2018 (1) TMI 18 - AT - Income Tax

Disallowance of salary paid to family members of the management of the society.- Held that - It is observed that the assessee runs a school having a strength of 1030 students. Smt. Kiran Gupta, who was paid ₹ 1,12,800/-, is the Principal and President of the society. Shri R.K. Gupta, who was paid ₹ 1,38,000/- is the Secretary of the society, looking after overall work at the school. The other two persons, namely, Shri Rohit Gupta and Miss Nidhi Gupta are B.Ed. and drew salary at a nominal level. Payments made to these persons are not excessive, calling for any disallowance. Similar expenses were incurred in the succeeding years as well, which got allowed at the hands of the Assessing Officer. Under these circumstances, the disallowance was wrongly sustained. Disallowance of depreciation and interest - Held that - It is observed from the assessee s submissions made before the authorities below that the cars were used by the society for its work of school. The assessee submitted that these cars were used for various purposes, such as, liaisoning with DIOS and CBSE Board etc. Such contentions have not been refuted with any cogent evidence except for the fact that no service of driver was availed and, further, the log book was not maintained. It is seen that the assessee society has used vehicles in the succeeding years as well for which no disallowance of depreciation has been made. CIT(A) erred in sustaining the disallowance of depreciation and the same is directed to be deleted. Disallowance of interest - AR contended that the Assessing Officer did not grant adequate opportunity to the assessee to put forth the evidence in support of this contention - Held that - Considering the entirety of the facts and circumstances as prevailing in the instant case, set aside the impugned order on this score and remit the matter to the file of Assessing Officer for examining the contention of the assessee in the light of evidence, which it proposes to file Addition of surplus of income - AR contended that the ld. CIT(A) did not give any opportunity before treating utilization of surplus as not backed by any evidence - Held that - Ends of justice would meet adequately if the impugned order on this issue is also set aside and the matter is restored to the file of Assessing Officer for deciding it afresh as per law, after allowing a reasonable opportunity of being heard to the assessee.

Summary

Issues:
1. Sustenance of addition on account of honorarium.
2. Disallowance of salary paid to family members of the management of the society.
3. Disallowance of depreciation and interest.
4. Addition of surplus as income.

Issue 1: Sustenance of addition on account of honorarium:
The assessee claimed a deduction for honorarium expenses without providing complete details to the Assessing Officer. The AO made a disallowance of ?7,82,465 due to incomplete information. The CIT(A) upheld the disallowance. The ITAT observed that the AO allowed insufficient time for providing necessary details. The matter was remitted back to the AO for fresh consideration after providing a reasonable opportunity to the assessee.

Issue 2: Disallowance of salary paid to family members of the management:
The AO disallowed ?4,54,300 as salary paid to family members under section 13(3) read with section 13(2). The CIT(A) sustained the addition. However, the ITAT found that the payments made to family members were not excessive considering their roles in the society. The disallowance was ordered to be deleted.

Issue 3: Disallowance of depreciation and interest:
The AO disallowed depreciation on cars and interest on diverted funds to M/s Dev Packaging and a trustee. The CIT(A) upheld the disallowance of depreciation but reduced the interest disallowance. The ITAT found that the depreciation disallowance was unjustified as the cars were used for school purposes. The interest disallowance was also set aside, and the matter was remitted back to the AO for further examination.

Issue 4: Addition of surplus as income:
The AO treated surplus as income, but the CIT(A) held that the income was exempt under sections 11 and 12A. However, the CIT(A) added ?2,04,757 due to lack of evidence for capital expenditure claimed by the assessee. The ITAT found that the CIT(A) did not provide an opportunity to the assessee before making the addition. The matter was remitted back to the AO for fresh consideration.

In conclusion, the ITAT partly allowed the appeal of the assessee, setting aside various disallowances and additions made by the lower authorities and remitting the matters back to the Assessing Officer for fresh consideration with proper opportunities for the assessee to present their case.