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Facts
The assessee company, engaged in providing accommodation and wellness services, paid honorarium to volunteers. During assessment, the AO disallowed 50% of this honorarium for lack of documentary evidence. The CIT(A) confirmed this disallowance. Subsequently, based on a survey and a statement from the director, the AO reopened the assessment and further disallowed the honorarium.
Held
The Tribunal held that reopening based solely on a survey statement without corroborative material is not sustainable. Previous disallowances of 50% were considered reasonable given the director's admission of genuine expenses but inability to provide documentation. The Tribunal directed the AO to delete the further disallowance of 25% confirmed by the CIT(A), thereby restricting the disallowance to 50%.
Key Issues
Whether reopening of assessment based on a statement recorded during survey under Section 133A without corroborative evidence is valid? Whether the quantum of disallowance for honorarium paid to volunteers, where expenses are genuine but not substantiated with documentary evidence, is justified?
Sections Cited
143(3), 147, 133A, 131, 148, 151
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R
PER JAGADISH, A.M : Aforesaid three appeals filed by the assessee for Assessment Years (AYs) 2013-14, 2014-15 & 2015-16 arise out of the orders of Learned Commissioner of Income Tax (Appeal), Chennai-18 [hereinafter “CIT(A)”] dated 28.09.2024 in the matter of assessments framed by Ld. Assessing Officer [AO] u/s. 143(3) r.w.s 147 of the Income-tax Act, 1961 (hereinafter “the Act”) dated 10.12.2018.
, 2992 & 2993/Chny/2024 M/s. Golden Shelters Pvt. Ltd.` :- 2 -:
The facts in all the appeals of the assessee are identical and issues are common hence, we proceed to pass a common order. For brevity, we shall take up the appeal in for A.Y 2013-14 as lead case.
The effective ground of appeal in all the three appeals are in relating to disallowance of honorarium paid to volunteers in cash for various services where no documentary evidence was produced to substantiate the claim.
1. 4. The assessee-company is engaged in the business of providing accommodation facilities, spiritual healing, and conducting meditation and yoga classes. The assessee-company filed its return of income for A.Y. 2013-14, declaring total income of Rs. 39,53,05,790/-. The A.O during course of scrutiny proceeding found that the assessee has paid Honorarium of Rs. 2,21,76,000/- to volunteers for various services, but no documentary evidence was produced to substantiate the claim. The A.O, therefore, made an ad-hoc disallowance of 50% of the claimed amount. Aggrieved by the addition, the assessee filed an appeal before the Ld. CIT(A), who confirmed the disallowance. Subsequently, a survey u/s 133A of the Act was conducted on 08.02.2018 and , 2992 & 2993/Chny/2024 M/s. Golden Shelters Pvt. Ltd.` :- 3 -: statement of Sri Badri Narayanan, Director of the assessee-company was recorded where he stated that although the expenses were genuinely incurred, the company was unable to furnish documentary evidence and, therefore, the Honorarium amount was offered as income. Based on this statement, the AO reopened the assessment and made a further disallowance of Rs. 2,22,50,506/-. On appeal, the Ld. CIT(A) restricted the disallowance to 75% of the total Honorarium claim on an ad-hoc basis.
The Ld. Authorized Representative (A.R) of the assessee has raised legal ground against reopening of the case on the basis of statement recorded u/s. 133A of the Act. The Ld. AR has stated that the A.O has reopened the assessment on the basis of statement of the Director, recorded u/s. 133A of the Act and the Hon’ble Supreme Court in the case of CIT vs. S.Khader Khan Son [2012] 352 ITR 480 (SC) has held that Section 133A of the Act does not empower tax authorities to examine any person on oath. It was further stated that the assessee has not included the admitted income in the return of income filled in response to notice u/s. 148 of the Act, which amounts to retraction from the statement made u/s. 133A of the Act. The Ld. AR has also argued that approval u/s. 151 of the Act was issued in , 2992 & 2993/Chny/2024 M/s. Golden Shelters Pvt. Ltd.` :- 4 -: mechanical way and therefore, reopening was bad in law and relied upon the various case laws including the decision of Hon’ble Supreme Court in the case of Chugamal Rajpal vs. S.P.Chaliha 79 ITR 603 (SC).
