TaxTMI 
TaxTMI 
2013 (12) TMI 777
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....had also been granted approval u/s. 10(23C)(vi) of IT Act by the CCIT-I, Hyderabad vide proceeding in F.No.CC/Tech-I/22B (9,10,61 & 342)/2009-10, dt. 22-04-09. Its main activities are to establish and run schools, colleges, catering and hotel management institutes etc., and prepare students for schools and college examinations at State and Central levels of education. The society runs the following institutions: 1. JB Institute of Engineering and Technology 2. Bhaskar Pharmacy College 3. Bhaskar Engineering College 4. JB Institute of Hotel Management & Catering Technology 5. JB Institute of Computer Technology 6. JB Institute of PG courses 7. JB Women's Engg. College 4. The trustees holding important and decisive positions in the society are - 1. Shri J. Bhaskar Rao 2. Smt. J. Vasumathi Devi 3. Sri J.V. Krishna Rao 4. Sri J. Vamshidhar Rao In addition to the above, other family members Ms. J. Sunitha, D. Deepika, Ch. Krishna Rao and Ch. Vijayalakshmi, are the members of the society. 5. The Asses....
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....ociety had collected fees from students over and above the prescribed fees (in the form of donations/capitation fess) for granting admission into the professional courses undertaken by the institutions of the society. It was also found that the excess amounts so collected were not recorded in the books of account. 8. Explaining the incriminating seized documents so found, Shri Puran Chand Pusti, employee of the society, clearly stated that the amount received in cash was mentioned on the right hand side, top portion' of each page, next to name of the student. He clarified that the. amounts mentioned therein should be considered by adding two more zeroes in .JB/A/10. For example, he explained that the amount of Rs. 3,500, mentioned at page No. 156 of the Annexure JB/A/10, stood for Rs. 3,50,000. Shri J. Vamsidhar Rao was confronted with the statement of Mr. Puran Chand Pusti. However he could not give any satisfactory reply in this regard. When the said statements and evidences were put before Shri J. Bhaskar Rao, Chairman of the society, he in his statement dated 15.12.2009 (Question No. 8) stated that he would offer his comments in a couple of days, however, no reply was submit....
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.... 245D(2C) of the Act rejected the petition of Shri R. Kondal Rao, holding that Shri J. Vamsidhar Rao had admitted collection of unaccounted capitation fee in cash and had disclosed the income of Rs. 7.5 crores. They did not find any merit in the contention that Shri R. Kondal Rao had embezzled the funds received as unaccounted capitation fees and applied those for charitable purposes of the society. 11. In view of the above, the AO concluded that it was established that the society had collected amounts over and above the prescribed fees and that amounts were not brought in the books of account. For example, he noted that in the case of Sri A. Akash, for the academic year 2005-06 (page No. 158 of annexure JB/A/10), cash over and above the prescribed fee was recorded as "2,000", which meant Rs. 2,00,000/-. The recording of fees collected towards the prescribed fees was also recorded in the same page with full figures amounting to Rs. 3,25,000/-. The summary of collection of donations/capitation fees over and above the prescribed fee, year-wise, has been tabulated for the assessment years 2009-10 and 2010-11 as under: S. No. A.Y. Donation/ Capital fee (Rs.) Accounted i....
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....achand Pusti and Ashok Mehta Reddy, Shri Meghna and Shri B. Muniratnam. Rather, in their letter to the DDIT, dated 5-1-2001, the trustees had themselves accepted the fact of collection of, fees, over and above the prescribed fees. Therefore, the statement of Shri Purnachand Pusti could not be held as a hear-say evidence or 3rd party statement. The AO concluded that since the trustees had themselves confirmed the fact of suppression of zeroes, there was no need to go further to put the evidence to strict proof. 15. In addition to the above, it was found that the trustees had business interest in M/s. Arka Hotels P Ltd, M/s. Jaybee Hotels & Theatres P Ltd etc. It was noted that payments had been made by and on behalf of students, viz., Mst. B. Prasad Reddy (page 91 of AA/JB/1), and Mst. C. Suneel (Page 89 of AA/JB/1), to those concerns. In the case of the former, a student of Mechanical Engineering, a payment of Rs. 5 lakhs was found received by cheque No. 165143 on 5-9-2007 in the books of M/s, Arka Hotels Pvt Ltd under "accommodation receipts". Against the name of Mst. C. Suneel, an ECE student, there was a narration regarding receipt of cheque No. 717040 of Andhra Bank on 18-9-....
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....,50,000 had been collected in cash, either in one payment or in instalments (Question No. 37). For the medical seats also, he had stated that amounts ranging between Rs. 10 lakhs to Rs. 15 lakhs were collected for each seat. The AO noticed that the note books found, i.e., JBA/3, JBA/4 to JBA/10, had been written by Shri Puran Chand Pusti, who was the main person looking after the admissions in the engineering courses offered by the Societies. In his statement, dated 14-12-2008, he had deposed that fees over and above the regular fees were collected, which were written in 'coded form. He had also stated that in some instances single zero and sometimes two zeroes were eliminated while recording the cash collected admitted under the Management Quota in various engineering colleges. 18. The Assessing Officer noticed that while Shri J.V. Krishna Rao, Secretary of JB Educational Society, in his statement dated 15-12-2009, contended that the notings do not refer to any capitation fee, when probed further, he only stated that his father will be in a better position to explain this. Likewise, Shri J. Vamsidhar Rao, Secretary of the assessee society also in his statement dated 15-12-2009 ....
