AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 845
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.... Ground Nos. 2.1 and 2.3 to 3.6 are interconnected and pertains to the addition of Rs. 23,77,50,000/- on account of collection of capitation fees. 4. The relevant facts are that the assessee i.e. M/s Devaraj Urs Educational Trust for Backward Classes, Kolar, was set up to provide education in the fields like medicine, engineering, pharmacy, nursing, and schooling. The trust was officially registered on 14th November 1984. Shri R. L. Jalappa is the founder trustee and chairman, and his children Shri J. Rajendra and Smt. J. Saraswati are also trustees. Shri G. H. Nagaraj is the secretary of the assessee trust and actively involved in day-to-day affairs of the assessee trust. The trust is running several educational institutions. 4.1 A search under section 132 of the Act was carried out at the trust on 10th October 2019. During the search at the premises of Sri Devaraj Urs Medical College Tamka Kolar, an excel sheet was found and seized from the computer operated by the cashier namely Shri P Narayanaswami. The impugned excel sheet was maintained in tabular form containing details such as S. Nos., Name of Doctor, course, total, Fee, Balance, Received and Balance. 4.2 The impug....
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....on got done by him in various medical colleges for UG/PG courses against the capitation fee were found and seized marked as annexure A/TB/2, A/TB/3 and A/TB/5. The statement of Shri T Babu was recorded as on the date of search i.e. 10th October 2019 under section 132(4) of the Act where he explained the modus operandi for admission of the student in various medical colleges under management quota. He explained the noting on the seized materials etc. Further, his statement was recorded under section 131(1) of the Act as on 05th November 2019 wherein it was enquired about the admissions, he got done in the assessee's medial college. To which, he replied that during the financial year 2019- 20, he got the admissions of 15 students in MBBS courses (relevant seized materials Pages 25 to 39 of annexure A/TB/3), 4 students in PG Course. He provided the names of those students showing total course fees, capitation fee agreed (including his commission), capitation fee collected out of the agreed amount. As per the details provided by Shri T Babu, capitation fee of Rs. 10.1025 crore was agreed for admission of 15 students under MBBS course out which an amount of Rs. 4.625 crore only was coll....
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....opy of material seized from the assessee premises and material seized from Shri T Babu along with copy of his statement was provided to the assessee for rebuttal. Subsequently, the opportunity of cross examination of Shri T Babu was also accorded on 23rd August 2021. However, the copy of the statement of student sought by the assessee was not provided by holding that those statements were not utilized against the assessee. Hence, the same were not required to be provided to the assessee. 6.1 The assessee submitted that the seized materials are undated, unsigned and without any narration. Therefore, the same are in the nature of dumb documents and cannot be treated as evidence. It was argued that merely certain loose sheet/paper found, the presumption under section 292C of the Act cannot applied. As such, the onus is upon the revenue to prove that the loose sheet/paper, note pad etc found belong to the assessee. As the seized materials do not contain the name or seal of the assessee, the revenue authority failed to discharge their onus to prove that the material belongs to the assessee. 6.2 The assessee claimed that amount of capitation fee was quantified on estimated basis wi....
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....e of the proceedings. The student's name appearing therein in the seized materials are matching with the information received from the office of the registrar. Hence, the seized materials found are incriminating in nature and not the dumb documents. 7.1 The excel sheet and other materials found from the assessee's premises were showing receipt of capitation fee. The person who made entry therein is the employee of the assessee. Therefore, the presumption under section 292C of the Act is rightly applied. 7.2 The AO held that the quantification of the unaccounted capitation fee was made on the basis of the statement of the cashier/ agent which was based on the seized materials. Therefore, the claim of the assessee that quantification made merely on estimation basis is not acceptable. The AO also referred the judgment of the Hon'ble Supreme Court in the case of Commissioner of Sales Tax vs. H.M. Esufali in AIR 1973 2266 where it was held that task of detecting the escaped/ unaccounted turn over by the revenue is not easy therefore it would always involve some degree of estimation based on the materials found. 7.3 The AO also rejected the assessee's contention that the additio....
