Income Tax Appellate Tribunal - Hyderabad
Sree Educational Society, Hyderabad vs Assessee on 11 March, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH 'B', HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA Nos. 111 to 117/Hyd/2014 Assessment Years: 2004-05 to 2010-11 Sree Educational Society, vs. Asst. Commissioner of Hyderabad. Income-tax, Central Circle - (1), PAN - AAATS7411B Hyderabad.
Assessee Respondent Assessee by: Sri Ajay Gandhi Respondent by: Smt. K. Mythili Rani Date of hearing: 29/01/2016 Date of pronouncement: 11/03/2016 O RDE R PER BENCH:
These 7 appeals preferred by the assessee are directed against a common order of the CIT(A) - I, Hyderabad dated 23/12/2013 for assessment years 2004-05 to 2010-11. As identical issues are involved in these appeals, the same were clubbed and heard together, therefore, we find it convenient to dispose of these appeals by way of common and consolidated order.
2. Briefly the facts of the case are: A search and seizure operation was conducted on 10-9-2009 in the case of Sreenidhi Educational Society and also the residences of the main trustees, Shri K.T. Mahi and Smt. K.Sarita Mahi. Search was also conducted at the residence of Shri P.Narsimha Reddy, Principal, SNIST.
2 I.T.A. No. 111 to 117/Hyd/2014Sree Educational Society 2.1 As mentioned in the assessment orders, the assessee society is a registered society and had been granted registration u/s 12A of the Act by the Commissioner of Income-tax-I, Hyderabad on 2-4-1998. Subsequently, it was also granted approval u/s 10(23C)(vi) of the I.T. Act, by the CCIT-1, Hyderabad on 21-9-2007, with effect from Assessment Year 2003-04 to 2005-06 retrospectively, which was renewed on 14-2-2008 from the Assessment Year 2006- 07 onwards. The assessee society is running an Engineering College by the name Sreenidhi Institute of Science and Technology (SNIST) and its main objects are to provide education, vocational guidance, training and research programmes, to promote technical, professional and vocational education etc. to the students.
2.2 In the course of search at the residence of Shri K.T. Mahi and Smt. Sarita Mahi, cash of Rs.2,84,110/- and jewellery of Rs.22,36,380/- were found, out of which Rs. 2,00,000/- and Rs.8,59,680/- respectively, were seized. In addition to the same, documents relating to unaccounted Income generation and Investments thereof were also found and seized, which pointed to the fact that the assessee society was collecting amounts over and above the regular fees and the trustees were utilizing the amounts for their personal benefits and personal businesses. It was found that the donations/capitation fees collected are not accounted for in the books of account but are used for unaccounted Investments as personal assets.
2.3 Evidence collected in the course of search further indicated that the society was collecting fees from students, over and above the prescribed fees (in the form of donations/capitation fees) for granting admission into 3 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society engineering courses. The excess amounts so collected were not recorded in the books of the society. The evidence relating to collection of donations/capitation fees was found and seized in the course of search from the office premises of the assessee society and seized as Annexure A/SNIST/OFF/35 to 41 and A/KTMGH/04 & 06. It was also found that the entries in respect of collection of capitation fee/donation, as recorded in those Incriminating documents, were not recorded in the books of account.
2.4 During the course of search, Shri M. Ramesh Babu, employee of the assessee society, in his statement dated 10- 9-2009, clearly stated that the fee for the Convener and Management Quota seats was collected through Bankers cheques/DDs and the capitation fees was collected in cash, while for the rest of the courses, fee was collected in the form of bank demand drafts only. In a separate statement recorded on the same day, shri Ramesh Babu further clarified that the cash donations received for management seats are used to clear the expenses in cash and are also deposited into the personal a/c of Shri K.T. Mahi with Andhra Bank and that from there, the cash deposited was transferred into the accounts of various schools, as per day's requirement. He stated that the cash donation for 2 years was close to about Rs.21 crores. The Assessing Officer noted that as per the evidence found in the course of search, collections totalled to Rs.23,05,24,200/-.
2.5 Shrl K.T. Mahi, the Convener, was not available on the date of search. When confronted with the above statement of Shri Ramesh Babu and also the relevant seized material, he, in his statement recorded u/s.131 dated 3-11-2009, admitted that the notings in respect of cash transactions reflected in the seized material were difficult to explain. He also stated that 4 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society evidence to explain the same satisfactorily cannot be adduced. Accordingly, after deliberating on the issue, he, in his statement recorded u/s.132(4) on 6-11-2009 admitted additional income of Rs.16.50 crores in his Individual hands with a view to set right the lapses, omissions and commissions in his individual business affairs and all issues involved in the seized material.
2.6 However, the Assessing Officer, after going through the relevant material noticed that, the total unaccounted monies, received over and above the prescribed fee, came to Rs.16,62,26,600/- (after reducing the amount of Rs.6,42,97,600/- on account of fee collections and certain refunds), as against the admission of Rs.16.50 crores by Shri Mahi. He also noted that even though Shri Mahi had admitted such additional income in his individual hands, source for the same stemmed from the college only.
2.7 The Assessing Officer has quantified the unaccounted receipts for various years, after reducing the fees and funds out of the total amounts collected from students as per the seized Annexure as under:
Assessment Year Unaccounted receipts (Rs.) 2005-06 18,62,000/-
2006-07 1,35,17,000/-
2009-10 9,00,44,700/-
2010-11 6,04,02,900/-
2.8 The Assessing Officer has also listed out year-wise investments as appearing in the seized material in the names of other entities from out of donations/capitation fees collected from students and not recorded in the books of the society, as under:
AY Amount Utilized by Whether Whether
diverted whom and recorded reflected in
5 I.T.A. No. 111 to 117/Hyd/2014
Sree Educational Society
(Rs.) purpose in the the books
books of of the
the entity society
2005- 18,62,000 KT Mahi and Yes No
06 M/s Sreenidhi
International
Pvt. Ltd.
2006- 1,35,17,000 -do- Yes No
07
2009- 9,00,44,700 -do- Yes No
10
2010- 6,04,02,900 -do- Yes No
11
2.9 He considered the statement recorded u/s.132(4) was
recorded from Shri M Ramesh Babu, an Office Executive of SNIST in the course of search and the documents found from his chamber which were seized as Annexure A/SNIST/OFF/35 to 41 and A/KTMGH/04 to 06, which were spiral-bound books, containing details of students admitted in the Management Quota. He discussed one entry from each of the said note books in the assessment order. For example, page 69 of Annexure A/SNIST/36 showed that the student Shri Ramayanam Amitesh was admitted to the ECE course and the total amount finalized in his case was Rs.13,75,000/-. Out of the same, Rs.4 lakhs were received on 9-7-2008, Rs.5 lakhs on 11-7-2008 and Rs.4.75 lakhs on 14-7-2008. As against this, the prescribed fee was Rs. 91,700/- only. The Assessing Officer has given similar instances from various other seized diaries. He noted that the total amounts received as per the seized material found from the chamber of Shri M Ramesh Babu came to Rs. 16,62,25,600/-
2.10 The statement of shri Ramesh Babu also revealed that the cash collected by way of donations/capitation fees was being deposited in the individual account of Shri KT Mahi. Part of the cash was also handed over to Shri Murthy, Cashier of the college for various expenses to be incurred in cash for 6 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society running the engineering college, school as also the personal use of Shri Mahi.
