Search assessment additions need reliable incriminating material; loose sheets and contradictory statements alone cannot justify capitation fee disallowance.

Uncorroborated loose sheets, contradictory statements and the absence of cash seizure, bank trail or other independent evidence were insufficient to sustain additions for alleged capitation fee; the presumption under section 292C was rebutted and the addition was deleted. On that basis, denial of exemption under section 11 also failed, as the foundation for alleging violation of section 13(1)(c) did not survive and registration under section 12AA had been restored. For completed assessments under section 153A, additions could not be made for earlier years without incriminating material relatable to those specific years; extrapolation was impermissible. Donation disallowance was also deleted as application of income once exemption was accepted.

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Issues: (i) whether the addition made on account of alleged collection of capitation fee was sustainable; (ii) whether exemption under section 11 of the Income-tax Act, 1961 could be denied on the basis of the alleged capitation fee receipts; (iii) whether the assessments for earlier years under section 153A of the Income-tax Act, 1961 could be sustained in the absence of incriminating material relatable to those years; and (iv) whether the donation-related disallowance was justified.

Issue (i): whether the addition made on account of alleged collection of capitation fee was sustainable.

Analysis: The seized Excel sheet from the cashier's computer was unsigned, undated, and not part of regular books of account. The statements of the cashier, the secretary, and the alleged intermediary were not consistent with one another, and the material from the third party did not fully corroborate the figures relied upon by the Revenue. No cash seizure, unaccounted asset, unexplained expenditure, or bank trail was brought on record to support the alleged receipt of a very large amount of cash. The presumption under section 292C stood rebutted on the facts found.

Conclusion: The addition for alleged capitation fee was deleted and the issue was decided in favour of the assessee.

Issue (ii): whether exemption under section 11 of the Income-tax Act, 1961 could be denied on the basis of the alleged capitation fee receipts.

Analysis: The denial of exemption was founded on the alleged violation of section 13(1)(c) and the cancellation of registration. However, the registration under section 12AA had already been restored with retrospective effect, and the foundation for denying exemption did not survive after deletion of the capitation fee addition. On the record, the Revenue could not sustain a separate denial of section 11 benefit.

Conclusion: Exemption under section 11 was upheld and the issue was decided in favour of the assessee.

Issue (iii): whether the assessments for earlier years under section 153A of the Income-tax Act, 1961 could be sustained in the absence of incriminating material relatable to those years.

Analysis: For the relevant earlier years, the material from the cashier's computer did not contain dates capable of linkage to those assessment years, and the third-party material related to a later financial year. The additions for those years were thus not based on incriminating material relatable to the respective years but on extrapolation. In a completed or unabated assessment, disturbance under section 153A requires incriminating material pertaining to that year.

Conclusion: The additions for the earlier years were deleted and the issue was decided in favour of the assessee.

Issue (iv): whether the donation-related disallowance was justified.

Analysis: Once the assessee's entitlement to exemption under sections 11 and 12 stood accepted, the donation paid for the objects of the trust constituted application of income. The disallowance was made on a ground not forming the basis of the assessment and, in the circumstances, the assessee's evidence could not be ignored.

Conclusion: The donation disallowance was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The capitation fee additions were deleted, exemption under section 11 was sustained, the completed assessments for years lacking incriminating material were not disturbed, and the donation disallowance was also set aside.

Ratio Decidendi: In a search assessment, additions cannot be sustained on the basis of uncorroborated loose sheets or contradictory statements unless supported by reliable independent evidence, and completed assessments under section 153A cannot be disturbed without incriminating material relatable to the specific assessment year.

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