2020 (12) TMI 17 - AT - Income Tax

Exemption u/s 11 - Addition towards surplus income - HELD THAT - Assessee furnished the details and the CIT(A) called for the remand report. During the remand proceedings, the assessee furnished complete details, i.e.ledger accounts and expenses which were examined by the AO and discussed by the Ld.CIT(A) head-wise in his appeal order. The AO at no point of time, made any adverse comments with regard to the exemption claimed by the assessee. CIT(A) granted exemption u/s 11 on the basis of the remand report submitted by the AO. The Ld.CIT(A) directed the AO to grant exemption u/s 11 and observed that the AO did not make any adverse observation against Manager of the Trustee or Society in the remand report with regard to misappropriation of the funds of the Society. Further, we find from the order of the Ld.CIT(A) that no violation u/s 13(1)(c) was brought on record by the AO in the remand report. Therefore, we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. Ground of the department is dismissed. Disallowance to 50% of the expenditure incurred on boarding and lodging expenses - HELD THAT - As stated that the assessee could not furnish some of the details, such as names of persons, their identity and purpose of visit etc., which created suspicion to hold that the expenditure was not completely verifiable. Since the assesse has furnished the information merely because of the failure of the assessee to furnish some of the details such as names of persons, purpose of visit etc., disallowance of the entire expenditure unjustified. The assessee is engaged in running the educational institutions and it is needless to say that it has to engage the faculty from outside for which the expenditure required to be incurred. AO did not doubt the genuineness of expenditure. Therefore, we hold that restricting the expenditure to the extent of 50% is reasonable and no interference is called for in the order of the Ld.CIT(A). Therefore, appeal of the revenue on this ground is dismissed. Interest payment to interested persons @18% - AO disallowed the entire interest because of non response from the assesse to the notices issued - HELD THAT - The assessee has paid the interest @18% to the interested persons and explained that interest payment was on par with the market rate and there was no pressure from the lenders for immediate payment of the principle. CIT(A) viewed that there is no bar on payment of interest @18% and the same is on par with the market rate. The department did not bring any material to show that the funds are available in the market for interest lesser than 18%. Since the CIT(A) has given a finding that the interest payment @18%, is on par with the market rate and the department failed to bring any material to controvert the finding given by the Ld.CIT(A) we do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the Revenue on this ground is dismissed. Addition on building rent - CIT-A deleted addition - HELD THAT - AO did not dispute the genuineness of rent payments as observed from the remand report as well as the order of the Ld.CIT(A) in the earlier years as per the said agreement. AO also did not suspect the genuineness of the rent payment to Smt.M.Sucharitha in the impugned assessment year. Before the Ld.CIT(A), the assessee furnished the rent agreement which was verified by the Ld.CIT(A) and allowed the expenditure. The assessee filed paper book wherein the assessee has furnished the copies of rental agreement, wherein, the property was let out to the assessee for a monthly rent of ₹ 1,00,000/- per month and the same was used for hostel building by the society. Therefore, we do not see any reason to interfere with the order of the Ld.CIT(A). Addition for vehicle rents - CIT(A) deleted the addition towards the car rent and confirmed the addition towards tractor - HELD THAT -.CIT(A) found that the AO did not make proper enquiry to enable the assessee to produce the details and accordingly confirmed the addition of ₹ 3,60,000/- towards tractor rent and deleted the balance. From the order of the lower authorities, we observe that the department did not make out case that the expenditure was not incurred by the assessee. We also observe from the paper book page No.20 to 23 that there was written agreement dated 10.04.2009 from M.Sucharitha for letting out the cars to the assessee. Since the assessee has produced ledger accounts and rental agreements in respect of cars and no material was brought on record by the AO to controvert the finding of the Ld.CIT(A) with regard to non utilisation of cars by the Trust, we are unable to disagree with the Ld.CIT(A), accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue.

Summary

Issues Involved:
1. Exemption under Section 11 of the Income Tax Act.
2. Disallowance of boarding and lodging expenses.
3. Interest payment to interested persons.
4. Rent for building.
5. Rent for vehicles.

Detailed Analysis:

1. Exemption under Section 11 of the Income Tax Act:
The revenue challenged the CIT(A)'s decision to allow exemption under Section 11, arguing that the assessee failed to furnish full details of bills and vouchers. The AO had initially denied the exemption and taxed the surplus income because the assessee did not respond to notices. However, during the appeal, the assessee provided the necessary details, which were examined during remand proceedings. The AO, after detailed verification, did not make any adverse comments regarding the exemption claim. The CIT(A) subsequently allowed the exemption, noting that the expenses were genuine and spent for the society's objectives. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere as no violation under Section 13(1)(c) was established.

2. Disallowance of Boarding and Lodging Expenses:
The AO disallowed the entire expenditure on boarding and lodging due to the assessee's failure to respond to notices. During the appeal, the assessee furnished bills and vouchers, and the CIT(A) called for a remand report. The AO noted that while some details were provided, the names, identities, and purposes of visits were not furnished, making the expenses unverifiable. The CIT(A) restricted the disallowance to 50%, considering the nature of the assessee's educational activities. The Tribunal found the restriction reasonable and upheld the CIT(A)'s decision, dismissing the revenue's appeal on this ground.

3. Interest Payment to Interested Persons:
The AO disallowed the entire interest payment to interested persons at 18%, considering it excessive. During remand proceedings, the AO suggested a reasonable interest rate of 12%, recommending disallowance of the excess amount. The CIT(A) allowed the entire interest payment, observing that 18% was on par with market rates and there was no legal bar on such rates. The Tribunal upheld the CIT(A)'s decision, noting that the department failed to provide evidence of lower market rates, thus dismissing the revenue's appeal on this ground.

4. Rent for Building:
The AO questioned the genuineness of rent payments for a hostel building due to the absence of a lease deed. The assessee provided a rental agreement dated 10.04.2009 during the appeal, which was accepted by the CIT(A). The Tribunal found no reason to interfere with the CIT(A)'s decision, as the AO did not dispute the genuineness of the rent payments or the utilization of the building for trust purposes. The revenue's appeal on this ground was dismissed.

5. Rent for Vehicles:
The AO disallowed rent payments for a tractor due to the absence of a rental agreement, though the rent for cars was accepted. The CIT(A) confirmed the disallowance for the tractor but allowed the rent for cars. The Tribunal upheld the CIT(A)'s decision, noting that the assessee provided ledger accounts and rental agreements for the cars, and the AO did not dispute their utilization. The revenue's appeal on this ground was dismissed.

Cross Objections by the Assessee:
The assessee's cross objections related to the disallowance of boarding and lodging expenses and vehicle rent were dismissed, as the Tribunal upheld the CIT(A)'s decisions on these issues.

Conclusion:
The Tribunal dismissed both the revenue's appeal and the assessee's cross objections, upholding the CIT(A)'s decisions on all contested issues. The order was pronounced on 23rd November 2020.