TaxTMI 
TaxTMI 
2021 (8) TMI 955
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....en Shri. J. Rajendra and Smt. J. Saraswati are also trustees of the trust. Shri G.H. Nagaraj is the secretary of the trust and is looking after the day to day affairs of the trust. Shri.J.P. Narayanswamy was one of the trustee and Vice President of the trust. Shri. Rajesh Jagdale was one of the trustees of the assesse trust and for this purpose the trust has established the following educational institutions and providing education to a very large number of students:- a) Medical College and Hospital b) RLJ Institute of Technology c) RLJ Industrial Training Institute d) Sri Devaraj Urs School & PU College e) Sri Devaraj Urs International Residential School f) Sri Devaraj Urs Institute of Management g) Sri Devaraj Urs Educational Trust Pharma h) Sri Devaraj Urs School/College of Nursing i) R L Jalappa Central School j) Sri Devaraj Urs Educational Trust 3. The assessee trust has been filing return of income under the Income-tax Act, 1961 ["the Act"]. It is registered u/s. 12A of the Act as on date. 4. For the AY 2010-11, original return of income was filed on 16.09.2010 and intimation u/s. ....
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....ded u/s. 153A of the Act and in the notice u/s. 153A, there was no mention whether it is a case of assessment or reassessment. Disallowances/Additions: 6.1 Disallowance of exemption claimed u/s. 11(1)(a) of Rs. 6,85,70,097: The AO held that assessee had collected capitation fee from various students and incurred expenditure for non-charitable purposes. Therefore the assessee trust was not carrying on the activities in a charitable manner, but in a commercial manner. Hence exemption u/s. 11(1)(a) of the Act was not available to the assessee. 6.2 Disallowance of expenditure in the nature of Capital Expenditure - Rs. 7,29,24,571 : The assessee had spent a sum of Rs. 7,29,24,571 during the previous year relevant to AY 2010-11 towards capital expenditure for the purpose of the trust. Since the exemption u/s. 11(1)(a) was denied, the AO did not allow the capital expenditure claimed as application. 6.3 Disallowance of donation - Rs. 10,00,000/-: During the previous year relevant to AY 2010-11 the assessee had donated Rs. 10,00,000 as recognized charitable institution. Since the exemption u/s. 11 of the Act was denied, the AO did not allow the payment of donation as application....
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....31.3.2015 denying exemption u/s. 11 of the Act. The income was computed by applying the regular provisions of the Act as envisaged under Chapter VI of the Act as follows:- Particulars Amount (In Rs.) Excess of Income over Expenditure as per I&E Account 25,76,28,031 Add: Depreciation 7,29,88,721 Balance 33,06,16,752 Less: Allowable Depreciation 1,53,05,869 Balance 31,53,10,883 Add: Loss from redemption of mutual funds 8,65,293 Add: Maintenance expenses towards Benz Car 3,47,192 Taxable Income 31,65,23,368 Add: Long Term Capital gain as ROA 4,31,496 Total Taxable Income 31,69,54,864 9. Consequently, on the basis of search u/s. 132 on 6.8.2015 and on similar facts and similar reasoning as in AY 2010-11, the AO determined the total income at Rs. 46,13,25,960 on the following components:- i. Total Income as per Order u/s. 143(3) - Rs. 31,69,54,864. ii. Undisclosed cash receipts - Rs. 38,48,00,000: Here again, on the search action u/s. 132 on 6.8.2015 and on similar facts as in AY 2010-11, the AO determined the total income at Rs. 38,48,00,000 concluding that a sum of Rs. 228 lakh is entered as cash re....
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....f the trust were not charitable, but commercial. Depreciation was also denied on the same reasoning as held u/s. 11(1)(a). iii. Expenditure in the nature of Capital Expenditure - Rs. 12,90,63,825. iv. Disallowance of donations u/s 37 - Rs. 10,52,000. v. Undisclosed cash receipts - Rs. 79,87,00,000 : In this year also, as held in the previous years, the AO held that a sum of Rs. 6,885 lakh is entered as cash receipts in seized material. He further extrapolated that a sum of Rs. 1,102 lakh would have been received which was not accounted even in the seized material. 13. For the AY 2016-17, Registration u/s. 12A and Exemption u/s. 11 of the Act continued. On the basis of search u/s. 132 on 6.8.2015 and on similar facts and same reasoning as in AY 2010-11, the AO determined the total income at Rs. 121,63,33,681 on the following components :- i. Surplus set apart u/s. 11(1)(a) - Rs. 19,21,19,133. ii. Surplus accumulated u/s. 11(2) - Rs. 5,77,28,333 : This disallowance was also made on the same ground that assessee had collected capitation fee from various students and incurred expenditure for non-charitable purposes. Therefore the....
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....ty under this sub-section, shall not be disclosed to any person or any authority or the Appellate Tribunal." 20. Being so, this amendment will have effect in the present case. Therefore, the Tribunal cannot be expected to go into the said question. It is only for the Constitutional posts to examine the validity of search action. More so, this issue was also decided by the Hon'ble High Court of Karnataka in the case of Prathibha Jewellery House v. Commissioner of Income-tax, (Appeal) [88 taxmann.com 94 (Kar)] where the writ petition was dismissed holding that law was amended by insertion of aforesaid Explanation by the Parliament in section 132 by the Finance Act, 2017 w.r.e.f. 1.4.1962 and it was held that the Appellate Authorities could not go into the reasons recorded by the concerned Income Tax Authority for directing Search action. In view of this, we are of the opinion that the assessee is precluded in challenging the validity of search action before the Tribunal. 21. Further, the same view was taken by the Tribunal in the case of Rajesh Exports Ltd. in ITA Nos.928 to 931/Bang/2017 vide order dated 27.11.2018 as follows:- "14. First, we decide the technical aspe....
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....tice u/s 153A, the only requirement is to ask the assessee to file return of income for relevant six years covered by section 153A and whether after filing of return of income, the assessment to be made by the AO will be assessment or reassessment has to be determined afterwards and not at the time of issue of notice u/s 153A. Similar view was taken in the case of Rajesh Exports Ltd. (supra) in para 17 of the Tribunal's order. In this view of the matter, this ground is dismissed. 25. Ground No.5 is with regard to status of the assessee. According to the ld. AR, trust is not a person referred to in section 2(31) of the Act and the CIT(Appeals) ought to have held that assessment made on a nonexistent status is bad in law. The ld. DR relied on the order of lower authorities. 26. We have heard both the parties and perused the material on record. In this case, the assessee itself has filed return of income in the status of "trust" and the same was followed by the AO in framing assessment u/s. 153A of the Act. Being so, we do not find any infirmity in the order of AO. This ground is dismissed. 27. Ground No.6 is regarding the validity of assessment., which is a common ground in ....
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....Remarks A/DUU/01 [Copy enclosed at pages no. 508 to 600 of this Paper Book] Loose sheets (printed and manual) Page No. 39 to 48 of Asst. Order * Some are manual; some are printed; * entries in the sheets are struck off in considerable instances; * The notings are obscure; Nothing can be deciphered from the same * Many sheets do not contain dates nor the period to which they belong; * many of the entries and sheets are unsigned; * Few sheets contain only list of names and some figures * Few sheets consist of only list of names and some year * Few sheets consist of obscure notings made manually; They contain certain names, mobile numbers and some figures * There is nothing to show that the material belongs to the appellant; None of the sheets carry either the name or the seal of the appellant A/DUU/02 [Copy enclosed at pages no. 601 to 668 of this Paper Book] Note book (manually written) Page No. 52 to 77 of Asst. Order * Consists of certain payment entries * There is nothing to show that it belongs to the appellant. It does not contain either the name or seal of the appellant A/DUU/03 [Copy enclosed at pages no. 669 to 775 of thi....
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.... no. 1366 to 1419 of this Paper Book] Long note book (manually written) * Consists of only names, mobile numbers and addresses; * There is nothing to show that it belongs to the appellant. It does not contain either the name or seal of the appellant * It has not been discussed in the assessment order * It has not been relied upon by the assessing officer A/DUU/10 [Copy enclosed at pages no. 1420 to 1554 of this Paper Book] Long Note Book (manually written) Page No. 61 of the Asst. Order * Major portion consists of only names, mobile numbers and addresses; * There is nothing to show that it belongs to the appellant. It does not contain either the name or seal of the appellant * Except page no. 5, the rest of the material has not been discussed in the assessment order * Except page no. 5, rest of the material has not been relied upon by the assessing officer * Page no. 5 contains certain obscure notings and figures. Nothing can be deciphered from the same A/DUU/11 [Copy enclosed at pages no. 1555 to 1635 of this Paper Book] Long Note Book (manually written) Page No. 100 of Asst. Order * Consists of list of names * Some obsc....
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.... 32. The ld. AR submitted that the AO has relied upon loose sheets, unsigned entries in note books to hold that the appellant has collected capitation fee in cash which is unaccounted. It is submitted that loose sheets, scribbled note books cannot be treated as incriminating material unless they are corroborated with cogent evidences. The loose sheets, note pads, etc., relied upon by the assessing officer are not speaking ones. They are dumb documents. They cannot be relied upon. In fact, the assessing officer at page 166 of the assessment order, has observed as under: "Only tabulated sheets of receipts from student need not be considered as incriminating material" The above observation would mean that the AO has acknowledged that the seized material are dumb documents. He relied on the decision of the Hon'ble Supreme Court in Common Cause (A Registered Society) v. UOI [2017] 394 ITR 220 (SC). 33. It was submission of the AR that the Tribunal in the case of Atul Kumar Jain v. DCIT [1999] 64 TTJ (Delhi) 786 construed the meaning of the expression "document" in the context of section 132 of the Act as under:- "6.4 We find that the Assessing....
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....s under:- "33. In entirety of the matter, we are of the view that an addition in assessments carried out pursuant to search action u/s 132 of the Act has to be related to cogent and positive materials found during search which prove conclusively that the assessee has either earned an income or made an investment which has not been recorded in his regular books of account or that his case is covered under any of the deeming provisions contained in sections 68, 69, 69A to 69D of the Act. However, additions cannot be sustained merely on the basis of rough noting made on few loose sheets of papers unless the AO brings on record some independent and corroborative materials to prove irrefutably that the said noting reveal either unaccounted income or unaccounted investment or unaccounted expenditure of the assessee. As discussed above, in the instant case, assessments for the impugned years have been completed u/s 153A of the Act which relates to assessment in case of search or requisition. The prerequisite condition for application of Sec. 153A of the Act is a search conducted under section 132 of the Act or any requisition made under section 132A of the Act to unearth hidden i....
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....n the Revenue to collect cogent evidence to corroborate the noting therein. The Revenue has failed to corroborate the noting by bringing some cogent material on record to prove conclusively that the noting in the seized papers reveal the unaccounted on-money receipts of the assessee. Further, no circumstantial evidence in the form of any unaccounted cash, jewellery or investments outside the books of account was found in course of search in the case of assessee. Thus, the impugned addition was made by the AO on grossly inadequate material or rather no material at all and as such, deserves to be deleted. Hence, an assessment carried out in pursuance of search, no addition can be made simply on the basis of uncorroborated noting in loose papers found during search because the addition on account of alleged on-money receipts made simply on the basis of uncorroborated noting and scribbling on loose sheets of papers made by some unidentified person and having no evidentiary value, is unsustainable and bad-in-law. 37. He further submitted that the AO at page 177 of his order, has observed that the decision in ACIT vs Layer Exports Pvt Ltd. 53 ITR (Trib) 416 relates to only those cases....
