TMI Blog2013 (12) TMI 777X X X X Extracts X X X X X X X X Extracts X X X X ..... once again in the event he complied with the payment of tax. - AO to pass fresh orders - Decided in partly in favor of assessee. Addition towards capital fund - funds contributed by members of the trust for specific purpose - Held that:- voluntary contributions in the nature of tied up grant received by the assessee cannot be brought to tax even the trust is not registered u/s. 12AA of the Act. The tied up donations received by the assessee should not be taxable as income of the assessee, if it is used for specific purpose for which it has been given and it cannot be considered as revenue receipts so as to tax the same. - On the other hand, the donations used for the benefit of the trustees it should be brought to tax as income of the assessee. The AO is directed to segregate these donations which are diverted for personal benefit of the Members of the trust and tax the same accordingly. - Decided partly in favor of assessee. Addition on account of amount collected over and above the prescribed fees and that amounts were not brought in the books of account - Held that:- it is seen that while the seized documents indeed showed receipt of such unaccounted income by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vijayalakshmi, are the members of the society. 5. The Assessing Officer has mentioned that there are two categories of engineering seats in an engineering college. Whereas students in Category 'A' are admitted as per the ranks obtained in EAMCET, students are admitted in Category 'B', also known as the Management Quota, by the Management of the society, subject to certain restrictions. He noted that the number of seats under the Management Quota in Engineering courses run by the assessee society for various years were as under: J.B. Institute of Engg. Technology Sl. No. Academic year No. of management seats permitted No. of management seats filled 1. 2003-04 65 64 2. 2004-05 64 60 3. 2005-06 64 57 4. 2006-07 114 97 5. 2007-08 144 121 6. 2008-09 180 151 7. 2009-10 234 176 Bhaskar Engineering college Sl. No. Academic year No. of management seats permitted No. of management seats filled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Mr. Puran Chand Pusti. However he could not give any satisfactory reply in this regard. When the said statements and evidences were put before Shri J. Bhaskar Rao, Chairman of the society, he in his statement dated 15.12.2009 (Question No. 8) stated that he would offer his comments in a couple of days, however, no reply was submitted by him in this regard, even subsequently. 9. The Assessing officer further noted that the trustees in their letter to the DDIT dated 5-1-2010 had themselves stated that the figure noted on the top right hand side corner of each paper of the seized note books, normally, is inclusive of the total amount of fees and other amounts expected/offered as voluntary contributions, collected by the consultant as stated above in respect of each of the candidates of the Management Quota. It was mentioned that there is no hard and fast rule about this figure and that it may vary from student to student, year to year and during the duration of the course in certain cases, depending upon the various circumstances. It was also explained that slight variations on a few occasions in noting these figures were only due to the communication gap between the said con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed fees was also recorded in the same page with full figures amounting to Rs. 3,25,000/-. The summary of collection of donations/capitation fees over and above the prescribed fee, year-wise, has been tabulated for the assessment years 2009-10 and 2010-11 as under: S. No. A.Y. Donation/ Capital fee (Rs.) Accounted in the books Not accounted in the books Seized material reference 1. 2009-10 3,92,91,000 Nil 3,92,91,000 JB/A/3-10 2. 2010-11 3,72,25,000 Nil 3,72,25,000 JB/A/3-10 Total 7,65,16,000 Nil 7,65,16,000 12. It was further found that as per the recordings in pages 73, 75, and 89 of A/JBES/5, 21, 45 to 47, 63 and 68 of A/JBES/6 and 10 to 12 of AA/JBES/1, the trustees had made investments in construction of guest house at Tirumala and Yadagiri Gutta, donation of gold to Yadagiri Gutta Temple, out of the unaccounted donations received. The correspondent of the institute at Tirupati Shri Munirathanm, in his statement dated 14-12-2009, also confirmed that cash was received from J. Bhaskar Rao ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age 91 of AA/JB/1), and Mst. C. Suneel (Page 89 of AA/JB/1), to those concerns. In the case of the former, a student of Mechanical Engineering, a payment of Rs. 5 lakhs was found received by cheque No. 165143 on 5-9-2007 in the books of M/s, Arka Hotels Pvt Ltd under "accommodation receipts". Against the name of Mst. C. Suneel, an ECE student, there was a narration regarding receipt of cheque No. 717040 of Andhra Bank on 18-9-2007. On verification of books of M/s. Arka Hotels Pvt Ltd it was seen that the payment was routed through Shri Syed Ali, vide the above referred cheque and credited on 20-9-2007. The amount of Rs. 1 lakh, paid by Shri Syed Ali was found credited in the assessee's bank a/c. No. 111 with Andhra Bank, Banjara Hills, branch on 20-9-2007 and the same was reflected as unsecured loan in the books of M/s. Arka Hotels Pvt Ltd. There were several other entries where a nexus was found between accommodation receipts and fees collected directly from the parents/students, instead of being accounted for in the books of the society. For example, it was noted that entries of Bhavishya Pharmaceuticals Ltd., were related to a student, B. Sahithi, while KVA Ramprasad was related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove the regular fees were collected, which were written in 'coded form. He had also stated that in some instances single zero and sometimes two zeroes were eliminated while recording the cash collected admitted under the Management Quota in various engineering colleges. 