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Income Tax Appellate Tribunal, JAIPUR BENCH ’B’, JAIPUR
Before: SHRI RAMESH C. SHARMA, AM & SHRI VIJAY PAL RAO, JM
This appeal by the assessee is directed against the order dated 17.01.2018 of ld. CIT (A), Ajmer for the assessment year 2013-14. The assessee has raised the following grounds :-
“ 1. The impugned additions and disallowances made in the order u/s 143(3) dated 28.04.2016 are bad in law and on facts of the case, for want of jurisdiction and various other reasons and hence the same kindly be deleted.
2. Rs. 87,55,751/- : The ld. CIT (A) erred in law as well as on the facts of the case in confirming the disallowance of Rs. 87,55,751/- [37% of Rs. 2,36,64,193/-] as made by the AO on Estimation Basis. The disallowance so made & confirmed by the ld. CIT (A) is contrary to the provisions of law and facts hence, kindly be deleted and directed to be allowed in full, as claimed.
3. Rs. 1,53,982/- : The ld. CIT (A) erred in law as well as on the facts of the case in confirming the disallowance of Rs. 1,53,982/- [30% of Rs. 5,35,992/- against the grant received] as made by the AO on Estimation Basis. The disallowance so made & confirmed by the ld. CIT (A) is contrary to the provisions of law and facts hence, kindly be deleted and directed to be allowed in full, as claimed.
4. Rs. 58,167/- : The ld. CIT (A) erred in law as well as on the facts of the case in denying the exemption of Rs. 58,167/- u/s 11(1) of the I.T. Act as made by the AO. The denial so made & confirmed by the ld. CIT (A) is contrary to the provisions of law and facts hence, the exemption be directed to be allowed in full, as claimed.
The ld. AO further erred in law as well as on the facts of the case in charging interest u/s 234B & 234D of the Act and as also in withdrawing interest u/s 244A of the Act. The appellant totally denies its liability of charging and withdrawal of any such interest. The interest so charged/withdrawn, being contrary to the provisions of law and facts, kindly be deleted in full.
6. The appellant prays your honour indulgences to add, amend or alter or any of the grounds of the appeal on or before the date of hearing.”
At the time of hearing, ld. Counsel for the assessee has stated at Bar that the assessee does not press ground no. 1 and the same may be dismissed as not pressed. The ld. D/R has raised no objection if the ground no. 1 of the assessee’s appeal is dismissed as not pressed. Accordingly, ground no. 1 of the assessee’s appeal is dismissed being not pressed.
Ground No. 2 is regarding disallowance of expenditure incurred in respect of other income.
The assessee society is registered with the Registrar of Societies since 1980.
The assessee is also registered under section 12AA of the Income Tax Act, 1961 vide registration no. CIT(Judl.)/Sec12A(a)/UDR/99-2000/1995 dated 15.03.2000. The object of the Trust is doing activities for women and children development by protecting of women from domestic violence and prohibition of child marriage. The Samiti is also running GARIMA programme for women health. The Samiti is creating awareness of the harmful effects of child labour on the development of a child and raising of public awareness. During the course of assessment proceedings, the AO noted that the assessee has shown a sum of Rs. 2,37,39,466/- in the Income & Expenditure account under the head Income from Other Sources. Against this income, the assessee has shown an expenditure of Rs. 2,36,64,193/-. The AO asked the assessee to give the source of income which has been classified under the head Income from other sources and also asked to submit the details of expenses so incurred against the said income. The AO observed that the expenditure claimed by the assessee on various heads is excessive in his opinion. Accordingly, the AO proposed to disallow 37% of the expenditure incurred on training against the income from other sources. Finally, the AO has disallowed 37% of the expenditure amounting to Rs. 87,55,751/- on the ground of absence of examination of books of accounts and any concrete evidence in support of the claim. The assessee challenged the action of the AO before the ld. CIT (A) but could not succeed.
Before us, the ld. A/R of the assessee has submitted that the assessee has duly produced the books of account and all other supporting evidence before the AO. He has also referred the remand report as well as the letter filed by the assessee during the remand proceedings to show that the assessee produced the books of account, though the party-wise accounts in respect of the training were not maintained as it is conducted at different places of different districts. He has also explained the reasons for making the payment in cash because the training was conducted at different places in the remote areas and, therefore, instant payment on the spot was made in cash. The ld. A/R has further contended that the assessee is doing the charity work, which are assigned by the State Government of Rajasthan and all the expenses are being verified at different stages and were also incurred.
Thereafter, the same are reimbursed by the State Government. Thus the expenses are verified by the Government authorities including the head of the GEN Gram Panchayat, Accountant of concerned Gram Panchayat. The ld. A/R has referred the remand report and submitted that in the remand report the AO has accepted the fact of production of books of account along with the bills and vouchers. Therefore, the disallowance made by the AO and confirmed by the ld. CIT (A) is contrary to the record and facts.
