TMI Blog2022 (7) TMI 1043X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment completed on 30.9.2021. In our opinion, second search is a different proceeding that materials cannot be imported for cancellation of the registration granted u/s 12A of the Act, when the issue was restored to him by order of the Tribunal - Being so, the Principal CIT is not expected to place reliance on material gathered in second search and he cannot be considered it so as to cancel registration at this point of time. Accordingly, we restore the registration granted to the assessee w.e.f. 20.1.1992. Appeal of assessee allowed. - ITA No.155/Bang/2022 - - - Dated:- 8-6-2022 - Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Assessee : Sri Ramasubramaniyan, A.R. For the Respondent : Sri Pradeep Kumar, D.R. ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by assessee is directed against the order of Principal CIT, Bangalore with regard to cancelling of registration u/s 12A of the Income-tax Act,1961 ['the Act' for short] granted to the assessee on 20.1.1992. 2. Facts of the case are that the assessee is a Trust established for the purpose of providing education and medical relief. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entify probable candidates who will pay capitation fees in cash. c. Agents were also appointed to find candidates to enable the assessee to convert the merit seats into management quota seats. d. The capitation fees were received in cash from students and not accounted. The fee collected are not in accordance with the norms laid down by the Fees Fixation Committee. e. Fees collected in cash was spent for benefit of the trustees and for payment of bribe to MCI inspectors. f. The fees collected in cash was routed into the accounts of the trust through dubious means. Based on the alleged findings the learned Principal Commissioner cancelled the registration w.e.f assessment year 2010-11. 2.4 It is submitted by the Ld. A.R. that the assessee had filed an appeal before the Tribunal challenging the order cancelling the registration. The Tribunal vide its order dated 20.10.2021 in ITA No. 1463/Bang/2018 set aside the order passed by the learned Principal Commissioner of Income-Tax and restored all the issues to his file for examining the claims of the assessee. 2.5 Ld. A.R. submitted that when the appeals against the assessment orders and the cancellation of the regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. A.R. relied on the decision of the Hon'ble Supreme Court in Kamalakshi Finance Corporation 55 ELT 433 for the above proposition. The above decision may have been rendered under Excise Law ; however, the ratio of decision is equally applicable to income tax matters as the principle of hierarchy remains same. Hence, the action of the learned Principal Commissioner of Income Tax in not following the directions and findings of the Tribunal and also holding that the order of the Tribunal has not reached finality is bad in law. 2.6 Ld. A.R. further submitted that the second search conducted on 10.10.2019 has no relevance for deciding the validity of order passed on 23-3-18 u/s 12AA(3). The validity of such order has to be decided on the basis of materials available on record as on 23-3-2018 (whose' validity has been challenged in appeal) only subject to outcome of appeals wherein the validity of materials were challenged. Any other subsequent events are wholly irrelevant. Hence, the reasons for denial of restoration of registration u/s 12A of the Act given in the order dated 18.2.2022 by the learned Principal Commissioner of Income Tax is bad in law and liable to be quashed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order dated 23.2.2018. Against this assessee came in appeal before this Tribunal. Tribunal vide its order in ITA No.1463/Bang/2018 dated 20.10.2021 decided as follows:- 8. We heard the rival contentions and perused the record. It is the contention of the assessee that the impugned order cancelling the registration granted to the assessee u/s 12A of the Act has been passed by the Ld Principal CIT on the basis of findings noticed by the search officials and also by the AO during the course of assessment proceedings. It is the contention of the Ld. A.R. that all the findings and additions have since been deleted by the Tribunal. Accordingly, it was submitted that the grounds on which the registration was cancelled no longer survive now. Besides, the above, the assessee is also questioning the validity of jurisdiction assumed by the Ld. Principal CIT while cancelling the registration u/s 12AA(3) of the Act and also challenging the validity of cancelling the registration with retrospective effect. On the contrary, it is the contention of the Ld D.R that the assessment orders passed by the AO were not entirely relied upon by Ld PCIT. 9. Be that as it may, the fact remain that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate the noting therein. The Revenue has failed to corroborate the noting by bringing some cogent material on record to prove conclusively that the noting in the seized papers reveal the unaccounted capitation fees/receipts of the assessee. Further, no circumstantial evidence in the form of any unaccounted cash, jewellery or investments outside the books of account was found in course of search in the case of assessee. Thus, the impugned addition was made by the AO on grossly inadequate material or rather no sufficient material at all and as such, deserves to be deleted. Hence, we are of the view that an assessment carried out in pursuance of search, no addition can be made simply on the basis of uncorroborated noting in loose papers found during search because the addition on account of alleged receipts made simply on the basis of uncorroborated noting and scribbling on loose sheets of papers made by some unidentified person and having no evidentiary value, is unsustainable and bad-in-law. 184. The Tribunal in the case of Sri Y. Siddaiah Naidu, Tirupathi vs. Asst. Commissioner Of Income-Tax 2015 (2) TMI 403 - ITAT HYDERABAD held that it is very much clear that from such notin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived from student/parent in response to statement of Shri Rangaraju (pg. 2189 2190 PB). (f) In answer to Q.24 (pg. 2192 PB), he denied collection of fee in cash. 187. Hence the revenue authorities contention that Mr.Nagaraj has admitted payment of cash and receipt of fees in cash is not based on statement of Mr. Nagaraj. 