18. The Assessing Officer noticed that while Shri J.V. Krishna Rao, Secretary of JB Educational Society, in his statement dated 15-12-2009, contended that the notings do not refer to any capitation fee, when probed further, he only stated that his father will be in a better position to explain this. Likewise, Shri J. Vamsidhar Rao, Secretary of the assessee society also in his statement dated 15-12-2009 only stated that his father would furnish the details in a couple of days. Though Shri J .Bhaskar Rao, Chairman of both the societies stated that he would submit his comments in a couple of days, nothing was stated in this regard even later. 19. On the other hand, on -the first day of search itself, Shri J. Vamsidhar Rao, after going through the incriminating evidences, had made a voluntary disclosure of Rs. 7.5 crores u/s 132(4) of the Act. He was also shown the statements recorded from the persons who had been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecific purpose was being done by him as per the directions of the Chairman and Secretary of the Society only. The AO therefore, concluded that the funds of the society were being misused for the benefit of the trustees. 22. The seized documents also showed that there was diversion of funds of the society. For example, page No. 21 of JB/A/31 was the trial balance of Arka Hotels P Ltd, showed a credit balance of JBES at Rs. 55,93,343/- on 31-3-2009. Likewise, page No. 101 thereof, being the trial balance of M/s. Jaybee Hotels Theatres Pvt Ltd, reflected a credit balance of Rs.50,06,950/- in the name of JBES as on 31-3-2007. The monthly summaries of the above companies in the books of the assessee society for different financial years, seized as pages 148 to 154 of JB/A/37, evidenced transfer of funds from the society to other business concerns of the group. Likewise, page No. 89 of JB/1 showed payments to Arka Hotels P. Ltd. by a student, C. Sunil and page No. 90, showed payment to Arka by JBIET. Page No. 91 also showed payment to Arka Hotel by another student, B. Prasad Reddy. Page No. 92 showed payments to the two companies from other bank accounts. 23. In addition to these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself. Likewise, from page No. 118 of Annexure JB/A/31, it was found that the payment of Rs. 70,000/- had been made to Shri Ramesh towards "supply of granites for MD Sir residence". Page No. 120 thereof also pertained to a payment of Rs. 20,000/- to the same person. Page No. 121 also showed that Rs. 4,800 had been accounted for under "tuition fees" paid to Nursery school towards the fees of B. Swathi Bongu (granddaughter of Shri J. Bhaskar Rao). Page No. 93 of Annexure A/JBIT/l also showed an inter-office communication evidencing payment of Rs. 50,000 to Shri J. Bhaskar Rao from the transport account though Shri J. Bhaskar Rao stated that he would file an explanation in this regard. During the assessment proceedings it was only stated that the transaction did not pertain to the society and that it was a personal transaction of Shri Rao. The AO opined that mere denial could not have discharged the liability of the assessee in view of the presumption u/s. 132(4A). 26. The AO further noted that during the course of search and seizure at the premises of the assessee and others at Road No. 1, Banjara Hills on 10-9-2009, cash of Rs. 10,26,300 was found which was claimed to be fees co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 and Rs. 16,60,000 was considered as undisclosed income in the hands of the assessee for the A.Y. 2010-11. Even the cash payment of Rs. 15 lakhs made over and above the recorded consideration for land purchased was treated as undisclosed income of the assessee for the A.Y. 2009-10. 28. In view of the findings of the search and seizure operations, as discussed above, during the course of assessment proceedings, the Assessing Officer sent a proposal to the DGIT (Inv), Hyderabad, recommending rescinding of the approval granted u/s. 10(23C)(vi). The DGIT vide his proceedings in F. No. DGIT (Inv)/Hyd/APP Renewal u/s. 10(23C)/JBRES/2011-12, dated 16-12-2011, withdrew/ rescinded the recognition with effect from 2007-08. The Hon'ble DGIT held that in the instant case, there was no dispute that amounts were collected by way of capitation fees/donations in cash which were not recorded in the books of accounts and there was no evidence to substantiate that the same was utilized for the purpose of education. He held that legally these amounts were required to be entered in the books of account to give factual and transparent picture. The AO, therefore, proposed to assess the income as no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xist for the purpose of education solely but for the purpose of profit. He also referred to the decision of Hon'ble Apex Court in the case (T.M. Pai vs. State of Karnataka (2002) 8 SSC 481, while holding that the society would not be eligible for exemption u/s. 11 or 10(23C) where it fails to prove that the contributions are not in the nature of capitation fees. Accordingly, he held the assessee is neither eligible for exemption u/s. 10(23C)(vi), nor it is eligible for exemption u/s. 11 of the Act. He accordingly, proceeded to assess the income of the assessee in the capacity of AOP. On appeal, the CIT(A) confirmed denial of exemption u/s. 11 as well as u/s. 10(23C)(vi) of the Act. 31. The first common issue arising in these appeals is with regard to denying exemption u/s. 11 and 10(23C) of Income-tax Act, 1961. 32. After hearing both the parties, we are of the opinion that cancellation of registration granted u/s. 12A by CIT has been confirmed by this Tribunal vide order dated 31.8.2012 in ITA No. 585/Hyd/2012 in case of Joginpally BR Educational Society and in ITA No. 586/Hyd/2012 in the case of JB Educational Society by observing as follows: "10. We have heard b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the right hand side, top portion of each of page next to the name' of the student. He further clarified that the amount mentioned therein is in 'Rs. Lakhs', though the same was written in thousands. For example the amount of Rs. 25,000 mentioned against name K. Varuniya in book marked JB/AA/5,(Sl. No. 2 candidate), is stated to be Rs. 25,00,000 as confirmed by Sri Ashok Mehta Reddy. Sri J. Vamsidhar Rao, Secretary of the society was also confronted with the admission made by Sri Ashok Mehta Reddy on the date of search itself. He stated that the seized books contain the details of fees collected by way of cheques/DD and also in cash over and above what is collected by cheques and DDs and also the money is collected in cash for which no receipts are issued. The fact of amount written in thousands, by omitting two 'zeroes' to be read as Rs. lakhs was confirmed by Sri J. Vamsidhar Rao. Even Sri J. Bhaskar Rao, Chairman of the society was questioned on the issue and in the statement recorded on 15.12.2009, he stated that he will offer his comments in a couple of days but no explanation was furnished thereafter. 