2.11 During the course of post search enquiries, Shri KT Mahi submitted a detailed cash flow statement, crediting the undisclosed income of various years besides showing the unaccounted payments based on the seized material including the unaccounted credit card payments.
2.12 After analyzing the seized documents, the Assessing Officer concluded that part of the fees recorded therein was reflected in the books of account, implying that the remaining part appearing in the seized papers but not recorded in the books was also true. It was also found that the students whose names were appearing in the seized material were actually studying in the college and their names could be traced out in the books with the details of fees paid by them. He further noted that the above mentioned seized material was found and seized from the table of Shri Ramesh Babu only, who categorically stated that the said books reflected the amounts of cash received from various persons as consideration for courses offered to them. He also explained how the said cash was being used by Shri KT Mahi for Investments in real estate, personal expenditure, etc. Shri Ramesh Babu also explained the mode of receipt of fees and donation/capitation fee, stating that for the Management Quota seats, only fee is collected through Bankers Cheque/DD, while capitation fee is collected in cash. He also explained that the fee in the form of cheques was being deposited into the bank a/c of SNIST-
Collection a/c in Andhra Bank, Sultan Bazar, while the cash donations were being deposited into KT Mahi's personal a/c with, Andhra Bank or Indian Bank. In the statement dated 3- 11-2009, Shrl KT Mahi also admitted that the above said 7 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society books were in the handwriting of Shri M Ramesh Babu, Transport in-charge of buses belonging to SNIST. He explained that Shri Babu was writing the names of students and their contact numbers for communicating the bus timings and transportation fee to be collected from the parents from time to time. However, Shri Mahi did not agree with the statement of Shri Ramesh Babu. Despite this, in the statement recorded u/s.132(4) on 6-11-2009, Shri Mahi came out with the disclosure of additional income of Rs.16.50 crores in his individual hands for various years. Such disclosure was made allegedly with a view to set right the lapses, omissions and commissions in his individual business affairs and the lapses involved in the seized material also. He subsequently submitted a break up of such disclosure also as under:
FY Amount declared (Rs.)
2004-05 15,00,000/-
2005-06 1,30,00,000/-
2006-07 2,00,000/-
2007-08 3,00,000/-
2008-09 9,00,00,000/-
2009-10 6,00,00,000/-
Total 16,50,00,000/-
2.13 In view of the findings of the search and seizure operations and the evidence collected therein as discussed above, during the course of assessment proceedings the Assessing Officer sent a proposal to the DGIT(Inv), Hyderabad, recommending rescinding of the approval granted u/s 10(23C)(vi). The DGIT vide his proceedings in F.No.DGIT(Inv)/Hyd/APP &. Renewal u/s.10(23C)/SES/2011- 12, dated 16-12-2011, withdrew/rescinded the recognition with effect from 2003-04. The Hon'ble DGIT held that in the Instant case, amounts were collected by way of capitation fees/ donations in cash which were not recorded in the books of accounts and consequently not utilized for the purpose of 8 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society education. Consequent there to, the AO proposed to assess the income of the assessee as normal income without considering the claim of exemption u/s 11.
2.14 In addition to the above, while considering the eligibility of the assessee to claim exemption u/s 11, the AO noted that in the case of Mohini Jain Vs. State of Karnataka and Others (1992) 2 SCC 666, the Hon'ble Supreme Court has opined that capitation fee is nothing but a price for selling education. The Assessing Officer noted that the assessee had also used the charitable activity/educational Institution as an apparatus for selling education and that the element of charity no longer remained the activity of the assessee. He concluded that since the society sells seats of professional courses and collects Capitation Fee and therefore, the activity of the assessee no more remains charitable activity within the meaning of sec. 2(15) of the Act. The Assessing Officer held that the material seized in the course of search clearly establishes the collection of money over and above the prescribed fees and this fact was admitted by the employees of the society, who even admitted that the amount so collected was being handed over to the Chairman and interested persons in the society. The Assessing Officer opined that when the society admits students under the Management Quota in consideration of an amount, which is over and above the prescribed fees, it clearly establishes the intention of the assessee to earn profits and that the assessee's case, the seized documents showed that collection of such amounts was a regular phenomenon. He also took note of the fact that even in the state of Andhra Pradesh, a committee has fixed the fees that may be collected by the professional educational Institutions per semester/year but that the assessee society had collected fees for the entire course in advance, besides collecting amounts over and above 9 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society such fees, which was to be treated as collection of capitation fees. He noticed that even the advance fees was not deposited/invested in any bank, violating the provisions of sec.11(5) of the Act and that the entire money was utilized by the persons interested in the society, showing misuse of funds of the Institution, Therefore, according to him, it was clear that the assessee society did not exist solely for the purpose of education but existed only for profit. He further noticed that it would not affect the assessment of income in the hands of society even if the capitation fee is collected by the trust per se or by some interested persons. He felt that in the assessee's case the collection of capitation fee could not even be termed as a 'business income' as envisaged u/s.11(4A). Besides, he observed that there had been violations of provisions of sec. 13(1)(c) as the amounts collected over and above the prescribed fee were being handed over to the Chairman and other interested persons of the society. Accordingly, he concluded that even on this account, the assessee would not be entitled to the exemption u/s. 11 of the Act.
2.15 The AO noted that even in view of the decision of the Hon'ble ITAT, Hyderabad in the case of Vodithala Educational Society and Adinatar Educational Institution Vs. ACIT (224 lTR
310), the assessee was not eligible for exemption u/s. 11 as it did not exist for the sole purpose of education but existed for the purpose of profit. He also referred to the decision of Hon'ble Apex Court In the case of T.M. Pai vs, State of Karnataka (2002) 8 SSC 481, holding that the society would not be eligible for exemption u/s 11 or 10(23C) where it fails to prove that the contributions are not in the nature of capitation fees. Accordingly, he held that the assessee is neither eligible for exemption u/s 10(23C)(vi), nor is it, eligible for exemption 10 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society u/s 11. He accordingly, proceeded to assess the income of the assessee in the capacity of AOP.
