Income Tax Appellate Tribunal - Ahmedabad
Lancer Army School Society vs Asstt. Cit on 19 July, 2004
Equivalent citations: (2004)90TTJ(AHD)1024
ORDER
T.N. Chopra, A.M.:
These are cross-appeals filed by the assessee as well as revenue against the order of the Commissioner (Appeals), dated 27-6-2004. Since facts and issues involved are common, these appeals have been heard and are being disposed of by a common order.
2. The cross-appeals relate to the block assessment made by the assessing officer for the block period comprising of assessment years 1990-91 to 1999-2000, and further current period 1-4-1999 to 29-6-1999. At the outset, relevant facts having a bearing on the points in issue may be briefly set out. Search operations were conducted by the Income Tax authorities at the residential premises of Dr. Manjit Singh and Smt. Pammy Manjit Singh on 29-6-1999. Smt. Pammy Manjit Singh is trustee of the assessee-trust and is also principal of primary section of the school. Her husband, Dr. Manjit Singh, is administrator and principal of secondary and higher secondary sections of the school run by the trust at Piplod, Surat, Pursuant to searches carried out at the residential premises of the aforesaid trustee, the assessing officer initiated action under section 158BD read with section 158BC in the case of assessee-trust on 16-7-2001, and in response thereof the assessee filed the block return in the prescribed Form No. 2B on 13-3-2003, showing undisclosed income at nil figure. The assessing officer, however, made the block assessment computing the undisclosed income for the block period at Rs, 1,03,68,627 vide order dated 31-7-2003. While making the block assessment, the assessing officer made, inter alia, the addition in respect of donations collected from the parents for admission by the assessee-trust as well as certain unaccounted expenses incurred by the trust.
3. The assessee carried the matter in appeal and the Commissioner (Appeals) vide the impugned order dated 27-6-2004, allowed certain relief and sustained certain additions on account of donations as well as unexplained expenditure. The Commissioner (Appeals) also upheld the finding of the assessing officer that the assessee-trust is not entitled to the exemption under section 10(22) of the Income Tax Act, 1961. Both the parties, the revenue as well as the assessee, are aggrieved and have come up in appeal before us.
4. First, we take up the assessee's appeal. The grounds of appeal raised by the assessee are as under :
1. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner (Appeals) has erred in confirming the action of assessing officer in making addition of Rs. 71,77,500 for alleged unrecorded donations.
2. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner (Appeals) has erred in deleting addition of Rs. 2,16,000 made by assessing officer for unexplained expenditure of rent by way of set off against the undisclosed income of donation instead of deleting same on merits of case.
3. On the facts and in circumstances of the case as well as law on the subject,, the learned Commissioner (Appeals) has erred in deleting addition of Rs. 59,449 made by assessing officer for unexplained cash credit by way of set off against the undisclosed income of donation instead of deleting same on merits of case.
4. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner (Appeals) has erred in confirming the action of assessing officer in making addition of Rs. 28,08,900 as undisclosed income for alleged amount received at Rs. 100 per student, which was credited to trust fund in various years by treating as revenue income of assessee.
5..On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner (Appeals) has erred in confirming the action of assessing officer in making addition of Rs. 52,778 of income reflected in income and expenditure account of various years as undisclosed income.
6. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner (Appeals) has erred in confirming the action of assessing officer in denying exemption under section 10(22)/10(23C).
7. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner (Appeals) has erred in not deciding the ground of levying interest of Rs. 16,26,282 for delay in filing the return of undisclosed income levied by assessing officer.
8. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner (Appeals) has erred in not dealing with the ground of appeal regarding validity of block assessment under section 158BD, which was raised before Commissioner (Appeals) in the course of appellate proceeding. ,
9. It is therefore, prayed that the above additions may please be deleted and exemption under section 10 may please be granted.
Addition of Rs. 71,77,500-Unaccounted donation for admission
5. Ground No. 1 is against sustaining the addition of Rs. 71,77,500 on account of donations received from the parents of the students. This addition is mainly based on the seized diary being BS-2 as well as p. 5 of Annex. BS-28 seized during the search operations at the residence of Smt. Pammy Manjit Singh and her husband, Dr. Manjit Singh. The assessing officer has dealt with the issue vide paras 2 and 3 of the assessment order.
6. BS-2 is the diary of the calendar year 1995 and appears to be the mainstay of revenue's case in support of receipt of donations from the parents of the students at the time of admission. The relevant portions of the diary, BS-2, which are heavily relied upon by the assessing officer as well as p. 5 of Annex. BS-28 are available in the paper book vol. 1 filed by the learned counsel at pp. 29 to 98. Pages 1 to 74 of the diary appear to be photocopies of the relevant page of diary, BS-2, and are available at pp. 30 to 98 of the paper book vol. 1. This being a calendar diary, the dates have been mentioned. The dates are printed at the top of every page of the diary. On certain pages of the diary, the numbers are written in four columns supported by oblique sign and names of the students appearing against each such set of four numbers. The assessing officer proceeded on the basis that these numbers represent actual figures of donations received by the assessee from the parents of the students for admission. According to him, numbers are written in coded figures and three zeroes are to be added to determine the actual figure of donation received by the assessee in respect of each of the four columns relating to a student of the school. The assessing officer, therefore, added these figures and multiplied it by Rs. 1,000 to determine the donations which according to him, have been received by the school. Thus, the figure of Rs. 67,41,500 has been arrived at as per list prepared by him on the basis of BS-2 as tabulated at pp. 4 to 10 of block assessment order. The assessing officer further noticed that on p. 5 of the seized Annex. BS-28 certain figures are written against the names of the students. The assessing officer multiplied these figures by Rs. 1,000 and worked out the donation at Rs. 6,30,000 as per list of students appearing at pp. 9 and 10 of the block assessment order. On the basis of the aforesaid documents, the assessing officer determined the amount of donation received by the assessee-school at Rs. 71,02,600 and made the addition on the ground that the donations have not been accounted for in the books of the assessee-trust.