188. Further from the seized material A/DUU/02 03, the AO came to the conclusion that cash been paid to trustees either directly or to a third party for their benefit. The statements of Shri R.L. Jalappa, Shri Rajesh Jagdale and late Shri J.P. Narayan Swamy were recorded, but no questions were put to them whether statement of Mr. Srinivas that cash has been paid to trustees or to a third party on their behalf is correct. The statement of Mr. Jalappa is on record at page 2140 to 2158 of PB. Perusal of the same shows that he was not confronted with the statement of Mr. Srinivas. The observations in para 8 9 of the assessment order do not show that Shri Rajesh Jagdale and late Mr. J.P. Narayan Swamy were also not confronted with the statement of Mr. Srinivas. The AO stated that seized material A/DUU/01 revealed that trust has engineered dropout ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agent for seat conversion. Being so, as discussed earlier, these are loose sheets having no signature of any person, cannot be treated as incriminating material without any supportive document and the statements are relied upon by the AO without giving opportunity of cross-examination. .. . 195. The seized material A/DUU/11 is placed at pages 1555 to 1635 of PB. According to the ld. DR, it shows unaccounted utilisation of capitation fees for the benefit of trustees. These are unsigned documents and not supported by any corroborative material. Further the beneficiaries are not examined or crossexamined. At this point, it is appropriate to rely on the judgment of the Mumbai Bench in the case of ACIT v. Layers Exports P. Ltd [2017] 53 ITR (Trib) 416 (Mumbai), wherein it was held that no addition could be simply made on the basis of uncorroborated notings in the loose papers found during the search because addition on account of alleged receipt made simply on the basis of uncorroborated noting and scribbling on loose sheets made by some person have no evidentiary value and is unsustainable and bad in law. 196. The Hon ble Supreme Court in Commo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se investigations are lightly set in motion against important constitutional functionaries on the basis of fictitious entries, in absence of cogent and admissible material on record, lest liberty of an individual be compromised unnecessarily. 197. In view of the above, reliance on Seized material A/DUU/11 for making addition cannot be sustained. 198. The AO has not referred to the seized material Seized material A/DUU/12 and there is no necessity of commenting on it. 199. Regarding seized material A/DUU/13, placed at PB 1698 to 1805 which contains computer typed statements, scribbling s and manual scribbling s and noting s. Most of the entries is a repeat of hard copy of seized material A/DUU/01. Further there are certain letters as follows: (i) PB 1767 Letter from A Murthy confirming the voluntary payment of Rs.50,000 towards corpus donation by cheque (ii) PB 1768 (duplicate of above) Letter from A Murthy confirming the voluntary payment of Rs.50,000 towards corpus donation by cheque. (iii) PB 1771 Letter from B Rajashekhar confirming the voluntary payment of Rs.30,000 towards corpus donation by cheque. (iv) PB 1772 (Duplicate of above) Lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he computer is not known. Print-out or copy furnished was taken from which computer is not known. In such circumstances, these digital data cannot be relied upon. The contention of ld. DR is that presumption u/s. 292C shows that it belongs to the assessee and it cannot be denied. However, we are not in a position to appreciate the argument of the ld. DR for the reasons discussed below. .. .. 205. Seized material A/DUU/15 PB page no 1839 to 2028 a note book containing names, mobile numbers and address having no attestation of the assessee with regard authenticity that it belong to assessee. This was not discussed in the assessment order being so it is to be treated that it does not relate to the addition made by the AO and requires no adjudication. 206. The AO also relied on seized materials A/DUU/16 placed at Paper book page no 2029 to 2138. We have carefully gone through it, these are blank cheques found at the premises of the assesse during the course of search action. The AO discussed this issue in his order at page number 46 to 50, and drew inference that these are the cheques given by the students as a security for payment of capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value as a witness. Further, the AO in para 3.4 the tabulated statement in response to assessee s submission at page 206-207 of his order noted as follows:- Shri G.H. Nagaraj, has time and again changed his position Therefore that version of his statements which is in line with the material found and seized during the search is only being considered. Also seized material has sheets with tabulations where the word cash has been consistently used. Also, the assessee has not made any submissions to prove that the subsequently admitted receipts of Rs.146 crores were taken through cheques or DDs. 211. The Hon ble Supreme Court in Andaman Timber Industries v. Commissioner of Central Excise, 281 CTR 241 (SC) held as follows:- Not allowing the assessee to cross-examine the witness by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency notes. It, however, considered that it was impossible for the assessee to have had 61 such notes in the cash balance in their hands on 12-1-1946, and then it applied a rule of the thumb treating 31 out of such 61 notes as within the bounds of possibility, excluding 30 such notes as not covered by the explanation of the assessee. This was pure surmise and had no basis in the evidence, which was on the record of the proceedings. Facts proved or admitted may provide to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question. The High Court treated this finding of the Tribunal as a mere finding of fact and recognised this position in effect but went wrong in applying the true principles of interference wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant, even though a request for them had been made, proceedings for the reassessment could not have been taken further on this ground alone. Besides this, the statement of some other person which was recorded was the basis of reassessment and the assessee was asked to explain it but the statement was itself not furnished to the assessee. As such, besides non-furnishing of the reasons for re-opening there was also a gross violation of the principles of natural justice. The reassessment was not valid. 