2018 (12) TMI 55 - AT - Income Tax

Disallowance of salary to employees - assessee is a charitable trust - Held that - Assessee did not make any effort to produce them before AO to show that they are working with the assessee and show the amounts paid to them duly confirmed. No doubt the assessee can make payment in cash however it is for the assessee to show the authenticity and reliability of such payment. Whenever anybody questions the assessee about the genuineness of the payment it is the duty of the assessee to discharge burden cast upon it by producing those employees or adequate details of those employees before the revenue authorities. It should not be forgotten that assessee is a charitable trust and is a property of public at large therefore higher duties are cast on charitable trusts. AO and the Commissioner of income tax appeals with respect to this addition we do not find any infirmity in their findings. In view of this the addition of 1569560 which is part of the salary paid by the assessee in cash to the teachers whose identity and genuineness of the payment could not be established by the assessee is confirmed. Withdrawal of exemption under section 11 12 and 13 - surplus Land which is excess of income over expenses for the year - Held that - Additional conditions for non-applicability of section 11 are provided under section 13 of the income tax act. The cash payment of the salary which has not been proved by the assessee is already held to be covered under section 13 (1) (a) and disallowed. One of the authorities on whom the powers of the verification of the genuineness of the activities are vested is Commissioner of income tax who grants registration under section 12 A of the income tax act. In view of the continuation of the registration under section 12 A of the income tax act of the trust we do not find any reason to not to grant the benefit of section 11 and 12 of the income tax act to the appellant trust. Accordingly we allow ground number 2 of the appeal and direct the learned assessing officer to grant exemption under section 11 and 12. Disallowance of depreciation on fixed assets - Held that - Issue is squarely covered in favour of the assessee by the decision of the honourable Supreme Court in case of Commissioner of income tax vs Rajasthan Gujarati charitable foundation 2017 (12) TMI 1067 - SUPREME COURT there was no specific provision in this behalf in the Income Tax Act has made amendment in Section 11(6) of the Act vide Finance Act No. 2/2014 which became effective from the Assessment Year 2015-2016. The Delhi High Court has taken the view and rightly so that the said amendment is prospective in nature. It also follows that once assessee is allowed depreciation he shall be entitled to carry forward the depreciation as well. - Decided in partly in favour of assessee

Issues Involved:
1. Disallowance of salary to employees.
2. Withdrawal of exemption under sections 11, 12, and 13 of the Income Tax Act.
3. Disallowance of depreciation on fixed assets.
4. Non-application of case laws and amendments.
5. Speaking order and reasons for rejection of contentions.
6. Following judgments relied upon by the appellant.

Issue-wise Detailed Analysis:

1. Disallowance of Salary to Employees:
The first issue pertains to the confirmation of the disallowance of salary to employees amounting to ?15,69,560/-. The Assessing Officer (AO) examined the expenditure and found discrepancies, including payments made in cash and incomplete responses to notices sent under section 133(6). The AO concluded that the expenditure was excessive and unsupported by adequate evidence, leading to the disallowance. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld this decision, emphasizing the lack of identity proof and discrepancies in salary records. The Tribunal agreed with the lower authorities, confirming the disallowance due to the failure of the assessee to substantiate the payments with reliable evidence.

2. Withdrawal of Exemption under Sections 11, 12, and 13:
The second issue involved the withdrawal of exemption under sections 11, 12, and 13 of the Income Tax Act on a surplus of ?23,30,808/-. The AO denied the exemption, citing bogus salary expenses and non-maintenance of proper records. The CIT(A) supported this view, stating that the appellant failed to prove the genuineness of the expenses. However, the Tribunal noted that the registration under section 12AA had not been withdrawn, and the conditions for exemption were still met. Thus, the Tribunal directed the AO to grant the exemption, allowing the appeal on this ground.

3. Disallowance of Depreciation on Fixed Assets:
The third issue concerned the disallowance of depreciation on fixed assets amounting to ?34,95,190/-. The AO and CIT(A) disallowed the depreciation, citing the decision in Escorts Ltd vs Union of India, which prohibits double deduction. However, the Tribunal referred to the Supreme Court's decision in Commissioner of Income Tax vs Rajasthan Gujarati Charitable Foundation, which allows depreciation even if the cost of the asset has been claimed as an application of income. Consequently, the Tribunal directed the AO to delete the disallowance, ruling in favor of the assessee.

4. Non-application of Case Laws and Amendments:
The appellant argued that the CIT(A) ignored relevant case laws and amendments, particularly the Supreme Court's dismissal of a Special Leave Petition related to the claim of depreciation. The Tribunal acknowledged the appellant's reliance on these precedents, particularly the decision in Commissioner of Income Tax vs Rajasthan Gujarati Charitable Foundation, which supports the claim for depreciation. This issue was resolved in favor of the assessee as part of the third issue.

5. Speaking Order and Reasons for Rejection of Contentions:
The appellant contended that the CIT(A) did not provide a speaking order or adequate reasons for rejecting their contentions. The Tribunal's analysis and decisions on the other issues implicitly addressed this concern by providing detailed reasoning and referring to relevant case laws and amendments.

6. Following Judgments Relied Upon by the Appellant:
The appellant argued that the CIT(A) did not follow various judgments they relied upon. The Tribunal, in its detailed analysis, considered and applied relevant judgments, particularly the Supreme Court's decision in Commissioner of Income Tax vs Rajasthan Gujarati Charitable Foundation, which was favorable to the assessee.

Conclusion:
The Tribunal partly allowed the appeal, confirming the disallowance of salary to employees but granting the exemption under sections 11, 12, and 13, and allowing the claim for depreciation on fixed assets. The Tribunal's decision was based on a detailed examination of the evidence, relevant case laws, and statutory provisions.

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