On the other hand, the Ld. Departmental Representative (DR), has submitted that a survey u/s. 133A of the Act was conducted and the statement of the Director, Shri Badri Narayan was recorded u/s. 131 of the Act, where he has stated that he did not have any necessary documents and vouchers to substantiate the claim and offered the entire amount of honorarium paid in the respective assessment from A.Y 2011-12 to 2017-18, therefore the satisfaction recorded by the A.O cannot be faulted with. The Ld. DR has further submitted the copy of satisfaction recorded by the A.O approved by the Ld. Addl. CIT(A), Corporate Range-2, Chennai, where proposal was submitted on 13.03.2018 and the Ld. Addl. CIT(A) has approved on 14.03.2018 after application of mind.
We have heard the rival submissions and perused the materials available on record. We find that the A.O has recorded the satisfaction making reference to survey conducted u/s. 133A of the Act and the , 2992 & 2993/Chny/2024 M/s. Golden Shelters Pvt. Ltd.` :- 5 -: statement of the Director, Shri Badri Narayan, recorded u/s.131 of the Act in which he has shown his inability to submit evidences in support of the payment made for honorarium and offered the addition income.
The Ld. Addl. CIT(A) has recorded his satisfaction on subsequent date for reopening the assessment after application of mind. We, therefore find no infirmity in the order of Ld. CIT(A) in confirming the reopening of the assessment and therefore, this ground of appeal is dismissed.
8. The next ground is against in confirming the disallowance of honorarium payment at 75%.
8.1 The Ld. AR has submitted that in the original proceedings, the A.O. had disallowed 50% of the honorarium, which has been accepted by the assessee as the same was confirmed in the appeal proceeding for A.Y 2011-12, further disallowances of honorarium has not called for. The Ld AR further submitted that the further disallowances was made only on the basis of statement of the Director, who has clearly stated that the expenses are genuine, only he could not submit the documentary evidence for which 50% disallowances has already made.
, 2992 & 2993/Chny/2024 M/s. Golden Shelters Pvt. Ltd.` :- 6 -:
8.2 On the other hand, the Ld. DR relied on the order of the Ld. CIT(A) and submitted that the assessee had not substantiated the claim of honorarium payments with proper evidence, and hence, the disallowance confirmed by the Ld. CIT(A) was justified.
8.3 We have heard the rival submissions and perused the material available on record. The A.O in the reassessment proceeding has disallowed 100% of honorarium paid on the basis statement of the director, where he has reiterated that the expenses are genuine, but he is not able to submit the documentary evidence and has offered it as income. This is not a case of revenue that the assessee has not paid the honorarium or the expenditure is bogus. The disallowances have been made only because assessee could not submit the evidences and offered it as income in his statement recorded during survey. The Ld CIT(A) after considering totality of the facts of the case has restricted the disallowances to 75%. It has been settled by the Hon’ble Supreme Court in the case Kader Khan Sons (supra) and CBDT circular 286/200-IT(Inv) dated 10.03.2003 that addition cannot be made merely on the basis of survey statement, there being no corroborative material to back the statement. The assessee in A.Y 2011-12 and 2012-13 has accepted the disallowances at 50% upheld , 2992 & 2993/Chny/2024 M/s. Golden Shelters Pvt. Ltd.` :- 7 -: by the CIT(A) and the same has become final, we therefore hold the disallowances of honorarium payment at 50% reasonable. We, accordingly direct A.O to delete the further disallowance of 25% of honorarium confirmed by the Ld CIT(A). The ground of appeal is accordingly allowed. disallowance towards honorarium payment. However, in the reassessment proceedings, the A.O. disallowed 100% of the honorarium, which was restricted to 75% by the Ld. CIT(A). We have already dismissed the ground challenging the reopening and upheld the disallowance of honorarium at 50%. Accordingly, the disallowance of honorarium in this case is restricted to 50%. Therefore, the appeal for A.Y. 2014-15 is partly allowed. for A.Y 2015-16:
10. In this case, the return was processed u/s. 143(1) of the Act and the case was not scrutinized u/s 143(3) of the Act. The A.O. reopened the assessment u/s. 147 of the Act and disallowed 100% of the honorarium. The Ld. CIT(A), following the order for A.Ys. 2013-14 and 2014-15, restricted the disallowance to 75%. We have already , 2992 & 2993/Chny/2024 M/s. Golden Shelters Pvt. Ltd.` :- 8 -: dismissed the ground challenging the reopening and upheld the disallowance of honorarium at 50%. Accordingly, the disallowance of honorarium in this case is restricted to 50%. Therefore, the appeal for A.Y. 2015-16 is partly allowed.
In the result, all the appeals filed by the assessee are partly allowed.
Order pronounced on 29th day of August, 2025 at Chennai.