Loading judgment…
Facts
The assessee, a Trust, filed its return for AY 2018-19 disclosing a total income of Rs.38,410/-. The case was selected for scrutiny, and notices were issued. The assessee had claimed depreciation on assets and interest income under 'income from other sources' against which deductions were claimed. The Assessing Officer disallowed expenses claimed under section 57 of the Income Tax Act.
Held
The Tribunal, while considering the historical allowance of similar expenses in previous assessment years and the necessity of staff for managing bank accounts generating interest income, directed the Assessing Officer to allow the expenditure claimed by the assessee for salary expenses.
Key Issues
Whether the salary expenditure incurred for managing bank accounts and earning interest income is admissible as a deduction under Section 57 of the Income Tax Act.
Sections Cited
143(2), 142(1), 12A, 57, 143(3), 270A, 234B, 143(3A), 143(3B)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ BENCH, KOLKATA
Before: Shri Duvvuru RL Reddy, Vice-(KZ)
The present appeal is directed at the instance of assessee against the order of Id. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 23.05.2025 passed for Assessment Year 2018-2019.
(A.Y. 2018-2019) Dakshin Kalikata Sansad 2. Brief facts of the case are that the assessee is a Trust, which filed its return of income for the assessment year 2018-19 disclosing total income at Rs.38,410/-. The case was selected for complete scrutiny under CASS. Notice under section 143(2) was issued and duly served upon the assessee. Notice under section 142(1) along with questionnaire dated 28.12.2020 was issued to the assessee. In response, the assessee furnished requisite details/documents through ITBA Portal. As per details furnished, the assessee submitted that the assessee-Society registered under the Societies Registration Act, XXI of 1860 on 18.07.1949 with the objects of promotion of Sports Cultural Activities, etc. The Society is also granted with registration under section 12A of the Income Tax Act, 1961 dat4ed 11.02.2003. The Appellant-assessee submitted that the assessee has inadvertently claimed and disclosed in the return of income depreciation on assets amounting to Rs.15,39,008/-, which would be inadmissible under the provisions of the Income Tax Act and thereby application to charitable and religious purposes of the assessee would be decreased by Rs.15,39,008/-. On perusal of the ITR, it is seen that the assessee has shown interest income of Rs.41,48,848/- under the head ‘income from other sources’ against which it has claimed (A.Y. 2018-2019) Dakshin Kalikata Sansad the deduction of Rs.41,06,443/- u/s 57 of the Act and declared income of Rs.38,405/-. Notice under section 142(1) dated 28.12.2020, the assessee was asked to explain the details of interest income and details of expenses claimed with supporting documents. The assessee has declared the interest income as taxable on the principle of mutuality received from Banks etc. being from third party and not from the members of the Trust. On perusal of the details furnished by the assessee, it is observed 4that the Trust’s main activity is to running a Club and asssessee has parked it surplus fund from these activities with the banks as fixed deposits/saving bank account and earned interest income thereon. The ld. Assessing Officer disallowed the claim of expenditure of Rs.41,06,443/- under section 57 of the Income Tax Act. Finally, ld. Assessing Officer determined the taxable income of the assessee at Rs.41,44,8848/- and initiated penalty proceedings separately under section 270A of the Act for under reporting of income and charged interest under section 234B of the Income Tax Act. Not being satisfied with the order of ld. Assessing Officer, the assessee preferred an appeal before the ld. CIT(Appeals).