216. The Hon ble Calcutta High Court in the case of CIT v. Eastern Commercial Enterprises, 210 ITR 103 (Cal) held as follows:- 8. We have considered the contesting contentions of the parties. It is true that Shri Sukla has proved to be a shifty person as a witness. At the earlier stages, he claimed all his sales to be genuine but before the Assessing Officer in the case of the assessee, he disowned the sales specifically made to the assessee. This statement can at the worst show that Shri Sukla is not a trustworthy witness and little value can be attached to what he stated either in his affidavits or in his examination by the Assessing Officer. His conduct neutralises h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ash withdrawals, he explained that his business required ready cash for purchase of raw materials which explained his large drawings of cash from the bank. Learned counsel then cited a host of decisions to bring home the point that no evidence or document can be relied upon unless it is shown to the assessee. Kishanchand Chellaram v. CIT. Similarly, the requirement of cross-examination as the requirement of the rules of natural justice has been underlined by the Bombay High Court in Vasanji Ghela and Co. v. CST [1977] 40 STC 544. It is trite law that cross-examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against a party unless the party is put on notice of the case made out against him. He must be supplied the contents of all such evidence, both oral and documentary, so that he can prepare to meet the case against him. This necessarily also postulates that he should cross-examine the witness hostile to him. 10. In any case, we have nothing to rely upon to come to a decision this way or the other. The first thing is that which of the statements of Shri Sukla is correct, is anybody's guess. Therefore, it is necessary to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answer to question no. 16 of his statement recorded on 16-10-2015 which is placed on record in PB 2183. He also stated that the payment from the persons which alleged to have been received is only in the form of cheque and they are genuine donations. In answer to question no 22 he has stated that the statement of Shri Rangaraju is absolutely false and all the fees are collected only in cheque. There are contradictions in his statements which cannot be relied upon. 219. The AO also relied on seized material A/DUU/02 to A/DUU/04 to come to conclusion that the assessee has made payment to the trustees. These statements are made by the AO without confronting this seized material to the trustee though they were examined by the authorities concerned. Without confronting the seized material and statement of Shri Srinivas it is not possible to hold that there was unaccounted cash payment to the trustees. Further, Shri. R L Jalappa one of the trustee denied the fact of receiving any money as noted in the seized document. However, the assessing officer made protective additions in hands of Shri. R L Jalappa in these assessment years after making substantiative assessment in hands of tru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and recorded his statement on 13-08-2015 placed at PB page no 2165 that the Officials of MCI refused to receive any gifts and there was no any payment of cash to them. There was no examination of recipient such allegation cannot be made without examining the concerned parties and no adverse inference could be drawn against the assessee on this count. 223. Further, there was an allegation that on the basis of seized material marked as A/DUU/13 there was a payment of donation to political parties. As we observed on earlier occasion the noting s in seized material which is obscure being loose sheets cannot be relied upon without any corroboration. 224. Seized material A/DUU/17 copy of which is not provided to the assessee and cross-examination of Mr. Goli Srinivas was not provided to the assessee cannot be relied upon. 225. The assessing officer has stated that summons was sent during the course of assessment proceedings to the parents in order to allow cross-examination by the assessee s representatives. One of the parents appeared and reconfirmed. It is noted that though statements of parents of 5 students were said to have been obtained, only one parent has appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld support its finding. The statements of managers in those two letters were based on hearsay, as in the absence of evidence, it could not be taken that he must have been in charge of the Madras office on October 16, 1946, so as to have personal knowledge. The department ought to have called upon the manager to produce the documents and papers on the basis of which he made the statement and confronted the assessee with those documents and papers. It was true that proceedings under the income-tax law were not governed by the strict rules of evidence, and, therefore, it might be said that even without calling the manager of the bank in evidence to prove the letter dated February 18, 1955, it could be taken into account as evidence. But before the incometax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the bank with reference to the statements made by him. Nor was there any explanation regarding what happened when the manager appeared in obedience to the summons referred to in the letter dated March 9, 1957, and what stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l-proof of material evidence to substantiate the addition. In our opinion seized documents do not support the AO s contention that assessee has received unaccounted capitation fees for admission of the students to the college. It also does not suggest that the assessee has paid commission to agents to bring the students for admission to college. Similarly it does not suggest payment of any amount to the trustees for their selfbenefit. Going through the entire facts of the case it creates only a suspicion in the minds of the revenue authorities that the assessee has collected unaccounted capitation fees. However, the suspicion not enough to hold that the assessee has collected unaccounted capitation fees in absence of concrete evidence bought on record by the authorities concerned. The suspicion cannot replace the material evidence brought on record by the authorities. It is also noted that the assessee vide their letter dated 22-02-2017 asked for following information: (i) Number of student/parents to whom summons were issued (ii) How many of such notices were served ? (iii) How many were returned unserved? (iv) The number of students/parents who appeared before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of them for cross-examination cannot be considered as incriminating material so as to sustain the addition. The rough notings in the loose papers are not full-proof evidence without proving the correctness of the same. Nothing was recorded in the orders of lower authorities that assessee has deviated from its objects for which approval u/s. 12A was granted and not applied its funds towards its objects. No evidence was brought out to show that the amount of capitation fees alleged to have been collected resulted in creation of any unaccounted assets by the trust or trustees or by any interested person. On this count also the addition cannot be sustained. 