7. While making the aforesaid addition, the assessing officer further referred to the statements of Shri Alkesh Patel and Shri Dipankar Dutta, parents of the students wherein it has been stated that donations have been paid to the school for admission of their wards. Statement of Shri Alkesh Patel dated 29-6-1999, appears at pp. 142 and 143 of the assessee's paper book. In this statement Shri Alkesh Patel stated that as per his information Rs. 55,000 has been paid as a donation to the school for admission of his brother-in-law, Shri Hardik Patel. However, he further stated that he did not know by whom it was paid and to whom it was paid, and what was the system of such payment. Regarding the other statement, copy of statement of Shri Dipankar Dutta dated 29-6-1999, has been filed before us. Shri Dipankar Dutta stated that he paid a sum of Rs. 20,000 for admission to the principal by way of donation.
8. During the course of block assessment proceedings, when called upon to explain the entries contained in Annex. BS-2 and p. 5 of BS-28, the assessee vide its letter dated 30-6-2003, stated as under :
"Your honour required to explain the contents of diary seized vide Annex. BS-2 from the residence of Smt. Pammi M. Singh, Principal of Lancers Army School, and further your honour asked to explain whether the donations recorded therein are reflected in the books of account of the school, therefore, we state on behalf of the assessee that this diary pertains to Mrs. Pammi M. Singh who is principal of the school and further it was her personal diary and she has written in this diary the names of the students and their sizes of the uniforms, sweaters, knickers, shirts, shoes, dangris, socks, berets, skirts, combat dress, belts, ties, etc. She has also written the books, note books, text books, drawing books, etc. provided to the students on various dates. Further, there was nothing mentioned at anywhere in the seized diaries that the assessee was receiving any donation in any form and merely on the basis of notings which an pertain to planning and projections, the inference cannot be drawn in favour of revenue. In this diary there were mentioned only different sizes with names of students as well as various kinds of note books provided to them.
There were also written like 9 - 2 = 7 or 16 - 8 = 8 or 20 - 4 = 16, etc. It meant that the student had to be given later those books/note books, etc., which they don't need presently but would be needing for the next semester.
In the diary there was a phrase mentioned as "come later on". It meant that the students will take the returned note book/text book/drawing books, etc. later on.as and when they require, therefore, these are not the donations but sizes of the cloths/uniforms or wearing items and details of books or note books with names of the students."
The assessing officer again issued a show-cause notice to the assessee pointing out that the explanation furnished by the assessee is devoid of merit and further that it is rather unusual for the principal of the school to maintain the number and size of uniform, sweaters, knickers, shoes and shirts with the names of students as well as various note books, text books, etc. In response to the show-cause notice, the assessee furnished another explanation which appears to be different from what has been stated earlier. The assessee submitted that the figures in the first of four columns against each student as recorded in the seized Annex. BS-2 relate to number of items out of total number of items mentioned in col. No. 2 collected from the office of the principal by the respective personnel, coaches, etc., depending upon the requirement. The assessee further stated that col. Nos. 3 and 4 is a record of schedule of issue of the set of items out of the designated total. col. No. 3 is a date and col. No. 4 is a month. The assessing officer, however, rejected the aforesaid explanation on the following grounds as enumerated vide para 3.8 of the block assessment order :
"(a) The diary is maintained by the principal who is looking after the affairs regarding admission to the school.
(b) Some amount has been written in code against the name. The GR of the school was verified and these are the names of the students who have been admitted to the school.
(c) The assessee's argument that these are noting of size of uniform, knickers, note books, etc., is not acceptable because of the following grounds :
(i) Principal of the school does not maintain the number and sizes of uniforms, sweaters, knickers, shoes, shirts with the names of students as well as various note books, text books, etc.
(ii) It is known fact that note book, books, etc. are given to the students on payment basis and for each petty items no record is required to be maintained especially in ledger format, i.e., one page is given to one student or two students. If these notings are pertaining to stationary, etc. given to the students then its cost and the money received could have also been entered in the said diary. On none of the pages such notings have been found. Further, size of uniforms etc. must also have been noted against the name of student.
(iii) Against the name of each student, the different digits are added which clearly shows that the writer of these pages intends to know the totality of the said figure. In case of such 'situation as claimed by the assessee, why such totalling will be made specifically for a particular child.
(iv) In support of the contention, the assessee has not produced any bills, vouchers or any evidence showing that the said noted number pertains to stationary, etc. which were given to the particular student.
(v) There cannot be requirement of so much stationary for one year. Further, if at all these are notings for such things, there should not be such variation from one student to another. The figures vary from 3 to 70.
The assessing officer as mentioned earlier placed reliance on the statements made by Shri Dipankar Dutta and Shri Alkesh Patel, father/guardian of the students who were available in the school premises at the time of search. Before the assessing officer, the assessee has filed the copy of affidavit from Shri Dipankar Dutta retracting from his earlier statement on the basis of the averments that his statement at the time of search was recorded under intimidation and coercion. The assessing officer, however, rejected the affidavit as a self-serving document. While making the impugned addition of Rs. 71,77,500 the assessing officer observed that the school is recognised by the Gujarat Board of Secondary Education and fee is to be collected as per the norms fixed by the Government of Gujarat and collection of donation for admission is in contravention of the laws of the State Government. According to the assessing officer, since the donations were illegal, the assessee has not shown the same in the books of account.
