TaxTMI 
TaxTMI 
2017 (5) TMI 1408
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.... 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 Rs. 17,09,92,660/- 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 exemption u/s 11 to the appellant trust. 5. The learned CIT(A) erred in holding that the activity of the appellant is a commercial activity with a profit motive and it does not exist solely for charity and therefore, erred in denying the exemption u/s 10(23C)/11. 6. The learned CIT(A) erred in holding 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. 7. The learned CIT(A) erred in holding that the appellant vio....
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....07.2005. As per the provisions of the Act, period for completing the assessment was 21 months from the end of the assessment year i.e. 31.12.2007. The Assessing Officer had appointed special auditor on 05.12.2007 and he had completed it on 10.06.2008 and the assessment order was passed on 08.08.2008. The grievance of the assessee in this regard is that where the reference to the special auditor was made without issuing show cause notice on pre-decisional stage of making reference for special audit under section 142(2A) of the Act, then such a reference is invalid in law and the assessment in the case had to be completed within stipulated period of 21 months from the end of assessment year i.e. by 31.12.2007, whereas the assessment order was passed on 08.08.2008 which is beyond the period of limitation provided under the Act. 7. We find that similar issue of assessment being time barred arose before the Tribunal in assessee's own case in bunch of appeals in ITA Nos.915/PUN/2012 to 920/PUN/2012, relating to assessment years 1999-2000 to 2004-05, wherein vide order dated 10.02.2017 in assessment year 2000-01, the Tribunal followed the order of the Pune Bench of Tribunal in Vilsons ....
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.... assessee and in view of the proviso to section 142(2A) of the Act, whether the said proposal made without affording predecisional hearing to the assessee was valid and can the proceedings conducted thereafter be held to be vitiated. 118. We find an identical issue had come up before the Pune Bench of the Tribunal in the case of ITO Vs. Vilsons Particle Board Industries Ltd. and vice versa. We find the Tribunal in ITA No.447/PN/2013, ITA Nos. 309 & 310/PN/2013 and ITA Nos. 448 & 449/PN/2013 vide order dated 21-12-2016 after considering the decision of Hon'ble Supreme Court in the case of Rajesh Kumar and others (supra) and various other decisions has held that where no show cause notice was given to the assessee before making the order proposing conduct of special audit u/s.142(2A) of the Act and such opportunity was given only by the CIT before approval for such special audit, such assessment is vitiated because of non-compliance of principle of natural justice. Hence the limitation for conclusion of assessment cannot be extended for such illegal order u/s.142(2A). The relevant observation of the Tribunal from para 40 onwards of the order read as under : "40. The....
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....he predecisional stage. In conclusion, the Apex Court directed that the said proposition would be applicable prospectively. The case of the assessee before us relates to the period which is prospective to the decision of the Apex Court and is also after insertion by the Finance Act, 2007 w.e.f. 01.06.2007. Reasonable opportunity of being heard on pre-decisional stage to be allowed by the Assessing Officer to the assessee was on Statute when the proceedings were taken up against the assessee. However, as the facts reveal before submitting the proposal dated 11.09.2008 for conducting special audit under section 142(2A) of the Act to the CIT(C), no opportunity of hearing was given to the assessee. The requirement of the Act is that the Assessing Officer has to give finding that there is complexity of accounts and the interests of revenue would be affected, and in such circumstances, show cause notice needs to be given to the assessee to explain its case. Where the assessee was able to explain the nature of entries and also justify that the same are not complex, then there is no need to put the assessee to such hardship of conducting special audit. The Assessing Officer having failed t....