233. No assets commensurate with the alleged estimated collection of capitation fees by the revenue authorities were found. The unbounded loose sheets having jottings are not speaking either by itself or in the company of others and not corroborated by enquiry, cannot be the basis of any inference that capitation fees was collected not entered in the accounts so as to sustain the addition. 234. Considering the facts of the case, we are of the opinion that the evidence collected by the authority is not sufficient to establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le High Court of Karnataka in the case of DIT(E) V. Sri Belimatha Mahasamsthana Socio Cultural and Educational Trust, 336 ITR 694 (Karn). In this case, the assessee a social, cultural and educational trust, running educational institutions and having various professional courses filed its return of income for the AY 2001-02. The AO denied exemption u/s. 11 of the Act holding that the sums collected towards donations from students were contrary to the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. The AO also disallowed the sum shown as corpus donation as the source of such donations had not been proved by the assessee and, therefore, the said amount was also not allowed as an exemption under section 11(1)(d) of the Act. The CIT(Appeals) confirmed the order of AO. The Tribunal allowed the benefit of exemption u/s. 11. On appeal, it was held that merely because the assessee is an institution which is running professional courses, the AO could not have presumed that the amounts which are received as donation were attributable to the allotment of seats in the relevant assessment year. In the absence of there being any foundation for such a contention that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 (8) TMI 367 - ITAT Hyderabad [Paragraphs 24 and 25] In CIT v. KLE University [ITA No. 5016 of 2012 C/W 5017 of 2012], the Hon ble Karnataka High Court held as under:- 11. Our answer to the above point is in the affirmative for the following reasons : (i) that the donations received by the society cannot be construed as capitation fee for the admission of students by the KLE University; (ii) that providing hostel to the students/ staff working for the society is incidental to achieve the object of providing education, namely, the object of the society ; (iii) that the Revenue appears to have not properly appreciated the legal point that though the chairman and a few members of the society are the chairman and members of the KLE University , they are separate legal entities ; (iv) that there is no violation of any of the conditions stipulated under the Income-tax Act, warranting for cancellation of registration of the society ; (v) that the Tribunal on proper appreciation of the grounds urged by the society and the Revenue, has rightly restored the registration. 237. Further the Hyderabad Tribunal in the case of Prathima Educational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... office of the AO with the help of IBM official but there was no impression in the hard disk that the same was typed and prepared in any of the computers belonging to the society. No data conforming 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 such recovery. (f) The author of the excel sheets could not be identified. In terms of s. 60 of the Indian Evidence Act, computerised 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of providing these statements as the same would go against the Department. The conduct of the Department is not fair as the notings in the Excel sheets formed the basis of addition and subsequent cancellation. Assessee is enclosing herewith some of the summons issued to the parents 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 Dy. Director of IT which was based on suspicion. This shows total non-application of mind by the adjudicating officer when the informations supplied to him were disputed and not-corroborated by the Dy. Director of IT. 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 was found. It was pointed out that the same was a dumb document and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as conclusive evidence to frame these assessments. The words may be presumed in section 132(4) of the Act given an option to the AO concerned to presume these things, but it is rebuttable and it does not give a definite authority and conclusive evidence. The assessee is having every right to rebut the same. The entire case depends upon the rule of evidence. There is no conclusive presumption with regard to unsubstantiated seized material to come to the conclusion that that assessee has collected unaccounted capitation fees. In the present case, the assessee categorically denied collection of capitation fees. If it was collected, it was unauthorized collection by the person who is looking after the admission and that it is why it is unauthorized by the trust. Further, there is no confirmation from the students who get admitted into various courses and even there was statements recorded from two students/parents which were not confronted to the assessee for cross-examination. The revenue authorities cannot draw inference on the basis of suspicion, conjectures and surmises. Suspicion, however strong, cannot take place the material in place of evidence of the AO. The AO sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was issued the copy of the rough cash book as also the statements of partners of V . It had submitted its reply by letters. The explanation furnished by the assessee had been disbelieved. In one letter, the opportunity to cross-examine the partners and the employees of V was sought for in the event their statements had not already been recorded with a request that they might be summoned and their statements on oath be recorded in their presence. The said request was made in the event the statements had not already been recorded earlier. As the statements had already been recorded, the opportunity to cross-examine the said persons did not arise. The assessee had ample opportunity to explain the things. [Para 12] In the instant case, the copies of the rough cash books and the statements of the partners of V which were recorded, had been provided to the assessee and, in fact, the assessee had also submitted its reply. In the letter an opportunity to cross-examine was asked for only in case the statements had not been recorded. As, in the instant case, the assessee had proper opportunity to controvert the material gathered by the assessing authority and used against it, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l provisions like allowing cross examination will not make an assessment null and void. At most it can be an irregularity liable to be cured and in such a case, the assessment can be set aside to be redone. An addition