9. In appeal, the Commissioner (Appeals) upheld the impugned addition.
10. Shri S.N. Soparkar, the learned counsel for the assessee-school, assailing the impugned addition argued that the school is being run by the trust and the objects of the trust as laid down in the trust deed are charitable in nature. The trust is registered under the Bombay Public Trusts Act, 1950, as per the certificate of registration placed in the paper book at p. 290. He further referred to certificate of registration under the Societies Registration Act, 1860, placed at p. 291 of the paper book. The learned counsel submitted that the school was first recognised by the education department of Gujarat Government on 10-2-1994, for standards 1 to IV. Thereafter, recognition has been received from the education department to add one higher standard every year. Various sanction letters issued by the Education department to start new classes placed in the paper book at pp. 277 to 289 have been referred to. The learned counsel made strong grievance of the fact that a bona fide educational institution recognised by the Education Department of Government of Gujarat and registered as a public charitable trust under the Bombay Public Trusts Act has been harshly subjected by the IT department to high-pitched block assessment made on the basis of suspicion, surmises and conjectures. The learned counsel contended that an educational institution existing for the cause of education enjoying exemption under section 10(22) cannot possibly indulge in collection of donation outside the books of accounts. Once the income of the trust as an educational institution is entitled to exemption from tax, there is no earthly reason for the school to collect donations outside the books of account. Regarding the seized diary, BS-2, the learned counsel argued that an explanation regarding the entries recorded in the said note book has been duly given before the assessing officer pointing out that these entries appearing in four columns represent number of items out of a designated total of items mentioned in col. No. 2 that are collected from the principal according to the requirement as well as schedule. The learned counsel submitted that the conjectural presumption of the assessing officer that the four columns represent amounts in thousands in respect of donations paid by the students for admission has no basis whatsoever. The learned counsel further submitted that there are number of students whose names appear in BS-2 but who were never admitted as students in Lancers Army School and their names do not appear in the GR (General Register) or any other record. In support of his contention, he invited our attention to pp. 133 to 140 of the paper book where information regarding the names of students as appearing in BS-2 is correlated with the admission in the year 1995 as well as prior to 1995 and subsequent to 1996. He further referred to the summary at p. 141 of the paper book which shows that out of 179 students whose names appear in BS-2 and in respect of whom receipt of donation has been presumed by the assessing officer, 35 students were never admitted at any point of time as students of the assessee-school. The summary statement as per p. 141 pointedly referred to by the learned counsel reads as under :
Sr. No. Description No. of students
1.
List of names though included in BS-2 but who were never ever admitted as students in Lancers Army School and their names do not appear in the GR 35
2. List of students though included in BS-2 have made enquiries in 1995 but had adually taken admission in 1996, 1997 or later 1998 as per our GR and other records-Names repeated 3 16
3. List of names of students included in BS-2 and as per records and GR these students had been admitted with this school in year 1996 75
4. List of names of students though included in BS-2 but as per records and GR these students had been admitted with this school in year 1994 and were already bona fide students of this school prior to the year 1995 41
5. List of names of students though included in BS-2 but as per records and GR these students had been admitted with this school in year 1993 and were already bona .5de students of thi school prior to the year 1996 9 Total 179 On the basis of the Aforesaid summary, the learned counsel argued that the theory of donation related to admission propounded by the assessing officer has no factual basis. The learned counsel argued that there was obviously no occasion for receiving donations from students who have never been admitted in the school. Even in respect of students who have already been admitted prior to 1995, there was no question of receiving admission related donations in 1995.
11. The learned counsel argued that the explanation of the assessee that entries in BS-2 relate to various items issued by the principal is reinforced by the fact that various extra- curricular activities like skating, karate, dancing, boxing, etc., have been conducted by the school and participation in such activities is open to non-students on payment of fee which is duly accounted for in the books of account of the assessee.
12. The learned counsel further referred to various other pages of diary, BS-2, and invited our attention to p. 31 of the paper book wherein entries with regard to salary held back in respect of staff members have been recorded. According to the learned counsel, these entries record the amounts like Rs. 650, Rs. 500, etc., and there is no question of using any code as alleged by the assessing officer whereby three zeroes are to be added against the figures used by the principal in the diary. The learned counsel urged that the presumption regarding code by the assessee is thus eloquently controverted by entries recorded in the diary as per p. 31 of the paper book.
13. The learned counsel next referred to the statements of Shri Alkesh Patel and Shri Dipankar Dutta recorded during the course of search operations and relied upon by the assessing officer. He submitted that Shri Alkesh Patel is brother-in-law of Shri Hardik Patel, student of the school, and the statement is based on mere heresay. Shri Alkesh Patel expressed his ignorance as to who has made the payment and to whom the payment has been made by way of donation and what was the system in respect of payment of donation. Even with regard to fees structure of the school Shri Alkesh Patel expressed his ignorance. According to the learned counsel such a statement based on heresay does not support the theory of donation for admission alleged by the assessing officer. The learned counsel further referred to affidavit of Shri Alkesh Patel wherein he has stated that the statement was procured from him under duress, coercion and pressure. The learned counsel further referred to the affidavit of Shri R.P. Patel, father of the student Shri Hardik Patel, wherein it has been stated that no donation has been paid at the time of admission of his child. The learned counsel submitted that even after getting telephone number and address of Shri R.P. Patel, the department made no attempt to cross-examine Shri R.P. Patel to disprove veracity of the deposition contained in his affidavit. Regarding the statement of. Shri Dipankar Dutta, the learned counsel stated that an affidavit of Shri Dipankar Dutta has been filed before the assessing officer wherein it was stated by Shri Dipankar Dutta that his earlier statement dated 29-6-1999, has been procured by the IT authorities oil coercion and pressure, and further that no donation has been given to the school authorities for admission of his child. According to the learned counsel, the statements of Shri Alkesh Patel and Shri Dipankar Dutta recorded by the IT authorities under coercion and pressure at the back of the assessee have no evidentiary value particularly when duly sworn affidavits retracting the said statements have been filed before the revenue authorities.
14. Shri Soparkar made an alternative contention that even if the entries recorded in BS-2 are to be treated as donation, col. Nos. 3 and 4 clearly refer to dates on which the donation amounts have been received. Col. No. 2, according to the learned counsel, refers to the total donation whereas col. No. 1 refers to the initial payment received for admission. On this basis, the learned counsel made the alternative contention that even if the entries are to be treated as donations, it is only. in respect of col. No. 2 that addition should be made on account of unaccounted donation. During the course of hearing, the learned counsel submitted a summary of total of col. No. 2 in diary, BS-2. As per this summary, out of 174 students, break-up of the donation figures are as under
Rs.
(i) Total in respect of students admitted in 1995 13.23 lakhs
(ii) In respect of students never admitted in the school 4.05 lakhs
(iii) Students admitted prior to 1996 or subsequent to 1995 5.67 lakhs 22.95 lakhs According to the learned counsel, addition on account of donation if at all to be sustained should be restricted to Rs. 13.23 lakhs: relating to students admitted in 1995 to which period the diary relates.
