2019 (1) TMI 1052 - AT - Income Tax

Tribunal decides on Revenue and assessee appeal, emphasizes compliance with Income Tax Act

M/s. Avvai Village Welfare Society Versus The Income Tax Officer, Exemptions Ward, Thiruchirapalli. And (Vice-Versa)

M/s. Avvai Village Welfare Society Versus The Income Tax Officer, Exemptions Ward, Thiruchirapalli. And (Vice-Versa) - TMI Issues:1. Disallowance of rent paid2. Disallowance of salary paid to the Secretary3. Eligibility for exemption under section 11 of the Act4. Violation of Foreign Contribution Regulations Rules, 2011Disallowance of Rent Paid:The Assessing Officer disallowed rent paid by the assessee society to its accountant, stating that the need for a separate rental building did not arise. The ld. CIT(A) sustained the addition. However, the Tribunal found that the rent provision was agreed upon by the foreign counterpart, and the rent was paid from foreign funds, not the society's resources. The addition was deleted as the rent was justified and not paid from the society's funds.Disallowance of Salary Paid to the Secretary:The Assessing Officer disallowed 50% of the salary paid to the Secretary of the assessee society. The ld. CIT(A) observed that as the salary was not included in the expenses allowed, there was no need to add it again. The Tribunal upheld the ld. CIT(A)'s decision, reasoning that 50% of the disallowance was reasonable, considering the Secretary's qualifications and experience.Eligibility for Exemption under Section 11 of the Act:The Assessing Officer denied exemption under section 11 of the Act to the assessee society, citing micro finance activities as commercial in nature. The ld. CIT(A) did not provide findings on exemption eligibility due to the micro finance activity. The Tribunal remitted the issue back to the ld. CIT(A) for a detailed order, considering relevant Tribunal decisions and allowing the Revenue's appeal for statistical purposes.Violation of Foreign Contribution Regulations Rules, 2011:The Assessing Officer noted that the assessee society violated the Foreign Contribution Regulations Rules, 2011 by spending over 50% on administrative expenses. The ld. CIT(A) held that this violation had no implication on income tax law. The Tribunal disagreed, citing a Supreme Court decision that expenditure violating one statute cannot claim deduction under another. The Tribunal allowed the Revenue's appeal, finding the violation clear and relevant to income tax law.In conclusion, the Tribunal partially allowed the Revenue's appeal for statistical purposes and partly allowed the appeal filed by the assessee society. The judgment highlighted the importance of adhering to regulations and justifying expenses for exemption eligibility under the Income Tax Act.