TaxTMI 
TaxTMI 
2012 (4) TMI 306
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....nical Education etc. 2. It will be appropriate at this stage to give a brief background of the case before we proceed to deal with the individual disputes raised in these appeals. The assessee is a leading educational institution in Vasai, Dist. Thane, Maharashtra, who was running the following institutions:- (i) Vidya vardhini's College of Engineering & Technology; (ii) Bhausaheb Vartak Polytechnic; (iii) Annasaheb Vartak College of Arts; (iv) Kedarnath Malhotra College of Commerce and E.S. Andrades College of Science. The trust was headed by its chairman, Shri Prataprai Khokhani. 2.1 The details of the trustees were as under :- S. No. Name of the trustee Age (i) Smt. Tarabai Vartak 83 yrs. (ii) Shri Prataprai Khokhani 74 yrs. (iii) Shri Arun G. Vartak 65 yrs. (iv) Shri Udhav J. Gharat 84 yrs. (v) Shri Madhukar N. Mohol 69 yrs. 2.2 The objects of the trust were as under :- (i) To provide for post-secondary school education in Arts, Science, Commerce & Trade, and Medicine, etc. (ii) To provide for education in agriculture and mechanical trades. (iii) To establish such other auxilliary....
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....- PGK 20.09.99 The AO observed that Shri Prataprai G. Khokhani, referred to as Shri PGK in the diary was one of the trustees and also the chairman. The entries clearly showed that a sum of Rs.5.00 lacs had been paid to Shri Pratapbhai on 13.8.1999 and again sums of Rs.5.00 lacs and Rs.3,60,000/- were paid to Shri PGK on 18.9.1999 and 20.9.1999. 3.1.1 Further, on page-18 of the diary No.1, the following entries were found showing various amounts against names of students. The names of the chairman, referred to as Pratapbhai, another trustee referred to as Maisaheb and the Secretary Shri Patil also appeared along with the names of students. 1999-2000 ENGINEERING (1) PEREEIRA MERVIN MANGEL M E SMT. MAISAHEB 1.75 (2) D'AS RUDHA DAVID C M ARUN PATIL 2.75 (3) SHANTANU S. GAVANKAR INSTRUMENTATION PRATAPBHAI 2.00 3.1.2 Similarly page-26 of the diary No.2 contained entries showing various amounts against the names of different students, which were shown under the head "management". Management CM (1) Glim D'souza Local CM 2,25,000/- (2) Pastan Stani Rodrick(427) G.No.3....
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....Shri Patil explained that the diaries contained the entries relating to the donations and at the end of the diary there was cash summary. There was, however, difference in the aggregate amount of donations recorded in the diaries and the total of cash summary given at the end of the diary. Shri Patil explained that higher of the two figures was taken by him as income and after deducting the expenses @ 50%, the undisclosed income was declared by him. The details of donations as declared by Shri Patil, the details of cash summary and details of undisclosed income declared under section 153A are given below:- A.Y. Donations recorded in the diary as per Shri Patel Total of cash summary at the end of the diary Income disclosed by Shri Patel after deducting 50% of expenses 2000-01 Rs.9,65,000/- Rs.17,67,591/- Rs.8,84,500/- 2001-02 Rs.14,71,000/- Rs.12,26,000/- Rs.7,35,500/- 2002-03 Rs.9,85,000/- Rs.1,55,000/- Rs.4,92,500/- 2003-04 Rs.7,75,000/- Rs.1,25,000/- Rs.3,87,500/- Shri Patil had thus declared undisclosed income on account of donations at Rs. 8,84,500/-, Rs. 7,35,500/-, Rs. 4,92,500/- and 3,87,500/- for assessment year....
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....the diary which resulted into double addition. It was also submitted that the entries also included the professional income of Shri Patil. It was further pointed out that certain entries were wrongly taken as donation. For instance, a sum of Rs. 72,000/- based on the payments of four challans of Rs. 18,000/- each treated as donation in assessment year 2000-01 is not correct as the amounts were fees paid by the students. Similarly, in relation to assessment year 2001-02, it was submitted that the figure of Rs. 3,80,000/-at page-1 of the diary was not donation but working of the cost of studies of a student given to parents. The said sum consisted of 3 entries. The first entry of Rs. 1,80,000/- was probably the annual expenses @ Rs.15,000/- per month. The other two entries of one lac each also related to approximate working of cost given to a parent. Further, on page-2 of the diary, the figure written was 2000 but AO had considered the same as 2,00,000/-. 3.1.10 The CIT(A) after detailed examination held that the contention of the assessee that individual transactions of money collected were entered on earlier pages of diary and cash summary of inflow and outflow was noted in the ....
