2016 (5) TMI 811 - AT - Income Tax

Disallowance of salary expenses - the assessee Society was granted registration u/s 12AA - Held that - CIT(A) was full y justified in admitting the additional evidence. We may also observe here that Assessing officer has disallowed 50% of the salary expenses on adhoc basis without pointing out any particular instance to show that the part of payment was bogus. Thus we full y agree with this observation of the C IT(A) that there was no basis for making disallowance of 50% of salary expenses. As regards the disallowance out of salary expenses at 5 lakhs sustained by the C IT(A) we are of the view that disallowance of 5 lakhs is quite reasonable and justified keeping in view the facts and circumstances of the present case. Accordingly we decline to interfere with the order of the CIT(A) on this issue. Addition made on account of disallowance of expenses u/s 40(a)(ia) - Held that - Provisions of section 40(a) are not applicable in case of charitable trust or institution where income and expenditure is computed in terms of section 11. Addition of unvouched expenses and expenses of personal nature - Held that - C IT(A) has correctly observed that the expenses incurred on account of business promotion Misc. expenses repair and maintenance office expenses D.G. set and Printing and stationery expenses are required for smooth running of the educational institution. By any stretch of imagination these expenses cannot be held unreasonable or excessive. We also agree with the CIT(A) that 1/10 t h of vehicle running and maintenance expenses is to be treated as personal in nature because the element of personal use of vehicle cannot be ruled out in this case. There is no evidence on record to show that the assessee had maintained the log book of the vehicle. Thus considering the entire facts and circumstances of the case we uphold the order of CIT(A) Withdrawal of registration u/s 12AA - Held that - CIT(A) has deleted various additions made by the Assessing officer and after re-computation condition of application of 85% of income stands satisfied and therefore there remains no ground for withdrawal of the registration granted u/s 12AA of the Act. According to Ld. Counsel for the assessee this ground has been raised by the Revenue considering the additions made by the Assessing officer. In our opinion the order of the CIT(A) is correct and the ground raised by the Revenue that the trust has applied 62.32 % of its income for the purposes of which trust had been created has no force - Decided against the revenue.

Summary

Issues Involved:
1. Disallowance of salary expenses.
2. Deletion of disallowance of expenses under Section 40(a)(ia).
3. Disallowance of unvouched expenses and expenses of personal nature.
4. Recommendation for withdrawal of registration under Section 12AA.

Issue-wise Detailed Analysis:

1. Disallowance of Salary Expenses:
The Revenue challenged the CIT(A)'s decision to restrict the disallowance of salary expenses to ?5 lakhs from ?35,35,126/- disallowed by the Assessing Officer (AO). The AO had disallowed 50% of the salary expenses due to incomplete details such as addresses, PAN numbers, and TDS deductions, and because payments were made in cash. The CIT(A) admitted additional evidence provided by the assessee, which included month-wise salary details and signatures on salary sheets. The CIT(A) concluded that the AO's disallowance was based on estimation without specific evidence of bogus payments. The Tribunal upheld the CIT(A)'s decision, stating that the disallowance of ?5 lakhs was reasonable given the circumstances.

2. Deletion of Disallowance of Expenses under Section 40(a)(ia):
The AO disallowed ?5,84,071/- on account of advertisement expenses under Section 40(a)(ia) due to non-deduction of TDS. The CIT(A) deleted this disallowance, reasoning that Section 40(a)(ia) is not applicable to the computation of income of a trust for charitable purposes under Section 11. The Tribunal supported this view, citing the ITAT Mumbai Bench's decision in Mahatma Gandhi Seva Mandir v Deputy Director of Income Tax (Exemptions), which held that disallowances under Section 40(a)(ia) are not applicable to charitable trusts where income is computed under Section 11.

3. Disallowance of Unvouched Expenses and Expenses of Personal Nature:
The AO disallowed 1/5th of various expenses totaling ?9,01,124/- on the grounds of being unvouched and of personal nature. The CIT(A) allowed most of these expenses, stating they were necessary for running the educational institution and were reasonable. However, the CIT(A) upheld the disallowance of 1/10th of vehicle running and maintenance expenses as personal in nature. The Tribunal agreed with the CIT(A), noting that the expenses were reasonable and necessary for the institution's operation, and upheld the partial disallowance for vehicle expenses due to the lack of a logbook.

4. Recommendation for Withdrawal of Registration under Section 12AA:
The AO recommended withdrawing the assessee's registration under Section 12AA, arguing that the trust applied only 62.32% of its income, below the required 85%. The CIT(A) rejected this recommendation, stating that the recomputation of application of income was consequential to the relief granted on various disallowances. The Tribunal agreed, noting that after the CIT(A)'s adjustments, the condition of applying 85% of income was satisfied, and thus, there was no ground for withdrawal of registration.

Cross Objection:
The assessee's cross objection merely supported the CIT(A)'s order and did not seek any effective relief. The Tribunal dismissed the cross objection.

Conclusion:
The Tribunal dismissed both the Revenue's appeal and the assessee's cross objection, upholding the CIT(A)'s decisions on all issues.