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....2) TMI 403 - ITAT Hyderabad took similar view. Reliance was placed on CIT v. M/S Khosla Ice & General Mills 2013 (1) TMI 451 - Punjab & Haryana High Court. 39. He submitted that the Tribunal in the above cases it was noted that the document D-22 of Annexure A-18 did not give any clear picture about the nature and ownership of entries therein and, therefore, any addition in the hands of the assessee on the basis thereof would not be tenable. Learned counsel for the revenue made feeble attempt to show that document D-22 of Annexure A-18 clearly depicted undisclosed income but was unable to substantiate his plea. In the absence of any clear deciphering of document D-22 of Annexure A-18, the deletion of Rs. 5,95,900/- and Rs. 11,17,596/- from undisclosed income cannot be held to be unjustified. 40. The ld. AR submitted that the ld. AO himself stated at page 177 of the order as to when documents can be called as 'dumb' documents. A perusal of these observations would show that the AO has failed to note these are dumb documents. He has also failed to notice all the factors judicially discussed by various courts and tribunals. The AO has stated that only in three scenarios listed by....
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....annot be applied by the revenue merely because the loose sheets, note-pads are seized from the premises of the appellant. Therefore, the burden is cast upon the revenue to prove that the loose sheets or note pads belong to the appellant. There is nothing in the loose sheets, note pads to hold that they belong to the appellant. The loose sheets / note pads do not contain name of the appellant or seal of the appellant. Neither the authorised officer nor the assessing officer have discharged the burden cast upon them to prove that the loose sheets / note pads belong to the appellant. It is to be noted that the expression used in section 292C is "may be presumed". Therefore, it is a rebuttable presumption. The appellant has contended that the seized material does not belong to it. The entries contained therein are not made at the behest of the executive committee of the appellant. 44. In fact, the AO has not even invoked the presumption under section 292C to hold that the seized material belongs to the appellant nor has he established that the said material belongs to the appellant. The AO has at paragraph 10(1)(a) to (e) [Pages 121 to 123 of the assessment order] has discussed the ....
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....isitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A. Therefore, if the material seized belongs to or pertains to or relates to a person other than the searched person, only then section 153C comes into play. Hence, it is axiomatic to state that if the material seized belongs to or pertains to or relates to some other person, it does belong to or pertain to or relate to the searched person. Under such circumstances, one cannot invoke the presumption under section 292C that the material seized belongs to the searched person as the assessing officer by his own action of making assessment under section 153C in the case of trustees relying upon the very same seized material. The ld. AR placed reliance on the decision of the Delhi Tribunal in Vij....
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....ce in the assessment order. It is submitted that the discussion which the AO refers to in the abovementioned counter is also general in nature. He has only made bald assertions that the assessment has been made based on incriminating material found during the course of search. It is not enough to state that the material seized is incriminating. It should be demonstrated that it is so. It can be demonstrated only if a reasonable person would be able to state categorically without mincing any words, that the material represents undisclosed income or an undisclosed asset. 51. As stated earlier, it was submitted by AR that the assessee has filed separate submissions in respect of each assessment year in respect of certain grounds. The appellant has made specific submissions for each assessment year so far as extrapolation of income is concerned. In these submissions, the appellant has discussed the arbitrary manner in which the assessing officer has extrapolated the income. These submissions would show that the AO has expressly in some cases and impliedly in certain other cases has conceded the fact that there is no incriminating material found based on which alleged undisclosed inc....
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....ain reiterated that the only purpose of considering certain evidences for the purpose of quantification is to deliver most reasonable possible estimation and the one close to reality." At page 168 of the assessment order, the learned assessing officer has stated that "The estimation is both scientific and reasonably accurate. Had the truth been brought forward by the assessee, it would have been more accurate to the decimal values. Unfortunately this office had to deal with an evasive assessee, and notwithstanding any of it, a reasonable estimation has been made. 53. Further AO is merely trying to justify his estimation of unaccounted cash receipts. He has conceded that he has not found "directly incriminating evidence." If he has not found any directly incriminating evidence, he cannot make any addition in section 153A assessment. The whole principle of an assessment which is preceded by search is that an officer specified in section 132(1) has reason to believe in consequence of information in his possession that any of the eventualities stated in section 132(1)(a) to (c) exist. So there are two stages: one stage, where the authorizing officer has information in his possession....
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.... that there is no incriminating material found which would conclusively prove that the appellant has received any capitation fee. The AO has acknowledged that the department could not lay hands upon any material evidence. 56. On the one hand, the ld. AO states that incriminating material is available for each assessment year and on the other hand, he hastens to add that "it was necessary to look for those material which give maximum possible detail with respect to quantum of capitation fee being collected". It is submitted that the assessment should be made for each of the years separately. The AO has completely missed the fundamental concept pertaining to assessment. 57. The ld. AR submitted that the seized material has not been analysed by the AO financial year-wise. He has made a consolidated analysis and has considered the same for all years. As a result, there is discord between the discussion made in respect of seized material and the table wherein the alleged unaccounted cash generated has been tabulated year-wise. It is submitted that the analysis of the seized material should be made year-wise considering the true spirit of the provisions pertaining to search and sei....
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....ought to rely upon statement of parents of 5 students. The appellant vide its letter dated 22.02.2017 had requested the AO to furnish the copies of the statements of parents and also afford it an opportunity to cross-examine them. The AO has furnished copy of statements of parents of only 2 students. The statements of the remaining 3 have not been furnished at all. It is submitted that under such circumstances, the AO cannot rely upon the statements of the three parents which have been recorded behind the back of the appellant. When statements of persons are recorded behind the back of the appellant and neither the copies of the same have been furnished to the assessee nor the assessee is permitted to cross-examine them, such statements cannot be relied upon. The appellant relies on the following decisions :- * The Hon'ble Supreme Court in Andaman Timber Industries v. CCE 2015 (10) TMI 442 - SUPREME COURT / 2015 (324) E.L.T. 641 (SC) * Kirloskar Investments & Finance Ltd. v. Assistant Commissioner of Income-tax [1998] 67 ITD 504 (BANG.) 61. Therefore, mere furnishing the copy of statements recorded is not sufficient. The assessee against whom the statements are....
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....rized officer Person whose statement is recorded 30.09.2015 131 Authorised Officer Sri. Rangaraju [Parent of a student namely -Pavana C R] 28.09.2015 131 Authorised Officer Smt. Vasudha G Padiyar [Parent of a student namely - Badragiri V. Padiyar 65. It was further submitted by the ld. AR that the search was completed on 07.08.2015 . A perusal of the statements detailed above would show that the said statements have been obtained by DDIT (Inv), Unit - 1(3), Bangalore on 28th September and 30th September 2015 . It means the statements have been obtained after completion of search. 66. It was submitted by AR that a perusal of section 131(1A) would show that an authorized officer referred to in section 132(1) can make enquiry or investigation by exercising the powers under section 131(1). But such power is to be exercised prior to taking action under clauses (i) to (v) of section 132(1). In the present case, the action under clauses (i) to (v) of section 132(1) was taken on 07.08.2015. Therefore, the jurisdiction of the authorized officer ceased on 07.08.2015. The statement of Smt. Vasudha G. Padiyar recorded under section 131 on 28.09.2015 and the sta....
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....ld that evidence to be used against the assessee must be provided to the assessee and an opportunity to confront should be given to the assessee else it cannot be used and no adverse inference can be drawn on such material. 69. He placed reliance on the judgement of the Hon'ble Supreme Court in the case of C. Vasantlal and Company v. CIT 1962 (2) TMI 7 - SUPREME COURT / [1962] 45 ITR 206 (SC) held as under:- "The Income-tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it. The statements made by Achaldas and Poonamchand before the Income-tax Officer were material on which the income-tax authorities could act provided that the material was disclosed and the assessees had opportunity to render their explanation in that behalf." 70. By not furnishing the copy of statements of the parents referred to in question 23 of the statement of Sri G H Nagaraj, it is implied that the assessing officer has not relied upon....
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....t the letter dated 25th January, 1995 is not recorded on oath by the authorized officer during the course of search. Therefore, it cannot be of an evidentiary value in terms of Section 132(4) of the Act. The facts in the present case are identical." 73. Therefore, the statements recorded post-search do not have any evidentiary value. The same do not have any value unless there is any other tangible evidence to corroborate what is stated therein. The assessing officer relied upon these statements to corroborate what is found in the seized material. When these statements itself do not have any evidentiary value, they cannot be relied upon to corroborate what is stated in the seized material. This is without prejudice to the contention that the statements recorded during the course of search are rebuttable. 74. It was submitted that the observation of the AO that the contents of the statements are corroborated by material found and seized during search is not true. How can loose sheets / notepads which themselves do not qualify as reliable material corroborate any other material? In the submissions made by the appellant vide letter dated 09.12.2017, it has nowhere acknowledged t....
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..... The AO has noted the fact that G H Nagaraj is the Secretary of the Trust and he looks into the day to day affairs of the Trust. These facts would not justify reliance on Statements of G H Nagaraj to hold that the appellant has received any capitation fee or any portion of the fee in cash. The AO further observed that the contents of statement of GH Nagaraj match with factual occurrence of events, statements of parents of students who got admission, and that of the accountant. The same have also been found to be in line with the partial admission of receipts made by the assessee itself. These findings of the AO are incorrect. The statement of Nagaraj does not concur in any manner with these findings. Sri. G H Nagaraj has categorically stated in his statement that no fee is received in cash by the appellant. In this regard, it was pointed out to queries no. 18 to 24 and the replies to the said queries in statement of G H Nagaraj recorded on 16.10.2015. The statement of Sri. G H Nagaraj and statement of parents are contradictory as discussed earlier. 77. It was further submitted that the AO has discussed regarding reliability of statements of Sri. Goli V. Srinivas. The AO has not....
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.... such examination only where the books of accounts, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of Section 132(4) of the Act are read in the context of Section 158BB(1) read with Section 158B(b) of the Act, it is at once clear that a statement recorded under Section 132(4) of the Act can be used in evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an Assessee has to be computed on the basis of evidence and material found during search. The statement recorded under Section 132(4) of the Act may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be bas....
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....ts to arrive at a conclusion on the basis of principle of preponderance of human probability, had however absolutely failed to appreciate that the said principle could have been validly applied only on the basis of a considerate view as regards the facts of the case in totality, and not merely on the basis of the stand alone statement of the aforesaid third party, viz. Sh. Mukesh Choksi." * The Hon'ble Gujarat High Court in the case of Kailashben Manharlal Chokshi v. Commissioner of Income-tax [2008] 174 Taxman 466 (Gujarat) held as under:"- "26. In view of what has been stated hereinabove we are of the view that this explanation seems to be more convincing, has not been considered by the authorities below and additions were made and/or confirmed merely on the basis of statement recorded under section 132(4) of the Act. Despite the fact that the said statement was later on retracted no evidence has been led by the Revenue authority. We are, therefore, of the view that merely on the basis of admission the assessee could not have been subjected to such additions unless and until, some corroborative evidence is found in support of such admission. We are also of the v....