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....t donations were to be assessed in the name of the assessee. It was also observed by him that addition on this account made in the case of Shri Patil has already been deleted by CIT(A). Aggrieved by the decision of CIT(A), the assessee is in appeal before the Tribunal. 3.1.12 Before us, the ld. AR for the assessee strongly objected to the order of AO assessing the donations in the name of the assessee. It was argued that the diaries were found from the premises of Shri A.K. Patil and not from the premises of the assessee or any of the trustees. Therefore, the presumption u/s. 132(4A) was not applicable to the assessee which was a third party. No addition in the case of the assessee could be made on the basis of the entries in the documents found from a third party. Reliance for this proposition was placed on the judgment of Hon'ble Supreme Court in the case of CBI v. V.C. Shukla [1998] 3 SCC 410. Reference was also made to the judgment of Hon'ble High Court of Bombay in the case of Addl. CIT v. Miss Lata Mangeshkar [1974] 97 ITR 696 and decision of Calcutta Bench of the Tribunal in the case of T.S. Venkatesan v. Asstt. CIT [2000] 74 ITD 298. It was also submitted that the same a....
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....rly mentioned and ultimately only one of the additions would be upheld. It was also submitted that though department had filed appeal against the order of CIT(A) in case of Shri A.K. Patil, the same was only as a protective measure and, the stand of the department was that addition had to be made in case of trust as any donation collected was income of the trust and not of the office bearer or trustee of the trust. As regards the claim of expenditure against donations collected, it was submitted that no papers were found showing incurring of any expenditure which were not accounted. Moreover, for collecting donation, no expenditure is required to be incurred. It was accordingly urged that the AO had rightly not allowed any expenditure against the donations collected. 3.1.15 We have perused the records and considered the rival contentions carefully. The dispute raised in this ground is regarding additions made in case of the assessee based on unaccounted donations entered in the four diaries recovered from the business premises of Shri A.K. Patil who was the Hon. Secretary of the trust. There is no dispute that the entries made in the diaries showed donations received from studen....
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....been reproduced earlier as an illustration. The entries made at page-16 of diary No.1 which have been reproduced in para 3.1 earlier show different amounts entered against the name of the chairman of the trust. Similarly, page-18 of diary No.1 reproduced in para 3.1.1 contains names of trustees and Hon. Secretary along with names of students against whom the donations have been shown. Shri Patil in his statement relating to page-18 of the diary No.1 had clearly stated that amounts had been collected on the direction of chairman Shri Prataprai Khokhani and Smt. Tarabhai Vartak. His statement has been reproduced in para 3.1.3 earlier. The notings on page 26 of the diary No.2 reproduced in para 3.1.2 earlier show different amounts entered against names of several students mentioning the name of course also and these were shown under the heading "management" which clearly points out involvement of management in collection of donations. Shri Patil had no independent authority to influence the principals for admissions. 3.1.18 The principals were working under the control and supervision of trustees and, therefore, it cannot be accepted that Shri Patil was accepting donations independ....
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....case of prosecution proceedings. The issue in the case of V.C. Shukla (supra), was whether the diaries, notebooks and loose sheets found during the search could be considered as books of account regularly kept in the course of business and thus treated as admissible evidence under section 34 of the Evidence Act. It was held that entries in the note books have to be treated as admissible under section 34 of Evidence Act and not loose sheets. Hon'ble Supreme Court also held that entries even if relevant evidence, shall not be alone be sufficient evidence to charge a person with criminal liability. These could be considered only as corroborative evidence and not independent evidence required to prove a criminal case. There was no evidence in that case to show that Shri Shukla and Others had given any favours to the business houses, which could be linked to the alleged payments mentioned in the seized diaries. The case is obviously different and not relevant to the revenue appeal under consideration before us in which finding of fact can be given after considering the surrounding circumstances and circumstantial evidence, which have been duly considered in this case as discussed ear....
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....hich were also raised before CIT(A) that the assessee had not been provided opportunity of cross examination of Shri Patil. Argument is however contrary to the facts. The AO had given opportunity for cross examination. The trustee wanted cross examination through his authorized representative who was also authorized representative of Shri Patil, and therefore, the plea was rejected. The AO had again provided opportunity of cross examination to the assessee which was declined. Under these circumstances, we are of the view that it cannot be said that the assessee had not been provided opportunity of cross examination of Shri Patil. It has also been argued that donations were collected only from small number of students totaling about 40 when there were total 9000 students and, therefore, entries could not be considered as donations being collected on behalf of the trust. We are not convinced by the arguments advanced. The donations are usually collected only from some undeserving students and, therefore, the number has to be lower. It has also been submitted that in case donations are treated as income, some expenditure should be allowed as deduction as done by the AO in case of Shri....