2.16 With the above view, .the Assessing Officer issued a show cause notice to the assessee to offer its comments on his proposition to tax the unaccounted receipts for various years, considering the situation that the cover of sec.10(23C)(vi) was not available to it. He also provided copies of various statements recorded during the course of search, as requested by the assessee, Vide letter dated 26- 12-2012, the assessee stated that the statement given by Shri Ramesh Babu is false, baseless, incorrect and without knowing the facts. It was also stated that the books seized were not at all related to any of the transactions of the assessee society and were maintained purely by Shri Ramesh Babu in his personal capacity. Therefore, the assessee claimed that those could not be accepted as the books of account of the society. It also relied upon the Affidavit filed by Shri KT Mahi before the ADIT, emphasizing the fact that cross-examination of these persons would begin a long and protracted litigation, and therefore, to avoid litigation and have peace of mind, the income was admitted. On a consideration of the assessee's submissions, the Assessing Officer noted that in his reply to question, No.5, Shri KT Mahi had stated that notings with respect to cash transactions reflected in the seized material are prone with difficulties for explanation, and evidence to the level desired cannot be adduced by him. Accordingly, Shri Mahi admitted Rs.16.50 crores as additional income in his individual hands U/s.132(4). The Assessing Officer felt that even though Shri Mahi admitted the additional income in his individual hands, apparently the sources for the said additional income stemmed from the college fee receipts, collected over and above the prescribed fee as evidenced by 11 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society the seized material. He noted that the seized material indicated that wherever capitation fee was collected in cash, it was not recorded in the books of account and only the regular fees were recorded. Besides, AO felt that after admitting part of the document in respect of regular fees as correct, the assessee could not have denied the remaining part of the same document evidencing receipt of capitation fee in cash.
2.17 Since the actual amount as per the seized materials for the Assessment Years 2005-06 to 2010-11 came to Rs. 16.62 crores, as against Rs.16.50 crores, declared, and also because no reconciliation could be given by the assessee, the aggregate sum of Rs.16.62 crores was assessed in the respective years in the hands of assessee.
2.18 The Assessing Officer also noted that in view of the evidence seized, it could be concluded that the collection of amounts over and above the prescribed fees (capitation/donation) is not an isolated instance. He noted that Shri KT Mahi has been collecting amounts over and above the prescribed fee and the same are being deposited in the personal bank a/c or being invested in the personal business of KT Mahi. Accordingly, It could be concluded that the society was collecting capitation fees in the previous years also. In this regard, he drew support from the decision of the Hon'ble AP High Court in the case of Rajnik & Co. Vs. ACIT (251 ITR
561), wherein, referring to the decision in the case of H.M. Esufall (90 ITR 271), estimation of suppressed income based on part period evidences and sworn deposition of partner of the assessee firm was upheld. He note that even in the case of M/s Bawarchl Restaurant vs. DCIT, the Hon'ble ITAT, Hyderabad in their order in IT(SS)A No.117/Hyd/2005, dated 14-7-2006 have observed that when the assessee is in the 12 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society habit of suppressing turnover consistently, the only issue to be examined is whether the AO's estimation of undisclosed turnover is fair, bona fide and reasonable.
2.19 Applying the above ratio, in view of the facts available in the assessee's case regarding charging of capitation fee, the Assessing Officer concluded that the assessee society was into the practice of collection of capitation fee for the earlier years also. Relying on the seized material, the average excess fee received was worked out by him. In view of the above conclusion, the Assessing Officer estimated the excess amount collected for AYs 2004-05 to 2007-08 as under:
S. Acade- AY No. Estimated Total amount
No. mic Year Manag excess
-ement amount
seats collected
1 2003-04 2004-05 78 1,00,000 78,00,000
2 2004-05 2005-06 77 1,50,000 1,15,50,000
3 2005-06 2006-07
4 2006-07 2007-08 115 2,50,000 2,87,50,000
5 2007-08 2008-09 130 3,00,000 3,90,00,000
2.20 Since the approval u/s 10(23C) had already been rescinded by the Hon'ble DGIT (Inv) by way of his order dated 16-12-2011, the claim of exemption under the said section was rejected. In view of the foregoing discussion, the AO concluded that the assessee is not eligible for exemption u/s 11 of the Act also and accordingly proceeded to assess the assessee in the status of an AOP and proceeded to compute the total Income for asst. years 2004-05 to 2010-11 as under:
2.21 Asst. Year 2004-05: The Assessing Officer noted that the Income and Expenditure Statement showed a deficit of Rs.66,14,326/-. While, there was an addition of Rs.11,50,000/-
to the "capital fund" and 'collection of development Fee of Rs.64,54,100/-. In the absence of eligibility for exemption, he 13 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society concluded that the "capital fund" partook the nature of income and was not to be treated as capital receipts. Besides, in the absence of any evidence for the contribution of Rs. 1 lakh debited to the Income and Expenditure a/c, he disallowed the claim of such contribution.
Accordingly, the total income was worked out to Rs.24,35,634/-.
2.22 Asst. Year 2005-06 The AO considered the surplus of Rs.79,37,347/-. Besides, in view of the payment of TDS deducted from payments towards contracts, rent, professional and consultancy charges, after March of this year, the claim of expenditure under those heads of Rs.6,33,100/-, Rs. 1,51,470/- and Rs.3,25,580/- respectively, were disallowed u/s.40(a)(ia), after including the surplus, disallowances and the unaccounted income, the total income was worked out at Rs.2,38,22,727/-.
2.23 Asst. Year 2006-07: The income and expenditure statement for this asst. year showed a surplus of Rs.8,37,525/-. Besides, in view of the payment of TDS deducted from payments towards contracts and rent, after March of the year, the claim of expenditure under those heads of Rs.29,18,370/- and Rs.3,47,570/- respectively, were disallowed u/s.40(a)(ia), after including the surplus, disallowances and the unaccounted income, the total income was worked out at Rs.2,51,58,145/-.
2.24 Asst. Year 2007-08: In the I & E, Statement, the assessee had shown a deficit of Rs.53,20,801/-. Besides, in view of the payment of TDS deducted from payments towards contracts, rent and professional/consultancy charges, after March of the year, the claim of expenditure under those heads 14 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society of Rs.11,08,180/-, Rs.23,22,540/- and Rs.4,50,230/- respectively, were disallowed u/s.40(a)(ia), after including the surplus, disallowances and the unaccounted income, the total Income was worked out at Rs.3,81,51,751/-.
2.25 Asst. Year 2008-09: In the I &. E Statement, the assessee had shown a deficit of Rs.5,92,51,208/-. Besides, it had also debited Rs.86,472/- on account of loss on sale of vehicles which in his opinion was to be disallowed as the vehicle being the capital asset was to have an effect on the Block of assets. Considering these and the unaccounted income, the total loss was worked out at Rs.(-) 1,98,64,736/-.
