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TMI Blog2024 (7) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 143 (1) of the Act and the same was picked up for scrutiny assessment. Accordingly, on 31 July 2008, a notice under Section 143 (2) was issued to the assessee. 3. Thereafter, an assessment order dated 31 December 2009 under Section 143 (3) of the Act was passed by the Assessing Officer ["AO"], thereby, determining the total income of the assessee to be Rs.15,03,47,006/-, after making the following additions:- i. Exemption to the tune of Rs.10,80,98,671/- under Section 11 of the Act was denied. ii. A sum amounting to Rs.2,50,74,146/- was added on account of unexplained expenditure under Section 69C of the Act. iii. An amount of Rs.1,70,23,219 was added on account of unexplained receipts under Section 68 of the Act. iv. Addition of Rs.1,50,970/- was made on account of unexplained expenditure under Section 69 of the Act. 4. Being aggrieved by the aforesaid additions, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) ["CIT(A)"], who vide order dated 14 January 2011 partly allowed the appeal of the assessee and deleted the addition of Rs.4,22,48,335/-. It is stated that the order of the CIT(A) was upheld by the ITAT in appeal and the appeal aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commission ["ITSC"] for AYs 2008-09 and 2009-10, wherein, the ITSC had taken a view that undisclosed surplus is to be taken as 22% of the expenditure. Accordingly, bearing in mind the total expenditure of Rs.24.86 crores for AY 2007-08, the total taxable amount was computed at Rs.5,46,92,000/-. It was further held that this amount was required to be set off by the excess of expenditure over receipts disclosed in the accounts, amounting to Rs.2,69,34,371/-. The CIT(A) arrived at an undisclosed income of Rs.2,77,57,629/- which was thereafter held to be set off against Rs.3,00,00,000/- offered to tax by the settlor. 9. Against the order passed by the CIT(A), the Revenue preferred an appeal before the ITAT, which came to be dismissed vide order dated 13 October 2021 and the reopening of assessment proceedings under Section 148 of the Act was also quashed by the ITAT. The ITAT, while dismissing the appeal, has held as under:- i. The AO did not apply its mind at the time of recording the reasons for reopening the assessment proceedings and hence, the said proceedings are invalid. ii. The assessee is registered under Section 12A and Section 10 (23C) (iv) of the Act, which completely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO from the impounded materials and books of accounts of the assessee after verifying and considering the submissions made by the assessee?" 12. However, despite service being effected on the assessee, nobody had entered appearance on behalf of the assessee when the matter was taken up for final hearing and thus, this Court was constrained to proceed ex-parte in the matter. 13. Mr. Bhatia submitted that the ITAT has erroneously invalidated the reassessment proceedings and unjustifiably deleted the additions made by the AO and thus, the impugned order deserves to be set aside. He contended that at the time of recording of reasons, only a prima facie view is required to be formed about the escapement of income and in the instant case, the reasons recorded by the AO are sufficient to manifest that the unaccounted capitation fee was received by the assessee. Taking a cue from the decision of the Supreme Court in the case of Srikrishna (P) Ltd. v. ITO [(1996) 9 SCC 534], he asserted that the reopening proceedings under Section 147/148 of the Act do not suffer from any legal infirmity as the AO had acted on the basis of a subsequent relevant, reliable and specific information. He, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n behalf of the Revenue and perused the record. 18. A perusal of the reasons recorded for reopening assessment, which is reproduced in the order of the ITAT, would indicate that pursuant to a search and seizure operation which was conducted under Section 132 of the Act in Santosh Group of cases, various unaccounted receipts in view of capitation fee were found in the seized documents. As per the reasons extracted in the impugned order, the total unaccounted receipts for the relevant AY in the case of assessee was computed to be Rs.19,64,97,500/-. It was further noted that P. Mahalingam, in his statement recorded under Section 132 (4) of the Act, had unequivocally admitted that the receipts appearing in the seized documents were not recorded in the regular books of accounts of the assessee and the source of such receipts which were in addition to the regular fees was in the form of unaccounted fees. 19. It is, thus, discernible from the impugned order that the ITAT has invalidated the reassessment proceedings on the basis of difference in quantum of capitation fee collected by the assessee. The fact which remained undisputed was that the assessee had not denied the factum of