TMI Blog2013 (11) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... the object for which it was established and registered u/s. 12A of the Act. Seized material in the form of Excel sheets said to be recovered from the assessee's office cannot be considered as sufficient evidence so as to decide collection of capital fees by the assessee as it lacked independent corroboration. The Department failed to collect sufficient evidence to show that the assessee has actually collected the amount mentioned in the Excel sheets and the statement of Sri B. Srinivasa Rao is also not supporting the collection of capitation fees by the assessee. Moreover, no data confirming the contents of Excel sheets were recovered from the seized computer hard disk. In the absence of corroborative material, the Excel sheets recovered from the computer cannot be considered as a sufficient evidence so as to confirm collection of capitation fee. The seized material being Excel sheets which is an unsigned document and not being identified by the Department regarding author of these Excel sheets and it cannot be considered as an independent evidence. Being so, it has no evidentiary value as held by the co-ordinate Bench in the case of Smt. K.V. Lakshmi Savitri Devi vs. ACIT [201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accountant Member: In this bunch there are three appeals. The first two appeals in ITA Nos. 1767 and 1768/Hyd/2011 are by the Department and another appeal ITA No. 720/Hyd/2012 is by the assessee. First we will take up assessee's appeal in ITA No. 720/Hyd/2012. Assessee's Appeal : ITA No.720/Hyd/2012 Assessee : M/s. Prathima Educational Society, Hyderabad 2. Effective grievance of the assessee in this appeal is against cancellation of the registration under S. 12AA(3) of the Act, by the CIT by the impugned order dated 22.3.2012. 3. Facts of the case, in brief, are that the main objects for which the assessee society was formed are as under- (a) Medical relief to the poor and general public (b) Advancement of medical education, para medical education, education of health sciences and research and development relating thereto. 4. The assessee is running a medical college at Karimnagar and has also established a 750 bedded hospital at Nanganur village of Karimnagar District. 5. The AO reported that the assessee-society has been collecting fees over and above the fees prescribed by Government from the students for granting admission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, accordingly to the CIT clearly reveal that there is no transparency in the financial affairs of the society and to that extent, it can be said that the activities are not genuine and cannot be said for a charitable purpose. The CIT ultimately concluding that the assessee society has violated the provisions of S. 11 and 13 of the Act and has not conducted itself in accordance with the objects for which it was established and registration granted earlier u/s. 12A/12AA of the Act, vide order dated 4.10.2000 with effect from 1.4.2000, cancelled the registration so granted earlier, vide impugned order dated 22.3.2012 passed under S. 12AA(3) of the Act. 6. Aggrieved by the above order of the CIT, assessee preferred the present appeal before us. 7. The learned counsel for the assessee, reiterating the contentions urged before the Commissioner of Income-tax submitted that the assessee has not collected any capitation fee or any other levy by whatever name called, and therefore, the CIT was not justified in cancelling the registration granted earlier under S. 12A of the Act. He further submitted that all the findings given in the impugned order were subject matter of appellate/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the notings in the Excel sheets could be found from the seized computer hard disks. He submitted that the only purpose of scanning the seized hard disk was intended for recovery of the Excel sheets so as to corroborate the same, as the assessee has denied to have generated the same. Since it resulted in a futile exercise, it was clearly established that the Excel sheets were not prepared by the assessee society. The assessment order passed by the AO makes no mention of any search recovery. (f) The author of the Excel sheets could not be identified. In terms of S. 60 of the Indian Evidence Act, computerized information is within the realm of hearsay evidence and therefore, not relevant at all by 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 was not authenticated either by the assessee or by the witnesses or by an authorized officer. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rents who appeared to give testimony. (j) Even the AO failed to summon these witnesses in course of assessment proceedings for corroboration when the assessee was consistently denying collection of capitation fees and based his entire conclusion on the report of the DDIT which was based on suspicion. This shows total non application of mind by the adjudicating officer when the information supplied to him were disputed and not corroborated by the DDlT. His attempt to verify the facts from two witnesses namely Sri Tirupathi Reddy and Madhav Reddy could not yield any further evidence. (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 were found. It was pointed out that the same was a dumb document and therefore not to form the basis of cancellation of registration under section 12AA. With regard to evidentiary value of notings the loose sheet, the appellant relies on the following decisions: a) DCIT Central V C Krishna Yadav 2011,12 Taxman.com 4 Hyd b) Asst. CIT v. Satyapal Wassan [2007] 295 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls Ltd. v. CIT [1954] 26 ITR 775 (SC); (iii) Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC); (iv) Umacharan Shaw Bros. v. CIT [1959] 37 ITR 271 (SC); 10. As pointed out above, assessments have been made substantively in two hands -in the hands of the society and the Chairman Sri Srinivasa Rao. This is because of uncertainties in the minds of authorities about collection of capitation fees and its beneficiary in the absence of evidence. Therefore, the inference derived by CIT from the assessment order of AO cannot sustain the cancellation. 