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TMI Blog2017 (5) TMI 1408X X X X Extracts X X X X X X X X Extracts X X X X ..... eld 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nrecorded Donations. 9. The Ld.CIT(A) erred in confirming various additions u/s.43B/40A(7) and 40A(3) etc., 10. The Ld.CIT(A) also erred in further enhancing the income of the appellant by the following amounts : a. Expenses on facilities provided to Shri B.E. Avhad of ₹ 8,88,294/- b. Foreign Tour Expenses of ₹ 71,325/- c. Notional interest on loan to Shri Rahul Karad ₹ 31,500/- 11. The appellant craves leave to add, amend, alter and/or delete any of the grounds of appeal. 4. The learned Authorized Representative for the assessee at the outset pointed out that preliminary issue raised by way of ground of appeal No.1 needs to be adjudicated in the present case. He pointed out that the assessment was completed under section 143(3) of the Act after special audit under section 142(2A) of the Act on 08.08.2008, as against the time prescribed for passing the said assessment order, which ended on 31.12.2007. He further pointed out that the said reference to conduct special audit under section 142(2A) of the Act was made without issuing show cause notice to the assessee on pre-decisional stage. In such circumstances where the reference to pass special audit w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2(2A). However, the Ld. Counsel for the assessee restricted his arguments for A.Y. 1999-2000 and 2000-2001 only and did not press this ground for other years. Accordingly, this ground for other years are dismissed. Since we have already held in the preceding paragraphs that the order for A.Y. 1999- 2000 is void, therefore, we confine our discussion on this issue only for A.Y. 2000-2001. 116. It is the submission of the Ld. Counsel for the assessee that while directing for special audit u/s.142(2A) of the I.T. Act for A.Yrs. 1999-2000, 2000-01 and 2005-06 the Assessing Officer had not given opportunity of being heard as per the proviso to section 142(2A) and only the Ld.CIT has given the opportunity. Therefore, in view of the decision of Hon'ble Supreme Court in the case of Rajesh Kumar (Supra) and the decision of Hon'ble Bombay High Court in the case of Nikunj Eximp Enterprises Pvt. Ltd. (Supra) the order u/s.142(2A) is illegal and invalid and therefore, the limitation for assessment could not be extended in view of the illegal order u/s.142(2A). It is also his submission that the assessments for A.Yrs. 1999-2000, 2000-01 and 2005-06 were getting time barred in view of second pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act, is the said proposal made without affording pre-decisional hearing to the assessee valid and can the proceedings conducted thereafter be held to be vitiated in law. The Hon'ble Supreme Court in Three Judge decision in Sahara India (Firm) Vs. CIT and Another (supra) had decided the issue of show cause notice to be given on predecisional stage and postdecisional stage of starting the proceedings under section 142(2A) of the Act and had also referred to the earlier decision of Apex Court in Rajesh Kumar and Others Vs. DCIT (supra). The principles laid down by the Hon'ble Supreme Court are that the principle of audi alteram partem cannot be ignored even at the stage of pre-decisional hearing. In other words, in case the Assessing Officer is of the view that having regard to the nature and complexity of the accounts and interests of revenue, it is necessary to get the accounts audited by an accountant, with previous approval of Principal Chief Commissioner, then he can do so. However, the proviso inserted by the Finance Act, 2007 w.e.f. 01.06.2007 has very categorically provided that the Assessing Officer shall not direct the assessee to get the accounts so audited unles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Revenue before us is that the CIT(C), Pune before passing his order of giving permission to the Assessing Officer to ask the assessee to get the special audit conducted had given fair opportunity of hearing to the assessee. The role of CIT(C) is the role of approving authority. The role is not that of adjudicating authority which had to be carried out by the Assessing Officer. The adjudicating authority in the present set of facts has failed to give any opportunity to the assessee before making proposal for special audit and the opportunity allowed by the approving authority, who in any case is enshrined with the duties of checking whether there is no arbitrariness in functioning of adjudicating authority, has to be satisfied before giving approval. Hence, the opportunity allowed by the CIT(C), Pune after proposal was made by the adjudicating authority does not absolve the non-allowance of reasonable opportunity of hearing by the Assessing Officer. 41. Applying the principles laid down by the Apex Court in Sahara India (Firm) Vs. CIT and Another (supra), we hold that where no show cause notice was given to the assessee before making the order proposing conduct of special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment 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. ITA No.922/PUN/2012, relating to assessment year 2006-07 9. The assessee during the course of hearing had filed abridged grounds of appeal which read as under:- The following grounds are taken without prejudice to each other : On the facts and in law, 1. The re-asst. be held time barred as the limitation could not be extended in view of the illegal order for special audit u/s 142(2A). 