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.... AA/JBES/14, 1 and 2 of A/JBES/15, 1 of AA/JBES/16 and 1 to 3 of AA/JBES/17 contained fees under different heads such as bus fees, hostel fees, fines, admission fees etc. It was found that only the admission fees were recorded in the books and other collections were maintained in different registers kept for that purpose and expenditure was made there-from. Those transactions were not brought into the books of a/c of the society. Shri Munirathnam further stated that this practice of collecting and spending fees for specific purpose was being done by him as per the directions of the Chairman and Secretary of the Society only. The AO therefore, concluded that the funds of the society were being misused for the benefit of the trustees. 22. The seized documents also showed that there was diversion of funds of the society. For example, page No. 21 of JB/A/31 was the trial balance of Arka Hotels P Ltd, showed a credit balance of JBES at Rs. 55,93,343/- on 31-3-2009. Likewise, page No. 101 thereof, being the trial balance of M/s. Jaybee Hotels & Theatres Pvt Ltd, reflected a credit balance of Rs.50,06,950/- in the name of JBES as on 31-3-2007. The monthly summaries of the above compani....
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....trustees. For example, page No. 7l of A/JBES/05 shoed that funds of the society were utilized for incurring expenditure towards gold and silver, JNTU, AICTE Vastram, Nityanndanam etc. Page No. 89 was titled as "Non-account expenditure statement" and contained entries of expenditure towards MBA "Management, MCA Management, gold, Sri T. Srinivasa Rao, land conversion, fire etc., which were indeed not the objects of the society. The AO concluded that the sources for such expenditure were nothing but the funds of the society itself. Likewise, from page No. 118 of Annexure JB/A/31, it was found that the payment of Rs. 70,000/- had been made to Shri Ramesh towards "supply of granites for MD Sir residence". Page No. 120 thereof also pertained to a payment of Rs. 20,000/- to the same person. Page No. 121 also showed that Rs. 4,800 had been accounted for under "tuition fees" paid to Nursery school towards the fees of B. Swathi Bongu (granddaughter of Shri J. Bhaskar Rao). Page No. 93 of Annexure A/JBIT/l also showed an inter-office communication evidencing payment of Rs. 50,000 to Shri J. Bhaskar Rao from the transport account though Shri J. Bhaskar Rao stated that he would file an explanat....
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....rch nor the assessee had furnished any source for such cash during the search or even during the post search proceedings. He felt that the receipts have to be instantly prepared, as at the time of collection, if any, students could not have been asked to come later and collect the receipts. On the other hand, no such copies of receipts were found at the time of search and even a list of students allegedly paying such fees could be submitted by the assessee. Accordingly, the above referred cash of Rs. 10,26,300, Rs. 43,83,300 and Rs. 16,60,000 was considered as undisclosed income in the hands of the assessee for the A.Y. 2010-11. Even the cash payment of Rs. 15 lakhs made over and above the recorded consideration for land purchased was treated as undisclosed income of the assessee for the A.Y. 2009-10. 28. In view of the findings of the search and seizure operations, as discussed above, during the course of assessment proceedings, the Assessing Officer sent a proposal to the DGIT (Inv), Hyderabad, recommending rescinding of the approval granted u/s. 10(23C)(vi). The DGIT vide his proceedings in F. No. DGIT (Inv)/Hyd/APP & Renewal u/s. 10(23C)/JBRES/2011-12, dated 16-12-2011, with....
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....13(1)(c) as the amounts collected over and above the prescribed were being handed over to the Chairman and other interested persons of the society. Accordingly, he concluded that even on this account the assessee would not be entitled to the exemption u/s. 11 of the Act. 30. The AO noted that even in view of the decision of the Hon'ble ITAT, Hyderabad in the case of Vodithala Educational Society and Adinatar Educational Institution vs. ACIT (224 ITR 310), the assessee was not eligible for exemption u/s. 11, as it did not exist for the purpose of education solely but for the purpose of profit. He also referred to the decision of Hon'ble Apex Court in the case (T.M. Pai vs. State of Karnataka (2002) 8 SSC 481, while holding that the society would not be eligible for exemption u/s. 11 or 10(23C) where it fails to prove that the contributions are not in the nature of capitation fees. Accordingly, he held the assessee is neither eligible for exemption u/s. 10(23C)(vi), nor it is eligible for exemption u/s. 11 of the Act. He accordingly, proceeded to assess the income of the assessee in the capacity of AOP. On appeal, the CIT(A) confirmed denial of exemption u/s. 11 as well as u/s. 10....
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....,000 5,17,000 12. Further, it is worthwhile to refer to provisions of section 132(4A) of the Income Tax Act, 1961, as per which a presumption can be drawn that the documents found from the premises of the Society are true and it belongs to the society and the society has to explain it and mention as to who has prepared the documents. During the course of search, statement of Sri Ashok Mehta Reddy an employee of the society, was recorded, wherein he stated that the amount received in cash is mentioned on the right hand side, top portion of each of page next to the name' of the student. He further clarified that the amount mentioned therein is in 'Rs. Lakhs', though the same was written in thousands. For example the amount of Rs. 25,000 mentioned against name K. Varuniya in book marked JB/AA/5,(Sl. No. 2 candidate), is stated to be Rs. 25,00,000 as confirmed by Sri Ashok Mehta Reddy. Sri J. Vamsidhar Rao, Secretary of the society was also confronted with the admission made by Sri Ashok Mehta Reddy on the date of search itself. He stated that the seized books contain the details of fees collected by way of cheques/DD and also in cash over and above what is collected by cheques a....