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.... loose sheets are not the books of accounts, therefore the same cannot be made basis for making the addition. 9.1 The assessee argued that the AO had heavily relied on unverified and unauthenticated third-party documents, particularly those seized from the premises of one Shri T. Babu, an alleged agent, and Shri Narayana Swamy P, an accountant. As such, the trust disowned both individuals in relation to any activity of collecting capitation fees. It was contended that Shri T. Babu was never employed by or related to the trust, and hence, any material found at his premises cannot be relied upon against the trust. Similarly, Shri Narayana Swamy P was described as a cashier working in the pharmacy of the hospital and had no role in admissions or fee collections. In addition, the statement given by the Shri Narayana Swami and Shri T Babu cannot be relied upon as they are contradicting to each other. Shri T Babu in his statement recorded under section 131(1) of the Act stated that cash collected on account of capitation was given to Shri Narayana Swami whereas Shri Narayana Swami stated that he never received cash on account of capitation fees. 9.2 The assessee further contended t....
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....s. 10. However, the learned CIT(A) after carefully considering the submissions of the assessee, the assessment order, seized materials, and judicial precedents, rejected the contentions raised by the assessee and upheld the additions made by the Assessing Officer. The ld. CIT(A) held that the seized materials were not "dumb documents" as claimed by the assessee, but rather constituted "speaking documents" duly corroborated by the statements recorded under section 132(4) of the Act and official records obtained from the college registrar. 10.1 The learned CIT(A) noted that the Excel sheet was directly retrieved from the trust's own computer system, and Shri Narayana Swamy P, the cashier, in his deposition under section 132(4) of the Act, clearly admitted that the Excel sheets were maintained by him under the direction of Shri G.H. Nagraj, the Secretary of the Trust. Thus, its authenticity stood confirmed by the statement of the cashier who maintained it. These Excel sheets contained names of students enrolled in the medical college run by the appellant trust, along with details of capitation fees received in cash. Importantly, this statement was never retracted and was corrobo....
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....hat such authorization cannot be found in search proceedings for the reason that the appellant trust as well as its employees are well aware of the fact that collection of capitation fee is prohibited and offence under the law. Therefore, no such authorization can be given in writing. 10.6 The learned CIT(A) further rejected the assessee's contention for not providing the statement of the students and their parents alleging the violation of principle of the natural justice. As such, the learned CIT(A) confirmed the view of the AO that the statement of students and their parents were not used against the assessee, therefore the same are not required to be provided. 10.7 Regarding the quantum of addition in respect of collection of capitation fee from MBBS student based on material seized from the agent Shri T Babu, the ld. CIT(A) rejected the assessee's plea to restrict the addition to Rs.4.62 crores on the ground that no evidence was filed to show that the balance amount was not collected. On the contrary, it was reasoned that students would not be granted admission without making the full payment. Hence, the addition of the entire agreed amount of Rs.10.10 crores was confirm....
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....has not admitted to any of the entries in the seized materials. 12.1 The learned AR further pointed out that the loose sheets and note pads do not evidence any completed transactions, and the AO's inferences are based on assumptions, speculation, and conjecture. There is no independent, cogent, or reliable evidence to support the AO's conclusions. The seized loose sheets are undated, unsigned, and do not contain the name or seal of the appellant, hence the burden lies on the revenue to prove they belong to the appellant, which has not been done in the present case. Section 132(1)(iii) of the Act allows seizure only of books of account or other documents contemplated in clauses (a) and (b) of section 132(1) of the Act. Loose sheets and note pads are not books of accounts and therefore could not have been seized under this provision of the Act. 12.2 He referred to section 292C of the Act, explaining that its presumption applies only to books of accounts, other documents, or valuable articles, but does not to any loose sheets or scribbled note pads. Even otherwise, the presumption under section 292C of the Act is rebuttable, and in this case, the assessee has denied ownership or....
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.... sales, purchases, or habitual offences here. Therefore, the seized materials and statements do not justify any addition in the given set of facts and circumstances. 12.7 The learned AR further argued that even if it is assumed that cash was collected, the AO failed to consider the practical aspect that such a huge amount of unaccounted cash could not have been physically concealed without either being converted into assets or being spent. No attempt was made by the AO to identify any assets created from the alleged cash. When the search was conducted, no cash was found, which disproves the allegation of the AO. The AO's theory that the appellant collected capitation fees in cash and diverted them for the benefit of trustees is not supported by any reliable evidence. 12.8 The learned AR submitted that if the AO truly believed the funds were diverted to trustees, a substantive addition should have been made in the trustees' cases under section 153C of the Act, rather than making a protective addition in its case. Section 153C specifically deals with the situations where seized material belongs to another person, and in such cases, the AO must transfer the materials to the AO h....
