Tribunal Upholds Tax Cancellation Decision, Orders Income Verification

M/s. JB. Educational Society and Joginapally BR. Educational Society Versus The ACIT Central Circle-1 Hyderabad

M/s. JB. Educational Society and Joginapally BR. Educational Society Versus The ACIT Central Circle-1 Hyderabad - [2013] 28 ITR (Trib) 284 (ITAT [Hyd]) Issues Involved:
1. Denial of exemption under Section 11 and Section 10(23C) of the Income Tax Act.
2. Taxation of additional receipts in the hands of the assessee.
3. Addition towards capital fund.
4. Addition due to difference in opening balance of the capital fund.
5. Addition of unaccounted investment in land.
6. Addition of unaccounted cash.
7. Levy of interest under Sections 234A and 234B of the Income Tax Act.
8. Additional grounds regarding the determination of receipts on a cash basis and assessing the fees received for the entire course in one year.

Detailed Analysis:

1. Denial of Exemption under Section 11 and Section 10(23C):
The Tribunal confirmed the cancellation of the registration granted under Section 12A by the CIT, citing that the society's activities were contrary to its stated objects and involved collection of capitation fees not recorded in the books of account. The Tribunal upheld the denial of exemption under Section 11 and Section 10(23C), as the society was found to be engaged in profit-making activities rather than charitable purposes. The Tribunal referenced its earlier decision in the case of Joginpally BR Educational Society and JB Educational Society, where similar findings led to the cancellation of registration.

2. Taxation of Additional Receipts:
The Tribunal addressed the issue of taxing additional receipts based on seized material, which showed unaccounted income from capitation fees. The Tribunal noted that the AO had prepared a comprehensive chart showing unaccounted income for various assessment years. However, it was highlighted that Sri R. Kondal Rao, a manager of the society, had collected these amounts without the management's knowledge and had offered them for taxation before the Settlement Commission. The Tribunal directed the AO to verify if the unaccounted income was already taxed in the hands of Sri R. Kondal Rao and, if so, not to tax it again in the hands of the society to avoid double taxation.

3. Addition Towards Capital Fund:
The Tribunal examined the addition of capital fund amounts as income. It was argued that these were tied-up funds for specific purposes and should not be taxed. The Tribunal referenced various judicial precedents, including the case of Nirmal Agricultural Society, which held that tied-up grants for specific purposes do not form part of the income of the trust. The Tribunal directed the AO to segregate donations used for personal benefits of the trustees from those used for specific purposes and tax accordingly.

4. Addition Due to Difference in Opening Balance of the Capital Fund:
The Tribunal remitted the issue back to the AO for fresh consideration, directing the assessee to furnish a statement of capital fund on a year-to-year basis. The AO was instructed to verify the differences in opening balances and decide the issue afresh.

5. Addition of Unaccounted Investment in Land:
The Tribunal remitted this issue back to the AO for fresh consideration, directing verification of whether the purchase of land was accounted for in the books of the assessee or Mr. Bhaskar Rao. If accounted for, the addition should not be made in the hands of the assessee.

6. Addition of Unaccounted Cash:
The Tribunal directed the AO to verify the availability of cash balance in the books of the assessee as of the date of search. If the cash balance is justified, the addition should not be made.

7. Levy of Interest under Sections 234A and 234B:
The Tribunal held that interest under Sections 234A and 234B is mandatory and consequential, to be charged on assessed income. The Tribunal dismissed the assessee's reliance on the judgment in the case of Imami Ltd., distinguishing the facts of that case from the present one.

8. Additional Grounds:
The Tribunal admitted additional grounds regarding the determination of receipts on a cash basis and assessing the fees received for the entire course in one year. The Tribunal remitted the issue back to the AO for proper quantification of income on an accrual basis, directing that fees received for the full course should be appropriated proportionately for each year during the course period.

Conclusion:
The Tribunal's judgment addressed multiple issues related to the denial of exemptions, taxation of unaccounted receipts, and proper accounting of funds. The Tribunal provided detailed directions for fresh consideration and verification by the AO, ensuring that the assessment is based on accurate and substantiated records.