2013 (7) TMI 976 - AT - Income Tax

Summary

Issues involved: Appeal against order passed by CIT(A) u/s 143(3) of IT Act, 1961 for asst. yr. 2007-08; Disallowance of expenses u/r 145(3); Taxation of disallowances; Application of maximum marginal rate of tax; Disallowance of specific expenses like travelling, salary, bad debt, telephone, mess expenses; Charging of interest u/s 234A and 234B.

Disallowance of expenses: The assessee, a registered trust, appealed against disallowances made by AO without rejecting books of account u/s 145 and without proper justification. The disallowances were confirmed by CIT(A) without considering that expenses were genuinely incurred for trust purposes. The AO wrongly applied Chapter V provisions instead of Chapter III for assessment. The Tribunal found no defects in the expenses incurred for trust objectives and set aside the lower authorities' orders.

Taxation of disallowances: The AO erred in taxing disallowances without considering that the assessee utilized over 85% of receipts for trust purposes. The disallowances were made arbitrarily without evidence that expenses were not for trust objectives. The Tribunal held that the disallowances were unjustified as the expenses were supported by vouchers and incurred exclusively for trust purposes.

Application of maximum marginal rate of tax: The AO applied maximum marginal tax rate without proper justification, which was confirmed by CIT(A). However, the Tribunal found no basis for applying the maximum marginal rate while assessing a trust registered u/s 12A. The orders of lower authorities were set aside, and the appeal was allowed in favor of the assessee.

Specific disallowances: The Tribunal found that disallowances of specific expenses like travelling, salary, bad debt, telephone, and mess expenses were unwarranted. The expenses were incurred for trust activities and supported by evidence. Disallowances were made arbitrarily without valid reasons. The Tribunal set aside the lower authorities' orders and allowed the appeal in favor of the assessee.

Charging of interest: The assessee contended that interest charged u/s 234A and 234B was wrong as they were not liable for the levy of interest. However, the judgment did not provide specific details regarding the resolution of this issue.