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....15. In the result, both the appeals of the assessees' are dismissed." 33. Being so, we are of the opinion that denial of exemption u/s. 11 is justified. The assessee cannot re-argue this case by way of fresh ground in these appeals. Accordingly, this ground is rejected. 34. Regarding exemption u/s. 10(23C), the assessee having no valid approval u/s. 10(23C)(vi) of the Act and the approval granted to the assessee vide proceedings F. No. CC/Tech- 1)22B(3, 10, 61 & 342)/2009-2010 dated 22.4.2009 for A.Y. 2000-01 has been cancelled by the Director General of Income- tax (Inv.), Hyderabad vide his order dated 16.12.2011. This order was subject matter of dispute vide Writ Petition filed before the Hon'ble High Court of Andhra Pradesh in WP No. 9073/12. Being so, at this point of time, there is no valid approval u/s. 10(23C) and the assessee is not entitled for exemption u/s. 10(23C) of the Act for the assessment years under consideration. This ground of the assessee is dismissed. 35. The next common ground in these appeals is with regard to taxing of additional receipts in the hands of the assessee while making substantive addition in the hands of one Mr. R. Kondal Rao. 36. B....
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....ng seats. In view of the -above, the Assessing Officer estimated the excess amount collected for A.Ys. 2004-05 to 2007-08 as under: Sl. No. Academic year A.Y. No. of Management seats Estimated excess amount collected Total amount 1 2003-04 2004-05 83 1,00,000 83,00,000 2 2004-05 2005-06 78 1,00,000 78,00,000 3 2005-06 2006-07 78 1,50,000 1,17,00,000 4 2006-07 2001-08 133 1,50,000 1,99,50,000 5 2007-08 2008-09 168 2,00,000 3,36,00,000 39. Accordingly, the Assessing Officer added the following amounts as unaccounted income in these assessment years as follows: A.Y. 2004-05 Rs. 83.00 lakhs A.Y. 2005-06 - Rs. 78.00 lakhs A.Y. 2006-07 Rs. 117.00 lakhs A.Y. 2007-08 Rs. 199.50 lakhs A.Y. 2008-09 Rs. 336.00 lakhs A.Y. 2009-10 Rs. 392.91 lakhs A.Y. 2010-11 Rs. 372.25 lakhs 40. On appeal, the CIT(A) confirmed the addition for all the assessment years and he observed that estimation of unaccounted receipt for A.Ys. 2004-05 to 2008-09 is also justified in view of the judgement of Supreme Court in the ....
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....ri R. Kondal Rao, Sri Krishna Rao and J. Prabhakar Rao have confirmed that they have collected additional fees from students seeking admission in JB Group of Colleges vide their letter kept on record at page No. 272 of the Paper Book. According to the AR, the additional income of Rs. 8,18,63,700 for the A.Ys. 2004-05 to 2009-10 offered by the Sri R. Kondal Rao to the Settlement Commission. So it is treated as income in A.Ys. 2004-05 to 2009-10 by the AO and there is no loss of revenue to the Dept. The AR submitted that there was no evidence for collection of additional fees for A.Y. 2004-05 to 2008-09 by the assessee. There is only evidence of collection of additional fees for A.Ys. 2009-10 and 2010-11. Whatever the additional fees collected was offered to tax by Sri R. Kondal Rao. The AR relied on the judgement in the case of Madhu Gupta v. DIT (Inv) & Ors. 350 ITR 598 (Del), DCIT vs. Sushil Kumar Jain (127 ITD 264) (Indore) and Fort Project Pvt. Ltd. vs. DCIT (145 TTJ 340) wherein held that when the assessee had offered suo moto alleged receipts of on-money in return of income filed u/s. 153C of the IT Act for the said assessment year, no further addition on that count was warran....
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....cted Total amount 1 2003-04 2004-05 83 1,00,000 83,00,000 2 2004-05 2005-06 78 1,00,000 78,00,000 3 2005-06 2006-07 78 1,50,000 1,17,00,000 4 2006-07 2001-08 133 1,50,000 1,99,50,000 5 2007-08 2008-09 168 2,00,000 3,36,00,000 45. However, it is an admitted fact that while estimating the above excess fees collection, the AO based his conclusion on the basis of seized material available for A.Y. 2009-10 and 2010-11. He relied on the judgement of Supreme Court in the case of H.M. Esuf Ali & Ors (cited supra) and also on the judgement of jurisdictional High Court in the case of Rajnik & Co. (cited supra). The Supreme Court in the case of H.M. Esuf Ali & Ors. (cited supra) held as under: "Held, that the reassessments were valid. From the circumstance that the assessee had dealings outside the accounts of the value of Rs. 31,171.28 for 19 days, it was open to the officer to infer that the assessee had large- scale dealings outside the accounts. In such a situation, it was not possible for the officer to find out precisel....
