2015 (8) TMI 39 - AT - Income Tax

Eligibility for exemption under S.11 denied - excess salary paid to Shri Navneet Chabra, Executive Director as during the year - CIT(A) allowed claim - Held that - As can be seen from the material placed on record total salary paid in the initial year of appointment to Shri Chabra is 10, 80, 000 and not 7, 20, 000 as noted by the Assessing Officer. Therefore compared to the salary paid in the initial year of appointment of 10, 80, 000 the salary paid to Shri Chapbra in the year under consideration of 14, 51, 226 cannot be said to be excessive or unreasonable so as to bring it within the purview of S.13(1)(c) of the Act. The Assessing Officer has not mentioned any valid reason in the assessment order to indicate that the salary paid to the Executive Director is not commensurate with the responsibilities/duties performed by him. Therefore there being no material brought on record by the Assessing Officer to indicate that the salary paid is unreasonable or excessive we do not see any reason to interfere with the order of the learned CIT(A).- Decided against revenue. Violation of Rule 46A of the IT Rules - Held that - It is a fact on record that assessment for the assessment year 2008-099 has been completed by the Assessing Officer under S.143(3). It is also not disputed that the assessee being a society registered under S.12A of the Act is obliged and duty bound to file its return of income for each assessment year. Therefore it cannot be said that information relating to the payment of salary in the initial assessment year in which the Executive Director was appointed was not before the Assessing Officer. Moreover when the Assessing Officer is aware of the basic salary paid to the executive Director it is highly surprising and appears to be quite improbable that he is not aware of the other allowances paid alongwith the basic pay. Therefore in these facts and circumstances we do not find any merit in the submissions of the Learned Departmental Representative that provisions of Rule 46A have been violated - Decided against revenue.

Summary

Issues:
- Disallowance of excess salary paid to Executive Director under S.13(1)(c) for AY 2011-12
- Allegation of additional evidence submitted during appellate proceedings in violation of Rule 46A

Issue 1: Disallowance of excess salary paid to Executive Director under S.13(1)(c) for AY 2011-12

The Department appealed against the order passed by the Commissioner of Income-tax(Appeals) regarding the excessive salary paid to the Executive Director for the assessment year 2011-12. The Assessing Officer disallowed an amount paid as salary to the Executive Director, stating it was more than 100% increment within two years of appointment, which he deemed abnormal. The Assessing Officer concluded that the excess payment violated S.13(1)(c) of the Act, leading to disallowance and addition to the assessee's income. The CIT(A) found the disallowance unjustified, noting that the salary determination was within the assessee's authority, and deleted the addition made by the Assessing Officer. The Revenue challenged this decision, arguing that the CIT(A) considered new evidence not presented before the Assessing Officer. The Authorized Representative for the assessee defended the CIT(A)'s decision, emphasizing that the total salary paid to the Executive Director was reasonable and within the authority of the assessee. The ITAT upheld the CIT(A)'s decision, stating that the salary paid was not excessive compared to the initial year's salary and that no valid reason was provided to deem it unreasonable under S.13(1)(c). The ITAT rejected the Revenue's appeal, affirming the CIT(A)'s decision.

Issue 2: Allegation of additional evidence submitted during appellate proceedings in violation of Rule 46A

The Department alleged that the CIT(A) considered additional evidence submitted by the assessee during the appellate proceedings, violating Rule 46A of the IT Rules. The Department contended that the information provided in the letter regarding the Executive Director's initial year's salary was not previously disclosed to the Assessing Officer. The ITAT, however, found that the information submitted was not additional evidence but part of the records available to the Assessing Officer during the initial assessment year. The ITAT reasoned that since the Assessing Officer was aware of the basic salary paid to the Executive Director, it was unlikely that he was unaware of other allowances. The ITAT concluded that even if there was a technical violation of Rule 46A, it would not change the outcome as the salary payment to the Executive Director was a matter of record. Therefore, the ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

In conclusion, the ITAT upheld the CIT(A)'s decision, rejecting the Revenue's appeal and dismissing the disallowance of excess salary paid to the Executive Director for the assessment year 2011-12. The ITAT also found no violation of Rule 46A in the submission of information during the appellate proceedings, as the salary details were part of the records available to the Assessing Officer.