Charitable trust expense disallowance fails absent rejected accounts or proven statutory breach under exemption provisions.

A registered charitable trust claiming exemption under sections 11 to 13 cannot have its expenditure disallowed on an ad hoc basis merely because the Assessing Officer questions travelling, salary, bad debt, telephone or mess es. In the absence of rejection of books under section 145, any specific defect in vouchers or records, or evidence of application of income or property for the benefit of specified persons under section 13, such additions are not sustainable. Where more than 85 per cent of receipts is applied to the trust's objects and the expenses are shown to be for educational activities, the trust is to be assessed within the charitable exemption framework rather than at the maximum marginal rate.

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Issues: Whether the disallowances made out of travelling expenses, salary, bad debts, telephone expenses and mess expenses, and the application of the maximum marginal rate of tax, were sustainable in the assessment of a registered charitable trust.

Analysis: The trust was registered under section 12A and had claimed exemption under sections 11 to 13 of the Income-tax Act, 1961. In the absence of any rejection of books of account under section 145 or any specific defect in the vouchers and records, the Assessing Officer could not make ad hoc disallowances of expenditure incurred for the objects of the trust. The materials showed that the expenses were incurred in the course of the trust's educational activities, the mess expenditure was as per the prescribed norms, the telephone and travelling expenses were for trust purposes, and there was no finding of any application of income or property for the benefit of specified persons so as to attract section 13. The assessee had also applied more than 85 per cent of its receipts towards its objects, and the trust could not be assessed on the footing adopted by the lower authorities.

Conclusion: The disallowances and the levy at the maximum marginal rate were unjustified and were set aside in favour of the assessee.

Final Conclusion: The assessment of the registered trust had to proceed on the basis of the charitable exemption framework, and the impugned additions made without rejecting the accounts or establishing any statutory violation could not be sustained.

Ratio Decidendi: A registered charitable trust's expenditure cannot be disallowed on a lump-sum basis, nor can the maximum marginal rate be applied, unless the accounts are rejected or a statutory violation under the exemption provisions is established on record.

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