2012 (5) TMI 11 - AT - Income Tax

The disallowance of expenditure on salary was on the premises that the assessee had employed staff in excess of the norms of the Dental Council - assessee has explained that some doctors had left and in their place other doctors were employed, so that the norms could not be strictly complied with, and which rather by itself shows the exigency of the situation - Held that - assessee has not been able to lead satisfactory evidence with regard to its claim for expenditure, having been called upon to file the full names and addresses as well as proof of filing the return of income by the relevant doctors - strength of 72 doctors against 100 students, as is stated to obtain for the current year, is disproportionately high, and the AO in stating so is only drawing support from the guidelines of the Dental Council of India in this regard, and not basing his disallowance thereon, as projected by the ld. AR before us - Decided against the assessee by way of remand to AO. Advertisement and hotel expense - assessee explained that the heavy expenditure in the month of March, 2005 was for purchase of heavy quantity of sweetmeats, namkin, dry fruits, cents, etc., which it had to in view of the inspection of the college on March 10 & 11, 2005 for starting of the classes of the Third Year - Held that the incurring of the said expenditure for the object/s of the trust is not explained, much less proved. Where is the question of commercial expediency while incurring expenditure in extending common courtesy to the officials on an official visit, and in computing the income of a charitable trust, as the assessee, which itself pleads for the non-application for the provisions of Chapter IV-D of the Act in the computation of its income, an argument with which we have expressed our agreement. The said disallowance is thus upheld. Regarding cash donation - Held that - a clear contradiction in the findings by the assessing authority and the first appellate authority. - The AO states that the identity has not been established - ld. CIT(A) admitted the assessee s plea - where the identity is not disclosed, the presumption would be that the same flows from the beneficiary of the assessee s activity, i.e., the students, or their parents or close relatives. The same could not be termed as a voluntary contribution subject to sec. 11(1)(d), and neither would the ingredients of sec. 68 be satisfied in such a case. Whether given under a general direction to form a part of the corpus, or as toward, say, a building fund, the furnishing and proving the identity of the donor is the first pre-requisite, which remains unsatisfied in the instant case. If, on the other hand, the identity is confirmed, and the donor confirms the same to be toward a particular fund or corpus, in our view, the onus to prove that it is not voluntary , and given, or made to be given, for and toward a consideration, so that it is income would only be on the Revenue. Also, where given for a building fund , and utilized for that purpose, the same would only amount to an application of funds for the objects of the trust, where the building is owned by the trust and used, or to be used, for its purposes. In view of the foregoing, we remand the matter back to the file of the AO to allow an opportunity to the assessee to present its case - Appeal is partly allowed

Summary

Issues Involved:
1. Disallowance of salary expenses.
2. Disallowance of advertisement and hotel expenses.
3. Disallowance of telephone/mobile expenses.
4. Disallowance under Section 40A(3) of the Income Tax Act.
5. Disallowance of air traveling expenditure.
6. Disallowance of hostel and mess expenses.
7. Disallowance of miscellaneous expenditure.
8. Disallowance of traveling expenses.
9. Addition of cash donations to income.

Detailed Analysis:

1. Disallowance of Salary Expenses:
The Revenue appealed against the deletion of salary expenses disallowed by the Assessing Officer (AO) on the grounds that the assessee employed staff in excess of the norms set by the Dental Council. The Tribunal found that the norm per 100 students cannot form the basis of disallowance. The key issue is whether the salary expenses were genuinely paid for services rendered. The Tribunal noted that the assessee failed to provide satisfactory evidence regarding the salary expenses and restored the matter to the AO for verification.

2. Disallowance of Advertisement and Hotel Expenses:
The Tribunal found no basis for disallowing advertisement and hotel expenses. The dental college aimed to attract students from within and outside Rajasthan, justifying the advertisement expenses. The hotel expenses were for doctors inspecting the college on behalf of the Dental Council of India. Therefore, these disallowances were deleted.

3. Disallowance of Telephone/Mobile Expenses:
The AO disallowed 1/5th of the telephone/mobile expenses because the bills were in the personal names of the trustees, and the assessee could not provide complete details. The Tribunal upheld this disallowance.

4. Disallowance under Section 40A(3) of the Income Tax Act:
The AO disallowed Rs. 10,156 under Section 40A(3), which the CIT(A) upheld without specific reasoning. The Tribunal found merit in the assessee's claim that Section 40A(3) does not apply as the income is exempt under Section 11. The disallowance was deleted.

5. Disallowance of Air Traveling Expenditure:
For AY 2005-06, the AO disallowed 1/5th of the air travel expenses as the assessee failed to prove that the travel was for the college's purposes. The Tribunal remitted the matter back to the AO for verification.

6. Disallowance of Hostel and Mess Expenses:
The AO disallowed Rs. 2.00 lacs out of Rs. 10,01,123/- and Rs. 25,36,240/- claimed for hostel and mess expenses, questioning the necessity of such high expenditure. The Tribunal found the expenses exaggerated and upheld the disallowance.

7. Disallowance of Miscellaneous Expenditure:
For AY 2006-07, the AO disallowed Rs. 28,385/- for various items, but the assessee provided proper clarification for all except Rs. 17,500/-. The Tribunal confirmed the deletion of Rs. 10,885/- but remitted Rs. 17,500/- back to the AO for verification.

8. Disallowance of Traveling Expenses:
The AO disallowed Rs. 6,55,931/- for traveling expenses due to lack of evidence proving the expenses were for the college's purposes. The Tribunal remanded the issue back to the AO for verification.

9. Addition of Cash Donations to Income:
The AO added Rs. 2,09,49,153/- in cash donations to income as the assessee failed to furnish particulars of the donors. The CIT(A) deleted the addition, treating the donations as corpus donations exempt under Section 11(1)(d). The Tribunal found contradictions and remanded the matter back to the AO for verification of the donors' identities and the voluntary nature of the donations.

Conclusion:
The Tribunal partly allowed the Revenue's appeals and remanded several issues back to the AO for further verification. The assessee's cross-objections were largely supportive and did not require independent adjudication. The Tribunal emphasized the need for proper evidence and verification in determining the genuineness of the expenses and donations claimed by the assessee.