AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 595
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....of income is filed within the due date specified u/s. 139(1). The Commissioner(Appeals) should have known that it is only from assessment year 2018-19 that the section 12A of the Act has been amended to provide that no exemption would be allowable if the return of income is not filed within the due date u/s. 139(1) and hence belated filing of such return is not fatal to the claim for exemption u/s. 12A till assessment year 2017-18. 3. The facts of the case are that there was a search u/s. 132 of the IT Act at the business and connected institutions on 31/10/2011 on the strength of warrant of authorization dated 27/10/2011 issued by Director of Income-tax(Investigation), Cochin. The search revealed that there was violation of section 13(1)(c) and 11(4) of the Act and the income of the Trust was chargeable to tax. M/s. Kunhitharuvai Memorial Charitable Trust popularly known as KMCT is a Trust established in 1999. The Trust was granted registration u/s. 12AA of the Act by the CIT, Calicut on 21/01/2002. Dr. K. Moidu is founder and the Managing Trustee of the Trust. The other trustees are Mrs. Amina Moidu, W/o Dr. K. Moidu and their three sons Dr. K.M. Mehboob, Dr. K.M. Ashik and Dr.....
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....ed that search was conducted in this case on 31/10/2011, which only goes to prove that the return for AY 2006-07 was filed 8 months after the date of search. According to the CIT(A), such an inordinate delay in filing the return of income proved that the books of accounts were not properly maintained by the assessee and they were also not complete and correct. In the light of the above findings, the CIT(A) confirmed the denial of exemption u/s. 11 of the Act to the assessee. 5. Against this, the assessee is in appeal before us. The Ld. AR submitted that u/s. 11 of the Act, filing of return of income belatedly would not lead to denial of exemption u/s. 11 of the Act even at the stage of appellate proceedings. The Ld. AR relied on the judgment of the Punjab & Haryana High Court in the case of CIT vs. Shahzadanand Charity Trust (228 ITR 292) wherein it was held that it is not mandatory to furnish the audit report alongwith the return of income u/s. 12A(1)(b) of the Act and the same could be furnished at a later stage and the delay could be condoned after recording the reasons. 5.1 The Ld. AR further submitted that the assessee has applied the profit of the assessee-Trust for charita....
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....-09 15.01.2013 2009-10 15.01.2013 2010-11 22.05.2013 2011-12 21.08.2013 2012-13 09.12.2013 7.1 According to the Revenue authorities, even if the assessee is having valid registration u/s. 12AA of the Act, the assessee is required to file return of income accompanied by Form No. 10 of the I.T. Act so as to claim exemption u/s. 11 of the I.T. Act. It is clear from the reading of sub-section 2 of section 11 that it is mandatory for the assessee-Trust claiming exemption u/s. 11 to intimate the Assessing Officer particulars required under Rule 7 in Form No. 10. If during the assessment proceedings, the Assessing Officer does not have necessary information, the question of excluding such income from assessment does not arise at all. As a matter of fact, excluding the particulars of income from the net of tax arises from sec. 11 and is subject to the conditions specified therein. Therefore, it is necessary that the Assessing Officer must have the information at the time of completing the assessment. In the absence of such information, it will not be possible for the Assessing Officer to give the assessee benefit of such exclusion and once the assessment is so completed, it ....
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.... however, filed by the assessee in the prescribed form on 6th March. 1987, before the completion of the assessment. The ITO while completing the assessment refused to allow the benefit of exemption under s. 11 of the Act to the assessee on the ground that audit report in Form No. 10B was not filed along with the return. Income of the assessee was put to tax. Order of the ITO was upheld by the CIT(A) against which assessee filed further appeal before the Tribunal which was accepted. On these facts, it was held that the IT authority had taken hyper-technical view of the matter where the assessee has complied with the provisions of the Act in the course of assessment by curing the defect in the return by filing an audit report. The ITO cannot ignore such audit report or the return in completing the assessment. The delay in getting the account audited and in filing the return (sic-report) in Form No. 10B did not defeat any object of the Act and, therefore, the provision was directory in nature. It also referred to the circular of the Board dt. 9th Feb., 1978. 11. Gujarat High Court in Gujarat Oil & Allied Industries' case (supra) was considering s. 80J(6A). Gujarat High Court....
