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Issues Involved:
1. Validity of assessment under Section 153A of the Income Tax Act. 2. Disallowance of deduction under Section 80-IB(10) of the Income Tax Act. 3. Disallowance under Section 40A(3) of the Income Tax Act for cash payments. Detailed Analysis: 1. Validity of Assessment under Section 153A: The assessee contended that the assessment was invalid as the mandatory conditions to invoke jurisdiction under Section 153A were not met, specifically that reasons for the search were not provided. The Tribunal dismissed this ground, stating that the search itself suffices for the issuance of notice under Section 153A. The Tribunal also noted that the validity of the search authorization is not justiciable before the Tribunal, citing various High Court and Special Bench decisions. 2. Disallowance of Deduction under Section 80-IB(10): The assessee claimed deduction under Section 80-IB(10) for developing and constructing residential flats, arguing that the term "built-up area" as per Building Industry practice and BBMP bye-laws excluded open balconies. However, the AO disallowed Rs. 7.25 crores for AY 2005-06 and Rs. 1.41 crores for AY 2006-07, citing that 12 flats exceeded the 1500 sq. ft. limit as defined by the Finance Act, 2004. The Tribunal held that the definition of "built-up area" introduced by the Finance Act, 2004, is clarificatory and applicable to AYs 2005-06 and 2006-07. However, it agreed with the assessee that only the flats exceeding the 1500 sq. ft. limit should be disallowed proportionately. Thus, the deduction under Section 80-IB(10) was allowed for the flats within the limit, and disallowed for the 12 flats exceeding the limit. 3. Disallowance under Section 40A(3) for Cash Payments: The AO disallowed certain cash payments under Section 40A(3), including: - Rs. 3.5 lakhs for a flat purchase not recorded in the books. - Rs. 1 lakh being 1/5th of Rs. 5 lakhs paid for land purchase. - Rs. 8.67 lakhs being 1/5th of Rs. 43.37 lakhs paid in cash. The Tribunal upheld the disallowance of Rs. 3.5 lakhs as the assessee failed to provide contradictory evidence. For the Rs. 1 lakh disallowance, the Tribunal agreed with the AO, noting the payment contravened Section 40A(3). Regarding the Rs. 8.67 lakhs disallowance, the Tribunal found that the AO had double-counted Rs. 5 lakhs, reducing the disallowance to Rs. 7.67 lakhs, granting the assessee a relief of Rs. 1 lakh. Conclusion: The Tribunal partly allowed the appeals for AYs 2005-06 and 2006-07. The assessment under Section 153A was upheld, the deduction under Section 80-IB(10) was allowed proportionately, and the disallowance under Section 40A(3) was adjusted for double-counting.
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