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....nd therefore, the statement made by one of the partner can be relied and the addition sustainable. However, we do not subscribe to this view of the revenue. In order to establish that the assessee had paid amount outside the cooks of accounts for effecting real estate transactions substantial evidence has to be placed on record which is absence in this case. It would be unjust if an addition is made on the appellant based on a statement made by one of the partners of the firm without further making inquiries and collecting evidence. Therefore, we hereby delete the addition of Rs. 7,43,000/- and Rs. 2,00,000/- made by the Ld. AO and confirmed by the Ld. Commissioner of Income Tax (Appeals)." This entire question is based on facts and therefore, no interference is necessary." 82. It was submitted that the AO ought to have appreciated that such a huge amount of cash, if physically available, cannot be hidden physically. The only manner in which its physical existence could have been concealed, if it is really concealed, is that either it should have been converted into some other asset or should have been expended away. The assessing officer has not made any attempt to ide....
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.... belong to the trust. Where did the cash go? If the AO had reason to believe that the funds are diverted to the trustees based on the seized material he would have made a substantive addition on the trustees and not a protective assessment. 85. The jurisdiction under section 153C(1) can be assumed if the assessing officer of the searched person has reason to believe that the seized material pertains to or relates to a person other than the person referred to in section 153A, then such seized material is to be handed over to the assessing officer of the other person to initiate assessment or reassessment proceedings in case of such other person. The expression used is "belongs to or......................pertains to or.....................relates to the other person." Therefore, the mandate is it should belong to or pertain to or relate only to the "other person" and not to the "searched person". Having not reached this conclusion, the AO chose to make protective assessment. Two inferences can be drawn from this action of the AO:- (i) the seized material is not conclusive proof to make assessment under section 153A in case of appellant and hence, he chose either to invoke....
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.... means that there is no incriminating material to support his analysis which he has used to make allegations regarding diversion of funds for the personal benefit of trustees, bogus donations, additional salary payments, payments to MCI Inspectors, etc. Therefore, when there is no evidence to prove these allegations, the only fall out would be that the alleged unaccounted cash has been utilised for the purpose of the objects of the trust. But the assessing officer has not accepted the contention that the alleged capitation fee has been utilised for the purpose of objects of the trust. By applying the theory of elimination, the only possibility is that capitation fee has not been collected. 89. The AO has stated that the assessee which has gone ahead and collected capitation fee and not recorded the same in books of account, has now come around and admitted that fact of having received amounts in cash which were not recorded in books of account vide submissions received in this office dated 20/12/2017 and revised submissions of returns dated 26/12/2017. He also noted that vide submission dated 20/12/2017 assessee has admitted having received around Rs. 140 crores based on the evi....
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....one abate. The assessment or reassessment of the rest of the years falling within the said 6 assessment years stands unabated. Therefore, an assessment under section 153A in respect of those years whose assessment is unabated can be made only if any incriminating material is found during the course of search. This is without prejudice to the main contention that no assessment can be made under sec 153A in the absence of incriminating material. The search in the present case has been initiated on 06.08.2015. The history of assessment of the assessment year 2010-11 to 2015-16 is as under: Assessment Year Filing of return u/s. 139(1) Intimation u/s. 143(1) Notice u/s. 143(2) Assessment Order u/s. 143(3) 2010-11 16/09/2010 30/03/2011 16/09/2011 12/03/2013 2011-12 28/09/2011 05/09/2012 21/03/2014 2012-13 27/09/2012 20/08/2013 23/09/2013 31/03/2015 2013-14 29/09/2013 22/09/2014 - 2014-15 27/09/2014 - 2015-16 30/09/2015 - 2016-17 14/10/2016 - 91. It is seen from the above table that assessment for AY 2010-11, 201....
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....of original assessment, and (ii) undisclosed income or property discovered in the course of search." * The above decision has been confirmed by the Hon'ble Bombay High Court in the case of Commissioner of Income-tax v. All Cargo Global Logistics Ltd [2015] 58 taxmann.com 78 (Bombay) / [2015] 374 ITR 645 (Bom.), the Hon'ble Court held that no addition can be made in respect of assessments which have become final if no incriminating material is found during search. * The Hon'ble Delhi High Court in CIT v. Kabul Chawla (2016) 380 ITR 573 (Delhi) held as under:- "Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment." * The Hon'ble Karnataka High Court in CIT v. IBC Knowledge Park P. Ltd [2016] 385 ITR 346 (Karn.) held that in the absence of incriminating material found and seized during the course of search, concluded asse....
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....of the trustees. At the cost of repetition, it is submitted that the entries in documents are made by private persons and the trust has nothing to do with it. Just because they happen to be a trustee or accountant of the trust it cannot be presumed that they have acted at the behest of the trustees or on the authorization of the executive committee. Any such conclusions are tenuous and are not legally tenable. The appellant has established therein that it has not violated section 13(1)(c)(ii). The findings regarding violation of section 13(1)(c)(ii) are perverse as they are not supported by any materials and evidences on record. The findings of the assessing officer regarding violation of section 13(1)(c)(ii) are based on totally unreliable documents. The ld. AR further submitted that the entire assessment is made based on the statement of Sri. Goli V. Srinivas, G H Nagaraj and parents of certain students. The appellant vide its letter dated 22.02.2017 had requested the AO to afford it an opportunity to cross-examine the above persons. The AO did not afford opportunity to the appellant to cross-examine them. It is submitted that under such circumstances, the statements cannot be re....
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....wanted to bring on record, the assessee must have produced the said employee of the trust. Also it is not clear as to why the assessee asked for cross-examination of Goli Srinivas alone, when Shri G H Nagaraj was the person who made the bulk of the factual admissions. 99. The ld. AR submitted that the above observations of the AO are not legally tenable. The right to cross-examine is not dependent upon the assessee's relationship with the deponent / witness. The right to cross-examine is dependent upon the fact that the statement of a party is used to the prejudice of the assessee. Therefore, mere fact that the statement sought to be relied upon by the assessing officer is that of an employee would not deprive the assessee of his right to cross-examine. Therefore, the ratio of the decisions relied upon by the appellant squarely apply. Moreover, it is assessee's prerogative to decide whom it wants to cross-examine. For the proposition that the right to cross-examine is not restricted only to those cases where the deponent / witness is a third party, reliance is placed on the decision of Smt. Madhu Gupta v. DCIT 2006 (2) TMI 496 - ITAT MUMBAI / [2006] 8 SOT 691 (Mum.) and Gargi Di....
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.....08.2015 * Query no. 25 and reply in statement under section 132(4) of Sri R L Jalappa recorded on 06.08.2015 * Query no. 9 and reply in statement under section 132(4) of Sri R L Jalappa recorded on 04.09.2015 * Query no. 12 and reply in statement under section 132(4) of Sri R L Jalappa recorded on 04.09.2015 * Query no. 15 and reply in statement under section 132(4) of Sri R L Jalappa recorded on 04.09.2015 * Query no. 7 and reply in statement under section 131 of Sri G H Nagaraj recorded on 07.08.2015 * Query no. 11 and reply in statement under section 131 of Sri G H Nagaraj recorded on 07.08.2015 * Query no. 16 and reply in statement under section 131 of Sri G H Nagaraj recorded on 07.08.2015 * Query no. 6 and reply in statement under section 131 of Sri G H Nagaraj recorded on 13.08.2015 * Query no. 7 and reply in statement under section 131 of Sri G H Nagaraj recorded on 13.08.2015 * Query no. 14 and reply in statement under section 131 of Sri G H Nagaraj recorded on 13.08.2015 * Query no. 13 and reply in statement under section 131 of Sri G H Nagaraj recorded on 13.08.2015 ....
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....of Sri. Goli V. Srinivas, the AO observed as under at page 14 of the assessment order: "Upon examination of the above exhibited image of the seized material, it is seen that against the name of the student, their PG course specialization, package amount and installment wise details of the payments made on certain dates mentioned against the same have been seized. From the sheets it can be seen that the package amounts are significantly higher than stipulated fee for the relevant courses." 108. It is submitted that the conclusion drawn by the AO cannot be deduced either from the seized material or from the statement of Sri. Goli V. Srinivas. The pages 4,6 and 8 of the seized material do not mention anything about the alleged package fee. No date or period is mentioned in those sheets. It is not known to which period it belongs to. Certain entries are cancelled. They are mere loose sheets and cannot be treated as incriminating material. There is nothing in the sheet to evidence collection of capitation fee by the appellant. 109. The AO extracted pages 9 and 11 of the seized material no. A/DUU/01 and also confronted the same to Sri. Goli V. Srinivas. The reply of Sri. G....
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....erred that in the case of NRI category student capitation fee was being received over and above the stipulated regular fee. An interesting observation made from the said scanned material is that in some instances receipts are made in dollars which are later being returned in cash." * At page 39 of the assessment order: "From a cursory glance also, it can be seen from the above sheets as to what is the total number of students in whose case it is seen that capitation fee is being collected in cash apart from the regular fee collections. This handwritten list alone has a total of 83 entries. For a college offering only 150 MBBS seats, a list of 83 students, that too all belonging to the very same batch of admissions proves the point that it is not students in a certain category of admission like NRI or Institutional (Management Quota) alone who are being forced to pay capitation fee but also students getting admitted under the category of "Merit" 113. It is submitted that the observations of the AO are perverse. There is nothing in these pages which would enable a person to arrive at the aforesaid conclusion. A perusal of the said pages no. 84 to 91would show tha....
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....upported by any corroborative evidence. 117. In the submissions made with respect to ground on extrapolation of income, the appellant has demonstrated with reference to specific instances that seized material which the AO has sought to rely upon to compute the unaccounted cash is not cogent evidence. The appellant reiterates those submissions. 118. Without prejudice to the contention that the replies given to various queries are not tenable in law as they are not supported by any material evidence, it is submitted that the inferences drawn by the AO do not directly emerge from the statement of Sri. Goli V. Srinivas. The only base for the analysis of the loose sheets, note books containing obscure notings and the excel sheets is the statement of Sri. Goli V. Srinivas. The inferences reflect more of the zeal of the AO to tax rather than an objective analysis. The seized material does not contain any reliable evidence. 119. At page 10 of the assessment order, the AO relied upon reply to query no. 12 from the statement under section 132(4) of Sri. Goli V. Srinivas recorded on 06.08.2015 which is as under:- "In the sworn statement u/s 132(4) of the Income-tax Act, 1961....
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....lier, goes to shackle the truth or veracity of the first-mentioned statement. The same cannot be relied upon. 122. The AO has merely relied upon reply to question no. 12 of statement recorded on 06.08.2015 and ignored the reply to question no. 6 in the statement recorded on 12.08.2015. It is submitted that the AO cannot pick and choose to rely upon a portion of the statement. All the statements that are recorded during the course of search or subsequently should be read together. In case of inconsistency and in the absence of any corroborative evidence which resolves the inconsistency, the inconsistent portion should be ignored. We hasten to add that mere consistency in the statement would not be sufficient for it to be relied upon for making addition in an assessment under section 153A. The same is required to be corroborated with external evidence. 123. It is submitted that Sri. Goli V. Srinivas manages all the accounts of medical college and works directly under the Registrar of the medical college. He is an accountant-cum-clerk of Sri Devaraj Urs Academy of Higher Education and Research of which the medical college is a part after being deemed as University. [Question no.....
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.... to question no. 19 of statement dated 16.10.2015, Sri. G H Nagaraj has clearly stated that no cash was received from students and all fees are received through cheques and DDs. In fact in answer to question no. 22 to a pointed question that cash has been collected from Mr. Rangaraju T, father of Ms. C.R. Pavana, but however, Mr. Nagaraj has denied the receipt of cash. He has stated "this is absolutely false". A further perusal of the answer would show that the fees are collected only through cheque and DDs and not through cash. Therefore, the conclusion reached by the AO that capitation fee is received in cash is a mere surmise and conjecture not based on any material on record. 126. Apart from the loose sheets / note pads, the AO also relied upon the seized material no. A/DUU/16 consisting of copies of unrealized cheques. At paragraph 6.23 of the submissions, the appellant established that the same cannot qualify as incriminating material at all. The AO has drawn certain inferences below the extract of scanned copy of the said unrealized cheques. This analysis is not borne out from any evidence. The said inferences cannot even remotely be connected to the statement of Sri. Gol....