2. The learned CIT(A) erred in confirming the various additions made by the A.O. and also erred in enhancing the income on certain issues and as a result, erred in computing the total income of ₹ 18,21,00,359/- as against the returned income of Rs. NIL. 3. The learned CIT(A) erred in holding that the appellant trust was not entitled to the exemption u/s. 10(23C)(vi) of IT Act. 4. The learned CIT(A) erred in denying ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than assessment year 2000-01 and following the same parity of reasoning and in view of submission of the learned Authorized Representative for the assessee, we dismiss the ground of appeal No.1 raised by the assessee. 13. The issue raised by way of ground of appeal No.2 is general in nature and the same is also dismissed. 14. The issue in ground of appeal No.3 is against the denial of exemption under section 10(23C)(vi) of the Act. 15. The learned Authorized Representative for the assessee pointed out that the said issue arose in earlier year and has been decided by the Tribunal against the assessee. The Tribunal vide order dated 10.02.2017 vide paras 122 and 123 at pages 74 and 75 has held that the assessee is not entitled to exemption under section 10(23C)(vi) of the Act as the approval under the said section has been withdrawn by the CBDT. We fully rely on the findings of the Tribunal in paras 122 and 123 of the earlier order. However, for the sake of brevity, the same is being though referred to, but not being reproduced. Following the same parity of reasoning, the ground of appeal No.3 raised by the assessee is thus, dismissed. 16. The issue in ground of appeal No.4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it was collecting capitation fees in the garb of education and was running the institute with profit motive. However, where neither before the Assessing Officer nor any of the persons who have stated before the Department that they have given donation for getting admissions, had complained to the Government or appropriate authority, for any such violation under the Maharashtra Educational Institutions (Prohibition of Capitation Fees) Act, 1987 and no evidence had been brought on record that any student had denied admission for not giving donation. Therefore, merely because, some of donors had stated that they have given donations for admission, which had been retracted later on, the same as per the Tribunal, would not dis-entitle the assessee trust from getting exemption, which is existing solely for educational purpose. The Tribunal also gave a finding from various details filed by the assessee that if the capital expenditure and the depreciation thereon was considered as an application, then the assessee had deficit in each year under appeal and it could not be said that the trust was working solely for the profit. The Tribunal thereafter also held that even if the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of appeal No.5 raised by the assessee. 21. The issue raised by way of ground of appeal No.6 is against the denial of exemption under section 11 of the Act on account of different expenditure for violation of provisions of section 13(1)(c) of the Act. 22. The learned Authorized Representative for the assessee referred to the list of expenses which is enlisted at page 1010 of the Paper Book and pointed out that all the said expenses were incurred in India and only in assessment year 1999-2000, certain expenses were incurred outside India. He further referred to the order of the Tribunal in assessee's own case in earlier years, wherein similar expenses were considered and part of expenses were disallowed and on the said disallowances, no exemption under section 11 of the Act was held to be allowable. 23. The learned Authorized Representative for the assessee also referred to the ground of appeal No.7 and pointed out that the same is linked to ground of appeal No.4, wherein the authorities below for violating the conditions of section 13 of the Act, had denied the exemption under section 11 of the Act on the entire income of assessee. However, the Tribunal had restricted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. Particulars A.Y.2006-07 1 Expenditure on providing facility to B E Avhad -Vehicle Maintenance (a) Addition by AO (b) Enhancement by CIT(A) Rs.2,36,191 -Depreciation on Car (a) Addition by AO (b) Enhancement by CIT(A) Rs.2,80,057 -Credit Card Expenses (a) Addition by AO (b) Enhancement by CIT(A) Rs.2,10,636 -Other expenses -Honorarium Paid Rs.1,80,000 2 Expenditure on foreign tours (a) Addition by AO (b) Enhanced by CIT(A) Rs.10,57,333 3 Concessional education (a) Addition by AO (b) Enhanced by CIT(A) 4 Scholarship given to Rahul Karad Rs.5,44,797 5 Notional interest on advance to Rahul Karad Rs.1,27,529 28. The first expenditure which has been disallowed is vehicle maintenance expenses of Shri B E Avhad to the extent of ₹ 2,36,191/-. The Tribunal vide para 153 had held that the said expense was allowable to the extent of 50% and the balance was held to be hit by provisions of section 13(1)(c) of the Act. Following the same parity of reasoning, we hold that vehicle maintenance expenses