15. Shri Sanjay Prasad, the learned Senior Departmental Representative, on the other hand, strongly supported the impugned addition on account of donation and argued that the onus squarely lay on the assessee to satisfactorily explain the entries recorded in the seized diaries, BS-2 and BS-28 by virtue of the provisions of section 132(4A) of the Act. He submitted that the assessee has failed to discharge the onus. Regarding the explanation furnished by the assessee, the learned Departmental Representative emphasised that the assessee has taken shifting stand from time to time and the claim made before the assessing officer that the entries represent items relating to extra- curricular activities issued by the principal is bereft of any trace of credibility. According to the learned Departmental Representative, the explanation is highly improbable, false and beyond the realm of possibilities. He submitted that no principal would keep date-wise jottings of number of items issued to the staff members which are vague and make no sense whatsoever. The learned Departmental Representative further submitted that the school being run by the assessee-trust is a reputed institution and even though BS-2 records donations received from 174 students only, the actual number of students in the school would be much larger. In this connection, he referred to p. 108 of the paper book which indicates that the school has branch offices outside India. The learned Departmental Representative referred to the statements of Shri Alkesh Patel and Shri Dipankar Dutta relied upon by the assessing officer, and argued that the donations received by the school for admission are amply evidenced by the statements of the parents recorded during the search operations. Regarding the affidavits, the learned Senior Departmental Representative argued that the affidavits have been procured by the school from the parents and are merely self-serving documents.
16. In rejoinder, Shri Soparkar, the learned counsel for the assessee, controverted the contentions of the learned Senior Departmental Representative regarding the number of students admitted in the school and referred to entries in Annex. BS-21, the relevant portions of which are extracted in the paper book. He invited our attention to pp. 171 and 172 which indicate that in the year 1995-96, there were 145 students which comprised of 79 new admissions and 66 old students. Regarding the contention of the learned Senior Departmental Representative that the old GR (General Register of the school) has not been produced, the learned counsel submitted that the original register got wet during the floods of 1994 and then again in 1998, the register was reconstructed from the old one and duly inspected by the Government officials from time to time, and has also been produced before the assessing officer as well as Commissioner (Appeals). According to the learned counsel, the reconstructed GR based on original GR is duly supported by admission forms of the students, school leaving certificates and other record registers. The strength of the students as per the GR produced before the revenue authorities is duly supported by Annex. BS-2 and pp. 171 and 172 of the paper book contained in seized Annex. BS-21 duly supports the reconstructed GR produced before the assessing officer. In this connection, it is further stated that the number of students in the school can further be ascertained from the contributions credited to the trust funds at the rate of Rs. 100 per annum from each student. On this basis also, during the financial year 1995-96 number of students are 145 as confirmed by seized Annex. BS-21.
17. We have carefully considered the rival submissions and gone through the orders of tax authorities below., The facts and documents placed in the paper book filed by the learned counsel to which our attention has been drawn during the course of hearing have also been carefully perused by us. In our considered opinion, the facts and evidence on record, particularly seized diary BS-2 and p. 5 of BS-28 relied upon by the revenue, indicate that donations have been received by the assessee for admission from the parents of the students. The entries in the diary as per extract placed in the paper book do not, in our opinion, represent issue of number of items relating to extra- curricular activities as claimed by the assessee during the assessment proceedings. We see merit in the contention of the revenue that the explanation of the assessee is fanciful and unrealistic. We cannot possibly blame the revenue authorities for refusing to swallow the story put up by the assessee. Applying the test of human probabilities, as propounded by the Hon'ble Apex Court in the case of CIT v. Durga Prasad More (1971) 82 ITR 540 (SC), we have no hesitation in holding that the explanation of the assessee has been rightly rejected by the assessing officer. Regarding the statements of Shri Alkesh Patel and Shri Dipankar Dutta recorded on 29-6-1999, during the search operations, it is a fact that Shn Alkesh Patel has not specifically indicated as to who has paid the donation of Rs. 50,000 and to whom it has been paid. He is not father of the child and therefore, denies personal knowledge about the payment. To this extent, there is merit in the contention of the learned counsel that the evidence of Shri Alkesh Patel does have certain infirmities. However, Shri Dipankar Dutta in his statement has categorically stated that he has paid the sum of Rs. 20,000 by way of donation when his child was shifted to the school of the assessee at Piplod. The statement recorded on the spur of the moment is bound to bring out the truth of the matter and has the merit of veracity and spontaneity. The learned counsel has referred to retraction of the statements by Shri Alkesh Patel and Shri Dipankar Dutta. However, when the entire evidence is evaluated and appraised in the light of the seized diary, BS-2 as well as BS-28, it appears to us that the alternative contention of the learned counsel regarding col. No. 2 being the donation and col. Nos.'3 and 4 being the date of the donation and col. No. 1 being the initial payment deserves to be accepted. As per BS-2 donations have been received from 174 students and aggregate of the amount mentioned in col. No. 2 totals upto Rs. 22,75,000 which, in our opinion, is the donation received by the assessee-school which has not been accounted for in the books of account. The contention of the learned counsel that addition on this account should be restricted to Rs. 13,23,000 only relating to students admitted in 1995 cannot be accepted in view of the entries recorded in the diary against 174 students. Taking an overall view of the matter and in the light of the aforesaid discussion, we would, therefore, uphold the addition on account of unaccounted donation relating to admission of the students to Rs. 22,95,000 as against Rs. 71,77,500 sustained by the learned Commissioner (Appeals). Ground No. 1 is, therefore, partly allowed.
Addition-Unaccounted rent Rs. 2,16,000
18. Ground No. 2 is with regard to addition of Rs. -2,16,000 on account of unexplained expenditure on rent. The assessing officer has dealt with the issue vide para 4.1 of the assessment order. In the course of search, the lease agreement for shop at Anand Mahal Apartment was found where the school was originally being run. The lease agreement indicates that rent was to be paid to the three lessors, namely, Mahinder Kaur, Malik Singh and Sukhjit Singh @ Rs. 18,000 per month from 1-4-1994, onwards. The school was shifted from Anand Mahal Apartment, Adajan, to its present location at Piplod in the month of April, 1996, and the assessee has used the earlier premises till April, 1996. Since the payment of rent as per the lease agreement has not been accounted for in the books for the period April, 1994 to April, 1996, the assessing officer held that the entire expenditure has been met out of unexplained sources. The assessing officer worked out the rent expenditure at Rs. 2,16,000 for the period April, 1994 to December, 1994, and for the period January, 1995 to April, 1996, worked out such expenditure at Rs. 11,88,000. The assessing officer held that the unaccounted rent of Rs. 2,16,000 upto December, 1994, has been met out of income from undisclosed sources and rent of Rs. 11,88,000 for the period January, 1995, onwards has been met out of unaccounted donation for which separate addition has already been made. The assessing officer, therefore, allowed the amount of Rs. 11,88,000 to be set off against the unaccounted donation separately added as above and made the addition in the block assessment only for the amount of Rs. 2,16,000 being the rent upto December, 1994.
