TaxTMI 
TaxTMI 
2025 (6) TMI 53
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....essing Officer ('LAO') and the Learned Commissioner of Income Tax (Appeals) ('Ld. CIT(A)') in so far as it is against the Appellant is opposed to law, equity, weight of evidence, probabilities and the facts and circumstances in the Appellant's case. 2. The order of passed by the LAO and the Ld. CIT(A) is also bad in law on account and not in accordance with the provisions of the Act to the extent they are prejudicial to the Appellant. 3. The LAO's order and the order of the CIT(A), to the extent that the same is prejudicial to the Appellant, is bad in law in that the LAO and CIT(A) have erred in arriving at their respective conclusions in the assessment order based on 'dumb' diaries and 'dumb' seized material. 'Fee not received / fee refunded' of Rs. 7.65,54,000/- 4. The Ld. CIT(A) has erred in not considering that the amounts pertaining to 'fee not received / fee refunded' has in fact been received by the Appellant, for all but approx. Rs. 56 lakhs. Here, the LAO erred in not considering the supplementary submissions made before him on 28 March 2024. 5. Without prejudice to the abo....
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....x under the facts and circumstances of the case. 12. The LAO erred in computing the consequential interest under section 234A, 234B and 234C of the Act. 13. The Appellant craves leave to add, alter, amend, substitute change and delete any of the grounds of appeal. For the above and other grounds that may be urged at the time of hearing of the appeal, the Appellant prays that the appeal may be allowed and justice rendered." 3. The ld. AO in ITA Nos.1207/Bang/2024 has raised the following grounds of appeal:- "1. Based on the facts and circumstance of the case, whether the Ld. CIT(A) was correct in allowing the additions made by the A.O. 2. Whether on the facts and circumstances of the case, the Ld. CIT(A) was correct in allowing the addition made on account of unexplained receipts of Rs. 94,75,000/- when the same was not disclosed in the return of income filed under section 139 of the Act. 3. Whether on the facts and circumstances of the case, the Ld. CIT(A) was right in restricting disallowance to the extent of Rs. 76,56,000/- made on account of unexplained expenditure of Rs. 1,21,75,000/-, 4. Whether on the facts and circu....
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.... over to him in cash. Another medical college running under the same trust by the name 'BGS Global Institute of Medical Sciences' was also covered under the search. This search operation was in the year 2013 and admissions of first academic year were in progress at the time of search & seizure. The seized evidences revealed that Rs. 7.60 crores were collected till the date of search, but only Rs. 4,02 crores were deposited in the bank account. 8. Based on the above information, the statement of Mr. H B Shivaram, author of the document was recorded on 22.7.2013 and accounting entries under the head "PP" was asked for. During the course of assessment proceedings, the assessee was also asked this question, but assessee claimed that these entries are accounted for, but did not provide the details of bank account. Therefore, after verification of the information, the ld. AO issued a show cause notice to explain why a sum of Rs. 7,74,75,000/- shall not be included las undisclosed income u/s. 69 of the Act. The assessee submitted that the above amount is spent for charity and donation and for the purposes of the objects of the trust and therefore same is not required to be added. Asses....
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....cal Sciences, Dr. M E Mohan (who was also searched) was recorded in which he has categorically stated that the trust is paying some of the brokers to scout for the students. The Secretary of the trust, Sri Prakash Nath Swamy, whose statement was recoded u/s. 132(4) on 18.7.2023 also confirmed the same. Thus, the assessee was given a show cause notice to explain why a sum of Rs. 1,21,75,000/- should not be treated as undisclosed expenditure u/s. 69C of the Act. In response to the same, the assessee denied to have made any payment to any broker. The ld. AO rejected the contention of the assessee as the diaries have clear details. Accordingly, with respect to this item, total of Rs. 1,21,75,000/- was added to total income of assessee u/s. 69C of the Act as unexplained expenditure and benefit of section 11 was denied. 11. The fourth item was with respect to unexplained receipt. On the basis of various diaries found, the ld. AO reached at the conclusion that a sum of Rs. 94,75,000/- is unexplained receipt in the diaries where identity, credit worthiness and genuineness of voluntary contribution is not proved. Therefore show cause notice was issued. The assessee submitted that payment....