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....and in the initial period for any educational institution to get students is very difficult. It is also seen from the tables reproduced on earlier occasion that all the management seats were not filled and there were certain seats kept unfilled. It is also fact that now-a-days Engineering Colleges in Andhra Pradesh are not doing well and many colleges are seeking permission from the State Government to shut down due to lack of students. Some colleges have sent representations to the Technical Education Department and the All India Council for Technological Education (AICTE) in this regard. These facts should have been considered by the Department. Instead of this, the AO as well as the CIT(A) straightaway applied the amount collected from the students for admission in management quota seats in academic years 2008-09 and 2009-10 as per earlier years. The estimation of income of the assessee is not properly considered by the AO. Being so, the ratio of Supreme Court decision in the case of H.M. Esuf Ali & Ors (cited supra) cannot be applied to the facts of the present case. 47. Coming to the judgement of jurisdictional High Court in the case of Rajnik & Co. (cited supra) wherein th....
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....h it shows 3 persons admitted payment of on- money, 5 persons denied the payment of on-money and no evidence with regard to payments of on-money for remaining 24 plots. However, the partners Gopal Lal Bhadruka and Avadesh Bhadruka confirmed the receipt of on-money. However, in the present case, there is no admission by the assessee for collection of excess fees for management quota seats for the assessment year 2004-2005 to 2008-2009. Further, unless there is evidence or material indicating any suppression of collection of fees towards management quota seats for the academic year 2003-2004 to 2007-2008 having been found during search, and no admission from the assessee, Assessing Officer was not justified, to estimate the same on the materials seized relating to academic year 2008-2009 and 2009-2010 indicating suppression of collection of fees for management seats, in assuming suppressed/unaccounted receipts of fees for earlier assessment years. The calculation of unaccounted income from collection of fees from management seats should be based on materials and it should be on scientific basis and cannot be merely on assumptions. Considering the facts of the present case, we are inc....
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....udgment of an A.O. During search, firstly, no other diary or other record comparable to the notebook marked as 'B-1/23' were found by the search party for the remaining period, which normally ould have been, were it being maintained and kept. Though such a record could have been destroyed also from time to time, but in such asituation also, if the assessees had actually made a fortune of similar receipts in respect of the remaining part of the year, they must be reflected by certain assets, movable or immovable ought to have been found during the course of search. No such assets, despite the extreme step of search which amounts to a serious invasion on the rights of subjects and which is perhaps the last weapon in the arsenal of the Department, were found, which could be attributed to any such patently hypothetical receipts. In view of this the multiplication formula adopted by the A.O. was not valid. 50. The other contention of the assessee on the unaccounted receipts is that this was collected by Sri R. Kondal Rao without the knowledge of the assessee and the same was subject to tax in the hands of Mr. R. Kondal Rao though he filed appeal against the assessment order before th....
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....me offered in the petition before the Settlement Commission is assessed in my assessment. The said orders were received by me on 31-12-2011 and appeals were filed before the CIT(A) with a delay of 307 days. The appeals are pending before the learned Commissioner of Income-Tax (A)-I, Hyderabad. I understand that such amounts were also added in the assessment of the societies. I state that I will have no objection to withdraw the appeals filed before the CIT (A) and pay the taxes as per the assessment orders passed, in case the amounts added as the income of the above mentioned society are to be deleted. I agree to pay the taxes on the income so arrived. As stated by me in the earlier paragraphs, the amounts were collected by me and were appropriated by me towards the institutions only. Therefore, I have no objection to withdraw the appeals in case the assessment of such additional income made in the above mentioned society for various assessment years is deleted. What is stated above is true and correct to the best of my knowledge, information and belief. Sd/- R. Kondal Rao DEPONENT" Date: 29.8.2013 Annexure: Medical College E....
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....nts actually received by him and amounts recorded in the books of account. The difference of the amount is also worked out by him. He deposed to the effect that the difference of the amount was retained by him without the knowledge of the management committee. I further state that the amount to the extent received by the society were recorded in the books of account and the amounts not recorded were received by Sri R. Kondal Rao who utilized the amounts. I further state that Sri R. Kondal Rao has filed the returns of income and was assessed on the difference between the amounts realized and the amounts actually credited in the books of account. He seems to have filed the appeals with a delay. I state that the difference of the amount does not represent the income of the society and it represents the receipt by Sri R. Kondal Rao and he shall be responsible for such amounts. I agree with the deposition of Sri R. Kondal Rao that he collected the amounts and spent the amounts for the purpose of the society for which data was not available. I state that the amount is assessable in the assessment of Sri R. Kondal Rao and the same cannot be subjected to tax in the assessment of the ....
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....ect the money from the students who were seeking admission in the assessee's college and he used his position to collect these impugned receipts from the students and while passing the assessment order the same was treated in his hands as undisclosed income and he accepted himself for being assessed by the Department vide affidavit filed before us. Therefore, in this context, these unaccounted receipts which have been assessed by the Department in his hands cannot be once again considered in the hands of the present assessee, once Sri R. Kondal Rao acted in accordance with the affidavit filed before us. In our opinion, the explanation offered by both assessees can be believed to be true unless there is contrary evidence brought on record that the assessee itself has collected the money from the students. Being so, in our opinion, in the event of Sri R. Kondal Rao paying the tax on the unaccounted income from the receipts in his hands then the same unaccounted receipts cannot be brought to tax in the hands of the assessee. Accordingly, to the extent of unaccounted receipts which were considered in the hands of Sri R. Kondal Rao, the same cannot be treated as unaccounted income in th....
