INCOME TAX OFFICER - 4(4), Lucknow V. M/s Sardar Patel Shikshan Samith, Lucknow

ITA 138/LKW/2013

• Counselvise Citation: 13823714 RSA 2013
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-01-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 13-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: U V TANDON
• Keywords: Assessment record; Benefit of exemption
• Section: 143(3); 6; 28; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI. A. K. GARODIA , ACCOUNTANT MEMBER ITA NO. 138/LKW/2013 ASSESSMENT YEAR: 2006 - 07 INCOME TAX OFFICER 4(4) LUCKNOW V. M/S SARDAR P ATEL SHIKSHAN SAMITI LUCKNOW PAN: AAAAS8806M (APP ELL ANT) (RESPONDENT) APP ELL ANT BY: SHRI. MANOJ KUMAR GUPTA, CIT (DR) RESPONDENT BY: SHRI. U. V. TANDON, ADVOCATE DATE OF HEARING: 27.01.2014 DATE OF PRONOUNCEMENT: 31.01.2014 O R D E R PER SU NIL KUMAR YADAV: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A), INTER ALIA, ON VARIOUS GROUNDS, WHICH ARE AS UNDER: - 1 . THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE A.O. OF RS.1,61,000/ - THE L D. CIT(A) FAILED TO APPRECIATE THAT THE EXCESSIVE, UNREASONABLE AND UNJUSTIFIED PAYMENT MADE TO THE CHAIRMAN OF THE SOCIETY ATTRACTS PROVISIONS OF SECTION 13(2)(C) R.W.S. 13(3) OF THE INCOME - TAX, ACT. 2 . THE CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE I N RESTORING THE EXEMPTION U/S 11 OF THE INCOME - TAX, ACT TO THE : - 2 - : SOCIETY AND SUBSEQUENTLY IN DELETING THE ADDITION OF RS. 1,90,21,134/ - MADE BY THE A.O. AS SURPLUS (INCOME OVER EXPENDITURE). THE LD. CIT(A) FAILED TO APPRECIATE THAT THE A.O. HAS INVOKED THE P ROVISIONS OF SECTION 13(2)(C) R.W.S. 13(3) OF THE INCOME - TAX, ACT JUIDICIOUSLY AND THEN DENIED THE CLAIM OF EXEMPTION MADE BY THE SOCIETY U/S 11. 3 . THE LD. CIT(A) FAILED TO FOLLOW THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. JAMNA LAL BAJAJ SEWA TRUST (1988)171 ITR 568 (BOM.) ON THE SIMILAR ISSUE. 4 . THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE BY THE A.O. OF RS.3,00,000/ - . THE LD. CIT(A) FAILED TO APPRECIATE THAT CASH LOST AS A RESULT OF LOOT COULD NOT BE HELD A S APPLICATION OF FUND OF THE ASSESSEE SOCIETY. 2 . WITH REGARD TO GROUNDS NO.1 AND 2, THE LD. D.R. HAS PLACED HEAVY RELIANCE UPON THE ASSESSMENT ORDER WITH THE SUBMISSION THAT THERE WAS SHARP INCREASE IN THE HONORARIUM PAID TO ITS CHAIRMAN. ON ACCOUNT OF THI S UNREASONABLE AND UNJUSTIFIED INCREASE, THE ASSESSING OFFICER HAS RIGHTLY DENIED THE BENEFIT OF EXEMPTION UNDER SECTION 11 OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED IN SHORT 'THE ACT'). 