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....l precedents for AY 2005-06 of the coordinate Bench in assessee's own case, he deleted the addition. Accordingly, the appeal of the assessee was partly allowed. Therefore, both the parties are in appeal before us. 15. The Revenue has impugned two of the three reliefs granted by the CIT(A) against the LAO's action as follows: i. CIT(A) granted relief for a sum of Rs. 45,19,000/- on the basis that this represents income and not expenditure as was demonstrated by the Appellant. ii. CIT(A) granted relief for a sum of Rs. 241,00,000/- on the basis that this represents double counting of the same items and hence double addition. 16. The Revenue has not challenged the reliefs granted by the CIT(A) in respect of the exemption claim by the Appellant as well as a sum of Rs. 94,75,000/- being voluntary donations. The CIT(A) granted this relief considering the ruling of the Hon. Bangalore ITAT in the Appellant's sister concern's case in ITA 1258 and 1259 / Bang / 2008 dated 31.12.2008 and affirmed by the Karnataka High Court in ITA 800 / 2012 dated 07.01.2019. 17. Thus, ld. CIT(A) has passed his order dated 31.03.2024. Appeals impugn the additions by the Ld. Asses....
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....ies show prima facie following facts :- i. Diaries are handwritten entries. ii. As per the Ld. AO, these were maintained by Sri H. B. Shivram [ Hereinafter referred to as HBS] . iii. The diaries do not bear the name of the Assessee- Trust or any of its trustees iv. These contain student-wise details. Some pages contain the address and phone numbers while some do not. v. These also contain certain amounts purportedly paid by them by cash or DD or cheque with dates. vi. In many of the pages, the amounts due from the students on various dates is mentioned. Here, in many instances, some of these dues have amounts written against them as received while many instances also do not have such amounts. vii. Thus, in many instances, no amounts have been stated to be received from these students, per the diary. viii. Some line items in these diary entries have been marked out as the concerned amounts being remitted to the bank. ix. The diaries do not state whether the student has agreed to comply with paying the amounts mentioned in the diaries. x. Wherever amounts have been received, in some instances, t....
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....ied through telephonic calls on the numbers given in the diaries. It has been found that the numbers of students who are very much associated with the college and still pursuing their courses. 8. The Assessee is unable to demonstrate that fee was refunded or it was not received. 9. The diaries constitute books of accounts. 10. The Assessee had vide later dated 30.09.2013 admitted that there were some discrepancies in the books and had offered some income to taxation. 11. Since there is no proof on the refund of the money, the Assessee's submissions cannot be accepted. 12. On the unexplained expenditure, these relate to marketing and promotion charges recorded in the diaries which have been supposedly paid to brokers / agents. 13. Services of these persons have been used for soliciting students for admissions into the college. 14. The sources are not recorded in the books; this constitutes undisclosed income. 15. There is no explanation also as to why the same has been paid or there is no proof that to has been spent towards the objectives of the trust. 23. The ld CIT (A) has confirmed the addition subject to....
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.... these instances at all to doubt the relevance and appropriateness of considering the diaries as basis for additions. xi. There is no consistent logic in the amounts paid by each student as mentioned in the diaries. The sworn statements of HBS also do not indicate this aspect. xii. Some of the diaries have attestations by various other persons not even employed by the Assessee, let alone that of HBS. xiii. Thus, they are mere non-speaking documents containing unsubstantiated jottings having no evidentiary value. xiv. The above statement was also not confronted to any of the trustees of the Assessee, either during the search, after the search or in the course of the assessment proceeding. xv. The LAO has obtained sworn statements from: a. Sri M E Mohan, Principal of BGS Global Institute of Medical Sciences, Kengeri, Bangalore. b. Sri Sri Prakashnatha Swamiji, BGS Global Institute of Medical Sciences, Kengeri, Bangalore. xvi. None of the above or even the other trustees of the Assessee- Trust were confronted this statement of HBS. xvii. The LAO has stated that the searched premises at Vijayanagar, Bangal....