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....1.4.1989, though the assessee having no valid registration u/s. 12AA of the Act. The assessee drew our attention to Paper Book page Nos. 637 to 656 to show that this amount was collected from members and associated companies of the members towards "building construction fund" with a specific direction for capital expenditure and the amount so received was spent for construction of building and other civil works. According to the AR it cannot be treated as income of the assessee as it is a tied up grant. According to the AR the entire receipts received towards specific purpose cannot be taxed as it is a tied up fund. 57. The co-ordinate Bench had an occasion to examine similar issue in the case of Society for Integrated Development in Urban and Rural Areas (SIDUR) vs. DCIT (90 ITD 493) wherein the Tribunal followed the order of this Bench in the case of Nirmal Agricultural Society (71 ITD 152) and observed as follows: "24. Coming to the second limb of the argument of the learned counsel for the assessee that the entire receipts cannot be taxed, we find that the issue is covered by the judgment of this Bench in Nirmal....
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....ssessee so as to bring them under the purview of Section 12. Voluntary contributions covered by Section 12 are those contributions freely available to the assessee without any stipulation, which the assessee can utilise towards its objectives according to its own discretion and judgment. Tied-up grants for a specified purpose would only mean that the assessee which was a voluntary organisation, had agreed to act as a trustee of a special fund granted by donor with the result that it need not be pooled or integrated with the assessee's normal income or corpus. In the instant case, the assessee was acting as an independent trustee for that grant, just as same trustee could act as a trustee of more than one trust. Tied-up amount need not, therefore, be treated as amounts which were required to be considered for assessment for ascertaining the amount expended or the amount to be accumulated. The assessee should have actually credited the grant in the personal account of the donor and any amount spent against that grant should have been debited to that separate account of the donor. That incoming and outgoing need not be reflected in the income and expenditure account of the assessee....
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....te income of the petitioner. The reassessment proceedings were not valid and were liable to be quashed." This Bench of the Tribunal in the case of Arya Vysya Abhyudaya Sangham (supra) for asst. year 1998-99, in its order dated 25-6-2002 to which one of us was a party, was inclined to uphold the view of the Commissioner (Appeals) in that case by holding in para 15 of that order as follows: "Though we find considerable force in the other argument of the assessee's counsel i.e. the income should be computed on commercial principles, as we have held that the assessee-society is eligible for exemption Under Section 11 of the Act and as we have also held that the objects of the society were of charitable nature within the meaning of Section 2(15) of the Act, and as we have further held that there is no violation, whatsoever of the provisions of Section 13(1)(c) and (d) of the I.T. Act, 1961, the other grounds of the assessee need not be gone into, as it would be of academic interest only." The Revenue has not brought to our notice any judgment from any High Court which has dealt at length on this issue and which is in its favour. ....
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.... referred to in Section 5". Secondly, it must be "computed in the manner laid down in this Act". If either of these conditions fails, the income will not be a part of the total income that can be brought to charge [CIT v. Harprasad & Co. P. Ltd., (1975) 99 ITR 118, 125 (SC)]". 28. As argued by the Revenue, though by virtue of Section 2(24)(iia) voluntary contributions are income, to our mind this by itself does not entitle the tax gatherer to ignore all other well settled principles of taxation and general law and levy tax on gross receipts without considering the claim for deductions. Principles such as capital versus revenue, doctrines of overriding title, form versus substance, interpretation of "deeming" provisions etc., have to be applied wherever necessary. Only the surplus or profit can be brought to tax and the same has to be computed in the manner laid down in the Act applying the normal principles of accountancy and taxation laws. 29. The learned authors Kanga and Palkhivala in the book The Law and Practice of Income Tax, Eighth edition, Vol. I, at page 387, state the legal position as follows:- "Volunt....
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....tled propositions of taxation law. 32. In view of the binding nature of the judgment of this Tribunal in the case of Nirmal Agricultural Society (71 ITD 152) on the revenue authorities and the view taken in the case of Arya Vysya Abhyudaya Sangham (supra) and also in view of the ratio decidendi of the judgments of the Honourable Rajasthan High Court in the case of Sukhdeo Charity Estate (149 ITR 470 and 192 ITR 615) referred to above, we direct the Assessing Officer to redo the assessment de novo in accordance with law. 33. For statistical purposes, the appeal of the assessee is treated as allowed." 58. Further, in the case of Shri Shankar Bhagwan Estate vs. ITO (61 ITD 196) wherein even after considering section 2(24)(iia) of the Act it was held as follows: "Section 2(24)(iia) has to be read in the context of the introduction of present section 12. In the instant case the Assessing Officer on evidence had accepted the fact that all the donations had been received towards the corpus of the endowments. In view of this clear finding, they could not be assessed as income of the assessees. Therefore, the voluntary....
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....usly with the present section 12, both of which were introduced from the said date by Finance Act, 1972. Section 12 makes it clear by the words appearing in parenthesis that contributions made with a specific direction that they shall form part of the corpus of the trust or institution shall not be considered as income of the trust. The Board circular No. 108 dated 20.3.1973 is extracted at page 1754 of Volume I of Sampath Iyengar Law of Income-tax (10th Edition), in which the interrelation between sections 12 and 2(24) has been brought out. Gifts made with clear direction that they shall form part of the corpus of the religious endowment can never be considered as income. In the case of R.B. Shreeram Religious and Charitable Trust v. CIT (172 ITR 373) (Bom) the Hon'ble High Court held that even ignoring the amendment to section 12, which means that even before the words appearing in parenthesis in the present section 12, it cannot be held that voluntary contributions specifically received towards corpus of the trust may be brought to tax. The aforesaid decision was followed by the Bombay High Court in the case of CIT vs. Trustees of Kasturbai Scindia Commission Trust (189 ITR 5) (....
