AI Drafter 
TaxTMI 
TaxTMI 
2022 (7) TMI 1043
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....ies by running, schools, engineering colleges and medical colleges. The assessee has been regularly filing the return and for various years the exemption u/s 11 of the Act was allowed. 2.1 A search was carried out in the premises of the assessee u/s 132 of the Act on 6.8.2015. Various documents were seized. Notice u/s 153A of the Act was issued for assessment years 2010-11 to 2015-16. For the assessment year 2016-17, a notice u/s 143(2) of the Act was issued. The assessments were completed u/s.153A of the Act up to assessment year 2015-16 and u/s 143(3) of the Act for the assessment year 2016-17. The assessee filed appeals against the assessment orders before the learned Commissioner of Income Tax (Appeals)-11, Bangalore. The learned Commissioner of Income Tax (Appeals)-11, Bangalore passed orders on 28.02.2020 dismissing the appeals. Further appeals were filed before the Tribunal, and vide its order dated 16.08.2021 in ITA Nos. 500 to 506/Bang/2020, the Tribunal substantially allowed the appeals and held that exemption u/s. 11 of the Act cannot be denied. The assessee as well as Principal Commissioner of Income-Tax have filed appeals before the Hon'ble Karnataka High Court.....
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....before the learned Commissioner of Income-Tax (Appeals) - 11, Bangalore. For the assessment years 2014-15, 2015-16 and 2016-17, no fresh incriminating materials were found during the search conducted on 10.10.2019. Even in the assessment orders passed u/s. 153A of the Act consequent to the second search for the above assessment years, the learned assessing officer simply confirmed the total income determined in the earlier assessment orders passed u/s. 153A of the Act even though the Tribunal had deleted all the additions. In the Order Giving Effect (OGE) to the ITAT Order for AY 2014-15 to 2016-17, the entire additions made were deleted but simply confirmed the total income determined in the earlier assessment orders passed u/s. 153A of the Act in the assessment orders passed on 30.09.2021 consequent to the second search conducted on 10.10.2019. Based on the directions given by the Tribunal in ITA No. 1463/Bang/2018, the learned Principal Commissioner of Income Tax (Central), after giving an opportunity of being heard to the assessee, confirmed the earlier order cancelling the registration. Ld. A.R. submitted that the main reason for upholding the cancellation of registration as u....
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....17 consequent to first search. Hence, there are no new findings in the assessment orders for these assessment years and the learned Principal Commissioner of Income Tax cannot take the aid of these assessment orders for denying the restoration of registration u/s 12A of the Act. 2.8 The Ld. A.R for the assessee also submitted that the registration having been granted by learned Commissioner of Income Tax (Exemption), the order passed by Principal Commissioner, Central Circle is without jurisdiction. Transfer of jurisdiction of assessing officer to Central Circle u/s 127 does not clothe the respondent with powers that could be exercised only by Director of Exemption. It is trite law that authority granting registration alone has the powers to cancel the same. Hence, the learned respondent cannot assume jurisdiction to cancel the registration just because the jurisdiction of assessing officer has been transferred to an officer who is subordinate to the respondent. 2.9 In view of the above submissions, Ld. A.R. prayed that the Tribunal be pleased to direct the learned Principal Commissioner of Income Tax to restore the registration u/s 12A of the Act with immediate effect. 3.....
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....e is change in circumstances on account of passing of the orders by the Tribunal. Under these set of facts, we are of the view that the entire issues urged by the assessee before us require re-examination at the end of Ld. Principal CIT, who can take judicial view of the matters after considering the order passed by the Tribunal. 10. Accordingly, we set aside the order passed by Ld. Principal CIT and restore all the issues to his file for examining the claims of the assessee. After affording adequate opportunity to the assessee, Ld. Principal CIT may take appropriate decision in accordance with law on all the issues. 11. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes." 5. Consequent to this, Ld. Principal CIT passed a fresh order vide his order dated 18.2.2022 confirming his earlier order by cancelling the registration. Admittedly, the Principal CIT considered the various discrepancies found during the course of search action on 6.8.2015. Consequent to search action on 6.8.2015, assessment orders are framed u/s 153A of the Act for the assessment years 2010-11 to 2016-17. These orders are subject matter of appeal b....
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....ch document. 185. In CIT v. M/S Khosla Ice & General Mills 2013 (1) TMI 451 - Punjab & Haryana High Court, the Hon'ble Court held that assessee rightly contended that the impugned document was a non-speaking document inasmuch as it does not contain any intelligible narration in support of the inference drawn by the Assessing Officer that it reflected sales carried out by the assessee outside the regular books of account. When a dumb document, is to be made the basis to fasten tax liability on the assessee, the burden is on the Revenue to establish with corroborative evidence that the nature of entries contained therein reflect income and also that such income was in the control of the assessee. Thus, Revenue has to establish, with necessary corroborative evidence, that various entries contained in the seized document reflect sales of rice and broken rice effected by the assessee. Considering the entirety of circumstances, in the absence of any material to support the nature and ownership of the entries found in the seized document, no addition is permissible in the hands of the assessee as undisclosed income by merely arithmetically totalling various figures jotted down on....