(A.Y. 2018-2019) Dakshin Kalikata Sansad 3. The ld. CIT(Appeals) partly allowed the appeal of the assessee by observing as under:
“I have carefully considered the grounds of appeal raised by the assessee and written submission/documentary evidences made in support of its claim. It is seen from the CIT(A) order dated 04.10.2018 for the A.Y. 2013- 14 that the CIT(A) is considered the assessee’s submission and directed the AO to allow the payment made to employee (one) u/s. 57(iii) as expenditure. Further, the AO allowed the expenditure made to employees in the A.Y. 2017- 18 and allowed the expenses to the tune of Rs. 6,80,886/- u/s. 57(iii) of the Act while completing the assessment u/s. 143(3) of the Act. Based on the written submissions and details available on record, the assessee had claimed salary expenses to the tune of Rs.26,22,854/- at the time of filing of the return and during the course of assessment proceedings, the assessee submitted that Rs.7,50,360/- was incurred as salary expenses, changing the stand. The details furnished by the assessee do not support the claim that the expenditure was spent wholly and exclusively to earn the interest income. At the same time, totally denying expenditure does not render justice to the assessee. After careful consideration from the details provided the all payments made to the employee Shri G.C. Nandy (one of the three employees) to the tune of Rs.3,42,445/- is allowed as deduction u/s. 57(iii) of the Act, respectfully following the CIT(A) order dated 04.10.2018 for the A.Y. 2013-14.
8. In the result, the appeal filed by the assessee against order u/s. 143(3) r.w.s. 143(3A) & 143(3B) of the Act for AY 2018-19 is partly allowed.
4. On being aggrieved, the assessee preferred an appeal before the Tribunal. It was the submission of the ld. Counsel for the assessee that for the assessment year 2013-14, the assessee earned interest income for an amount of Rs.15,86,900/- and incurred an expenditure (Salary expenditure) for an amount of (A.Y. 2018-2019) Dakshin Kalikata Sansad Rs.2,10,178/-. The ld. CIT(Appeals) allowed the claim under section 57(iii) of the Income Tax Act. Similarly for the assessment year 2016-17, the assessee earned interest income of Rs.36,53,832/- and incurred an expenditure of Rs.5,42,546/-. The ld. Assessing Officer himself allowed the salary expenses of three members of employees. For the assessment year 2017-18, the assessee earned interest income of Rs.41,07,023/- and incurred salary expenditure of Rs.6,80,886/-. The ld. Assessing Officer also allowed the said expenditure of Rs.6,80,886/- as salary expenses for three employees of the assessee-Society. For the impugned assessment year i.e. AY 2018-19, the assessee- Society received interest income of Rs.41,44,843/- and claimed an expenditure of Rs.7,50,360/-. The ld. Assessing Officer disallowed the entire expenditure of Rs.7,50,360/- and the ld. CIT(Appeals) considered only for an amount of Rs.3,42,446/- without any basis. Ld. CIT(Appeals) has not considered the salary paid to the employees of the assessee-Society. Therefore, the ld. Counsel for the assessee prayed before the Bench to allow the salary expenditure of Rs.7,50,360/-.
(A.Y. 2018-2019) Dakshin Kalikata Sansad 5. On the other hand, ld. Departmental Representative submitted that there is no need to incur any expenditure for earning interest income. Therefore, the ld. Assessing Officer has rightly disallowed the expenditure and ld. CIT(Appeals) allowed an amount of Rs.3,42,446/-. Therefore, there is no infirmity in the orders passed by the lower authorities. Ld. D.R. pleaded to confirm the order passed by the ld. CIT(Appeals).
I have heard both the sides and perused the material available on record. It is an admitted fact that there are several Bank accounts of the assessee-Society, which are being maintained by the assessee-Society and also the assessee-Society is claiming salary expenditure from A.Y. 2013-14 onwards. Now the contention of the assessee-Society is that for the assessment year 2018-19, the interest income was earned of Rs.41,44,843/-. Therefore, one person was not able to manage all the bank accounts, therefore, three persons of the assessee-Society from AY 2016-17 onwards were looking after this issue and the same was not disputed by the Department. Therefore, I am of the view that there is no material to deny the expenditure claimed by the (A.Y. 2018-2019) Dakshin Kalikata Sansad assessee for salary expenditure of two persons. I direct the ld. Assessing Officer to allow the expenditure claimed by the assessee for an amount of Rs.3,42,446/- and also the remaining balance of salary expenditure of Rs.4,07,914/-. Hence, the grounds of appeal raised by the assessee are allowed.