TMI Blog2019 (6) TMI 595X X X X Extracts X X X X X X X X Extracts X X X X ..... ct nowhere prescribe filing of return by any due date for the assessment years under consideration so as to grant exemption u/s. 11. Therefore, the findings of the CIT(A) that the assessee having not filed its returns of income within the prescribed time had failed to comply with the requirement prescribed under the Act, is not tenable. - Decided in favour of assessee Addition on account of collection of capitation fee - during search, there was no incriminating material found regarding collection of additional fees for the assessment years - HELD THAT:- In the present case, there is no evidence collected by the Department for the assessment year 2006-07 to 2011-12 and there was evidence only in the assessment year 2012-13. As said in earlier paras of this order, there was no admission by any of the Trustees of the assessee-Trust. In the present case, addition towards additional fees collected by the assessee was solely based on the statement of one of the employees of the Trust, Shri Shibu and later details were furnished by the assessee at the time of assessment. Hence, there was no incriminating evidence regarding the receipt of additional fees either found or seized durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounted by the assessee, hence, for this assessment year also, the Assessing Officer cannot bring to tax once again. For this assessment year, the Assessing Officer has to verify whether it is duly accounted for the assessment year 2012-13 only. Hence, we are not in a position to uphold the order of the CIT(A) on the issue of collection of additional fees for the assessment years 2009-10 to 2011-12. Assessing Officer is to restrict the addition towards collection of additional fees for the assessment year 2012-13 to the extent of the seized material found during the course of search. This ground of appeal in relating to the addition towards collection of additional fees is partly allowed for statistical purposes. Further, the provisions of section 11 was considered by the Tribunal while restoring the registration granted to the assessee u/s. 12AA in assessee s own case for the assessment years 2009-10 to 2011-12. - I.T.A. Nos. 255 to 261/Coch/2018 - - - Dated:- 27-5-2019 - S/Shri Chandra Poojari, AM And George George K., JM For the Assessee : Shri Narayanamurthy, CA For the Revenue : Shri Alok Mitra, CIT(DR) ORDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) Irregular in filing of return of income. iii)The assessee has diverted the fund of the Trust for the benefit of trustees who are wife and sons of the Managing Trustee i.e. family members. iv) The assessee Trust had diverted funds to business concerns in which the trustees have substantial interest, and v) The assessee has collected additional amount, commonly known as capitation fee from the students for admission in various courses. The Assessing Officer denied the benefit of sec. 11 to the assessee for the following reasons: Section 13 of the IT Act, 1961 specify the circumstances under which the benefits under section 11 would be available to an organization. 1. If the income is not applied for the benefit of the public. 2. If the income is applied for the benefit of any particular religious community or caste. 3. If the income or property of the Trust is applied is used for the benefit of the chief functionary major loaners, and relatives of trustees. 4.If the funds are applied in more than specified in section 11(5). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emption u/s. 11 of the Act. For this proposition, he relied on the following Supreme Court judgments: 1) American Hotel and Lodging Association vs. CBDT (301 ITR 86) (SC) 2) Queen s Educational Society vs. CIT (372 ITR 699) (SC) 3) Chief CIT vs. St Peter s Educational Soceity (385 ITR 66) (SC) 4) Visvesvaraya Technological University vs. ACIT (385 ITR 37) (SC) 5.2 Further, it was submitted that the assessee is solely existing for the purpose of imparting education. Hence, the assessee cannot be denied exemption u/s. 11 of the Act. He relied on the following judgments: 1) Pinegrove International Charitable Trust vs. Union of India Others (327 ITR 63) (P H). 2) Vanitha Vishram Trust vs. Chief CIT (327 ITR 121 (Bombay). 