2021 (8) TMI 955 - AT - Income Tax

Validity of search u/s 132 - contention of the ld. AR is that search action was not valid and due procedure laid down u/s. 132 of the Act was not followed - HELD THAT:- In this case, search was conducted u/s. 132 on 15.10.2015 by issuing valid warrant in the name of assessee and also Panchanama was drawn with proper local witnesses. As on date there was Explanation inserted in section 132 by the Finance Act, 2017 with retrospective effect from 1.4.1962 prohibiting appellate authorities to go into the reasons recorded by the concerned appellate authorities for directing search against the assessee. This amendment will have effect in the present case. Therefore, the Tribunal cannot be expected to go into the said question.

It is only for the Constitutional posts to examine the validity of search action. More so, this issue was also decided in the case of Prathibha Jewellery House [2017 (11) TMI 1744 - KARNATAKA HIGH COURT]where the writ petition was dismissed holding that law was amended by insertion of aforesaid Explanation by the Parliament in section 132 by the Finance Act, 2017 w.r.e.f. 1.4.1962 and it was held that the Appellate Authorities could not go into the reasons recorded by the concerned Income Tax Authority for directing Search action. In view of this, we are of the opinion that the assessee is precluded in challenging the validity of search action before the Tribunal.

Validity of notice issued u/s. 153A - HELD THAT:- As per clause (a) of sub section (1) of section 153A, at the stage of issue of notice u/s 153A, the only requirement is to ask the assessee to file return of income for relevant six years covered by section 153A and whether after filing of return of income, the assessment to be made by the AO will be assessment or reassessment has to be determined afterwards and not at the time of issue of notice u/s 153A. Similar view was taken in the case of Rajesh Exports Ltd.[2018 (12) TMI 278 - ITAT BANGALORE]in para 17 of the Tribunal’s order. In this view of the matter, this ground is dismissed.

Status of the assessee - According to the ld. AR, trust is not a person referred to in section 2(31) of the Act and the CIT(Appeals) ought to have held that assessment made on a nonexistent status is bad in law - HELD THAT:- In this case, the assessee itself has filed return of income in the status of “trust” and the same was followed by the AO in framing assessment u/s. 153A of the Act. Being so, we do not find any infirmity in the order of AO. This ground is dismissed.

Validity of assessment u/s 153A - HELD THAT:- There are various incriminating material found during the course of search and as rightly pointed out by the ld. DR, it cannot be accepted that no incriminating material was found during the search action. As in Canara Housing Development Co. case [2014 (8) TMI 642 - KARNATAKA HIGH COURT] held that once the assessment is validly reopened, the AO has to take into account all the three types of income to complete the assessment or reassessment, as the case may be. The three types of income are (i) income disclosed in the return of income, (ii) undisclosed income during the search, and (iii) any other income which is not disclosed in the earlier return and not unearthed during the search. In our considered opinion, if incriminating material is found during the search u/s. 153A, all three types of income has to be assessed by the AO and in view of the judgment of Canara Housing Development Co. (supra) this legal ground has no merit.

Unaccounted capitation fees in cash - Reliance on seized material and post-search statements - HELD THAT:- Addition made by the AO is based on unsubstantiated loose sheets and jottings without proper cross-examination of the person who has admitted the contents therein. Being so, it cannot be stated as full-proof of material evidence to substantiate the addition. In our opinion seized documents do not support the AO’s contention that assessee has received unaccounted capitation fees for admission of the students to the college. It also does not suggest that the assessee has paid commission to agents to bring the students for admission to college.

Similarly it does not suggest payment of any amount to the trustees for their self-benefit. Going through the entire facts of the case it creates only a suspicion in the minds of the revenue authorities that the assessee has collected unaccounted capitation fee - the suspicion not enough to hold that the assessee has collected unaccounted capitation fees in absence of concrete evidence bought on record by the authorities concerned. The suspicion cannot replace the material evidence brought on record by the authorities

Statement of 2 cannot be basis for making such huge additions on collection of capitation fees. It cannot be considered as appropriate sample to frame the assessment on the basis of their statement - assessee requested for cross examination of all the parties whoever have given the statements against the assessee, if any, which was not provided at all - such statements cannot be relied upon.The revenue authorities bound to follow the principle of natural justice and ought to have given proper opportunity of examination and cross examination of the parties concerned whose statements are relied upon to frame the assessment. In our opinion the discovery of documents not only sufficient to conclude the collection of unaccounted capitation fees, cross examination of concerned parties is also important.

The revenue authorities recorded statement of only 5 students out of more than 800 students and out of 5 only 2 are confirmed. The two statements recorded cannot be relied upon without confronting the same to the assessee. The statement of these two persons confirming payment of capitation fees is fully uncorroborated and non-production of them for cross-examination cannot be considered as incriminating material so as to sustain the addition. The rough notings in the loose papers are not full-proof evidence without proving the correctness of the same. Nothing was recorded in the orders of lower authorities that assessee has deviated from its objects for which approval u/s. 12A was granted and not applied its funds towards its objects. No evidence was brought out to show that the amount of capitation fees alleged to have been collected resulted in creation of any unaccounted assets by the trust or trustees or by any interested person. On this count also the addition cannot be sustained.

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.