3 . THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS SUBM ITTED THAT THE HONORARIUM OF ` 4.80 LAKHS PAID TO THE CHAIRMAN FOR ASSESSMENT YEAR 2004 - 05 WAS INCREASE D TO ` 6.41 LAKHS DURING THE FINANCIAL YEAR 2005 - 06 RELEVANT TO THE ASSESSMENT YEAR 2006 - 07. THE EXCESS PAYMENT OF ` 1.61 LAKHS IN THE ENTIRE YEAR CANNOT B E CALLED TO BE EXCESSIVE, UNREASONABLE OR UNJUSTIFIED UNDER SECTION 13(2)(C) READ WITH SECTION 13(3) OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER INVITED OUR ATTENTION T O THE DETAILS OF HONORARIUM PAID TO ITS CHAIRMAN IN DIFFERENT : - 3 - : ASSESSMENT Y EARS AND ACCORDING TO WHICH HONORARIUM AT ` 4.80 LAKHS PER YEAR WAS PAID DURING THE THREE ASSESSMENT YEARS I.E. ASSESSMENT YEARS 2003 - 04 TO 2005 - 06. THEREAFTER IT WAS INCREASED TO ` 6.41 LAKHS AND WHICH REMAINED THE SAME TILL ASSESSMENT YEAR 2008 - 09. THERE FORE THERE WAS NOMINAL INCREASE IN THE HONORARIUM WHICH CANNOT BE CALLED TO BE UNREASONABLE OR UNJUSTIFIED. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER CONTENDED THAT THE LD. CIT(A) HAS ADJUDICATED THE ISSUE IN THE LIGHT OF THE DETAILED SUBMISSION S OF TH E ASSESSEE. HAVING CONVINCED WITH THE SAME, THE LD. CIT(A) DELETED THE ADDITION. 4 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY EXAMINED ORDERS OF THE AUTHORITIES BELOW AND WE FIND THAT IT WAS NOT A REGULAR INCREASE IN THE HONORARIUM PAID TO THE CHAIRM AN. THE HONORARIUM WAS PAID AT ` 4.80 LAKHS DURING THE ASSESSMENT YEARS 2003 - 04 TO 2005 - 06. THEREAFTER IN ASSESSMENT YEAR 2006 - 07 IT WAS INCREASED TO ` 6.41 LAKHS WHICH REMAINED THE SAME TILL ASSESSMENT YEAR 2008 - 09. THEREFORE, THERE WAS INCREASE IN HONOR ARIUM AT 33.5% AS OBSERVED BY THE LD. CIT(A) IN THE IMPUGNED ASSESSMENT YEAR, BUT REMAINED THE SAME FOR ANOTHER T W O ASSESSMENT YEARS. THEREFORE, WE DO NOT FIND ANY UNREASONABLE OR UNJUSTIFIED INCREASE IN THE HONORARIUM PAID TO THE CHAIRMAN KEEPING IN VIEW THE ACTIVITIES OF THE ASSESSEE AND THE RESPONSIBILITY OWNED BY THE CHAIRMAN. THE LD. CIT(A) HAS EXAMINED THIS ISSUE IN DETAIL IN HIS ORDER. FOR THE SAKE OF REFERENCE, WE EXTRACT THE RELEVANT PORTION OF HIS ORDER AS UNDER: - 4(8)(I) THE DETAILS OF SALAR Y PAID TO SHRI. O. P. CHAUDHARY, CHAIRMAN OF THE APPELLANT - SOCIETY OVER THE YEARS IS AS UNDER: - ASSESSMENT YEAR ANNUAL HONORARIUM (IN RS.) 2003 - 04 ` 4,80,000 2004 - 05 ` 4,80,000 2005 - 06 ` 4,80,000 2006 - 07 ` 6,41,000 : - 4 - : 2007 - 08 ` 6,41,000 2008 - 09 ` 6,41,000 ( H) HAVING SAID