TaxTMI 
TaxTMI 
2024 (7) TMI 1178
X X X X Extracts X X X X
X X X X Extracts X X X X
....involve common issues, the same have been heard together and are being disposed of by a single consolidated order for the sake of convenience. Facts of the case 2. The assessee Trust is a public charitable Trust with main aim is to provide education in Diploma Engineering all disciplines; to achieve this objects the assessee Trust is running various colleges in the name as Parul Institute of Engineering and Technology Diploma and Parul Poly Technique Institute along with Hostel facilities to students; the Trust is also carrying medical activities in the nature of arranging various medical camps, providing medicines and drugs, providing pathological facilities to needy and poor class of people on charitable basis. Parul Arogya Seva Mandal Trust (PAN: AAATP4313K), the assessee is registered u/s. 12AA of the Act, vide No. HQ-3/32/P-4/96-97/Range-4 dated 07.08.1996. The assessee Trust is also registered u/s. 80G(5) of the I.T. Act, 1961 vide No. DIT/(E)/80G(5)/734/2006-07 dated 07.05.2007. 2.1. Parul University (PAN: AADAP4952C), the assessee, is also registered under section 12AA of the Act and also has got approval u/s 10(23C(vi) of the Act effective from A.Y.2015-16. It is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....atements of various employees were recorded who confirmed, in their statements, that portion of salary paid was recovered in cash by the trustees. 10. Account payee cheques were deposited in bank account of the Parul Arogya Seva Mandal Trust and recorded in books as corpus donations. 11. Bearer cheques were used to withdraw cash from the bank accounts of employees and hand over the cash to trustees. 12. Such cash withdrawals were made from the non-teaching staff. One of the employees stated in the statement that management of the trust instructed all the employees of the trust to deposit one signed bearer cheque each month. Another employee stated in the statement that employees were asked to give blank cheque as donation to the trust. The statements of many employees were recorded who confirmed that their actual salary is much less than the amount credited in their bank accounts and the difference was withdrawn by the trust from their bank account by using their bearer cheques. 13. The MS Excel file contains the details of amount recovered in cash as well as by cheques from the employee of the Parul Group from the month of March, 2016 till Novem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e and stated that the amount of undisclosed income declared under the PMGKY Scheme should not be included in the total income of the assessee. For the purposes of clarity, the relevant parts of circular and notification as relied upon by the assessee are reproduced hereunder: * Circular No. 2 of 2017, F.No. 143/33/2016-TPL(part) dated 18-1-2017. Question No.5: Can a person against whom a search/ survey operation has been initiated, file declaration under the Scheme and whether the cash seized during search operation can be declared under the Scheme? Answer: Yes, a person against whom a search/survey operation has been initiated is eligible to file declaration under the Scheme in respect of undisclosed income represented in the form of cash or deposit in an account maintained with specified entity Question No.8: Can a person come under the Scheme with respect to deposit made in a bank account prior to the Financial Year 2016-17? Answer: A person can avail the Scheme for any assessment year commencing on or before the 1st day of April, 2017. Hence, deposits made in bank account prior to financial year 2016-17 can also be declared under the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....KY and stated that all the discrepancies are covered in the said disclosure. Therefore, AO calculated total amount received from salary of teaching staff by cheque and accounted as Corpus Donations for the financial year 2015-16 to Rs. 10,07,60,400/- (Rs.83,96,700/- * 12 months). Total amount received as corpus donations for F.Y. 2015-16 as per financial statements were Rs. 16,98,54,200/-. Out of this total amount AO allowed only Rs. 6,90,93,800/- (Rs.16,98,54,200 (-) Rs. 10,07,60,400/-) as Corpus donations disallowing the balance amount of Rs. 10,07,60,400/- being bogus corpus donations. 2.12. For the financial year 2016-17, the amount of bogus corpus donations was calculated at Rs. 8,01,76,700/- on the basis of actual data recovered from impounded documents marked as Annexure A-13. 2.13. From the impounded documents and excel file marked as Annexure- O, the AO found that the assessee has also taken cash donations from the students on account of admission and other activities which worked out to Rs. 84,06,194/- for F.Y. 2015-16 which was not accounted for by the assessee. 2.14. From the impounded documents and excel file, the AO found that the MS Excel sheet contained det....