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....randi adopted allegedly followed by the appellant to collect capitation fee. He has observed at page 80 of the assessment order that "From the above it can be clearly inferred that for admission to various courses, the Trust also makes use of agents who used to supply candidates for admission with capitation fee as requested by the Trust. The amount of commission paid to the agents is also not accounted in the Books of the Trust as the same is in cash". He relied upon seized material A/DUU/01, A/DUU/02 and statement under section 132(4) of Sri. Goli V. Srinivas recorded on 06.08.2015 to arrive at this conclusion. It is submitted that seized material which is relied upon does not demonstrate the allegation that certain agents supply candidates for the appellant. There is nothing in the seized material which would demonstrate the process of admission followed by the appellant. The appellant vide its letter dated 28.11.2017 has submitted the detailed process of the admission followed by it. The AO has ignored the same. Sri G H Nagaraj in his statement under section 131 recorded on 13.08.2015, in reply to query no. 16 has explained the admission process. The AO ignored it completely. H....
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....as in the statement regarding admission process. 131. At this juncture, it is also relevant to note the statement of Sri Goli V. Srinivas with regard to contrary stands taken by him with regard to engagement of agents for the purpose of admission. Initially, in reply to query no. 12 of the statement under section 132(4) recorded on 06.08.2015, Sri. Goli V. Srinivas stated that "Moreover, I am handling the payment to the broker / agent who brings candidates for admission. I only used to manage the accounts of all payment received by candidates and also all the payment made to the agents / brokers etc." 132. The authorized officer confronted Sri. Goli V. Srinivas, while recording his statement under section 131 on 13.08.2015, whether he would confirm the reply to query no. 12 of the statement recorded on 06.08.2015. [query 6 of the Statement of Sri Goli V Srinivas recorded on 13.08.2015]. Query no. 6 and the reply from the statement dated 13.08.2015 of Sri Goli V Srinivas are as under: "Q.6 I am showing you, your reply to Q. No. 12 of the statement recorded on 06.08.2015 on the day of the search u/s 132 conducted in the premises of Sri Devaraj Urs Medical College. Do y....
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....2.2017 submitted the same. On going through the submissions it is seen that for the AY: 2012-13 with respect to admission for MBBS seat a total of 127 students have been admitted with a fees of Rs. 4,10,000/-, 3 are NRI sponsored seats with fees ranging from 60000$ to 75000$ and balance 20 are Malaysian students admitted with fees of Rs. 37750$ (Sic)" ............ "The above material seized during the course of search u/s 132 on 06.08.2015 in A/DUU/01 Page 33 contains statement of dues of MBBS students for the Academic Year 2011-12. On comparison of the names of the above mentioned students with the list submitted by the assessee in response to the aforesaid letter, it is noticed that all the above students comes in the list of 127 students who have been admitted with a fees of Rs. 4,10,000/-. The afore pasted seized material shows that the students have been admitted with a demand ranging from 40 lacs to 48.75 lacs wherein the course fees is 18.45 lacs and the balance has been received by cash. This goes to show that the merit quota seat has been converted to management quota and sold at a very high price. Similarly there are evidences in A/DUU/01 vide pages 31, ....
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....llying on engagement of agents destroys the theory of quota conversion advanced by the AO . The AO has not obtained the statement of the consultants named in the statement. The AO ought to have analysed as to out of the entire list of students, how many belonged to merit list and how many got admitted through management quota. He should have further analysed whether the ranks obtained by the students is sufficient for them to obtain a seat in the branch they desired so far as PG courses are concerned. Further, the AO ought to have obtained statements from the parents of the students as well students who were admitted into the college under merit quota to enquire about the fee paid by them, whether any fee is paid in cash, whether they were required to pay any fee over and above what is fixed by the committee even though the relevant student was entitled to get admitted through merit quota commensurate with the rank obtained. The AO ought to have obtained statements from parents of those students who were admitted through management quota as well as the students, should have enquired about the fee paid by them, should have ascertained whether they were merit students or not. Instead....
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....op-outs" it does not mean that any such scheme of drop-outs is weaved by the appellant. There is nothing on record to show that the candidate listed under the heading "Against dropouts" are against those very candidates whom the alleged agent Abrar procured to write entrance exams and subsequently dropped-out at the behest of Abrar. Pages 77 and 79 of the seized material are unconnected. No material has been brought on record to prove the connection. There is nothing in page 102 of the seized material to show that there is such scheme of drop-out. Page 102 has been relied upon as evidence for amount payable to Abrar. This is not at all evident from the said page. Pages 77, 79 and 102 which are relied upon are unsigned. Neither the authorised officer nor the AO have obtained the statement of Abrar. The AO has not brought on record any proof to evidence the fact that the students who wrote the entrance exams and dropped out are in fact, merit students. As stated earlier, the statement of Sri. Goli V. Srinivas destroys the theory of drop-outs because the drop-out scheme cannot be carried out without agents and as per Sri. Goli V. Srinivas engagement of agents is not a routine affair a....
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.... quota. The statement of Sri. Goli V. Srinivas and Sri Rangaraju Thimmaiah is not enough to prove this allegation. The appellant has not been permitted to cross-examine Sri. Goli V. Srinivas and Sri Rangaraju Thimmaiah. Moreover, for reasons stated supra the statement of Sri. Goli V. Srinivas and Rangaraju cannot be relied upon. Approximately 1400 students are admitted to the medical college during the period FY 2009-10 to FY 2015- 16. The AO has sought to rely upon statement of 1 parent and that too there is nothing to show that appellant has received any capitation fee from merit student or for that matter any student. 144. The AO has discussed regarding fee charged per seat to hold that fee collected is more than what is fixed by the committee. There is no proof to hold that the appellant has charged fee per seat as alleged. At page 90, the AO observed as under:- "As per the fee fixation committee the fee charged for each of the NRI seat is outside the fee to be fixed by the committee. After studying the general trend prevailing in the field and also considering the fact that during the previous year the college has taken NRI seats at extra fee, the committee has dec....
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..... At the same time the installment for balance payment will also be fixed and cleared before the admission is made Sri Goli V Srinivas keeps track of the payment. Further in PG courses under NRI quota the amount over and above which is published in the brochures are collected in cash. Further it is also seen that the Trust collects cheques as a security against the installment granted for the balance payment." 147. It is submitted that there is nothing at all to support the above allegations of the AO . As stated earlier, the appellant has submitted the detailed process of admission. No contravention has been reported by any of the authorities regarding violation of admission process. A perusal of the queries would show that question no. 14 deals with the admission process. In reply to the said query, Sri Goli V. Srinivas talked about engagement of certain consultants through whom admission is done. These consultants are nothing but the agents which are referred to earlier. Sri Goli V Srinivas has stated earlier that he is not aware of the modus operandi of the agents. Yet, the AO sought to rely upon query 14 to base his theory of fee collection. One another question no. 17 pert....
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....iven any receipt. One the same day i.e., 18.07.2013, I paid the first year fee of Rs. 10,67,438 also. The fee of Rs. 10,67,438 was paid through DD. Subsequently, I paid Rs. 5 lakhs, Rs. 10 lakhs and Rs. 10 lakhs on 21.05.2013, 23.05.2013 and 28.05.2013 respectively to Mr. Goli Srinivas for which I was not given any receipt. The sources of these payments are savings from my husband's salary." 150. The ld. AR submitted that the above would show that the payment has been made to Sri. Goli V. Srinivas. In fact, there is nothing to show that Sri. Goli V. Srinivas acted on behalf of the trust or pursuant to the directions of any trustee. The statement of Smt. Padiyar has not been confronted to Sri. Goli V. Srinivas. The appellant has not been permitted to cross-examine either Smt. Padiyar or Sri. Goli V. Srinivas with regard to her statement. A perusal of the statement of Smt. Padiyar would show that there is nothing in the said statement which would establish whether any payment has been made in cash at all. The authorized officer, after confronting the statement of Smt. Padiyar to Sri G H Nagaraj, he showed him page 53 of the seized material no. A/DUU/01. Sri. G H Nagaraj stated tha....
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.... Ans. I have paid an amount of Rs. 18.45 lakhs fees. In addition to this, I have paid Rs. 20 lakhs. First I met Mr. Goli Srinivas for my daughter's admission. He told me that I would have to pay Rs. 25 lakhs apart from the regular fees for admission in MBBS course. I requested him to admit my daughter taking the regular fees only. But he did not agree. Then I met Mr. G H Nagaraj requesting the same. He told me that I would have to pay Rs. 22 lakhs and waived Rs. 3 lakhs. When requested, he allowed me to pay Rs. 22 lakhs in four instalments. I paid all the four instalments to Mr. Goli Srinivas in cash. I was not given any receipts for the same. The source of the fees paid are Education loan of Rs. 7.50 lakhs and Gold loan of Rs. 1.91 lakhs. Balance amount I paid out of my savings from agricultural income. Q.7 Please explain the source of Rs. 22 lakhs paid to Mr. Goli Srinivas. Ans. Rs. 4 lakhs I borrowed from my elder brother who had retired as Teacher of Govt. Primary School. Rs. 7.5 lakhs I got from selling Equiliptus tree (wooden tree) during the year 2012. Balance amount was paid out of my savings from agricultural income." 153. It was submitted tha....
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....ere verified by Shri GH Nagaraj and Shri Anjanappa." 155. It is submitted that these findings are perverse. Sri Goli V. Srinivas did not state that cash is being collected at trust office. There is no evidence found to demonstrate that cash is held at the trust office to make disbursements in cash. The observations of the AO that the appellant is maintaining parallel books for unaccounted payments is incorrect. The appellant has stated time and again that the executive committee did not authorize entries found in the seized material. Mere fact that the seized material contains initials of G H Nagaraj and his brother does not mean that the entries therein have been made at the behest of the executive committee of the trust. In fact, the AO rejected the alternate claim of the appellant regarding expenditure on the ground that it is not routed through books. The AO cannot blow hot and cold. 156. At para 7.2, page 101, the AO has made observations on the Violations of The Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. The appellant denies that it is involved in any illegal activities and that it has violated the provisions of Karnataka Educational I....
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....l. This would imply that the AO is in doubt as to the reliability of the seized material for holding appellant guilty of capitation fee. It means the seized material is not a conclusive proof for receipt of capitation fee. 159. Further, it was submitted that there are lot of loose ends and contradictions in the theory advanced by the AO to support his allegation that appellant has collected capitation fee. The AO stated that the appellant collected capitation fee by weaving a scheme of conversion of merit quota into management quota. To achieve this scheme, it has engaged agents who procured merit students, made them to take entrance exam, asked them to drop out subsequently after counselling and later allot that vacant seat under management quota who may also be a candidate procured by the agents. Statements of none of the agents have been obtained. Even Sri. Goli V. Srinivas has stated that he is not aware of the modus operandi of the agents. The AO has not confronted any of the parents regarding engagement of agents by the appellant. He has also not confronted the parents with the alleged modus operandi adopted by the appellant to make admission. There is no proof whatsoever ....