made does not cease to be an addition merely by reason of want of cross-examination. It will be a proceeding liable to be challenged and corrected. [Para 13] The order of the Assessing Officer though was vitiated by an illegality which supervened, not at the initial stage of the proceedings but during the course of it and, therefore, assessment could neither be annulled, nor the addition could be deleted because of that illegality or irregularity. The matter was required to be set aside to be reprocessed and restart from that stage of illegality/irregularity. [Para 14] Therefore, the order of the Assessing Officer on this issue was to be set aside with a direction to him that the statement of S should be made available to the assessee. The assessee must be allowed crossexamination of the said person and thereafter the matter be decided afresh on the basis of the result of the cross-examination. [Para 22] From the discussion above, it was evident that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of landed property, building, investments, money, bullion, jewellery or any kind of movable or immovable assets. In such circumstances, we are of the opinion that the decisions relied on by the ld. DR cannot be applied to the facts of the assessee s case. 246. Further it is to be noted that we have already relied on the Supreme Court judgment in Andaman Timber Industries v. Commissioner of Central Excise, 281 CTR 241 (SC) wherein it was held that opportunity of cross-examination not given leads to nullity and assessment order to be quashed. It is also pertinent to mention herein the decision of Special Bench of the Tribunal in ACIT v. Vireet Investments (P) Ltd. 165 ITD 27 (Delhi Trib.) (SB) wherein it was held that when two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted, which is in line with the Supreme Court judgment in the case of CIT v. Vegetable Products, 88 ITR 192 (SC). This is a wellaccepted construction recognized by various courts. Accordingly, we also reject this argument of the ld. DR. 247. Being so, in our opinion the seized material relied by the assessing officer for sustaining a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the assessment years since,: i) no opportunity to cross-examine the persons whose statements have been relied upon is afforded; ii) some of the statements have been recorded under section 131 by the authorized officer subsequent to completion of search; iii) there is no documentary evidence either to support the statements of Sri. Goli V. Srinivas or of the parents of the students; and iv) the seized material are in the form of various loose sheets, scribblings, jottings and Excel sheets taken from the computer having no signature or authorization from the assessee s side. These are unsubstantiated documents and there is nothing to suggest any undisclosed assets of assessee found during the course of search. More so, search action not resulted in recovery of any undisclosed assets in the form of landed property, building, investments, money, bullion, jewellery or any kind of movable or immovable assets. 249. However, on the date of search action on 6.8.2015, the search party found physical cash of Rs.2,67,28,900. This should be compared with the books of account on the day and the balance over and above the book balance should be brought to tax in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; (d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution. 253. As long as the income derived from the property held for charitable purposes has been spent for the objects of the trust, exemption under section 11 cannot be denied. There is no allegation either in the show cause notice or in the assessment order that any of the transactions accounted in the books of account show that they are not for the objects of the trust. The entire expenditure i.e., both revenue or capital are incurred only for the purpose of objects of the trust. This is not disputed by the AO . It is submitted that the accounts of the appellant have been audited regularly and there has been not even a single instance of violation reported. 254. The AO has alleged that the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the due fulfilment and effectuation of the object, and the purpose of the SRI DEVARAJ URS EDUCATIONAL TRUST FOR BACKWARD CLASSES / CASTES. All the donations, gifts, etc, shall be taken over possession only in the name of the Trust and the Chairman or the Secretary in his official capacity as a true representations of the Trust and can never be in his personal capacity. 258. Trust has responsibility only vis- -vis what is received in its name by the Chairman or Secretary in their official capacity. The trust cannot be made accountable for what the trust personnel have received in their personal capacity by abusing their position. The trust cannot be made responsible for such receipts. All consequences on account of such receipts cannot affect the charitable nature of the trust. The violation on the part of the personnel of the trust who have abused their position would be breach of trust. This breach of trust is concerned with internal management of the trust and cannot be made the basis for holding that the trust is not charitable in nature. It is relevant to note the decision of the Hon ble Gujarat High Court in the case of K.T. Doctor v. Commissioner of Income-tax [1980] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed through capitation fee collection, and rather by the trustees appropriating the same. 263. It is submitted that the decision relied upon by the AO does not support the conclusion drawn by him. Without prejudice to the main contention that the appellant has neither received any capitation fee nor diverted any of its funds for the benefit of the trustees, it is submitted that the above decision is not applicable to the facts of the present case. The issue in the above case was whether income from property held under trust can be applied for a purpose even though charitable, if such purpose is not the object of the trust. This is not at all the issue in the present case. The ratio of the said decision does not support the allegations made by the AO . 