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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M.
This appeal is filed by the appellant assessee against the order of the Commissioner of income tax (appeals) – Muzaffarnagar dated 16/2/2015 confirming all the additions made by the learned additional Commissioner of income tax range – 1, Ghaziabad raising following grounds of appeal:- i. That the CIT (A) has erred on facts and in law' in confirming the disallowance of salary to employees amounting to Rs. 15,69,560/-. ii. That the CIT(A) has erred on facts and in law in upholding the withdrawal of exemption u/s 11, 12 and 13 of the Income Tax Act on surplus of Rs. 23,30,808/- on account of income over expenses for the year. iii. That the CIT (A) has erred on facts and in law in confirming the disallowance of depreciation on fixed assets amounting to Rs. 34,95,190/- made by the AO. iv. That the CIT (A) has erred on facts and in law in ignoring the fact that the appellant did not claim application of income for charitable purpose at the time of purchase of fixed assets and there is no dual claim of application of income as assumed by the AO. v. That the CIT (A) has erred on facts and in law in not giving any reasons as to how the case laws relied upon by the appellant are not applicable specially the dismissal of Special Leave Petition (SLP CC 9735/2010) by Supreme Court vide order dated 19.7.2010 filed by the revenue in Supreme Court challenging judgment dated 19.08.2009 Page | 1 (allowing claim of depreciation) of Punjab & Haryana High Court in in the case of CIT v Manav Mangal Society which finally decided the claim of depreciation in favor of assessee. vi. That the CIT (A) erred on facts and in law in not giving any reasons on submissions made by the appellant in view of the insertion of section 11(6) inserted by the Finance Act, 2014 w.e.f. 1.4.2015 stipulating that in section 11 where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction or allowance by w ay of depreciation in respect of any asset, acquisition of which has been claimed as an application of income u/s 11 in the same or any other previous year and thus, even effective from AY 2015-16, depreciation on assets only w here acquisition of asset has been claimed as application shall not be allowed. vii. That the CIT (A) has erred in not passing a speaking order and not giving reasons for rejecting various contentions raised by the appellant before him. viii. That the CIT (A) has erred in not following various judgments relied upon by the appellant. Order pronounced in the open court on /11/2018.
The brief facts of the case are that assessee is a society formed on 25/2/1994. Initially it setup a small school in Ghaziabad to impart education from nursery to class V that was upgraded to class XII. It has also set up a college in the name and style of New Era College Of Science And Technology to impart education of B.Ed.,BBA and BCA courses. It is also registered under section 12 AA of the income tax act as per order dated 9/10/1994. The main object of the society is advancement of education, medical relief for general public and open, run and manage schools, colleges and educational institution.
It filed its return of income on 15/10/2010 declaring nil income. The case of the assessee was picked up for scrutiny. Assessment under section 143 (3) of the act was passed on 25/3/2013 determining the total income of the assessee at ₹ 8 395558/–. The learned assessing officer considered the net surplus over expenditure of Rs. 2330808/– as chargeable to tax and further there he added salary of ₹ 1 569560/– and depreciation of ₹ 3 495190/–.
The assessee aggrieved with the order of the learned assessing officer preferred an appeal before the learned Commissioner of income tax appeals – Muzaffarnagar. The learned Commissioner of income tax appeal passed an order dated 16/2/2015 dismissing the appeal of the assessee and confirming all the additions. Therefore, assessee is in appeal before us. Page | 2
The first ground of appeal of the assessee is against the confirmation of the disallowance of salary to employees amounting to ₹ 1 569560/–. During the course of assessment proceedings, the learned assessing officer examined the expenditure of salary payment made by the assessee. The learned assessing officer asked for certain details with respect to the employees. According to the learned AO there is a huge payment of the salary under the head salary and non-submission of required detailed by the assessee, he issued notices under section 133 (6) to the recipient of salary on test check basis. On the basis of the information received he analyzed that out of the list of 22 persons to whom salary payment was shown at ₹ 3440886/– and the identity proof submitted by the society, it is found that the society has made payment in cash amounting to ₹ 1569560/– to these persons. He noted that ₹ 1871379/– was paid through cheques to the above persons and the balance amount of ₹ 1569560/– was paid in cash, which is incomprehensible. Therefore, he issued a show cause notice to the assessee that why the above expenditure incurred in cash should not be added back to the income of the society being bogus expenditure. The assessee explained that assessee society is running school and college which require teaching staff for providing better educational facilities to the student and hence major expenditure is incurred on paying salary to the staff. It was further stated that expenditure on salary is 48% of the total receipt whereas according to the government order it can spend 75% to 80% of the total receipt in paying salary to the staff. With respect to the enquiry letter sent under section 133 (six) it was stated that eight notices were returned unserved with postal remark about the incomplete address and persons not known. It was stated that assessee has submitted the complete address of the employees the assessee also submitted the attendance register of such stop along with salary registers duly acknowledged by the staff about the payment of the salary. With respect to the confirmation received from three employees, he stated that one employee has stated that society has paid him monthly salary of ₹ 10,000 and he has received total salary of ₹ 55,000 whereas the society showing that it has paid him a total salary of ₹ 2 46816/–, it was stated that he was appointed on 