11. It was pointed out that had the assessee earned a fortune by collection of capitation fees of such huge amount as alleged, the same would have been found in course of search either in the case of the society or its trustees. No such evidence was found regarding application. The cash found from the premises of the society is ₹ 8,09,526. This is as per books. This would show that the assessee society has not collected any capitation fees as alleged for the purpose cancellation of registration. Assessee society relies on the following decisions: i) DCIT V Pramukh Builders 2008 112 ITD 179 Ahd TM. i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addressed by one Sri Tirupathi Reddy to the society, father of Swechha Reddy student of MBBS; letter by one Sri Madhav Reddy to the society for his son, K.Surya Reddy; and payment by Nikhila, a student, it is submitted that the Department was not justified in utilizing the evidence in this behalf against the assessee. As for the letter of Sri Tirupathi Reddy, it is submitted that the said witness was a shifty witness, and hence, the assessee has requested the Department to provide an opportunity to the assessee to cross-examine the said witness. However, the same was not done by the Department. It is accordingly submitted that in the absence of cross-examination, the statement of the said witness cannot be utilized against the assessee. In support of this contention, reliance is placed on the decision of the Supreme Court in the case of Kishan Chand Chellaram vs. CIT(125 ITR 713)-SC; and of the Calcutta High Court in the case of CIT vs. Eastern Commercial Enterprises(210 ITR 103). As for the letter addressed by Sri Madhav Reddy, it is submitted that the said person has denied to have paid any fee over and above the prescribed fees. Although with regard to this witness, examinatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having framed the assessment substantively in the hands of the society and Srinivasa Rao, seems to be undecided as to who is the beneficiary of the alleged capitation fees, and consequently no violation of provisions of S. 13 be conclusively inferred. 15. Without prejudice, it is also submitted that minor violations/aberrations relating to the accounts of the Trust by the Trustees, if any could not be a ground to cancel the registration of the Trust and therefore, the order passed under S. 12AA(3) of the Act is wholly unsustainable both in law and on facts. 16. He also distinguished the decision of the Tribunal in the case of Joginpalli BR Educational Society 17. The learned Departmental Representative, strongly relying on the order of the CIT cancelling registration under S. 12AA of the Act, submitted that the activities of the assessee-trust are not being carried out in accordance with their objects. It was only after considering all the material /records available before him, including a proposal received from the AO before issue of show-cause notice to the assessee, giving opportunity to explain why the registration should not be cancelled, and after satisfying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sri Srinivasa Rao was again recorded on 5.10.2009, and in the course of that statement also, when confronted with the said incriminating papers, he has not denied the ownership of the documents or any of the statements made earlier during the course of search, but stated on oath that he wanted to consultant with his employees and explain within a week. 21. In a still subsequent statement recorded on 6.11.2009, again, Sri Srinivasa Rao failed to explain the contents of the papers, and wanted the copies of the seized material to be given to him to explain the contents. It is stated at this juncture that though the assessee is entitled to copies of such documents, that point of time, it was premature to give copies of the seized material, as that would have interfere in the course of investigation. In a further statement recorded on 17.12.2009 also, the assessee did not explain the contents of the material, but only stated that they have not collected any capitation fee. He also evaded all along to explain the contents of the incriminating papers seized during the course of search. 22. The Learned Departmental Representative submitted that the contention of the learned Auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s carried on by the assessee are not genuine and the assessee has not function to advance its objects for which registration was granted to the assessee. In reply to DR's arguments, the AR submitted that there is no evidence to show that any interested person have enjoyed the benefit of the funds of the society. He relied on the following judgements: (i) Guru Govind Singh Educational Society vs. CIT (2009) (118 ITD (ASR) 207). (ii) Director of Income-tax (Exemptions) vs. Sri Belimatha Mahasamsthana Socio, Cultural and Educational Trust (2011) (336 ITR 694) (Karn.) (iii) Maharashtra Academy of Engineering Educational Research vs. CIT (133 TTJ 706). 25. Further he submitted that evidence collected by the Department is not enough to cancel the registration granted u/s. 12AA of the Act. For this proposition, he relied on the judgement of Supreme Court in the case of Dhirajlal Giridharlal vs. CIT (26 ITR 736) (SC), Shalini Soni vs. UOI (AIR 1981) 431, 434 (SC). Finally he submitted that the registration was cancelled on the basis of irrelevant material collected during the course of the search and it should be vacated. Findings in respect of ITA No. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anagement quota for MBBS course. Page No. 55 of this annexure shows details of 24 MBBS students admitted in academic year 2007-08. Same details like name, father's name, total fee, fee received in cash and fees received by cheque/DD and amount due to be received in relevant years. Sl. No. 3 in this page shows name of the student, V. Shethya Rao, s/o. V. Madanmohan Rao who was given management quota seat for ₹ 37 lakhs and he has paid ₹ 33 lakhs in cash and ₹ 4 lakhs by way of cheque/DD. Page No. 56 in this annexure contains details of 21 MBBS students admitted under management quota and details of them relevant to the academic year 2007-11. For example Sl. No. 8 in this page shows the details of student by name Satla Rajkumar s/o. S. Chinna Mallaiah. He was admitted under management quota for a consideration of ₹ 30 lakhs and paid ₹ 15 lakhs in cash at the time of admission and balance ₹ 15 lakhs paid in the year 2008. (3) Annexure A/PES/16: This annexure contains page Nos. 31 to 35, details of fee collected from 34 MBBS students under management quota for academic year 2009-10 and shows details of student name, total fee for management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, Sri E. Tirupathi Reddy was examined by the Department on 4.11.2009. He stated in his answer to question Nos. 7, 8 and 10 that he has not paid any excess fees. However, finally he said that the contents in the letter are correct. The assessee asked for cross examination of him. No cross-examination opportunity has been given to the assessee. Sri E. Tirupathi Reddy has changed his stand. As held by the Calcutta High Court in the case of CIT vs. Eastern Commercial Enterprises (207 ITR 103) (Cal), Sri E. Tirupathi Reddy cannot be considered as a reliable person. He has changed his version and proved to be shifty person as a witness. At one stage he has claimed that he has not paid the amount over and above the prescribed fees, as evidenced by his statement placed on record at page Nos. 147 to 149 of Paper Book Vol. I. Later he has changed his version, being so, little value can be attached to his statement and his conduct neutralised his value as a witness. A man indulging in double speaking cannot be said by any means a truthful man at any stage and we cannot decide on which occasion he was truthful. Further, the assessee was not given any opportunity to cross examine him. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of sections 11 and 13 of the Act. 31. Further, from the argument of the assessee's counsel it is observed as follows: a) Department despite its attempt failed to collect any information from any source corroborating payment of capitation fees except relying on uncorroborated entries in an Excel sheet, the discovery of which was seriously disputed. b) All attempts for corroboration failed. Although all the parents were summoned, and their statements were recorded, the department has so far declined to give copies of these statements Possible reason could be that these statements were favourable to society. c) The letter supposed to have been addressed from two parents remained uncorroborated because of their denial, non-production of one of them (Tirupathi Reddy) for cross examination and admission by the department before High Court that statement of Madhav Reddy is not incriminating. d) The society explained the rough notings in loose papers and the same were accounted for in the books. It also explained payments and recovery of the amounts from doctors through IOU payments. The department failed to demolish society's contention through cros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lected capitation fee or not so that it made assessment in the hands of the chairman, Sri B. Srinivasa Rao as well as the assessee. The cash found during the search action at ₹ 8,09,526 was tallied with the books of account. The document relating to Sri E. Tirupathi Reddy cannot be relied as this was not subject matter of cross-examination. Similarly, the evidence relating to Sri Madhav Reddy cannot be relied upon since he denied payment of any fees more than what was prescribed. He said that his son got admission in normal course. Similarly, in the case of Kum. Nikita, the evidence is demolished by the assessee, that the details cannot be used against the assessee as the papers submitted to the assessee by the parents of Kum. Nikita were for the purpose of facilitating the financial assistance from bank. Being so, the activities of the trust cannot be held as non-genuine or it can be said that the activities of the assessee are not being carried out in accordance with the object of the trust or institution. There cannot be any other legally sustainable reasons for cancelling or withdrawing the registration granted to the assessee on 4.10.2000 w.e.f. 1.4.2000. 