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....he very existence of source from which funds are said to have been diverted has not been proved, the allegation of diversion should fail. 163. Without prejudice to the above, the ld. AR made submissions to deal with the allegations of the AO regarding diversion of funds to trustees for their personal benefit and hence, has violated section 13(1)(c)(ii) of the Act. 164. The AO extracted pages 1 to 5 of seized material no. A/DUU/2. The AO also extracted the relevant portion of the statement of Sri. Goli V. Srinivas recorded under section 132(4) of the Act on 06.08.2015 wherein the said pages 1 to 5 were confronted to him. After extracting the seized material and the portion of the statement of Sri. Goli V. Srinivas, the AO observed at page 56 as under: "From the above it can be seen that GVS has admitted that the amount has been paid to the parties described above." 165. The AO made analysis of some more pages of seized material no. A/DUU/02 and has put his analysis at paragraph 5.2.3.1a, pages 57 to 60 of the assessment order. Few pages / entries were confronted to Sri. Goli V. Srinivas. Relying upon the abovementioned material and statement, the AO observed at pag....
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....id material. But when it came to entries related to payment to chairman, Sri. Goli V. Srinivas stated that the payments were made to Chairman for personal purpose. 167. The AO sought to rely upon the statement of Sri. Goli V. Srinivas to hold that funds were diverted for to the trustees for their personal benefit. He ignored the statement made by Sri. G H Nagaraj. It is relevant to note the following query and reply from the statement of Sri. G H Nagaraj recorded on 07.08.2015:- Q. No. 16 Please go through the page numbers from 1 to 7 of folder A/DUU/13 seized and explain about the entries made in the said pages. Ans: Yes, I have gone through the page numbers. 1 to 7. These entries are mostly payments given to the respective persons. The decision of making the payments were taken collectively by all the trustees. But at this point of time I am not able to remember for whom and why the payments were made but I would like to state that all the payments were made for the well being of the trust and no personal payments were taken for myself and by the trustees. If any payments where trustees or my name is written in those loose sheets, those payments are received ....
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....e explain the entry dated 31.07.2014 under the caption "R J Rajendra (Babu) for hand DB pur - 100-00". Please explain the entry Ans. A total sum of Rs. 1 crore was handed over to Shri R J Rajendra for the purchase of trust land at Doddaballapura campus" 170. It was submitted that the above would show that cash has been utilized for the purpose of the trust. Rs. 2 crore has been paid to one Mr. Raju and Rs. 1 Crore has been paid to Sri R J Rajendra for acquisition of land for the purpose of expansion of Doddaballapur engineering campus. Therefore, the above would show that the cash has been utilized for the purpose of objects of the trust. This is upon assumption without admission that cash has been collected by the trust. 171. It is pertinent to note the following observations of the AO at page 134 of the assessment order:- "It is strange that some of the unaccounted activities, such as construction of wall, buildings etc, for the purpose of objects of the assessee is not known to the trustees, when they were carried out in the properties belonging to the assessee." 172. It was submitted that the above observation would show that the AO has acknowledged t....
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....that the AO has tabulated the alleged payments made to trustees. Based on this table, the AO has chosen to make protective assessment upon the trustees mentioned there. This by itself would show that the material is not sufficient to prove that funds have been diverted for the benefit of the trustees. The AO has noted that the payments are made out of alleged capitation fee received in cash and not out of the funds duly accounted. The appellant has established that it has not received capitation fee at all. Funds collected by private person would not become funds of the trust. 178. Moreover, except for making a bald allegation that the payments have been made for the benefit of the trustees, the AO has not brought on record any material to prove the same. Mere payment to trustees does not automatically mean that it is for their benefit. The AO has not brought on record any evidence to show that the trustees were actually benefitted. Mere reliance on the statement of Sri. Goli V. Srinivas is not sufficient. The AO ought to have made enquiries as to how the payments made to trustees or purported to have been made to trustees were utilised for their benefit. 179. The ld. DR subm....
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....ook] Loose sheets (Most of them are printed; few are manual) Page No. 42 to 46, 64 & 83 of Asst. Order A/DUU/14 [Copy enclosed at pages no. 1806 to 1838 of this Paper Book] Copy of digital data retrieved Page 70 of Asst. Order A/DUU/15 [Copy enclosed at pages no. 1839 to 2028 of this Paper Book] Note book A/DUU/16 [Copy enclosed at pages no. 2029 to 2138of this Paper Book] Contains scanned copies of unrealized cheques Page No. 46 to 50 of the Asst. Order A/DUU/17 Copy not given to the appellant 181. With regard to seized material A/DDU/1 to 4 (Page no 508 to 864 of paper book), the details of the content of these seized materials are mentioned in above table. The AO verified these seized documents according to him it shows certain receipts of unaccounted fees and payments to trustees and others mentioned therein. These seized material does not bare any signatures of any person. Our observations are that these seized material consisting of loose sheets and note books and the statement recorded from Mr. Goli Srinivas. The assessee vide letter dated 22.02.2017 and 09.12.2017 asked for cross-examination of Shri Goli Srinivas wh....
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....Pradeep Kumar Gupta, 303 ITR 95 (Del). 182. The contention of the ld. DR is that the department relied upon the statement of assessee's own employee, who need not cross-examine its own employee and there is no mistake in not providing opportunity of cross-examination to the assessee. However, we are not in agreement with the contention of the ld. DR. The right to cross-examine is not dependent upon the assessee's relationship with the witnesses. The right to cross-examine depends upon the fact that statement of the party is used against the assessee. Therefore the mere fact that the statement sought to be relied upon by the AO is that of the employee would not disentitle the assessee to cross-examine. Therefore, the ratio relied upon by the assessee squarely applies and it is the prerogative of assessee whether it wants to cross-examine or not. It was held in the case of Smt. Madhu Gupta v. DCIT 2006 (2) TMI 496 - ITAT MUMBAI / [2006] 8 SOT 691 (MUM.) that even if the assessee was provided a copy of the statement recorded by the revenue on the spur of the moment, that should not be treated as an effective opportunity given to the assessee. In that case the Tribunal relied upon t....
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.... having no evidentiary value and cannot be taken as a sole basis for determination of undisclosed income of the assessee. When documents like the present loose sheets of papers are recovered and the Revenue wants to make use of it, the onus rests on the Revenue to collect cogent evidence to corroborate the noting therein. The Revenue has failed to corroborate the noting by bringing some cogent material on record to prove conclusively that the noting in the seized papers reveal the unaccounted capitation fees/receipts of the assessee. Further, no circumstantial evidence in the form of any unaccounted cash, jewellery or investments outside the books of account was found in course of search in the case of assessee. Thus, the impugned addition was made by the AO on grossly inadequate material or rather no sufficient material at all and as such, deserves to be deleted. Hence, we are of the view that an assessment carried out in pursuance of search, no addition can be made simply on the basis of uncorroborated noting in loose papers found during search because the addition on account of alleged receipts made simply on the basis of uncorroborated noting and scribbling on loose sheets of p....
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....ent record on 21.9.2015, he did not agree to disclose any amount as undisclosed income of the trust. (d) In answer to Q. 14 (page 2183 PB) of statement recorded on 13.10.2015, he denied payment of cash to any donor. (e) In answer to Q.22 (pg. 2191 PB), he emphatically denied that any cash was received from student/parent in response to statement of Shri Rangaraju (pg. 2189 & 2190 PB). (f) In answer to Q.24 (pg. 2192 PB), he denied collection of fee in cash. 187. Hence the revenue authorities contention that Mr.Nagaraj has admitted payment of cash and receipt of fees in cash is not based on statement of Mr. Nagaraj. 188. Further from the seized material A/DUU/02 & 03, the AO came to the conclusion that cash been paid to trustees either directly or to a third party for their benefit. The statements of Shri R.L. Jalappa, Shri Rajesh Jagdale and late Shri J.P. Narayan Swamy were recorded, but no questions were put to them whether statement of Mr. Srinivas that cash has been paid to trustees or to a third party on their behalf is correct. The statement of Mr. Jalappa is on record at page 2140 to 2158 of PB. Perusal of the same shows that he was not confr....
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....e to page 5 of seized material (placed at 1549 of the paper book) in this order. According to him, it contains details of cash payments made to agents. We have carefully gone through the above seized material. In our humble opinion this seized material does not show any payment which has been made to an agent for seat conversion. Being so, as discussed earlier, these are loose sheets having no signature of any person, cannot be treated as incriminating material without any supportive document and the statements are relied upon by the AO without giving opportunity of cross-examination. 193. The Bangalore Tribunal in the case of Kirloskar Investments & Finance Ltd. v. Assistant Commissioner of Income-tax [1998] 67 ITD 504 (Bang.) held that the provision of the copy of the statement or letters is not sufficient opportunity. Oral evidence of persons concerned with the transaction are important piece of evidence and before it could replace the written evidence, the party against whom such oral evidence is being used must be allowed the opportunity of examining the person because, both the types of evidences need to weighed properly before rejecting one for the other. 194. In view ....
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....ve that they were in accordance with facts. It is apparent from the aforesaid discussion that loose sheets of papers are wholly irrelevant as evidence being not admissible under Section 34 of Evidence Act so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value. The entire prosecution based upon such entries which led to the investigation was quashed by the Court. There has to be some relevant and admissible evidence and some cogent reason, which is prima facie reliable and that too, supported by some other circumstances pointing out that the particular third person against whom the allegations have been levelled was in fact involved in the matter or he has done some act during that period, which may have co-relations with the random entries. In case we do not insist for all these, the process of law can be abused against all and sundry very easily to achieve ulterior goals and then no democracy can survive in case investigations are lightly set in motion against important constitutional functionaries on the basis of fictitious entries, in absence of cogent and admissible material on record, lest liberty of an individual be compr....
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.... material A/DUU/14 is digital data. According to the AO, it shows unaccounted capital receipts received in cash from Management/NRI quota students utilized for payment to political parties as per instruction of Mr. G.H. Nagaraj. These digital data are used by the AO without providing any opportunity of cross-examination of Mr. Srinivas. There is no evidence to show that assessee has authorised collection of these payments. These are repeat of hard copy of A/DUU/01. With regard to the digital evidence, the purpose of such electronic record is not known. The manner in which such electronic record is produced and by whom it is produced is not known. The data and time of preparation and search or list of such electronic data is not brought on record. Source of such record and data and time and printing of such record is not known. The assessee's knowledge of the contents therein and the correctness of the contents is not known. The resources used for preparation of such data and the correctness of functioning of the computer is not known. Print-out or copy furnished was taken from which computer is not known. In such circumstances, these digital data cannot be relied upon. The contenti....
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....ition made by the AO is only on the basis of surmises and conjecture without bringing any cogent material on record to substantiate that the assessee was engaged in the business of gold and jewellery and the AO had not brought any material on record to substantiate that the denial of the assessee was false. 204. Unless the burden of proving that the materials and cash belong to the assessee is discharged those materials can neither be seized under section 132 nor relied upon to make assessment under section 153A. Therefore the seizure of such material is illegal. The AO cannot rely upon such material whose seizure is illegal and the hence, assessment is void ab initio. Therefore, addition made on account of such seized material is not sustainable. 205. Seized material A/DUU/15 PB page no 1839 to 2028 a note book containing names, mobile numbers and address having no attestation of the assessee with regard authenticity that it belong to assessee. This was not discussed in the assessment order being so it is to be treated that it does not relate to the addition made by the AO and requires no adjudication. 206. The AO also relied on seized materials A/DUU/16 placed at Paper b....
