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TMI Blog2024 (7) TMI 1178X X X X Extracts X X X X X X X X Extracts X X X X ..... heard together and are being disposed of by a single consolidated order for the sake of convenience. Facts of the case 2. The assessee Trust is a public charitable Trust with main aim is to provide education in Diploma Engineering all disciplines; to achieve this objects the assessee Trust is running various colleges in the name as Parul Institute of Engineering and Technology Diploma and Parul Poly Technique Institute along with Hostel facilities to students; the Trust is also carrying medical activities in the nature of arranging various medical camps, providing medicines and drugs, providing pathological facilities to needy and poor class of people on charitable basis. Parul Arogya Seva Mandal Trust (PAN: AAATP4313K), the assessee is registered u/s. 12AA of the Act, vide No. HQ-3/32/P-4/96-97/Range-4 dated 07.08.1996. The assessee Trust is also registered u/s. 80G(5) of the I.T. Act, 1961 vide No. DIT/(E)/80G(5)/734/2006-07 dated 07.05.2007. 2.1. Parul University (PAN: AADAP4952C), the assessee, is also registered under section 12AA of the Act and also has got approval u/s 10(23C(vi) of the Act effective from A.Y.2015-16. It is also approved u/s 80G(5) of the act vide approva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in cash by the trustees. 10. Account payee cheques were deposited in bank account of the Parul Arogya Seva Mandal Trust and recorded in books as corpus donations. 11. Bearer cheques were used to withdraw cash from the bank accounts of employees and hand over the cash to trustees. 12. Such cash withdrawals were made from the non-teaching staff. One of the employees stated in the statement that management of the trust instructed all the employees of the trust to deposit one signed bearer cheque each month. Another employee stated in the statement that employees were asked to give blank cheque as donation to the trust. The statements of many employees were recorded who confirmed that their actual salary is much less than the amount credited in their bank accounts and the difference was withdrawn by the trust from their bank account by using their bearer cheques. 13. The MS Excel file contains the details of amount recovered in cash as well as by cheques from the employee of the Parul Group from the month of March, 2016 till November, 2017. 14. The MS Excel file containing ATM PIN of various bank accounts was also impounded which was used to withdraw cash from bank account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .No. 143/33/2016-TPL(part) dated 18-1-2017. Question No.5: Can a person against whom a search/ survey operation has been initiated, file declaration under the Scheme and whether the cash seized during search operation can be declared under the Scheme? Answer: Yes, a person against whom a search/survey operation has been initiated is eligible to file declaration under the Scheme in respect of undisclosed income represented in the form of cash or deposit in an account maintained with specified entity Question No.8: Can a person come under the Scheme with respect to deposit made in a bank account prior to the Financial Year 2016-17? Answer: A person can avail the Scheme for any assessment year commencing on or before the 1st day of April, 2017. Hence, deposits made in bank account prior to financial year 2016-17 can also be declared under the Scheme. * Circular No. 432 of 2016, F.No. 142/33/2016-TPL(part) dated 26-12- 2017. Effect of valid declaration 11. Where a valid declaration as detailed above has been made, the following consequences will follow: (a) The amount of undisclosed income declared shall not be included in the total income of the declarant under the Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount AO allowed only Rs. 6,90,93,800/- (Rs.16,98,54,200 (-) Rs. 10,07,60,400/-) as Corpus donations disallowing the balance amount of Rs. 10,07,60,400/- being bogus corpus donations. 2.12. For the financial year 2016-17, the amount of bogus corpus donations was calculated at Rs. 8,01,76,700/- on the basis of actual data recovered from impounded documents marked as Annexure A-13. 2.13. From the impounded documents and excel file marked as Annexure- O, the AO found that the assessee has also taken cash donations from the students on account of admission and other activities which worked out to Rs. 84,06,194/- for F.Y. 2015-16 which was not accounted for by the assessee. 2.14. From the impounded documents and excel file, the AO found that the MS Excel sheet contained details of ATM PIN of different bank accounts. It was informed by the officer Shri Atul Pandya and later confirmed by the managing trustee Smt.Parul Patel that assessee paid salary of non-existing staff members in bank accounts per month and the entire amount was withdrawn using ATM cards and PIN. Total for the month of January 2016 came to Rs. 16,84,991/- and total for the F.Y. 2015-16 on account of such bogus sala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14 Total Rs. 4,93,60,913/- F.Y. 2014-15 Total Rs. 1,01,16,000/- F.Y. 2015-16 Total Rs. 84,06,194/- F.Y. 2016-17 Total Rs. 8,42,92,326/- Grand Total Rs.15,21,75,433/- 3.1. Whereas the total amount disclosed in PMGKY Scheme was Rs. 18,90,00,000/-. 