TMI Blog2012 (4) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... hat powers of CIT(A) are co-terminus with that of the AO and he can do what the AO can do and can also consider aspects which have been omitted to be considered by the AO. Allowability of deduction/exemption under section 11 of the IT Act for assessment years 2001-02 to 2006-07 – Held that:- assessee was not registered under section 12AA for the assessment year 2000-01 and, therefore, not entitled to exemption under section 11 - As regards assessment years 2004-05 to 2006-07, the registration of the assessee under section 12AA has been restored by the Tribunal and no violations of provisions of section 13(1)(c) have been found in these years and therefore, exemption under section 11 has to be allowed to the assessee. Assessee has challenged the assessment orders passed by the AO on the ground that the same were barred by limitation – Held that:- provisions of section 142(2A) were not applicable and the AO was not entitled to avail extended period and the assessments were thus barred by limitation. The ld. AR for the assessee, however, at the time of hearing of these appeals did not press this ground. This ground is therefore, dismissed as not pressed in all the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be disallowed under the provisions of Explanation to section 37(1) – against revenue - IT APPEAL NOS. 6312 to 6315 (mum.) of 2008, 1956 TO 1962 & 2309 to 2315 (MUM.) OF 2009 - - - Dated:- 20-1-2012 - R.S. PADVEKAR, RAJENDRA SINGH, JJ. Dr. Sunil U. Pathak and Subodh L. Ratnaparkhi for the Appellant. Subachan Ram for the Respondent. ORDER Per Bench The cross appeals in the case of Vidyavardhini are directed against different orders all dated 31.7.2008 for assessment years 2000-01 to 2003-04 and different orders dated 15.12.2008 for the assessment years 2004-05 to 2006-07. The appeals of the revenue in case of Shri A.K. Patil are directed against different orders of CIT(A) dated 31.7.2008 for assessment years 2000-01 to 2003-04. Since the disputes raised are mostly common in all these appeals, these are being disposed of by a single consolidated order for the sake of convenience. The disputes relate to additions on account of voluntary donations, unaccounted donations, disallowance of depreciation, disallowance of penalty paid to Department of Technical Education etc. 2. It will be appropriate at this stage to give a brief background of the case before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29.3.2004 had been cancelled by the CIT (Central) on 29.8.2007. 3. We first take up the appeal of the assessee in ITA Nos.1956 to 1962/Mum/09 for the assessment years 2000-01 to 2006-07. The main disputes raised in these appeals is regarding addition on account of unaccounted donations allowability of exemption under section 11 of the Act and time barring of the assessments. There are also some small issues. All these disputes have been dealt with in the succeeding paras. 3.1 We first take up the main dispute regarding additions of unaccounted donations. As mentioned earlier, incriminating diaries were found at the time of survey from the business premises of Shri Shri A.K. Patil showing unaccounted donations which were not shown in the books of account of the trust. The AO, on detailed examination of the diaries, noted that page-16 of diary No.1 contained information of vital importance to assessment which is reproduced below:- Rs.13,20,000/- Rs. 5,00,000/- 13/08/99 Pratapbhai Rs.8,20,000/- 40,000/- Shantra Ram Jadhav Rs.8,60,000/- 5,00,000/- 18.09.99 PGK Rs.3,60,000/- Rs.3,60,000/- PGK 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2,25,000/- has been received by me directly and Rs. 2,00,000/- on instruction from Shri Prataprai Kokhani." 3.1.4 Similar entries were found on other pages of the four diaries seized giving details of donations which related to assessment years 2000-01 to 2003-04. The AO observed that the statement of Shri Patil in relation to the entries at page-18 of the diary No.1 and entries at page-26 of the diary No.2 clearly showed collection of donation on the instruction of the trustees and involvement of management. 3.1.5 In the statement recorded during the course of assessment on 29.4.2008, Shri Patel, however, denied that he had collected donations on the instructions of the trustees. The statement of Shri Prataprai Khokhani was also recorded on 23.4.2008 in which he stated that he was not aware of the contents of the diaries impounded. It was also stated by him that admissions were done by the principals of various institutions and management supervised the admission process. Shri A.K. Patil was doing supervision work. 3.1.6 Shri A.K. Patil owned up the donations entered in the four diaries and declared the same as his income from undisclosed sources in the returns filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... donations had been collected on the instructions of the trustees as mentioned earlier. Subsequently, he denied the statement which was only an afterthought. The assessee had asked for an opportunity to cross examine Shri Arun K. Patil which had been allowed by the AO. The opportunity was allowed to the chairman Shri Pratap Kokhani. Shri Kokhani, however, wanted cross examination through his authorized representative who was also the authorized representative of Shri Arun K. Patil, which was not allowed by AO. The AO again requested Shri Kokhani to cross examine Shri Patil which was declined by him. The AO, therefore, made additions on account of unaccounted donations in each of the four years as mentioned above. The AO had also made additions in case of Shri Arun K. Patil after allowing expenses @ 20% against the claim of 50% made by Shri Patil. 