5.3 The Ld. AR submitted that even if there is the violation of sections 11(5) and 13(1)(c) of the Act, the assessee is only liable to pay tax on maximum margin rate and not on the entire income but only to the extent of violation of the above sections. For this proposition, he relied on the following judgments: 1) CIT vs. Fr. Mullers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red under Rule 7 in Form No. 10. If during the assessment proceedings, the Assessing Officer does not have necessary information, the question of excluding such income from assessment does not arise at all. As a matter of fact, excluding the particulars of income from the net of tax arises from sec. 11 and is subject to the conditions specified therein. Therefore, it is necessary that the Assessing Officer must have the information at the time of completing the assessment. In the absence of such information, it will not be possible for the Assessing Officer to give the assessee benefit of such exclusion and once the assessment is so completed, it would be futile to find fault with the Assessing Officer for having included such income in the assessable income of the assessee. Therefore, even assuming that there is no time limitation prescribed under the Act and Rules, even then, it is reasonable to presume that intimation required u/s. 11 is to be furnished before the AO completes such assessment because such assessment is mandatory and without furnishing the particulars of income, the AO cannot ascertain the claim of exemption u/s. 11 of the Act. Therefore, complianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was accepted. On these facts, it was held that the IT authority had taken hyper-technical view of the matter where the assessee has complied with the provisions of the Act in the course of assessment by curing the defect in the return by filing an audit report. The ITO cannot ignore such audit report or the return in completing the assessment. The delay in getting the account audited and in filing the return (sic-report) in Form No. 10B did not defeat any object of the Act and, therefore, the provision was directory in nature. It also referred to the circular of the Board dt. 9th Feb., 1978. 11. Gujarat High Court in Gujarat Oil Allied Industries' case (supra) was considering s. 80J(6A). Gujarat High Court took the view put by this Court in Jaideep Industries' case (supra). It was held that the provision about furnishing of the auditor's report along with the return has to be treated as procedural provision and, therefore, directory in nature. 12. Provisions of s. 80J(6A) and s. 12A of the Act are para materia. The ratio of the law laid down in Jaideep Industries' case (1989) (180 ITR 81) (P H) would have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find no merit in the argument of the Revenue that the assessee was not eligible for exemption u/s. 11 12 on account of not having complied with the requirements of section 12A(1)(b) of the Act. Since this was the sole basis for upholding the validity of the reassessment proceedings resorted to, we hold that the reassessment resorted to in the present case was invalid, on account of the second proviso to section 12A(2) of the Act, which specifically debarred resort to the same in view of registration having been granted from the immediately succeeding assessment year. The reassessment framed is therefore set aside. As a consequence the addition made is deleted. 7.4 In the case of Director of IT(Exemption) vs. Divyajyot Foundation (2010) (321 ITR 53), the Gujarat High Court relying on the decision in CIT vs. Gujarat Oil Allied Industries (1993)109 CTR (Guj.) 272: (1993) 201 ITR 325 (Guj.) held that though the assessee trust has not submitted its accounts in Form No.10AA before the prescribed authority in given time, the same does not justify the addition and disallowance of the claim of the assessee. The entire donation received having been spent within the time all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard, it is proposed to further amend section 12A so as to provide for further condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income within the time allowed under section 139 of the Act. These amendments are clarificatory in nature. These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent years. 7.7 Further, an excerpt of circular No..02/2018 dated 15.0,2013 Explanatory Notes to the Provisions of the Finance Act, 2017 on insertion of clause (ba) in Sub section (1) of section 12A is quoted as under: the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139 of the Income-tax Act, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. Amendment to section 12A of the Income-tax has been made so as to provide for additional condition that the person in receipt of the income chargeable to income-tax shall furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts due to various stipulation of law. I am not able to explain the above discrepancies. 8.2 In view of the unearthing of the chart evidencing collection of capitalization fees from management and NRI quota seats and the statement of Shri. Shibu, the Assessing Officer held that the assessee had been collecting capitation charges from the aspiring students. According to the Assessing Officer, collection of capitation fees is a common knowledge and in the instant case, it was supported by documentary evidence, found and seized from the premises of the assessee and further supported by the statement of administrative officer of the assessee concern. 