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....undeniable link to the trust's financial dealings. The seized material contains specific details such as the names of students, amount paid towards fees, outstanding balances, and reductions, which are directly connected to the collection of unaccounted capitation fees. 13.1 The learned DR contended that the seized data is not vague or unsupported but has been corroborated through multiple independent sources. This includes the trust's own admission and payment records, which exactly match the details in the seized data, as well as other incriminating materials recovered from Shri T. Babu, who acted as an intermediary in admissions. The materials from Shri T. Babu further confirms the capitation fee transactions recorded in the data seized from the trust premises. Both the AO and the learned CIT(A) have compared the seized electronic data with the trust's official records and the statements recorded during the search, finding that they match and prove the receipt of unaccounted capitation fees. 13.2 The learned DR submitted that the assessee's blanket denial of collecting capitation fees is not credible, particularly since the seized data matches the institution's own records....
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....d capitation fee in cash from students who took the admission. The case of the Department rests primarily on the following: (i) An Excel sheet recovered from a computer used by the cashier of the Trust along with his statement, and (ii) Certain papers recovered from a third party, Shri T. Babu and along with the statement. 14.1 We note that the search carried out at the assessee's premises resulted in recovery of an Excel sheet from the computer operated by the cashier, Shri P. Narayana Swamy. The said sheet contained names of some students with details of certain amounts against the respective names. However, it is important to note the following facts: * The Excel sheet is not a regular book of account. It is not signed or authenticated. It has no date or reference to the institution's records. It did not contain any writing suggesting collection of capitation fee. * The cashier admitted that he prepared the sheet and explained that noting therein represent collection of capitation fee in cash. But he categorically stated that he never received cash. He further stated that the Secretary was the person who managed all admission-related matter....
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....arge amount Rs.23.78 crores. It is difficult to believe that such a huge volume of cash could have been received and yet leave no trace. In our considered opinion, if the Trust had received such sums, it would have utilized them either in creating assets, meeting expenses, or investing elsewhere. However, the Department has not brought any evidence of: * Cash seized during search, * Unaccounted assets, * Unexplained expenditure, or * Any bank deposit trail. 14.8 The absence of evidence indicating the utilization of such cash receipt is a serious gap. the large-scale cash dealings of this magnitude cannot remain invisible. In absence of such corroboration of utilization or trace of cash, mere a loose sheet or a third-party note cannot by itself establish receipt of cash. 14.9 Furthermore, the Department's allegation is that students or their parents paid the capitation fee. Hence, in the given circumstances, their statements would be the most important primary evidence. However, the Department admitted that the statements of students and their parents were not furnished to the assessee, stating that "they were not used" against the assessee.....
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....nd secretary of assessee trust contradict each other. Most importantly there is no utilization trail of such huge cash found as alleged and the statements of students/parents who are direct and primary party are not against the assessee. In such circumstances, the evidentiary threshold required for sustaining an addition in a search assessment is not met. Therefore, we hereby set aside the finding of the learned CIT(A) and direct the AO to delete the addition of Rs.23,77,50,000/- only. Hence the ground of appeal of the assessee is hereby allowed. 15. The next issue raised by the assessee through Ground No. 2.2 of its appeal is that the learned CIT(A) erred in relying on data retrieved from electronic device without satisfying the conditions prescribed under section 65B of the Act. 15.1 At the outset, we note that the issue raised was not pressed by the learned AR of the assessee. Hence the same is being dismissed as not pressed. 16. In the result, the appeal of the assessee is hereby partly allowed. Coming to ITA No. 903/Bang/2024, an appeal by the Revenue for A.Y. 2020-21 17. The only effective issue raised by the revenue is that the learned CIT(A) erred in allowing....