264. Without prejudice to the contention that funds have not been diverted for the benefit of trustees, the AO has tabulated the payments made to trustees based on his analysis of the seized material (supra). A perusal of the said table would show that there are no such payments pertaining to AY 2010-11 and 2011-12 as per the analysis of the AO himself. It is pertinent to note that the assessments for AY 201011 and 2011-12 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through receipt of bogus donations (v) Aiding tax evasion by making additional payments of salary in cash to staff 268. The abovementioned allegations are countered below. Counter to the Allegation: Payment to political parties 269. The AO has tabulated his analysis of seized material no. A/DUU/13 with respect to alleged payment made for elections. The relevant entry no. 85 of seized material no. A/DUU/13 was confronted to Sri. Goli V. Srinivas and Sri. G H Nagaraj. The relevant portion of the statements is extracted in the earlier submissions. Based on the above material, the AO observed as under:- Para vide Sl. No. 5.2.3.1h deals with the payment of Rs. 300 lacs made to political parties. When Pg. 85 of the seized materials A/DUU/13 was shown and GVS and Sri G H Nagaraj was confronted they have stated that this amount was paid to various political parties and candidates contesting election. An extract of their reply has been annexed in para 5.2.3.1h. However, they have not given further details of as to whom such payments were made to. It is pertinent at this juncture to note that the Chairman of the Trust is Politician. Such payments made to poli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust, would show that the payment has been made without the authority of trust. The entry at page 85 of the seized material and the statement of Sri. Goli V. Srinivas / Sri. G H Nagaraj is not supported by any corroborative evidence. The AO has stated that the payments made to political parties have two violations, one being that they violate the objective of the Trust by spending income from property of Trust to the purposes other than charitable purpose and second being the fact that they directly or indirectly aid benefit one of the trustees. It is submitted that these findings are contrary to his own finding that the payments have been made out of alleged capitation fee. It has been established by the appellant that the capitation fee has been neither received by the trust nor does it form part of the funds of the trust. Such being the case, the question of diverting funds of the trust for the purpose of benefit of trustees does not arise. 271. Without prejudice to the above, the AO has stated that there are multiple entries in seized material marked as A/DUU/02 to A/DUU/04 which would show that the trust funds have been diverted for funding elections. It is submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... colleges and facilitation of payment of capitation fees as seen from seized material Annexure A/DUU/01 page 67, A/DUU/02 Page 61, A/DUU/13 pages 10, 11 and various other such evidences found and seized. 276. The ld. AR submitted that a perusal of the above paragraphs would show that the AO has relied upon certain portion of seized material marked as A/DUU/01, A/DUU/02, statement of G H Nagaraj recorded u/s 132(4) on 20.08.2015, statement of Sri. Goli V. Srinivas recorded under section 132(4) on 06.08.2015 and under sec 131 on 28.11.2017. The AO also sought to rely upon page 5 of seized material no. A/DUU/10. This page consists only of certain obscure notings and figures. Nothing can be deciphered from the same. The portion of seized material relied upon cannot be held as corroborative evidences to support the allegations that the appellant has paid commission to agents for getting candidates for admission with capitation fee. There is nothing in the seized material to support the above. Even the statement of Sri. Goli V. Srinivas /Sri. G H Nagaraj which is relied upon is not supported by any cogent evidence. We have already established that the statement of Sri. Goli V. Srin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rementioned material and statement of Sri. Goli V. Srinivas recorded on 07.08.2015 under sec 132(4) of the Act and statement of Sri. Goli V. Srinivas recorded on 28.11.2017 under sec 131 of the Act. 282. The appellant strongly denies the allegation that it has paid bribes to MCI inspectors. The allegation is based on totally unreliable documents and evidences. It is submitted that allegation on bribes, etc cannot be made lightly. Merely based on the statements of Mr. Srinivas or the entries made in the registers it cannot be alleged that bribes have been paid. Kindly refer to the decisions of the Hon ble Supreme Court in Common Cause and V.C. Shukla referred to in earlier paragraph supra. 283. The AO has sought to rely on statement of Sri. Goli V. Srinivas recorded under sec 131 on 28.11.2017 which is much later than the date of search. It is submitted that reliance cannot be placed on a statement recorded under section 131 post search in the absence of reliable material during the course of search. Moreover, it is recorded only a month before the time-limit to make assessment could expire. 284. Without prejudice to the above, the statement recorded on 28.11.2017 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bribing is perverse as it is not based on cogent evidence. Countering the allegation: Aiding Tax evasion through receipt of bogus 80G donations: 290. It is submitted that the perusal of the entries in the said seized material do not support the above allegation. There is nothing on record to prove that the capitation fee collected in cash is paid to certain persons who, in turn, routed it back to the trust by way of donation and claimed deduction under section 80G in respect of such donations. The returns of the alleged bogus donors who have claimed deduction under section 80G in respect of such donations has not been brought on record. An allegation of aiding in tax evasion cannot be made in a bald manner. It should be proved that the alleged bogus donor has claimed deduction u/s. 80G in respect of such donations and the amount of tax evaded by such donor by claiming such deduction is to be ascertained. The assessment records of such donor should be brought on record to show that donation claim has been found to be bogus during the assessment of such donor. The copy of assessment order wherein such bogus donation is disallowed is to be confronted to the trust that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessment order. The faculties, in the statements, have denied receipt of any additional salary as stated in page no. 81 of seized material no. A/DUU/01. The AO sought to rely upon the statements of faculties to deny the claim of the appellant in respect of deduction for expenditure. It is submitted that the statement contradicts the allegation of the AO that the appellant has paid salary in cash to staff to aid them to avoid tax. When the faculties have denied accepting additional salary, the question of aiding them to avoid tax by paying salary in cash does not arise. If the AO had reason to believe that the remuneration is paid in cash without TDS to enable the faculty to evade tax, he should have handed over the relevant material to the AO who had jurisdiction over such faculties to enable initiation of proceedings under