2.26 Asst. Year 2009-10: The Income and expenditure statement for this asst. year showed a surplus of Rs.8,13,821/-. Considering the same and the unaccounted income, the total Income was worked out at Rs.9,12,58,521/-.
2.27 Asst. Year 2010-11: The income and expenditure statement for this asst. year showed a surplus of Rs.98,07,374/-. Besides, the Assessing Officer disallowed the claim of donation of Rs.2,23,409/- in the absence of any evidence. Considering the same and the unaccounted income, the total Income was worked out at Rs.7,04,33,683/-.
3. Aggrieved by the order of Assessing Officer, the assessee preferred appeals before the CIT(A).
4. After considering the submissions of the assessee, the CIT(A) decided the appeals as under:
4.1 The CIT(A) observed that during the appeal proceedings, the assessee reiterated what was stated before 15 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society the Assessing Officer and submitted that the Hon'ble ITAT, 'Hyderabad 'A' Bench has decided assessee's appeal against the order of the CIT(Central), Hyderabad u/s.12AA(3) of I.T. Act cancelling the registration granted to the Society in assessee's favour and restored the registration granted. Since the registration was cancelled by the CIT(Central) on the basis of the findings given by the Assessing Officer which are also the basis for the assessment order under consideration, the findings of the Hon'ble Tribunal need to be considered for finalizing the instant appeal. The relevant portion of the Tribunal decision is reproduced hereunder:
"We have ,heard both the parties, perused the record and have gone through the orders of the authorities below as well as decisions cited. In the case of Ajit Education Trust vs. CIT, (2010)134 TTJ (Ahd) 483, the Ahmedabad Bench held that "amendment of subsection (3) of s. 12AA w.e.f. 1st June, 2010 should not be applicable retrospectively and its operation has to be effective from the date it was Introduced and onwards and therefore CIT was not justified in cancelling the registration granted to assessee u/s 12A, by invoking provisions of section 12AA(3) further, the trust being an educational institution end undisputedly imparting education, cancellation of registration was not in accordance with law. The same ratio has been followed by the Lucknow Bench of ITAT in the case of Kapoor Educational Society vs. CIT (2010) 134 TTJ(lucknow)
250.
Further, we are of the opinion that Sri K.T. Mahi seems to have collected capitation fees on his own without any authority of the society, therefore, the society is not involved in collection of capitation fees in cash. The argument of the learned DR that the acts of the servant will bind the master cannot be applied to the facts of the present case for the reason that Sri K.T. Mahi was never authorized to collect the excess capitation fees. The authority to collect the excess fees should have been given by the society and it is only, then, it can be said that the acts of the employees will bind the principal. Anything done by the employee beyond the scope of powers given to him will not bind the principal society. The cash deposited in the Head Office by itself cannot 16 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society be treated as fund collected by the society. The said amount has been assessed in the personal hands of Sri K.T. Mahi as the collected amounts have not reached the society, therefore, the exemption u/s. 11 cannot be denied. It cannot also be said that the seized documents on which, the Assessing Officer had placed reliance conclusively proved that it was only the society, which is received the excess money. The Circumstances only show that it was Sri K.T. Mahi, who has collected excess money without the knowledge or the authority of the society. In other words, none of the monies were collected by Sri K.T. Mahi on the authority of the society.
In the case of CIT vs. Geethanjali University, 214 Taxman (Raj), it was held that what is required for purpose of seeking approval u/s 10(23)(c) is that university or education trust shall exist solely for educational purposes and not for purpose of profit. Furthermore though the admissions were not in accordance with prescribed rules still the said violation could not be to its losing character as an entity existing solely for educational purposes. Following the ratios of the decisions as mentioned above, In the present case though excess fees has been collected by Sri K.T. Mahi, the society does not lose its character as the Institution which is existing for educational purposes.
We also fortified by the decision of Bangalore 'B' Bench in the case of Sri M.J. Balachander vs. DCIT in ITA Nos.90 to 94/Bang/2012 and others Vide order dated 21-12-2012 Wherein similar Issue has been considered and the Tribunal has held that M.J. Balachander was collecting. (ETF) extra tuition fees on his own without any authority or consent of the society and the conclusion of the CIT was that ETF was collected by M.J. Balachander on his own and the society has nothing to do with ETF collection. The ITAT confirmed the findings of the CIT.
In the present case, no material has been brought on record to show that the assessee solely exists for profit motive. The department has not been able to discharge its onus of showing as to how the conditions for grant of registration have been breached by the assessee. The registration has been granted to the society for many years in the past under the same facts and there is no change in the facts or in the activities of the society in the present year. It has also not been demonstrated by the department as to how the object of the assessee has 17 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society turned into a commercial one. The predominant object of the assessee is and remains to carry out charitable purpose of advancement of education and not to earn profit. In fact, no profit has been established to have been earned by the assessee. The DIT has failed to specify as to how profit earning is the predominant activity of the assessee and the society has been pursuing its object of imparting education to students. Therefore, the assessee-society cannot be deprived off of the benefit of registration granted by the DIT(E) u/s 11 of the Act. Being so, in our opinion, registration granted u/s.12AA of the Act cannot be cancelled. However, the aforesaid findings given by us are nothing to do with the allowability of exemption u/s.11 of the act. In case any discrepancy or irregularity with regard to the allowability of u/s.11 is noticed by the Assessing Officer, he can make an independent enquiry/exemption at the time of assessment for each assessment year and decide in accordance with law.
4.2 The CIT(A) observed that though the Hon'ble Tribunal has restored the registration of the Society u/s. 12AA of I.T. Act, as per the said decision, the allowability of exemption u/s 11 of I.T. Act needs to be decided on the facts of the case as observed by the Hon'ble ITAT. It may be noted that the Assessing Officer has categorically brought out the discrepancy/irregularity with regard to the allowability of exemption u/s 11 in the assessment order.