13. The sample copies of the evidences in Annexure JB/AA/1 to 5 seized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-01 has been cancelled by the Director General of Income- tax (Inv.), Hyderabad vide his order dated 16.12.2011. This order was subject matter of dispute vide Writ Petition filed before the Hon'ble High Court of Andhra Pradesh in WP No. 9073/12. Being so, at this point of time, there is no valid approval u/s. 10(23C) and the assessee is not entitled for exemption u/s. 10(23C) of the Act for the assessment years under consideration. This ground of the assessee is dismissed. 35. The next common ground in these appeals is with regard to taxing of additional receipts in the hands of the assessee while making substantive addition in the hands of one Mr. R. Kondal Rao. 36. Based on the seized material, the AO prepared a comprehensive chart, which showed that a sum of Rs. 7,65,15,000/- had not been accounted for in the books of the society. He, therefore, proceeded to tax the unaccounted income as also unaccounted investment in land and cash for the A.Ys. 2009-10 and 2010-11 as under: SI. No. AY. Donation/ capital fee (Rs.) Unaccounted investment in land cash Total 1 2009-10 3,92,91,000 15,00,000 4,07,9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78 1,00,000 78,00,000 3 2005-06 2006-07 78 1,50,000 1,17,00,000 4 2006-07 2001-08 133 1,50,000 1,99,50,000 5 2007-08 2008-09 168 2,00,000 3,36,00,000 39. Accordingly, the Assessing Officer added the following amounts as unaccounted income in these assessment years as follows: A.Y. 2004-05 Rs. 83.00 lakhs A.Y. 2005-06 - Rs. 78.00 lakhs A.Y. 2006-07 Rs. 117.00 lakhs A.Y. 2007-08 Rs. 199.50 lakhs A.Y. 2008-09 Rs. 336.00 lakhs A.Y. 2009-10 Rs. 392.91 lakhs A.Y. 2010-11 Rs. 372.25 lakhs 40. On appeal, the CIT(A) confirmed the addition for all the assessment years and he observed that estimation of unaccounted receipt for A.Ys. 2004-05 to 2008-09 is also justified in view of the judgement of Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh v. H.M. Esuf Ali H.M. Abdul Ali 90 ITR 271 (SC) and also jurisdictional High Court judgement in the case of Rajnik Co. vs. ACIT (251 ITR 561) (AP). Against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 272 of the Paper Book. According to the AR, the additional income of Rs. 8,18,63,700 for the A.Ys. 2004-05 to 2009-10 offered by the Sri R. Kondal Rao to the Settlement Commission. So it is treated as income in A.Ys. 2004-05 to 2009-10 by the AO and there is no loss of revenue to the Dept. The AR submitted that there was no evidence for collection of additional fees for A.Y. 2004-05 to 2008-09 by the assessee. There is only evidence of collection of additional fees for A.Ys. 2009-10 and 2010-11. Whatever the additional fees collected was offered to tax by Sri R. Kondal Rao. The AR relied on the judgement in the case of Madhu Gupta v. DIT (Inv) Ors. 350 ITR 598 (Del), DCIT vs. Sushil Kumar Jain (127 ITD 264) (Indore) and Fort Project Pvt. Ltd. vs. DCIT (145 TTJ 340) wherein held that when the assessee had offered suo moto alleged receipts of on-money in return of income filed u/s. 153C of the IT Act for the said assessment year, no further addition on that count was warranted. Thus, according to the assessee there cannot be further addition on the basis of assessment covering the search period for which there is no seized material. 42. On the other hand, the learned DR submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt collected Total amount 1 2003-04 2004-05 83 1,00,000 83,00,000 2 2004-05 2005-06 78 1,00,000 78,00,000 3 2005-06 2006-07 78 1,50,000 1,17,00,000 4 2006-07 2001-08 133 1,50,000 1,99,50,000 5 2007-08 2008-09 168 2,00,000 3,36,00,000 45. However, it is an admitted fact that while estimating the above excess fees collection, the AO based his conclusion on the basis of seized material available for A.Y. 2009-10 and 2010-11. He relied on the judgement of Supreme Court in the case of H.M. Esuf Ali Ors (cited supra) and also on the judgement of jurisdictional High Court in the case of Rajnik Co. (cited supra). The Supreme Court in the case of H.M. Esuf Ali Ors. (cited supra) held as under: "Held, that the reassessments were valid. From the circumstance that the assessee had dealings outside the accounts of the value of Rs. 31,171.28 for 19 days, it was open to the officer to infer that the assessee had large- scale dealings outside the accounts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to charge such high fees as charged for academic year 2008-09 and 2009-10 and in the initial period for any educational institution to get students is very difficult. It is also seen from the tables reproduced on earlier occasion that all the management seats were not filled and there were certain seats kept unfilled. It is also fact that now-a-days Engineering Colleges in Andhra Pradesh are not doing well and many colleges are seeking permission from the State Government to shut down due to lack of students. Some colleges have sent representations to the Technical Education Department and the All India Council for Technological Education (AICTE) in this regard. These facts should have been considered by the Department. Instead of this, the AO as well as the CIT(A) straightaway applied the amount collected from the students for admission in management quota seats in academic years 2008-09 and 2009-10 as per earlier years. The estimation of income of the assessee is not properly considered by the AO. Being so, the ratio of Supreme Court decision in the case of H.M. Esuf Ali Ors (cited supra) cannot be applied to the facts of the present case. 47. Coming to the judgement of jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of search it shows 3 persons admitted