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....n such a scenario, the LD. AO cannot rely on diaries to make additions. In this regard, reliance is placed on the rulings of the Assam High Court ('HC') in Tolaram Daga v. CIT (59 ITR 632) and that of the Gauhati HC in Dhansiram Agarwalla v. CIT (217 ITR 4). xxvii. Without prejudice to the above, 'books of accounts' are defined to include ledgers, day-books, cash books, account books and other books, whether kept in the written form or in electronic form or in digital form or as print-outs of data stored in such electronic form or in digital form or in a floppy, disc, tape or any other form of electro-magnetic data storage device. From this, it can be seen diaries mentioning admissions will never constitute books of account. This aspect has not been considered by the LD. AO . xxviii. Many of the pages in many of the diaries that have formed the basis for the addition have been authored by unknown persons not at all authorized by the Assessee. xxix. It can also be seen that in his sworn statement (Q 3 in page 766 of the PBC), HBS mentions that any difference in the shortcomings would be reported to tax. The Assessee is not aware as to the authority based o....
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....accounted receipts under section 69A of the Act, as 'fee not received / fee refunded' as stated in diaries but not accounted in the books of accounts. The CIT(A) erred in confirming this finding of the LD. AO . 6. The LD. AO and the CIT(A) erred in not considering that the provisions of section 69A are not satisfied with respect to the sum of Rs. 5,24,54,000/- (comprised in the sum of Rs. 7,65,54,000/-). 29. The ld. AR submits that diaries reflect two aspects: a. A listing of amounts as are fixed as installments for each student and that the amount that the student should pay. The amount mentioned as due is the amount which is yet to be received on future milestones and predetermined dates as agreed upon with the students and their parents. The diary does not list the amount received. b. To the extent that no entries are made in the diaries, it implies that as per the diaries the amount has not been received. This implies that to the extent the student again approaches the diary-writer/ author on the payment of the balance fees, the amount is considered as paid and the date of receipt is recorded. If the student does not approach the diary-writ....
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....2023, 22/07/2023/7/8/2023 13/09/2023 and 16/09/2023 to support his case. He further stated that shri H b Shivram is neither an employee or trustee of the assessee and his statements were never confronted to the other trustees, so reliance by ld AO on statements of Shri H b Shivarm for making this addition is incorrect. vii. He further submits that till date assessee enjoys exemption u/s 11 and 12 by virtue of registration already granted u/s 12 A/ 12 AB of The Act. viii. In view of the above, the Appellant humbly prays that the addition made by the LD. AO on account of "fee refund" and "fee not received" as undisclosed / unaccounted requires to be deleted for the advancement of substantial cause of justice. ix. It further relied upon the plethora of judicial precedents wherein it has been held that any addition made on the basis of diaries is a bad evidence mainly relying on the decision of the honourable cannot High Court in case of sunil kumar Sharma versus DCIT 146 taxmann.com 553, the division bench decision in case of 159 taxmann.com 179 and further dismissal of special leave petition against the above decision by the honourable Supreme Court in 168 ....
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....e hands of the assessee are assessed, there are certain marketing & promotion charges also recorded in those diaries which are supposed to be paid to some brokers or agents. When questioned, the assessee denied any such payment to any of the broker. The ld. AO specifically stated that the diaries are having entries of these marketing and advertisement expenses. The ld. AO pointed out 8 such entries which are mentioned at page 24 of the assessment order. During the course of search, a statement was recorded of Dr. M.E. Mohan, Principal of BGS Global Institute of Medical Sciences who in his statement categorically shown format of admission through which the agents are authorised. The Secretary of the trust Sri Prakash Nath Swamy was also shown the above statement and vouchers of admission. He stated that vouchers are prepared by the trust for paying commission to the agents for procuring students. Thus the AO was of the view that the above submissions clearly show that trust colleges are using agents for admission process, but the expenditure paid to the agents are never recorded in the books of account During the assessment proceedings also the assessee refused to have made such pay....