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....he relied on the statement of Shri G Srinivasa. Shri G Srinivasa has stated that Mr. Syed Abrar, Mr. Shiva Prasad, Mr. Basavaraja, Mr. Amanullah, Mr. Prasad and Mr. Thomas are the commission agents who bring prospective students for admission to NRI quota seats and some other seats. These candidates have to make payments in cash for which no receipts are issued. But the AO has not examined Mr. Abrar or any other alleged middlemen. In the absence of such examination, the statement of Shri Srinivas that middlemen were engaged for seat conversion cannot be relied upon. 189. The seized material A/DUU/03 which is placed on record at PB page no 669 to 775 which shows certain payment entries and it is very strange to believe that the assesse has authorised any person to write it as it does not contain any attestation from the assesse side being not having any name or seal of the assesse. 190. The seized material A/DUU/04 which is placed on record at PB page no 776 to 864 which shows certain payment entries and it is very strange to believe that the assesse has authorised any person to write it as it does not contain any attestation from the assesse side being not having ....
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.... account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another. In Hira Lal v. Ram Rakha the High Court, while negativing a contention that it having been proved that the books of account were regularly kept in the ordinary course of business and that, therefore, all entries therein should be considered to be relevant and to have been proved, said that the rule as laid down in Section 34 of the Act that entries in the books of account regularly kept in the course of business are relevant whenever they refer to a matter in which the Court has to enquire was subject to the salient proviso that such entries shall not alone be sufficient evidence to charge any person with liability. It is not, therefore, enough merely to prove that the books have been regularly kept in the course of business and the entries t....
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..... (v) PB 1777 - Letter from K Shantharam confirming the voluntary payment of Rs.30,000 towards corpus donation by cheque. (vi) PB 1779 - Letter from T Venkatsubbaiah confirming the voluntary payment of Rs.70,000 towards corpus donation by cheque. (vii) PB 1780 (Duplicate of above) Letter from T Venkatsubbaiah confirming the voluntary payment of Rs.70,000 towards corpus donation by cheque. (viii) PB 1784 - Letter from P Kumara Swamy confirming the voluntary payment of Rs.50,000 towards corpus donation by cheque. (ix) PB 1787 - Letter from B S Amarnatha confirming the voluntary payment of Rs.50,000 towards corpus donation by cheque. (x) PB 1790 & 1791 - Letter from Dr.C.L.Gayathridevi confirming the voluntary payment of Rs.50,000 towards corpus donation by cheque. (xi) PB 1793 - Letter from B P Ravi Kumar confirming the voluntary payment of Rs.25,000 towards corpus donation by cheque. 200. In all the above cases the voluntary contribution towards corpus donation has been received by cheque and duly accounted in the books of account of the assesse. There are also some photocopy of bank receipts and cheque receipts....
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....apitation fees. He also relied on the statement of Goli Srinivas. However we found that these are blank cheques without mentioning the name of the assesse. Further, the person who has issued the cheques has not been examined by the AO. Similarly, no cross examination was provided to the assesse. In this circumstances, the inference drawn by the AO have no legs to stand and deserve to be rejected. Other being loose sheets cannot be relied upon since no opportunity to cross examine Mr. Goli Srinivas was provided as discussed earlier. 207. The assessee vide letter dated 22.02.2017 asked for copies of the statements recorded from the students, parents and donors during the search proceedings and also opportunity to cross-examine the parties. Further copy of statements recorded and cross-examination of the parties was requested by the assessee's letter dated 09.12.2017. Vide assessee's letter dated 22.02.2017, copies of seized / incriminating material relied upon to make the addition was requested. The assessee vide letter dated 29.10.2017 also requested for documents in digital form taken at the time of search u/s. 132. 208. The AO vide letter dated 01.08.2017 furnish....
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....ed upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to crossexamine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. (para 6) Assesseehad contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price-list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price-list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-exami....
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....but went wrong in applying the true principles of interference with such findings of fact to the present case. Really speaking the Tribunal had not indicated upon what material it held that Rs. 30,000 should be treated as secret profit or profits from undisclosed sources and the order passed by it was bad. The assessee had furnished a reasonable explanation for the possession of the high denomination notes of the face value of Rs. 61,000 and there was no justification for having accepted it in part and discarded it in relation to a sum of Rs. 30,000. The High Court ought to have held that there were no materials to justify the assessment of Rs. 30,000 from out of the sum of Rs. 61,000, for income-tax and excess profits tax and business profits tax purposes, representing the value of the high denomination notes which were encashed." 214. Further the Hon'ble Supreme Court in the case of CIT v. Odeon Builders (P.) Ltd., 418 ITR 315 (SC) head-note is as follows:- "Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Bogus purchase) - Certain portion of purchases made by assessee was disallowed - Commissioner (Appeals) found that....