5. On the other hand, the ld. D/R has submitted that the expenditures were not substantiated by verifiable supporting vouchers. Therefore, in the absence of supporting evidence, the AO has made a disallowance by allowing the reasonable expenditure found to be incurred against each item. He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as the relevant material on record. The AO has doubted the correctness of the claim of expenditures incurred by the assessee against the Watershed Development work done by the assessee on behalf of the State Government. The AO in the assessment order has observed that the assessee has claimed the expenditure on account of food @ Rs. 75/- per person whereas in the opinion of the AO the food was not more than Rs. 40/- per person.
Accordingly, the AO estimated the expenditure on lunch @ Rs. 55/- per person.
Similarly, the AO has estimated the expenditure in respect of stationary and other items and finally disallowed 37% of the total expenditure shown by the assessee. It is pertinent to note that in case the assessee has not produced the supporting bills and vouchers, then the same could have been verified from the concerned person to whom the assessee has paid the said amount on various items. Further, the AO as well as the ld. CIT (A) has assigned the reasons for disallowance as non production of books of account whereas the assessee has claimed that it had produced books of accounts along with the audit report in Form No. 10B. Thus there are contrary claims regarding production of books of account and despite this fact is mentioned in the remand report, the ld. CIT (A) again held that the assessee has not produced books of account and bills and vouchers in support of the expenses claimed. In the facts and circumstances of the case, we are of the considered opinion that the disallowance made by the AO @ 37% of the expenditure is without any proper basis as the AO has not applied any reasonable criteria or any material to show that the assessee has inflated the expenditure. Further, since the assessee has claimed to have produced the books of account along with the audit report, then this fact is also required to be verified. Hence in the interest of justice, we set aside this aspect to the record of the AO to conduct a proper enquiry and then decide the issue as per law and not to resort in making some adhoc disallowance without any basis.
Needless to say, the assessee be given an opportunity of hearing.
Ground No. 3 is regarding disallowance of expenditure @ 30% against the grant received from the State Government.
The assessee has shown receipt of grant of Rs. 5,35,992/- against which it has claimed an expenditure of Rs. 5,10,940/-. The AO asked the assessee to produce the books of account and details of expenditure incurred supported by bills and vouchers. The AO observed that the assessee has failed to produce the supporting evidence. Accordingly, the AO has made a disallowance of 30% of the expenditure amounting to Rs. 1,53,282/-. The ld. CIT (A) has confirmed the disallowance made by the AO.
We have heard the ld. A/R as well as the ld. D/R and considered the relevant material on record. The AO has made an adhoc disallowance on the ground of non production of books of account and supporting evidence whereas the assessee has submitted that the assessee is doing the work under the Welfare Programme of the State Government and, therefore, each and every expenditure are subject to verification by various Government authorities. The bills and vouchers were also subject to verification of the authorities. Thus the disallowance is made only on the suspicion without giving a finding that the claim of the assessee is bogus. Since we have already set aside the issue of disallowance of expenditure against the income from other sources, therefore, the similar disallowance made by the AO on identical ground is also required to be verified and considered afresh on the same terms as directed in respect of ground no. 2. The issue is set aside to the record of the Assessing Officer.
Ground No. 4 is regarding denial of exemption under section 11(1) of the IT Act of Rs. 58,167/-.
The AO noted that as per Income and Expenditure account, the assessee has shown the receipt of Rs. 2,42,36,448/- and an amount of Rs. 2,41,75,133/- is applied for charitable purposes. The balance amount of Rs. 61,315/- was claimed as accumulation @ 15%. The AO proposed to allow the accumulation @ 15% of Rs. 61,315/- as against the gross receipts. Accordingly, the AO has made a disallowance of Rs. 58,167/-. The ld. CIT (A) has confirmed this disallowance made by the AO of deduction under section 11(1) of the IT Act.
We have heard the ld. A/R as well as the ld. D/R and considered the relevant material on record. The AO has not disputed the gross receipt of the assessee being the income derived from property held under the Society at Rs. 2,42,36,448/-. The AO has also not disputed the application of income for charitable purposes at Rs. 2,41,75,133/-. The surplus of Rs. 61,315/- was claimed by the assessee as within the limitation of 15% as per section 11(1)(b) of the IT Act. We find that the AO has mis-conceived the provisions of section 11(1)(c) of the Act. If the accumulation is not in excess of 15% of gross income, the same cannot be treated as non application of income for charitable purposes though the assessee is required to apply the said accumulated amount within the specified period as per the provisions of section 11 of the Act. The AO has allowed this accumulation @ 15% only on the surplus amount which is not the correct interpretation of the provisions of section 11(1)(b) of the Act. Accordingly, once the said amount of Rs. 61,315/- is not exceeding 15% of the gross income earned from the property held under the Society, then no disallowance is called for for the year under consideration.
Accordingly, the addition made by the AO is deleted.
In the result, appeal of the assessee is partly allowed.
Order is pronounced in the open court on 20/06/2019.