2018 (11) TMI 50 - AT - Income Tax

Denying exemption u/s 11 - Disallowance of rent - Held that - A perusal of the impugned orders shows that all the documents relevant to the issue of rent were not before the AO and even the CIT (A), has dismissed the appeals without actually considering the detailed submissions made by the assessee in this regard and which are part of the record. As both the parties before us have agreed, we deem it fit to restore the issue to the file of the AO for all the three years in appeal before us to be determined afresh after giving the assessee due opportunity to present its case. We also direct the assessee to furnish all the documentary evidences and explanations on which it seeks to place reliance whenever it is called upon by AO to do so failing with the AO shall be at liberty to proceed as per law.

Summary

Issues Involved:
- Disallowance of excessive rent payment
- Denial of exemption under section 11 of the Income Tax Act
- Violation of principles of natural justice
- Applicability of section 13(2)(c) of the Act
- Restoration of the issue to the Assessing Officer
- Direction for providing opportunity to the assessee

Analysis:

Disallowance of Excessive Rent Payment:
The assessee, a society running a school, filed appeals against orders disallowing rent payments for properties at two different locations. The Assessing Officer (AO) disallowed the differential rent amount, citing excess payment to interested parties under section 13(2)(c) of the Act. The AO also made additional disallowances and taxed the surplus income. The CIT (A) dismissed the appeals. The ITAT decided to hear all three appeals together due to identical issues. The AO's decision was based on the increase in rent payments without sufficient justification, leading to disallowances.

Denial of Exemption under Section 11:
The AO also denied exemption under section 11 of the Act based on the disallowed rent payments. The CIT (A) upheld this denial invoking section 13 of the Act. The ITAT found discrepancies in the AO's and CIT (A)'s orders, highlighting the need for a detailed review of the case. The ITAT directed the Assessing Officer to reevaluate the issue after providing the assessee with a fair opportunity to present its case and submit all necessary documents.

Violation of Principles of Natural Justice and Applicability of Section 13(2)(c):
The Authorized Representative argued that the AO's actions violated natural justice principles by not allowing the assessee to explain the rent situation adequately. The Authorized Representative contended that section 13(2)(c) was incorrectly applied as it pertained to salary and allowances, not rent. The ITAT agreed that the AO's procedure lacked fairness and ordered the issue to be reconsidered with proper opportunity for the assessee to present its case.

Restoration of the Issue to the Assessing Officer and Direction for Providing Opportunity:
After considering both parties' submissions, the ITAT decided to restore the issue to the Assessing Officer for fresh determination. The ITAT instructed the assessee to provide all necessary documents and explanations when requested by the AO. The ITAT allowed the appeals for statistical purposes, emphasizing the need for a fair review of the rent-related issues.

In conclusion, the ITAT's decision focused on ensuring procedural fairness, proper application of legal provisions, and thorough examination of rent-related issues, leading to the restoration of the matter to the Assessing Officer for a fresh assessment.