of ₹ 2,36,191/- are to be allowed to the extent of 50% and the balance is to be disallowed under section 13(1)(c) of the Act. Similarly, depreciati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust in expansion of management courses. The assessee claims that similar loans were given to unrelated employees of the assessee, hence, expenditure merits to be allowed. The learned Authorized Representative for the assessee before us stressed that the said person was temporarily employed by the company and after completing his course, another course for politician was started in the institute run by the assessee and hence, beneficial to the running of activities of the trust. The learned Departmental Representative for the Revenue on the other hand, pointed out that the scholarship paid by the assessee was hit by section 13(1)(c) of the Act. We find merit in the plea of learned Departmental Representative for the Revenue. 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 prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttention was drawn to the statement at page 1008 of the Paper Book and it was pointed out that the assessee was in deficit. 34. The learned Departmental Representative for the Revenue referred to the document which was found, copy of which is placed at page 931 of the Paper Book - 4. He pointed out that the Assessing Officer had conducted further enquiries, wherein money was deposited in the bank account of Jatyan. The learned Departmental Representative for the Revenue further stated that the said document was not a dumb document and reliance was placed on the observations of CIT(A) from page 149 onwards. 35. We have heard the rival contentions and perused the record. During the course of survey conducted under section 133A of the Act on the premises of assessee trust on 26.08.2005, loose paper pertaining to the purchase of land at Kelgaon was found in the chamber of Shri S.V. Kulkarni, Registrar of the Trust. It is mentioned on record that the said paper was torn by the Registrar on the sight of survey team, which was reconstructed using the torn pieces and scanned image of the same is reproduced by the Assessing Officer at page 48 of the assessment order. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r contended that other than consideration shown in the deed, no other amount was paid either to the owner of land or to the confirming parties. The assessee also objected to the reliance placed upon the paper that was confiscated during the survey operation. Reliance placed upon by the Assessing Officer on the statement of Shri Ramkumar Jatyan that he had received sum of ₹ 15 lakhs in cash over and above the purchase consideration was also opposed by the assessee before the CIT(A). The assessee further claimed that no proper opportunity to cross-examine Shri Ramkumar P. Jatyan was provided. The CIT(A) rejected the contention of the assessee that the document found was dumb document. The CIT(A) observed that the said document was found in the chamber of the Registrar of the Trust and he had also made an attempt to destroy the evidence on sighting the survey party. The fact that the document related to purchase of land at Kelgaon and the same was in the handwriting of S.V. Kulkarni, was not denied by the assessee. The CIT(A) further noted that as per information, the total consideration shown for the purchase of 417 Guntas i.e. 10 acres 17 Guntas from four persons was at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh. Shri Jatyan further stated that he had to sell the land against compulsion and cash was also taken against his wishes. He also visualized the problem at a later date and hence to be on safer side he took a Xerox copy of the above cheque and kept with him. The original cheque was returned to the assessee at the time of receipt of cash of ₹ 5 lakhs. The Assessing Officer also verified from the bank records of the assessee trust that cheque No.822489 dated 15.07.2005 for ₹ 5 lakhs issued in the name of Jatyan was not debited to the bank account at any time. The CIT(A) thus, observed from the statement of the said person, it is established that in addition to the consideration shown in the registered document, additional amount was paid to the sellers or consenting parties for purchase of land. The Assessing Officer had allowed opportunity to cross-examine the said person but the assessee failed to avail the same. Another aspect noted by the CIT(A) is that even though the registration was effected on 15.07.2005, the purchase consideration varied tremendously from ₹ 4085/- from gunta to ₹ 34,583/- per gunta, which fact clearly suggests the payment of purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad to be made the party to the sale deed. The authorities below had collated the information in respect of sale consideration of ₹ 33.92 lakhs which is as under:- Area of land in Acres/Gunthas Date of Registration Rate per Guntha Consideration as per agreement (Rs.) 59 05/08/2005 4085 2,41,000 40 15/07/2005 4325 1,73,000 82 15/07/2005 4220 3,46,000. 59 05/08/2005 4085 2,41,000 24 15/07/2005 34586 83,000 4 15/07/2005 22500 90,000 149 15/07/2005 9872 14,71,000 417 Gunthas (4.17 Hectres) TOTAL 33,92,000. 