THAT THE INCREASE OF 33.5% WAS INDEED THERE IN THIS ASSESSMENT YEAR OVER THE LAST ASSESSMENT YEAR, IT IS NOW TO BE EXAMINED WHETHER THE SAME WAS JUSTIFIED AND REASONABLE SO AS TO ATTRACT SECTION 13 (3)(C) OF THE ACT. AN INCREASE IN SALARY WOU LD NORMALLY BE ON ACCOUNT OF TWO REASONS. FIRSTLY, NORMAL INCREASE ON ACCOUNT OF INFLATION AS OCCURS IN ANY ORGANIZATION AND SECONDLY ON ACCOUNT OF SOME EXTRAORDINARY WORK THAT MAY HAVE BEEN DONE BY A PERSON, WHICH TRANSLATES INTO A BETTER PERFORMANCE OR H IGHER RETURNS/ PROFITS FOR THE ORGANIZATION. THE FINANCIAL RESULTS ACHIEVED BY ANY ORGANIZATION ARE A SAFE AND SCIENTIFIC PARAMETER TO JUDGE WHETHER THE HIGHER PAYMENTS MADE FOR ACHIEVING SUCH RESULTS WERE JUSTIFIED. THE COMPARATIVE FINANCIAL RESULTS OF TH E TWO YEARS ARE AS UNDER : - ASSESSMENT YEAR RECEIPTS (IN RS. ) HONORARIUM (IN RS. ) % OF RECEIPT 2005 - 2006 8,23,32,680/ - 4,80,000/ - 0.58% 2006 - 2007 13,25,03,3947 - 6,41,000/ - 0.48% 4(8)(III) THE RECEIPTS OF THE APPELLANT - SOCIETY HAVE INCREASED FROM RS. 8,23,32,680/ - IN THE IM MEDIATELY PRECEDING YEAR TO RS. 13,25,03,394/ - IN THE YEAR UNDER CONSIDERATION AN INCREASE OF ABOUT 61%. SINCE THERE HAS BEEN AN INCREASE IN RECEIPTS, THERE WAS AMPLE JUSTIFICATION FOR ENHANCING THE SALARY OF SHRI O.P. CHAUDH ARY, CHAIRMAN OF THE APPELLANT - SOCIETY FROM RS.4,80,000/ - IN THE IMMEDIATELY PRECEDING YEAR TO RS.6,41,000/ - IN THE YEAR UNDER CONSIDERATION AN INCREASE O F ABOUT 33.5%. THE INCREASE IN SALARY OF : - 5 - : 33.5% OF THE CHAIRMAN THEREFORE APPEARS TO BE JUSTIFIED LOOKI NG AT THE INCREASE OF 61% OF RECEIPTS OF THE APPELLANT - SOCIETY. 4(8)(IV) THE AO HAS NOWHERE DOUBTED THE PAYMENT OF HONORARIUM TO THE CHAIRMAN OF THE SOCIETY FOR BONA FIDE SERVICES RENDERED BY HIM. THE HONORARIUM HAS BEEN PAID IN EARLIER YEAR ALSO AND HAS B EEN ACCEPTED BY THE AO IN THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT. THE AMOUNTS PAID AS HONORARIUM HAS BEEN MADE FOR WHOLLY AND EXCLUSIVELY FOR THE PURPOSE AND BENEFIT OF ASSESSEE - SOCIETY. SHRI O.P. CHAUDHARY, CHAIRMAN OF THE APPELLANT - SO CIETY HAS RENDERED ACTUAL SERVICES TO THE ASSESSEE AND THE APPELLANT HAS EXPLAINED THE DETAILS OF THE SERVICES RENDERED BY HIM AGAINST THE PAYMENT. THERE IS INCREASE OF HONORARIUM OF 33.5% IN THE CASE, WHICH IS IN ACCORDANCE WITH INCREASE OF 61% IN RECEIPT S OF THE APPELLANT. THE DETAILS ARE NOTED ABOVE. THEREFORE, THE INCREASE IN THE HONORARIUM WAS JUSTIFIED AS COMPARED TO THE EARLIER YEARS. THERE IS NOTHING ON RECORD TO SHOW THAT THE