3.2. The Ld.CIT(A), after giving due opportunity of being heard partly allowed the appeals of assessee and decided as follows: * In case of Parul Arogya Seva Mandal Trust for A.Y. 2016-17. o Restricted the addition on account of unaccounted cash receipts from Salary of Rs. 9,21,33,866/- to Rs. 8,47,11,836/-. o Deleted the cash donation of Rs. 84,06,194 treating it as duplicate. o Restricted the addition of Rs. 50,54,973/- on account of Bogus Salary Expenses to Rs. 33,69,982/-. o Confirmed the Bogus Corpus donations of Rs. 10,07,60,400/-. * In case of Parul Arogya Seva Mandal Trust for A.Y. 2017-18. o Confirmed the addition on account of unaccounted cash receipts from Salary of Rs. 8,01,76,700/-. o Restricted the credit of PMGKY to Rs. 4,11,16,893/- for the A.Y. 2017-18 as per the summary submitted by the assessee. * In case of Parul University for A.Y. 2017-18 the CIT(A) Confirmed the addition on account of Bogu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to facts of the case as Assessing officer without there being a finding of violation of section 13 of the Act, an inference was drawn on an alleged receipt of cash recovery and other and the allegation was made that there is a violation of section 11 & 12 of the Act. On perusal of assessment order, it is found that there is no allegation that cash recovery against alleged misappropriation of salary expenditure was used by trustee for their personal purpose. Even otherwise, the appellant has already made separate disclosure under PMGKY and on such income, no application u/s 11 or 12 is claimed against such income. 5.7 It is observed that as per provisions of Section 13 of the Act, provisions of Section 11 and 12 are not applicable for income of trust if certain violation as mentioned therein is made. As per section 13(1)(a) and 13(1)(b) of the Act, exemption is not available if "any part of the income from the property held under a trust for private religious purposes which does not ensure for the benefit of the public;" While passing the assessment order, AO has not disputed the income shown by appellant and not proved that such income is used for private religious purpose hence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO is based on the incriminating documents found during the course of survey. In this regard the appellant reiterated that they have offered sum of Rs. 18.90 crore in PMGKY and taken the benefit of the scheme which covers more than the amount which is found in the incriminating documents. 5.10 Considering such facts, the AO was not justified in denying exemption u/s 11 & 12 of the Act. The AO is directed to compute income of the trust after considering such provisions and discussion made herein below for other grounds of appeal. These grounds of appeal are thus allowed." 3.4. Since the Ld.CIT(A) allowed the exemption under sections 11 and 12, the capital expenditure added by the AO in respect of each year under consideration was also allowed by the Ld.CIT(A), after disallowing depreciation on such capital expenditure. 4. Aggrieved by the orders of Ld.CIT(A), both the Revenue as well as the Assessee(s) are in appeal(s) before us with following grounds of appeal: In case of appeal by Assessee in ITA No.991/Ahd/2023 for A.Y. 2016-17 1. The Hon. CIT Appeal erred both in law and on facts in confirming an addition of Rs. 8,47,11,836/- on account of alleged cash generated out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delete, change or modify any or all grounds of appeal before or at the time of the hearing. Revised Grounds of Appeal 1. The Hon. CIT Appeal erred both in law and on facts in confirming an addition of Rs. 8,01,76,700/- towards corpus donation wholly without considering submission made by appellant which is untenable be deleted. 2. The assessee craves leave to add, amend, alter, delete, change or modify any or all grounds of appeal before or at the time of the hearing. In case of appeal by Revenue in ITA No. 1018/Ahd/2023 For A.Y. 2016-17 1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in allowing the assessee's status as trust and granting benefits of exemption u/s.11 & 12 of the IT Act, even after gross violation of section 12AA and 10(23C) of the Act. 2. Whether on facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing deduction of as corpus donation. Whether on facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing capital expenditure of Rs. 61,76,45,516/-, even after violation of section 12AA of the Act. In case of appeal by Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Id.AO in making such observation is because of extrapolation made by him on the basis of only part of the data and by averaging the part of such data. It is trite law that there is no scope of extrapolation for months or period other than for which the documents are found during the survey/ search. 5.3. Therefore, the observation of the Id AO that on the basis of average of nine months at Rs. 77,01,076/- (average of period from March 2016 to November 2016) the total comes to Rs. 9,21,33,866/ for FY 2015-16 and Rs. 7,72,89,809/- is factually incorrect when the total of Rs. 18.90 Crores as per statement dated 1.12.2017 recorded of Parul S Patel in reply to question No: 44 is disclosed in PMGKY and is fully adhered to. 5.4. The Ld.AR placed reliance on following judicial pronouncements in respect of extrapolation of receipts: 1. ACIT Vs. B.N. Corporation [2001] 116 Taxman 579 (Gujarat). 2. M.R. Corporation Vs. ITO (ITA No. 3401/Ahd/2010). 3. M/s Nepute Reality Pvt. Ltd. Vs. DCIT (ITA No. 2918/Ahd/2011). 4. CIT Vs. Anandkumar Deepak Kumar 294 ITR 497 (Delhi). 