19. The Commissioner (Appeals) deleted the addition on the ground that the assessee is entitled to set off against the undisclosed donation. The grievance of the assessee before us is that the addition of Rs, 2,16,000 should have been deleted on merits and not by way of set off against the addition of unaccounted donation.
20. On behalf of the assessee, the learned counsel submitted that the assessee did not pay any rent and the premises were used only for two years, and the rent was waived by the lessors in the interest of charitable cause. Even otherwise, it is actual payment of rent that can be brought to tax under section 69C. Since the lessors have confirmed that they have foregone the rent, there was no ground for making any addition.
21. The learned Departmental Representative, on the other hand, argued that the addition of Rs. 2,16,000 should have been confirmed by the Commissioner (Appeals) without allowing any set off against the unaccounted donation. The revenue has raised this ground in its appeal vide ground No. 1.
22. We see merit in the contention of the learned counsel. Since the lessors have confirmed that no payment has been made by the school on grounds of financial stringency and they decided to waive the payment in the interest of charity, no addition by invoking section 69C is called for. In any case, even if any such addition of Rs. 2,16,000 is to be made, the assessee would be entitled to deduction thereof as an expenditure since the expenditure has been made for running of the school. Regarding proviso to section 69C which prohibits allowance of any such deduction of unexplained expenditure, we may point out that proviso has been introduced by the Finance (No. 2) Act, 1998, and takes effect prospectively with effect from 1-4-1999. The proviso would, therefore, not be applicable in the instant case. The prospective operation of the proviso to section 69C has been upheld by the Tribunal in the following decisions relied upon by the learned counsel :
(i) S.F. Wadia v. ITO (1986) 19 ITD 306 (All)
(ii) M.K. Mathivathanan v. ITO (1989) 31 ITD 114 (Mad)
(iii) Nishant Housing Development (P) Ltd. v. Assistant Commissioner (1995) 52 ITD 103 (Pat) We would, accordingly, delete the addition of Rs. 2,16,000 on merits. Ground No. 2 in the assessee's appeal is thus allowed.
23. Ground No. 3 is with regard to the addition of Rs. 59,449 which has been upheld by the learned Commissioner (Appeals) on merits. However, allowing the benefit of set off against the undisclosed income on donation the addition has been deleted. Ground No. 3 in assessee's appeal and ground No. 2 in revenue's appeal are concerned with this issue. The assessing officer has dealt with the issue vide para 5 of the block assessment order. In the books of account, the assessee has credited the trust funds by two types of entries as follows :
(i) Fee of Rs. 100 per month received from the students. The assessee explained that the amount is collected from the students for extra-curricular activities. Such students may not necessarily be on the rolls of the school. Even children from outside who participate in the extra- curricular activities are charged at the rate of Rs. 100 per monthwhich is credited to the trust fund.
(ii) Cash donations received from various persons are credited towards the corpus fund.
The total of such credits in respect of (i) and (ii) above aggregate to Rs. 24,49,649 till the date of block assessment. The assessing officer bifurcated this amount in two parts, one received before 1-1-1995, and the other received after that date. The amount received after 1-1-1995, aggregating to Rs. 23,90,200 has been set off by the assessing officer against the unaccounted donations and no separate addition with regard to this sum has been made. However, regarding the second portion amounting to Rs. 59,449 received prior to 1-1-1995, the same has been treated as unexplained cash credit under section 68 of the Income Tax Act and separate addition on this account has been made. The assessing officer proceeded on the basis that unexplained credits received by the assessee are not genuine and represent utilisation of the unexplained donation.
24. In appeal, the learned Commissioner (Appeals) upheld the finding of the assessing officer regarding the amount being unexplained. He, however, allowed the assessee the benefit of set off with regard to the amount of Rs. 59,449 and deleted the addition.
25. After hearing the parties, we are inclined to accept the contention of the learned counsel that the amounts credited to the trust fund duly reflected in the books of account cannot be the subject-matter of block assessment and no addition in the block assessment can be made in the absence of any evidence found during the course of search operation impeaching the genuineness of such credits. The learned counsel submitted that the assessee filed returns of income for assessment years 1995-96 to 1998-99 before the date of search. The trust fund is duly reflected in audited balance sheets filed with each return of income. In fact, the assessing officer has himself taken note of the fact that the trust fund wherein the aforesaid credits occur is duly reflected in the ledger maintained by the assessee. No evidence was found in the course of search that donation received for trust fund was not in fact capital receipt but revenue receipt. The assessment of undisclosed income can be made on the basis of evidence found as a result of search and such other material or information as are available with the assessing officer and relatable to such evidence as provided in section 158B(6). Block assessment under Chapter XIV-B of the Income Tax Act, 1961, is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to material unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of the search and such other material or information as are available with the assessing officer. In support of this view, reliance is placed on the following decisions which have been cited by the assessee in the statement of facts as well as written submissions filed before the Commissioner (Appeals) which do not appear to have been considered by the Commissioner (Appeals) :
(i) CIT v. GOM Industries (2002) 257 ITR 78 (MP)
(ii) CIT v. Vikram A. Doshi (2002) 256 ITR 129 (Bom)
(iii) CIT v. Sambhbhai C. Bachkaniwala (2000) 245 ITR 488 (Guj)
(iv) N.R. Paper & Board Ltd. v. Dy. CIT (1998) 234 ITR 733 (Guj)
(v) Dy. CIT v. Shaw Wallace & Co. Ltd. (2001) 248 ITR 81 (Cal)
(vi) Malayil Bankers v. Assistant Commissioner (1999) 236 ITR 869 (Ker)
(vii) CIT v. Raid Kant Jain (2001) 250 ITR 141 (Del)
26. We may further refer to the recent decision of the Madhya Pradesh High Court in the case of CIT v. Khushlal Chand Nirmal Kumar (2003) 263 ITR 77 (MP) wherein Their Lordships have examined the impact of the amendment in the provisions of section 158BB made by Finance Act, 2002. Their Lordships held as under :
"If the provisions of section 168BB are read in proper perspective, we are inclined to respectfully agree with the view expressed by the Bombay High Court. Quite apart from the above, the CBDT circular (see (2002) 258 ITR (St) 131 which has been referred to above in para 61.3.2 has laid down as under (p. 58) :
'61.3.2. The Finance Act, 2002, has amended section 158BB to clarify that the block assessment of undisclosed income is to be based on the evidence found in the search and material or information gathered in post-search inquiries made on the basis of evidence found in the search.' We have referred to the aforesaid clarification for the simple reason, Mr. Arya submitted that the amendment was effected to search 158BB in the year 2002 with effect from 1-7-1995, and the amendment would be applicable to the present case as block period covers ten years commencing 1986 to 1996, On a perusal of the unamended and amended provisions and the CBDT circular, we are of the considered view that there has been no specific effect as far as this facet is concerned. Emphasis has been given on the fact that evidence must have been found during the search and only thereafter the question of gathering any material information would arise based on the search enquiry ........