8/3/2009 and the employee is hiding the true facts so far as the date of joining and as salary is concerned therefore it was stated that the employees are giving AO the incorrect details. With respect to the genuineness of payment of the salary it was stated that it is proved beyond doubt. With respect to the allegation of payment of salary in cash it was stated that the mode of payment of salary depends upon the availability of the funds, if the funds are available in cash than it is paid through cash and when available in bank then it is paid through bank. It was further stated that generally the fees received from students in cash and salary is usually paid in cash. It was further stated that there is no law prevailing for the mode of payment of salary only by cheque. With respect to the applicability of section 13 (3) it was stated that the details of payment of salary have complete evidences which sufficiently prove the genuineness of the payment. The learned assessing officer rejected the explanation of the assessee stating that photo copy of the attendance register and salary registers submitted by the assessee is self- made record which cannot be relied upon. With respect to the salary paid in cash, he held that there is no evidence available whether the payment was actually made to the concerned teachers or not. The fact was further strengthened on account of enquiry conducted under section 133 (6) where the employees have disputed the amount of sum paid to them and amount shown to have been paid to them in cash. He further stated that in some of the cases blank cheques have been taken by the society from the employees. Therefore he held that the assessee has shown expenditure under the head salary of ₹ 16614502/– against the total receipt of ₹ 34906990/– which is 47.60% which is very excessive whereas the salary in other similar Institutes it ranges between 30% to 35%. Therefore he disallowed the sum of ₹ 1569560/–.
6. On appeal before the learned CIT Appeal, the above addition was confirmed. He upheld the addition holding that AO has proceeded logically in this case as the assessee could not furnish the details of identity proof of the teachers and the tax deduction at source made thereon. When these details were not forthcoming from the assessee, AO proceeded to make further investigation and found that there is discrepancy in the salary recorded by the assessee in its books of accounts and other records compared to what is confirmed by those employees. He further stated that the learned assessing officer has not disallowed the complete salary but has disallowed the part of the salary from every employee, which has been paid in cash. He further held that though there is no restriction of payment by cash of salaries however such payment should have been substantiated with the adequate evidence of the payment to the employees and those employees should have confirmed this payments. He further held that those were acknowledged the payment have submitted that they have received lesser amount from the appellant. These findings of the learned assessing officer have not been controverted by the appellant with supporting details and evidences. He further submitted that the assessee has chosen to remain silent on the finding of the learned assessing officer where no responses are received from employees or the letter has been received back. He held that in such cases even the identity is not established. Therefore, the disallowance made by the learned assessing officer was confirmed.
The learned authorised representative vehemently submitted before us that the payment made by the assessee to the various persons is a genuine payment, which is supported by the evidence. He referred to the copy of letter dated 26/11/2012 submitted before the assessing officer along with the details of the name of the employees, designation, address, qualification, permanent account number, voter ID and total salary paid and abstract of salary register along with the copy of attendance. He further referred to the submission made on 22/12/2012 and 4/2/2012. He therefore submitted that the payment of salary made by the assessee to the various employees is substantiated with sufficient evidence.
The learned departmental representative vehemently supported the orders of the lower authorities and extensively read their findings. It was stated that none of these findings are rebutted by the learned AR.
We have carefully considered the rival contention and perused the orders of the lower authorities. Admittedly, the assessee is running an educational Institute and employing the teachers to impart education. The assessee has made a payment of salary of ₹ 1 6614502 to various persons. On enquiry being made, certain discrepancies were noted. The assessee could not explain the reason of finding blank cheques with the teachers as well as discrepancy in the amount stated to have been paid by the assessee to them and amount having received as confirmed by them. There is no response coming from the assessee with respect to certain employees who did not receive the enquiry letter of the assessee. The lower authorities have stated that even in such cases the identity of those teachers is not proved by the assessee. Assessee did not make any effort to produce them before AO to show that they are working with the assessee and show the amounts paid to them duly confirmed. No doubt, the assessee can make payment in cash however it is for the assessee to show the authenticity and reliability of such payment. Whenever anybody questions the assessee about the genuineness of the payment, it is the duty of the assessee to discharge burden cast upon it by producing those employees or adequate details of those employees before the revenue authorities. It should not be forgotten that assessee is a charitable trust and is a property of public at large, therefore higher duties are cast on charitable trusts. On reading of the order of the learned assessing officer and the learned Commissioner of income tax appeals with respect to this addition, we do not find any infirmity in their findings. In view of this the addition of ₹ 1569560 which is part of the salary paid by the assessee in cash to the teachers whose identity and genuineness of the payment could not be established by the assessee is confirmed. Accordingly, ground number 1 of the appeal is dismissed.