payment of on- money, 5 persons denied the payment of on-money and no evidence with regard to payments of on-money for remaining 24 plots. However, the partners Gopal Lal Bhadruka and Avadesh Bhadruka confirmed the receipt of on-money. However, in the present case, there is no admission by the assessee for collection of excess fees for management quota seats for the assessment year 2004-2005 to 2008-2009. Further, unless there is evidence or material indicating any suppression of collection of fees towards management quota seats for the academic year 2003-2004 to 2007-2008 having been found during search, and no admission from the assessee, Assessing Officer was not justified, to estimate the same on the materials seized relating to academic year 2008-2009 and 2009-2010 indicating suppression of collection of fees for management seats, in assuming suppressed/unaccounted receipts of fees for earlier assessment years. The calculation of unaccounted income from collection of fees from management seats should be based on materials and it should be on scientific basis and cannot be merely on assumptions. Considering the facts of the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ould have been, were it being maintained and kept. Though such a record could have been destroyed also from time to time, but in such asituation 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 is perhaps the last weapon in the arsenal of the Department, were found, which could be attributed to any such patently hypothetical receipts. In view of this the multiplication formula adopted by the A.O. was not valid. 50. The other contention of the assessee on the unaccounted receipts is that this was collected by Sri R. Kondal Rao without the knowledge of the assessee and the same was subject to tax in the hands of Mr. R. Kondal Rao though he filed appeal against the assessment order before the CIT(A). The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition before the Settlement Commission is assessed in my assessment. The said orders were received by me on 31-12-2011 and appeals were filed before the CIT(A) with a delay of 307 days. The appeals are pending before the learned Commissioner of Income-Tax (A)-I, Hyderabad. I understand that such amounts were also added in the assessment of the societies. I state that I will have no objection to withdraw the appeals filed before the CIT (A) and pay the taxes as per the assessment orders passed, in case the amounts added as the income of the above mentioned society are to be deleted. I agree to pay the taxes on the income so arrived. As stated by me in the earlier paragraphs, the amounts were collected by me and were appropriated by me towards the institutions only. Therefore, I have no objection to withdraw the appeals in case the assessment of such additional income made in the above mentioned society for various assessment years is deleted. What is stated above is true and correct to the best of my knowledge, information and belief. Sd/- R. Kondal Rao DEPONENT" Date: 29.8.2013 Annexure: Medical College Engineering College ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an the fees fixed. The fees so collected by him was not entirely accounted for in the books of the society but that part of the amount as suggested by the management was only accounted for. In his deposition, Sri R. Kondal Rao has mentioned the amounts actually received by him and amounts recorded in the books of account. The difference of the amount is also worked out by him. He deposed to the effect that the difference of the amount was retained by him without the knowledge of the management committee. I further state that the amount to the extent received by the society were recorded in the books of account and the amounts not recorded were received by Sri R. Kondal Rao who utilized the amounts. I further state that Sri R. Kondal Rao has filed the returns of income and was assessed on the difference between the amounts realized and the amounts actually credited in the books of account. He seems to have filed the appeals with a delay. I state that the difference of the amount does not represent the income of the society and it represents the receipt by Sri R. Kondal Rao and he shall be responsible for such amounts. I agree with the deposition of Sri R. Kondal Rao that he coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom unaccounted receipts in the hands of Sri R. Kondal Rao, in our opinion, the assessee could not be saddled with all these unaccounted receipts as it is at its hands. It is an admitted fact that Sri R. Kondal Rao was in a position to collect the money from the students who were seeking admission in the assessee's college and he used his position to collect these impugned receipts from the students and while passing the assessment order the same was treated in his hands as undisclosed income and he accepted himself for being assessed by the Department vide affidavit filed before us. Therefore, in this context, these unaccounted receipts which have been assessed by the Department in his hands cannot be once again considered in the hands of the present assessee, once Sri R. Kondal Rao acted in accordance with the affidavit filed before us. In our opinion, the explanation offered by both assessees can be believed to be true unless there is contrary evidence brought on record that the assessee itself has collected the money from the students. Being so, in our opinion, in the event of Sri R. Kondal Rao paying the tax on the unaccounted income from the receipts in his hands then the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR these funds are contributed by members of the trust for specific purpose and it being capital receipt it cannot be taxed and this is not collected from the students so as to treat the same as income of the assessee u/s. 2(24) of the Act in view of the amendment to this section w.e.f. 1.4.1989, though the assessee having no valid registration u/s. 12AA of the Act. The assessee drew our attention to Paper Book page Nos. 637 to 656 to show that this amount was collected from members and associated companies of the members towards "building construction fund" with a specific direction for capital expenditure and the amount so received was spent for