aside the impugned order of the ld. CIT(A) and remit the matter to the record of the Assessing Officer for fresh adjudication after proper verification and examination to all the relevant facts. The assessee is directed to produce to all the relevant facts to establish the actual rendering of services by these persons as well as all the relevant rules appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is applied or used directly or indirectly for the benefit of any person referred to Section 13(3) of the Act. So far as the salaries or allowances paid to any person referred in Section 13(3) the same has to be considered in the context of service rendered by such persons and if the amount so paid is found in excess what may be reasonably paid for such services then, only to the extent of excess amount it will be deemed as applied or used for the benefit of such persons. Hence, the disallowance U/s 13(1) r.w.s. 13(2) and 13(3) of the Act is only in respect of the income which is applied for the benefit of the persons specified U/s 13(3) of the Act and not entire income of the assessee trust. Sub-section (2) of Section 13 prescribes the manner in case of payment of salary or allowance or otherwise to the specified persons for the services rendered and testing the same as per the para meter of reasonably paid for such services. It is apparent that the payment made to these persons clearly attracts the provisions of Sections 13(1) and 13(2) of the Act however, only to the extent of the payment which is found to be excess of what may be reasonably paid for such service. In case n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ITAT in assessee's own case (supra) for the A.Y. 2014-15 and thus we dismiss these grounds raised by the Revenue. According, the Ground No. 1 to 3 raised by the Revenue are dismissed. 3.1 The Ground No. 4 raised by the Revenue relates to challenging the order of the ld. CIT(A) in allowing the claim of capital expenditure. 3.2 After hearing both the parties at length, we found that once the ITAT Coordinate Bench in assessee's own case for the A.Y. 2014-15 has already held that the assessee is entitled to exemption u/s 11 of the Act then the capital expenditure is to be considered as application of income in computing the total income of the assessee. Therefore, the ld. CIT(A) under these facts and circumstances of the case has rightly directed the AO to allow the claim of capital expenditure as application of income. No new facts or circumstances have been brought before us in order to controvert or rebut the findings so recorded by the ld. CIT(A). Therefore, we find no reason to interfere into the lawful findings so recorded by the ld. CIT(A). Thus the Ground No. 4 raised by the Revenue also stands dismissed. 4.1 Now we take up the grounds of appeal of the assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd examination of all the relevant facts. Thus the assessee is directed to produce all the relevant facts to establish the actual rendering of services by these two persons and also all the rules applicable in respect of the qualification and appointment of persons on such posts. Thus the appeal of the assessee is partly allowed for Statistical purposes. 5.1 As regards the appeal of the Revenue in ITA No. 68/JP/2020 for the A.Y. 2016-17, the Bench observed that the issues raised by the Revenue are similar to the A.Y. 2015-16 wherein the appeal of the Revenue has been dismissed. In this view of the matter, the decision taken by this Bench for the Assessment Year 2015-16 shall apply mutatis mutandis in the appeal of the Revenue for the Assessment Year 2016-17 being similar facts and circumstances of the case. Thus the appeal of the Revenue is dismissed. 6.1 As regards the appeal of the assessee in ITA No. 1390/JP/2019 for the A.Y. 2016-17, the Bench observed that the issue raised by the assessee is similar to the A.Y. 2015-16 wherein the appeal of the assessee is partly allowed for Statistical purposes In this view of the matter, the decision taken by this Bench for the Assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
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