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2017 (5) TMI 1408 - AT - Income TaxLegality of special audit u/s 142(2A) - no show cause notice issued - Time barred assessment - Held that - The issue arising in the present appeal is similar to the issue in assessment year 2000-01 and following the same parity of reasoning we hold that since no show cause notice was issued by the Assessing Officer at predecisional stage of making reference for special audit under section 142(2A) of the Act the assessment had to be completed within period prescribed under the Act i.e. by 31.12.2007. The assessment order in the present case has been passed on 08.08.2008 and the same being beyond the period of limitation is barred and hence is held to be invalid. Since the assessment is held to be time barred then the other grounds of appeal raised by the assessee do not survive and the same are dismissed. The ground of appeal No.1 raised by the assessee is thus allowed. Denial of exemption under section 11 - Held that - There cannot be wholesale denial of exemption under section 11 of the Act for violation of provisions of section 13(1)(c) of the Act and the income which is subject matter of violation only could be brought to tax. Thereafter the Tribunal vide para 153 onwards considered various violations contemplated under section 13(1)(c) of the Act and allowed exemption under section 11 of the Act subject to the condition that no such exemption would be given in respect of disallowance made for violating the provisions of section 13(1)(c) of the Act. Following the same parity of reasoning ground of appeal No.4 raised by the assessee is partly allowed. Whether the activity of assessee is commercial activity with profit motive and it does not exist solely for charity? - Held that - We have already observed in the paras hereinabove that the findings of Tribunal that the assessee trust does not exist solely for the profit and is not carrying out any commercial activity if the capital expenditure and the depreciation is consideration as application of income then the assessee had deficit in each of the years under appeal. Following the same parity of reasoning as held by the Tribunal (supra) in assessee s own case we allow the ground of appeal raised by the assessee. Entitle the assessee to claim exemption under section 11 - violation of provisions of section 13(1)(c) - vehicle maintenance expenses - Held that - vehicle maintenance expenses are to be allowed to the extent of 50% and the balance is to be disallowed under section 13(1)(c) of the Act. Credit Card expenses disallowed - Held that - Credit Card expenses are to be allowed to the extent of 50% and the balance is to be disallowed under section 13(1)(c) of the Act. It may be clarified herein itself that the disallowance made under section 13(1)(c) r.w.s. 13(3) of the Act does not entitle the assessee to claim exemption under section 11 of the Act. Honorarium paid to Shri B E Avhad - Only 50% of the said expenditure merits to be allowed in the hands of assessee and the balance is hit by section 13(1)(c) of the Act and hence added in the hands of assessee on which the assessee is not entitled to claim exemption under section 11 of the Act. Foreign tour expenses are to be disallowed in the hands of assessee. Scholarship given to Rahul Karad who is son of Managing Trustee - Held that - The scholarship paid to the son of Managing Trustee is squarely hit by the provisions of section 13(1)(c) of the Act. It may be pointed out herein itself that the said person Shri Rahul Karad was not an employee in the relevant year and he had not completed his course for which scholarship was given to him. He is an associated person of the assessee trust and in view thereof the expenditure paid by the trust to its associated persons is squarely hit by provisions of section 13(1)(c) of the Act. The scholarship paid by the assessee trust to its employees has been allowed in the hands of assessee. However the present scholarship has been paid to the son of Managing Trustee who was not employee during the year and hence the exemption is hit by the provisions of section 13(1)(c) of the Act. Accordingly we hold so. Notional interest on advance made to Shri Rahul Karad - The said interest is due on the loan of 18 lakhs advanced to Shri Rahul Karad who was the son Managing Trustee which is hit by provisions of section 13(1)(c) of the Act. Following the same parity of reasoning as in the case of scholarship paid to Shri Rahul Karad who is not the employee of assessee during the year under consideration we uphold the interest due on such advances made to Shri Rahul Karad at 1, 27, 529/- Denial of exemption under section 11 - unexplained investment - On-money payment for purchase of land - Held that - The entries marked as 6 against amount of 1, 07, 50, 000/- which was highest figure appearing in the impounded document is the actual consideration paid for purchase of 417 guntas of land. In view of the nature and sequence of entries noted in the said document the evidence collected by the Assessing Officer and in view of the statement recorded of Shri Jatyan for which the assessee did not avail opportunity of cross-examination the cash consideration of 73, 58, 000/- being the on-money component in the transaction of purchase of 417 guntas of land at Kelgaon is not recorded in the books of account and hence is to be treated as unexplained investment under section 69 of the Act. The same is thus added to the income of assessee against which the assessee is not entitled to claim any exemption under section 11 of the Act. Accordingly the order of CIT(A) in upholding the addition of 73, 58, 000/- is confirmed. Expenditure connected with the provision made for paying higher salary to the employees as per 5th Pay Commission - Held that - Issue restored back to the file of Assessing Officer for reconsideration.