construction of building and other civil works. According to the AR it cannot be treated as income of the assessee as it is a tied up grant. According to the AR the entire receipts received towards specific purpose cannot be taxed as it is a tied up fund. 57. The co-ordinate Bench had an occasion to examine similar issue in the case of Society for Integrated Development in Urban and Rural Areas (SIDUR) vs. DCIT (90 ITD 493) wherein the Tribunal followed the order of this Bench in the case of Nirmal Agricultural Society (71 ITD 152) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee or its income. Those grants were not donations to the assessee so as to bring them under the purview of Section 12. Voluntary contributions covered by Section 12 are those contributions freely available to the assessee without any stipulation, which the assessee can utilise towards its objectives according to its own discretion and judgment. Tied-up grants for a specified purpose would only mean that the assessee which was a voluntary organisation, had agreed to act as a trustee of a special fund granted by donor with the result that it need not be pooled or integrated with the assessee's normal income or corpus. In the instant case, the assessee was acting as an independent trustee for that grant, just as same trustee could act as a trustee of more than one trust. Tied-up amount need not, therefore, be treated as amounts which were required to be considered for assessment for ascertaining the amount expended or the amount to be accumulated. The assessee should have actually credited the grant in the personal account of the donor and any amount spent against that grant should have been debited to that separate account of the donor. That incoming and outgoing need not be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings were not valid and were liable to be quashed." This Bench of the Tribunal in the case of Arya Vysya Abhyudaya Sangham (supra) for asst. year 1998-99, in its order dated 25-6-2002 to which one of us was a party, was inclined to uphold the view of the Commissioner (Appeals) in that case by holding in para 15 of that order as follows: "Though we find considerable force in the other argument of the assessee's counsel i.e. the income should be computed on commercial principles, as we have held that the assessee-society is eligible for exemption Under Section 11 of the Act and as we have also held that the objects of the society were of charitable nature within the meaning of Section 2(15) of the Act, and as we have further held that there is no violation, whatsoever of the provisions of Section 13(1)(c) and (d) of the I.T. Act, 1961, the other grounds of the assessee need not be gone into, as it would be of academic interest only." The Revenue has not brought to our notice any judgment from any High Court which has dealt at length on this issue and which is in its favour. It is also not clear whether the Revenue has accepted or gone on appeal against the judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be a part of the total income that can be brought to charge [CIT v. Harprasad Co. P. Ltd., (1975) 99 ITR 118, 125 (SC)]". 28. As argued by the Revenue, though by virtue of Section 2(24)(iia) voluntary contributions are income, to our mind this by itself does not entitle the tax gatherer to ignore all other well settled principles of taxation and general law and levy tax on gross receipts without considering the claim for deductions. Principles such as capital versus revenue, doctrines of overriding title, form versus substance, interpretation of "deeming" provisions etc., have to be applied wherever necessary. Only the surplus or profit can be brought to tax and the same has to be computed in the manner laid down in the Act applying the normal principles of accountancy and taxation laws. 29. The learned authors Kanga and Palkhivala in the book The Law and Practice of Income Tax, Eighth edition, Vol. I, at page 387, state the legal position as follows:- "Voluntary contributions towards corpus of recipient trust.- The present Section 12 is expressly made applicable to voluntary contributions which are made with a specific direction that they shall form part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Arya Vysya Abhyudaya Sangham (supra) and also in view of the ratio decidendi of the judgments of the Honourable Rajasthan High Court in the case of Sukhdeo Charity Estate (149 ITR 470 and 192 ITR 615) referred to above, we direct the Assessing Officer to redo the assessment de novo in accordance with law. 33. For statistical purposes, the appeal of the assessee is treated as allowed." 58. Further, in the case of Shri Shankar Bhagwan Estate vs. ITO (61 ITD 196) wherein even after considering section 2(24)(iia) of the Act it was held as follows: "Section 2(24)(iia) has to be read in the context of the introduction of present section 12. In the instant case the Assessing Officer on evidence had accepted the fact that all the donations had been received towards the corpus of the endowments. In view of this clear finding, they could not be assessed as income of the assessees. Therefore, the voluntary contributions received by the assessees towards the corpus could not be brought to tax." 59. Now the issue for our consideration is whether the amounts received by the assessee were in the nature of voluntary donations received for specific purpose. If yes, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trust or institution shall not be considered as income of the trust. The Board circular No. 108 dated 20.3.1973 is extracted at page 1754 of Volume I of Sampath Iyengar Law of Income-tax (10th Edition), in which the interrelation between sections 12 and 2(24) has been brought out. Gifts made with clear direction that they shall form part of the corpus of the religious endowment can never be considered as income. In the case of R.B. Shreeram Religious and Charitable Trust v. CIT (172 ITR 373) (Bom) the Hon'ble High Court held that even ignoring the amendment to section 12, which means that even before the words appearing in parenthesis in the present section 12, it cannot be held that voluntary contributions specifically received towards corpus of the trust may be brought to tax. The aforesaid decision was followed by the Bombay High Court in the case of CIT vs. Trustees of Kasturbai Scindia Commission Trust (189 ITR 5) (Bom). In the present case donations being received for specific purpose, towards corpus of the trust, cannot be assessed as income of the assessee. 