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....either in his affidavits or in his examination by the Assessing Officer. His conduct neutralises his value as a witness. A man indulging in double-speaking cannot be said by any means a truthful man at any stage and no court can decide on which occasion he was truthful. If Shri Sukla is neutralised as a witness what remains is the accounts, vouchers, challans, bank accounts, etc. But, we would observe here that which way lies the truth in Shri Sukla's depositions, could have been revealed only if he was subjected to a cross-examination by the assessee. As a matter of fact, the right to cross-examine a witness adverse to the assessee is an indispensable right and the opportunity of such cross-examination is one of the corner-stones of natural justice. Here Shri Sukla is the witness of the Department. Therefore, the Department cannot cut short the process of taking oral evidence by merely having the examination-in-chief. It is the necessary requirement of the process of taking evidence that the examination-in-chief is followed by cross-examination and re-examination, if necessary. 9. It is not just a question of form or a question of giving an adverse party its ....
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.... that which of the statements of Shri Sukla is correct, is anybody's guess. Therefore, it is necessary to delve out the truth from him and for that matter a cross-examination is necessary. Secondly, if the statement of Shri Sukla as a witness against the adverse party, the assessee, is relied upon as truthful, still remains the question of estimation of the profit. The assessee no doubt has given a comparative instance of gross profit rate but it is also necessary for the Department to come to a finding as to the norm of the gross profit on the basis of comparative cases. Therefore, it is the duty of the Assessing Officer to counter the comparative statement cited by the assessee before he can have the option to estimate the gross profit. Again, it is the comparative instance that alone can be the foundation of such estimate in case the accounts are really found to be unreliable and requiring to be rejected. Therefore, in the interest of justice for both the parties, the assessee and the Revenue, it is necessary for us to direct the Tribunal to remand the case to the Assessing Officer for reconsidering the whole matter in the light of the observations made by us in the foregoin....
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....e additions in hands of Shri. R L Jalappa in these assessment years after making substantiative assessment in hands of trust. This shows that assessing officer is not sure in whose hands the additions to be made. Being so, we find force in argument of assessing counsel that AO is not justified in holding that there was violation of provisions of section 13(1)(c)(ii) of the IT Act on this count. 220. Further, the AO taken the support of assessee letter dated 09.12.2017 placed at PB 2704 to 2706 wherein assessee stated that a sum of Rs.14,611.94 lakhs has been spent for object of the trust. It is also stated that Shri G H Nagraj, Secretary of the trust collected the unaccounted capitation fees on his own without the knowledge of the trustees or without authorisation of the committee of trustees and also out of it he has spent Rs.14,611.94 lakhs for the purpose of trust activities. It was also reiterated that the committee never authorised Shri G H Nagraj for collection of any fees or spending any amount for trust activities. The assessing officer considered this letter as an acceptance of collection of capitation fees without considering the real meaning of that letter. It c....
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.... appeared and reconfirmed. It is noted that though statements of parents of 5 students were said to have been obtained, only one parent has appeared and reconfirmed the contents of his earlier statement. As the parents of 4 of the students did not appear for cross-examination, their statements cannot be relied upon as the appellant could not cross-examine them. The fact that they did not respond to the summons would show that the credibility of their statements is highly doubtful. When the appellant has neither been given copy of the statement nor has got the opportunity to cross-examine the person giving statement, such statements cannot be relied upon. 226. With regard to the AO's observations that the responses given by the said parent remained the same during the course of cross examination by assessee and he reiterated that the parents have never been cross-examined by the appellant. Had there was a cross-examination, the DR very well could have produced the copy of the same for our consideration. The DR failed to do so. Hence, it is observed that the assessee was not afforded any opportunity to cross-examine any of the persons including the parents whose statements w....
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....ere any explanation regarding what happened when the manager appeared in obedience to the summons referred to in the letter dated March 9, 1957, and what statement he had made." 228. Further, third party statement cannot be relied upon without proper enquiry and providing proper cross-examination to the assessee. In CIT v. P.V. Kalyana Sundaram, 294 ITR 49 (SC), the Hon'ble Supreme Court observed that no reliance could be placed on loose sheets seized during the course of search and third party statements unless provided cross-examination. Collection of capitation fee is governed by Karnataka Institutions (Prohibition of Capitation Fees) Act, 1984 and there was no violation noticed by the State authorities and also Medical Council of India. In such circumstances, it is not possible to conclude on the basis of various loose sheets and jottings found during the search action u/s. 132 that assessee has collected unaccounted capitation fees from management and NRI quota. 229. Further, the Bangalore Bench in the case of Anand Social & Education Trust in ITA Nos. 2542-2548(B)/2017 dated 29.05.2020 by placing reliance on the judgment of Hon'ble Madras High Court in the c....