3.1.9 The assessee disputed the decision of AO and submitted before CIT(A) that the diaries had been found during independent survey conducted in case of Shri Patil and, therefore, no income can be attributed to the assessee. It was also submitted that even the working of donations made by AO was not correct. It was pointed out that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gures and did not give name of any student or any indication that the same was income. CIT(A) however observed that he had examined the entries minutely and was not convinced by the argument of the assessee. Thus in assessment year 2002-03 and 2003-04, CIT(A) confirmed the entire addition made by AO as explanation of the assessee pointing out error in quantification of donations was not found acceptable. 3.1.11 CIT(A) also did not accept the claim of the assessee that Shri Patil was receiving donations in his personal capacity. It was observed by him that notings in the diary showed that the donations received by Shri Patil were being passed on to some of the trustees. The names of students mentioned in the seized diary also appeared in the list of candidates admitted to colleges. The donations were being received by Shri Patil on behalf of the trust which was within the full knowledge of the trustees. The AO had also given opportunity to the trustee for cross examination of Shri Patil. The rejection of request of the trustee for cross examination by the authorized representative who was also authorized representative of Shri Patil was justified. CIT(A) also observed that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed opportunity to cross examine Shri Patil. It was accordingly urged that addition made should be deleted. The ld. AR also pointed out that there were mistakes in computation of donations mentioned in the seized diaries. The entries in diaries also included professional income of Shri Patil which could not be treated as donation. Further, the additions had been made on account of individual receipt entries as well as summary of receipts mentioned in the last portion of the diary which resulted into double addition. Thus quantum of donations determined by the authorities below was also not proper. 3.1.14 The ld. DR on the other hand strongly supported the order of CIT(A). It was argued that Shri AK Patil was Hon. Secretary of the trust and was supervising the admission process and was acting under the supervision and control of the trustees. He was not a third party but was closely connected with the work of the trust. The entries in the diary clearly showed that he was collecting donations on the instructions of the trustees. He had no authority of his own to collect donations for admission. It was also submitted that the trustees had been given opportunity to cross examin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, no presumption could be drawn that the entries made therein related to the trust which was a third party. The ld. AR for the assessee has relied on several judgments to argue that no addition can be made in case of the assessee on the basis of diary belonging to a third party. No doubt, it is true that the diaries had been found from the premises belonging to Shri Patil and, therefore, it has to be presumed that entries made therein belonged to him. But such presumption is not conclusive and actual nature of entries and income relating thereto has to be decided after considering all the relevant material and surrounding circumstances of the case. It may be pointed out here that Shri Patil was not a third party and was closely associated with the working of the school as Hon. Secretary. He was also assisting the trustees in the supervision of admission process and was functioning under the control and supervision of the trustees. The survey under section 133A at the business premises of the Secretary was an integral part of search action taken at the premises of the trust and connected persons on the basis of complaints that the trustees were collecting donations for ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itely taken action against him but the trust had not even dismissed Shri Patil. He was allowed to resign voluntarily and leave the trust without any serious action. Had he been dismissed it would have acted as a stigma in his further employment. Trustees also did not initiate any criminal proceedings against Shri Patil which they were expected to in case Shri Patil had collected donations unauthorisedly. Therefore, considering the material on record and the entire surrounding circumstances, we hold that the unaccounted donations collected by the Hon. Secretary were on instructions of the trustees on behalf of the trust and have been rightly assessed as income of the assessee trust. 3.1.19 The various judgments relied upon by the ld. AR are distinguishable and not applicable to the case. The judgment of Hon'ble Supreme Court in the case of V.C. Shukla ( supra ), was in relation to the prosecution proceedings launched under prevention of corruption Act. The standard of evidence required to prove a prosecution case is very high compared to that in case of assessment of income. It is a settled legal position as held by Hon'ble Supreme Court in the case of CIT v. Durga Prasad M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson making entries admitted that these were donations collected for donations of students. There is no dispute that the entries represented income from donations and considering the entire surrounding circumstances as mentioned earlier, it has to be held that the donations were collected on behalf of the trust and on instruction of the trustee and were therefore income of the trust. 