4.3 The CIT(A) after analysing the issue with relevant sections and following the decision of the Jurisdictional High Court in the case of M/s Ahura Holdings Ltd. Vs. DCIT reported in 2012-TIOL-357-HC-AP-IT & Gopal Lal Badruka Vs. DCIT 346 ITR 106, held as follows:
"09.14 , In the present case, the Assessing Officer estimated the suppression of capitation fee in the earlier years on the basis of the incriminating seized material found for Asst. years 2009-10 and 2010-11 which has been admitted by the Managing Trustee, Sri K.T. Mahi as capitation fee received by him and offered it to tax in his hands. It may be noted that in the preceding paras, I 18 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society have held that the entire capitation fee received, needs to be considered in the hands of the society in view of the violation of provisions of section 13(1)(c) of the Act by the society and that the society loses the cover of exemption u/s.11 of the I.T. Act. There has been incriminating material for AYs 2009-10 and 2010-11 and Sri K.T. Mahi has admitted to have received capitation fee for admission in to the colleges run by the society not only in those years but also in the past years and offered some amount as Income on account of undisclosed capitation fee received by him for earlier years also i.e. Asst. years 2004-05, 2005-06, 2007-08 and 2008-09. This shows that collection of capitation fee is not an isolated instance and this is nothing but corroborative evidence which justifies extrapolation of suppressed income in those years. As observed by the Hon'ble ITAT in the case of M/s Bawarchi Restaurant Vs. DCIT in IT(SS)A.No.117/Hyd/2005 when the assessee is in the habit of suppressing turnover consistently, the only issue to be examined is whether the Assessing Officer's estimation of undisclosed turnover is fair, bonafide and reasonable. In the present case, the Assessing Officer has tried to make the estimation as fair, bonafide and reasonable as possible on the basis of material available. Therefore, It is held that the assessee society received capitation fee even in those years also and the Assessing Officer is justified by taking reference to the number of management seats offered and the fee collected over and above the prescribed fee and worked out the likely undisclosed income on the basis of the evidence available for the subsequent years. Accordingly, the extrapolation of income for Asst. years 2004-05, 2005-06, 2007-08 and 2008-09 is justified. Since the society does not enjoy the exemption cover, the income so estimated needs to be assessed in the hands of the society and therefore, the undisclosed income estimated by the Assessing Officer for Asst. years 2004-05, 2005-06, 2007-08 and 2008-09 totalling to Rs. 8,71,00,000/- is confirmed."
5. Aggrieved by the order of the CIT(A), the assessee is in appeals before us for the AYs 2004-05 to 2010-11 and has raised the following grounds of appeal, which are common in all the appeals, except for the quantum of the additions made:
19 I.T.A. No. 111 to 117/Hyd/2014Sree Educational Society Grounds of Appeal:
1. The Commissioner (Appeals) has erred on facts and in law and the order is bad in law.
2. The Commissioner (Appeals) ought to have held that the search on the Society was without proper jurisdiction. The Commissioner (Appeals) ought to have held that the AO did not acquire jurisdiction to do the assessments and that it ought to have been declared a nullity.
3. The Commissioner (Appeals) has erred in upholding the assessment under the status of an AOP.
4. The Commissioner (Appeals) has erred in upholding an addition of Rs. 78,00,000, on account of estimated suppression (extrapolation) of capitation fees, as Society's undisclosed income.
a. The Commissioner (Appeals) has erred in upholding the assumption of extrapolation irrespective of any evidence from the seized material.
b. The Commissioner {Appeals} has erred in upholding the inference of the assessing officer that the assessee earned undisclosed income.
c. The Commissioner (Appeals) has erred in upholding the inference of the assessing officer that KT Mahi, the Trustee, collected the capitation fee on behalf of the Society.
d. The Commissioner (Appeals) has erred in upholding the inference of the assessing officer that the assessee was into the practice of collecting capitation fee.
e. The Commissioner (Appeals) has erred in upholding the inference of the assessing officer that the assessee Society exists not solely for educational purpose but only for profits.
f. The Commissioner (Appeals) has erred in upholding the inference of the assessing officer that the Society's funds were utilized by the persons interested in the Society in violation of sec 11(5) .
20 I.T.A. No. 111 to 117/Hyd/2014Sree Educational Society g. The Commissioner (Appeals) has erred in upholding the inference of the assessing officer that the assessee had violated the provisions of s 13(1)(c).
h. The Commissioner (Appeals) has erred in upholding the denial of exemption u/s 11.
5. The Commissioner (Appeals) has erred in sustaining denial, made by the assessing officer, of exemption u/s 10(23C).
6. The Commissioner (Appeals) has erred in overlooking the written submissions and evidences with respect to donation of corpus fund of Rs.1,00,000 and directing the assessing officer to verify the claim.
7. The Commissioner (Appeals) has erred in upholding the assessment of total income of the society at Rs.24,35,634.
6. The ld. Counsel for the assessee referred the observations of the Tribunal, in its order dated 31 July 2013 in ITA No. 564/Hyd/2012, which are as under:
13. Further, we are of the opinion that Shri K.T. Mahi seems to have collected capitation fees on his own without any authority of the society, therefore, the society is not involved in collection of capitation fees in cash. The argument of the learned DR that the acts of the servant will bind the master cannot be applied to the facts of the present case for the reason that Shri K.T. Mahi was never authorized to collect the excess capitation fees. The authority to collect the excess fees should have been given by the society and it is only, then, it can be said that the acts of the employees will bind the principal. Anything done by the employee beyond the scope of powers given to him will not bind the principal/society. The cash deposited in the Head Office by itself cannot be treated as fund collected by the society. The said amount has been assessed in the personal hands of the Shri K.T. Mahi as the collected amounts have not reached the society, therefore, the exemption u/s 11 cannot be denied. It cannot also be said that the seized documents, on which, the AO had placed reliance conclusively proved that it was only the society, which is received the excess money. The circumstances only show that it was Shri K.T. Mahi, who has collected excess money without the knowledge or the authority of the society. In other words, none of the 21 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society monies were collected by Shri K.T. Mahi on the authority of the society.
6.1 Referring to the above observations, the ld. AR submitted that in the present case no material has been brought on record to show that the assessee solely exists for profit motive and that the department has not been able to discharge its onus of showing as to how the conditions for grant of registration have been breached by the assessee. The registration has been granted to the society for many years in the past under the same facts and there is no change in the facts or in the activities of the society in the present year. He submitted that it has also not been demonstrated by the Department as to how the object of the assessee has turned into a commercial one. The predominant object of the assessee is and remains to carry out charitable purpose of advancement of education and not to earn profit. In fact no profit has been established to have been earned by the assessee. According to him, the DIT has failed to specify as to how profit earning is the predominant activity of the assessee as the society has been pursuing its object of imparting education to students. Therefore, according to him, the assessee society cannot be deprived of the benefit of registration granted by the DIT(E) u/s 11 of the Act. Being so, in his opinion, registration granted u/s 12AA of the Act cannot be cancelled. He submitted that in conclusion, the Tribunal gave unambiguous and categorical finding of facts that:
• the excess amounts/capitation fees was collected by Shri K T Mahi in his individual capacity • the said amounts were not collected by the Society, or under its authority, • that they cannot be attributed to the Society, • that they never reached the Society 22 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society • and that they should be considered only in the hands of Shri K T Mahi 6.2 Ld. AR submitted that the order of the Commissioner to rescind the registration u/s 12AA was passed after the Assessment Order was passed and refers to the Assessment Order, relevant seized material and assessment records extensively. He submitted that the findings in the assessment order were considered and the assessment orders (of the Society and Shri K T Mahi) were part of the Paper books submitted before the Hon'ble Tribunal during hearing of the appeals in the 12AA matter and were considered by it. No new facts (other than those in the assessment orders) were discovered or brought out by the Assessing Officer, Commissioner or Commissioner (Appeals). He, therefore, submitted that the Hon'ble Tribunal, in the present case, may kindly follow its own order in ITA No. 564/H/12. (supra).