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....ssessee. For this also, he relied on several judicial precedents. 36. The ld. DR vehemently supported the orders of ld. lower authorities and submitted that when the diaries seized during the course of search shows unexplained expenditure in the form of commission paid by the assessee to the various agents for soliciting students for admission for various colleges, those expenditure are not accounted for in the book of account of the assessee, the addition u/s. 69C is rightly made. 37. Ground Nos. 10 & 11 are with respect to the addition of Rs. 7,74,75,000/-. The ld. AO noted the facts at para 5 of the assessment order that during the course of search & seizure operation at Vijayanagar, some diaries were seized. The searched premises was being used for the admission into medical college which is being looked after by Shri H.B. Shivaram. He was stated to be the Manager in the trust. Several of the diaries were in the writing of Mr. H.B. Shivaram, which contained the address of the students and the amounts that is paid for admission into the college. The details also contained the amounts fixed, the date on which the sum has been paid, amount further payable at various due date....
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....the applicability of denial of exemption on the income of the trust is also not proper. The ld. CIT(A) confirmed the addition of Rs. 7,74,75,000/- for the reason that the amounts have been mentioned in the diary maintained by Mr. H.B. Shivaram stating that the above sum of money is handed over to Swamiji. Further the assessee also submitted that the above sum even if received by Swamiji has not been taken for his benefit, but is utilised for the purpose of or objects of the trust. Thus, there is no benefit received by any of the trustees mentioned in section 13(3) of the Act. The ld. CIT(A) rejected the contention of the assessee stating that it is a prima facie requirement of demonstrating that the above sum are from income & expenditure statement or not and he confirmed the action of the AO. 39. On appeal before us, the assessee challenged the same vide ground No.10 stating the following arguments:- i. HBS has stated that the amounts referred to in the noting under the head 'PP', money was handed over to Sri Sri BGS for charitable purposes. He has also stated that the trust will offer the undisclosed income for tax for the amounts that have not been remitted to the ba....
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....swami / "Parama Pujya". The allegations that he has benefitted directly or indirectly are far from truth and without any factual foundation. The LAO has not brought anything on record to show that there was any personal benefit for the Mahaswami / "Parama Pujya". The Mahaswami / "Parama Pujya" is not alive to defend this accusation on him by the revenue and to expect that a man of such stature to have taken benefit is arbitrary, capricious and only based on surmise and suspicion and without any back up of any legal or documental evidence in such regard. vi. It is submitted that the LAO cannot require the Appellant to demonstrate the negative, that is, that the Late SSS BGS applied the sums to the benefit of the Appellant, especially since, he is no more. vii. Without prejudice, it is also to be noted that HBS himself in his statement has stated that these amounts were used for charity and donation. On the one hand, the LAO relies on HBS statements to conclude that these are receipts, but on the other hand, the LAO did not rely on HBS statements on the outflow. viii. We also understand that HBS was subjected to assessment proceedings after the search, but ....
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..... Therefore now the statement cannot be confirmed. He further reiterated the fact that additions have been made in the hands of assessee without confronting Mr. Shivaram to the assessee. Even otherwise, it was submitted that based on the seized diaries, no addition could have been made. 42. Combining all the 3 grounds of addition with respect to the addition on account of fee refund of Rs. 7,65,54,000/- as per ground Nos. 4 to 6 of the appeal as fee refund, the addition of unexplained expenditure of Rs. 76,56,000/- covered as per ground Nos.7 to 9, it was stated that amount of fee refunded and unexplained expenditure requires to be telescoped with the alleged unaccounted receipts amounting to Rs. 7,74,75,000/- and the balance sum only can be taxed which was precisely ground No.11 of the appeal memo. 43. We have carefully considered the rival contentions and perused the orders of ld. lower authorities. The facts clearly show that there are 3 kinds of additions which have been made:- (i) fee refunded, (ii) unaccounted expenditure, and (iii) unaccounted fee income of the assessee. 44. Therefore, the two items are out go and one item of fee income is....