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....m Bread for the World were for specific purposes. The grants which are for specific purposes do not belong to the assessee- society. Such grants do not form corpus of the assessee or its income. Those grants are not donations to the assessee so as to bring them under the purview of s. 12 of the Act. Voluntary contributions covered by s. 12 are those contributions freely available to the assessee without any stipulation which the assessee could utilise towards its objectives according to its own discretion and judgment. Tied-up grants for a specified purpose would only mean that the assessee, which is a voluntary organisation, has agreed to act as a trustee of a special fund granted by Bread for the World with the result that it need not be pooled or integrated with the assessee's normal income or corpus. In this case, the assessee is acting as an independent trustee for that grant, just as same trustee can act as a trustee of more than one trust. Tied-up amounts need not, therefore, be treated as amounts which are required to be considered for assessment, for ascertaining the amount expended or the amount to be accumulated. 11. The assessee should have actually credited that gra....
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....t is used for specific purpose for which it has been given and it cannot be considered as revenue receipts so as to tax the same. On the other hand, the donations used for the benefit of the trustees it should be brought to tax as income of the assessee. The AO is directed to segregate these donations which are diverted for personal benefit of the Members of the trust and tax the same accordingly. Further, other than tied up grant/donations, if any, should be treated as income in the hands of the assessee in accordance with law as business income after allowing usual deductions under the provisions of the Act while computing income under the head 'business income', more so, deduction u/ss. 30 to 38 of the Act is to be allowed, if it is not already granted to the assessee. 65. The next ground in ITA No. 30/Hyd/2013 is with regard to chit loss. Though the AR argued this ground, there is no such ground raised before us. Accordingly, this ground is dismissed. 66. The next ground common in ITA Nos. 30, 31, 33 and 34/Hyd/2013 is with regard to confirmation of action of the AO in making addition on the ground that there is a difference in opening balance of the capital fund which is....
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....of the assessee on the date of search, the addition cannot be made and the assessee shall prove the availability of cash balance in the hands of the assessee as on the date of search in the books of account and the issue is remitted back to the AO for fresh consideration. 74. The assessee raised the ground with regard to levy of interest u/s. 234A and 234B of the Act in ITA Nos. 29 to 35/ Hyd/2013. According to the assessee, the interest u/s. 234A and 234B is not leviable in view of the judgement of Calcutta High Court in the case of Imami Ltd. vs. CIT (337 ITR 470). In our opinion, interest under section 234A and 234B is to be charged on assessed income and it is mandatory and consequential in nature. The judgement in the case of Imami Ltd. is not applicable to the facts of this case. In that case, the assessee filed return of income for the A.Y. 2001-02 on 31.10.2001 and returned nil income and paid no tax even on book profit as there is no book profit. Later there was an amendment to section 115JB by Finance Act, 2002 which was published in official gazette on 11.5.2002 giving retrospective effect to the amendment to section 115JB from 1.4.2001 as per which assessee is liable....
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.... the entire amount of receipt as the income for the assessment year under consideration. The assessee submitted that the amount received is towards the fees for the course. Therefore, the proportionate amount only is to be included as the receipt for the year under consideration. This was not raised before the CIT(A). The assessee also did not raise a formal ground of appeal before the Tribunal at the time of filing the appeal. Accordingly, he prayed for admitting the additional grounds. The AR relied on the order of Chennai Bench of this Tribunal in the case of S. Priyadarsini vs. JCIT (73 TTJ 738) (Chennai). 77. The DR objected to the admission of additional grounds. 78. In our opinion, additional grounds have to be adjudicated as the income has to be computed on accrual basis. After admitting the additional grounds, we are inclined to remit the issue to the file of the Assessing Officer for proper quantification of the income on accrual basis. If the fees received for full course from a student in one assessment year, it should be appropriated proportionately for each year under consideration during the course period. The additional grounds are remitted back to the Assessi....
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....2008-09 29 5. 2009-10 32 84. The Assessing Officer also noted that the NTR Health University has prescribed various types of fees to be collected from students of three categories. The details of annual fees to be collected from the students of MBSS in Bhaskar Medical College were as under: Category Fee per year Category 'A' Regular fee prescribed by theconvener, EAMCET. Category 'B' Convener fee + Rs. 2 lakhs Category 'C' Convener fee + Rs. 4 lakhs 85. As discussed in the assessment order, search operations were conducted in the cases of the assessee society and M/s. J.B. Educational Society, as also the residences of the main trustees viz., Shri J. Bhaskar Rao, Shri J. Vamsidhar Rao and Shri J.V. Krishna Rao, the Registrar of the Society Shri K. Ashok Mehta Reddy and the Manager Shri R. Kondal Rao. During the said searches, besides jewellery and cash of Rs. 66,00,000/- and Rs. 5,17,000/- seized from the residence of Shri J. Bhaskar Rao, certain incriminating material was found and seized from the office premises of the assessee society vide Annexures JB/AA/1 to JB/AA/5, which showed that the Society had collected fees from....
