2015 (9) TMI 711 - AT - Income Tax

Disallowance of exemption claimed by the assessee u/s 11 - CIT(A) confirmed the disallowance made by the AsO denying exemption u/s 11 as if there was a violation of sec. 13(1)(C) r.w.s 13(3) - Held that - This Tribunal is of the considered opinion that if the funds were misappropriated and legal actions were initiated to recover the amount from Shri G. George and criminal prosecution is also initiated, then it cannot be said that the assessee-trust incurred expenditure on Shri G. George. Merely because an office bearer is misappropriated the funds in a dubious manner by misusing his position in the trust that cannot go against the assessee especially when legal actions were taken to recover the amount and criminal prosecution is also initiated. Since the facts were not examined by the lower authorities, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. Accordingly, the orders of the lower authorities are set aside and the entire issue of claim of exemption u/s 11 of the Act is remitted back to the file of the Assessing Officer to examine the material available on record and find out whether it is an expenditure incurred by the assessee on Shri G. George or the funds were misappropriated by Shri G. George as contended by the assessee before this Tribunal. Decided in favour of assessee for statistical purposes.

Summary

Issues: Disallowance of exemption claimed by the assessee u/s 11 of the Act.

The main issue in this case revolved around the disallowance of the exemption claimed by the assessee under section 11 of the Income Tax Act. The Assessing Officer disallowed the claim, citing that the assessee-trust had incurred expenditure on the former General Secretary, who was alleged to have misappropriated funds. The CIT(A) upheld this decision based on judgments from the Rajasthan High Court and the Bombay High Court. The assessee argued that the funds were misappropriated by the former General Secretary, and legal actions were taken to recover the amount. The High Court appointed a retired judge to conduct trust elections due to the mismanagement by the former General Secretary. The assessee contended that the expenditure was not incurred on the Secretary but was misappropriated by him.

The Tribunal analyzed the submissions from both sides and found that the lower authorities had not thoroughly examined whether the funds were misappropriated or if the assessee had actually incurred expenditure on the former General Secretary. The Tribunal concluded that legal actions were initiated to recover the misappropriated funds and criminal prosecution was pending, indicating that the assessee-trust may not have incurred the expenditure as claimed. Therefore, the matter was remitted back to the Assessing Officer for a detailed examination of the evidence to determine if the funds were misappropriated or if the assessee had indeed incurred the expenditure. The Assessing Officer was directed to decide the issue after providing a reasonable opportunity of hearing to the assessee.

In the end, the appeal of the assessee was allowed for statistical purposes, and the orders of the lower authorities were set aside for a re-examination of the claim of exemption under section 11 of the Act.