· In this case, survey and inspection was carried out on the premises of the assessee u/s 133A of the Act.
· The AO was of the view that there was an escapement of income, as the assessee had employed persons specified under section 13(3) and has wrongly claimed the exemption u/s 11, and therefore, the case was reopened u/s 147 of the Act.
· The AO made an addition on account of development fund by observing that the assessee violated the provisions of section 13(3), by giving undue benefit to the family members of the specified persons.
· The CIT(A) further held that the findings of the AO were very specific that the assessee had violated the provisions of section 13(3) by giving undue benefit to the family members, which had cost a huge financial loss to the assessee. The CIT(A) further stated that the explanation given by the assessee in this regard was not convincing.
· As per the provisions of section 13(2)(c), there are two conditions. Firstly, the salary, allowances have to be paid to the persons specified in section 13(3), and secondly, the amount paid should be in excess of what may be reasonably paid for such services.
· In the present case, it was not the case of the AO that the amount was paid in excess of what may be reasonably paid for such services. Contrary to that, the salary was paid in accordance to the pay scale fixed by the Directorate of Education. Further, a proper selection procedure had been followed by the Selection Committee. There was no violation of section 13(3) of the Act was there as there was no prohibition in appointing the relatives of the trustees.
· Further, nothing was brought on record to substantiate that excessive salary was paid to the Principal. Nothing was brought on record as to how much salary was excessive in comparison to the salary paid to another person working in the same capacity and in the similar circumstances, in another institution.
· Also, the AO did not bring any material on record to substantiate that the facilities provided to Mrs. Anita Mann (Director) were not used to achieve the objects of the assessee Society or it was misused for personal benefits.
· Considering the above facts of the case, the Hon’ble ITAT has held that in the present case, the AO has not brought anything on record to substantiate that the expenditure on salary or facilities provided to the relatives of the trustees of the assessee society were excessive having regard to fair market value of the services provided by them. Therefore, the AO wrongly invoked the provisions of Section 13(3) of the Act and the CIT(A) was not justified in confirming the action of the AO.
For further reading, refer the attachment.
Further Reading