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....before the ITO or before the appellate authority. 14. In view of the Board's Circular dt. 9th Feb., 1978, the requirement of filing auditor's report in Form 10B as provided in s. 12A(b) r.w.r. 17B of the Rules, the ratio of the law laid down by this Court in Jaideep Industries case (supra) would not apply to the present case. 15. In view of the above, therefore, we find no merit in the argument of the Revenue that the assessee was not eligible for exemption u/s. 11&12 on account of not having complied with the requirements of section 12A(1)(b) of the Act. Since this was the sole basis for upholding the validity of the reassessment proceedings resorted to, we hold that the reassessment resorted to in the present case was invalid, on account of the second proviso to section 12A(2) of the Act, which specifically debarred resort to the same in view of registration having been granted from the immediately succeeding assessment year. The reassessment framed is therefore set aside. As a consequence the addition made is deleted. 7.4 In the case of Director of IT(Exemption) vs. Divyajyot Foundation (2010) (321 ITR 53), the Gujarat High Court relying on the decision in CIT vs. G....
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....to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. However, there is no clarity as to whether the said return of income is to be filed within time allowed u/s 139 of the Act or otherwise. In order to provide clarity in this regard, it is proposed to further amend section 12A so as to provide for further condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income within the time allowed under section 139 of the Act. These amendments are clarificatory in nature. These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent years." 7.7 Further, an excerpt of circular No..02/2018 dated 15.0,2013 "Explanatory Notes to the Provisions of the Finance Act, 2017" on insertion of clause (ba) in Sub section (1) of section 12A is quoted as under: "the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139 of the Income-tax Act, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not ch....
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....ected from management and NRI seats of MBBS are not accounted in the accounts due to various stipulation of law. I am not able to explain the above discrepancies. 8.2 In view of the unearthing of the chart evidencing collection of capitalization fees from management and NRI quota seats and the statement of Shri. Shibu, the Assessing Officer held that the assessee had been collecting capitation charges from the aspiring students. According to the Assessing Officer, collection of capitation fees is a common knowledge and in the instant case, it was supported by documentary evidence, found and seized from the premises of the assessee and further supported by the statement of administrative officer of the assessee concern. 8.3 On appeal, before the CIT(A), Dr. K.M. Navas, Trustee of the assessee concern wrote a letter dated 14.02.2018, contents of which are reproduced as under: "Sir, Sub: Note on capitation fee - reg. Ref: Appeals for the AY 2006-07 to 2012-13 During the income tax search dated 31/10/2011 the Income Tax Officers found the collection of additional fees from MBBS 2011 batch management students to the tune of Rs. 2.40 crores. We have admitted the same and accoun....
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....ng backwards the figures relating to the subsequent years. 8.6. The Ld. DR submitted that there was seized material representing the unaccounted collection of fees for these assessment years under consideration. He submitted that judgment of the Jurisdictional High Court in the case of CIT vs. Hotel Meriya (332 ITR 537) is applicable to the facts of the assessee's case. 9. We have heard the rival submissions and perused the record. In the present case, there was a seized material found during the course of search marked as CHN/21/VJ-1-A which contained the details of students admitted for BBS, BDS and BMS courses and money collected from each student was recorded in the laptop of the Administrative Officer, namely, Shri Shibu and print out was taken relating to financial year 2011-12 and corresponding year 2012-13. During the course of search, statement of Shri. Shibu was recorded and he confirmed the receipt of additional fee. The relevant question and answer is reproduced as under: "As per the details found during the course of search the actual collection of fees and other amounts from various students have been unearthed as per the seized item no.CHN/21/VJ-1-A. However on v....
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.... 25th June, 2001. The cash book showed cash balance of Rs. 21,31,523/- but the physical cash balance was Rs. 34,552/-. On enquiry of the Managing Partner and the employee, it was revealed that only 80% actual sales turnover in respect of liquor was recorded in the cash book. In this case, the partner of the hotel had in ambiguous terms stated that 20% of the sales turnover was suppressed and only 80% was recorded in the books of accounts of the assessee and it was a practice from the beginning. So, the High Court was of the opinion that it is just and appropriate to presume that there was uniform concealment of income in all the assessment years during the block period. There is no material to show that concealment of the sales during any of the assessment years in the block period is less than concealment detected u/s. 132 of the I.T. Act. There was no whisper in the statement given by the staff of the assessee firm or any of the employees that there was any concealment in any assessment year during the block period. No good reason was given to reject the above mentioned statements of the partner and the employees recorded during the search. Oral evidence was corroborated by docu....