3.1.21 The decision of Calcutta Bench of the Tribunal in case of T.N. Venkatesan ( supra ), relied upon by the ld. AR is also distinguishable. In that case, a document containing the entries on loose sheet had been found indicating payment of Rs. 10.00 lacs to the assessee. The documents were not books of account maintained during the business. Person recording the entry did not state that the payments were made to the assessee. Therefore it was held that amount could not be assessed as income of the block period of the assessee in the absence of any corroborative evidence. In the present case Shri Patil admitted that the entries represented donations collected from students for admission to various colleges and these had been collected on the instructions of the trustees. Though he later denied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her aspect of the issue is quantification of donations based on entries in the diaries found. It has been argued that entries recorded in the earlier pages of diary were donation entries whereas the entries made towards the end of diaries were summary of entries recorded earlier. The AO had added both the amounts while working out total amount of donations. CIT(A) has given a clear finding that the assessee could not show any co-relation between entries and the summary and therefore claim was rejected. There is no material produced before us to controvert the finding of CIT(A). Further, we also note that in case entries towards end of diaries were summary of donations entered earlier, the total of individual donation entered earlier and total of summary would have tallied but it is not so in the present case. There is wide discrepancy in the two figures as mentioned in para 3.1.6 earlier. Therefore, claim of the assessee of double addition has been rightly rejected. Some of the entries such as those based on school fee, challans and wrong noting of figures, have already been considered by CIT(A) and relief has been given. Other claims which were not found convincing have been rejec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Shri Patil had been collecting donations for 3-4 years which was in the knowledge of the trustees. The donations were being passed on to the trustees who were not recording the same in the books of account. It was established from records that the students from whom donations had been collected had been admitted to the colleges. Both Shri Patil, the Hon. Secretary and the trustees were covered by provisions of section 13(1)(c) and, therefore, CIT(A) held that there were violations of the provisions of section 13(1)(c). CIT(A) accordingly held that assessee was not entitled to any benefit of provisions of section 11 or 12. Aggrieved by said decision assessee is in appeal before the Tribunal. 3.2.2 Before us the ld. AR for the assessee reiterated the submissions made before the CIT(A) that there was no cogent material to establish that the assessee had received donations being collected by Shri Patil. Moreover, provisions of section 13(1)(c) were not applied by AO and therefore, the same could not be applied by CIT(A). Further, AO had made substantive addition in two names which showed that he was not sure as to whom the income belonged. Therefore, it was argued that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04, the assessee had been registered under section 12AA on direction the Tribunal and, therefore, the provisions of section 11 are applicable. But since assessee trust is hit by the provisions of section 13(1)(c), exemption under section 11 will not be available to the assessee for the assessment years 2001-02 to 2003-04. Thus the unaccounted donations have been rightly assessed as income of the assessee for assessment year 2000-01 to 2003-04. 3.3 The third ground raised by the assessee which relates to only assessment years 2001-02 to 2006-07 is regarding the benefit of deduction/exemption under section 11 of the IT Act. The benefit of deduction under section 11 has not been allowed by CIT(A) for assessment years 2001-02 to 2006-07 on the ground that the registration under section 12AA granted to the assessee had been cancelled by CIT(Central). In assessment years 2004-05 to 2006-07, the benefit of deduction under section 11 also has been denied on the additional ground of violation of provisions of section 13(1)(c) due to user of donations for the benefits of secretary/trustees. Aggrieved by the decision of CIT(A), the ground has been raised before Tribunal claiming exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the ground that the same were barred by limitation as extended period for making assessment due to special audit under section 142(2A) was not available as there was no justification recorded by the AO that the accounts were complex requiring special audit. Therefore, provisions of section 142(2A) were not applicable and the AO was not entitled to avail extended period and the assessments were thus barred by limitation. The ld. AR for the assessee, however, at the time of hearing of these appeals did not press this ground. This ground is therefore, dismissed as not pressed in all the assessment years. 3.5 In the 5th ground raised by the assessee in all the years, the assessment orders have been challenged on the ground that the same were not passed independently by the AO but under influence of order of CIT(C) passed u/s. 12AA of the IT Act. At the time of hearing of the appeal, no arguments were advanced by the ld. Authorised Representative in support of the ground. The AO, in our view, has passed a reasoned and speaking order and he has only used the cancellation of registration under section 12AA(3) by CIT(C), while considering the claim for exemption under section 11 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd. The assessee filed the confirmations on perusal of which AO observed that the confirmations were in standard format in which the details had been filled up by the same person and name of the donors were also written by the same person. There was no option in the format to mention the purpose of donation and only the standard phrase "donation towards corpus fund" had been typed out. The AO also observed that, in case, evidence of corpus donation was available, the assessee should have furnished before the Special Auditor which had also