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....H. Nagaraj collected the amount from students / parents and spent the amount for the activities of the trust. He alone has to explain the collection of fees to the income-tax authority. Therefore, his statements are contradictory in nature. No value could be attached to his statement and his conduct is neutralizing the value as a witness. Further, the AO in para 3.4 the tabulated statement in response to assessee's submission at page 206-207 of his order noted as follows:- "Shri G.H. Nagaraj, has time and again changed his position Therefore that version of his statements which is in line with the material found and seized during the search is only being considered. Also seized material has sheets with tabulations where the word 'cash' has been consistently used. Also, the assessee has not made any submissions to prove that the subsequently admitted receipts of Rs. 146 crores were taken through cheques or DDs." 211. The Hon'ble Supreme Court in Andaman Timber Industries v. Commissioner of Central Excise, 281 CTR 241 (SC) held as follows:- "Not allowing the assessee to cross-examine the witness by the Adjudicating Authority though the statements of those witness....
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....e the position taken up by the assessee, supported as it was, by the entries in the cash book and the affidavits put in by the assessee before the AAC. The Tribunal also fell into the same error. It could not negative the possibility of the assessee being in possession of a substantial number of these high denomination currency notes. It, however, considered that it was impossible for the assessee to have had 61 such notes in the cash balance in their hands on 12-1-1946, and then it applied a rule of the thumb treating 31 out of such 61 notes as within the bounds of possibility, excluding 30 such notes as not covered by the explanation of the assessee. This was pure surmise and had no basis in the evidence, which was on the record of the proceedings. Facts proved or admitted may provide to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the f....
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....4] [In favour of assessee]" 215. The Hon'ble High Court of Karnataka in Kothari Metals v. ITO, 377 ITR 581 (Karn) held as under:- "Held, allowing the appeal, that the non-furnishing the reasons for re-opening an already concluded assessment goes to the very root of the matter. Since such reasons had not been furnished to the appellant, even though a request for them had been made, proceedings for the re-assessment could not have been taken further on this ground alone. Besides this, the statement of some other person which was recorded was the basis of reassessment and the assessee was asked to explain it but the statement was itself not furnished to the assessee. As such, besides non-furnishing of the reasons for re-opening there was also a gross violation of the principles of natural justice. The reassessment was not valid." 216. The Hon'ble Calcutta High Court in the case of CIT v. Eastern Commercial Enterprises, 210 ITR 103 (Cal) held as follows:- "8. We have considered the contesting contentions of the parties. It is true that Shri Sukla has proved to be a shifty person as a witness. At the earlier stages, he claimed all his sales to be genuine....
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....e employees whose names are mentioned by him. He also claimed to have maintained books of account like sales books, purchase books, cash books and sale bills. In reply to question No. 18, he, on his own, stated that his big customers were the Reliance Oil Mills and Eastern Commercial Enterprises, the assessee, in the present reference. As for his cash withdrawals, he explained that his business required ready cash for purchase of raw materials which explained his large drawings of cash from the bank. Learned counsel then cited a host of decisions to bring home the point that no evidence or document can be relied upon unless it is shown to the assessee. Kishanchand Chellaram v. CIT. Similarly, the requirement of cross-examination as the requirement of the rules of natural justice has been underlined by the Bombay High Court in Vasanji Ghela and Co. v. CST [1977] 40 STC 544. It is trite law that cross-examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against a party unless the party is put on notice of the case made out against him. He must be supplied the contents of all such evidence, both oral and documentary, so that he can pr....
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....o explain the seized materials A/DUU/03 and A/DUU/13 on 13-08-2015. He has confirmed the collection of capitation fees on some occasions. However, on certain occasions when confronted, the statements of some persons who has stated that they have paid the capitation fees in cash, he denied the collection of capitation fees which is evident from the answer to question no. 16 of his statement recorded on 16-10-2015 which is placed on record in PB 2183. He also stated that the payment from the persons which alleged to have been received is only in the form of cheque and they are genuine donations. In answer to question no 22 he has stated that the statement of Shri Rangaraju is absolutely false and all the fees are collected only in cheque. There are contradictions in his statements which cannot be relied upon. 219. The AO also relied on seized material A/DUU/02 to A/DUU/04 to come to conclusion that the assessee has made payment to the trustees. These statements are made by the AO without confronting this seized material to the trustee though they were examined by the authorities concerned. Without confronting the seized material and statement of Shri Srinivas it is not possible to....
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....s statement, he denied the same. Being so, it cannot be held that the assessee received any bogus donation. 222. There was an allegation by AO that assessee made illegal payments into MCI officials. According to ld. DR the seized material marked as A/DUU/02 shows such alleged payment. The Secretary Shri Nagraj deposed before the authorities and recorded his statement on 13-08-2015 placed at PB page no 2165 that the Officials of MCI refused to receive any gifts and there was no any payment of cash to them. There was no examination of recipient such allegation cannot be made without examining the concerned parties and no adverse inference could be drawn against the assessee on this count. 223. Further, there was an allegation that on the basis of seized material marked as A/DUU/13 there was a payment of donation to political parties. As we observed on earlier occasion the noting's in seized material which is obscure being loose sheets cannot be relied upon without any corroboration. 224. Seized material A/DUU/17 copy of which is not provided to the assessee and cross-examination of Mr. Goli Srinivas was not provided to the assessee cannot be relied upon. 225. The assessin....
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....tters dated February 18, 1955 , and March 9, 1957 did not constitute any material evidence which the Tribunal could take into account for the purpose of arriving at the finding that the sum of Rs. 1,07,350 was remitted by the assessee from Madras, and if these two letters were eliminated, there was no material evidence at all which could support its finding. The statements of managers in those two letters were based on hearsay, as in the absence of evidence, it could not be taken that he must have been in charge of the Madras office on October 16, 1946, so as to have personal knowledge. The department ought to have called upon the manager to produce the documents and papers on the basis of which he made the statement and confronted the assessee with those documents and papers. It was true that proceedings under the income-tax law were not governed by the strict rules of evidence, and, therefore, it might be said that even without calling the manager of the bank in evidence to prove the letter dated February 18, 1955, it could be taken into account as evidence. But before the income-tax authorities could rely upon it, they were bound to produce it before the assessee so that the ass....
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....ddition by placing reliance on the judgment of Balaji Educational & Charitable Public Trust (supra). 230. In this case also, the addition made by the AO is based on unsubstantiated loose sheets and jottings without proper cross-examination of the person who has admitted the contents therein. Being so, it cannot be stated as full-proof of material evidence to substantiate the addition. In our opinion seized documents do not support the AO's contention that assessee has received unaccounted capitation fees for admission of the students to the college. It also does not suggest that the assessee has paid commission to agents to bring the students for admission to college. Similarly it does not suggest payment of any amount to the trustees for their self-benefit. Going through the entire facts of the case it creates only a suspicion in the minds of the revenue authorities that the assessee has collected unaccounted capitation fees. However, the suspicion not enough to hold that the assessee has collected unaccounted capitation fees in absence of concrete evidence bought on record by the authorities concerned. The suspicion cannot replace the material evidence brought on record by the....
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....tition, we observe that the revenue authorities recorded statement of only 5 students out of more than 800 students and out of 5 only 2 are confirmed. The two statements recorded cannot be relied upon without confronting the same to the assessee. The statement of these two persons confirming payment of capitation fees is fully uncorroborated and non-production of them for cross-examination cannot be considered as incriminating material so as to sustain the addition. The rough notings in the loose papers are not full-proof evidence without proving the correctness of the same. Nothing was recorded in the orders of lower authorities that assessee has deviated from its objects for which approval u/s. 12A was granted and not applied its funds towards its objects. No evidence was brought out to show that the amount of capitation fees alleged to have been collected resulted in creation of any unaccounted assets by the trust or trustees or by any interested person. On this count also the addition cannot be sustained. 233. No assets commensurate with the alleged estimated collection of capitation fees by the revenue authorities were found. The unbounded loose sheets having jottings are n....
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....ds of students are studying in the college and assessee has been carrying on educational activities imparting medical education. It fulfilled the requirement of imparting education which are not doubted or challenged by the authorities. Being so, exemption u/s. 11 of the Act cannot be denied. 235. Further reference is made to the judgment of the Hon'ble High Court of Karnataka in the case of DIT(E) V. Sri Belimatha Mahasamsthana Socio Cultural and Educational Trust, 336 ITR 694 (Karn). In this case, the assessee a social, cultural and educational trust, running educational institutions and having various professional courses filed its return of income for the AY 2001-02. The AO denied exemption u/s. 11 of the Act holding that the sums collected towards donations from students were contrary to the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. The AO also disallowed the sum shown as corpus donation as the source of such donations had not been proved by the assessee and, therefore, the said amount was also not allowed as an exemption under section 11(1)(d) of the Act. The CIT(Appeals) confirmed the order of AO. The Tribunal allowed the benefit of exe....
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....said that the seized document on which the AO has placed reliance conclusively proves that it was only the Society which received the ETF. On the other hand, the circumstances pointed out by the Society only go to show that it was MJB who was collecting ETF without the knowledge and authority of the Society." * ACIT v. Mamatha Educational Society 2015 (8) TMI 367 - ITAT Hyderabad [Paragraphs 24 and 25] * In CIT v. KLE University [ITA No. 5016 of 2012 C/W 5017 of 2012], the Hon'ble Karnataka High Court held as under:- "11. Our answer to the above point is in the affirmative for the following reasons : (i) that the donations received by the society cannot be construed as capitation fee for the admission of students by the KLE University ; (ii) that providing hostel to the students/ staff working for the society is incidental to achieve the object of providing education, namely, the object of the society ; (iii) that the Revenue appears to have not properly appreciated the legal point that though the chairman and a few members of "the society" are the chairman and members of "the KLE University", they are separate legal entities ; ....
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....rom any student. (d) The computer printout was not recovered/retrieved from any of the computers maintained in the society's office at the time of search, although the same were verified and that too with the recovery tool which is a usual method adopted by the Department at the time of search. (e) In the course of assessment proceedings, the seized hard disks were operated in the office of the AO with the help of IBM official but there was no impression in the hard disk that the same was typed and prepared in any of the computers belonging to the society. No data conforming to the notings in the excel sheets could be found from the seized computer hard disks. He submitted that the only purpose of scanning the seized hard disk was intended for recovery of the excel sheets so as to corroborate the same, as the assessee has denied to have generated the same. Since it resulted in a futile exercise, it was clearly established that the excel sheets were not prepared by the assessee-society. The assessment order passed by the AO makes no mention of any such recovery. (f) The author of the excel sheets could not be identified. In terms of s. 60 of the Indian....
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....verse to him as laid down in Suraj Mall Mohta & Co. v. A.V. Visvanatha Sastri [1954] 26 ITR 1 (SC), SMC Share Brokers Ltd. v. CIT [2008] 22 SOT 7 (Delhi)(URO), CIT v. Simon Carves Ltd. [1976] 105 ITR 212 (SC). In this case the assessee has every reason to believe that the evidences tendered by the parents, who were Departmental witnesses, were all favourable to assessee and therefore, the Department was apprehensive of providing these statements as the same would go against the Department. The conduct of the Department is not fair as the notings in the Excel sheets formed the basis of addition and subsequent cancellation. Assessee is enclosing herewith some of the summons issued to the parents who appeared to give testimony. (j) Even the AO failed to summon these witnesses in course of assessment proceedings for corroboration when the assessee was consistently denying collection of capitation fees and based his entire conclusion on the report of the Dy. Director of IT which was based on suspicion. This shows total non-application of mind by the adjudicating officer when the informations supplied to him were disputed and not-corroborated by the Dy. Director of IT. His attem....