AMOUNT PAID TO THE CHAIRMAN OF THE APPELLANT - SOCIETY IS UNREASONABLE OR E XCESSIVE AS COMPARED TO PREVAILING MARKET CONDITIONS. THE ADDITION OF RS. 1,61,000/ - MADE BY THE AO FOR INCREASE IN HONORARIUM TO THE CHAIRMAN IS DELETE D. 5 . SINCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A), WE CONFIRM HIS ORDER IN THIS REGAR D. THE LD. CIT(A) HAS DENIED THE BENEFIT OF EXEMPTION ON ACCOUNT OF SH ARP INCREASE IN THE HONORARIUM PAID TO THE CHAIRMAN AND ONCE THE HONORARIUM PAID TO THE CHAIRMAN HAS BEEN CONSIDERED TO BE REASONABLE, THE BENEFIT OF SECTION 11 OF THE ACT CANNOT BE DEN IED INVOKING THE PROVISIONS OF SECTION 13(2) OF THE ACT. WE HAVE ALSO EXAMINED THE FINDING OF THE LD. CIT(A) IN THIS REGARD AND WE FIND NO INFIRMITY THEREIN. ACCORDINGLY WE CONFIRM THE SAME. : - 6 - : 6 . SO FAR AS THE LAST GROUND RELATING TO DELETION OF ADDITION OF ` 3 LAKHS IS CONCERNED, WE FIND THAT THIS AMOUNT WAS LOOTED AND IT MAY BE THE BUSINESS LOSS OF THE ASSESSEE AND IS ALLOWABLE IN COMPUTING THE INCOME OF THE ASSESSEE. THE LD. CIT(A) HAS EXAMINED THIS ISSUE IN DETAIL IN HIS ORDER. FOR THE SAKE OF REFERENCE, WE EXTRACT THE SAME AS UNDER: 5(3) I HAVE EXAMINED THE FACTS AND CIRCUMSTANCES OF THE CASE. I HAVE CONSIDERED THE FINDINGS OF THE AO AND THE SUBMISSIONS OF THE APPELLANT. I HAVE ALSO CALLED FOR AND EXAMINED THE ASSESSMENT RECORDS. I FIND THAT DUE TO A LO OT INCIDENT ON 07.12.2005, THE APPELLANT - SOCIETY SUFFERED A LOSS OF RS. 3,00,000/ - . THE APPELLANT FILED AN FIR AND A CASE HAS ALSO BEEN REGISTERED AND PENDING IN SESSION'S COURT. THE GENUINENESS OF THE CLAIM IS NOT DISPUTED. AS REGARDS THE ADDITION MADE BY THE AO, A REFERENCE MAY BE MADE TO CIRCULAR: NO. 35 - D (XLVII - 20) [F. NO. 10/48/65 - IT(A - L)], DATED 24 - 11 - 1965, CONTENTS OF WHICH IS AS UNDER : - LOSS ARISING DUE TO EMBEZZLEMENT - WHETHER IT SHOULD BE TREATED AS INCIDENTAL TO BUSINESS AND SHOULD BE ALLOWED AS DEDUCTION IN THE YEAR IN WHICH IT IS DISCOVERED 1. A REFERENCE IS INVITED TO THE INSTRUCTIONS ON THE ABOVE SUBJECT CONTAINED IN THE BOARD'S CIRCULAR NO. 25 OF 1939 AND CIRCULAR NO. 13 OF 1944 [CLARIFICATION 2]. IN THESE CIRCULARS IT WAS CLARIFIED THAT L OSSES ARISING DUE TO EMBEZZLEMENT OF EMPLOYEES OR DUE TO NEGLIGENCE OF EMPLOYEES SHOULD BE ALLOWED IF THE LOSS TOOK PLACE IN THE NORMAL COURSE OF BUSINESS AND THE AMOUNT INVOLVED WAS NECESSARILY KEPT FOR THE PURPOSE OF THE BUSINESS IN THE PLACE FROM WHICH IT WAS LOST. SINCE THE ABOVE CIRCULARS WERE ISSUED, THE SUPREME COURT HAS FURTHER CONSIDERED