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.... been used for the objects of the Trust, and therefore exemption under section 11 should be available. It also cited the decisions of the Hon'ble Gujarat High Court in K.T. Doctor v. CIT (124 ITR 501) and the ITAT Bangalore in M.J. Balachander v. DCIT 2012 (12) TMI 1002 to argue that the Trust should not be penalized for alleged acts of individuals in their personal capacity. 21. However, the Learned CIT(A) after considering the facts in totality noted that the Hon'ble ITAT had indeed restored the assessee's registration under section 12AA of the Act with retrospective effect from 20-01-1992, and therefore, in principle, exemption under section 11 could not be denied on the ground of cancellation of registration. However, on examining the facts and material on record, the ld. CIT(A) upheld the AO's finding that the assessee Trust had received capitation fees in violation of section 13(1)(c) of the Act and the Karnataka Education Institution (Prohibition of Capitation Fees) Act, 1984. 21.1 The ld. CIT(A) further held that the capitation fees received were unaccounted and not recorded in the books of account, and its (capitation fees) acceptance was a clear violation of law. Th....
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....e Act. 22.3 The ld. DR also stressed that the registration under section 12A of the Act was cancelled by the ld. PCIT in March 2018, and though the ITAT quashed the cancellation in its order dated 08.06.2022, this order has not attained finality since the Revenue has filed an appeal before the Hon'ble High Court of Karnataka. Hence, the status of registration remains unsettled, and therefore, the ld. CIT(A) should not have granted the benefit of section 11 of the Act when the very basis of exemption was under challenged. 22.4 Finally, the learned DR argued that the ld. CIT(A)'s order suffers from a serious contradiction on one hand, it upholds the AO's finding of violation of section 13 of the Act due to acceptance of capitation fees, and on the other hand, it still allows the exemption under section 11 of the Act. This, according to the ld. DR, is a fundamental legal error, making the ld. CIT(A)'s decision legally untenable and liable to be reversed. 23. On the other hand, the learned AR reiterated the submission as made before the learned CIT(A). 24. We have heard the rival contentions of both the parties and perused the materials available on record. The revenue's ob....
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....e appeal of the Revenue for the A.Y. 2020-21 has been decided by us vide paragraph No. 24 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2020-21 shall also be applied for the assessment years 2017-18 to 2019-20. Hence, the grounds of appeal filed by the Revenue for A.Ys. 2017-18 to 2019-20 are hereby dismissed. 27. In the result, all the appeals of the Revenue for A.Ys. 2017-18 to 2019-20 are hereby dismissed. Coming to ITA No. 1561/Bang/2024, an appeal by the assessee for A.Y. 2019-20 28. The assessee has raised as many as 7 grounds of appeal and sub-grounds which are running into several pages. Hence, we for the sake of brevity are not inclined to reproduce the same here. 29. The issue raised by the assessee through Ground No. 1 of the appeal is general in nature and does not require any separate adjudication. Hence, the same is being dismissed as infructuous. 30. The assessee through Ground Nos. 2 to 4 of the appeal has challenged the validity of the search under section 132 of the Act, notice issued under section 153A of the Act and assessment framed under section 153A of the Act....
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.... 5.9.1 Having held that the appellant is eligible for exemption u/s 11, the issue of allowing donations needs to be addressed. The appellant during the appellate proceedings has not provided the basic details such as name of the parties, amount of donations, donation receipts etc. in support of the claim of donations and to establish the genuineness of the donations made by the appellant. In the absence of basic details the claim of the appellant becomes untenable. 36. Being aggrieved by the finding of the learned CIT(A), the assessee is in appeal before us. 37. The learned AR before us argued that the AO wrongly denied the exemption under sections 11 and 12 of the Act. Since, the exemption under these sections was denied, the deduction claimed for donations as application of income in the return was also disallowed, and the amount was treated as income in the assessee's hands. The learned AR pointed out that there was no other reason or finding given by the AO for denying this deduction. The learned AR further submitted that the learned CIT(A) had allowed exemption under sections 11 and 12 of the Act, but still denied the deduction of the donation claimed on the ground th....
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....we deem it appropriate, to set-aside the order of the ld. CIT-A and direct the AO to delete the addition made by him. Accordingly, the ground raised by the assessee is hereby allowed. 40. In the result, the appeal of the assessee is hereby partly allowed. Coming ITA No. 1559/Bang/2024, an appeal filed by the assessee for A.Y. 2017-18. 41. The assessee has raised extensive grounds of appeal running into several pages, hence for the sake of brevity, we are not inclined to reproduce the same. 42. The issue raised by the assessee through Ground No. 1 of its appeal is general in nature and does not require any separate adjudication. Hence, the same is hereby dismissed as infructuous. 43. The assessee through Ground No. 2 of its appeal challenged the validity of the search proceedings under section 132 of the Act and in consequence challenged the validity of assessment under section 153A of the Act. 43.1 At the outset, we note that the issue raised by the assessee on merit of the case has been decided in its favour. Accordingly, we do not find any reason to adjudicate the impugned issue on hand. As such, we keep the issue open. Both the ld. AR and the DR did not raise a....