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.... summons were issued (ii) How many of such notices were served ? (iii) How many were returned unserved? (iv) The number of students/parents who appeared before the AO (v) How many of them denied the transaction? (vi) How many of them accepted the transaction? (vii) How many of them stated that they paid the fees in cash at the instance of the Trustee. 231. The AO failed to respond to the assessee's letter. It is admitted fact that in every year 150 MBBS students were admitted to the college in addition to 68 post graduate students. The total number of students in college admitted during the last 7 years was approximately 1526 persons. The ld. AO alleged in the assessment order that assessee has been collecting the capitation fees from around 800 students for admission in various courses. Out of 800, 5 students/parents responded to the AO's letter and out of them 2 persons have given statement. There is no discussion in Assessment order with regard to other 3 persons. In our opinion the statement of 2 cannot be basis for making such huge additions on collection of capitation fees. It cannot be considered as appropriate sample to ....
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....llected not entered in the accounts so as to sustain the addition. 234. Considering the facts of the case, we are of the opinion that the evidence collected by the authority is not sufficient to establish that the stand that the assessee has collected unaccounted capitation fees for admission of students to various courses in the assessee's college. We are aware that entire evidence has to be appreciated in a wholesome manner and even where there is documentary evidence, the same can be overlooked if there are surrounding circumstances to show that the claim of assessee is opposed to normal course of human thinking, conduct and human probability. Even applying this principle to the present case, we have difficulty in rejecting the assessee's plea as opposed to normal course of human conduct. The circumstances surrounding the case are also not enough to reject the assessee's explanation. We have considered all the material on record and also the statement of the parties as discussed in the earlier paragraphs. We are of the opinion that the department cannot rely on those statements, more so when it was not confronted to the assessee for cross-examination and the same cannot....
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....not have presumed that the amounts which are received as donation were attributable to the allotment of seats in the relevant assessment year. In the absence of there being any foundation for such a contention that the donation received during the period was not in violation of the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984 and the assessee has not acted as opposed to the public policy, exemption u/s. 11 could not have been denied. 236. Further, the Bangalore Bench of the Tribunal in the case of Venkatesha Education Society in ITA Nos.100 to 106/Bang/2012 and M.J. Balachander in ITA Nos.90 to 94/Bang/2012, order dated 21.12.2012 considered the case in similar circumstances where Mr. M.J. Balachander was collecting extra tuition fees without any authority or consent of the society and the conclusion of the CIT(Appeals) was that extra tuition fees was collected by Mr. Balachander on his own and society has nothing to do with extra tuition fees collection. Being so, the Tribunal held that the assessee cannot be faulted and approval cannot be withdrawn so as to deny the benefit of section 11 of the Act. The relevant observations of the Tribuna....
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....istration of the society ; (v) that the Tribunal on proper appreciation of the grounds urged by the society and the Revenue, has rightly restored the registration." 237. Further the Hyderabad Tribunal in the case of Prathima Educational Society, Hyderabad in ITA No.720/Hyd/2012 vide order dated 08.11.2013 wherein the Accountant Member is a party to the order, held that the evidence collected not speaking with regard to collection of cash of unaccounted capitation fees, cannot be a reason to deny exemption u/s. 11 of the Act. The seized material on which reliance is placed by the revenue authorities is not conclusive evidence to sustain the addition and deny exemption u/s. 11 of the Act. 238. Further the Hyderabad Bench of the Tribunal in the case of ACIT v. B. Srinivasa Rao, 159 TTJ 483 (Hyd) [wherein the AM herein was the author observed as under:- "8. As for the first reason put forth for cancellation of registration, viz., collection of capitation fee, it is submitted that in the course of search, excel sheets were found containing the names of students, names of parents and the amount. In the course of search and, thereafter, statements of ch....
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.... In such cases either authority who has fed the information must be identified or he must appear personally and testify before the Court about the source of information. Hence, in the absence of any such corroboration, the evidence remained a hearsay evidence, carrying no evidentiary value, in the absence of any corroboration. (g) At the time of seizure, the excel sheets were not authenticated either by the assessee or by the witnesses or by an authorized officer. This is an unsigned document and as such it loses its evidentiary value for want of authentication. In support of this proposition reliance is placed on the decision of Ahmedabad Bench of the Tribunal in the case of Sanskruti Township v. Department of IT [IT Appeal No. 1885 (Ahd.) of 2006, dated 23-9-2011] and Hyderabad Bench of the Tribunal in the case of Dy. CIT v. C. Krishna Yadav [2011] 12 taxmann.com 4/46 SOT 250 (Hyd.)(URO). (h) There is evidence in the seized record that the Department has typed some information by making use of assessee's computer and made part of the Panchnama. This fact was pointed out by the chairman of the assessee, Sri B. Srinivasa Rao in the course of his statement reco....
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.... (k) It was brought to the notice of authorities that notings in the loose sheet remained uncorroborated till end as the same was not a speaking document and no supporting evidence by way of money receipt and other evidences was found. It was pointed out that the same was a dumb document and therefore not to form the basis of cancellation of registration under s. 12AA. With regard to evidentiary value of notings in the loose sheet, the appellant relies on the following decisions : (a) C. Krishna Yadav (supra); (b) Asstt. CIT v. Satyapal Wassan [2007] 295 ITR (AT) 352 (Jab.) ; (c) Asstt. CIT v. Dr. Kamla Prasad Singh [2010] 3 ITR (Trib) 533 (Pat.) ; (d) CIT v. Khazan Singh & Bros. [2008] 304 ITR 243/[2007] 164 Taxman 30 (Punj. & Har.) ; (e) CIT v. Girish Chaudhary [2008] 296 ITR 619/[2007] 163 Taxman 608 (Delhi) ; (f) Bansal Strips (P.) Ltd. v. Asstt. CIT [2006] 99 ITD 177 (Delhi) ; (g) CIT v. Maulikkumar K. Shah [2008] 307 ITR 137 (Guj.). (l) As regards the presumption under s. 132(4A), it was submitted that a loose sheet is not a book/document so as to raise the presumption. For this proposition, relian....