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....12 they had not collected any additional fees we have only collected some advance fees which was accounted in the books. In the assessment year 2012-13, it was stated that they had collected additional fees from MBBS and BAMS students which have been accounted as additional fees. Now the assessee has admitted the receipt of additional fees during the previous year relevant to the assessment year 2012-13. 9.6 Coming to the judgment of the Andhra Pradesh High Court in the case of Rajnik & Company cited supra, the High Court held that assessment of undisclosed income is based on relevant material and there is absolutely no merit in the contention of the assessee that the estimations made by the Assessing Officer as well as by the Tribunal are not based on any material but merely based on conjunctures and hypotheses. Though there is no material found for the assessment year 1986-87 to 1995-96 but it is fact confirmed by the partner of the assessee firm that the assessee had organized suppression of sales turnover and taking the quantum of business that was carried out by the assessee-firm, the Assessing Officer estimated the suppression of 20% sales and determined the gross profit rat....
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....details of fees collected in the year 2010-11 in the tabular form. From this, the Assessing Officer arrived at the additional fees collected by the assessee. However, the assessee vide letter dated 10/12/2013 stated that the assessee had not collected any additional fees and only collected advance fees. Being so, whatever was found was the break up of number of students who were admitted under different quotas in various courses. Therefore, there cannot be any addition in the hands of the assessee towards additional fees collected in the absence of any material seized or found during the search for the assessment years 2006-07 to 2011-12. However, we direct the Assessing Officer to confine the addition to the extent of seized material found during the search for the assessment year 2012-13/. In other words, for the assessment years 2006-07 to 2011-12, there was no seized material found during the search and hence, there cannot be any addition towards additional fees collected by the assessee. 9.8 Further, the Central Board of Direct Taxes had issued instructions by Circular No. 286/2/2003-IT, wherein it had been directed that the search party should not obtain confessions. So the....
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....n it was held as under: "19. Coming to other observations of the CIT for cancellation of registration of trust u/s 12AA(3). The CIT observed that the trust js not maintaining proper books of account and not filed regular returns of income as prescribed under law. As regards observations of the CIT with regard to non maintenance of books of account and non filing of regular returns of income it was submitted that it is true returns of income from the A.Y. 2007-08 have not been filed regularly and such returns have been filed after search but before the Commissioner issued her show cause notice on 6-9-2013 which is evident from the fact that returns of income up to A.Y. 2011-12 have been filed before 21-8-2013, The trust has filed regular returns for A.Y, 2012-13 and subsequent years. The AR further submitted that even assuming that there is delay in filing returns of income, it cannot be said that it is fatal so as to withdraw registration u/s 12AA(3). Non filing of returns is purely a procedural laps which can be cured by filing return of income or some other penal provision is provided to deal with non filing return of income, but it cannot be a ground for cancellation of regist....
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....tions and siphoning off of income of the Trust for the benefit of the Trustees. As regards collection of additional fees from certain students and diversion of funds to trustees, these are passing remarks by the CIT which cannot be considered as non genuine activities. The trust has collected fee from students as prescribed by the authorities. In some cases, additional fees collected from students admitted under management quota and such additional fees has been accounted for in the books of accounts and also applied for objects of the trust. The trust has collected additional fees in two years from students admitted under management quota and such additional fee has not exceeded the limit prescribed by the authorities. The private unaided management colleges are permitted to fix their own fees in respect of management quota seats considering their feasibility and collect such fees from students. The additional fees and advance fees collected from students is hardly 4.46% of total fees collected from students. The additional fees collected have been accounted for in the books, therefore it is incorrect on the part of the CIT to make baseless allegations that additional fees collect....
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....efore, we are of the view that the other reasons given by the CIT in the order u/s. 12AA(3) of the Act, do not make out a case, which can show the activities of the assessee are genuine or that the activities of the assessee are not being carried out in accordance with the objects of the trust or institution. 21. Unquestionably, the onus for proving the existence of factors calling for cancellation of registration granted to an institution is on the Department rather than on the institution. In the present case, the CIT has miserably failed to discharge such onus. No material has been brought by the CIT that the assessee society exists for profit motive. The Department has not been able to discharge its onus of showing as to how the conditions for grant of registration have been breached by the assessee. The assessee remained enjoying the registration granted to it for the last number of years under the same unchanged facts and circumstances. It has also not been demonstrated by the Department as to how the approach of the assessee has turned to a commercial one. The predominant object of the assessee is and remains to carry out charitable purpose of advancement of education,....