2022 (12) TMI 162 - AT - Income Tax

Benefit u/s 10(23C)(iiiad) - Disallowance at the rate of 10% out of total salary when EPF was also deducted from salary of the staff - HELD THAT - As in the case of Vijay Kumar Grover vs. ITO 2022 (6) TMI 1101 - ITAT AMRITSAR and Ajay Kumar Grover vs. ITO 2022 (7) TMI 478 - ITAT AMRITSAR We find that the AO had purely made addition by making ad hoc disallowance out of expenditure @ 10%. The ld. AO had not specified the specific lacuna related disallowance of expenditure. CIT-DR was not able to point out any contrary view in relation to submission of ld Counsel. AO is hereby directed to delete this disallowance made amount to Rs.146100/- and 293100/-. As argued that van rent amount was duly deleted by the ld. CIT(A). This particular van rent was taken twice both debit and credit side income of expenditure account for F.Y. 2014-15. Both the entries of van rent per contra. So, both the entries are deleted from income and expenditure account. The ld. Counsel has annexed the audit report with income and expenditure account. Accordingly, the assessee is an educational society and the gross receipt is calculated after deduction of van rent - Accordingly the assessee is eligible for benefit u/s 10(23C)(iiiad) r.w.s rule 2BC of the I.T. Rule 1962. We consider the submission of ld AO. The fact is that van rent is in contra entry in both side of I E accounts. After deduction of same amount from both the sides, the Turn Over of assessee is coming below 1cr. CIT-DR had not made any strong objection against the ground of the assessee. We direct for considering the turnover amount in I E A/c to allow the benefit u/s 10(23C) of the Act.

Issues:
1. Disallowance of expenses related to different heads.
2. Deduction under section 10(23C)(iiiad) read with Rule 2BC of the Income Tax Rules, 1962.
3. Pending appeal for grant of registration under section 12A.
4. Ad hoc disallowance made by the Assessing Officer.
5. Treatment of "van rent" in income and expenditure account.
6. Consideration of turnover for eligibility under section 10(23C).

Analysis:

1. The appeal challenged the disallowance of expenses by the Commissioner of Income Tax (Appeals) (CIT(A)) at a rate of 10% without specifying the particular nature of the disallowable expenses. The Assessing Officer (AO) had disallowed amounts related to different heads of expenses. The appellant contended that the disallowance lacked proper scrutiny and documentation, especially concerning salary payments to employees and various expenses. The Income Tax Appellate Tribunal (ITAT) found that the AO's addition was arbitrary and directed the deletion of the disallowance amounts.

2. The appellant sought a deduction under section 10(23C)(iiiad) read with Rule 2BC of the Income Tax Rules, 1962, based on the argument that the receipt of "van rent" should be deducted from the turnover to bring it below one crore, making them eligible for the benefit. The ITAT agreed with the appellant's contention, emphasizing that the "van rent" amount was recorded on both the debit and credit sides of the income and expenditure account. By deducting this amount from both sides, the turnover fell below the threshold, warranting the allowance of the benefit under section 10(23C).

3. The appellant had a pending appeal for registration under section 12A, which was granted with effect from the assessment year 2016-17 for "Education." The ITAT noted this registration and its relevance to the appellant's eligibility for certain deductions and benefits under the Income Tax Act.

4. The ITAT criticized the AO for making ad hoc disallowances without specifying the grounds or lacunae for such actions. The Tribunal highlighted the lack of proper verification and documentation supporting the disallowances, leading to the direction to delete the disallowance amounts.

5. Concerning the treatment of "van rent" in the income and expenditure account, the ITAT supported the appellant's argument that this amount should be deducted from both sides of the account to accurately reflect the turnover and eligibility for specific benefits under the Income Tax Act.

6. Finally, the ITAT allowed the appeal, directing the deletion of the disallowance amounts and considering the turnover after adjusting the "van rent" amount to determine the appellant's eligibility under section 10(23C). The Tribunal emphasized the importance of proper scrutiny and documentation in assessing expenses and determining eligibility for deductions and benefits under the Income Tax Act.

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