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.... various courses and even there was statements recorded from two students/parents which were not confronted to the assessee for cross-examination. The revenue authorities cannot draw inference on the basis of suspicion, conjectures and surmises. Suspicion, however strong, cannot take place the material in place of evidence of the AO. The AO should act in a judicial manner, proceed in a judicial spirit and come to the judicial conclusions. The AO is required to act fairly as a reasonable person, not arbitrarily and capriciously. The assessment u/s. 153A of the Act should have been supported by adequate material and it should stand on its own leg. The AO without examining the students / parents who have paid the capitation fees cannot come to the conclusion that the assessee has received unaccounted capitation fees. The basis for donation is notebook / loose sheet. This notebook or loose sheets found during the course of search is only circumstantial evidence and not full proof evidence to sustain the addition. No addition can be made in the absence of any corroborative material. If it is circumstantial evidence in the form of loose sheets and notebook, it is not sufficient to come t....
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....ded, had been provided to the assessee and, in fact, the assessee had also submitted its reply. In the letter an opportunity to cross-examine was asked for only in case the statements had not been recorded. As, in the instant case, the assessee had proper opportunity to controvert the material gathered by the assessing authority and used against it, there had been compliance of the principle of natural justice. [Para 14] In view of the above, the Tribunal was fully justified in the view it had taken." 242. In our opinion, this judgment of the Allahabad High Court cannot be applied to the facts of the present case. In that case, the assessee asked for crossexamination of persons was sought for in the event their statements were not recorded, as such the Hon'ble High Court observed that cross-examination of those persons were not required as their statements had already been recorded during the course of search and the assessee had proper opportunity to controvert the gathered material. 243. Further ld. DR relied on the judgment of the Hon'ble Supreme Court in the case of ITO v. M. Pirai Choodi, 334 ITR 262 (SC) wherein the facts are that the department ref....
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....e order of the Assessing Officer on this issue was to be set aside with a direction to him that the statement of 'S' should be made available to the assessee. The assessee must be allowed crossexamination of the said person and thereafter the matter be decided afresh on the basis of the result of the cross-examination. [Para 22] From the discussion above, it was evident that merely by reason of want of cross-examination, the addition cannot be deleted. It will be an addition liable to be challenged and corrected. An omission to serve notices or any defect in the service of notices does not efface or erase the liability to pay tax where such liability is created by distinct substantive provisions (charging sections). Any such omission or defect may render the order made irregular depending upon the nature of the provisions not complied with but certainly not void or illegal. At the worst, they are defective proceedings or irregular proceedings liable to be cured. An addition made on the basis of a statement not tested by cross-examination is invalid and it is vitiated, but the invalidity is not, however, of such a nature, which goes to the root of the proceedings. It can be....
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...., that construction which favours the assessee must be adopted, which is in line with the Supreme Court judgment in the case of CIT v. Vegetable Products, 88 ITR 192 (SC). This is a wellaccepted construction recognized by various courts. Accordingly, we also reject this argument of the ld. DR. 247. Being so, in our opinion the seized material relied by the assessing officer for sustaining addition is not speaking one in itself and also not speaking in conjunction with some other evidence with authorities found during the course of search or post search investigation. Thus, the well settled legal position is that a non-speaking document without any corroborative material, evidence on record and finding that such document has not materialised into transactions giving rise to income of the assessee which had not been disclosed in the regular books of accounts of the assessee has to be disregarded for the purpose of assessment to be framed pursuant to search and seizure action. In these cases, moreover these documents are relied upon by the AO without confronting them for cross examination. In our opinion, these documents cannot bring assessee into tax net by merely pressing t....
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....ore so, search action not resulted in recovery of any undisclosed assets in the form of landed property, building, investments, money, bullion, jewellery or any kind of movable or immovable assets. 249. However, on the date of search action on 6.8.2015, the search party found physical cash of Rs.2,67,28,900. This should be compared with the books of account on the day and the balance over and above the book balance should be brought to tax in the assessment year relevant to the financial year in which the search took place i.e., AY 2016-17. This ground of appeal is allowed in AYs 2010-11 to 201516 and partly allowed in AY 2016-17. 250. Ground No.8 is regarding denial of exemption u/s. 11 of the Act in all the years. The AO denied the exemption under sec 11 of the Act for the major reason that the trust has received capitation fee in cash and has been carrying on the activities which are not in accordance with the objects of the trust. 251. The appellant is a trust registered under sec 12A of the Act w.e.f. 14.11.1984. The main object of the trust is to establish educational institutions in all faculties including medical, dental, pharmacy, engineering and....