6.3 Finally, the ld. AR submitted that in view of the findings of the Hon'ble Tribunal that the said amounts was collected by Shri K T Mahi as an individual and never reached the Society, they could not be assessed in the hands of the assessee. He pointed out that the order of the Hon'ble Tribunal in ITA No. 564/H/12 is binding on the Hon'ble Tribunal in this matter because the earlier order is based on the very same facts and records and the Tribunal has given categorical findings which are required to be considered in the present case. For this proposition, he relied on the following case laws:
1. Marubeni Corporation (liaison Office) vs JCIT 83 lTD 577 Precedent-Binding nature-Order of Tribunal-When the facts are similar, then there should not be contrary decision and the order of the Tribunal should be 23 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society followed for the sake of consistency-A departure from this principle is not ordinarily called for, unless it is shown that earlier decision was an error arising out of wrong application of law-Fact that the Department had filed further appeal against the earlier order was not a valid ground for not following the same.-CIT VS. L G. Ramamurthi 1977 CTR (Mad) 416 (1977) 110 ITR 453 (Mad), Union of India VS. Kaumudini Narayan Dalal (2001)168 CTR (SC) 3: (2001) 249 ITR 219 (SC), CIT VS. AL. Ramanathan (2000) 159 CTR (Mad) 255: (2000) 245 ITR 494 (Mad) and Union of India & Ors. VS.
Kamalakshay Finance Corpn. Ltd. AIR 1992 SC 711 followed
2. CIT vs Travancore Titanium Products Ltd 265 ITR 526 (Kerala)
3. S Shanmugavel Nadar vs State of Tamil Nadu 263 ITR 658 (SC)
4. CIT vs Sterling Foods 237 ITR 579 (SC)
5. CIT vs B R Constructions 202 ITR 222 (FB)
6. AP Bidya Devi vs CIT 263 ITR 52 (Calcutta)
7. CIT vs Nestle India 83 CCH 76 (Delhi) ITA 644/ 2012
8. CIT vs Shyamalal M Soni 276 ITR 156 (MP)
9. ACIT vs Affection Investments Ltd 2 Sort 165 (Ahmedabad)
10. AP State Warehousing Corp Ltd vs DClT 41 CCH 43 (Hyderabad) ITA 456,673,673/H/ 2014
11. DC of WT vs Ashwin C Shah 82 lTD 573 (Mumbai)
12. DCIT vs Mangal Dayak Chit Fund P Ltd 92 lTD 258 (Hyd)
13. DClT vs Managalam Cement Ltd 92 lTD 44 (TM) (Jaipur)
14. Marubeni Corporation (Liaison Office) vs JCIT 83 lTD 577 (Delhi)
15. MTNL vs Ad CIT 8 SOT 376 (Delhi)
16. Venkateshwara Farms P Ltd vs DClT 84 lTD 212 (Pune)
17. Deccan Cements Ltd vs DCIT 76 TIJ 691 (Hyderabad) ITA 1983/HYD/1996 24 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society 6.4 The ld. AR submitted that the Commissioner (Appeals) ought to have followed the findings of the Hon'ble Tribunal. According to him, having ignored the findings without any new material or facts, she has exceeded her powers, vitiating her order. It was therefore prayed that the order of the ClT(A) confirming the assessment be cancelled. In support of this contention, the assessee relied on the following case law:
1. Deccan Cements Ltd. Vs DCIT 76 TTJ 691(Hyd) ITA 19831Hydl1996 AO could not disallow the claim for 50 per cent of the guest-house expenses by way of prima facie adjustment under s. 143(1)(a) which was backed by the decision of the Tribunal involving the very expenditure given in assessee's own case in earlier years Precedent Tribunal decision-Binding nature- There is hierarchy in the judicial system and the decision of the higher judicial authority deserves not only respect but also unequivocal compliance and adherence by lower judicial authorities- Order of the Tribunal is binding on the AO and the first appellate authority-Action of CIT(A) in not following the Tribunal's order given in assessee's own case in earlier years, and that too without distinguishing the facts and terming it as running counter to the law, was an outrageous and contemptuous act which deserves outright condemnation and reprimand by the Tribunal
2. MTNL vs Ad CIT 8 SOT 376 (Delhi) ITA 3448 to 3450 /Del/2003 A judgment delivered by the Tribunal is binding on the AO. He is bound to follow the judgment of the Tribunal in its true letter and spirit, The AO being an inferior officer vis-a-vis the Tribunal, was bound by the judgment of the Tribunal and therefore, he should not have tried to distinguish the same on untenable grounds. It is also necessary for the judicial unity and discipline that all the authorities below Tribunal must accept as binding Judgment of the Tribunal. The CIT (A), therefore, should 25 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society not have committed any judicial impropriety in refusing to follow the order of the Tribunal. Even if she had some reservations about the correctness of the decision of the Tribunal, she should have followed that order. - Bank of Baroda vs. H.C. Srivastava (2002) 175 CTR (Bam) 663:
(2002) 256 ITR 385 (BOM) and Aggarwal Warehousing & Leasing Ltd. vs. CIT (2002) 177 CTR (MP) 15: (2002) 257 ITR 235 (MP) applied.
3. NPAR Drugs P Ltd vs oar 98 ITO 285 (TM) (Delhi) - IT (55) 206/Del/2002 Appeal (Tribunal)-Precedent-Binding nature- Tribunal is not a formal source of law in the sense High Courts are- It is not a Court of record- Tribunal is the final fact- finding authority While the issue before the High Court comes to an end once a judgment is delivered and the question is not raised again, the same question may be raised again before the Tribunal in a fresh assessment- Thus, decision of a Bench of the Tribunal, even in the case of the same assessee in a particular assessment year does not constitute a binding precedent on subsequent co- ordinate Bench of the Tribunal in relation to another assessee or another assessment year of the same assessee - However, a subsequent Bench can draw different conclusion if there is adequate justification to depart from the earlier view, e.g., where subsequently new or more facts or material or evidence come to light-However/if it is only a case of different opinion being held on the same facts, material and aspects already considered, the subsequent Bench should not proceed on its own to make a contrary decision but should refer the matter for constitution of a larger Bench
4. Agrawal Warehousing and Leasing Ltd vs CIT 257 ITR 235 (MP) 6.5 As regards allowability of Exemption u/s 11, the ld.AR submitted that the Hon'ble Tribunal, in the closing paragraph of the aforesaid Order, said as under:
"However, the aforesaid findings given by us are nothing to do with the allowability of exemption u/s 11 of the Act. In case any discrepancy or irregularity with regard to the allowability of exemption u/s 11 is noticed by the AO, he 26 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society can make an independent enquiry/examination at the time of assessment for each assessment year and decide in accordance with law."