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.... decided the jurisdictional issue on merits, the other grounds of appeal becomes academic." 119. Since in the instant case the Assessing Officer has not given any opportunity of being heard to the assessee before directing him to get its accounts audited u/s.142(2A) and such opportunity was granted only by the CIT, therefore, the limitation for completion of assessment cannot be extended in view of said illegal order passed u/s.142(2A). Since the assessment in the instant case was getting time barred under second proviso to section 153(2) on 31-12-2007 and since the Assessing Officer has passed the order on 0808-2008, therefore, the assessment order passed u/s.143(3)/147 for the impugned A.Y. 2000-2001 is barred by limitation and accordingly the same is void and illegal. Ground of appeal No.2 for A.Y. 2000-2001 by the assessee is accordingly allowed. 120. Since the assessee succeeds on this technical ground, the other grounds for A.Y. 2000-20001 have become academic in nature and therefore do not require adjudication. The appeal filed by the assessee for A.Y. 2000-2001 is accordingly allowed." 8. The issue arising in the present appeal is similar to the issue i....
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....account of money paid for purchase of land, as unexplained investment u/s.69. 9. The Learned CIT(A) erred in confirming the disallowance of Rs. 40,32,219/- made by the Ld.AO in respect of provisions made for salaries payable as per 5th Pay Commission Report. 10. The Learned CIT(A) erred in confirming various additions u/s.43B, 40A(7) and 40A(3) etc. 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 B.E. Avhad of Rs. 9,06,884/- b. Foreign Tour Expenses of Rs. 10,57,333/- c. Scholarship/subsidies to Shri Rahul Karad Rs. 5,44,797/- d. Notional interest on loan to Shri Rahul Karad Rs. 1,27,529/- 12. The appellant craves leave to add, amend, alter and/or delete any of the grounds of appeal. 10. The assessee has raised similar grounds of appeal in assessment years 2006-07 and 2007-08. The learned Authorized Representative for the assessee pointed out that the issues raised in assessment year 2007-08 are identical to the issue raised in assessment year 2006-07 except for grounds of appeal No.7, 8 and 10 which are withd....
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....lusively exists for charity and hence, not eligible for exemption under section 10(23C)/11 of the Act. The Tribunal took note of the fact that in earlier appeal vide ITA No.1669/PN/2007, order dated 09.09.2009, the Tribunal had restored the registration which was withdrawn under section 12AA(3) of the Act vide paras 138 and 139 at pages 82 to 84 of the order. The Tribunal had held that since the registration cancelled earlier was restored by the Tribunal (supra), therefore, the assessee was held to be entitled to claim exemption under section 11 of the Act subject to the fulfillment of other conditions. Thereafter, the Tribunal noted the alternate plea of the Revenue authorities that the assessee was not entitled to the exemption under section 11 of the Act on the ground that the activity of assessee was commercial activity with profit motive and it does not exist solely for charity for which, it was not eligible for exemption under section 10(23C)/11 of the Act. The Tribunal held that in the absence of any approval under section 10(23C)(vi) of the Act, the assessee was not entitled to the exemption under section 10(23C) of the Act. However, the other claim of assessee that whether....
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....ty. 19. The last issue considered by the Tribunal was denial of exemption under section 11 of the Act for violation of provisions of section 13(1)(c) of the Act. The Tribunal vide paras 148 to 151 at pages 107 to 112 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. 20. The issue in ground of appeal No.5 is against the orders of authorities below in holding that the activity of assessee is commercial activity with profit motive and it does not exist solely for charity and hence, the denial of exemption under section 11 of the Act. We have already observed in the paras hereinabo....
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.... and members of assessee trust is hit by provisions of section 13(1)(c) r.w.s. 13(3) of the Act. He further referred to the disallowance of Honorarium paid to the President and the trustees which is directly or indirectly hit by the provisions of section 13(1)(c) of the Act. Similarly, the payment of scholarship and notional interest is so hit. The learned Departmental Representative for the Revenue referred to the details at page 1010 of the Paper Book and pointed out that when salary was being given to the President of the trust, then no other perquisite was to be given. He further stated that the provisions of section 13(1)(c) of the Act are not applicable in case of reasonable expenditure. 26. We have heard the rival contentions and perused the record. The Tribunal while deciding the appeal of assessee in earlier years had held the assessee to be entitled to claim exemption under section 11 of the Act on part of the income and no such exemption was held to be allowable on such disallowances which were made under section 13 of the Act. The Tribunal thereafter, also considered each of expenditure incurred by the assessee which is in relation to its President and the trustees o....