61. Same view was taken in the case of Shri Dwarakadeesh Charitable Trust vs. ITO (98 ITR 557), DCIT vs. Nasik Gymkh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions covered by s. 12 are those contributions freely available to the assessee without any stipulation which the assessee could utilise towards its objectives according to its own discretion and judgment. Tied-up grants for a specified purpose would only mean that the assessee, which is a voluntary organisation, has agreed to act as a trustee of a special fund granted by Bread for the World with the result that it need not be pooled or integrated with the assessee's normal income or corpus. In this case, the assessee is acting as an independent trustee for that grant, just as same trustee can act as a trustee of more than one trust. Tied-up amounts need not, therefore, be treated as amounts which are required to be considered for assessment, for ascertaining the amount expended or the amount to be accumulated. 11. The assessee should have actually credited that grant in the personal account of the donor, Bread for the World and any amount spent against that grant should have been debited to that separate account of the donor. That incoming and outgoing need not be reflected in the income and expenditure account of the assessee. At the end of the project, the balance, if any, avai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsonal benefit of the Members of the trust and tax the same accordingly. Further, other than tied up grant/donations, if any, should be treated as income in the hands of the assessee in accordance with law as business income after allowing usual deductions under the provisions of the Act while computing income under the head 'business income', more so, deduction u/ss. 30 to 38 of the Act is to be allowed, if it is not already granted to the assessee. 65. The next ground in ITA No. 30/Hyd/2013 is with regard to chit loss. Though the AR argued this ground, there is no such ground raised before us. Accordingly, this ground is dismissed. 66. The next ground common in ITA Nos. 30, 31, 33 and 34/Hyd/2013 is with regard to confirmation of action of the AO in making addition on the ground that there is a difference in opening balance of the capital fund which is as follows: A.Y. 2005-06 Rs. 4,285 A.Y. 2006-07 Rs. 3,300 A.Y. 2008-09 Rs. 35,13,736 A.Y. 2009-10 Rs. 16,61,590 67. The learned AR submitted that the lower authorities have not properly examined these additions and the issue may be remitted back to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee raised the ground with regard to levy of interest u/s. 234A and 234B of the Act in ITA Nos. 29 to 35/ Hyd/2013. According to the assessee, the interest u/s. 234A and 234B is not leviable in view of the judgement of Calcutta High Court in the case of Imami Ltd. vs. CIT (337 ITR 470). In our opinion, interest under section 234A and 234B is to be charged on assessed income and it is mandatory and consequential in nature. The judgement in the case of Imami Ltd. is not applicable to the facts of this case. In that case, the assessee filed return of income for the A.Y. 2001-02 on 31.10.2001 and returned nil income and paid no tax even on book profit as there is no book profit. Later there was an amendment to section 115JB by Finance Act, 2002 which was published in official gazette on 11.5.2002 giving retrospective effect to the amendment to section 115JB from 1.4.2001 as per which assessee is liable for tax on book profit. The assessee challenged the levy of interest u/s. 234B and 234C. The Hon'ble Calcutta High Court held that as the amended provisions of section 115JB having come into force with effect from 1.4.2001, the assessee could not be held defaulter of payment of advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not raised before the CIT(A). The assessee also did not raise a formal ground of appeal before the Tribunal at the time of filing the appeal. Accordingly, he prayed for admitting the additional grounds. The AR relied on the order of Chennai Bench of this Tribunal in the case of S. Priyadarsini vs. JCIT (73 TTJ 738) (Chennai). 77. The DR objected to the admission of additional grounds. 78. In our opinion, additional grounds have to be adjudicated as the income has to be computed on accrual basis. After admitting the additional grounds, we are inclined to remit the issue to the file of the Assessing Officer for proper quantification of the income on accrual basis. If the fees received for full course from a student in one assessment year, it should be appropriated proportionately for each year under consideration during the course period. The additional grounds are remitted back to the Assessing Officer with the above observations. 78.1. The learned A.R. argued before us the issue relating to treatment of donation, loss on sale of vehicle and chit loss. However, these grounds are not raised by the assessee in its Memorandum of Appeal before us. Accordingly, these g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Medical College were as under: Category Fee per year Category 'A' Regular fee prescribed by theconvener, EAMCET. Category 'B' Convener fee + Rs. 2 lakhs Category 'C' Convener fee + Rs. 4 lakhs 85. As discussed in the assessment order, search operations were conducted in the cases of the assessee society and M/s. J.B. Educational Society, as also the residences of the main trustees viz., Shri J. Bhaskar Rao, Shri J. Vamsidhar Rao and Shri J.V. Krishna Rao, the Registrar of the Society Shri K. Ashok Mehta Reddy and the Manager Shri R. Kondal Rao. During the said searches, besides jewellery and cash of Rs. 66,00,000/- and Rs. 5,17,000/- seized from the residence of Shri J. Bhaskar Rao, certain incriminating material was found and seized from the office premises of the assessee society vide Annexures JB/AA/1 to JB/AA/5, which showed that the Society had collected fees from students over and above the prescribed fees (in the form of donations/capitation fess) for granting admission into the professional courses undertaken by the institutions of the society. It was also found that the excess amounts so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consultants. It was found that as per the evidences seized as Annexure JV/A/1 to 5, capitation fee was collected in cash and not recorded in the books of account and only the regular fees was recorded. 