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....eceipt of capitation fee was found from the assessee's premises and the impugned material has been corroborated by the material found from third party Shri T Babu as well as from the deposition made by the assessee's cashier and shri T babu under section 132(4) of the Act and 131(1) of the Act. 49. Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us. 50. The learned AR before us argued that under section 153A of the Act, an assessment for any year can only be made if incriminating material for that year is found and seized during the search. If no such incriminating material exists for a particular year, then no assessment can be made for that year. In support of this, the ld. AR relied on several judicial precedents, including the decision of the Pune Tribunal in Sinhgad Technical Education Society v. ACIT, which was later upheld by the Hon'ble Bombay High Court and Hon'ble the Supreme Court. These rulings held that in the absence of incriminating materials relating to the relevant assessment year, the Assessing Officer (AO) cannot disturb settled and completed assessments. The learned AR also referred to judgments of the Hon'ble Karnataka....
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.... framed under section 153A are valid and fully supported by law. 52. We have heard the rival contentions of both the parties and perused the materials available on record. The issue before us relates to the determination whether any incriminating material relatable to the year under consideration, i.e., AY 2017-18, was found during the search so as to justify an addition under section 153A of the Act in light of the ratio laid down by the Hon'ble Supreme Court in PCIT v. Abhisar Buildwell Pvt. Ltd. [2023] 149 taxmann.com 399 (SC). The Hon'ble Supreme Court has held that in respect of unabated/completed assessments, no addition can be made under section 153A of the Act unless incriminating materials pertaining to that assessment year is found during the search. 52.1 In the present case, the excel sheet recovered from the computer operated by the cashier, Shri Narayanaswamy, admittedly does not contain any dates. Consequently, it is not possible to correlate the entries in that excel sheet with the financial year relevant to AY 2017- 18. The other materials relied upon by the Revenue, namely pages 25 to 39 of Annexure A/TB/03 seized from the premises of the agent Shri T. Babu, ....
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.... 5.1 & 5.3 to 6.4 are interconnected and pertains to the addition of Rs. 67,37,500/- on account of capitation fee. 56. At the outset, we note that the issues raised by the assessee in its grounds of appeal for the AY 2017-18 are identical to the issue raised by the assessee in ITA No. 1060/Bang/2024 for the assessment year 2020-21. Therefore, the findings given in ITA No. 1060/Bang/2024 shall also be applicable for the assessment year 2017-18. The appeal of the assessee for the A.Y. 2020-21 has been decided by us vide paragraph No. 14 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2020-21 shall also be applied for the assessment year 2017-18. Hence, the ground of appeal filed by the assessee for A.Y. 2017-18 is hereby allowed. 57. The next issue raised by the assessee through Ground No. 7 of the appeal is that the learned CIT(A) erred in disallowing the payment of donation fee for Rs. 3,79,74,767/- only. 58. At the outset, we note that the issues raised by the assessee in its grounds of appeal for the AY 2017-18 are identical to the issue raised by the assessee in ITA No. 1561/Bang/2....
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....note that the issues raised by the assessee in its grounds of appeal for the AY 2018-19 is identical to the issue raised by the assessee in ITA No. 1559/Bang/2024 for the assessment year 2017- 18. Therefore, the findings given in ITA No. 1559/Bang/2024 shall also be applicable for the assessment year 2018-19. The ground of appeal of the assessee for the A.Y. 2017-18 has been decided by us vide paragraph No. 52 of this order in favour of the assessee. The learned AR and the DR also agreed that whatever will be the findings for the assessment year 2017-18 shall also be applied for the assessment year 2018-19. Hence, the ground of appeal filed by the assessee for A.Y. 2018-19 is hereby allowed. 65. The issue raised by the assessee through Ground No. 4.2 of the appeal is that the assessment order is invalid as passed without proper approval under section 153D of the Act. 65.1 At the outset, we note that the issue raised by the assessee on merit of the case has been decided in its favour. Accordingly, we do not find any reason to adjudicate the impugned issue on hand. As such, we keep the issue open. Both the ld. AR and the DR did not raise any objection at the time of hearing, if....