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....her in the show cause notice or in the assessment order that any of the transactions accounted in the books of account show that they are not for the objects of the trust. The entire expenditure i.e., both revenue or capital are incurred only for the purpose of objects of the trust. This is not disputed by the AO . It is submitted that the accounts of the appellant have been audited regularly and there has been not even a single instance of violation reported. 254. The AO has alleged that the appellant has received capitation fee in cash and same has not been accounted in the books and that the capitation fee so received has been diverted for the benefit of trustees as well as expended on illegal activities. The AO has relied upon the following material:- * Seized material marked as A/DUU/01 which contains loose sheets serially numbered from 1 to 91 * Seized material marked as A/DUU/13 being folder containing loose sheets serially numbered from 1 to 102 * Seized material marked as A/DUU/14 being digital data retrieved from the system * Seized material marked as A/DUU/04 being note book containing certain receipts and payments serially nu....
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....e trust cannot be made responsible for such receipts. All consequences on account of such receipts cannot affect the charitable nature of the trust. The violation on the part of the personnel of the trust who have abused their position would be breach of trust. This breach of trust is concerned with internal management of the trust and cannot be made the basis for holding that the trust is not charitable in nature. It is relevant to note the decision of the Hon'ble Gujarat High Court in the case of K.T. Doctor v. Commissioner of Income-tax [1980] 4 Taxman 208 (Guj.) / [1980] 124 ITR 501 (Guj.) wherein it was held as under: "As regards the alternative argument regarding lifting of the veil, we are afraid, no such exercise is permissible in law so far as trustees are concerned. The concept of lifting the veil is permissible only in the case of a company with a view to find out the real persons behind the corporate body, namely, the company, but in the case of trustees, they are under legal obligation to carry out the objects of the trust and to act in accordance with the deed of trust subject to the overall provisions of the Indian Trusts Act, and if they fail in their duty ....
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....the trust. This is not at all the issue in the present case. The ratio of the said decision does not support the allegations made by the AO . 264. Without prejudice to the contention that funds have not been diverted for the benefit of trustees, the AO has tabulated the payments made to trustees based on his analysis of the seized material (supra). A perusal of the said table would show that there are no such payments pertaining to AY 2010-11 and 2011-12 as per the analysis of the AO himself. It is pertinent to note that the assessments for AY 201011 and 2011-12 have been completed under section 143(3) prior to date of search. The assessments for these years would not abate. No addition or allegation can be made without incriminating material found and seized during the course of search. Therefore, in the absence of incriminating material, diversion of funds for the benefit of trustees cannot be ground for these two years for denying exemption u/s. 11. 265. Now, to rebut the allegations made by the AO that the appellant has made payments for illegal activities and hence, has violated the objects of the trust and also allegation that the appellant has been a condui....
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....d on the above material, the AO observed as under:- * "Para vide Sl. No. 5.2.3.1h deals with the payment of Rs. 300 lacs made to political parties. When Pg. 85 of the seized materials A/DUU/13 was shown and GVS and Sri G H Nagaraj was confronted they have stated that this amount was paid to various political parties and candidates contesting election. An extract of their reply has been annexed in para 5.2.3.1h. However, they have not given further details of as to whom such payments were made to. It is pertinent at this juncture to note that the Chairman of the Trust is Politician. Such 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." [Para 5.2.3.3.4, page 70] * "The trust funds have been misutilized by diverting them for the funding Elections for candidates of various political parties as seen from multiple entries in seized material Annexures A/DUU/02 to A/DUU/04 which was confronted to the Secretary also during the recordi....
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....mitted that these findings are contrary to his own finding that the payments have been made out of alleged capitation fee. It has been established by the appellant that the capitation fee has been neither received by the trust nor does it form part of the funds of the trust. Such being the case, the question of diverting funds of the trust for the purpose of benefit of trustees does not arise. 271. Without prejudice to the above, the AO has stated that there are multiple entries in seized material marked as A/DUU/02 to A/DUU/04 which would show that the trust funds have been diverted for funding elections. It is submitted that the AO cannot generalize a stray entry noted and confronted to Sri. Goli V. Srinivas / Sri. G H Nagaraj to hold that there are multiple such cases. The AO has not drawn attention to not even one such entry in seized materials marked as A/DUU/02 to A/DUU/04. The AO is not permitted to extrapolate the same to other years in the absence of any material. As stated earlier, the entry in page 85 of the seized material marked A/DUU/13 and the statement of Sri. Goli V. Srinivas / Sri. G H Nagaraj are not supported by corroborative evidence. The AO ought to a....
