2015 (3) TMI 191 - AT - Income Tax

Excessive payment made to persons specified in section 13(3) - AO also disallowed 2/3rd of the expenditure amounting to ₹ 14,64,000 incurred on the remuneration of four persons u/s 40A(2b) - CIT(A) allowed the claim - Held that - We clearly observe that the CIT(A) granted relief for the assessee pertaining to the disallowance of ₹ 14,64,000 by observing that the AO did not make any disallowance in AY 2007-08 in the assessment order passed u/s 143(3) of the Act dated 30.12.2009. The CIT(A) further observed that keeping in view the fact that the entire salary paid to the three office bearers was allowed by the AO in AY 2007-08, the CIT(A) did not uphold the disallowance made by the AO in AY 2008-09 on this issue. In this situation, we are in agreement with the conclusion of the CIT(A) that the AO was not justified in disallowing 2/3rd of the expenditure incurred in the remuneration of the four persons u/s 40A(ii)(b) of the Act. On this issue, we are unable to see any infirmity or perversity in the impugned order and conclusion of the CIT(A) is upheld. - Decided against revenue. Eligibility to claim of exemption u/s 11(1) - Held that - Once the status of the appellant trust is held to be that of charitable society eligible for claim of exemption u/s 11(1)(a) of the Act, then the CIT(A) rightly directed the AO to allow the claim of the assessee for exemption u/s 11(1) of the Act. On the basis of foregoing discussion and observation, we reach to a conclusion that the CIT(A) granted relief for the assessee on cogent and justified reasons and the CIT(A) was also justified in allowing the claim of the assessee for exemption u/s 11(1) of the Act. - Decided against revenue.

Summary

Issues:
1. Whether the CIT(A) was right in law in deleting the addition made by the Assessing Officer on account of excessive payment to specified persons under section 13(3) of the Income Tax Act, 1961.
2. Whether the CIT(A) was justified in deleting the addition despite the assessee owning luxurious cars in contravention of specific sections of the Income Tax Act.
3. Whether the CIT(A) erred in treating income as exempt under section 11 despite contravention of other provisions.

Analysis:
1. The appeal was filed by the revenue against the order of the CIT, Faridabad, regarding the addition of Rs. 14,64,000 made by the Assessing Officer on excessive payments to specified persons under section 13(3) of the Income Tax Act, 1961. The CIT(A) granted relief to the assessee based on precedents and observations from earlier years, where similar salary payments were allowed. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO did not make any disallowance in the previous assessment year, thus supporting the deletion of the addition.

2. The second issue revolved around the ownership of luxurious cars by the assessee, which was considered a contravention of specific sections of the Income Tax Act. The CIT(A) and the Tribunal found in favor of the assessee, citing previous assessments and specific circumstances where salary payments were justified. The Tribunal highlighted the salary adjustments made by the Assessing Officer and the reasoning behind allowing the payments based on market standards and government notifications regarding salary enhancements.

3. The final issue addressed whether the CIT(A) correctly treated the income as exempt under section 11 despite alleged contraventions of other provisions. The CIT(A) based its decision on the registration of the appellant society under section 12A and the claim for exemption under section 11(1)(a) of the Act. The Tribunal upheld the CIT(A)'s decision, considering the consistent treatment of salary payments in previous years and the justification provided for the exemption claim. The Tribunal dismissed the revenue's appeal, affirming the relief granted to the assessee and upholding the CIT(A)'s order.

In conclusion, the Tribunal dismissed the revenue's appeal, affirming the relief granted to the assessee by the CIT(A) on all grounds raised. The decision was based on the consistent treatment of salary payments, the registration status of the appellant society, and the exemption claim under section 11 of the Income Tax Act, 1961.