35. To com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r himself about the other provisions of the Act and supposed to confine himself to the procedure of registration as laid down therein. (Paras 11.4 to 11.6) Nowhere the CIT has taken any objection to the charitable and educational nature of the institution. In fact, the objects of the institution as declared in the trust deed does reflect that all are philanthropic or benevolent in nature, precisely for the purpose of imparting education. Strange enough there is no finding recorded by the CIT contrary to this fact. Be that as it may, the real and the only substantial objection for refusal of registration was that the institution has collected donations thus adopted some wrong means of collection of fees. But whether at this preliminary stage he had the right to draw an adverse inference so as to refuse registration or alternatively confine himself to the enquiry about the objects and the activities of the trust as per the limits of the jurisdiction of s. 12AA. Rather this is also not the case of the CIT that the institution is doing some other activity of earning profit other than the activity of running educational institutions. The established factual position is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his rights can pass on the information to the concerned office bearers working under the Maharashtra Capitation Fees (Prohibition) Act. These authorities have enough power to deal with such nature of default, side by side the CIT is to limit his jurisdiction within the ambits of provisions of the Act and expected to give a finding on facts that either the objects are not for general public utility or not achieved as prescribed under law. However presently the situation is that the Revenue has not said about any immoral activity of the appellant or the collection of fees was by wrongful means. Prima facie no case was made out by the CIT so as to even vaguely demonstrate that the activities of the appellant were not genuine or activity of imparting of education, for which the trust was created, were not carried out. Even the CIT has failed to establish that any part of the income/receipt of the trust was in any manner mis-utilized by the trustees for their personal benefit i.e., not in fulfilment of the object of the trust. Otherwise also there are three ways to look at this problem. One is, that the donations are raised but not utilized for achieving the objects i.e., towards impar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the amount which were received as donations were attributable to the allotment of seats in the relevant assessment years. In the absence of there being any foundation for such a contention, the donations received during the period was not in violation of the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984, and the assessee had not acted opposed to public policy. 37. We also place reliance on the orders of the Tribunal Bangalore Bench in the case of Venkatesh Education Society in ITA Nos. 100 to 106 of 2012 and M.J. Balachander in ITA Nos. 90 to 94 of 2012 dated 21.12.2012 where in similar circumstances it was held that M.J. Balachander was collecting extra tuition fees on his own without any authority or consent of the society and conclusion of the CIT was that extra tuition fees was collected by M.J. Balachandran on his own and the society has nothing to do with the extra tuition fees collection. Being so, the assessee cannot be faulted and the registration granted to the assessee should not be withdrawn so as to deny the benefit of section 11 of the Act. 38. Similarly the co-ordinate Bench, consisting of the same members, in the case of Sr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT mentioned that the petitioner was engaged in commercial activities rather than charitable. As per the balance-sheet, huge amount were charged from the students. The profit margin embodied in the charges taken from the students was huge and it proved the profit motive of the petitioner. 39.1 The expression charitable purpose is defined in section 2(15) of the Income-tax Act, 1961. It is of inclusive nature as revealed in the language. Earlier the words the advancement of any other object of general public utility in the definition were succeeded by the words not involving the carrying on of any activity for profit . These words were omitted by the Finance Act, 1983, with effect from April 1, 1984. 39.2 The order cancelling the registration granted to a trust or institution under section 12AA being a quasi-judicial order does not fall within the category of orders mentioned under section 21 of the General Clauses Act, 1897, which provides that the power conferred on an authority to issue orders includes the power to rescind such orders, and the CIT would not have power to rescind the order passed by the CIT earlier granting the registration to a trust or institutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o adverse finding had been recorded against the petitioner-institution to form any fresh ground for issue of notice. Held that the notice was liable to be quashed. 41. In the case of CIT vs. Sarvodaya Ilakkiya Pannai (343 ITR 300) (Mad) the assessee was granted registration under section 12A(1)(a) of the Income-tax Act, 1961. When the returns filed for the assessment years 2008-09 to 2010-11 were scrutinised, it was found that the assessee was engaged in purchase and sale of books. On the ground that the activities of the assessee could not be considered to be charitable activities, a show-cause notice was issued by the CIT under section 12AA(3) and thereafter, the CIT revoked the registration on the ground that the assessee did not deserve exemption under section 11 (1)(a). The Tribunal found that the order of the CIT was not justified as the power to cancel could be only traced to section 12AA(3) and in the absence of any activity carried on by the assessee contrary to the objects, the registration could not be revoked. 