section 153C in respect of such faculties. But the AO did not choose to do so. He has not even called for the income-tax returns and assessment records of those faculties. He has not even ascertained whether they are liable to pay tax at all. In the absence of any evidence, the AO cannot make any such sweeping allegations. The payment to staff, whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e benefit of exemption u/s. 11. Further, as we have discussed in elsewhere in the order there is no concrete evidence for collection of unaccounted capitation fees and it is not possible to deny the exemption u/s 11 of the act. It is also noted that even if the assessee constructed the temple inside the campus of the education institution for the benefit of the students and employees and also for public, it cannot be construed as violation of section 12(1)(a) of IT Act. There was one more allegation that assesse has collected exorbitant fees but in our opinion the fees has been fixed by the state authority and there was no violation noted by the state authority or MCI. As discussed in earlier para of this order about the authenticity of the seized material, we have held that it is not foolproof. In such circumstances it cannot be relied upon. The various decisions relied by the AO that is the Delhi High Court in DIT(exemptions) vs. Charanjiv Charitable Trust, Mool Chand Khairati Ram Trust vs. DIT(Exemption) and Vodithala Education Society vs. Addl. DIT(Exemption) to hold that assesse has violated the section 13(1) are not applicable to the facts of the case on the reason that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. The AO also added back the capital expenditure claimed as application of income as exemption under section 11 is denied. Therefore, the observation of the AO that the appellant has claimed depreciation is incorrect. 300. Therefore, without prejudice to the main contention that the appellant is entitled to claim exemption u/s. 11 of the Act, it is submitted that the appellant is entitled to claim depreciation as per the provisions of the Act. 301. Without prejudice to the above, it was submitted that the AO has denied exemption under section 11 of the Act. Therefore, the AO is required to grant deduction towards depreciation irrespective of the fact whether depreciation has been claimed and allowed in the books of accounts or not. The AO is required to grant depreciation as per the normal provisions of the Act. When the AO has sought to compute the income under Chapter IV-D, he ought to have granted depreciation as per section 32 of the Act. It is submitted that deduction towards depreciation should be compulsorily be given whether the assessee has made the claim or not. Explanation 5 to section 32 reads as under:- Explanation 5.-For the removal of doubts, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Column heading as per the table given at page 149 of the assessment order Column reference Total Seats D 150 No. of seats where capitation fee is collected E 63 (*) Package price (Rs. In lakh) F 35 Regular fee per seat for the course (Rs. In lakh) G 15.41 Unaccounted cash component generated per seat per course (Rs. In lakh) F G = H 19.59 Total unaccounted cash generated as per seized material (Rs. In lakh) I - Estimation of total unaccounted cash generated (Rs. In lakh) E * H = J 1234 308. It is pertinent to note that the column I which deals with Total unaccounted cash generated as per seized material is blank so far as AY 2010-11 is concerned. It means that the learned Assessing Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has to be taken as an addition made on surmises and conjectures, which is liable to be deleted. We notice that the co- ordinate bench of Tribunal has also taken an identical view in the assessee s own case in the order dated 29-04-2015 passed in ITA No.3890/Mum/2013 and others relating to AY 2006-07 to 2008-09. We notice that the assessee has given detailed explanations before the Ld CIT(A) and hence the Ld CIT(A) has deleted the addition by placing reliance on the decisions referred supra. Under these set of facts, we do not find any reason to interfere with the order passed by Ld CIT(A) on this issue. Accordingly we uphold the order passed by him on this issue. 310. Moreover in all the other pages of seized material A/DUU/06, there is nothing even remotely suggesting that some cash has been collected. Hence, the reliance on page 151 to estimate the total unaccounted cash generation is uncalled for and it is respectfully submitted that no person reasonably instructed in law can arrive at the conclusion as has been arrived at by the department. 311. At pages 152 and 153 of the assessment order, at para 10.9.2, the AO has discussed the evidences in support of quantifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining to FY 2008-09 represents evidence for alleged capitation fee received during that year, it is submitted that a presumption cannot be drawn that there must have been similar receipt even during FY 2009-10 in the absence of incriminating material pertaining to FY 2009-10. The appellant relies on the following decisions:- In Anjaneya Brick Works. v. ACIT (INV.). 2002 (1) TMI 256 ITAT Bangalore / 74 TTJ 921, the Tribunal held as under: (iii). The first limb of arguments of the learned authorised representative is that so far as the asst. yr. 1991-92 in the case of M/s. Anjaneya Brick Works is concerned, there is no evidence of suppression of income. We are convinced by the arguments of learned authorised representative to that effect. This is almost settled principle of law that mere existence of evidence to support concealment of income for the next assessment year (i.e. 1992-93 in this case) cannot be made a basis judiciously to estimate the income for the current year or any other assessment year for that matter. On the basis of materials related to asst. yr. 1992-93, we cannot conclude that there existed unaccounted sales and income for the previous year relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continued in the postsearch period particularly when there was factually no evidence at all as found by both the authorities below to support such a view. In CIT v. M/S Thakkar Popatlal Velji Sales Ltd. 2016 (4) TMI 336 - Bombay High Court s case the registers evidencing sales were found for the period August 2005 to September 2005. The Revenue sought to extrapolate the sales recorded therein for the entire assessment year. The Tribunal rejected the contention of the Revenue and held as under:- 9. So far as the next submission on behalf of the Revenue viz. of extrapolation of evidence found during search is concerned, this Court in All Cargo Global Logistics Ltd. (supra) had negatived the revenue's submission before it that the assessment under section 153A