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....8.11.2017. The AO also sought to rely upon page 5 of seized material no. A/DUU/10. This page consists only of certain obscure notings and figures. Nothing can be deciphered from the same. The portion of seized material relied upon cannot be held as corroborative evidences to support the allegations that the appellant has paid commission to agents for getting candidates for admission with capitation fee. There is nothing in the seized material to support the above. Even the statement of Sri. Goli V. Srinivas /Sri. G H Nagaraj which is relied upon is not supported by any cogent evidence. We have already established that the statement of Sri. Goli V. Srinivas cannot be relied upon to prove the role of agent. The AO ought to have summoned the various persons referred to in the statement given by Sri. Goli V. Srinivas. The AO cannot merely rely upon a statement which is not supported by any evidence. The AO has sought to rely on statement of Sri. Goli V. Srinivas recorded under sec 131 on 28.11.2017 which is much later than the date of search. It is submitted that reliance cannot be placed on a statement recorded under section 131 post-search in the absence of reliable material during t....
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.... 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 referred to in earlier paragraph supra. 283. The AO has sought to rely on statement of Sri. Goli V. Srinivas recorded under sec 131 on 28.11.2017 which is much later than the date of search. It is submitted that reliance cannot be placed on a statement recorded under section 131 post - search in the absence of reliable material during the course of search. Moreover, it is recorded only a month before the time-limit to make assessment could expire. 284. Without prejudice to the above, the statement recorded on 28.11.2017 has neither been furnished to the appellant nor has the appellant been afforded an opportunity for cross-examination. For reasons stated in earlier submissions supra such statement cannot be relied upon. 285. It was submitted that the AO ought to have issued summons to the MCI inspectors to whom Sri. Goli V. Srinivas, in his statement, alleged to have given bribe. The AO erred in merely relying upon the statement of Sri. Goli V. Srinivas without verifying its veracity. There is no eviden....
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....tion 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 tax evasion cannot be made in a bald manner. It should be proved that the alleged bogus donor has claimed deduction u/s. 80G in respect of such donations and the amount of tax evaded by such donor by claiming such deduction is to be ascertained. The assessment records of such donor should be brought on record to show that donation claim has been found to be bogus during the assessment of such donor. The copy of assessment order wherein such bogus donation is disallowed is to be confronted to the trust that has received such donations. Without even looking at the income-tax returns and assessment records of the donors, the AO has made a sweeping statement that the appellant has aided bogus donors to evade tax. The seized material which is relied upon does not demonstrate that the appellant has aided bogus donors to evade tax. If the AO is of the opinion that the donations made are not genuine, the AO ought to have taken action against the alleged bogus donors who sought to c....
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....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 faculty to evade tax, he should have handed over the relevant material to the AO who had jurisdiction over such faculties to enable initiation of proceedings under section 153C in respect of such faculties. But the AO did not choose to do so. He has not even called for the income-tax returns and assessment records of those faculties. He has not even ascertained whether they are liable to pay tax at all. In the absence of any evidence, the AO cannot make any such sweeping allegations. The payment to staff, whether reasonable or not, is not hit by section 13. With a mere intention of making these alleged payments of additional salary as a ground to deny section 11, the AO has made the allegation of abetting tax evasion having no legal sanctity. 294. The ld. DR contended that the modus operandi of the assessee is that the trust receives capitation fees from students which are routed into books of account as voluntary donation from various individu....
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....ion 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 in earlier para of this order about the authenticity of the seized material, we have held that it is not foolproof. In such circumstances it cannot be relied upon. The various decisions relied by the AO that is the Delhi High Court in DIT(exemptions) vs. Charanjiv Charitable Trust, Mool Chand Khairati Ram Trust vs. DIT(Exemption) and Vodithala Education Society vs. Addl. DIT(Exemption) to hold that assesse has violated the section 13(1) are not applicable to the facts of the case on the reason that there was no conclusive evidence to hold that there was collection of capitation fees or violations of the section 13(1) of the act. In view of the above, this ground of the assessee is allowed in all AYs. 296. Ground No.9 is with regard to allowance of depreciation (original ground in AY 2010-11). 297. The AO observed that given the fact that the benefits u/s 11 are being denied the surplus as specified u/s 11(1)(a) & 11(1....
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....red 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 has made the claim or not. Explanation 5 to section 32 reads as under:- "Explanation 5.-For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income;". 302. The ld. DR submitted that the assessee claimed the cost of assets as capital expenditure in its Income & Expenditure statement. Being so, there cannot be any allowance of depreciation. 303. We have heard both the parties and perused the material on record on this issue. The assessee is entitled for depreciation u/s. 32 on assets where it has been laid out as application of income for charitable purposes u/s. 11(1)(a) of the Act. The amendment brought to section 11(6) of the Act by the Finance (No.2) Act, 2014 which became effective from AY 2015-16 and de....
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....h 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. One fails to understand as to how one can estimate that cash was collected from 63 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. It is 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., 63. But there is no note below the table explaining the asterisk mark. The seized material does not contain any such data so far as AY 2010-11 is concerned. In the remarks column (k) of the table, it is stated as "On page 151 of the Seized Material No. A/DUU/06". A perusal of this page ....
