Case Law Details
Shanti Sri Social and Educational Foundation Vs ITO (Exemption) (ITAT Kolkata)
Appellant is a trust engaged in running a School. Out of the total Salary to teachers claimed 50% has been disallowed as excessive. Cit(A) reduced the disallowance to 25%. ITAT held that once 75% of the salary has been accepted on want of documentation, why not 100% . Entire expenditure under this head has been allowed.
The appeal before the Income Tax Appellate Tribunal (ITAT), Kolkata, arose from disallowance of salary expenditure claimed by a trust engaged in running a school.
The assessee, a registered society established on 20.09.2011, filed its return declaring income of ₹1,84,334 and claimed exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961. It reported gross receipts of ₹42,39,890 and salary expenditure of ₹37,81,800.
During scrutiny, the Assessing Officer (AO) observed that the salary expenditure was significantly high compared to the gross receipts and other institutions. The AO also noted that the assessee did not furnish complete details such as names, addresses, qualifications, and salary records of employees. On this basis, the AO disallowed 50% of the salary expenditure and assessed the income at ₹20,75,230.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] considered additional documents submitted by the assessee, including salary registers and qualification details of teachers. However, due to absence of complete particulars such as addresses and PAN details, the CIT(A) partly accepted the claim and restricted the disallowance to 25% of the total salary expenditure.
Before the ITAT, the assessee argued that sufficient details had been furnished and that many employees did not possess PAN due to income being below the taxable threshold. It was also contended that once 75% of the salary expenditure had been accepted by the authorities, the remaining disallowance was unjustified.
The Department, on the other hand, supported the orders of the lower authorities, stating that the expenditure was excessive and documentation was incomplete.
The ITAT examined the matter and noted that both the AO and CIT(A) had accepted 75% of the salary expenditure. It observed that the Revenue had not established that any part of the salary expenditure was excessive or had been returned to the assessee. The Tribunal also noted that the existence of employer-employee relationships was not in dispute and that relevant details such as qualifications and employee information had been furnished.
The Tribunal held that once a substantial portion (75%) of the salary expenditure had been accepted, there was no justification for sustaining the balance disallowance merely due to lack of complete documentation. Accordingly, it allowed the entire salary expenditure and deleted the disallowance.
In conclusion, the ITAT allowed the appeal of the assessee and directed that the disallowance of salary expenditure be deleted.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
These appeals filed by the assessee against the orders passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) by the Ld. Addl./Joint Commissioner of Income Tax (Appeals)-7, Mumbai [hereinafter referred to as “the Ld. CIT(A)], dated 03.10.2025, DIN & order No. ITBA/APL/S/250/2025-26/1081421805(1) on the following grounds of appeal:
“1. For that the orders of the authorities below are bad in law and fact.
2. For that the learned CIT (A) is not justified in confirming the disallowance of salary expenses to 25% of the total expenditure claimed under this.
3. For that all the necessary details with regard to qualification teaching and non-teaching staff and the quantum of salary paid were furnished and as such the adhoc disallowance of 25% is not permissible under Income Tax Law.
4. For that, moreover, even after disallowance the surplus is exempt u/s income have been 10(23c)(iiiad) of the IT. Act and the determined as NIL,
5. For that while giving the appeal effect the 25% of the disallowed salary has been considered as taxable income (copy enclosed) which is not in accordance with law.
6. For that the disallowance may kindly be deleted and/or the total income of the appellant may kindly be orders be taken as NiJ.
7. For that, other grounds, if any, will be urges the time of hearing.”
2. Briefly stated the facts of the case are that the assessee is a registered society established on 20.09.2011, filed its return of income of Rs. 1,84,334/- and claimed exemption u/s 10(23C) (iiiad) of the Act. The assessee had total gross receipt of Rs. 42,39,890/-. The case was selected for scrutiny and statutory notices were issued to the assessee. The assessee filed details as required by the AO and details of salary for two months along with copy of salary registered and bills and vouchers and other expenses claimed, the AO noted that the society is not registered u/s 12AA of the Act as per the decision of the Hon’ble Apex Court in the case of UP Forest Corporation and others Vs. DCIT 297 ITR 1 (SC) exemption cannot be allowed u/s 11 or 12 of the Act, since object of the society is general public utility, therefore, exemption cannot be allowed u/s 10(23C)(iiiad) of the Act and he disallowed the income or expenditure of Rs. 1,84,334/-. Further, on perusal of the income and expenditure account. The AO observed that the assessee has claimed Rs. 37,81,800/- as salary expenditure. However, the gross receipt of society is Rs. 42,39,890/- and on comparison with other schools for salary expenditure, the assessee is incurring huge expenditure towards salary. The assessee did not furnish name and complete address of the teachers their qualification, number of teachers, their qualification and their salary acquaintance roll/copy of salary register etc. Accordingly, he disallowed 50% of the total expenditure, the income was assessed that Rs. 20,75,230/-. On appeal before the Ld. CIT(A), the income over expenditure of Rs. 1,84,334/-was allowed. The assessee further submitted during the appellate proceedings certain documents such as salary register and details of qualification of teachers but did not furnish complete address, PAN No. and other verifiable particulars of the employees. Therefore, he 50% of the expenditure disallowed holding as excessive by the AO was reduced to 25% of the total salary claimed. Accordingly, he partly allowed the appeal of the assessee.
3. Aggrieved from the above order of the Ld. CIT(A), the assessee is in appeal before the ITAT.
4. The Ld. Counsel reiterated the submission made before the lower authorities and submitted that the Ld. CIT(A) restricted the addition upto 25%, details were furnished for the many teachers who have very less income which are below the threshold limit for the tax purpose for the year under consideration. Therefore, they do not have PAN No. and further AO as well as the Ld.CIT(A) have allowed 75% of the total salary paid to each employee. Therefore, the addition made by the AO and partially upheld by the Ld.CIT(A) is not correct. The AO has disallowed only on the basis of its excessive. However, the Ld.CIT(A) has allowed partially and restricted up to 25% for want of complete information and PAN details were not furnished but on the same footing, the revenue has allowed up to 75% of the total salary paid to each employee. Therefore, the addition should have been deleted.
5. On the other hand, the Ld. DR relied on the order of lower authorities and submitted that comparatively, the huge expenditure towards salary was incurred which is very excessive compared to other institution and complete details were also not furnished and requested that the order of Ld. CIT(A) should be upheld.
6. Considering the rival submission and perusing the entire materials available on record and the orders of authorities below. We noted that hear the dispute is regarding only for the salary payment and out of which 75% has been allowed by both the authorities below but revenue is unable to establish that whether the excessive expenditure claimed by the assessee has been received back and 75% of the salary paid to each employee have been accepted by the Revenue. The authorities below have no doubt that there is relationship between employee and the employer, the various details were furnished. The AO has allowed 50% of the salary and the Ld. CIT(A) has extended up to 25% of the salary paid. Once they have accepted 75% for want of documentation then whey not the entire salary payment, because salary was paid to individual employees and assessee furnished their qualification details and employee details. Therefore, considering the totality of facts and circumstances of the case, we are allowing the grounds raised by the assessee.
7. In the result, appeal of the assessee is allowed.
Order pronounced on 13.04.2026.
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