41.1. On appeal: Held, that under section 12AA, the CIT is empowered to grant or refuse the registration and after granting registration, would be empow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount mentioned in the Excel sheets and the statement of Sri B. Srinivasa Rao is also not supporting the collection of capitation fees by the assessee. Moreover, no data confirming the contents of Excel sheets were recovered from the seized computer hard disk. In the absence of corroborative material, the Excel sheets recovered from the computer cannot be considered as a sufficient evidence so as to confirm collection of capitation fee. The seized material being Excel sheets which is an unsigned document and not being identified by the Department regarding author of these Excel sheets and it cannot be considered as an independent evidence. Being so, it has no evidentiary value as held by the co-ordinate Bench in the case of Smt. K.V. Lakshmi Savitri Devi vs. ACIT (148 TTJ 517) (Hyd.) and in the case of CIT vs. Krishna Yadav (2011) 12 taxmann.com 4 (Hyd). Further, various judgements relied on by the assessee's counsel also support the assessee's case to hold that Excel sheets are dumb documents and therefore, do not form the reason to cancel registration granted to the assessee u/s. 12AA of the IT Act. 44. Further, in the case of Sri Chaitanya Educational Committee vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 1.4.2000. 47. Considering entire facts and circumstances of the case, we are of the opinion that the evidence collected by the Revenue authorities is not sufficient to establish the stand that the assessee has collected the capitation fee/excess fee for admission under management quota seats in assessee society. We are aware that the 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 the assessee is opposed to the normal course of human thinking and conduct and human probability. Even applying this principle to the present case, we have difficulty in rejecting the assessee's plea as opposed to the normal course of human conduct. The circumstances surrounding the case also not strong enough to reject the assessee's plea. We have considered all the material available on record and also statements of the parties concerned as discussed in earlier paras and 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, the same cannot be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee, during which apparently, evidence relating to collection of amounts over and above these prescribed fee from students seeking admission for medical courses, were found, particularly in respect of students admitted in the academic years 2006-07, 2007-08 and partly for 2009-2010. Consequent upon search action, assessment was reopened by the AO under S. 147 of the Act for the year under appeal, and in response to the notice issued for reopening the assessment, the assessee filed a letter stating that the return filed on 31.10.2003 may be treated as the one filed in compliance to the notice under S. 18 of the Act. Notwithstanding the fact that the evidences found at the time of search were in relation to the amounts collected over and above prescribed fee, from students especially for academic years 2006-07, 2007-08 and partly for 2009-10, based on such evidence, the AO extrapolated the same to the assessment year 2003-04 also, applying the ratio of the decision of the A.P. High Court in the case of Rajnik Co. vs. ACIT(251 ITR 561). The AO further observed that in the case of an educational society collecting capitation fee, Society would not be eligible for exemption ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated the provisions of S. 13(1)(c) does not stand on a sound footing. He noted that there was no specific material for the year under consideration relating to collection of capitation fee or any amount over and above the prescribed fee, and the AO has simply extrapolated the evidence available for academic years 2006-07, 2007-08 and 2009-10, that too to arrive at the estimated undisclosed capitation fee for assessment year 2003- 04, which according to him cannot be considered as cogent evidence or information warranting reopening of assessment. 52. The CIT(A), dealing with the objections of the assessee with regard to legality and validity of the reopening of the assessment under S. 147 of the Act, while in the first place noting that in view of his decision in favour of the assessee on the merits of the addition and denial of assessee's claim for exemption by the AO, the decision on the legality of reopening has become academic, decided the issue also in favour of the assessee observing in para 06.0 of his impugned order as follows- 06. ....However, I may add that even on the ground of legality of reopening the case there is force in the contention raised by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a satisfaction should be specifically in relation to such specific year. Based on the material found at the time of search, which relates to a particular year, in the absence of any corroborative evidence, one cannot venture into any area of speculation with regard to other years. That being so, the AO was not justified in extrapolating the material found at the time of search for other years, and arriving at the satisfaction with regard to income escaping from tax, and consequently reopening the assessment, and completing the re-assessment making additions, denying exemption under S. 11 of the Act. He strongly supported the order of the CIT(A) and submitted that the appeal of the Revenue is devoid of merits not only on the issue of legality and validity of the reopening, but also on the merits of re- assessment made, and consequently, the same is liable to dismissed. 56. We have considered the rival submissions and perused the impugned orders of the lower authorities and other material available on record. Let us first consider the issue relating to legality and validity of the reopening of assessment by the AO. It is pertinent to note at this stage, the relevant provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E; (c) where an assessment has been made, but-- (i) income chargeable to tax has been under assessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed; (d) where a person is found to have any asset (including financial interest in any entity) located outside India. Explanation 3.