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....gement. They had submitted that the Management generally notes down the fees collection details and on the right hand side corner notes the amount of fees and the voluntary contributions received/proposed to be received as intimated by the consultants. It was found that as per the evidences seized as Annexure JV/A/1 to 5, capitation fee was collected in cash and not recorded in the books of account and only the regular fees was recorded. 88. As discussed in the assessment order, Shri J. Vamshidhar Rao in his statement dated 10.9.2009 admitted Rs. 7.5 crores as the undisclosed income on the basis of discrepancies in the books of account in the individual hands for the entire group. However, the same was not linked to the society. The said admission of Rs. 7.5 crores was again confirmed by him in his statement dated 15-12-2009. However, Shri Rao did not furnish the breakup of such disclosure nor the disclosure was honoured while filing the returns of income. 89. The AO further noted that Shri R. Kondal Rao, Manager of the Society had filed an application before the Settlement Commission on 29-7-2011, admitting an additional income of Rs. 8.18 crores. He pleaded before the Commi....
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.... 750000 -do- 3. Unaccounted cash received 903000 91. It was further found that as per the recordings in pages 73, 75, and 89 of A/JBES/5, 21, 45 to 47, 63 and 68 of A/JBES/6 and 10 to 12 of AA/JBES/l, the trustees had made investments in construction of guest house at Tirumala and Yadagiri Gutta, donation of gold to Yadagiri Gutta Temple, out of the unaccounted donations received. The correspondent of the institute at Tirupati, Shri Munirathanm, in his statement dated 14-12-2009 also confirmed that cash was received from J. Bhaskar Rao. As per his letter to the DDIT, Rs. 35 lakhs were spent till that time towards construction of the guest house at Tirumala out of unaccounted donations/contributions. The investment in construction of guest house at Yadagiri Gutta was Rs. 15 lakhs while the donation of gold was for Rs. 25 lakhs. 92. In addition to the above investments, evidences found (pages 88 to 99 of AA/JB/l) also showed that funds of the society were diverted towards the business concerns of the trustees. It 'was found that donations were being paid even directly into the accounts of the 3 star hotel being constructed under M/s. Arka Hotels Pvt. Lt....
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....hika, Samiullah Shah Khan was the father of Azha Mullah Khan, Md. Abdul Bari was the father of Salma Abdul Bari all students of MBBS 2005-06 batch. Therefore the amounts introduced were nothing but the part of fees not accounted for in the books of account of the society. In addition to the above, there were several entries where annexure were found between accommodation receipts and fees collected directly from the parents/students instead of being accounted for in the books of a/c of the society, which was indeed a violation of sec. 13(l)(c) and sec. 11(5) of the IT Act. 95. As discussed in the assessment order, the evidence seized in the course of search clearly shows collection of amounts over and above the fees. The Note Books seized as Annexures JB/AA/1 to 5 contain details like, name of the student, father's name, total fee for the seat, fee received in cash, fee received through cheque/DD, balance fee to be collected during the relevant 5 years etc., for example Annexure JB/AA/1 is a note book in respect of MBBS students of Bhaskar Medical College under the management quota for the academic year 2005-06. At page No. 36 thereof, it can be seen that Sandhya Sreekanth, fath....
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....collected over and above the prescribed fees from the students admitted in Management Quota and had accepted the statements: given by them. Therefore, it was clear that the Management of both the society had accepted in principle the collection of amounts over and above the prescribed fee and the manner in which those were found recorded in the incriminating evidence. 98. During the course of assessment proceedings, the assessee did not file any reply or clarification. In the letter dated 12-12-2011, the assessee contended that the addition of two zeroes to the figures and conversion of the cash collections into crores instead of lakhs is required to be put to strict proof by way of independent enquiry, evidence from students/ parents etc and needs to be confirmed only by the persons making the payment. Except for the above denial, no other counter evidence could be submitted. On the other hand, from the evidence gathered it had been proved that the society has been charging amounts over and above the prescribed fees. 99. The seized material clearly shows diversion of funds of the society towards business concerns of the trustees. It was found that the group was constructing ....
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....his statement dated 25-9-2009 stated that the cash belonged to the assessee's society and pertained to the college JBREC. Since no explanation regarding the source of such cash was furnished nor the same was found recorded in the books of a/c, the cash of Rs. 3 lakhs was seized. Shri Rao also stated that the cash had been given to him by one Sesha Sai, staff member for safe custody. However, he could not show that any entry was made in this regard. During the assessment proceedings it was claimed that the amount was out of the tuition fee collected and had been kept with Mr. Rao due to the closure of banking hours. However, no copies of receipts from the students could be submitted even during the assessment proceedings. 102. In view of the findings of the search and seizure operations, a proposal was sent to the DGIT (Inv), Hyderabad, recommending rescinding of the approval granted u/s. 10(23C)(vi). The DGIT vide his proceedings in F. No. DGIT (Inv)/ Hyd/APPELLANT & Renewal u/s. 10(23C)/ JBRES/2011-12 dated 16-12-2011 withdrew/rescinded the recognition with effect from 2007-08. The DGIT held that in the instant case there was no dispute that amounts were collected by way of cap....