38. Admittedly, where the assessee had purchased the land for ₹ 33,92,000/- and the total land mentioned in the said paper is 4.17 which is equivalent to 4.17 Hectres or 417 guntas, the said entries in the impounded document lend authenticity to the other entries made in the said document and establishes the case of the Revenue that the figures represent the actual purchase consideration paid by the assessee for purchase of said land. Admittedly, the assessee in the registered document had shown the area of land at 417 guntas and the sale consideration at ₹ 33,92,000/- and once these two entries are admitted to be correct, then th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee that Shri Jatyan was not the owner of land has not relevance, wherein the assessee himself has paid sum of ₹ 2,41,000/- as part of total consideration of ₹ 33,92,000/- to Shri Jatyan for purchase of his area of land of 59 guntas. The Assessing Officer had repeatedly allowed the opportunity to assessee to cross-examine Shri Jatyani but no cross-examination was taken by the assessee. The learned Authorized Representative for the assessee before us has stated that there were threats to the assessee and hence, the assessee could not do cross-examination but the assessee has failed to produce any evidence of such threats being given to him and in the absence of the same, where proper opportunity of cross-examination has been provided by the Assessing Officer, which in turn, has not been availed by the assessee, does not justify the plea of the assessee in this regard that the statement recorded of Shri Jatyan should not be relied upon. It is not only the statement of Shri Jatyan which establishes the case of Revenue of consideration being paid in cash over and above the consideration recorded in sale deed but the other evidence i.e. deposit of cash in the accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and this in turn increases the cost of asset, hence plea of application of income has no basis. Accordingly, the ground of appeal No.8 is thus, dismissed. 39. The ground of appeal No.9 raised by the assessee is in respect of expenditure connected with the provision made for paying higher salary to the employees as per 5th Pay Commission. The learned Authorized Representative for the assessee pointed out that the Assessing Officer had disallowed the claim holding that the provision made was high. He further pointed out that in case the said expenditure was disallowed, then its deficit would decrease. 40. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the order of CIT(A). 41. We have heard the rival contentions and perused the record. The assessee claims to have made a provision towards payment of additional salary and allowances to the employees according to 5th Pay Commission in financial year 1998-99. The assessee further stated that out of said provision, sum of ₹ 40,32,219/- was outstanding and the same was payable to the employees of assessee trust. The assessee had shown the said outstanding amount as liability in the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 11 of the Act for the trust. 44. We find that the Tribunal in assessment year 2003-04 had considered the issue of disallowance of excess provision for refund of fees and had observed as under:- "170. The next issue that requires adjudication is ground of appeal No.12 for A.Y. 2003-04 regarding disallowance of excess provision for refund of fees. 171. After hearing both the sides, we find the assessee has made a provision of ₹ 50 lakhs for refund of fees in A.Y.2002-03 in respect of MIT SFS which is one of its constituent unit. The unit was closed during A.Y. 2003-04. Certain amount was repaid out of the provision of ₹ 50 lakhs and an amount of ₹ 30,96,750/- remained outstanding during A.Y. 2003-04 which remained unpaid even upto 31-03-2006. The Assessing Officer accordingly added back the excess provision in the year of closure of the unit, i.e. A.Y. 2003-04. It is the submission of the Ld. Counsel for the assessee that even if the amount is added as income for A.Y. 2003-04 the application of income in this year is still higher than the income/receipts and therefore after exemption u/s.11 there is no taxable income in the hands of the assessee. 172. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the expenditure on World Peace Centre is not an expenditure on the objects of the trust and the same does not qualify for deduction and accordingly, erred in disallowing this expenditure. 6. The learned CIT(A) erred in holding that the appellant violated the conditions of section 13 of IT Act and accordingly, erred in denying exemption u/s 11 on the entire income of the appellant. 7. The learned CIT(A) erred in confirming the addition of ₹ 11,00,00,000/- made by the Ld. AO being amount transferred to Reserve & Specified Fund. 8. The learned CIT(A) erred in confirming the additions of ₹ 29,87,500/- and ₹ 9,51,000/- made by the Ld. Assessing Officer being amount transferred to MANET Building Fund and Building & Equipment Fund respectively. 9. The Learned CIT(A) erred in confirming various additions u/s.43B, 40A(7) and 40A(3) etc. 10. The Learned CIT(A) erred in restricting the claim of depreciation for the year at ₹ 14,90,79,890/- as against the claim of depreciation of ₹ 17,75,24,455/-. 11. The Ld.CIT(A) also erred in further enhancing the income of the appellant by the following amounts : a. Expenses on facilities provided to Shri ..... 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