5.5. The Ld.AR also stated that it is crystal clear from the various answers to the questions in Scheme of PMGKY that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons. He stated that the Ld.CIT(A) has rightly followed the decision of Hon'ble Madras High Court in the case of Kammavari Sangham V. Deputy Director of Income-tax Exemptions) [2023 146 taxmann.com 367, wherein it was held that- "the department has not established a case that the assessee had in this case not utilized the donations or income for charitable purpose. The clear finding of the Tribunal is that if the assessee had not utilized the amount for charitable purpose, it would automatically become taxable and the assessee would not be entitled exemption. But on the contrary, without there being a finding of violation of section 13 of the Act, an inference is drawn on an alleged receipt of donation and consequently, the allegation is made that there is a violation of section 13(1)(d) of the Act." 5.10. He also invited our attention to CIT (A)'s order in which it was concluded that - "on perusal of assessment order, it is found that there is no allegation that cash recovery against alleged misappropriation of salary expenditure was used by trustee for their personal purpose. Even otherwise, the appellant has already made separate disclosure under PMGKY and on such in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e legal framework of section 11. Section 11 of the Act, provides exemptions to income derived from property held under trust for charitable or religious purposes, provided the income is applied for such purposes. However, this exemption can be withdrawn under certain circumstances, especially if the trust violates the provisions of Section 13. Section 13(1)(c) of the Act denies the benefits of Section 11 of the Act, if any part of the income or property of the trust is used or applied directly or indirectly for the benefit of certain specified persons, such as the author of the trust, trustees, or their relatives. 7.3. As regards the exemption available under section 11 of the Act, the provisions of section 13 are quite relevant. The heading of section 13 is "Section 11 not to apply in certain cases". In other words, section 13 provides that exemption under section 11 will not be available in cases of violation of the provisions of section 13 of the Act. Most of the violations under section 13 of the Act fall under section 13(1)(c) of the Act, whereas few violations also fall under section 13(1)(d) of the Act. Besides, section 13(2) of the Act lists conditions which are deemed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assets of the trust be applied solely for charitable purposes and invested in specified modes. 7.7. In our opinion, simply participation in some amnesty scheme like PMGKY does not absolve the assessee from the wrongdoing. Intent of any amnesty scheme is to comply and rectify previous non-compliance. 7.8. In the judgement of Union of India v. Dharmendra Textile Processors (2008) 13 SCC 369, the Supreme Court held that mens rea (intention) is an essential ingredient of fraud and that heavy penalties can be imposed for fraudulent acts. In the present case, we have no hesitation to say that the intent was to defraud the object of the trust. 7.9. In case of CIT v. Suresh N. Gupta (2008) 297 ITR 322 (SC), the Supreme Court discussed the principles of amnesty schemes and held that such schemes aim to promote voluntary compliance and cannot be equated with fraudulent conduct. 7.10. Thus, in the present case, the stand of assessee that their participation in PMGKY is absolving them from defaults is not correct. 7.11. The Ld.CIT(A) failed to provide specific reasons demonstrating how the assessee was meeting the objects of the trust. Given the systematic fraudulent activities uncovere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderreporting discovered during the assessment. In contrast, the present case involves a charitable trust where the evidence pointed to systematic and fraudulent diversion of funds for personal gain, violating the trust's charitable objectives and conditions under Sections 11 and 13 of the Income Tax Act. * M.R. Corporation vs. ITO (ITA No. 3401/Ahd/2010): The ITAT Ahmedabad held that extrapolation should be based on concrete evidence for the specific period under consideration, and not merely on assumptions or isolated instances. This decision is based on the principle that extrapolation should not be arbitrary. However, in the current case, the AO's extrapolation is supported by substantial evidence, including employee statements, MS Excel files, and corroborative documents showing systematic fraudulent activities over an extended period, justifying the AO's methodology. * M/s Nepute Reality Pvt. Ltd. vs. DCIT (ITA No. 2918/Ahd/2011): In this case, the ITAT emphasized the need for a reasonable basis and direct evidence to support the extrapolation of income. 7.15. The present case involves direct evidence of the trust's fraudulent activities, including cash recover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled findings and the corroborative evidence from the survey support the application of extrapolation to estimate the trust's unaccounted income accurately. 7.19. The Ld.CIT(A) and assessee both have referred decision of Madras High Court in case of Kammavari Sangham v. Deputy Director of Income-tax (Exemptions) [2023] 146 taxmann.com 367 where it was held that if the department fails to establish that the assessee did not utilize donations or income for charitable purposes, then the income should not be taxed. However, this case is distinguished from the present one because the department here provided sufficient evidence of the trustees' misutilization of funds and systematic fraudulent activities. Unlike in Kammavari Sangham, where the allegations were not supported by material evidence, the present case involves substantial documentation and witness statements confirming the misuse of funds. 7.20. There are also some decisions / judgements which denies exemption u/s 11 on apparently very small but unusual issues. These judgements underline the importance of adherence to the strict implementation of principles of property held under trust and governance of the trust. One s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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