2020 (9) TMI 460 - AT - Income Tax

Exemption u/s 11 - assessee society is registered u/s 12AA - assessee trust provided undue benefit in lieu of salary to the persons specified u/s 13(3) - HELD THAT - From the above decision of the ITAT in assessee's own case 2018 (8) TMI 748 - ITAT JAIPUR we noticed that even if the salary paid to the trustee are held to be unreasonable even then the exemption cannot be denied. Only excess/ unreasonable salary paid to the trustee, would not be entitled to the benefit of Section 11 of the Act. CIT(A) after taking into consideration the decision of ITAT Jaipur bench in assessee's own case for the Assessment Year 2014-15 2018 (8) TMI 748 - ITAT JAIPUR had correctly held that exemption u/s 11 cannot be denied in respect of entire surplus of the society. The present ground has been taken in appeal by the Department only on the ground that the order of ITAT for the A.Y. 2014-15 was not accepted by the Department. These arguments of the Revenue are not sustainable in the eye of law as merely filing of appeal against the order of ITAT is not enough and the Revenue has to show as to whether the Hon'ble High Court has stayed the operation of the said impugned order and in case there is no stay order by the Hon'ble High Court then the Revenue is bound as on today by the decision of the Coordinate Bench of ITAT in assessee's own case (supra) for the A.Y. 2014-15 and thus we dismiss these grounds raised by the Revenue. According, the Ground No. 1 to 3 raised by the Revenue are dismissed. Claim of capital expenditure - HELD THAT - ITAT Coordinate Bench in assessee's own case for the A.Y. 2014-15 2018 (8) TMI 748 - ITAT JAIPUR has already held that the assessee is entitled to exemption u/s 11 of the Act then the capital expenditure is to be considered as application of income in computing the total income of the assessee. Therefore, the ld. CIT(A) under these facts and circumstances of the case has rightly directed the AO to allow the claim of capital expenditure as application of income. No new facts or circumstances have been brought before us in order to controvert or rebut the findings so recorded by the ld. CIT(A). Therefore, we find no reason to interfere into the lawful findings so recorded by the ld. CIT(A). Ground raised by the Revenue also stands dismissed. Disallowance of excess payment of salary to specified person u/s 13 - HELD THAT - Since the order of the AO in set aside proceedings for the A.Y. 2014-15 was passed in pursuance to the direction of ITAT for A.Y. 2014-15 wherein salary paid to Hema Choudhary, Deepak Rastogi and Meghna Singhal has been accepted as reasonable. Therefore, we set aside the order of the ld. CIT(A) for the year under consideration and delete the disallowance of salary paid to these persons i.e. Hema Choudhary, Deepak Rastogi and Meghna Singhal. So far as the salary paid in respect of DR.Pankaj Garg and Smt. Vidushi Garg are concerned, we restore the matter back to the record of the AO for afresh adjudication after proper verification and examination of all the relevant facts. Thus the assessee is directed to produce all the relevant facts to establish the actual rendering of services by these two persons and also all the rules applicable in respect of the qualification and appointment of persons on such posts. Thus the appeal of the assessee is partly allowed for Statistical purposes.

Summary

Issues Involved:
1. Disallowance of salary payments to specified persons under Section 13 of the IT Act, 1961.
2. Denial of exemption under Section 11 of the IT Act.
3. Deletion of surplus amounts due to rejection of exemption under Section 11.
4. Allowance of capital expenditure claims.

Detailed Analysis:

1. Disallowance of Salary Payments to Specified Persons:
The assessee contested the disallowance of ?11,02,000 for A.Y. 2015-16 and ?15,90,480 for A.Y. 2016-17, arguing that the salary payments to specified persons under Section 13(3) were reasonable and justified. The Revenue, however, argued that these payments were excessive and constituted undue benefits, thus attracting the provisions of Section 13(1)(c)(ii) read with Section 13(2)(c).

The Tribunal noted that the assessee had made similar payments in previous years, which had been accepted except for A.Y. 2014-15. The Tribunal referred to its own decision in A.Y. 2014-15, where it was held that only the unreasonable portion of the salary should be disallowed and taxed, not the entire income. The Tribunal remitted the matter back to the Assessing Officer (AO) for fresh adjudication, directing the assessee to provide evidence of the services rendered and the qualifications of the specified persons.

2. Denial of Exemption under Section 11:
The Revenue appealed against the CIT(A)'s decision to allow the benefit of exemption under Section 11, arguing that the assessee trust had provided undue benefits to specified persons. The Tribunal upheld the CIT(A)'s decision, citing its own earlier ruling that only the unreasonable portion of the salary should be disallowed, not the entire exemption under Section 11. The Tribunal emphasized that merely filing an appeal against the ITAT's decision did not invalidate the ruling unless stayed by a higher court.

3. Deletion of Surplus Amounts:
The Revenue challenged the deletion of surplus amounts of ?3,52,40,552 for A.Y. 2015-16 and ?3,54,42,035 for A.Y. 2016-17, arguing that the rejection of exemption under Section 11 should result in these amounts being taxed. The Tribunal dismissed this ground, reiterating that the exemption under Section 11 could not be denied in its entirety based on the alleged excessive salary payments. The Tribunal upheld the CIT(A)'s decision to delete the surplus amounts from taxable income.

4. Allowance of Capital Expenditure Claims:
The Revenue also contested the allowance of capital expenditure claims of ?1,97,34,909 for A.Y. 2015-16 and ?5,80,24,965 for A.Y. 2016-17. The Tribunal noted that once the exemption under Section 11 was allowed, the capital expenditure should be considered as an application of income. The Tribunal upheld the CIT(A)'s decision to allow the capital expenditure claims, finding no new facts or circumstances to warrant a different conclusion.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue and partly allowed the appeals filed by the assessee for statistical purposes. The Tribunal directed the AO to re-examine the reasonableness of the salary payments to specified persons and upheld the CIT(A)'s decisions on exemption under Section 11 and allowance of capital expenditure claims. The Tribunal's decisions were based on its own earlier rulings and the principles established therein.