S.13(1)(c) of Income Tax Act not Applicable when Refund Money Collected from Staff Spent for Maintenance of Trust: ITAT Deletes Addition u/s 69C of Income Tax Act [Read Order]

The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has deleted addition under Section 69 of the Income Tax Act 1961, holding that Section 13(1)(c) of the Income Tax Act,1961 not applicable when the refund money collected from staff had been spent for maintenance of trust.

The assessee,Jeppiaar Educational Trust, Jeppiaar Educational Trust was registered under Section 12A of the Income-tax Act, 1961 was imparting education and running various educational institutions. A search operation under Section 132 of the Income Tax Act was conducted in the case of the assessee on 07.11.2019. During the course of search, seized material was found which contains details of refund money for four assessment years.

The office assistant, in her sworn statement, had explained the seized document and stated that the trust had paid excess salary to various employees by cheque and received an excess amount in cash and the same was recorded as refund money. She further stated that the refund money had been spent for day-to-day expenses of college including payment of salary to non-teaching staff.

But, since the college was not doing well in admission and having severe cash crunch to maintain the Department and pay salary to non-teaching staff, staff themselves pool the money out of the salary paid by the trust, to run the college and meet out the daily expenses and maintenance of the college.

The Assessing Officer, however was not convinced with the explanation of the assessee and according to the Assessing Officer, unaccounted receipts from employees was outside the books of accounts and thus, opined that expenditure incurred outside books of accounts was nothing but unexplained expenditure and thus, rejected arguments of the assessee and made additions towards refund money as unexplained expenditure under Section 69C of the Income Tax Act.

The Commissioner of IncomeTax Appeals (CIT(A)) opined that excess salary paid to staff and received in cash amounts to appropriation of income of the trust for the personal benefit of trustee, in violation of provisions of Section 13(1)(c) of the Income Tax Act, and thus, rejected arguments of the assessee and sustained additions.

B. Ramakrishnan, on behalf of the assessee submitted that the CIT(A) had erred in invoking provisions of Section 13(1)(c) of the Income Tax Act and consequent levy of tax at maximum marginal rate as per provisions of Section 164(2) of the Income Tax Act, without appreciating the fact that, the amount received back from employees salary and not recorded in the books of accounts had been spent towards objects of the trust.

He further said that from assessment year 2014-15 to 2020-21, the assessee had spent over and above 85% of income required to be spent for objects of the trust.

R. Clement Ramesh Kumar, on behalf of the revenue submitted that the statements recorded from employees and trustee had clearly revealed that the assessee was taking away money from the trust in the form of salary paid to staff. Although, the assessee claims to have spent excess salary paid to staff for day-to-day expenses of the trust, but no evidence had been produced before the Assessing Officer.

The two-member Bench of Mahavir Singh, (Vice President) and Manjunatha G, (Accountant Member) observed that the refund money collected from staff had been spent for maintenance of college and to pay salary to non-teaching staff, and had not found any merit in the reasons given by the Assessing Officer to make additions under Section 69C of the Income Tax Act, for the simple reason that the source was already known, which was out of excess money collected from employees.

The Bench allowed appeal filed by the assessee holding that it was very clear that excess salary paid to staff and received back in cash and spent for objects of the trust was not utilised for personal benefit of trustee or relative of the trustee as referred to under Section 13(3) of the Income Tax Act and consequently, the CIT(A) had erred in invoking provisions of Section 13(1)(c) of the Income Tax Act.

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