The Gideons International In India, ... vs Department Of Income Tax

ITA No.349/Hyd/2015 : Assessment year 2011-12

Dy. Director of Income-tax V/s. The Gideons International in India, (Exemption)-III, Hyderabad . Hyderabad

(PAN - AAAIT 2153 M)

(Appellant) (Respondent)

Appellant by : Smt. Amisha S.Gupt, DR

Respondent by : Shri Raja B. Singh Date of Hearing 15.6.2015 Date of Pronouncement 24.6.2015

ORDER

Per Saktijit Dey, Judicial Member :

This is an appeal by the Department against the order dated 9.1.2015 passed by the learned Commissioner of Income-tax(Appeals)- 9, Hyderabad for the assessment year 2011-12.

2. Effective grounds raised by the department are as under-

"1. The order of the ld. CIT(A) is erroneous both on facts and in law.

2. On the facts and circumstances of the case and particularly when the Assessing Officer, in the assessment, has clearly established that the payment towards salary made to Col. (Retd) Navneet Chabra, Executive Director, is excessive, the ld. CIT(A) erred in holding that the application of sec.13(1)(c) is not warranted in the case of the assessee for the A Y 2011-12.

3. On the facts and circumstances of the case, the ld. CIT(A) erred in entertaining the letter dt.11.01.2008 from the International Trustee relating to remuneration on appointment to Col. (Retd.) Naveneet Chabra, which is 2 ITA No.349/Hyd/2015 The Gideons International in India, Hyderabad

additional evidence, filed by the assessee during the appellate proceedings, without giving an opportunity to the Assessing Officer, in contravention of Rule 46A of I T Rules, 1962.

4. ....."

As can be seen, the issues raised in grounds No.2 and 3 are inter- related, and hence they are taken up for disposal as under-

3. Briefly the facts are : The assessee, a society registered under the Societies Registration Act is also granted registration under S12AA of the Income Tax Act,1961. For the year under consideration, the assessee filed its return of income on 28.9.2011, declaring 'nil' income after claiming exemption under S.11 of the Act. During the assessment proceedings, the Assessing Officer noticed as per the audit report, the assessee had paid an amount of Rs.14,51,226 as salaries to its Executive Director, Col.(Retd) Shri Navneet Chabra. The Assessing Officer has therefore, called upon the assessee to verify the details like appointment order of Shri Chabra, work allotted to him, etc. In response to the query made by the Assessing Officer, the assessee submitted the appointment letter of Shri Chabra, wherein the details of responsibilities and salary, etc. of Shri Chabra have been mentioned. The Assessing Officer on verifying the details observed that the appointment of Shri Chabra, commenced from 15th January, 2008 with a salary of Rs.7,20,000 per annum. However, during the financial year 2010-11, relevant to assessment year under dispute, the assessee has paid salary of Rs.14,51,226 which indicates more than 100% increment. The Assessing Officer therefore, was of the view that the increment of more than 100% within two years of appointment by any standard is abnormal. He also observed that the assessee did not produce any evidence to show the increment to be given to the Executive Director. He also noted that the appointment letter does not mention payment of bonus, ex-gratia etc., whereas Shri Chabra has 3 ITA No.349/Hyd/2015 The Gideons International in India, Hyderabad

been paid an amount of Rs.80,000 as Christmas Gift. Thus, the Assessing Officer concluded that the payment being made by the assessee to Shri Chabra is in violation of provision contained in S.13(1)(c) or the Act, and therefore, the assessee will not be eligible for exemption under S.11 of the Act on the excess salary paid to Shri Navneet Chabra, during the year. The Assessing Officer while quantifying the reasonable salary for the impugned assessment year allowed increment of 10% per annum and fixed the salary for the year under dispute at Rs.8,71,200. Resultantly, the excess payment of Rs.5,80,256 was disallowed and added back to the income of the assessee.

4. Being aggrieved by such disallowance, the assessee preferred appeal before the learned CIT(A). Before the first appellate authority, it was submitted by the assessee that the Assessing Officer had committed fundamental error by wrongly observing that the salary during the first year of appointment is Rs.7,20,000, whereas as per the initial terms of appointment, Shri Chabra was to get a scale of Rs.60000

-10000(5) - 110000 -15,000(6)- 2,00,000. Accordingly, his salary for the period 15.1.2008 to 14.1.2009 was basic pay of Rs.7,20,000 and after including HRA, reimbursement of motor expenses and reimbursement of telephone expenses, total salary amounted to Rs.10,80,000, whereas in the assessment year under consideration, the assessee has paid Rs.14,51,226, which cannot be considered as unreasonable, compared to the salary paid for the init l year of appointment. The learned CIT(A), after considering the submissions of the assessee found merit in the same and deleted the addition by observing that the Assessing Officer while coming to the conclusion has considered wrong facts. She also observed that the amount of salary to be paid to its Executive Director is within the authority of the assessee to determine and therefore, no disallowance under S.13(1)(c) can be 4 ITA No.349/Hyd/2015 The Gideons International in India, Hyderabad

made. Accordingly, she deleted the addition made by the Assessing Officer.

5. Aggrieved by the relief granted by the learned CIT(A), Revenue is in appeal before us.

6. The basic grievance of the Learned Departmental Representative is not related to the issue whether the amount paid is reasonable or not. She submitted that the learned CIT(A) on the basis of a letter submitted before her, has deleted the addition, whereas before the Assessing Officer, the assessee has not produced any evidence to show that the salary paid to the Executive Director in the initial year of appointment is Rs.10,80,000 and not Rs.7,20,000. She therefore, submitted that since the learned CIT(A) deleted the addition by considering a letter, the facts stated wherein were never brought to the notice of the Assessing Officer, the matter may be remitted back to the Assessing Officer for examining the matter afresh. The learned Departmental Representative submitted that since the employee, Shri Chabra, is trustee of the assessee trust, violation of S.13(1)(c) also requires to be examined.