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....sed by the assessee. They are mere non-speaking loose sheets containing unsubstantiated jottings having no evidentiary value. First of all to come to the conclusion that these are full proof documents, the department should have given cross-examination of the author of these loose sheets which was not provided. As held by the Hon'ble Delhi High Court in Principal Commissioner of Income-tax v. Best Infrastructure (India) (P.) Ltd., 397 ITR 82 (Del), statement recorded u/s. 132(4) did not by themselves substitute incriminating material and on that basis assumption of jurisdiction u/s. 153A and consequent addition made by AO were not justified. Further it was observed that statement u/s. 132(4) during the course of search action not only has to be offered to the assessee, but an opportunity to cross-examine has to be given. If it was not provided, it is sufficient to discard such statement which is evident from para 37 of that judgment. Similar view was taken by Lucknow Bench of the Tribunal in the case of M/s Fateh Chand Charitable Trust v. CIT (Exemptions) Lucknow 2016 (4) TMI 1119 - ITAT Lucknow / [2016] 49 ITR (Trib) 276 wherein it was held that even when the assessee disputed the....
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....UU/1 to 4 though did not contain the name of assessee or signature of any person, they are merely unsubstantiated loose sheets. As held by the Tribunal in the case of ACIT v. Layers Exports P. Ltd [2017] 53 ITR (Trib) 416 (Mumbai), addition cannot be sustained merely on the basis of rough noting made on few loose sheets, unless AO brings on record some independent and corroborative material to prove irrefutably that the said noting revealed unaccounted income or unaccounted investment or unaccounted expenditure of the assessee. The very purpose of search concluded u/s. 132 is to unearth hidden income or property or get hold of books of account or documents which has not been or will not be otherwise produced by the assessee in regular course on issue of summons or notice. In the assessee's case, as stated above, the purported search action did not lead to discovery of any unaccounted money, bullion, jewellery or other valuable article or thing. Further, no books of account revealing any undisclosed transactions of the assessee were found during the course of search. The entire assessment order revolves around scribbling in loose sheets of papers seized from premises of another ....
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....hese circumstances, no addition can be made on the basis of such 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 ....
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....cts in Page no 78 to 86 of the assessment order it shows that 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 c....
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....ross-examined. At this point, it is appropriate to rely on the judgment of the Mumbai Bench in the case of ACIT v. Layers Exports P. Ltd [2017] 53 ITR (Trib) 416 (Mumbai), wherein it was held that no addition could be simply made on the basis of uncorroborated noting in the loose papers found during the search because addition on account of alleged receipt made simply on the basis of uncorroborated noting and scribbling on loose sheets made by some person have no evidentiary value and is unsustainable and bad in law. 196. The Hon'ble Supreme Court in Common Cause (A Registered Society) v. UOI [2017] 394 ITR 220 (SC) observed with regard to evidentiary value that entries in books of 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 negati....
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....al scribbling's and noting's. Most of the entries is a repeat of hard copy of seized material A/DUU/01. Further there are certain letters as follows: (i) PB 1767 - Letter from A Murthy confirming the voluntary payment of Rs. 50,000/- towards corpus donation by cheque (ii) PB 1768 (duplicate of above) Letter from A Murthy confirming the voluntary payment of Rs. 50,000/- towards corpus donation by cheque. (iii) PB 1771 - Letter from B Rajashekhar confirming the voluntary payment of Rs. 30,000/- towards corpus donation by cheque. (iv) PB 1772 (Duplicate of above) Letter from B Rajashekhar confirming the voluntary payment of Rs. 30,000/- towards corpus donation by cheque. (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 confirmi....
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....resumption under section 292C gets automatically rebutted. Section 153C(1) states that where the Assessing Officer of the searched person is satisfied that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or any books of account or documents, seized or requisitioned, 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 th....
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.... 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 furnished copies....
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....tements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross-examine, 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) Appellant had 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-examination and m....
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....ng 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 entire disa....
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.... 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 Shukla 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 Shukla'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 cornerstones of natural justice. Here Shri Shukla 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 privilege but a n....
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....he 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 foregoing and redo the a....
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....ands 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 cannot be const....
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....econfirmed. 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 were relied upon....
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....lanation 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 case of Bala....
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....mmons 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 sampl....
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....as collected 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 c....
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....ould 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 Tr....
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....ation of registration 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, stat....
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....y itself. 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 state....
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....idence. (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 propositio....