Respectfully following the aforesaid decision, we are inclined to hold that the amounts credited in the trust fund appearing in the ledger maintained by the assessee which is a part of the audited, accounts duly enclosed with the returns of income from year to year cannot be the subject-matter of addition in the block assessment treating the same as non-genuine cash credits by invoking the provisions of section 68. We would, therefore, delete the impugned addition of Rs. 59,449 on merits.
Ground No. 4-Addition of Rs. 28,08,900
27. The assessing officer further made addition of Rs. 28,08,900 in different years in respect of the amount credited to the trust fund by way of collection of Rs. 100 from each student for extra-curricular activities. The facts and issues involved are the same as relating to the addition on account of contributions from different persons as discussed above. On behalf of the assessee, it has been contended that no addition can be made as undisclosed income as amounts are reflected in audited accounts filed with the returns of income before the date of search or otherwise reflected in the books of account maintained in normal course. There is, therefore, no justification for treating the amount as unexplained. For the reasons discussed by us while dealing with ground No. 3 as above, we are inclined to delete the impugned addition of Rs. 28,08,900 being outside the purview of block assessment.
Ground No. 5-Addition of Rs. 52,778 on account of income and expenditure account for various years
28. The assessing officer further made addition in respect of income reflected in income and expenditure account in different years. Here again, the facts and issues involved are identical as discussed by us while dealing with ground Nos. 3 and 4 above. We have no hesitation in holding that no addition can be made as undisclosed income as amounts are reflected in the audited accounts filed with the return of income before the date of search or otherwise reflected in books of accounts maintained in normal course.
Ground No. 6-Claim of exemption under section 10 (22) 110 (23C)
29. The assessing officer has rejected the claim of exemption under section 10(22) while making the block assessment on the ground that the assessee-trust diverted the funds of the trust for the direct benefits of family members of management. The assessing officer has dealt with the issue vide paras 6 and 7 of the block assessment order. For .denying exemption under section 10(22A) the assessing officer has particularly given three reasons:
(a) The expenses for bore-well, electric fittings, furniture, building, tree plantation, water tank, etc. were debited in books of assessee-trust although building is owned by family members of the management.
(b) The assessee incurred expenses like rent partly out of undisclosed income and remaining out of unaccounted donations received for admission of students.
(c) Out of the unaccounted donations added by the assessing officer at Rs. 71,77,500, the assessing officer held that part of the donations have been utilised for incurring expenses on rent as well as accounted for in the books in the guise of donations from various persons and the balance amount of Rs. 35,99,300 has been siphoned off by the management of the society.
30. The assessing officer rejected the assessee's claim of exemption under section 10(22) or 10(23C)(iii)(a) and (d) by observing that funds have been diverted for the benefits of family members of management and the assessee-trust is not existing solely for educational purposes. In support of his contention, the assessing officer observed that the donations received by the assessee-trust for admission of students cannot be said to be income from educational activities and on this ground also claim of exemption under section 10(22) is not allowable. According to the assessing officer, the assessee-trust did not maintain proper books of account and trust was not registered under section 12A of the Income Tax Act, 1961. The learned Commissioner (Appeals) upheld the findings of the assessing officer.
31. The learned counsel for the assessee, assailing the conclusion of the learned Commissioner (Appeals), argued that the allegations of the assessing officer regarding mismanagement of the assessee-trust or misappropriation of funds of the trust by the trustees are entirely misconceived and incorrect. The learned counsel further submitted that the findings of the misappropriation are controverted by various communications sent by the assessing officer himself to the trustees praising them for the laudable services rendered by them for the noble cause of spreading education. In this connection, the learned counsel referred to letter of the assessing officer dated 27-11-2002, addressed to Dr. Manjit Singh placed in the paper book at p. 173 wherein the assessing officer has observed "while we appreciate your noble cause of rendering honorary services to the school and your selfless dedication to the institution, I am duty-bound to advise you that once the tax demand is due from you.... you should be logically drawing the requisite salary for the performance of your additional duty as the principal of secondary and higher secondary sections of Lancers Army School, Surat." According to the learned counsel, it is the assessing officer who advised Dr. Manjit Singh that he should draw salary from the school for the services rendered by him. The learned counsel further referred to the letter of assessing officer dated the 1-10-2002, which is again addressed to Dr. Manjit Singh. The letter is placed at p. 205 of the paper book. In this letter, it has been pointed out that rent paid by the school for the plot leased out by the trustees is "far too less as compared to the market value which should in fact accrue to not less than Rs. 35,000 per month." According to the learned counsel, the allegation of misappropriation of funds of the school by the principal and the trustees is eloquently controverted by the letters sent by the assessing officer referred to above. Regarding the building expenses incurred by the school at Piplod, the learned counsel submitted that the expenses represent expenses of renovation and modification of old building at Piplod which was given by owners free of rent subject to incurring of expenses on renovation and modification by the assessee-trust. Such expenses are capitalised and the assets are reflected in the books of account. The books of account of the assessee have been audited from year to year and returns have been filed along with the audit reports for the various assessment years as per details furnished in the paper book at pp. 224 to 276. The assessee is subjected to monitoring mechanism under the Bombay Public Trust Act as well as Societies Registration Act. The school is also recognised by the Board of Secondary Education, Government of Gujarat. No such allegation regarding mismanagement of the school or misappropriation of funds has ever been made by the said Government agencies who exercised strict control over the running of the assessee-trust. According to the learned counsel, educational institution being run by the assessee is solely for educational purposes and exemption under section 10(22) cannot be denied while making the block assessment on hypertechnicalities. The learned counsel has further emphasised that there is no allegation whatsoever by the revenue regarding the genuineness of the trust as well as regarding the school being an educational institution run for education purposes. Denial of exemption merely on the ground that some diary and documents have been seized from the residence of the principal is not legally sustainable. In support of his contention, thelearned counsel placed reliance on the decision of Orissa High Court in the case of Secondary Board of Education, Orissa v. Income Tax Officer (1972) 86 ITR 408 (Ori). Further reliance is placed on the decision of Supreme Court in the case of Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310 (SC). According to the learned counsel, grounds of mismanagement or misappropriation by a principal or trustee, even if substantiated, would not lead to denial of exemption under section 10(22). In support of his contention, reliance is placed on the decision of Rajasthan High Court in the case of Dy, CIT v. Cosmopolitan Education Society (2000) 244 ITR 494 (Raj). The learned counsel submitted that the Supreme Court has dismissed the. Special Leave Petition filed by the department against this judgment (refer (2000) 241 ITR (St) 132).
