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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.
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