2017 (8) TMI 656 - AT - Income Tax

Exemption u/s 11 - Violation of provisions of Section 13(1) and 13(2) - Loan advanced to founder trustee - Held that - As per the assessment order it is observed that the assessee has explained before the Assessing Officer that the amount was given for purchase of buses and the same could not be materialized and the amount was lying with the founder. However no evidence was furnished by the assessee to the Assessing Officer. The issue regarding payment of advance to Shri Akula Mohana Chalapati Rao on 13.10.2010 came before the CIT(Appeals). No other discussion was made by the Assessing Officer in the assessment order with regard to the executive body meeting held on 18.09.2008 purchase agreement tender documents etc.. CIT(Appeals) also has not made any enquiry with the seller of the busses whether it is first hand or second hand buses no such details were verified by the Ld.CIT(Appeals). - Matter remanded back. Exemption u/s 11 rejected - violation of provisions of section 13(1)(c) - providing food to the officers and their guests - 73 meals coupons utilized by the Chairman - Held that - The number of meals coupons utilized was 73 and the same were utilized for the purpose of providing food to officers and VIPs visiting the Society from various departments / organizations. It was also observed by the Ld.CIT(Appeals) that the Society is located in far away place where there are no hotels etc. for supply of food. In such circumstances the assessee has provided food to the officers and their guests visiting the society signing the coupon on the rear side. The explanation appears to be reasonable and we do not find any reason to interfere with the order of the Ld.CIT(Appeals). Accordingly the revenue s appeal on violation of provisions of section 13(1)(c) r.w.s. 13(2)(a) with regard to 73 meals coupons utilized by the Chairman is dismissed.

Issues Involved:
1. Disallowance of exemption claimed under section 11 of the Income Tax Act for violation of provisions of Sec.13(2)(a) & 13(2)(d).
2. Validity of unsecured loans given to the Chairman of the assessee Society.
3. Disallowance of canteen expenditure for providing free meals to specified persons.
4. Disallowance of certain advertisement expenses.
5. Contravention of Rule 46A(3) of the Income Tax Rules, 1962 regarding additional evidence.
6. Violation of provisions of section 13(1)(c) and rejection of exemption under section 11 of the Income Tax Act.

Analysis:

Issue 1 - Disallowance of Exemption Claimed under Section 11:
The Assessing Officer disallowed the exemption claimed under section 11 of the Income Tax Act for alleged violations of Sec.13(2)(a) & 13(2)(d) by the assessee Society. The CIT(A) allowed the appeal, stating that the loans given to the Chairman were for a genuine purpose of purchasing buses and the free meals provided were customary and not for personal gain. The revenue appealed against this decision, arguing that the provisions of Sec.13(1)(c) r.w.s. 13(2)(a) were applicable. However, the Tribunal upheld the CIT(A)'s decision, finding the explanations provided by the assessee reasonable and dismissing the revenue's appeal on this issue.

Issue 2 - Validity of Unsecured Loans to Chairman:
The Assessing Officer found that unsecured loans given to the Chairman violated provisions of Sec.13(1)(c) r.w.s. 13(2)(a). The CIT(A) observed that the loans were for a genuine purpose of purchasing buses and no personal gain was involved. The Tribunal remitted the matter back to the Assessing Officer for further verification of the genuineness of the advance given to the Chairman, as no evidence was furnished by the assessee and proper verification was lacking.

Issue 3 - Disallowance of Canteen Expenditure:
The Assessing Officer disallowed canteen expenditure for providing free meals to specified persons, citing violation of Sec.13(2)(d). The CIT(A) found the explanation reasonable as the meals were provided to guests visiting the society and dismissed the revenue's appeal on this issue, stating that the meals were not utilized for personal purposes.

Issue 4 - Disallowance of Advertisement Expenses:
Certain advertisement expenses were disallowed by the Assessing Officer as not related to the society's objectives. However, the CIT(A) did not find violations under Sec.13(1)(c) r.w.s. 13(2)(g) and allowed the expenses to be disallowed as unrelated to the business of the assessee. The Tribunal did not intervene in this matter.

Issue 5 - Contravention of Rule 46A(3) of Income Tax Rules:
The revenue argued that additional evidence submitted by the assessee during the appeal was not presented before the Assessing Officer, contravening Rule 46A(3) of the Income Tax Rules. The Tribunal found the evidence to be crucial and remitted the case back to the Assessing Officer for proper examination.

Issue 6 - Violation of Provisions of Section 13(1)(c):
The Tribunal dismissed the revenue's appeal on the violation of provisions of section 13(1)(c) and rejection of exemption under section 11 of the Income Tax Act related to the meals coupons utilized by the Chairman, as the explanations provided were deemed reasonable and in compliance with the law.

In conclusion, the Tribunal partly allowed the revenue's appeal for statistical purposes, remitting certain issues back to the Assessing Officer for further examination while upholding the decisions of the CIT(A) on other issues.

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