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2016 (7) TMI 455 - AT - Income TaxExemption u/s 11 denied - Eligibility for exemption u/s 10(23C) - whether society is existed for profit motive? - A.O. denied the benefit of exemption for the sole reason that the assessee society has diverted its funds to other societies and violated the provisions of section 13(1)(d) - Held that:- On perusal of the documents available on record, we find that the assessee has advanced loans to other societies under the same management having similar objects and also registered under the provisions of section 12A of the Act and charged interest. The assessee also proved that it has advanced loans out of the funds borrowed from founder members of the society. When the loans are given out of the funds borrowed from the society, the A.O. was not correct in holding that the assessee has diverted the funds in violation of the provisions of section 13(1)(d) of the Act. Therefore, we are of the view that advancing loans to other societies having similar object whether or not registered u/s 12A of the Act, is not a violation of the provision of section 13(1)(d) of the Act. A.O. cannot borrow the findings of the Chief Commissioner of Income Tax in the order cancelling the registration u/s 10(23C) of the Act to deny the benefit of exemption u/s 11 of the Act, unless he had specifically points out the activities carried out by the assessee are not in accordance with the objects of the trust. As far as the observation of A.O. with regard to letting out of properties on commercial lines is concerned, we noticed that the assessee has let out its place to telecom companies for erection of telecom tower and used the proceeds for the objects of the society. Similarly, the assessee society has maintaining a hostel for the benefit of the students. Maintaining hostels for the benefit of the students and letting out properties cannot be considered has ingenuine activity to deny the benefit of exemption u/s 11 of the Act. In the present case on hand, on perusal of the facts, we noticed that the A.O. without pointing out any specific violations referred to in section 13(1)(c) or 13(1)(d) of the Act, simply rejected benefit of exemption. A.O. was erred in denying exemption u/s 11 of the Act. The CIT(A) without appreciating the facts has confirmed the order passed by the A.O - Decided in favour of assessee Disallowance of expenditure under the provisions of section 40(a)(ia) - A.O. was of the opinion that once assessee looses benefit of exemption u/s 11 of the Act, then the income of the assessee should be computed under the normal provisions of business or profession, accordingly, the provisions of section 40(a)(ia) of the Act are applicable - Held that:- Disallowance u/s 40(a)(ia) of the Act is not applicable, when income is computed under the provisions of section 11 of the Act. Therefore, we direct the A.O. to delete the additions made u/s 40(a)(ia) of the Act as assessee has been entiled for exemption u/s 11 - Decided in favour of assessee
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