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.... only based on conjectures and surmises and only on circumstantial evidence. The AO failed to established the link between the seized material and the capitation fees which resulted in creation of any unaccounted assets in the form of possession of money, bullion, jewellery or other articles or any immovable properties in the name of the trust or the trustees. 240. In our opinion, the unsubstantiated and uncorroborated seized material alone cannot be considered as conclusive evidence to frame these assessments. The words "may be presumed" in section 132(4) of the Act given an option to the AO concerned to presume these things, but it is rebuttable and it does not give a definite authority and conclusive evidence. The assessee is having every right to rebut the same. The entire case depends upon the rule of evidence. There is no conclusive presumption with regard to unsubstantiated seized material to come to the conclusion that that assessee has collected unaccounted capitation fees. In the present case, the assessee categorically denied collection of capitation fees. If it was collected, it was unauthorized collection by the person who is looking after the admission and that it ....
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.... "It was not in dispute that the adverse material which was found by the Income-tax authorities during the course of search in the business premises of 'V' had been confronted to the assessee who was having regular business dealing with the said firm. Some of the entries, recorded in the rough cash book seized during the search operation, tallied with the entries recorded in the regular books of account of the assessee as also that of 'V'. The assessee was issued the copy of the rough cash book as also the statements of partners of 'V'. It had submitted its reply by letters. The explanation furnished by the assessee had been disbelieved. In one letter, the opportunity to cross-examine the partners and the employees of 'V was sought for in the event their statements had not already been recorded with a request that they might be summoned and their statements on oath be recorded in their presence. The said request was made in the event the statements had not already been recorded earlier. As the statements had already been recorded, the opportunity to cross-examine the said persons did not arise. The assessee had ample opportunity to explain the things. [Para 12] In the....
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....ld as follows:- "It was a matter of record that the assessee had not been allowed the cross-examination of the party whose statement had been used against it in making the assessment. The addition was, thus, in violation of principles of natural justice. Not allowing cross examination is a defect which is procedural in nature. It is only a procedural requirement to be complied with before making the assessment under the Act. Not following the procedural provisions like allowing cross examination will not make an assessment null and void. At most it can be an irregularity liable to be cured and in such a case, the assessment can be set aside to be redone. An addition made does not cease to be an addition merely by reason of want of cross-examination. It will be a proceeding liable to be challenged and corrected. [Para 13] The order of the Assessing Officer though was vitiated by an illegality which supervened, not at the initial stage of the proceedings but during the course of it and, therefore, assessment could neither be annulled, nor the addition could be deleted because of that illegality or irregularity. The matter was required to be set aside to be reprocess....
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.... facts of the present case before us are entirely different. In the present case, we have already held that there are various loose sheets, scribblings, jottings and Excel sheets taken from the computer having no signature or authorization from the assessee's side. These are unsubstantiated documents and there is nothing to suggest any undisclosed assets of assessee found during the course of search. More so, it does not show any recovery of the undisclosed assets in the form of landed property, building, investments, money, bullion, jewellery or any kind of movable or immovable assets. In such circumstances, we are of the opinion that the decisions relied on by the ld. DR cannot be applied to the facts of the assessee's case. 246. Further it is to be noted that we have already relied on the Supreme Court judgment in Andaman Timber Industries v. Commissioner of Central Excise, 281 CTR 241 (SC) wherein it was held that opportunity of cross-examination not given leads to nullity and assessment order to be quashed. It is also pertinent to mention herein the decision of Special Bench of the Tribunal in ACIT v. Vireet Investments (P) Ltd. 165 ITD 27 (Delhi - Trib.) (SB) wherein it wa....
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....l vs DCIT 72 ITD 340 (Mum) (v) Amarjeet Singh Bakshi (HUF) vs ACIT 86 ITD 13 (Delhi) (TM) (vi) Nagarjuna Construction Co Ltd vs DCIT 23 Taxman.com 239 (vii) CIT vs C.L.Khatri 174 Taxman 652 (viii) T.S.Venkatesan vs ACIT 74 ITD 298 (ix) CIT vs Atam Valves Pvt Ltd 184 Taxman 6 (P&H) 248. Thus, we are agreeing with the contention of ld. AR that placing reliance on the seized material is not proper and all the additions on the basis of the above are deleted in all the assessment years since,: i) no opportunity to cross-examine the persons whose statements have been relied upon is afforded; ii) some of the statements have been recorded under section 131 by the authorized officer subsequent to completion of search; iii) there is no documentary evidence either to support the statements of Sri. Goli V. Srinivas or of the parents of the students; and iv) the seized material are in the form of various loose sheets, scribblings, jottings and Excel sheets taken from the computer having no signature or authorization from the assessee's side. These are unsubstantiated documents and there is nothing to suggest any....
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....where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property; (c) income derived from property held under trust- (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; (d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution." 253. As long as the income derived from the property held for charitable purposes has been spent for the objects of the trust, exemption under section 11 cannot be denied. The....
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....d under trust" should be applied for charitable purposes. Para 9 of the trust deed states that the property of the trust shall be the initial contributions and such other properties as may be donated or otherwise acquired by the trust. Therefore, income from such property should be applied for charitable purposes in order to claim benefit of section 11(1)(a). Para 5 of the trust deed states that "The properties, the assets, effects, funds and the like of the trust shall vest upon the Trust, the trustees perpetually and irrevocably for the due fulfilment and effectuation of the object, and the purpose of the SRI DEVARAJ URS EDUCATIONAL TRUST FOR BACKWARD CLASSES / CASTES." All the donations, gifts, etc, shall be taken over possession only in the name of the Trust and the Chairman or the Secretary in his official capacity as a true representations of the Trust and can never be in his personal capacity." 258. Trust has responsibility only vis-à-vis what is received in its name by the Chairman or Secretary in their official capacity. The trust cannot be made accountable for what the trust personnel have received in their personal capacity by abusing their position. The trust ....
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....ipt and utilization of the same. 261. In view of the above submissions, it is submitted that the appellant has not diverted any funds for the benefit of trustees and there is no violation of section 13(1)(c)(ii). 262. The AO relied upon the decision of the Hon'ble Delhi High Court in Mool Chand Khairati Ram Trust v. DIT (Exemption) [2015] 377 ITR 650 (Del) and held at para 8.2, page 104 of the assessment order holding that in the instant case also the assessee has grossly violated the provisions by not applying the receipts earned through capitation fee collection, and rather by the trustees appropriating the same. 263. It is submitted that the decision relied upon by the AO does not support the conclusion drawn by him. Without prejudice to the main contention that the appellant has neither received any capitation fee nor diverted any of its funds for the benefit of the trustees, it is submitted that the above decision is not applicable to the facts of the present case. The issue in the above case was whether income from property held under trust can be applied for a purpose even though charitable, if such purpose is not the object of the trust. This is not at all the issu....
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....said that trust has carried on its activities in violation of its objects. Therefore, the exemption u/s 11 cannot be denied on this ground. 267. The various allegations of the AO regarding payment for illegal activities and being a conduit for tax evasion can be categorized as under: (i) Payment to political parties for funding elections (ii) Payment to agents for procuring candidates (iii) Payment of Kickbacks and promotion of corruption (iv) Payments for routing money into books and aiding tax evasion through receipt of bogus donations (v) Aiding tax evasion by making additional payments of salary in cash to staff 268. The abovementioned allegations are countered below. Counter to the Allegation: Payment to political parties 269. The AO has tabulated his analysis of seized material no. A/DUU/13 with respect to alleged payment made for elections. The relevant entry no. 85 of seized material no. A/DUU/13 was confronted to Sri. Goli V. Srinivas and Sri. G H Nagaraj. The relevant portion of the statements is extracted in the earlier submissions. Based on the above material, the AO observed as under:- * "Para vide Sl. N....
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.... of the seized material or the statement of Sri. Goli V. Srinivas and Sri. G H Nagaraj to hold that the appellant has diverted the funds of the trust for funding elections. The appellant has not authorized such payments. The entry has been made by Mr. Srinivas at the behest of Sri G H Nagaraj in his personal capacity and not upon authorization by the trust. There is no allegation that the relevant payment has been made out of the funds of the trust which are duly accounted. The very fact that the payment has been made out of the funds not connected to the trust, would show that the payment has been made without the authority of trust. The entry at page 85 of the seized material and the statement of Sri. Goli V. Srinivas / Sri. G H Nagaraj is not supported by any corroborative evidence. The AO has stated that the payments made to political parties have two violations, one being that they violate the objective of the Trust by spending income from property of Trust to the purposes other than charitable purpose and second being the fact that they directly or indirectly aid benefit one of the trustees. It is submitted that these findings are contrary to his own finding that the payments....
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....he aforementioned entries in seized material no. A/DUU/02. 274. At pages 78 and 79, the AO has extracted the relevant portion of the statements of Sri. Goli V. Srinivas recorded on 06.08.2015 under section 132(4) and on 28.11.2017 under section 131 with reference to role of agents. 275. Relying upon the above materials, the AO, at page 100, para 7.1 of the assessment order, alleged as under:- "The trust funds have been mis-utilized for making payments to various brokers/agents to procure students for admission into the Medical colleges and facilitation of payment of capitation fees as seen from seized material Annexure A/DUU/01 page 67, A/DUU/02 Page 61, A/DUU/13 pages 10, 11 and various other such evidences found and seized." 276. The ld. AR submitted that a perusal of the above paragraphs would show that the AO has relied upon certain portion of seized material marked as A/DUU/01, A/DUU/02, statement of G H Nagaraj recorded u/s 132(4) on 20.08.2015, statement of Sri. Goli V. Srinivas recorded under section 132(4) on 06.08.2015 and under sec 131 on 28.11.2017. The AO also sought to rely upon page 5 of seized material no. A/DUU/10. This page consists only of certa....
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....a 7.8, page 102 of the assessment order, the AO has alleged "Payment of kickbacks and promotion of corruption" observing as under:- "Regular kickbacks in the form of cash, silver plates, gold chains, gifts, etc have been paid of inspectors from medical council of India, in order to receive favorable inspection reports. This also proves that the institution is not maintaining the necessary standards and complying with norms and is therefore attempting to buy the officials through bribery." 281. The AO relied upon the aforementioned material and statement of Sri. Goli V. Srinivas recorded on 07.08.2015 under sec 132(4) of the Act and statement of Sri. Goli V. Srinivas recorded on 28.11.2017 under sec 131 of the Act. 282. The appellant strongly denies the allegation that it has paid bribes to MCI inspectors. The allegation is based on totally unreliable documents and evidences. It is submitted that allegation on bribes, etc cannot be made lightly. Merely based on the statements of Mr. Srinivas or the entries made in the registers it cannot be alleged that bribes have been paid. Kindly refer to the decisions of the Hon'ble Supreme Court in Common Cause and V.C. Shukla re....
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.... there is not even circumstantial evidence for him to extrapolate one stray entry. At worst, the finding of the AO regarding payment to MCI Inspectors is to be restricted only to AY 14-15 and it cannot be extended to other years. This is without prejudice to our claim that no bribes were paid to MCI inspectors. 289. Therefore, this ground cannot be applied to all years for denying exemption under section 11. This is without prejudice to the contention that the finding of the AO that trust funds have been used for bribing is perverse as it is not based on cogent evidence. Countering the allegation: "Aiding Tax evasion through receipt of bogus 80G donations: 290. It is submitted that the perusal of the entries in the said seized material do not support the above allegation. There is nothing on record to prove that the capitation fee collected in cash is paid to certain persons who, in turn, routed it back to the trust by way of donation and claimed deduction under section 80G in respect of such donations. The returns of the alleged bogus donors who have claimed deduction under section 80G in respect of such donations has not been brought on record. An allegation of aiding in....