--For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the re-assessment proceedings made addition, estimating, based on the material found at the time of search for other years, the amounts that the assessee must have collected by way of capitation for year under appeal, over and above the prescribed fee. In the absence of any specific and concrete material possessed by the assessee to suggest collection of amounts over and above the prescribed fee, at the time of initiating proceedings under S. 147, the reopening of assessment cannot be held to be legal or valid, and it has to be held to be just based on the suspicion that the assessee might have collected such amounts even in the year under appeal. The ultimate action of estimation of such capitation fee collected during the year under appeal, based on the material found at the time of search, which relate to other years, clearly establishes the absence of any concrete material to indicate the actual collection of capitation fee by the assessee. In these facts and circumstances of the case, the decision of the jurisdictional High Court in the case of Rajnik and Company (supra) relied upon by the learned counsel for the AO, cannot come to the rescue of the Department, in the abse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im to prove the exact turnover suppressed. In estimating any escaped turnover, it is inevitable that there is some guess-work. The assessing authority while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in Support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not anyone else's. The High Court cannot substitute its best judgment for that of the assessing authority. 61. As seen from the above judgement, there was unreported sales detected for a period of 19 days in a year. The AO estimated the turnover for the entire period of one year on the basis of unreported sales for the period of 19 days in a year. The question that arose before the Apex Court is as to whether the AO was right in doing so. It was held by the Apex Court that in a matter involving unreported sales, the AO has to proceed on the basis of estima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k Co. (cited supra) also cannot be applied. 63. Now coming to the latest judgement of jurisdictional High Court in the case of Gopal Lal Bhadruka Ors. vs. DCIT (346 ITR 106) wherein their Lordships held as under: By virtue of section 158BI of the Act, the various provisions of Chapter XIV-B of the Act are made inapplicable to proceedings under section 153A/153C of the Act. The effect of this is that while the provisions of Chapter XIV - B of the Act limit the inquiry by the Assessing Officer to those materials found during the search and seizure operation, no such limitation is found in so far as section 153A/153C of the Act are concerned. Therefore, it follows that for the purposes of section 153A/153C of the Act the Assessing Officer can take into consideration material other than what was available during the search and seizure operation for making an assessment of the undisclosed income of the assessee. 64. In the above case, there was collection of on-money with reference to the real estate dealt by the assessee firm. The partners had admitted the on-money in their hands in the return of income. The AO rejected their plea and assessed the on- money recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Allahabad High Court in 320 ITR 403 with detailed reference to Supreme Court Ruling in H.M. Esufali H.M. Abdulali's case and observed as follows : One should not forget that it is a search case in which a search party is supposed and expected to find out all the incriminating documents, material as also undisclosed assets. A search assessment, much less a block assessment, therefore, stands on a footing different than a normal assessment much less an assessment based on the best judgment of an A.O. During search, firstly, no other diary or other record comparable to the notebook marked as 'B-1/23' were found by the search party for the remaining period, which normally could have been, were it being maintained and kept. Though such a record could have been destroyed also from time to time, but in such a situation also, if the assessees had actually made a fortune of similar receipts in respect of the remaining part of the year, they must be reflected by certain assets, movable or immovable ought to have been found during the course of search. No such assets, despite the extreme step of search which amounts to a serious invasion on the rights of subjects and which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, in the context of Revenue's appeal, ITA No. 1768/Hyd/2011 in the case of M/s. Prathima Educational Society, we find no justification for the reopening of the assessment in this case as well. We accordingly uphold the impugned order of the CIT(A) on this aspect, in the case of this assessee as well, rejecting the grounds of the Revenue on this issue. 70. The Revenue raised one more ground that the CIT(A) failed to appreciate the fact that extrapolation can be made for other years on the basis of material found during the course of search relating to some other year as it is supported by the judgement of Hon'ble A.P. High Court in the case of Rajnik Co. vs. ACIT (251 ITR 561). 71. In view of our decision on the same issue in ITA No. 1768/Hyd/2011 in the earlier portion of this order, this ground is decided against the Revenue and confirm the order of the CIT(A). 72. In the result, Revenue's appeal ITA No. 1767/Hyd/2011 is dismissed. 73. To sum up, Revenue appeals in ITA Nos. 1767 and 1768/Hyd/2011 are dismissed and assessee's appeal in ITA No. 720/Hyd/2012 is allowed. Order pronounced in the court on 8th November, 2013. - - TaxT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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