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.... 3.1.24 In view of the foregoing discussion and for the reasons given earlier, we uphold the order of CIT(A) confirming addition of unaccounted donations in case of the assessee. 3.2 The assessee has also raised a ground regarding applicability of provisions of section 13(1)(c). Under the said provisions, exemptions allowable under section 11 is not applicable in case any part of income or any property of trust or institution is applied directly or indirectly for benefit of persons referred to in section 13(3) which includes trustees of the trust or manager by whatever name called or any relative of any such person. In case donations have been used by the Hon. Secretary or trustees and not applied for the objects of the trust, provisions of section 13(1)(c) will be attracted. The AO in the assessment orders had made the additions of unaccounted donations without making any mention of provisions of section 13(1)(c). 3.2.1 CIT(A) however examined the provisions and observed that the trust had been granted registration only w.e.f. 1.4.2000 which was relevant to assessment year 2001-02 and onwards. He, therefore, held that provisions of 13(1)(c) were not applicable in case of a....
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....s regarding applicability of provisions of section 13(1)(c) in assessment years 2000-01 to 2003-04 on ground of unaccounted donations having been used by Hon. Secretary and trustees of the trust. The ld. AR for the assessee has argued that provisions of section 13(1)(c) were not applied by AO and therefore the same cannot be applied by CIT(A), for the first time. In our view, arguments have no merit. It is a settled legal position that powers of CIT(A) are co-terminus with that of the AO and he can do what the AO can do and can also consider aspects which have been omitted to be considered by the AO. The arguments of the ld. AR are, therefore, rejected. Under the provisions of section 13(1)(c), the exemption allowable under section 11 of the IT Act is not available, if any portion of income or any property of the trust or institution is applied directly or indirectly for the benefit of persons referred to in section 13(3) which includes trustees of the trust or manager by whatever name called or any relative of any such person. In this case, while dealing with the earlier ground, we have already held that the donations collected by Shri A.K. Patil and entered in the diaries were th....
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....4.5.2010 in ITA No. 6509/M/07 has set aside the order of CIT(C) and restored the registration granted u/s. 12AA. The assessee thus stood registered under section 12AA w.e.f. 1.4.2000 and was thus entitled to exemption in the assessment years 2001-02 to 2006- 07. The ld. DR on the other hand argued that exemption under section 11 could not be granted for assessment years 2001-02 to 2003-04 as in these years there were violations of provisions of section 13(1)(c) and for assessment year 2000-01, exemption under section 11 could not be granted on the additional ground of there being no registration u/s. 12A. 3.3.2 We have perused the records and considered the matter carefully. The dispute is regarding allowability of deduction/exemption under section 11 of the IT Act for assessment years 2001-02 to 2006-07. No ground has been raised for the assessment year 2000-01 as in that year, assessee was not registered under section 12AA and, therefore, not entitled to exemption under section 11. CIT(A) has confirmed the disallowance of exemption under section 11 for assessment years 2001-02 to 2003-04 on the ground of violations of provisions of section 13(1)(c). The exemption under section....
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....nt of GPF interest in relation to an employee. The AO disallowed the claim on the ground that payment was for violation of statutory provisions. CIT(A) confirmed the disallowance aggrieved by which, assessee is in appeal before Tribunal. However at the time of hearing of the appeal, the ld. AR of the assessee did not press this ground and, therefore, this ground is dismissed as not pressed. Appeals by the revenue in ITA Nos. 2309 to 2315/Mum/2009 (Assessment Years 2000-01 to 2006-07): The main dispute raised in these appeals relates to assessment of income from voluntary contributions received by the assessee and disallowance of depreciation. In addition, there are also some minor disputes raised only in some of the years. 4.1 We first take up the dispute relating to additions on account of voluntary contributions. In addition to unaccounted donations found at the time of survey/search, the assessee had also received voluntary contributions which were accounted in the books of account. Details of these contributions were as under :- Assessment year Amount (Rs.) 2000-01 73,91,505/- 2001-02 60,27,001/- 2002-03 87,19,002/- 2003-04 61,27,000/- ....