32. The learned Departmental Representative, on the other hand, strongly supported the denial of exemption under section 10(22) on the ground that the assessee-trust does not exist for educational purposes and is merely an instrument utilised by the trustees for their own personal benefits. The learned Departmental Representative relied upon the seized documents, BS-2, BS-28 and the two statements of the patents, Shri Alkesh Patel and Shri Dipankar Dutta, in support of his argument that donations have been collected by the assessee-trust from the parents which have not been accounted for in the books. According to the learned senior Departmental Representative denial of exemption under section 10(22) is fully justified.
33. After careful consideration of the rival submissions, we are inclined to reverse the finding of the learned Commissioner (Appeals) and hold that there is no ground for the assessing officer to deny exemption under section 10(22) of the Act while making the block assessment. Section 10(22) is an exemption provision and has been enacted by the legislature so as to advance the cause of education. It is well-settled that liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the ambit of the exemption clause, then it being in the nature of exemption is to be construed strictly. But once ambiguity about the applicability is visited, full play should be given to the exemption clause and it calls for a wider and liberal construction keeping in view the purpose underlying. Exemption from tax granted by the statute should be given full scope and amplitude, and should not be whittled down by importing limitation not inserted by the legislature. Viewed in the backdrop of the aforesaid legal position, section 10(22) clearly confers exemption on the income of an educational institution which is run for educational purposes and not for purposes of profit. The language of section 10(22) is plain and clear and the availability of the exemption would essentially depend upon the objects of the institution being promotion of education and not personal benefit of the organisers. In the instant case of the assessee-trust, admitted facts are that the trust running the school is registered as a public charitable trust under, the Bombay Public Trusts Act, 1850, and is also registered as a society under the Societies Registration Act. The running of the school by the trust is thus subject to close monitoring and supervision of the Charity Commissioner under the Public Trusts Act as well as the Registrar under the Societies Registration Act. Apart from this monitoring mechanism, the school is recognised by the Board of Secondary Educational, Gujarat State, and is required to abide by the rules and regulations in the matter of fees structure as well fulfilling all the other requisites concerning the organisational infrastructure of the institution. From the facts on record, it is evidently clear that accounts of the school are being audited from year to year and audit reports along with the statement of accounts are duly filed with the returns of income by the assessee-trust from year to year. No allegations of embezzlement or misappropriation of funds by the trustees or principal appear to have been made either by the Charity Commissioner of by the Registrar of Societies. With regard to the veracity of the accounts also, audit reports prepared by the auditors do not bring out any such misappropriation on the part of the management. Regarding the reasons cited by the assessing officer in support of denial of exemption, we feel that the block assessment order abounds in glaring contradictions and inconsistencies which directly impinge upon the correctness of the reasoning adopted by the assessing officer. On the one hand, the assessing officer records the finding that expenses on rent for the school premises have been met out of unaccounted donations and further that trust fund has been credited in the books by non-genuine donations, the assessing officer also records a finding that the principal and the trustees have misappropriated the funds of the school.
34. Regarding donations received from the parents for admission of the children, the assessing officer has reached the conclusion that out of such unaccounted donations of Rs. 71,77,500, the management has misappropriated an amount of Rs. 35,99,300 and the balance amount has obviously been put back in the coffers of the assessee-trust. Thus, the entire edifice of mismanagement assiduously built up by the revenue is based on the unaccounted donations received on admission from the parents of the students. This is perhaps the mainstay of the department's case for denying the exemption under section 10(22). We have discussed the entire issue of unaccounted donations while adjudicating ground No. 1 above and held that unaccounted donations received by the trust during the year 1995 aggregate to Rs. 22,95,000 as against Rs. 71,77,500 adopted by the assessing officer on the basis of the diary, BS-2. This unaccounted donation pertains to the year 1995 only. Thus, if the unaccounted donation is adopted at Rs. 22,95,000, then on the basis of findings of the assessing officer himself there would be no misappropriation of such unaccounted donation inasmuch as assessing officer has himself allowed set off for the credits in the trust funds. Therefore, if any unaccounted donations have been received, the same have evidently been introduced into the books by the assessee-trust and no funds whatsoever appear to have been siphoned off by the management of the assessee-trust. We are, therefore, inclined to hold that denial of exemption by the assessing officer on ground of misappropriation of funds is factually erroneous and cannot be sustained.
35. We may look at the issue from another angle. Insofar as the assessee-trust is concerned, the genuineness of the trust and the objects of the trust being charitable have not been disputed by the revenue authorities. Even if the principal and trustees have mismanaged or misutilised the funds of the school, as presumed by the revenue, we feel this cannot be a ground for denial of exemption under section 10(22). The view taken by us is directly supported by the decision of the Rajasthan High Court in the case of Dy. CIT v. Cosmopolitan Education Society (supra) cited by the learned counsel. In the said decision the Rajasthan High Court observed at p. 495 of the reports as under -.