of the Act is not to be restricted only to the incriminating material found during the course of search but would extend to other material also. Therefore in the facts of present case this issue is covered by the decision of this Court in All Cargo Global Logistics Ltd. (supra) in favour of the respondentassessee inasmuch as it restricts the assessment to be made only to the incriminating material found during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relating to academic year 2008-2009 and 2009-2010 (A.Ys. 2009-2010 and 2010-2011 respectively), the AO shall take into consideration the seized material as well as other material what was available during the course of assessment relating to very same assessment years for determining the unaccounted income. For this purpose, we place reliance upon the Orders of the Tribunal in the case of DCIT vs. Royal Marwar Tobacco Product (P) Ltd. (2009) 120 TTJ (Ahd.) 387, CIT vs. Anil Bhalla (322 ITR 191) (Del). In this case search and seizure was carried out in the premises of the assessee and the premises of a company of which the assessee was a director. The Assessing Officer made additions under the head of unexplained expenditure under section 69C of the Income-tax Act, 1961. 314. The AO regarding the Evidence of opening balance on 1/4/2010 observed upon examination of seized material relating to payments, that there is an opening cash balance of Rs. 81 lakhs as on 1/4/2010. According to the AO, this means that Rs. 81 lakhs was the closing balance of AY 2010-11 i.e., as on 31/3/2010. If no capitation fee was collected during AY 2010-11, then the closing balance of cash (unaccount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atural justice. The appellant, in its reply dated 23.12.2017 to the said notice had objected to reliance on the said page 151 of the seized material no A/DUU/06 for proposing addition for AY 2010-11. In order to counter this objection, the AO sought to rely upon material pertaining to FY 2008-09. This shows that the AO has done the assessment with a prejudiced mind. He has decided to make the addition sans any material which warranted the same. 318. Without prejudice to the above, it is also pertinent to note that the AO relied upon data pertaining to AY 2009-10 though it doesn t fall within the block of 6 years contemplated under section 153A(1). It is submitted that the authorized officer is not permitted to seize the material belonging to a period which doesn t fall or is unlikely to fall within the period of 6 assessment years contemplated by section 153A. As stated earlier, the search can be initiated if the authorizing officer has reason to believe that in consequence of information in his possession any of the eventualities stated in clauses (a) to (c) of section 132(1) exist. Section 153A(1) states that notwithstanding anything contained in section 139, section 147, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seats for which capitation fee is collected E 42 Unaccounted cash component generated per seat per course (Rs. In lakh) F - Total unaccounted cash generated as per seized material (Rs. In lakh) G - Estimation of total unaccounted cash generated (Rs. In lakh) H 1508 321. The ld. AR submitted that column F which deals with Unaccounted cash component generated per seat per course and the column G which deals with Total unaccounted cash generated as per seized material are blank so far as AY 2010-11 is concerned. It means that the AO has acknowledged that there is no incriminating material to prove that the appellant has received unaccounted fee in cash during the financial year 2009-10. 322. Without prejudice to the above, it is not known as to how the AO has adopted the no. of seats in respect of which capitation fee is received at 42. The quota of total seats for assessment year 2010-11 is 55, out of which 80% seats are reserved under meri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y mutatis mutandis. 326. The addition of Rs. 15,08,00,000 made in the assessment u/s.153A for AY 1112 in respect of PG course based on no material at all and in the absence of incriminating material, it is not sustainable and hence, is liable to be quashed. 327. Though the AO has considered various materials, at various places in the assessment order, when it came to computation of unaccounted cash for AY 201011, he has sought to make an estimation purely based on data for some other year or years. This means that he has implicitly acknowledged that no incriminating material is found for AY 2010-11 in respect of both UG-MBBS course as well as PG course. The analysis of the documents and the conclusions arrived at based on such analysis made in the assessment order is not relevant for AY 2010-11 at all. Assessment under section 143(3) of the Act was completed in the case of AY 201011 on 12.03.2013. Hence, the assessment for AY 10-11 is unabated. No addition can be made in the absence of incriminating material. Therefore, the entire assessment under section 153A for AY 2010-11 is liable to be quashed in the absence of incriminating material found and seized in respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This ground of the appeals of the assessee is allowed in all assessment years. 331. Ground No.12 for AY 2010-11 is regarding disallowance of donation for the AY 2010-11 only. The AO has disallowed donation of Rs. 10,00,000 under section 37 of the Act. At page 192 he held that The donations if any made by the assessee as not being for the purpose of business are disallowed u/s 37. He has not demonstrated as to how the donation made has no nexus to activities of the appellant. It was submitted that the appellant donated Rs. 10,00,000 to Vijayalakshmi (R L Jalappa Education Foundation) through cheque. 332. Without prejudice to the main contention that the appellant is not engaged in any commercial activities and that the appellant is entitled to exemption under section 11, it is submitted that the donation of Rs. 10,00,000 is allowable as deduction under section 37 of the Act. Section 37 of the Act as it stood during the relevant period is as under: 37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereby. But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee. The Hon ble Supreme Court in the case of CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC) held that The expression for the purpose of the business is wider in scope than the expression for the purpose of earning profits . Its range is wide : it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, coercive process or assertion of hostile title ; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business ; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee sha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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