No evidence was brought on record to show that amount of alleged capitation fees which have been collected was misused by the assessee or by any interested persons.There is no allegation that the assessee is not imparting education and it is an admitted fact that thousands of students are studying in the college and assessee has been carrying on educational activities imparting medical education. It fulfilled the requirement of imparting education which are not doubted or challenged by the authorities. Being so, exemption u/s. 11 of the Act cannot be denied.

The unsubstantiated and uncorroborated seized material alone cannot be considered as conclusive evidence to frame these assessments. The words “may be presumed” in section 132(4) of the Act given an option to the AO concerned to presume these things, but it is rebuttable and it does not give a definite authority and conclusive evidence. The assessee is having every right to rebut the same.

No addition can be made in the absence of any corroborative material. Since there was no examination or cross-examination of persons concerned, the entire addition in the hands of the assessee on the basis of uncorroborated writings in the loose papers found during the course of search cannot be sustained. The evidence on record is not sufficient to uphold the stand of revenue that assessee is collecting huge unaccounted capitation fees in the guise of carrying on educational activities.

As already held that there are various loose sheets, scribblings, jottings and Excel sheets taken from the computer having no signature or authorization from the assessee’s side. These are unsubstantiated documents and there is nothing to suggest any undisclosed assets of assessee found during the course of search. More so, it does not show any recovery of the undisclosed assets in the form of landed property, building, investments, money, bullion, jewellery or any kind of movable or immovable assets - Decided in favour of assesee.

Denial of exemption u/s. 11 - 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 - HELD THAT:- Unless the department shows that there was breach of conditions laid down for grant of exemption u/s. 11 of the Act, the benefit of exemption u/s. 11 cannot be denied. The assessee enjoyed registration granted during this period and the assessee also demonstrated that the assessee’s predominant objects remain the same i.e., carrying out the charitable activities for the purpose of advancement of education and not to earn profit. Earning surplus income by carrying out educational activities is not a reason to deny exemption u/s. 11 of the Act. The assessee’s predominant activity is carrying out educational activities which is charitable in nature.

The trust cannot be deprived of the benefit of exemption u/s. 11. Further, as we have discussed in elsewhere in the order there is no concrete evidence for collection of unaccounted capitation fees and it is not possible to deny the exemption u/s 11 of the act. It is also noted that even if the assessee constructed the temple inside the campus of the education institution for the benefit of the students and employees and also for public, it cannot be construed as violation of section 12(1)(a) of IT Act. There was one more allegation that assesse has collected exorbitant fees but in our opinion the fees has been fixed by the state authority and there was no violation noted by the state authority or MCI. As discussed in earlier para of this order about the authenticity of the seized material, we have held that it is not foolproof. In such circumstances it cannot be relied upon - Decided in favour of assessee.

Allowance of depreciation - HELD THAT:- The assessee is entitled for depreciation u/s. 32 on assets where it has been laid out as application of income for charitable purposes u/s. 11(1)(a) of the Act. The amendment brought to section 11(6) of the Act by the Finance (No.2) Act, 2014 which became effective from AY 2015-16 and depreciation in such case being precipitation in nature. Accordingly, by placing reliance on the decision of the Hon’ble Supreme Court in the case of CIT v. Rajasthan & Gujarati Charitable Foundation Poona, [2017 (12) TMI 1067 - SUPREME COURT] the AO is directed to grant depreciation for AY 2010-11.

Undisclosed cash receipts - HELD THAT:- We have already held in earlier para of this order that unsubstantiated material cannot be full-proof material evidence to sustain the addition. We also hold that mere existence of concealment even in one year is not sufficient to estimate the income of other years on that basis. It is pertinent to place reliance on the order of this Tribunal in the case of Anjaneya Brick Works. [2002 (1) TMI 256 - ITAT BANGALORE] wherein it was held that estimation of income could not be made relying on the seized documents which related to another accounting period and not the accounting year under consideration and, therefore, addition could not be made on the basis of incriminating documents relating to subsequent year.

So the rule of uniformity cannot be and should not be applied on the estimate basis. There can be time and times when the uniformity can be maintained but for that case there should be some direct evidence available in a given case - As decided ANAND KUMAR DEEPAK KUMAR. [2006 (8) TMI 166 - DELHI HIGH COURT] merely because some discrepancies were found in assessee’s books in the pre-search period of unaccounted sales, it could not be presumed that such a discrepancy continued even in the post-search period, when there is no evidence to support such a view, and, therefore, addition could not be made on the basis that the assessee had made unaccounted sales throughout the accounting year. Being so, there is no question of extrapolation of income in all these assessment years.

Disallowance of donation u/s 37 - HELD THAT:- The donations have been given to the registered and approved institution i.e., R.L. Jalappa Foundation which is duly registered u/s. 12A of the Act by way of account payee cheque and the same is to be allowed as an application of income. This ground of the appeal of the assessee is allowed.

Rate of Tax - contention of the AR is that even if exemption u/s. 11 is denied, maximum margin rate of tax cannot be applied in view of the CBDT circular number 320 dated 11/01/1982 - HELD THAT:- We are agreeing with the contention of the AR. in our opinion this ground of appeals does not require any adjudication as we have already held that assessee is entitled for exemption 11 of the I.T. Act.