not been done. It was also observed by him that benefit of provisions of section 11(1)(d) was not available to the assessee as the registration of the assessee under section 12A had been cancelled by the CIT(A). The AO, therefore, held that entire voluntary donations had been rightly treated as revenue receipts by the special auditors and the AO accordingly treated the entire donations in all the years as revenue receipts exigible to tax. 4.1.2 The assessee disputed the decision of AO and submitted before the CIT(A) that the donations received were only towards corpus. It was submitted that several donors had given specific letters for treatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions were applicable only in case of individual or HUF. He also referred to the decision of the Tribunal in case of Pentafour Software Employees Welfare Foundation v. Asstt. CIT [IT Appeal Nos. 751, 752 1007 (Mds) of 2007, dated 8-7-2008] and the judgment of Hon'ble High Court of A.P. in the case of CIT v. S.R.M.T. Staff Association [1996] 221 ITR 234/[1997] 92 Taxman 451 in which it was held that voluntary contributions received by a person other than a trust established for charitable or religious purposes could not be treated as income. CIT(A) accordingly held that voluntary contributions received by the assessee could not be treated as income in view of the provisions of section 2(24)(iia) and section 12. Accordingly he directed the AO to treat the voluntary contributions as capital receipts in the hands of the assessee aggrieved by which the revenue is in appeal in all the years before the Tribunal. 4.1.4 Before us, the ld. AR for the assessee reiterated the submissions made before the CIT(A) and submitted that in so far as assessment years 2001-02 to 2006-07, were concerned, the registration under section 12AA had been restored to the assessee w.e.f. 1.4.200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons before the special auditors. Though confirmations giving names, addresses, PAN, mode of payment etc. had been filed during assessment proceedings, the same were in standard format which had been filled up by the same person. The AO, therefore, did not accept the claim that these were corpus donations and accordingly assessed the same as income of the assessee trust. The CIT(A) on detailed examination has reversed the finding of the AO and accepted the claim that donations were corpus donations. On careful perusal of material on record, we see no infirmity in the order of CIT(A). There is no dispute that the assessee had issued receipts in each and every case on which it was specifically mentioned and that donations were received towards corpus. Assessee also filed confirmations from all donors giving name, address, PAN, mode of payment, etc. in which it was clearly mentioned that donations were towards corpus. The AO has not placed any adverse material on record to prove that donations were not towards corpus. Merely because the confirmations were in standard format, the same could not be rejected, when it contained full details of donors and also mentioned that donations were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction to form part of corpus of the trust is not to be included in the total income. The voluntary contribution received from donors is normally not income derived from property held under trust. However, section 12 deems any voluntary contribution received by a trust or institution created wholly for charitable or religious purposes not being contributions with specific direction to form part of the corpus of the trust or institution as income derived from property held under trust. The provisions of sections 11 and 12 are applicable only when trust or institution is registered under section 12AA of the Income tax Act. This has been made clear in section 12A of the IT Act. Therefore, in case, a trust or institution is registered under section 12AA of the IT Act, voluntary contributions without any specific direction to form corpus of trust or institution will be treated as income derived from property held under trust and exemption under section 11 will be allowable subject to the fulfillment of conditions mentioned in section 11 and section 13 of the IT Act. In case of trust or institution registered under section 12AA, voluntary contribution with specific direction to form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was not registered under section 12AA. Once the assessee is not registered under section 12AA, the provisions of sections 11 and 12 are not applicable, and the character of income on account of voluntary contribution has to be decided in terms of definition of income as given in section 2(24)(iia) In terms of the said provision which has been reproduced earlier, voluntary contributions received by a trust or institution created wholly or partly for charitable or religious purposes have to be treated as income of the trust or the institution. The section does not make any distinction between ordinary contributions and contributions with direction to form corpus of the trust. Therefore, all contributions whether ordinary or towards corpus have to be treated as income if the trust or institution is found to have been created wholly or partly for charitable or religious purposes. In the present case, the trust had been created for charitable purposes which is clear from the fact that it had been registered under section 12AA of the IT Act for the assessment years 2001-02 to 2006-07, based on the same objects. Therefore, in assessment year 2000-01, the assessee trust having the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution and, therefore, conditions of section 2(24)(iia) are satisfied. In case of Pentafour Software Employees Welfare Foundation , the assessee company had been formed for providing medical aid and other facilities to the employees of Pentafour group of companies. The assessee was not