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....tted into 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 ....
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....ere recorded, 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 cross-examination 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 depa....
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....refore, the 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 cross-examination 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....
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....re possible, 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 well-accepted 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 merel....
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....of search. More 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 2015-16 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,....
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....e is no allegation either 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 an....
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....ing their position. The 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 th....
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....ed for. The addition on account of unexplained expenditure is also made on the basis of seized document. 49. In case of Sunil Kumar Sharma [2024] 159 taxmann.com 179 (Karnataka)/[2024] 469 ITR 197 (Karnataka) Honourable High court has decided the first question raised in para no 21 as under :- 21. Both the Appellant-Revenue and Respondent-Assessee entered appearance and submitted their arguments extensively. On hearing the learned counsel for both the parties, this Court finds it relevant to examine the following questions that arises for consideration in these writ appeals, which are as under: (1) Whether 'Loose Sheets' and 'Diary' have any evidentiary value? (2) Whether Centralization is in violation of Section 127 of the Income-tax Act, 1961, is valid? (3) Whether the Notice under section 153C of the Income-tax Act, 1961 is valid herein? As regards Question No. 1: Upon reading the material provided and the order of the learned Single Judge delivered on 12-8-2022, it is evident that the income that has escaped assessment and notices under section 153C of the Income-tax Act, 1961, were so....
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....d by the Hon'ble Apex Court with regard to acceptance of diaries/loose sheets by the respondent- Revenue. In the case of V.C. Shukla (supra), at paragraphs 16 to 18 of the judgment, it is observed thus: "16. To appreciate the contentions raised before us by the learned counsel for the parties it will be necessary at this stage to refer to the material provisions of the Act. Section 3 declares that a fact a relevant to another when it is connected with the other in any of the ways referred to in the provisions of the Act relating to the relevancy of facts; and those provisions are to be found in Section 6 to 55 appearing in Chapter II. Section 5, with which Chapter II opens, expressly provides that evidence may be given in any suit or proceeding of the existence or nonexistence of every fact in issue and the facts declared relevant in the aforesaid section, and of no others. Section 34 of the Act reads as under:- "34. Entries in books of account when relevant - Entries in book of account, regularly kept in the course of business, are relevant whenever they refer to a matter into which the court has to inquire but such statements shall not alone be sufficient ev....
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....ses of S. 34, and I have no hesitation in holding that unbound sheets of paper in whatever quantity, though filled up with one continuous account, are not a book of account within the purview of S.34." 24. The aforesaid approach is in accordance with good reasoning and we are in full agreement with it. Applying the above tests, it must be held that the two spiral note books (MR 68/91 and 71/91) and the two spiral pads (MR 69/91 and MR 70/91) are "books" within the meaning of Section 34, but not the loose sheets of papers contained in the two files (MR 72/91 and MR 73/91)." 25. The Hon'ble Supreme Court in the case of Common Cause (supra) at paragraphs 278 to 282 of the judgment, has observed thus: "278. With respect to the kind of materials which have been placed on record, this Court in V.C. Shukla case has dealt with the matter though at the stage of discharge when investigation had been completed by same is relevant for the purpose of decision of this case also. This court has considered the entries in Jain Hawala Diaries, note books and file containing loose sheets of papers not in the form of "books of accounts" and has held that such entries in ....
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.... aforesaid section on the ground that they were neither books of account nor they were regularly kept in the course of business. he submitted that at best it could be said that those books were memoranda kept by a person for his own benefit. According to Mr. Sibal, in business parlance 'account' means a formal statement of money transactions between parties arising out of contractual or fiduciary relationship. Since the books in question did not reflect any such relationship and, on the contrary, only contained entries of monies received from one set of persons and payment thereof to another set of persons it could not be said, by any stretch of imagination that they were books of account, argued Mr. Sibal. He next contended that even if it was assumed for argument's sake that the above books were books of account relating to a business still they would not be admissible under section 34 as they were not regularly kept. It was urged by him that the words 'regularly kept' mean that the entries in the books were contemporaneously made at the time the transactions took place but a cursory glance of the books would show that the entries were made therein long after ....