88. As discussed in the assessment order, Shri J. Vamshidhar Rao in his statement dated 10.9.2009 admitted Rs. 7.5 crores as the undisclosed income on the basis of discrepancies in the books of account in the individual hands for the entire group. However, the same was not linked to the society. The said admission of Rs. 7.5 crores was again confirmed by him in his statement dated 15-12-2009. However, Shri Rao did not furnish the breakup of such disclosure nor the disclosure was honoured while filing the returns of income. 89. The AO further noted that Shri R. Kondal Rao, Manager of the Society had filed an application before the Settlement Commission on 29-7-2011, admitting an additional income of Rs. 8.18 crores. He pleaded before the Commission that he was collecting amounts at the time of admitting students into the college without the approval of the Management and that the same was not revealed to the Management. He also stated that the said amounts were used by him to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounted cash received 903000 91. It was further found that as per the recordings in pages 73, 75, and 89 of A/JBES/5, 21, 45 to 47, 63 and 68 of A/JBES/6 and 10 to 12 of AA/JBES/l, the trustees had made investments in construction of guest house at Tirumala and Yadagiri Gutta, donation of gold to Yadagiri Gutta Temple, out of the unaccounted donations received. The correspondent of the institute at Tirupati, Shri Munirathanm, in his statement dated 14-12-2009 also confirmed that cash was received from J. Bhaskar Rao. As per his letter to the DDIT, Rs. 35 lakhs were spent till that time towards construction of the guest house at Tirumala out of unaccounted donations/contributions. The investment in construction of guest house at Yadagiri Gutta was Rs. 15 lakhs while the donation of gold was for Rs. 25 lakhs. 92. In addition to the above investments, evidences found (pages 88 to 99 of AA/JB/l) also showed that funds of the society were diverted towards the business concerns of the trustees. It 'was found that donations were being paid even directly into the accounts of the 3 star hotel being constructed under M/s. Arka Hotels Pvt. Ltd. The search also res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced by the parents seeking admission under the Management Quota as Dr. T. Linga Rao was the father of T. Abhinav, V. Prasad was the father of Karthika, Samiullah Shah Khan was the father of Azha Mullah Khan, Md. Abdul Bari was the father of Salma Abdul Bari all students of MBBS 2005-06 batch. Therefore the amounts introduced were nothing but the part of fees not accounted for in the books of account of the society. In addition to the above, there were several entries where annexure were found between accommodation receipts and fees collected directly from the parents/students instead of being accounted for in the books of a/c of the society, which was indeed a violation of sec. 13(l)(c) and sec. 11(5) of the IT Act. 95. As discussed in the assessment order, the evidence seized in the course of search clearly shows collection of amounts over and above the fees. The Note Books seized as Annexures JB/AA/1 to 5 contain details like, name of the student, father's name, total fee for the seat, fee received in cash, fee received through cheque/DD, balance fee to be collected during the relevant 5 years etc., for example Annexure JB/AA/1 is a note book in respect of MBBS students of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of Rs. 7.5 crores u/s. 132(4) of the Act. He was also shown the statements recorded from the persons who had been actually recording the money collected over and above the prescribed fees from the students admitted in Management Quota and had accepted the statements: given by them. Therefore, it was clear that the Management of both the society had accepted in principle the collection of amounts over and above the prescribed fee and the manner in which those were found recorded in the incriminating evidence. 98. During the course of assessment proceedings, the assessee did not file any reply or clarification. In the letter dated 12-12-2011, the assessee contended that the addition of two zeroes to the figures and conversion of the cash collections into crores instead of lakhs is required to be put to strict proof by way of independent enquiry, evidence from students/ parents etc and needs to be confirmed only by the persons making the payment. Except for the above denial, no other counter evidence could be submitted. On the other hand, from the evidence gathered it had been proved that the society has been charging amounts over and above the prescribed fees. 99. The seized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh of Rs. 3 lakhs was also found and seized from the locker No. 2 standing in the name of Sri J. Prabhakar Rao, employee of JBIET. Shri Rao in his statement dated 25-9-2009 stated that the cash belonged to the assessee's society and pertained to the college JBREC. Since no explanation regarding the source of such cash was furnished nor the same was found recorded in the books of a/c, the cash of Rs. 3 lakhs was seized. Shri Rao also stated that the cash had been given to him by one Sesha Sai, staff member for safe custody. However, he could not show that any entry was made in this regard. During the assessment proceedings it was claimed that the amount was out of the tuition fee collected and had been kept with Mr. Rao due to the closure of banking hours. However, no copies of receipts from the students could be submitted even during the assessment proceedings. 