THE MATTER AND LAID DOWN THE LAW IN THIS REGARD IN THE FOLLOWING TWO DECISIONS IN BADRIDAS : - 7 - : DAGA V. CIT [1958] 34 ITR 10 AND ASSOCIATED BANKING CORPORATION OF INDIA LTD. V. CIT [1965] 56 ITR1. IN THE FIRST CASE, THE SUPREME COURT HAS AFFIRMED THE VIEW THAT THE LOSS RESULTING FROM EMBEZZLEMENT BY AN EMPLOYEE OR AGENT OF A BUSINESS IS ADMISSIBLE AS A DEDUCTION UNDER SECTION 10(1) OF THE 1922 ACT [CORRESPONDING TO SECTI ON 28 OF THE 1961 ACT] IF IT ARISES OUT OF THE CARRYING ON OF THE BUSINESS AND IS INCIDENTAL TO IT. IN THE SECOND CASE, THE DECISION IS THAT LOSS MUST BE DEEMED TO HAVE ARISEN ONLY WHEN THE EMPLOYER COMES TO KNOW ABOUT IT AND REALIZES THAT THE AMOUNTS EMBE ZZLED CANNOT BE RECOVERED. 2. IN THE LIGHT OF THE ABOVE DECISIONS OF THE SUPREME COURT, THE LEGAL POSITION NOW IS THAT LOSS BY EMBEZZLEMENT BY EMPLOYEES SHOULD BE TREATED AS INCIDENTAL TO A BUSINESS AND THIS LOSS SHOULD BE ALLOWED AS DEDUCTION IN THE YEA R WHICH IT IS DISCOVERED. 5(4) THE LOSS SUSTAINED AS A RESULT OF LOOT IS THEREFORE A BUSINESS LOSS AND IS ALLOWABLE IN COMPUTING THE INCOME OF THE APPELLANT. THE ADDITION OF RS.3,00,000 / - MADE BY THE AO IS THEREFORE DIRECTED TO BE DELETED GIVING RELIEF TO THE APPELLANT. AS REGARDS THE ISSUE WHETHER SUCH LOSS CAN BE CONSTRUED AS PERSONAL BENEFIT AND EXEMPTION UNDER SECTION 11 OF THE ACT COULD BE DENIED I FIND THAT THE LOSS OF RS. 3,00,000/ - WAS NOT A CASE OF MISAPPROPRIATION DUE TO SOME DISPUTE BETWEEN THE MEMBERS OF THE APPELLANT - SOCIETY WHICH RESULTED IN FILING OF AN FIR, AND THE FACT REMAINS THAT IT HAS NOT BEEN CONCLU DED BY THE AO THAT THE ASSESSEE - SOCIETY WAS NOT EXISTING FOR PHILANTHROPIC PURPOSES AND INCOME WAS NOT BEING APPLIED FOR THE PURPOSES F OR WHICH THE SOCIETY WAS CREATED. RELIANCE IS PLACED ON THE DECISION OF HON'BLE ITAT, ALLAHABAD IN THE CASE OF ACIT, CIRCLE - L(2), KANPUR VS GURU NANAK HOSPITAL IN ITA NO. 7202/ALLD/1995 DATED 10.10.2003. THE AO IS THEREFORE DIRECTED : - 8 - : TO ALLOW EXEMPTION UNDE R SECTION 11 OF THE ACT. GROUND OF APPEAL NUMBER 5 IS ALLOWED. 7 . SINCE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A), WE CONFIRM HIS ORDER ON THIS ISSUE. ACCORDINGLY, THE ORDER OF THE LD. CIT(A) IS CONFIRMED. 8 . IN THE RESULT, APPEAL OF THE REVE NUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31.1.2014. SD/ - SD/ - [ A. K. GARODIA ] [ S UNIL KUMAR Y ADAV ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31.1.2014 JJ: 2901 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR ASSISTANT REGISTRAR