He submitted that the CIT(A) took cover under these observations to completely ignore the categorical findings of the Hon'ble Tribunal given in the entire order, and come to totally contrary findings. It is submitted that the Hon'ble Tribunal gave categorical findings as described above and thereafter suggested that if there are any discrepancies or irregularities (other than the findings given by it), then they ought to be considered by the assessing officer during assessment. The Hon'ble Tribunal could not have given categorical findings and then passed observations allowing the lower authorities to ignore such findings without any new evidence or material.
6.6 Ld. AR submitted that even for the years where no incriminating evidence was discovered during the search, the AO has made additions by estimations, extrapolating figures from other years. It is submitted that if the original amounts are not assessable in the hands of the assessee, the question of extrapolations would not arise. No estimation would, therefore, be permissible.
6.7 Ld. AR submitted that in the case of the Society, by the date of search, assessments up to AY 2008-09 were completed and no proceedings were pending, or the time to issue notices u/s 143(2) had expired. He submitted that the law on the matter is that completed cases are not permitted to be disturbed unless there is material discovered during the search warranting such reconsideration. For this, he relied on the following decision:
27 I.T.A. No. 111 to 117/Hyd/2014Sree Educational Society
1. Pratap Jadeja vs ACIT, ITA No. 1469 to 1475 of 2012 ITAT Hyderabad (after considering All Cargo, and AP High Court judgmnts in Gopal Lal Badruka and Ahura Holdings etc.) He submitted that in view of this, for assessment year up to 2008-09, no assessment can be made based on estimation without any incriminating evidence being found.
6.8 Ld. AR further submitted that abated cases which are open for assessment are required to be assessed like any other normal assessment. As per settled law, these assessments should be based on relevant material which is justifiable. Whereas in the present case, the AO has made additions based on material related to other years. He submitted that each year is different and the AO cannot rely on other years' assessment to make an addition. For this proposition he relied on the following cases:
• ACIT vs Gurumukh M Jagwani - Laxmi Industries, No.ITA 1771 to 1773 of 2007, ITAT Pune • ACIT vs Thakkar Popatlal Velji Sales Ltd, ITAT Mumbai, No. ITA 4812,4813 and 4845 all of 2010 • JB Education Society v ACIT, 55 Taxman.com 322, ITA 29 to 41 of 2013 Hyderabad where it was observed that "Held that in the absence of evidence or material indicating any suppression about collection of fees towards management quota seats for the academic years 2003-04 to 2007-08 having been found during search, and there being no admission from the assessee, the Assessing Officer was not justified in estimating the same on the materials seized relating to academic years 2008-09 and 2009-10 indicating suppression about collection of fees for management seats, in assuming suppressed/unaccounted receipts of fees for earlier assessment years. The Assessing Officer was directed to quantify the receipt of fees for management quota seats, if any, on the basis of available seized material as well as other material, if 28 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society any relating to academic years 2003-04 to 2007-08 and not on the basis of seized materials relating to academic years 2008-09 and 2009-10.
• In CIT v Continental Warehousing, 374 ITR 645, the Mumbai High Court has distinguished the judgment of the Delhi High Court in the case of CIT v Anil Kumar Bhatyia, 211 Taxman 453 Delhi and approved the order of the Special Bench in All Cargo.
6.9 The ld. AR submitted that even in the eventuality it is held that estimation of income was permissible, the assessment order cannot be sustained for the following reasons:
• The AO has not done any investigation into why there is no evidence in some years and ignored the possibility that there was no capitation fee collected for those years.
• Basis of computation by AO is not rational, not considering realities about different streams of education, making the estimation arbitrary.
• Was not put up to the assessee • Without showing parallels in other years • There is erroneous assumption that all management seats led to collection of capitation fees which would not happen.
6.10 As regards the disallowances u/s 40(a)(ia), the ld. AR submitted that it is not sustainable in view of the following orders:
• ITAT order in Vaishnavi Educational Society, ITAT Hyderabad, ITA No. which relied upon Mahatma Gandhi Seva Mandai, ITAT Mumbai, 21 Taxman.com 321 ITA No. 4138/Mum/2011.Mahatma Gandhi Seva Mandai, ITAT Mumbai, 21
Taxman.com 321 ITA No. 4138/Mum/2011 29 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society
7. The Learned Departmental Representative besides relying on the orders of the revenue authorities, relied upon the following decisions in support of contention supporting the orders of the authorities below:
1. ITA No. 430/Hyd/08 in case of M/s Vodithala Educational Society, order dated 30 th September, 2010.
2. Aditanar Educational Institution Vs. Addl. CIT, 90 Taxman 0528
3. ITA No. 1120/Hyd/09 in case of M/s Vasavi Academy of Education, Hyderabad, order dated 29 th January, 2010.
4. ITA No. 1369/Hyd/2012 in the case of M/s Saivani Educational Society, order dated 9 th January, 2013.
8. We have heard the arguments of both the parties and perused the material on record as well as orders of revenue authorities. We have also carefully gone through the decisions cited. Subsequent to survey and based on the records found by the revenue, no doubt that the evidence found, establishes that additional fees was collected by the people involved in the management of the education in the college. Now, the question that arises is, who actually collected the additional/ capitation fees. On perusal of the decision of the coordinate bench of this Tribunal on the very same set of facts, it clearly spelt out that the additional fees was collected by Mr. K.T. Mahi without clear authority of the society. With the above factual findings, it is held that Mr. K.T. Mahi has collected additional/collection fees and the same should be assessed only in the hands of Mr. Mahi. Moreover, the same was also accepted by Mr. Mahi and offered to tax voluntarily to buy peace from the department. It is important to mention here that the department has chosen to bring to tax the same additional/capitation fees collected, both in the hands of society as well as in the hands of Mr. K.T. Mahi. The same amount cannot be brought to tax in the hands of two persons. From this, it is evident that the Assessing Officer is not able to come to any conclusion as the person to whom, this income 30 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society belongs. The substantive additions in the hands of both the assessees are not sustainable. Shri K.T. Mahi has offered the income in his hands and therefore the revenue had no option but to accept the returned income by Shri K.T. Mahi. Since, the revenue has accepted the income offered by Shri K.T. Mahi in his hands, bringing the same to tax in the hands of the society also by making addition amounts to double taxation of the same amount which is not justified as the principle that is applicable in tax statutes is that an income can be subjected to tax in the hands of one person only. Therefore, we hold that the income cannot be charged to tax in the hands of society as well as in the hands of trustee cum secretary of the society.