8.3 On appeal, before the CIT(A), Dr. K.M. Navas, Trustee of the assessee concern wrote a letter dated 14.02.2018, contents of which are reproduced as under: Sir, Sub: Note on capitation fee - reg. Ref: Appeals for the AY 2006-07 to 2012-13 During the income tax search dated 31/10/2011 the Income Tax Officers found the collection of additional fees from MBBS 2011 batch management students to the tune of ₹ 2.40 crores. We have admitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing collection of additional fees for the assessment years and the additions were made by extrapolating backwards the figures relating to the subsequent years. 8.6. The Ld. DR submitted that there was seized material representing the unaccounted collection of fees for these assessment years under consideration. He submitted that judgment of the Jurisdictional High Court in the case of CIT vs. Hotel Meriya (332 ITR 537) is applicable to the facts of the assessee s case. 9. We have heard the rival submissions and perused the record. In the present case, there was a seized material found during the course of search marked as CHN/21/VJ-1-A which contained the details of students admitted for BBS, BDS and BMS courses and money collected from each student was recorded in the laptop of the Administrative Officer, namely, Shri Shibu and print out was taken relating to financial year 2011-12 and corresponding year 2012-13. During the course of search, statement of Shri. Shibu was recorded and he confirmed the receipt of additional fee. The relevant question and answer is reproduced as under: As per the details found during the course of search ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 561). 9.3 In the case of Meriya Hotel cited supra which is a bar cum restaurant, there was a search conducted u/s. 132 of the Act on 28th June, 2001. During the search, a seized material was found showing undisclosed sales turnover. The cash book was seen recorded upto 25th June, 2001. The cash book showed cash balance of ₹ 21,31,523/- but the physical cash balance was ₹ 34,552/-. On enquiry of the Managing Partner and the employee, it was revealed that only 80% actual sales turnover in respect of liquor was recorded in the cash book. In this case, the partner of the hotel had in ambiguous terms stated that 20% of the sales turnover was suppressed and only 80% was recorded in the books of accounts of the assessee and it was a practice from the beginning. So, the High Court was of the opinion that it is just and appropriate to presume that there was uniform concealment of income in all the assessment years during the block period. There is no material to show that concealment of the sales during any of the assessment years in the block period is less than concealment detected u/s. 132 of the I.T. Act. There was no whisper in the statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold land obtained and investment made by the Trust on this lease hold land. 3. The amount paid for property purchase at Valanchery and the method of accounting to accommodate them on money payment and cash settlement made between the trustees as on 01/11/2011. 9.5. The assessee vide letter dated 17/01/2014 stated that in the assessment year 2011-12 they had not collected any additional fees we have only collected some advance fees which was accounted in the books. In the assessment year 2012-13, it was stated that they had collected additional fees from MBBS and BAMS students which have been accounted as additional fees. Now the assessee has admitted the receipt of additional fees during the previous year relevant to the assessment year 2012-13. 9.6 Coming to the judgment of the Andhra Pradesh High Court in the case of Rajnik Company cited supra, the High Court held that assessment of undisclosed income is based on relevant material and there is absolutely no merit in the contention of the assessee that the estimations made by the Assessing Officer as well as by the Tribunal are not based on any material but merely based on conjunctur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng evidence regarding the receipt of additional fees either found or seized during the search. What was found was the seized material CHN/21/VJ-1-A showing the details of students admitted to MBBS, BDS. BAMS and the money collected from each student recorded in the laptop of the administrative officer, Shri Shibu and printouts of the same for financial year 2011-12 relevant to assessment year 2012-13. Later, the assessee furnished details of fees collected in the year 2010-11 in the tabular form. From this, the Assessing Officer arrived at the additional fees collected by the assessee. However, the assessee vide letter dated 10/12/2013 stated that the assessee had not collected any additional fees and only collected advance fees. Being so, whatever was found was the break up of number of students who were admitted under different quotas in various courses. Therefore, there cannot be any addition in the hands of the assessee towards additional fees collected in the absence of any material seized or found during the search for the assessment years 2006-07 to 2011-12. However, we direct the Assessing Officer to confine the addition to the extent of seized material found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 2012-13 to the extent of the seized material found during the course of search. This ground of appeal in ITA No. 261/Coch/2018 relating to the addition towards collection of additional fees is partly allowed for statistical purposes. 