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....as towards corpus. The assessee had also filed confirmations from all donors on specific direction of AO during assessment proceedings in which also donors had confirmed the donations as corpus. The AO rejected the confirmations only on the ground that these were in standard format. CIT(A) was convinced by the explanation given by the assessee. It was observed by him that there was no material placed on record by AO for rejecting the confirmations in which donations were specifically mentioned as corpus donations. He referred to the decision of Madras Bench of the Tribunal in case of N.A. Ramchandra Raja Charity Trust v. First ITO [1985] 14 ITD 230 in which it was held that where the counterfoils of receipts of donations were rubber stamped as "towards corpus only", the donations were to be treated as corpus donations and thus exempt. CIT(A), therefore, held that the voluntary donations received by the assessee were corpus donations. 4.1.3 CIT(A) also observed that voluntary contributions received by a trust or an institution created wholly or partly for charitable or religious purposes has to be treated as income under the provisions of section 2(24)(iia). Further, in section 1....
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....vert the said claim. Therefore, the finding of CIT(A) that the donations were towards corpus fund had to be accepted and following the said finding, the donations had to be treated as capital receipt for assessment years 2001-02 to 2006-07. In so far as assessment year 2000-01 was concerned, it was an admitted fact that the assessee had no registration under section 12A. It was pointed out that voluntary contributions received by a charitable or religious trust is income in view of fiction created by section 2(24)(iia) of the Act. Since the assessee has been assessed as AOP, the voluntary contribution could not be treated as income. Reliance for the said proposition was placed on the following judgments. (i) Pentafour Software Employees Welfare Foundation (supra) (ii) S.R.M.T. Staff Association (supra) and (iii) Mahila Sidh Nirman Yojna v. IAC [1994] 50 ITD 472 (Delhi) 4.1.5 The ld. DR on the other hand supported the order of AO. It was argued that the assessee had not given full details before the special auditors and, therefore, details given in standard format subsequently should not be accepted and donations should be treated as general donat....
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....tion to form corpus of the assessee trust. 4.1.7 We have now to address the other aspect as to whether the voluntary contribution even if made with specific direction to form corpus of the trust could be assessed as income. The word "income" has been defined in section 2(24) which includes voluntary contributions received by a trust or an institution established wholly or partly for charitable or religious purposes and also voluntary contributions received by other institutions such as scientific research association/ institution as mentioned in section 10(21), association/institution established with the object of controlling, supervising, regulating or encouragement of certain specified games as mentioned in section 10(23), fund/institution established for charitable purposes as mentioned in 10(23C)(iv)(v), university or other institutions existing solely for educational purposes as mentioned in section 10(23C)(vi) or hospital or other institution referred to in section 10(23C)(via). The said provision of section 2(24)(iia) is reproduced below as ready reference. "2(24)(iia) - voluntary contributions received by a trust created wholly or partly for charitable or religious p....
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....applicable and therefore, deeming provision of section 11(1)(d) and section 12 as per which voluntary contribution towards corpus cannot be included in the total income is not available. Such contributions have to be treated as income under the provisions of section 2(24)(ii) if received by trust or institutions mentioned therein. 4.1.9 In the present case, the assessee trust was registered under section 12AA by CIT on 29/3/2004 w.e.f. 1/4/2000. The registration was subsequently cancelled by CIT(A)(C) by order dated 29.8.2007. The order of CIT was set aside by the Tribunal vide order dated 14/5/2010 in ITA No.6509/M/2007. The effect of the said order of the Tribunal is that the assessee trust stands registered under section 12AA w.e.f. 1/4/2000 i.e. from assessment years 2001-02 onwards, Thus for assessment years 2001-02 to 2006-07, the voluntary contributions received by the assessee trust which as held earlier were with specific directions to form part of the corpus of the trust have to be treated as capital receipt and will not be included in the total income of the assessee in the years in which the trust or institution is not hit by the provisions of section 13(1)(c) in whi....
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....itable or religious purposes whether registered or not is covered under section 2(24)(iia). Therefore, in our view, considering the unambiguous provisions of section 2(24)(iia), the voluntary contributions received with specific direction to form corpus fund have to be treated as income of the assessee trust. 4.1.11 The ld. AR for the assessee has argued that voluntary contributions received only by charitable and religious trust are income under section 2(24)(iia) and that the voluntary contributions received by other persons. It has been submitted that the AO had held that the assessee was an AOP and therefore, voluntary contribution received by it could not be considered as income. We are unable to accept the arguments advanced. The section 2(24)(iia) covers not only trusts but also institutions created wholly or partly for charitable or religious purposes. The character of an institution as a charitable entity depends upon its objects and activities and not on the status in which it is assessed. We have already held earlier that the assessee was a trust or institution created for charitable purposes and, therefore, it is covered by section 2(24)(iia) and any voluntary contri....