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....erein 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. 29. Now, coming to the Honorarium paid to Shri B E Avhad of Rs. 1,80,000/- for period of three months. The learned Authorized Representative for the assessee pointed out that Shri B E Avhad is the president and the trustee of the assessee trust and such Honorarium was reasonable vis-a-vis nature of functions performed. The learned Authorized Representative for the assessee referred to the order of Tribunal, wherein it has been held that there is no dispute that Shri B E Avhad was looking after legal matters of the trust. In the entirety of the above said facts and circumstances, we are of the view that 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. 30. The next expenditure is the expenditure on foreign tour, wherein the Assessing Officer had not made any disallowance but the CIT(A) made an enhancement o....
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....lakhs was advanced to Shri Rahul Karad, on which notional interest of Rs. 1,27,529/- was disallowed by the CIT(A) by way of enhancement. The said interest is due on the loan of Rs. 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 Rs. 1,27,529/-. The grounds of appeal No.6, 7 and 11 thus, partly allowed. 33. Now coming to the issue in ground of appeal No.8 raised by the assessee against the addition of Rs. 73,58,000/-. The facts relating to the issue of addition of Rs. 73,58,000/- on account of on-money payment for purchase of land are that during the course of search, one document was found for the purchase of land. The agreed price between the parties was Rs. 33.92 lakhs, whereas on the said paper, the consideration written was Rs. 107.50 lakhs. The Assessing Officer had added the difference as income of the assessee as the assessee had not furnished complete i....
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....ment, the sale value was shown at Rs. 2,41,000/-. In the statement recorded, Shri Ramkumar Jatyan admitted that out of total consideration of Rs. 17,41,000/-, only agreement amount of Rs. 2,41,000/- was received through cheque, whereas the remaining amount of Rs. 15 lakhs was received in cash. Subsequently, an affidavit was also filed by the assessee before the Assessing Officer. The other three sellers did not appear before the Assessing Officer despite service of summons on them. The assessee failed to avail repeated opportunities granted by the Assessing Officer to crossexamine the said person. The Assessing Officer thus, drew inference that onmoney was paid over and above the value shown in the agreement and quantified the same at Rs. 73,88,000/-. As per the Assessing Officer, analysis of the impounded document suggested that an amount of Rs. 1,07,50,000/- which was the highest figure appearing in the impounded paper, could be the actual consideration paid for the purchase of 417 Guntas of land. Since the extra consideration paid of Rs. 73,88,000/- was not recorded in the books of account, the Assessing Officer treated the same as unexplained investment under section 69 of the ....
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.... purchase of said land. Thus, he held that the document was not a dumb document but was a speaking document and it related to purchase of land at Kelgaon by the assessee. The CIT(A) further noted that during post survey enquiries, statement of one of the sellers namely Jatyan was recorded, wherein he clearly stated that the actual consideration paid in the case was Rs. 17,41,000/- in respect of 59 Guntas of land, though in the agreement, purchase consideration was shown to be at Rs. 2,41,000/-. He in his statement and subsequent affidavit filed before the Assessing Officer admitted to have received only the agreement amount of Rs. 2,41,000/- in cheque, whereas the remaining amount of Rs. 15 lakhs was received by cheque. The said sum of Rs. 15 lakhs in cash was deposited in his Savings Bank account No.6414 with the Bank of Maharashtra. The contention of assessee that Shri Jatyan was only consenting party and not the owner of land was held to be of no relevance, where actual payment was made at Rs. 17,41,000/-. The CIT(A) noted another interesting aspect which was found in the course of examination of the said person, initially sum of Rs. 5 lakhs was also paid by cheque by the assess....
