2020 (12) TMI 443 - AT - Income Tax

Exemption u/s 11 - disallowance of salary/honorarium paid to the qualified trustees u/s 13 (l)(c) r.w. section 13(3) and 164(2) - remuneration/salary paid by the assessee to the members of the society for the reason that no service was provided by them - HELD THAT - Payments made to the specified persons was reported by the Tax Auditor and thus said payment was not in dispute and no comparable case has been cited by the AO to substantiate that how and in what manner the payment made to the members of the society was excessive while invoking the provisions of Section 13(1)(c).when the assessee society was availing the services of the members of the society and if they have not provided those services to assessee society, it would have engaged the person from outside to whom salary was required to be paid. Therefore, the disallowance made by the AO and sustained by the Ld. CIT(A) was not justified particularly when nothing is brought on record to substantiate that the salary paid to them was excessive. AO himself admitted that the specified persons were having the higher qualification and no comparable case was brought on record to substantiate that the salary / remuneration paid to them was excessive. Therefore, the disallowance made by the AO and sustained by the Ld. CIT(A) was not justified. Also noticed that the remuneration / salary paid to the same persons in the earlier years had been accepted while framing the assessment orders under section 143(3) of the Act. Therefore, by keeping in view the principles of consistency no disallowance is to be made for the year under consideration if the facts are identical in the preceding years wherein the similar payments have been accepted by the Department. Payment on account of salary / remuneration to the same specified persons had been accepted by the Department in the preceding years therefore keeping in view the principles of consistency the disallowance made by the AO and sustained by the Ld. CIT(A) for the year under consideration was not justified. - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening of the already concluded assessment under section 143(3) by issuance of notice under section 147.
2. Sustenance of addition made by the Assessing Officer on account of disallowance of salary/honorarium paid to the trustees under section 13(1)(c) read with sections 13(3) and 164(2) of the Income Tax Act, 1961.
3. Consideration of the case law and factual circumstances by the Assessing Officer and CIT(A).

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment:
The assessee challenged the reopening of the already concluded assessment under section 143(3) by issuance of notice under section 147, arguing it amounted to a change of opinion, which is not permitted by various judgments of the Apex Court. The assessee contended that the Assessing Officer relied solely on the report of the Investigation Wing, making the reopening bad in law. However, the tribunal did not provide specific findings on this legal issue since the disallowance was deleted on merits.

2. Sustenance of Addition on Disallowance of Salary/Honorarium:
The core issue was the disallowance of ?54 lakhs paid as salary/honorarium to trustees, which the Assessing Officer deemed excessive and not genuine, invoking sections 13(1)(c), 13(3), and 164(2) of the Act. The assessee argued that these payments were for professional services provided by qualified trustees and did not constitute undue benefit. The tribunal noted several points:

- The assessee society is registered under the Societies Registration Act and section 12AA of the Income Tax Act.
- The payments were disclosed in the tax audit reports and accepted in previous assessments.
- The trustees were providing essential services such as selection of teachers, interaction with parents, management of capital expenditure, and administrative control.
- The Assessing Officer's observation that trustees were not regularly present was contradicted by their involvement in meetings and other activities.
- The tribunal emphasized the principle of consistency, noting that similar payments were accepted in previous years without disallowance.

3. Consideration of Case Law and Factual Circumstances:
The tribunal referred to several judicial precedents supporting the assessee's position:

- CIT Vs. Idicula Trust Society (P&H High Court): Payments made to specified persons were confirmed by tax auditors and not found excessive.
- CIT (Exemption) Vs. CMR Jnanadhara Trust (Karnataka High Court): Payments to trustees for services rendered were deemed reasonable and not excessive.
- Young Scholars Educational Society Vs. ITO (ITAT Chandigarh): Payment of salary to qualified trustees for services rendered was upheld as reasonable.

The tribunal concluded that the Assessing Officer did not provide any comparable case to substantiate the claim that the payments were excessive. The disallowance was deemed unjustified, especially considering the principle of consistency, as similar payments were accepted in previous assessments.

Conclusion:
The tribunal allowed the appeals of the assessee, deleting the disallowance made by the Assessing Officer and sustained by the CIT(A). The tribunal emphasized the importance of consistency in tax assessments and found no evidence that the payments to trustees were excessive or unreasonable. The legal issue of reopening the assessment was not addressed due to the decision on merits.

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