2021 (12) TMI 534 - AT - Income Tax

Tribunal upholds CIT(A) decisions, grants Section 11 exemption, deems advances legitimate, and justifies salary payments.

The Tribunal dismissed the Revenue's appeals for both assessment years, upholding the CIT(A)'s decisions. The exemption under Section 11 was allowed, ... Exemption u/s 11 - Denial of exemption as assessee society had made the interest free advances to its Members which transaction was covered under the provisions of Section 13(1)(c) and 13(1)(d) read with Section 13(3) and the assessee Society had paid excessive salary to its Members having contravened the provisions of Section 13(2)(c) - CIT(A) deleted the disallowance so made by the AO - HELD THAT:- In our view, it is not a case of any undue favour by the assessee to its members. In this case, the ld. CIT(A) has discussed that the Members of the Society had already offered their land for the construction of building for technical activities of the assessee Society. The assessee Society, as per its convenience, paid the sale consideration in installments, which were spread over a period and ultimately the Sale Deeds have been executed at the Collector rate. We, therefore, do not find any infirmity in the order of the ld. CIT(A) on this issue - in the case in hand, it is duly proved on the file that the payments were made to the members for the purchase of land and such payments were made at arms length price. Therefore, in view of the above, we do not find any infirmity in the order of the CIT(A) and the same is upheld on this issue. Payment of salary to certain members of the society - only objection by the AO was that the payment during the year was increased to large extent as compared to the payments made in earlier years - The total percentage of expenses incurred by the society on account of payments made to these persons constitute less then 1% of the total expenses incurred by the society. Further the total payments made by the society on account of salaries to these persons are less then 2.5% of the total expenditure incurred on account of salaries. These facts and figures have not been considered by the AO before making the disallowance. Also, find that no adverse material has been brought on record by the AO to hold that services have not been rendered by these persons and payments made to these specified persons are excessive and unreasonable. We hold that there is no justification in the action of the AO for making a disallowance under this head. Accordingly, this ground of appeal is allowed. - Decided against revenue. Issues Involved:1. Exemption under Section 11 of the Income Tax Act, 1961.2. Violation of Section 13 of the Income Tax Act, 1961.3. Treatment of interest-free advances to members.4. Excessive salary payments to members.5. Compliance with Section 194-IA of the Income Tax Act, 1961.Detailed Analysis:1. Exemption under Section 11 of the Income Tax Act, 1961:The Revenue appealed against the CIT(A)'s decision to allow exemption under Section 11, arguing that the assessee society violated Section 13 by making interest-free advances to its members and paying excessive salaries. The CIT(A) deleted the additions made by the AO, who had added Rs. 1,98,48,600 on account of notional interest on advances and disallowed Rs. 46,75,933 paid as salary to members.2. Violation of Section 13 of the Income Tax Act, 1961:The AO contended that the society contravened Section 13(1)(c) and 13(1)(d) read with Section 13(3) by making interest-free advances and paying excessive salaries. The CIT(A) found that the advances were actually payments for land purchased from members at arm's length prices, and the payments were spread over time due to fund availability. The CIT(A) also noted that the transactions were previously accepted by the AO in earlier years.3. Treatment of Interest-Free Advances to Members:The CIT(A) observed that the advances were for land purchases at market rates, and the phased payments suited the society's financial convenience. The CIT(A) concluded that the members did not receive undue benefits, as the payments were made at arm's length prices. The Tribunal upheld the CIT(A)'s decision, noting that the payments were justified and the transactions were bona fide.4. Excessive Salary Payments to Members:The AO disallowed the salary payments, deeming them excessive. The CIT(A) found that the payments were reasonable and in line with UGC norms, constituting less than 1% of the society's total expenses and less than 2.5% of the total salary expenditure. The Tribunal agreed with the CIT(A), noting no adverse material was presented to prove the payments were unreasonable.5. Compliance with Section 194-IA of the Income Tax Act, 1961:The AO argued that the society failed to deduct TDS on payments to members, violating Section 194-IA. The CIT(A) acknowledged the lapse in the case of one member, Parminder Kaur, but noted that TDS was deducted at the time of full payment and registration of the Sale Deed. The Tribunal found the transactions bona fide, despite the technical lapse, and upheld the CIT(A)'s decision.Conclusion:The Tribunal dismissed the Revenue's appeals for both assessment years, finding no merit in the arguments. The CIT(A)'s decisions to allow exemption under Section 11, treat the advances as legitimate payments for land, and deem the salary payments reasonable were upheld. The Tribunal also found the cited case laws inapplicable to the present case, as the payments were justified and made at arm's length prices.