"The Commissioner (Appeals) has recorded a finding of fact; it was not known that any part of the income of the assessee-society was misutilised. For so saying, the appellate authority referred to the balance sheet. The appellate authority further noticed that the assessee-society is a registered society under the Rajasthan Societies Act and that it is also recognised by the CBSE; if there was any misutilisation or mismanagement, action could be taken against the members of the society, but, from the records and facts, it is not possible to say thatany amount of funds of the society was not utilised for educational purposes. The Tribunal concurred with this finding of fact. The authorities also referred to a decision of the Apex Court in the case of Aditanar Educational Institution v. Addl. CIT (1997) 224 ITR 310 (SC), in which, it is held that an overall view is to be taken and without being hyper-technical in granting exemption under section 10(22) of the Act, which include the objects of the society."
The decision applies squarely to the facts of the case before us and lends direct support to the view being taken by us. The Supreme Court has dismissed the Special Leave Petition filed by the department against this judgment as reported in (2000) 241 ITR (St) 132 (supra.).
36. We may next examine the contention of the learned Senior Departmental Representative that the availability of the exemption under section 10(22) is to be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for purposes of profit. In support of this contention, the learned Departmental Representative placed reliance on the decision of Supreme Court in the case of Aditanar Educational Institution v. Addl. CIT (supra). The proposition canvassed by the learned Departmental Representative is unexceptional and has been enunciated by the Hon'ble Apex Court. However, we are unable to understand as to how the proposition helps the case of the revenue in denying exemption under section 10(22) for the block period. The block period comprises of 10 assessment years, namely, assessment years 1990-91 to 1999-2000 as well as the current period 1-4-1999 to 26-6-1999. For the various assessment years included in the said block period, the allegation of unaccounted donations and addition in respect thereof as undisclosed income has been made by the assessing officer only for the assessment year 1995-96 amounting to Rs. 71,02,500. No such unaccounted donations have been included by the assessing officer for any other assessment year. Regarding the other additions made by the assessing officer for the various assessment years of the block period, the same have already been deleted by us after detailed consideration of the facts and circumstances. Now, even for assessment year 1995-96, as against unaccounted donations adopted by the assessing officer at Rs. 71,02,500 we have restricted the addition to an amount of Rs. 22,95,000. We have already indicated in the preceding paragraphs that as per the assessing officer's own finding unaccounted funds introduced in the books by the assessee are much in excess of Rs. 22,95,000 sustained by us. Therefore, the entire picture falls down to the position that unaccounted donations received by the assessee-trust in the assessment year 1995-96 have been deployed back in the funds of the trust and no misappropriation is involved even for assessment year 1995-96. Thus, if we evaluate the claim of exemption for various assessment years involved in the block period, in none of the assessment years including assessment year 1995-96, it can be said that the management has siphoned off the funds of the school for its personal benefit. On this ground also, denial of exemption under section 10(22) is held to be unsustainable and unjustified.
37. For the aforesaid reasons, we reverse the finding of the learned Commissioner (Appeals) and hold that the assessee-trust is entitled to exemption under section 10(22). Ground No. 6 is, therefore, allowed.
38. Ground No. 7 regarding levy of interest has not been decided by the learned Commissioner (Appeals). Therefore, we remit the issue of levy of interest to the file of the Commissioner (Appeals) for adjudication after allowing opportunity to the assessee.
39. Ground No. 8 regarding validity of the assessment under section 158BD has not been pressed by the learned counsel before us and the same is, therefore, dismissed.
40. In the result, the appeal of the assessee is partly allowed.
41. Now, we take up the appeal of the revenue, IT(SS)A No. 88/Ahd/2004. The grounds of appeal raised by the revenue read as under :
1. The Commissioner (Appeals) has erred in law and on facts in directing to allow set off of the addition of Rs. 2,16,000 made on account of unexplained expenditure by way of rent against the undisclosed income of Rs. 71,77,500 addition of which has been sustained by the learned Commissioner (Appeals).
2. The Commissioner (Appeals) has erred in law and on facts in directing to allow set off of the addition made of Rs. 59,449 on account of unexplained cash credit against the undisclosed income of Rs. 71,77,500 addition of which has been sustained by the learned Commissioner (Appeals).
3. The Commissioner (Appeals) has erred in law and on facts in directing to delete the surcharge levied under section 113 of the Income Tax Act by holding that surcharge is not leviable in respect of searches conducted prior to 1-6-2002, though the proviso to section 113 specifically provides that surcharge is leviable in the case of searches under section 132 initiated on or after 1-4-1999.
4. On the facts and circumstances of the case and in law, the Commissioner (Appeals) ought to have upheld the order of the assessing officer.
42. Ground No. 1 regarding unexplained expenditure on rent has already been considered and decided by us while disposing of the appeal of the assessee. This ground is dismissed.
43. Ground No. 2 regarding the set off of the addition of Rs. 69,449 has similarly been considered by us above and is, therefore, dismissed.
44. Ground No. 3 is against the direction of the Commissioner (Appeals) to delete the surcharge levied under section 113 of the Act. The assessing officer charged surcharge of Rs. 6,22,117 @ 10 per cent. We find that the issue is squarely covered against the revenue by the following decisions of the Tribunal
(i) N.R. Agarwal Industries Ltd., Vapi, decision of Ahmedabad Bench of the Tribunal, in IT(SS)A No. 11/AM/2000.
(ii) Decision of Ahmedabad Bench of the Tribunal in the case of Ohm Developers, Surat in IT(SS)A Nos. 320 and 321/Ahd/2002, order dated 12-11-2003.
(iii) Decision of Calcutta Bench of the Tribunal in the case of Principal Officer, Buincom Towers (P) Ltd. v. Asstt CIT (2000) 113 Taxman 74 (Cal)(Mag).
Respectfully following the aforesaid decisions of the Tribunal on the issue, we uphold the deletion of surcharge by the Commissioner (Appeals) and dismiss this ground of the revenue. The appeal of the revenue is dismissed.
45. In the result, the appeal of the assessee.is partly allowed and the appeal of the revenue is dismissed.