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2018 (6) TMI 1310 - AT - Income TaxExemption u/s 11 - microfinance activity - charging higher rate of interest from the poors - Held that:- Assessee was charging 29% interest which is far above the rate prescribed by the law i.e. The Kerala Money Lenders Act. This shows that the assessee is in the business of lending at 29% per annum to the poor, which is not as envisaged in the assessee-Trusts’s objects. By collecting interest at such a higher rate the assessee has deviated from its objective of doing charity, especially in view of the fact that the difference of interest over deposits and disbursement in cases of banks and non banking financial companies is less than 10%. Micro finance activity conducted by the assessee is strictly commercial in nature and with profit motive. The assessee had even collected penal interest from their defaulter which clearly shows that the trust was not even considerate with the poor loanees and was purely acting just as any money lender. From the above the activity of the assessee is business in nature and there is no element of charity involved in the activities of the assessee and it is purely commercial. In view of this, the action of the lower authorities in denying exemption u/s. 11 of the Act is confirmed. Disallowance u/s. 36(1)(vii) - Held that:- Going into the merit of the issue raised by the assessee, in our opinion under section 36(1)(vii) of the Act, only debts which were written off as irrecoverable in the books of accounts of the assessee in the previous year relating the assessment year is to be claimed as deduction as bad debts while computing the income of the assessee. There is no question of granting any relief towards provision for bad and doubtful debts while computing the business income of the assessee. No merit in the above ground raised by the assessee in both the years. This ground of appeals of the assessee is dismissed. Disallowance towards donations and gifts - Held that:- Since the donations/gifts are not expended wholly and exclusively for the purpose of business of the assessee and it is in the nature of charities, it cannot be allowed while computing the income of the assessee. Accordingly, the disallowance made by the Assessing Officer and confirmed by the CIT(A) is justified. Hence, this ground of appeal of the assessee for the assessment year 2009-10 is dismissed. Disallowance of remuneration paid - Held that:- There is no authorization in the Trust Deed to pay remuneration to Mr. Jayson Joy and Mr. Job M Joy. These unauthorized remunerations paid by the Trust to the employees have not been sanctioned in the Trust Deed. Hence, we find no infirmity in the order of the CIT(A) and confirm the same. Disallowance on self made vouchers - Held that:- The expenditure was disallowed on the basis of self made vouchers to the extent of ₹ 5 lakhs. In a normal trade practice, it is not possible to prove 100% bills and receipts from the recipients and there is every chance of making payments by way self made vouchers. However, there is every chance of inflating the expenditure by way of self made vouchers. Hence, we direct the Assessing Officer to disallow only 20% of ₹ 5 lakhs, i.e. ₹ 1 lakh towards self made vouchers. Hence, this ground of appeal of the assessee is partly allowed. Disallowance u/s. 40A(3) being 20% of ₹ 6,50,000/- paid as cash for land purchase - Held that:- The payment is made towards purchase of land. The capital expenditure is not charged to P&L account as expenditure. Being so, section 40A(3) have no application to the assessee’s case. Hence, this ground of the assessee is allowed.
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