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.... The ld. AR submitted that the appellant denies the allegation that it has paid remuneration in cash to enable the faculty to evade tax. The allegation made by the AO is absolutely baseless. The AO has not brought on record any material to prove his statement. In fact, while dealing with the claim of the appellant regarding deduction of expenditure, the AO has sought to rely upon statements of two faculties - Dr. Kishore Kumar and Dr. Nagaraj S. A portion of these statements is extracted at pages 145 and 146 of the assessment order. The faculties, in the statements, have denied receipt of any additional salary as stated in page no. 81 of seized material no. A/DUU/01. The AO sought to rely upon the statements of faculties to deny the claim of the appellant in respect of deduction for expenditure. It is submitted that the statement contradicts the allegation of the AO that the appellant has paid salary in cash to staff to aid them to avoid tax. When the faculties have denied accepting additional salary, the question of aiding them to avoid tax by paying salary in cash does not arise. If the AO had reason to believe that the remuneration is paid in cash without TDS to enable the facul....
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....e enjoyed registration granted during this period and the assessee also demonstrated that the assessee's predominant objects remain the same i.e., carrying out the charitable activities for the purpose of advancement of education and not to earn profit. Earning surplus income by carrying out educational activities is not a reason to deny exemption u/s. 11 of the Act. The assessee's predominant activity is carrying out educational activities which is charitable in nature. The trust cannot be deprived of the benefit of exemption u/s. 11. Further, as we have discussed in elsewhere in the order there is no concrete evidence for collection of unaccounted capitation fees and it is not possible to deny the exemption u/s 11 of the act. It is also noted that even if the assessee constructed the temple inside the campus of the education institution for the benefit of the students and employees and also for public, it cannot be construed as violation of section 12(1)(a) of IT Act. There was one more allegation that assesse has collected exorbitant fees but in our opinion the fees has been fixed by the state authority and there was no violation noted by the state authority or MCI. As discussed....
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.... order dated 30.12.2017 passed under section 153A is also Rs. 6,85,70,097. Therefore, the same is before the claim for depreciation. The AO also added back the capital expenditure claimed as application of income as exemption under section 11 is denied. Therefore, the observation of the AO that the appellant has claimed depreciation is incorrect. 300. Therefore, without prejudice to the main contention that the appellant is entitled to claim exemption u/s. 11 of the Act, it is submitted that the appellant is entitled to claim depreciation as per the provisions of the Act. 301. Without prejudice to the above, it was submitted that the AO has denied exemption under section 11 of the Act. Therefore, the AO is required to grant deduction towards depreciation irrespective of the fact whether depreciation has been claimed and allowed in the books of accounts or not. The AO is required to grant depreciation as per the normal provisions of the Act. When the AO has sought to compute the income under Chapter IV-D, he ought to have granted depreciation as per section 32 of the Act. It is submitted that deduction towards depreciation should be compulsorily be given whether the assessee h....
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....the assessment order Column reference Total Seats D 150 No. of seats where capitation fee is collected E 63 (*) Package price (Rs. In lakh) F 35 Regular fee per seat for the course (Rs. In lakh) G 15.41 Unaccounted cash component generated per seat per course (Rs. In lakh) F - G = H 19.59 Total unaccounted cash generated as per seized material (Rs. In lakh) I - Estimation of total unaccounted cash generated (Rs. In lakh) E * H = J 1234 308. It is pertinent to note that the column I which deals with "Total unaccounted cash generated as per seized material" is blank so far as AY 2010-11 is concerned. It means that the learned Assessing Officer has acknowledged that there is no incriminating material to prove that the appellant has received unaccounted fee in cash during the financial year 2009-10. 309. Without prejudice to the above, the AO has estimated the total number of seats at 63 in respect of which capitation fee is received. The quota of total seats for assessment year 2010-11 is 150, out of which 85% seats are reserved under merit quota. The management quota is only 15% which works out to 22. O....
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....on the decisions referred supra. Under these set of facts, we do not find any reason to interfere with the order passed by Ld CIT(A) on this issue. Accordingly we uphold the order passed by him on this issue." 310. Moreover in all the other pages of seized material A/DUU/06, there is nothing even remotely suggesting that some cash has been collected. Hence, the reliance on page 151 to estimate the total unaccounted cash generation is uncalled for and it is respectfully submitted that no person reasonably instructed in law can arrive at the conclusion as has been arrived at by the department. 311. At pages 152 and 153 of the assessment order, at para 10.9.2, the AO has discussed the evidences in support of quantification of unaccounted cash receipts for AY 2010-11. The evidences relied upon are as under:- * The AO has extracted three tables under the heading "Evidences relating to AY 2009-10 i.e., FY 2008-09" The first table has the caption "STATEMENT OF NRI STUDENTS 2008-09". Below the table, the source is stated. Source is stated to be "Digital seized material: file name: Seats 2008-09.xls;Sheet:1" * The second table has the caption "STATEMENT OF I....
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....d as under: "(iii). The first limb of arguments of the learned authorised representative is that so far as the asst. yr. 1991-92 in the case of M/s. Anjaneya Brick Works is concerned, there is no evidence of suppression of income. We are convinced by the arguments of learned authorised representative to that effect. This is almost settled principle of law that mere existence of evidence to support concealment of income for the next assessment year (i.e. 1992-93 in this case) cannot be made a basis judiciously to estimate the income for the current year or any other assessment year for that matter. On the basis of materials related to asst. yr. 1992-93, we cannot conclude that there existed unaccounted sales and income for the previous year relevant to asst. yr. 1991-92 which is the subject-matter of this appeal. The order of the CIT(A) based on this presumption alone cannot be sustained in the eyes of law. Moreover, there is not a whit of evidence regarding the unaccounted investment for the years 1991-92 and 1992-93. And also the other circumstance that the appellants are also managing the activities of the other firm, which is a sister concern, can also be concluded to b....
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....tire assessment year. The Tribunal rejected the contention of the Revenue and held as under:- "9. So far as the next submission on behalf of the Revenue viz. of extrapolation of evidence found during search is concerned, this Court in All Cargo Global Logistics Ltd. (supra) had negatived the revenue's submission before it that the assessment under section 153A of the Act is not to be restricted only to the incriminating material found during the course of search but would extend to other material also. Therefore in the facts of present case this issue is covered by the decision of this Court in All Cargo Global Logistics Ltd. (supra) in favour of the respondent-assessee inasmuch as it restricts the assessment to be made only to the incriminating material found during the course of search. The reliance upon the decision of the Supreme Court in H.M. Esufali H.M. Abdulali (supra) is inappropriate. This is so as it was passed under the sales tax law and it proceeded on the basis of best judgment assessment i.e. disregarding the assessee's books of account. It is not so." * In Ashoka Infrastructure Ltd. v. ACIT 2017 (6) TMI 1167 - ITAT Pune, the Tribunal held a....
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....DCIT vs. Royal Marwar Tobacco Product (P) Ltd. (2009) 120 TTJ (Ahd.) 387, CIT vs. Anil Bhalla (322 ITR 191) (Del). In this case search and seizure was carried out in the premises of the assessee and the premises of a company of which the assessee was a director. The Assessing Officer made additions under the head of unexplained expenditure under section 69C of the Income-tax Act, 1961." 314. The AO regarding the Evidence of opening balance on 1/4/2010 observed upon examination of seized material relating to payments, that there is an opening cash balance of Rs. 81 lakhs as on 1/4/2010. According to the AO, this means that Rs. 81 lakhs was the closing balance of AY 2010-11 i.e., as on 31/3/2010. If no capitation fee was collected during AY 2010-11, then the closing balance of cash (unaccounted) would be zero instead of Rs. 81 lakhs as is seen from the seized material. The same opening balance is also seen from the submissions of the assessee vide its submissions dated 20/12/2017. 315. The ld. AR submitted that just because the opening cash balance is Rs. 81 lakh as on 01.04.2010, it cannot be presumed that the same is out of capitation fee. Without prejudice to the above, it i....
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....ition sans any material which warranted the same. 318. Without prejudice to the above, it is also pertinent to note that the AO relied upon data pertaining to AY 2009-10 though it doesn't fall within the block of 6 years contemplated under section 153A(1). It is submitted that the authorized officer is not permitted to seize the material belonging to a period which doesn't fall or is unlikely to fall within the period of 6 assessment years contemplated by section 153A. As stated earlier, the search can be initiated if the authorizing officer has reason to believe that in consequence of information in his possession any of the eventualities stated in clauses (a) to (c) of section 132(1) exist. Section 153A(1) states that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall issue notice to such person requiring him to furnish return of income. Section 132 and sec 153A need to be read harmoniously. The....
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....so far as AY 2010-11 is concerned. It means that the AO has acknowledged that there is no incriminating material to prove that the appellant has received unaccounted fee in cash during the financial year 2009-10. 322. Without prejudice to the above, it is not known as to how the AO has adopted the no. of seats in respect of which capitation fee is received at 42. The quota of total seats for assessment year 2010-11 is 55, out of which 80% seats are reserved under merit quota. The management quota is only 20% which works out to 11. One fails to understand as to how one can estimate that cash was collected from 42 students. It is axiomatic that the merit students will not pay any cash. The appellant has vide its letter dated 23.12.2017 filed on 26.12.2017 has enclosed the year-wise details of number of students permitted and actual number of seats admitted to the college in respect of UG and PG courses. 323. It is also not known as to how the number of seats in respect of which the capitation fee is collected is arrived at. An asterisk mark has been put next to the number of seats i.e., 42. But there is no note below the table explaining the asterisk mark. The seized material d....
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.... based on such analysis made in the assessment order is not relevant for AY 2010-11 at all. Assessment under section 143(3) of the Act was completed in the case of AY 2010-11 on 12.03.2013. Hence, the assessment for AY 10-11 is unabated. No addition can be made in the absence of incriminating material. Therefore, the entire assessment under section 153A for AY 2010-11 is liable to be quashed in the absence of incriminating material found and seized in respect of the said assessment year. 328. Without prejudice to the above, the appellant has analysed the seized material and arrived at the alleged unaccounted cash generated for AY 2010-11 from UG-MBBS course and PG course. The unaccounted cash generated as per the said analysis is nil. The learned assessing officer has extrapolated that a sum of Rs. 2,742 lakh would have been received which has not been accounted even in the seized material. These submissions are made without prejudice to the main contention that the appellant has not received any capitation fee. 329. The ld. DR relied on the orders of lower authorities. 330. We have heard both the parties and perused the material on record on this issue. In all these years....
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....exemption under section 11, it is submitted that the donation of Rs. 10,00,000 is allowable as deduction under section 37 of the Act. Section 37 of the Act as it stood during the relevant period is as under: "37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation.-For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. (2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party." ....
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....le title ; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business ; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. 336. Alternatively, it is submitted that the appellant is entitled to deduction u/s. 80G in respect of the donations given to the above entities. The donee Vijayalakshmi (R L Jalappa Education Foundation) is recognized under section 80G. 337. The ld. DR relied on the orders of lower authorities. 338. We have heard both the parties and perused the material on this issue. The donations have been given to the registered and approved institution i.e., R.L. Jalappa Foundation which is duly registered u/s. 12A of the Act by way of account payee cheque and the same is to be allowed as an application of income. This ground of the appeal of the assessee is allo....