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...., he concluded that even on this account the appellant would not be entitled to the exemption u/s. 11 of the Act. 104. The AO noted that even in view of the decision of the ITAT, Hyderabad in the case of Vodithala Educational Society and Adinatar Educational Institution vs. ACIT (224 ITR 310), the assessee was not eligible for exemption u/s. 11, as it did not exist for the purpose of education solely but for the purpose of profit. He also referred to the decision of Hon'ble Apex Court in the case of T.M. Pai vs. State of Karnataka (2002) 8 SSC 481 while holding that the society would not be eligible for exemption u/s. 11 or 10(23C) where it fails to prove that the contributions are not in the nature of capitation fees. Accordingly, he held that the assessee is neither eligible for exemption u/s. 10(23C)(vi) nor it is eligible for exemption u/s. 11. He accordingly, proceeded to assess the income of the assessee in the capacity of AOP. 105. Based on the seized material, the AO prepared a comprehensive chart which on cross verification showed that Rs. 28,83,47,500, being receipts of Bhaskar Medical College and Rs. 9,03,300 being the receipts of M.N. Rao college were not accounte....
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.... Year 2007-08: The income and expenditure statement for this asst. year showed a surplus of Rs. 3,02,398. Besides, there was addition to the capital fund of Rs. 1,43,22,635, which too was not treated as capital receipts. The AO also added the difference between the closing and opening balance of capital fund as on 31-3-2006 (Rs. 7,32,57,196) and 1-4-2006 (Rs. 7,74,19,332 respectively of Rs. 41,62,126). (d) Asst. Year 2008-09: In addition to the surplus of Rs. 1,02,80,910, the capital fund of Rs. 56,56,986 was treated as income. Besides, the AO also added the difference between the closing and opening balance of capital fund as on 31-3-2007 (Rs. 9,17,41,957) 1-4- 2007 (Rs. 10,36,74,999 respectively) of Rs. 1,19,33,042. 107. In addition to the above, the Assessing Officer noted that the assessee had offered "other income " of Rs. 6,17,543/ - only, whereas the TDS certificates reflected the total interest. income of Rs. 26,60,107. Accordingly, the difference of Rs. 20,42,564 was also brought to lax for the AY 2008-09. (a) Asst. Year 2009-10: In addition to the surplus of Rs. 60,61,922/-, the capital fund of Rs. 3,75,000/- was t....
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....t years 2006-07, 2007-08; 2008-09, 2009-10 and 2010-11 respectively, the CIT(A) observed that it is clear that the same amount has been arrived at on the basis of the seized material itself as annexed in the assessment order. Even in the course of appellate proceedings, the assessee has not disproved the observation of the Assessing Officer that the entries on whose basis such unaccounted income was worked out were not found accounted for in the books of account of the society. Accordingly, he upheld the additions of the above amounts as unaccounted income from "donation/capitation fee" 111. The CIT(A) observed that it is also clear that' the above mentioned additional amounts were given and received as quid pro quo for granting admission to the students into various colleges/institutions of the assessee society only. Accordingly, all of such amounts are to be taxed in the hands of the assessee society only. Merely because Shri R. Kondal Rao accepted having collected such amounts personally, without the knowledge of the society, it cannot be said as the income of Shri Rao. It is clear that the society has never raised any complaint of embezzlement also. Therefore, it can be said....
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....ear 2010-11, the Assessing Officer disallowed the claim of donation of Rs. 6,29,518/- in the absence of any evidence. In the course of appellate proceedings it has been stated that the same was paid to Chief Minister's Relief Fund, which is eligible for 100% deduction u/s. 80G(2). The Representative also submitted details of cheques of Rs. 2 lakh and Rs. 3 lakh bearing Nos. 835373 and 835498 dated 15-10- 2009 and 26-12-2009. Therefore, he directed the Assessing Officer to verify the said contention of the assessee and grant deduction as per law. Accordingly, he decided this issue in favour of the assessee. 115. As regards the difference in the closing balance of capital fund, it has been submitted that there was no difference in opening balance in any of these years. The Representative also submitted extracts of Balance Sheets for different years to substantiate his contention. The Assessing Officer; therefore, is directed to verify such contention of the assessee and delete the additions made on account of difference, in case the contention is found to. be correct. Accordingly he decided the issue in favour of the assessee subject to verification. 116. As regards the additio....
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.... decided the issue in favour of the assessee subject to such verification. Hence the assessee is in appeal before us on the above issue. 118. The first common ground is with regard to denial of exemption u/s. 11 or 20(23C) of the Act. Similar issue was already decided above in ITA Nos. 29-35/Hyd/2013. On the same ratio this ground is dismissed accordingly as discussed in para 34 of this order. 119. The next common ground is with regard to addition of unaccounted income holding the additional receipts in the hands of the assessee while making substantive addition in the hands of one Mr. R. Kondal Rao. 120. We have heard both the parties and perused the material on record. This is already discussed in ITA Nos. 29 to 35/Hyd/ 2013. This issue is partly allowed as in ITA Nos. 29 to 35/Hyd/2013 as discussed in paras 43 to 52 of this order. 121. The next common ground is with regard to addition towards capital fund. Similar issue is already discussed in ITA Nos. 29 to 35/Hyd/2013 in paras 56 to 64. Accordingly, this ground is partly allowed. 122. The next ground is with regard to addition towards disallowance of opening balance. This ground is discussed in ITA Nos. 29 to 35....