7. The learned Authorised Representative for the assessee, on the other hand, strongly supporting the order of the learned CIT(A) submitted before us that the basic foundation of the disallowance on wrong premises, as the Assessing Officer without considering the total salary, including allowances, paid to the Executive Director, Shri Chabra for the period from 1.5.1.2008 to 14.1.2009 has only considered the basic pay of Rs.7,20,000 with the total emoluments of the assessment year under dispute amounting to Rs.14,51,226. If the total salary paid for the period from 15.1.2008 to 14.1.2009 which amounted to Rs.10,80,000 is compared to the total salary paid for the 5 ITA No.349/Hyd/2015 The Gideons International in India, Hyderabad

assessment year under consideration, then the increment value is very much low and it cannot be said that the incremental amount paid is not reasonable. It was, therefore, submitted that the learned CIT(A) was justified in deleting the addition. As far as the allegation of the department that the CIT(A) has considered additional evidence in violation of Rule 46A, the learned Authorised Representative submitted that all the information relating to salary paid by the assessee to Shri Chabra, in the initial year of appointment as well as in the assessment year under consideration, was before the Assessing Officer. therefore, it cannot be said that the information submitted before the learned CIT(A) is in the nature of additional evidence. The learned Authorised Representative relying upon a number of judicial authorities submitted before us that if evidence submitted is of clinching nature, then no useful purpose would be served in again remitting the matter to the assessing authority.

8. We have considered the submission of the parties and perused the material on record as well as the orders of the Revenue authorities. At the outset, it needs to be mentioned that in the course of hearing, the learned Authorised Representative admitted that Shri Navneet Chabra, being a trustee, is a person referred in S.13(3) of the Act read with S.13(1)(c) and S.13(2)(c). As can be seen, only on the basis of the fact that an amount of Rs.7,20,000 was paid during the period 2008-09 to the Executive Director, Shri Chabra, whereas there is a quantum jump in payment of salary to the same person in the assessment year under appeal, the Assessing Officer came to conclude that the payment made being unreasonable is in violation of Rule 13(1)(c). However, as can be seen from the material placed on record, total salary paid in the initial year of appointment to Shri Chabra is Rs.10,80,000 and not Rs.7,20,000 as noted by the Assessing Officer. Therefore, compared to the salary paid in the initial year of appointment 6 ITA No.349/Hyd/2015 The Gideons International in India, Hyderabad

of Rs.10,80,000, the salary paid to Shri Chapbra in the year under consideration of Rs.14,51,226 cannot be said to be excessive or unreasonable, so as to bring it within the purview of S.13(1)(c) of the Act. The Assessing Officer has not mentioned any valid reason in the assessment order to indicate that the salary paid to the Executive Director is not commensurate with the responsibilities/duties performed by him. Therefore, there being no material brought on record by the Assessing Officer to indicate that the salary paid is unreasonable or excessive, we do not see any reason to interfere with the order of the learned CIT(A).

9. As far as the allegation of the Department with regard to violation of Rule 46A of the IT Rules is concerned, it is to be noted that the department is objecting to the letter submitted before the learned CIT(A) by the assessee to show that the actual salary paid to Shri Chabra during the initial year of appointment is Rs.10,80,000 and not Rs.7,20,000, which is only the basic pay. In our view, the information submitted before the learned CIT(A) is not in the nature of additional evidence, on which the learned CIT(A) could have asked the Assessing Officer to verify authenticity of the assessee's claim. It is a fact on record that assessment for the assessment year 2008-099 has been completed by the Assessing Officer under S.143(3). It is also not disputed that the assessee, being a society registered under S.12A of the Act, is obliged and duty bound to file its return of income for each assessment year. Therefore, it cannot be said that information relating to the payment of salary in the initial assessment year in which the Executive Director was appointed, was not before the Assessing Officer. Moreover, when the Assessing Officer is aware of the basic salary paid to the executive Director, it is highly surprising and appears to be quite improbable that he is not aware of the other allowances paid alongwith the basic pay. Therefore, in these facts and circumstances, we do not 7 ITA No.349/Hyd/2015 The Gideons International in India, Hyderabad

find any merit in the submissions of the Learned Departmental Representative that provisions of Rule 46A have been violated. Even assuming for the sake of argument that there is violation of rule 46A, in any case of the mater, the situation is not going to improve for the Department, as payment of salary to the Executive Director is a matter of record, and the Department is not disputing that fact. Therefore, no useful purpose would be served in again remitting the matter to the file of the Assessing Officer to verify the total salary paid the Executive Director during the initial period of appointment, which has already been verified by the learned CIT(A).

10. In the light of the above discussion, we uphold the order of the learned CIT(A) and reject the grounds of the Revenue.

11. In the result, Revenue's appeal is dismissed.

Pronounced in the court on 24th June, 2015

Sd/- Sd/-

(B.Ramakotaiah) (Saktijit Dey) Accountant Member Judicial Member

Dt/- 24th June, 2015 Copy forwarded to:

1. The Gideons International in India, Plot No.1490, Maithri Enclave, Indus World School, JJ Nagar, Colony, Yapral, Hyderabad

2. Dy. Director of Income-tax (Exemption) III, Hyderabad

3. Commissioner of Income-tax(Appeals) 9, Hyderabad

4. Commissioner of Income-tax (Exemption) Hyderabad

5. Departmental Representative, ITAT, Hyderabad.

B.V.S