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.... the document, the approach of Assessing Officer in determining the on-money component in the transaction at Rs. 73,88,000/- was found to be correct and since the extra consideration was paid, which was not recorded in the books of account, the CIT(A) upheld the order of Assessing Officer in treating the same as unexplained investment under section 69 of the Act, which was added to the income of assessee for the assessment year 2006-07. The assessee is in appeal against the order of CIT(A). 37. On perusal of record, it is clear that the basis for addition made under section 69 of the Act is the impounded document which was found during the course of search at the premises of assessee. The said document was found from the chamber of Shri S.V.Kulkarni, who was the Registrar of the Trust. On seeing survey team, the said paper was torn by the Registrar and the same was reconstructed by the survey team and the scanned copy of the document is available at page 48 of the assessment order and at page 150 of the appellate order. The perusal of the said scanned document reflects various entries written on the said document, wherein the entry No.1 is in respect of 33.92. Further, there are....
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.... to Shri Ramkumar P. Jatyani. The area of land for this transaction was 59 guntas, wherein the rate per gunta was adopted at Rs. 4085/- and consideration as per the agreement was Rs. 2,41,000/-. However, during post survey enquiries, statement of Shri Ramkumar Jatyan was recorded, wherein he clearly stated that the total sale consideration in his case was Rs. 17,41,000/- in respect of 59 guntas of land. He admitted that though in the agreement, purchase consideration was shown to be at Rs. 2,41,000/-, the balance sum of Rs. 15 lakhs was received in cash. Another evidence which was produced by Shri Jatyan during recording of his statement was the cheque issued by the assessee trust in the name of Ramkumar Jatyan for sum of Rs. 5 lakhs, which is dated 15.07.2005 bearing No.822489. He explained that on 15.07.2005, when signatures were being put on the sale deed, there was shortage of cash of Rs. 5 lakhs at Alandi. So, a cheque of Rs. 5 lakhs was issued as guarantee and Shri Jatyan was asked to collect cash from Pune. He had kept Xerox copy of the said cheque and had produced the same before the authorities below and the scanned copy of the same is available at page 154 of the appellat....
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....nt of Rs. 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 Rs. 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 Rs. 73,58,000/- is confirmed. The ground of appeal No.8 raised by the assessee is thus, dismissed. The learned Authorized Representative for the assessee further pointed out that even if the addition is made in the hands of assessee, after setting off of application of income against the receipts for the year under consideration, ....
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....essing Officer further observed that any liability in this regard could be allowed in the year it was paid. 42. The CIT(A) noted the contentions of assessee and observed that the only claim of assessee was that outstanding amount was shown as liability in the accounts of trust and the liability continued to subsist, as the assessee had not written back the said outstanding liability to the Income and Expenditure Account. The CIT(A) further noted that the assessee had not furnished any details in this regard at any stage of proceedings and had also not explained whether the said liability was discharged in subsequent year. As against the provision made of Rs. 1 crore in assessment year 1998-99, provision of Rs. 40.32 lakhs was outstanding even after nine years from the year of making provision and it was also not known whether the balance liability was discharged in any subsequent years. The CIT(A) thus, held that the liability in respect of which the provision was made by the assessee, ceased to exist and the order of Assessing Officer was upheld as the provision was no longer required. The assessee is in appeal against the order of CIT(A). 43. The limited plea raised by the ....
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....ng, the issue is restored back to the file of Assessing Officer with similar direction as in para 172 of the order dated 10.02.2017. The Assessing Officer shall accordingly, pass an appropriate order. Thus, the ground of appeal No.9 is allowed for statistical purposes. 46. The ground of appeal No.10 raised by the assessee is against disallowance of deduction under section 43B, 40A(7) and 40A(3) of the Act is claimed to be decided in favour of the assessee by the Tribunal vide paras 160 to 162 at page 116 of the Tribunal's order. Following the same parity of reasoning, we hold that this issue is decided in favour of the assessee and accordingly, the ground of appeal No.10 is allowed. 47. The ground of appeal No.12 raised by the assessee being general, is dismissed. ITA No.923/PUN/2012, relating to assessment year 2007-08 48. 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 learned CIT(A) erred in confirming the various additions made by the A.O. and also erred in enhancing the income on certain is....