102. In view of the findings of the search and seizure operations, a proposal was sent to the DGIT (Inv), Hyderabad, recommending rescinding of the approval granted u/s. 10(23C)(vi). The DGIT vide his proceedings in F. No. DGIT (Inv)/ Hyd/APPELLANT Renewal u/s. 10(23C)/ JBRES/2011-12 dated 16-12-2011 withdrew/rescinded t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts collected over and above the prescribed were being handed over to the Chairman and other interested persons of the society. Accordingly, he concluded that even on this account the appellant would not be entitled to the exemption u/s. 11 of the Act. 104. The AO noted that even in view of the decision of the ITAT, Hyderabad in the case of Vodithala Educational Society and Adinatar Educational Institution vs. ACIT (224 ITR 310), the assessee was not eligible for exemption u/s. 11, as it did not exist for the purpose of education solely but for the purpose of profit. He also referred to the decision of Hon'ble Apex Court in the case of T.M. Pai vs. State of Karnataka (2002) 8 SSC 481 while holding that the society would not be eligible for exemption u/s. 11 or 10(23C) where it fails to prove that the contributions are not in the nature of capitation fees. Accordingly, he held that the assessee is neither eligible for exemption u/s. 10(23C)(vi) nor it is eligible for exemption u/s. 11. He accordingly, proceeded to assess the income of the assessee in the capacity of AOP. 105. Based on the seized material, the AO prepared a comprehensive chart which on cross verification showed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Rs. 6,64,51,596. Accordingly, the excess liability of Rs. 66,10,874 was also disallowed and added to the total income. (c) Asst. Year 2007-08 : The income and expenditure statement for this asst. year showed a surplus of Rs. 3,02,398. Besides, there was addition to the capital fund of Rs. 1,43,22,635, which too was not treated as capital receipts. The AO also added the difference between the closing and opening balance of capital fund as on 31-3-2006 (Rs. 7,32,57,196) and 1-4-2006 (Rs. 7,74,19,332 respectively of Rs. 41,62,126). (d) Asst. Year 2008-09 : In addition to the surplus of Rs. 1,02,80,910, the capital fund of Rs. 56,56,986 was treated as income. Besides, the AO also added the difference between the closing and opening balance of capital fund as on 31-3-2007 (Rs. 9,17,41,957) 1-4- 2007 (Rs. 10,36,74,999 respectively) of Rs. 1,19,33,042. 107. In addition to the above, the Assessing Officer noted that the assessee had offered "other income " of Rs. 6,17,543/ - only, whereas the TDS certificates reflected the total interest. income of Rs. 26,60,107. Accordingly, the difference of Rs. 20,42,564 was also brought to lax for the AY 2008-09. (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition of Rs. 6,54,25,000, Rs. 6,32,50,000, Rs. 6,46,50,000, Rs. 5,27,65,800 and Rs. 4,31,60,000 in assessment years 2006-07, 2007-08; 2008-09, 2009-10 and 2010-11 respectively, the CIT(A) observed that it is clear that the same amount has been arrived at on the basis of the seized material itself as annexed in the assessment order. Even in the course of appellate proceedings, the assessee has not disproved the observation of the Assessing Officer that the entries on whose basis such unaccounted income was worked out were not found accounted for in the books of account of the society. Accordingly, he upheld the additions of the above amounts as unaccounted income from "donation/capitation fee" 111. The CIT(A) observed that it is also clear that' the above mentioned additional amounts were given and received as quid pro quo for granting admission to the students into various colleges/institutions of the assessee society only. Accordingly, all of such amounts are to be taxed in the hands of the assessee society only. Merely because Shri R. Kondal Rao accepted having collected such amounts personally, without the knowledge of the society, it cannot be said as the income of Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue against the assessee. 114. With regard to the year-wise issues, the CIT(A) observed that in the asst. year 2010-11, the Assessing Officer disallowed the claim of donation of Rs. 6,29,518/- in the absence of any evidence. In the course of appellate proceedings it has been stated that the same was paid to Chief Minister's Relief Fund, which is eligible for 100% deduction u/s. 80G(2). The Representative also submitted details of cheques of Rs. 2 lakh and Rs. 3 lakh bearing Nos. 835373 and 835498 dated 15-10- 2009 and 26-12-2009. Therefore, he directed the Assessing Officer to verify the said contention of the assessee and grant deduction as per law. Accordingly, he decided this issue in favour of the assessee. 115. As regards the difference in the closing balance of capital fund, it has been submitted that there was no difference in opening balance in any of these years. The Representative also submitted extracts of Balance Sheets for different years to substantiate his contention. The Assessing Officer; therefore, is directed to verify such contention of the assessee and delete the additions made on account of difference, in case the contention is found to. be correct. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the addition made on this account, in case contentions of the AR are found to be correct. Accordingly he decided the issue in favour of the assessee subject to such verification. Hence the assessee is in appeal before us on the above issue. 118. The first common ground is with regard to denial of exemption u/s. 11 or 20(23C) of the Act. Similar issue was already decided above in ITA Nos. 29-35/Hyd/2013. On the same ratio this ground is dismissed accordingly as discussed in para 34 of this order. 119. The next common ground is with regard to addition of unaccounted income holding the additional receipts in the hands of the assessee while making substantive addition in the hands of one Mr. R. Kondal Rao. 120. We have heard both the parties and perused the material on record. This is already discussed in ITA Nos. 29 to 35/Hyd/ 2013. This issue is partly allowed as in ITA Nos. 29 to 35/Hyd/2013 as discussed in paras 43 to 52 of this order. 121. The next common ground is with regard to addition towards capital fund. Similar issue is already discussed in ITA Nos. 29 to 35/Hyd/2013 in paras 56 to 64. Accordingly, this ground is partly allowed. 122. The next ground is with rega ..... X X X X Extracts X X X X X X X X Extracts X X X X
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