2017 (5) TMI 1364 - AT - Income Tax

Appeals partly allowed in tax case; exemptions denied, deductions upheld, some expenses allowed

The appeals were partly allowed in the case. The Tribunal upheld the denial of certain exemptions and deductions while allowing others based on specific ... Claim of exemption u/s 11 - violating conditions u/s 13 - foreign travel expenses of spouse of the employee - Held that:- Admittedly, has no business connection with the assessee, except the relation with the Managing Director of the trust. Admittedly, the said foreign travel expenditure which has been incurred on the wife of Managing Director is not to be allowed as deduction. Expenditure incurred on foreign travel of Managing Director and other employees - Held that:- First expenditure for Robocon event, the Executive Director had visited along with other heads of departments and professors and students to attend an exhibition of Robotics. The said being in the line of business carried on by the assessee, the same is to be allowed as deduction in the hands of assessee i.e. the expenditure incurred on persons other than trustees or their relatives. In respect of expenditure incurred on the Executive Director of assessee trust, the same is hit by the provisions of section 13(1)(c) of the Act and accordingly, the same is not to be allowed as deduction as the expenditure is incurred on related party as mentioned in section 13(3) of the Act. We have already held that the foreign travel expenses of wife of Executive Director are also to be disallowed. Similarly, expenditure incurred for Mrs. Vidya Joshi wife of Shri Prakash Joshi who was the head of Department being not for the purpose of business is also disallowed. Travelling expenses to Paris for attending UNESCO conference - Held that:- Where the invitation was from the Government to attend the conference of UNESCO, then the expenditure as is eligible to him merits to be allowed in the hands of assessee i.e. to the extent of ₹ 1,63,370/-. Further, the expenditure incurred on Mrs. Suchitra Nagare who is the employee as well as the Executive Director Incharge of Medical College also, merits to be allowed. The balance expenditure is to be disallowed in the hands of assessee being in violation of provisions of section 13(1)(c) r.w.s. 13(3) of the Act. Accordingly, we hold so. The Assessing Officer is directed to verify the claim of assessee in this regard and allow the same accordingly. Accordingly, the ground of appeal raised by the assessee in respect of foreign travel expenses is partly allowed. Expenditure on account of World Peace Centre - Held that:- The said expenditure has been held to be allowable by the Tribunal in assessment year 2003-04 on the ground that the objects of World Peace Centre were educational in nature and it was also held that mere non-intimating the change in trust deed would not result any disallowance of expenses incurred on the objects of the trust. It was also held by the Tribunal that the expenditure incurred abroad for WPC could not be held as not for the objects of the trust and that exemption under section 11 of the Act could not be denied. Following the same parity of reasoning, we hold that the expenditure incurred on World Peace Centre is deductible expenses Corpus donation - Held that:- The assessee has no letters of donors against its claim of donations being corpus donations to the extent of ₹ 18,62,575/-. We hold that the said receipts are to be added in the hands of assessee. However, the assessee is not entitled to claim deduction under section 11 of the Act in respect of such donations. Hence, the ground of appeal decided against the assessee. Disallowance of provision made for gratuity under section 40A(7) (b) - Held that:- Tribunal in assessment year 2003-04 has held that while computing the income under section 11 of the Act, various disallowances or additions under sections 43B, 40A(7) and 40A(3) of the Act could not be made under section 28 to 43 of the Act. Thus following the same parity of reasoning, we allow this claim of assessee. Issues Involved:1. Assessment of total income.2. Denial of exemption under section 10(23C)(vi) of the Income Tax Act.3. Denial of deduction under section 11 of the Income Tax Act.4. Alleged violations of section 13 of the Income Tax Act.5. Confirmation of additions by adopting recast Income and Expenditure Account.6. Disallowance of expenditure related to world peace activities.7. Disallowance of foreign tour expenditure.8. Disallowance of provision for gratuity under section 40A(7)(b) of the Income Tax Act.Detailed Analysis:1. Assessment of Total Income:The assessee contested the assessment of total income at Rs. 24,57,86,566/- against the returned Nil income. This issue was dismissed as it was general in nature.2. Denial of Exemption under Section 10(23C)(vi):The Tribunal previously ruled against the assessee on this issue in an earlier order dated 10.02.2017. Following the same reasoning, the ground of appeal was dismissed.3. Denial of Deduction under Section 11:The Tribunal had previously considered this issue and held the assessee entitled to exemption under section 11 but denied the deduction on income due to violation of section 13(1)(c). This decision was upheld for the current assessment year.4. Alleged Violations of Section 13:The disallowance was made on foreign travel expenses by the Executive Director and other employees, and interest on a loan to Mr. Rahul Karad. The Tribunal disallowed the foreign travel expenses of the spouse of the Managing Director and other related parties under section 13(1)(c). However, travel expenses for employees related to business activities were allowed.5. Confirmation of Additions by Adopting Recast Income and Expenditure Account:The Assessing Officer recast the Income and Expenditure Account, resulting in a revised total income of Rs. 24,57,86,566/-. The assessee admitted that it did not have letters from donors for corpus donations, which were included in the income. The Tribunal upheld the additions based on the recast account.6. Disallowance of Expenditure Related to World Peace Activities:The Tribunal previously allowed such expenditures, holding that the objects of the World Peace Centre were educational. Following the same reasoning, the expenditure was allowed.7. Disallowance of Foreign Tour Expenditure:The Tribunal allowed travel expenses related to business activities but disallowed expenses for the spouse of the Managing Director and other related parties. The expenditure incurred for UNESCO conference attendance was partly allowed based on the eligibility of the expenses.8. Disallowance of Provision for Gratuity under Section 40A(7)(b):For assessment year 2010-11, the Tribunal allowed the provision for gratuity, following its earlier decision that disallowances under sections 43B, 40A(7), and 40A(3) could not be made when computing income under section 11.Conclusion:In conclusion, the appeals were partly allowed. The Tribunal upheld the denial of certain exemptions and deductions while allowing others based on the specific facts and previous rulings. The assessment of total income, denial of exemption under section 10(23C)(vi), and certain disallowed expenditures were confirmed, while deductions for world peace activities and some travel expenses were allowed. The provision for gratuity was also allowed for the assessment year 2010-11.