charg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibing to the shares of NNIH. As already noted above it was recorded in the reasons communicated on August 4, 2015 that NNPLC was not having any business activity in London. It had no fixed assets and was not even paying rent. Other than the fact that NNPLC was incorporated in the U.K., it had no other commercial business there. NNPLC had declared a loss of Rs. 8.34 crores for the relevant year. It was also noticed from the order of the Assessing Officer that the assessee is the parent company of NNPLC and it is the dictates of the assessee which are important for running NNPLC. *** 23. The material disclosed in the assessment proceedings for the subsequent years as well as the material placed on record by the minority shareholders form the basis for taking action under section 147 of the Act. At the stage of issuance of notice, the Assessing Officer is to only form a prima facie view. In our opinion the material disclosed in assessment proceedings for subsequent years was sufficient to form such a view. We accordingly hold that there were reasons to believe that income had escaped assessment in this case. Question No. 1 is answered accordingly." 23. A conspectus of the above d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usts and institutions. For claiming such exemption, the income must be derived from properties that are operating solely for religious or charitable purposes and the entities must obtain a registration certificate under Section 12A or Section 12AA of the Act. 26. A salient aspect which emanates from Section 11 of the Act is that the usage of the phrase 'wholly' relates to the purposes and not to the property of the trust. The word 'wholly' is strikingly different from the word 'mainly'. Rather, the former should be understood to be closely akin to the phrase 'solely'. Put otherwise, there is no scope for the purposes being partially public or religious in nature. It would not be sufficient if some of the objects are charitable or religious in nature. The Supreme Court in East India Industries (Madras) (P.) Ltd. v. CIT [(1967) 65 ITR 611] while referring to the case of Mohammad Ibrahim Riza Malak v. CIT, Nagpur [1930 SCC OnLine PC 43] has held as under:- "6. The view that we have expressed is borne out by the decision of the Judicial Committee in Mohammad Ibrahim Riza v. CIT [57 IA 260] in which it was held that if there are several objects of the trust, some of which are charita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the hard realities of commercialisation of education and evil practices being adopted by many institutions to earn large amounts for their private or selfish ends. If capitation fee and profiteering is to be checked, the method of admission has to be regulated so that the admissions are based on merit and transparency and the students are not exploited. It is permissible to regulate admission and fee structure for achieving the purpose just stated." 29. With regards to the entitlement of benefits encapsulated in Section 11 and 12 of the Act, the High Court of Madras in the case of Mac Public Charitable Trust (supra) has held that collection of amount in excess of what has been prescribed as fee would render the objective of 'charity' a farce and the same shall disentitle the assessee from claiming benefits under the said provisions. The relevant paragraphs of the said decision are reproduced as under:- "38. Upon a conjoint reading of the above legal provisions, it is manifest that charitable purpose, as contemplated under the Act though would include education, would not include the advancement of any other object of general public utility, if the object involved is the carryi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vities are not genuine. The objects are irrelevant, when the activities are not genuine. The application of the funds is also subject to scrutiny by the Commissioner. Further, similar to section 10 (23C), the requirement under section 12 is that the trust must be "wholly" for charitable purpose. If it turns out that the activities are not genuine or are not being carried out in accordance with the objects of the trust, not only is the registration liable to be cancelled, the claim of exemption under section 11 is also liable to be rejected. The word "genuine" must be read as in compliance with all the laws of the land. If the institution or trust is used as a cloak to violate law, irrespective of whether any benefit is achieved or not, the benefit of registration cannot be permitted to accrue to the assessee. Section 12AA (3) is an independent provision as the right to cancel the registration is not restricted just towards the fulfilment or not of the objects of the trust or association. *** 41. Juxtaposing the provisions of both the Acts, viz., Income-tax Act, 1961 and the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992, with each ot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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