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....unal in the understanding that the trust could not be considered as created for charitable purposes if the same was not registered under section 12AA and, therefore, could not be covered under section 2(24)(iia). Any other interpretation will be contrary to the provisions of section 2(24)(iia) as per which any voluntary contribution received by the trust/institution created for charitable or religious purposes has to be treated as income. In the present case we have held earlier that the assessee even though not registered under section 12AA, is a trust or institution created for charitable purposes. Therefore, the case is different on facts. Moreover in that case, the Tribunal had also noted that the assessee had filed application for registration under section 12A which was pending since long and had not been rejected. Therefore, the Tribunal held that it was unfair for the department to deny exemption under section 11. Thus the Tribunal had impliedly treated the assessee as registered under section 12AA and, therefore decision could not be considered as a precedent for cases in which neither the trust is registered nor there is application for registration under section 12A. The....
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....xpenditure claimed as expenditure in the earlier years. He, therefore, disallowed depreciation in respect of opening block of assets as on 1.4.1999. The depreciation claimed by the assessee and allowed by AO in different years were as under :- Assessment year Depreciation claimed by assessee (Rs.) Depreciation allowed by AO(Rs.) 2000-01 1,70,40,444/- 57,25,149/- 2001-02 1,55,58,219/- 52,49,820/- 2002-03 1,91,14,605/- 1,16,36,165/- 2003-04 1,92,67,147/- 1,31,74,088/- 2004-05 2,19,51,302/- 1,68,84,604/- 2005-06 2,59,67,741/- 2,16,16,307/- 2006-07 2,14,19,414/- 1,85,86,762/- 4.2.1 The assessee disputed the decision of AO and submitted before CIT(A) that income of the assessee was exempt under section 10(22) upto assessment year 1998-99 and therefore, there was no need to claim depreciation. In assessment years 1999-00 to 2000-01, the assessee did not have registration under section 12AA and therefore, benefit of deduction on account of capital expenditure under section 11(1) was not available. It was also submitted that the assessee was not precluded from claiming depreciation on the assets claimed as capital e....
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.... the rival contentions carefully. The dispute is regarding the computation of depreciation. The AO did not allow depreciation fully as claimed by the assessee. It was observed by him that the assessee had claimed the capital expenditure as full deduction in the computation of income in the earlier years and therefore, no depreciation could be allowed in respect of such assets. He treated the opening WDV as on 1/4/1999 as nil and thereafter computed depreciation for different years after denying the depreciation claimed in respect of capital expenditure claimed as full deduction. The details of depreciation claimed and depreciation allowed year wise have been given in para 4.2 earlier. CIT(A) noted that the assessee was not registered under section 12AA till 31.3.2000 and, therefore, the assessee was not entitled for exemption under section 11 under IT Act. He, therefore, concluded that the assessee could not have claimed the capital expenditure as application of income till 31.3.2000 CIT(A) has further given a finding that the assessee had been allowed normal depreciation till assessment year 1999-00 in the income and expenditure account and WDV of each asset as on 1/4/1999 was cle....
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.... gave relief of Rs.1,98,000/- in 2001-02. Aggrieved by the decision of CIT(A) revenue is in appeal before Tribunal in 2000-01 and 2001-02. 4.3.1 We have heard both parties, perused the records and considered the matter carefully. In our view, the approach adopted by CIT(A) is reasonable. It has not been explained before us by the ld. DR as to how the payment of Rs.18,000/-mentioned in the four challans can be treated as donation. Similarly it has also not been explained as to how the AO added Rs.2.00 lacs when the actual noting in the diary was only Rs.2000/-. We, therefore, confirm the order of CIT(A) on these points and dismiss the grounds raised by the revenue. 4.4 The 4th dispute which is relevant only to assessment year 2000-01 is regarding disallowance of deduction of Rs.2,32,000/-claimed by the assessee on account of payment to Director of Technical Education. The AO noted that Vidya vardhini's College of Engineering and Technology had paid penalty of Rs.32,000/-and Rs.2.00 lacs to Director of Technical Education. The AO held that the said payments were for infraction of statutory provisions and, therefore, deduction was not allowable in view of explanation to section ....