Issues Involved:
1. Time-barred reassessment due to the illegal order for special audit under section 142(2A). 2. Confirmation of various additions and enhancement of income by the CIT(A). 3. Denial of exemption under section 10(23C)(vi) of the IT Act. 4. Denial of exemption under section 11 of the IT Act. 5. Classification of the assessee's activity as a commercial activity with a profit motive. 6. Disallowance of expenditure on the World Peace Centre. 7. Violation of conditions under section 13 of the IT Act and denial of exemption under section 11. 8. Confirmation of additions as unrecorded donations and unexplained investments. 9. Disallowances under sections 43B, 40A(7), and 40A(3). 10. Enhancement of income by CIT(A) through various expenses. Detailed Analysis: 1. Time-barred reassessment due to the illegal order for special audit under section 142(2A): The primary issue was whether the reassessment was time-barred due to an illegal order for a special audit under section 142(2A). The Tribunal found that the assessment was completed beyond the prescribed time limit without issuing a show cause notice to the assessee at the pre-decisional stage. This was held to be invalid and against the principles of natural justice, rendering the assessment time-barred. The Tribunal relied on its earlier decisions and the Supreme Court's ruling in Rajesh Kumar and others vs. DCIT. 2. Confirmation of various additions and enhancement of income by the CIT(A): The Tribunal reviewed the confirmation of various additions and enhancement of income by the CIT(A). It was noted that the CIT(A) had erred in confirming these additions and enhancing the income without proper justification. The Tribunal provided a detailed examination of each addition and enhancement, ensuring that only legitimate and justified amounts were considered. 3. Denial of exemption under section 10(23C)(vi) of the IT Act: The Tribunal upheld the CIT(A)'s decision to deny the exemption under section 10(23C)(vi), noting that the approval under this section had been withdrawn by the CBDT. The Tribunal relied on its earlier findings and confirmed that the assessee was not entitled to this exemption. 4. Denial of exemption under section 11 of the IT Act: The Tribunal partly allowed the assessee's appeal regarding the denial of exemption under section 11. It held that the assessee was entitled to exemption under section 11 except for income resulting from violations of section 13. The Tribunal emphasized the charitable nature of the trust's activities and allowed the exemption subject to certain conditions. 5. Classification of the assessee's activity as a commercial activity with a profit motive: The Tribunal found that the assessee's activities were not solely for profit and were primarily charitable. It noted that the trust had deficits when capital expenditure and depreciation were considered as applications of income. Therefore, the Tribunal allowed the exemption under section 11, rejecting the classification of the assessee's activities as commercial. 6. Disallowance of expenditure on the World Peace Centre: The Tribunal examined the disallowance of expenditure on the World Peace Centre and found that such expenditure was in line with the objectives of the trust. It held that the expenditure qualified for deduction and should not have been disallowed. 7. Violation of conditions under section 13 of the IT Act and denial of exemption under section 11: The Tribunal held that there could not be a wholesale denial of exemption under section 11 for violations of section 13. Only the income related to the violation should be taxed. The Tribunal directed the Assessing Officer to follow this principle and allowed the exemption for other incomes. 8. Confirmation of additions as unrecorded donations and unexplained investments: The Tribunal upheld the addition of unexplained investments and unrecorded donations. It confirmed that the on-money payment for land purchase was substantiated by evidence, including statements and documents, and thus, the addition was justified. 9. Disallowances under sections 43B, 40A(7), and 40A(3): The Tribunal decided in favor of the assessee, holding that while computing income under section 11, disallowances under sections 43B, 40A(7), and 40A(3) could not be made. This was consistent with the Tribunal's earlier decisions. 10. Enhancement of income by CIT(A) through various expenses: The Tribunal reviewed the CIT(A)'s enhancement of income through various expenses and found that some of these enhancements were not justified. It allowed certain expenses and directed the Assessing Officer to re-compute the income accordingly. Conclusion: The Tribunal's judgment provided a detailed analysis of each issue, ensuring that the principles of natural justice were upheld, and the correct application of the IT Act was followed. The appeals were partly allowed, with specific directions for re-computation and consideration of exemptions.
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