9.9.1 Further, the provisions of section 11 of the Act was considered by the Tribunal while restoring the registration granted to the assessee u/s. 12AA of the I.T. Act in assessee s own case in ITA No.246/Coch/2014 dated 16/01/2017 wherein it was held as under: 19. Coming to other observations of the CIT for cancellation of registration of trust u/s 12AA(3). The CIT observed that the trust js not maintaining proper books of account and not filed regular returns of income as prescribed under law. As regards observations of the CIT with regard to non maintenance of books of account and non filing of regular returns of income it was submitted that it is true returns of income from the A.Y. 2007-08 have not been filed regularly and such returns have been filed after search but before the Commissioner issued her show cause notice on 6-9-2013 which is evident from the fact that returns of income up to A.Y. 2011-12 have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Sees.12 and 13 of the Act to ensure that personal benefits of the persons in control of the trusts are not treated as having applied for charitable purpose and for being brought to tax like provisions of Sec.13(1)(c) of the Act which restricts unreasonable and excessive payments to certain category of persons connected with a trust or other institution. In such circumstances, we are of the view, that the order u/s 12AA(3) of the Act, cannot be sustained. 20. The allegations of the Revenue that the Trust was collecting additional fees, Donations and siphoning off of income of the Trust for the benefit of the Trustees. As regards collection of additional fees from certain students and diversion of funds to trustees, these are passing remarks by the CIT which cannot be considered as non genuine activities. The trust has collected fee from students as prescribed by the authorities. In some cases, additional fees collected from students admitted under management quota and such additional fees has been accounted for in the books of accounts and also applied for objects of the trust. The trust has collected additional fees in two years from students admitted under mana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue to prove that the trustees have siphoned off the income of the Trust. It is also not established before us by the Revenue that the trustees who have received funds by siphoning off the undisclosed income of the trust are brought to tax. On the other hand, the assessee proves that allegations made by the CIT are baseless and without any cogent materials. The activities conducted by the assessee Trust are only promoting education within the ambit of Section 2(15) of the Act and it was not engaged in any other activity other than imparting education. Therefore, we are of the view that the other reasons given by the CIT in the order u/s. 12AA(3) of the Act, do not make out a case, which can show the activities of the assessee are genuine or that the activities of the assessee are not being carried out in accordance with the objects of the trust or institution. 21. Unquestionably, the onus for proving the existence of factors calling for cancellation of registration granted to an institution is on the Department rather than on the institution. In the present case, the CIT has miserably failed to discharge such onus. No material has been brought by the CIT that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the cancellation of the registration granted to the assessee Trust has been erroneously ordered. 9.9.2 In view of the above discussions, we are inclined to allow this ground of appeals of the assessee in ITA Nos. 258-260/Coch/2018 for the assessment years 2009-10 to 2011-12. On the other hand, the appeal of the assessee in ITA No.261/Coch/2018 for assessment year 2012-13 is partly allowed for statistical purposes. 10. The next common ground, Ground No. 4 in ITA Nos. 258-261/Coch/2018 reads as follows: Without prejudice to the above, it is submitted that the CIT(A) should have noted that since the assessee is a charitable trust registered u/s. 12A, the only precondition in granting exemption u/s. 11 was mandatory application of 85% o the income received, towards the objects of the trust. The CIT(A) should have noted that for an institution which is charitable in nature, once it has complied with the condition that it should compulsorily spend 85% of the income received during the same year, then there is no scope for denial of exemption in total. As long as this amount has been applied for the purposes of the objects of the Trust, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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