holding any property for charitable or religious purposes. It had received donations from employers towards corpus. Since the assessee trust had not been created for charitable or religious purposes, the donations could not be considered as income under section 2(24)(iia) as the assessee was not a trust or institution referred to in the said section. The present case is obviously different from that case. 4.1.13 The ld. AR has also placed reliance on the decision of the Tribunal in the case of Mahila Sidh Nirman Yojna ( supra ). In that case also, the assessee was not registered under section 12AA. The issue was taxability of voluntary contributions made towards corpus of the trust. It had been argued by the department that since the trust was not registered under section 12AA and provisions of section 11 and 12 were not applicable, the corpus donations had to be treated as income under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e years also, voluntary contributions towards corpus have to be treated as income. However, in assessment year 2004-05 to 2006-07 in which the assessee was registered under section 12AA, and in which no violation of section 13(1)(c) were found, voluntary contributions have to be treated as capital receipt, not taxable. We hold accordingly. 4.2 The 2nd dispute which is also common in all the assessment years is regarding disallowance of depreciation. AO in the assessment orders observed that the assessee had not claimed depreciation as provided in the IT Act. The assessee had filed returns of income as trust and claimed capital expenditure as full deduction in the computation of income. He, therefore, asked the assessee to explain as to why the depreciation should not be disallowed in respect of assets appearing as opening balance for assessment year 2000-01. He referred to the judgment of Hon'ble Supreme Court in the case Eicher Goodearth Ltd. v. Union of India [1993] 199 ITR 43 in which it was held that in respect of capital expenditure on scientific research allowed as deduction under section 35(2)(iv), no depreciation was allowable. The assessee submitted that income of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 31.3.2000. The assessee had been allowed normal depreciation till 1998-99 in its income and expenditure account and WDV of each asset as on 1.4.1999 was clearly mentioned in the books of account. Therefore, the AO was not correct in taking the WDV as on 1.4.1999 as Nil. The CIT(A) also observed that while computing WDV, only depreciation actually allowed has to be deducted from the actual cost as held by Hon'ble Supreme Court in case of Madeva Upendra Sina i ( supra ), and phrase 'actually allowed' was limited to depreciation which actually had been taken into account or granted and given effect to and not notionally allowed. CIT(A) further observed that special auditors had computed the depreciation correctly under the provisions of the Act. The AO on the other hand had not computed WDV correctly as the exercise undertaken by him had resulted into negative depreciation and negative WDV in case of many assets. CIT(A), therefore, did not accept the order of AO making variations in the depreciation chart prepared by the special auditor. He, therefore, allowed the depreciation as claimed by the assessee aggrieved, by which the revenue is in appeal before the Tribunal in all the y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to capital expenditure allowed as full deduction while computing exemption under section 11, the issue is settled by the judgment of Hon'ble Bombay High Court in case of Institute of Banking Personnel Selection (IBPS) ( supra ) in which it has been held that allowing full deduction in respect of capital expenditure in relation to the provisions of section 11 only meant that expenditure incurred on acquisition of capital asset to be used for charitable /religious purposes has to be treated as application of income. The depreciation has to be allowed in respect of capital assets so acquired and used for charitable activity. The High Court accordingly upheld the view that depreciation has to be allowed in respect of capital assets acquired for charitable purposes out of application of income of the trust. In view of the foregoing discussion, we do not see any infirmity in the orders of CIT(A) and the same are therefore, upheld. 4.3 The 3rd dispute in the appeal by the revenue is relevant to only assessment years 2000-01 and 2001-02 and is regarding relief allowed by CIT(A) in relation to unaccounted donations added by the AO. As mentioned earlier while dealing with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, allowed the claim aggrieved by which, the revenue is in appeal before Tribunal. 4.4.1 We have heard both parties, perused the records and considered the matter carefully. The dispute is regarding allowability of deduction of Rs.2,32,000/- paid by the assessee to the director of technical education for admitting extra students. The case of the assessee is that extra students had been admitted inadvertently in violation of administrative guidelines and, therefore, there was no infraction of law. The ld. DR, could not explain before us as to how there was any violation of statutory provisions in admitting students. Therefore, in our view the deduction claimed cannot be disallowed under the provisions of Explanation to section 37(1). We do not see any infirmity in the order of CIT(A) in allowing the claim and the same is therefore upheld. 5. Appeals of the revenue in case of Shri A.K. Patil in ITA No.6612 to 6315/Mum/2008 (assessment years 2000-01 to 2003-04): The only dispute raised by the revenue in these appeals is regarding deletion of addition made by AO in case of Shri Arun K. Patil, Hon. Secretary of the assessee trust. As mentioned earlier while dealing with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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