X X X X Extracts X X X X
X X X X Extracts X X X X
....8,01,76,700/- in case of Parul Arogya Seva Mandal Trust and Rs. 8,00,00,000/- in case of Parul University relating to PMGKY, 2016. 3. The Assessee, being not satisfied with the order of AO, filed an appeal in all the cases with the Ld.CIT(A). During the course of appellate proceedings, the assessee submitted bifurcation of year-wise of amounts disclosed in the PMGKY. The summary of these details is as follows: F.Y. 2013-14 Total Rs. 4,93,60,913/- F.Y. 2014-15 Total Rs. 1,01,16,000/- F.Y. 2015-16 Total Rs. 84,06,194/- F.Y. 2016-17 Total Rs. 8,42,92,326/- Grand Total Rs.15,21,75,433/- 3.1. Whereas the total amount disclosed in PMGKY Scheme was Rs. 18,90,00,000/-. 3.2. The Ld.CIT(A), after giving due opportunity of being heard partly allowed the appeals of assessee and decided as follows: * In case of Parul Arogya Seva Mandal Trust for A.Y. 2016-17. o Restricted the addition on account of unaccounted cash receipts from Salary of Rs. 9,21,33,866/- to Rs. 8,47,11,836/-. o Deleted the cash donation of Rs. 84,06,194 treating it as duplicate. o Restricted the addition of Rs. 50,54,973/- on account of Bogus Salary Ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s a violation of section 13(1)(d) of the Act. The Tribunal held that such a reasoning cannot be accepted because if the donations are offered for income and if the department wants to disprove the nature of income on the basis of material, as has been pointed out by the Commissioner of Income-tax (Appeals), it should be borne out by records based on investigation, which the Assessing Officer failed to do, except falling back on a statement which is not supported by materials." The ratio of such decision is clearly applicable to facts of the case as Assessing officer without there being a finding of violation of section 13 of the Act, an inference was drawn on an alleged receipt of cash recovery and other and the allegation was made that there is a violation of section 11 & 12 of the Act. On perusal of assessment order, it is found that there is no allegation that cash recovery against alleged misappropriation of salary expenditure was used by trustee for their personal purpose. Even otherwise, the appellant has already made separate disclosure under PMGKY and on such income, no application u/s 11 or 12 is claimed against such income. 5.7 It is observed that as per provisio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... genuine, and income of the trust are applied for the purpose for which registration u/s 12A was granted and there in no violation of section 13 is found, the trust is eligible to get exemption under section 11& 12 of the Act in presence of registration granted u/s 12A of the Act. Similar view also given by Hon'ble Madras High court in case of Commissioner of Income-tax, Central- Ill, Chennai V. Balaji Educational & Charitable Public Trust [2015] 56 taxmann.com 182. 5.9 As discussed above, the denial of exemption section 11 & 12 by the AO is based on the incriminating documents found during the course of survey. In this regard the appellant reiterated that they have offered sum of Rs. 18.90 crore in PMGKY and taken the benefit of the scheme which covers more than the amount which is found in the incriminating documents. 5.10 Considering such facts, the AO was not justified in denying exemption u/s 11 & 12 of the Act. The AO is directed to compute income of the trust after considering such provisions and discussion made herein below for other grounds of appeal. These grounds of appeal are thus allowed." 3.4. Since the Ld.CIT(A) allowed the exemption under se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of appellant as it has been already disallowed and made additions in the assessment of Parul Arogya Seva Mandal Trust. 2. The assessee craves leave to add, amend, alter, delete, change or modify any or all grounds of appeal before or at the time of the hearing. In case of appeal by Assessee in ITA No.992/Ahd/2023 for A.Y. 2017-18 1. The Hon. CIT Appeal erred both in law and on facts in confirming an addition of Rs. 3,90,59,807/- towards corpus donation wholly without considering submission made by appellant which is untenable be deleted. 2. The assessee craves leave to add, amend, alter, delete, change or modify any or all grounds of appeal before or at the time of the hearing. Revised Grounds of Appeal 1. The Hon. CIT Appeal erred both in law and on facts in confirming an addition of Rs. 8,01,76,700/- towards corpus donation wholly without considering submission made by appellant which is untenable be deleted. 2. The assessee craves leave to add, amend, alter, delete, change or modify any or all grounds of appeal before or at the time of the hearing. In case of appeal by Revenue in ITA No. 1018/Ahd/2023 For A.Y. 2016-17 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cument's comes to Rs 15,21,75,433/- and hence total disclosure, of Rs. 18.90 Crores as admitted during the course of survey statement has already been covered by disclosure in PMGKY viz the total amount of Rs. 10.90 Crores declared under PMGKY 2016 in Parul Arogya Seva Mandal Trust and Rs. 8.00 Crores in Parul University. The disclosure therefore fully covers all such papers and materials pertaining to income in respect of all the years and hence the observation of the AO that the declaration does not cover all the undisclosed income of all the earlier years is not correct and is contrary to the facts as above. 5.2. He further stated that the error committed by the Id.AO in making such observation is because of extrapolation made by him on the basis of only part of the data and by averaging the part of such data. It is trite law that there is no scope of extrapolation for months or period other than for which the documents are found during the survey/ search. 