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.... 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 INSTITUTIONAL QUOTA STUDENTS 2008-09". Below the table, the source is stated. Source is stated to be "Digital seized material: file name: Seats 2008-09 1.xls;Sheet:2" * The third table has the caption "STATEMENT OF ADMISSION AGAINST DROPS (sic) OUT 2008-09". Below the table, the source is stated. Source is stated to be "digital seized material: file name: Seats 2008-09 1.xls;Sheet:2" 312. The AO at page 153, has stated that from the above 3 extracts of digital data seized during the course of search proceedings, it is seen that at least 44 students had been admitted by collecting capitation fee in cash for admissions in FY 200809. Being beyond limitation period, these evidences were not discussed in earlier sections of this order. However, it is a significant evidence that capitation fee in large scale was been c....
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....der 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 be in favour of the appellants, because when both the businesses are related to one family, it is immaterial in which of the kiln, irrespective of the fact whether it is having more or less chambers, the work was got done. When two views are possible, the one which is in favour of the assessee/appellant is to be given effect to. We accept this plea of the appellant." * The Tribunal in the case of Raviraj Kothari Associates v. DCIT 2016 (10) TMI 553 - ITAT PUNE held as under: "14. In the facts and circumstances of the case and documents on record we hold that the addition in respect of on-money received in respect of Shop No. 129 i.e. the shop in respect of which the document was seized during survey is upheld. Whereas, in the absence of any material to show that on-money was received in respect of other shops s....
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....on 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 as under:- "Similarly, in the year of search i.e. assessment year 2010-11, evidence has been found for part of the month and the addition is to be restricted to the said evidence found. The evidence cannot be used for extrapolating the receipts for balance period, which is after the date of search; since, no evidence has been brought on record to establish that the same practice has been followed by the assessee in the period pursuant to the date of search. Accordingly, the Assessing Officer is directed to compute the income in the respective years in the hands of assessee." * In M/s. J.B. Educational Society And Joginapally Br. Educational Society v. ACIT 2013 (12) TMI 777 - ITAT Hyderabad: [2013] 28 ITR (Trib) 284 (ITAT [Hyd]) "Further, unless there is evidence or material indicating any suppression of....
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....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 is submitted that the AO erred in law and on facts in presuming that capitation fee is collected during FY 2009-10 relevant to AY 201011 just because the opening cash balance is Rs. 81 lakh. This cannot be considered as evidence for receipt of capitation fee during the FY 2009-10. 316. Without prejudice to the above, it is submitted that the findings of the AO are contradictory. At page 149, AO seeks to rely upon page 151 of the seized material no. A/DUU/06 to support his computation of the alleged unaccounted cash generated during FY 2009-10. In para 10.9.2, where he has attempted to explain the evidences in support of his quantification for AY 2010-11, there is no reference to the aforementioned page 151 of the seized material no. A/DUU/06. At para 10.9.2, he extracts certain evidences which purportedly belong....
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....n 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 assessment under section 153A is permitted only in respect of assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted. On a harmonious reading of section 132 and section 153A, it is trite to state that section 132 doesn't confer power on the authorizing officer to authorize search whose consequence would result in seizure of material pertaining to a period falling or likely to fall outside the period stipulated under section 153A. The seizure of material made in respect of such period is invalid. Such invalidly seized material cannot be validly handed over to the assessing officer under section 132(9A). Even if the same is handed over, such material cannot be relied upon by the assessing officer for maki....
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.... 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 does not contain any such data so far as AY 2010-11 is concerned. In the remarks column (I) of the table, at page 151, it is as "The rate of growth from FY: 2010-11 to 2011-12 is arrived at 21.46%. The same rate of growth is adopted for 2009-10 to 2010-11 to arrive at figures for FY: 2009-10". 324. A perusal of the basis of computation as given in the remarks column would show that the addition is made towards alleged unaccounted cash generated during FY 2009-10 in respect of PG course is merely based on estimation. The estimation is made based on growth rate of 21.46% which percentage is arrived at by considering the data for FY 2010-11 and FY 2011-12. It is pertinent to note that the value for FY 2011-12 is estimated based on data for FY 2010-11 and 2012-13. To make ....
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....ssessing 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, the undisclosed cash receipts on the basis of incriminating material in the form of notings, jottings in the loose sheets are unsubstantiated material. We have already held in earlier para of this order that unsubstantiated material cannot be full-proof material evidence to sustain the addition. We also hold that mere existence of concealment even in one year is not sufficient to estimate the income of other years on that basis. It is pertinent to place reliance on the order of this Tribunal in the case of Anjaneya Brick Works. v. ACIT, 74 TTJ 921 (Bang) wherein it was held that estimation of income could not be made relying on the seized documents which related to another accounting period and not the accounting year under consideration....
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....ssessee 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." 333. In order to claim deduction u/s.37, the expenditure under consideration, should satisfy the following conditions:- a. It should not be of the nature described in sections 30 to 36 b. It should not be capital expenditure c. It should not personal in nature d. It should be laid out wholly and exclusively for the purpose of business or profession e. It should not be incurred for any purpose which is an offence or which is prohibited by any law f. It should not have been incurred on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party 334. It is nobody's case that the conditions stated in....