8.1 We are inclined to adjudicate that the additional fees collected should be assessed only in the hands of Mr. Mahi and the same should be deleted to be assessed in the hands of society.
9. With regard to quantification of unaccounted receipts by the Assessing Officer, the Assessing Officer had quantified the same at Rs. 16.62 crores instead of Rs. 16.50 crores as accepted by Mr. Mahi. The calculation is based on the investment made by Mr. Mahi in his individual name as well as in his own companies and the material seized during search. As the Assessing Officer had assessed the same in the hands of Mr. K.T. Mahi, the same cannot be brought to tax in the hands of the society.
10. With regard to estimation/extrapolation of excess amount collected for AY 2004-05 to AY 2007-08 based on the assumption of the Assessing Officer that the assessee was in the practice of collection of capitation fees for the earlier years also, we find that relying on the seized material, the 31 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society average excess fees received was worked out at Rs. 3.5 lakhs in the latest year. Assessing Officer had estimated for other earlier years by giving discount of Rs. 50,000 per year as below:
AY Estimate No. of Amount
students
1. 2004-05 1,00,000 78 78,00,000
2. 2005-06 1,50,000 77 115,50,000
3. 2006-07 2,00,000 - -
4. 2007-08 250,000 45 287,50,000
5. 2008-09 3,00,000 130 390,00,000
From the above calculation, it is clearly established that
Assessing Officer had presumed that the society or Mr. Mahi had collected the above said amount but could not provide any cogent material to substantiate the above presumption. He relied on the two judgments viz., Rajwik & Co Vs. ACIT and M.s Bawarchi Restaurant (supra) to justify the extrapolation. In the case of Rajwik, it was established that the assessee had suppressed income based as part period evidences and sworn deposition of partner of the firm, which was upheld. Whereas in the given case, no doubt, it was established that Mr. Mahi collected excess fees but the excess collection was not for part period nor he had accepted in the sworn deposition anything more than Rs. 16.50 crores. On the other hand, the decision of M/s Bawarchi can be applied when the situation arises for estimation. Not in the present case. Moreover, as per the records submitted by assessee, the assessments of the society were completed up to AY 2008-09, no proceedings were pending on the date of assessment. Based on the decision of the Tribunal in the case of Pratap Jadeja Vs. ACIT (supra), Assessing Officer cannot disturb the completed assessments except where the cogent material pertaining to the relevant AY was found in the search 32 I.T.A. No. 111 to 117/Hyd/2014 Sree Educational Society proceedings. For the sake of convenience, we reproduce the decision of the coordinate bench of this Tribunal:
"9. Learned D.R. on the other hand has relied on the decision of Hon'ble A.P. High Court in the case of Gopallal Bhadruka vs. DCIT 346 ITR 106 wherein it was held that for the purpose of section 153A/153C of the Act, the A.O. can take into consideration material other than what was available during the search and seizure operation for making an assessment of the undisclosed income of the assessee. As pointed out by the Ld. Counsel for the assessee in this regard, the said decision of Hon'ble jurisdictional High Court in the case of Gopallal Bhadruka (supra) has already been considered by the Coordinate Bench of this Tribunal in the case of ACIT vs. Srinivasa Rao (ITA.No.1767 & 1768/Hyd/2011 dated 08.11.2013) and the same has been found to be distinguishable on facts as in the said case, the partners of the assessee firm had confirmed the receipt of on money in other years which was relied upon for making the assessment of the undisclosed income of the assessee firm. Since in the case of B. Srinivasa Rao (supra), there was no such admission by the assessee, the Tribunal held by relying inter alia on decision of Hon'ble Delhi High Court in the case of CIT vs. Anil Bhalla 322 ITR 19 (Del.), Allahabad High Court in the case of CIT vs. RML Mahapatra 320 ITR 403 (All) and Hon'ble Supreme Court decision in the case of Commissioner of Sales Tax vs. H.M. Esufali H.M. Abdulali 90 ITR 271 (SC) that undisclosed income cannot be estimated for the assessment year in question on the basis of seized material relating to some other assessment years.
10. The Coordinate Bench of this Tribunal in the case of Mr. B. Srinivas (supra) thus followed the proposition laid down by the Special Bench of this ITAT in the case of All Cargo Global Logistics Ltd., (supra) wherein it was held that the A.O. as per the scheme of the Act and as per section 153A of the Act, no doubt, shall initiate the assessments for all the six years prior to the assessment year in which the search had taken place, but he will get the free hand only in respect of those assessments which had not attained finality on the date of search. It was held that the pending assessments in such cases will abate and the A.O. while framing the assessment under section 153A/153C of the Act will get free hand through abatement and will frame the assessment afresh. It was held that where proceedings have reached finality, the assessment under section 153A read with 143(3) however has to be made as was originally made/assessed and further addition should be restricted only to the extent they are supported/justified by any material found during the course of search."33 I.T.A. No. 111 to 117/Hyd/2014
Sree Educational Society
11. In view of the above judicial precedents, we are of the view that the Assessing Officer cannot estimate the unaccounted receipts for all the assessment years based on the material found in the search proceedings relating to a particular AY without any cogent material available for the other AYs and without any statement/deposition of any of the office bearers of the society that it has collected additional fees in the earlier years also. With regard to pending assessments which abated in view of the provisions of section 153A of the Act, the Assessing Officer had already made addition based on the materials seized during the course of search. Apart from that, revenue has not found anything more to suggest that the assessee had collected beyond seized materials nor it has got any deposition from the office bearers of the society that it had collected beyond seized materials. In the absence of such findings, we delete the additions made based on estimation of additional capitation fees collected.
12. With regard to disallowance u/s 40(a)(ia), as held in the case of Mahatma Gandhi Seva Mandir Vs. DDIT(E) (supra), section 40 is applicable only when deductions u/s 30-38 are being made in computing income chargeable under the head 'profits and gains of business or profession' u/s 28. Similarly, provisions of section 40(a) are not applicable in case of charitable trust or institution where income and expenditure is computed in terms of section 11. Similar view was expressed in the case of Vaishnavi Educational Society (supra) by the coordinate bench of this Tribunal. Respectfully following the above decisions, we delete the additions made u/s 40(a)(ia) of the Act.
34 I.T.A. No. 111 to 117/Hyd/2014Sree Educational Society
13. In the result, all the appeals of the assessee under consideration are allowed.
Pronounced in the open court on 11 th March, 2016 Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 11 th March, 2016
kv
1. Sree Educational Society, C/o Gandhi & Gandhi, CAs, 1002, Paigah Plaza, Basheerbagh, Hyderabad - 500
063.
2. ACIT, Central Circle 1, Hyderabad
3. CIT(A) -I, Hyderabad 4 CIT (Central), Hyderabad 5 The DR, ITAT, Hyderabad