5.3. Therefore, the observation of the Id AO that on the basis of average of nine months at Rs. 77,01,076/- (average of period from March 2016 to November 2016) the total comes to Rs. 9,21,33,866/ for FY 2015-16 and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....invited our attention to the fact that the Ld.CIT(A) has relied on the judgement of Hon'ble Supreme Court in case of ACIT Vs Surat City Gymkhana [2008] 170 Taxman 612 in which it was held that Registration under section 12A of the Act is a fait accompli to hold Assessing Officer back from further probe into objects of trust. 5.9. The Ld.AR pointed out that as held by the Ld.CIT(A) that there is nothing to suggest that the trust has deviated from the objects for which registration was granted and not applied the funds for its objects and no evidence was brought on record to show that amount of alleged cash recovery, Bogus Salary etc. which have been collected was misused by the assessee or by any interested persons. He stated that the Ld.CIT(A) has rightly followed the decision of Hon'ble Madras High Court in the case of Kammavari Sangham V. Deputy Director of Income-tax Exemptions) [2023 146 taxmann.com 367, wherein it was held that- "the department has not established a case that the assessee had in this case not utilized the donations or income for charitable purpose. The clear finding of the Tribunal is that if the assessee had not utilized the amount for cha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o violations of the trust's objectives. The Ld.CIT(A) partially upheld the AO's additions but allowed the exemptions under Sections 11 and 12, concluding there was no apparent violation of Section 13 of the Act. 7.1. We have also noted that the survey was conducted on 31/01/2017 and the taxes relating to PMGKY were paid in the month of March-2017. Cash collected from employees was used by the trustees for the period till it is deposited in bank as corpus donations. Some expenses are also incurred in cash which were not accounted for and could not be explained during the course of survey and assessment. There was some discrepancy even after providing year-wise bifurcation to the Ld.CIT(A). 7.2. At this juncture, we consider the legal framework of section 11. Section 11 of the Act, provides exemptions to income derived from property held under trust for charitable or religious purposes, provided the income is applied for such purposes. However, this exemption can be withdrawn under certain circumstances, especially if the trust violates the provisions of Section 13. Section 13(1)(c) of the Act denies the benefits of Section 11 of the Act, if any part of the income or pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aff salaries in cash and the misrepresentation of corpus donations. This evidence included employee statements and an MS Excel file detailing the cash recoveries, corroborating that trustee used trust funds for personal gain, in violation of Section 13(1)(c) of the Act, which prohibits the direct or indirect benefit of any interested person. 7.6. The AO established that the trust's funds were not invested or utilized in accordance with Section 11(5) of the Act. Instead, funds were diverted through fraudulent means such as inflating expenses and obtaining unaccounted cash, which were not aligned with the charitable objectives of the trust. These actions contravene the provisions of Section 13(1)(d) of the Act, which mandates that the income and assets of the trust be applied solely for charitable purposes and invested in specified modes. 7.7. In our opinion, simply participation in some amnesty scheme like PMGKY does not absolve the assessee from the wrongdoing. Intent of any amnesty scheme is to comply and rectify previous non-compliance. 7.8. In the judgement of Union of India v. Dharmendra Textile Processors (2008) 13 SCC 369, the Supreme Court held that mens rea (in....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Mantri Garib Kalyan Yojana (PMGKY) itself is an acknowledgment that the trust deviated from its objects and violated the conditions of Section 13. Furthermore, the tax paid under PMGKY represents a gross misuse of the trust's funds, which were supposed to be applied exclusively for charitable purposes. 7.14. The decisions relied Upon by the Assessee and the Ld.CIT(A) can be distinguished as follows: * ACIT vs. B.N. Corporation [2001] 116 Taxman 579 (Gujarat): Context: In this case, the Gujarat High Court held that the principle of extrapolation could be applied when there was sufficient evidence indicating systematic underreporting of income. Distinguishing Factor: The case involved a business entity where the extrapolation was based on a set pattern of underreporting discovered during the assessment. In contrast, the present case involves a charitable trust where the evidence pointed to systematic and fraudulent diversion of funds for personal gain, violating the trust's charitable objectives and conditions under Sections 11 and 13 of the Income Tax Act. * M.R. Corporation vs. ITO (ITA No. 3401/Ahd/2010): The ITAT Ahmedabad held tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 7.18 There are many judicial pronouncements relating to extrapolation and denial of exemption u/s 11 which upheld the principle of extrapolation, allowing tax authorities to estimate undisclosed income based on available evidence. The Courts have ruled that when there is sufficient evidence of systematic and recurring bogus transactions, the use of extrapolation is justified. In the present case, the trust's repeated practice of inflating salary expenses and recovering amounts in cash provides a reasonable basis for the AO's extrapolation of unaccounted income. Courts have supported the application of extrapolation in cases where there is substantial evidence indicating that the assessee has been systematically booking bogus expenses. The courts emphasized the need for a reasonable basis for such extrapolation. In the present case, the AO's detailed findings and the corroborative evidence from the survey support the application of extrapolation to estimate the trust's unaccounted income accurately. 7.19. The Ld.CIT(A) and assessee both have referred decision of Madras High Court in case of Kammavari Sangham v. Deputy Director of Income-tax (Exemptions) [2023] 146 taxma....