The second GROUND of appeal is with respect to withdrawal of exemption under section 11, 12 and 13 of The Income Tax Act on surplus of Rs. 2330808/-. The learned AO has denied the exemption under section 11/12/13 of the income tax act holding that due to the unawareness of the assessee for claiming bogus salary expenses in order to siphon money from the society by the management and non-maintenance of correct records Re: teachers and other salaried staff, the benefit of these sections have been withdrawn and entire surplus is chargeable to tax. The learned Commissioner of income tax appeals also confirmed the denial of the exemption holding that the trust of the appellant is that it genuinely spend the money for providing the better education. The appellant has also claimed that mere disallowance of salary does not been that the Inst is run for profit or the management has misused the society funds. According to him these submissions do not have any force. The AO has brought on record. The fact that bogus salary was claimed by the appellant is expenses. The appellant does not have any answer to these findings of the learned assessing officer. Therefore, he applied the decision of the honourable Karnataka High Court in case of CIT vs Sir Vishsewahraya educational trust 319 ITR 425 (2009) and upheld the decision of the learned assessing officer.
The learned authorised representative reiterated the submissions made before the lower authorities and stated that merely because some salary has been disallowed by the learned assessing officer for which the assessee has complete data available with it and submitted the same showing the genuineness of the payment and merely because the method of payment has been disputed by the assessing officer. The whole exemption under section 11, 12 and 13 cannot be withdrawn and entire surplus over expenditure cannot be charged to tax.
The learned departmental representative vehemently supported the orders of the lower authorities and submitted that assessee has incurred bogus expenditure of the salary, which cannot be proved by the assessee before the learned assessing officer and therefore assessee is siphoning of the funds as alleged by the learned assessing officer and confirmed by the learned Commissioner of income tax appeals and therefore the assessee is not eligible for exemption under section 11, 12 and 13 of the income tax act as the activities of the assessee are not genuine. He further stated that the meeting the bogus salary in cash of the non-existent employees itself prove that the activity of the assessee is not genuine and therefore the learned assessing officer has correctly withdrawn the exemptions.
We have carefully considered the rival contention and perused the orders of the lower authorities. The lower authorities have held that the activities of the assessee are not genuine. For the reason that assessee has paid salary in cash to the employees which could not be proved to the satisfaction of the learned lower authorities as genuine payment. It is an admitted fact that registration granted to assessee under section 12AA of the income tax act has not been withdrawn nor such proposal has been sent by the AO to the Commissioner of income tax. Conditions for applicability of section 11 and 12 of the income tax act as provided under section 12 A of the income tax act. Further, additional conditions for nonapplicability of section 11 are provided under section 13 of the income tax act. The cash payment of the salary which has not been proved by the assessee is already held to be covered under section 13 (1) (a) and disallowed. One of the authorities on whom the powers of the verification of the genuineness of the activities are vested is Commissioner of income tax, who grants registration under section 12 A of the income tax act. In view of the continuation of the registration under section 12 A of the income tax act of the trust we do not find any reason to not to grant the benefit of section 11 and 12 of the income tax act to the appellant trust. Accordingly, we allow ground number 2 of the appeal and direct the learned assessing officer to grant exemption under section 11 and 12 of the income tax act on surplus land of INR 2 330808 which is excess of income over expenses for the year.
The 3rd ground of appeal
is with respect to the disallowance of depreciation on fixed assets amounting to INR 3 495190 made by the learned assessing officer. The learned assessing officer, relying on the the decision of the Escorts Ltd vs Union of India held that the cost of the assets which have been already granted to the assessee has application of the income of the trust, the cost of such assets cannot be taken for granting depreciation to the assessee as it amounts to double deduction. The learned CIT appeal was also of the view and he confirmed the disallowance of depreciation on those assets cost of whose is already allowed as application of income. Therefore assessee aggrieved with that order is in appeal before us. Now the above issue is squarely covered in favour of the assessee by the decision of the honourable Supreme Court in case of Commissioner of income tax vs Rajasthan Gujarati charitable foundation, Pune 2018] 89 taxmann.com 127 (SC)/[2018] 253 Taxman 165 (SC)/[2018] 402 ITR 441 (SC)/[2018] 300 CTR 1 (SC) has held as under:- “2. After hearing learned counsel for the parties, we are of the opinion that the aforesaid view taken by the Bombay High Court correctly states the principles of law and there is no need to interfere with the same.
3. It may be mentioned that most of the High Courts have taken the aforesaid view with only exception thereto by the High Court of Kerala which has taken a contrary view in 'Lissie Medical Institutions v. CIT [2012] 24 taxmann.com 9/209 Taxman 19 (Mag.)/348 ITR 344 (Ker.)'.