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2018 (10) TMI 1595 - AT - Income TaxDenying the benefit of deduction u/s 11 - diversion of funds - advance by account payee cheques - Taking an amount at the maximum marginal rate and allow exemption for the balance amount - violation of provisions of section 13(1)(c) - Held that:- In the garb of purchase of timber, the advance amounts were diverted for the personal benefit of an interested party, who is mentioned in section 13(3) of the I. T. Act. Therefore, there is clear violation of provisions of section 13(1)(c). The contention of the assessee that the amounts were returned by account payee cheques and within a short period is of no consequence. Only a small portion of the advance was repaid to the assessee trust within four months from the date of advance. Therefore, the repayment by M/s. VUS Timbers of all the advance by account payee cheques is of no significance insofar as there was already a violation of provisions of section 13(1)(c). Therefore, the CIT(A) is justified in directing the A. O. to treat an amount of ₹ 72,45,000 as advance as income of the assessee. The assessee was paying interest on borrowings, and therefore, notional interest at the rate of 18% on the advance of ₹ 72,45,000 was rightly brought to tax as income of the assessee by the A. O. Therefore, we see no reason to interfere with the findings of the CIT(A). Accordingly, we confirm the order of the CIT(A) on this issue. Disallowance invoking the provisions of section 40(a)(ia) - Held that:- Admittedly, no tax was deducted on the payment of ₹ 21,27,846. The assessee has not proved that the provisions of section 40(a)(ia) of the I. T. Act does not have any application on the said payment of ₹ 21,27,846. Hence, the A. O. was correctly disallowed the expenditure by invoking the provisions of section 40(a)(ia) of the I. T. Act, which was confirmed by the CIT(A). Hence, we see no reason to interfere with the order of the CIT(A) and we confirm the same. Disallowance of labour charges expenses - Held that:- The assessee has not produced any details that the said labour charges has been expended by it. Hence, the A. O. had correctly disallowed the expenditure and added back to the income of the assessee. We see no reasons to interfere with the orders of the Income-tax authorities, and confirm the same.
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