Income Tax Appellate Tribunal - Jaipur
Acit, Cc-3,, Jaipur vs St.Wilfred Education Society, Jaipur on 2 January, 2020
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES 'B' JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA. No. 1202-1205/JP/2019
fu/kZkj.k o"kZ@Assessment Year : 2014-15, 2015-16, 2016-17 & 2017-18
Assistant Commissioner of cuke M/s St. Wilfred Education
Income Tax, Vs. Society, Sector-10, Meera
Central Circle-03, Jaipur Marg, Mansarovar, Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABAS4029H
vihykFkhZ@Appellant izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri B. K. Gupta (CIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Dileep Shivpuri (Adv.)
lquokbZ dh rkjh[k@ Date of Hearing : 17/12/2019
mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 02/01/2020
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. These are four appeals filed by the Revenue against the consolidated order of ld. CIT(A)-4, Jaipur dated 19.08.2019 for A.Ys 2014-15, 2015-16, 2016-17 & 2017-18 respectively. Since the common issues are involved, all these appeals were heard together and are disposed off by this consolidated order.
Factual matrix of the case
2. Briefly the facts of the case are that the assessee society is engaged in providing educational services through 19 educational 2 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur institutes at Jaipur, Ajmer and Mumbai under the umbrella of St. Wilfred group of colleges. The assessee society was registered u/s 12AA of the Act, 1961 vide letter No. CIT/T&J/u/s 12A/1594 dated 02.01.2004 issued by the ld. CIT-1, Jaipur. The assessee was also granted approval u/s 10(23C)(vi) of the Act, 1961 vide notification No. 10/2007-08 dated 28.12.2007.
3. For A.Y 2014-15, the assessee filed its return of income declaring total income at Nil on 26.09.2014. Thereafter, a search was conducted on 11.12.2016 in the case of M/s Integral Urban Cooperative Bank Ltd to which the assessee belongs and thereafter, a notice u/s 153C was issued on 22.12.2017 and in compliance thereof, the assessee filed its return of income on 13.01.2018 declaring total income at Nil claiming exemption of Rs. 6,34,41,423/- u/s 10(23C)(vi) of the Act. Thereafter, the notice u/s 143(2) was issued on 11.07.2018 and notice u/s 142(1) issued on 17.07.2018 asking various details/information from the assessee society. The said details/information were subsequently submitted by the assessee and examined by the Assessing Officer.
4. During the pendency of reassessment proceedings, the ld. Pr. CIT (Central), Rajasthan, Jaipur passed orders withdrawing approval granted u/s 10(23C)(vi) on 14.12.2018 and approval u/s 12AA was also withdrawn vide letter No. 267 on 14.12.2018 on the grounds of diversion of the funds of the assessee society for personal purposes, non genuine scholarship expenses and addition to fixed asset claimed by the assessee society in view of the payment made to Rajasthan Housing Board. The Assessing Officer accordingly held that the pending reassessment proceedings have to be completed in view of the orders 3 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur passed by the ld. Pr. CIT(Central), Rajasthan, Jaipur withdrawing the approval u/s 10(23C)(vi) of the Act as well as withdrawal of registration u/s 12AA of the Act.
5. A show cause notice dated 21.12.2018 was accordingly issued and served upon the assessee society to show cause as to why the surplus of income and expenditure account may not be taxed subject to other disallowances as may be noticed during the course of reassessment proceedings. In response, the assessee filed its submissions which were considered but not found acceptable to the Assessing Officer. As per the Assessing Officer, all issues and discrepancies are already discussed in detail in the orders passed by the ld. Pr. CIT(Central), Rajasthan, Jaipur withdrawing the approval u/s 10(23C)(vi) of the Act as well as withdrawal of registration u/s 12AA of the Act and assessee was not able to prove the genuineness of the scholarship expenses claimed and it was proved that the assessee society has diverted the funds for the benefit of the trustees. The assessee has not furnished any valid reasons as to why the surplus should not be taxed after considering the trust as normal AOP which is to be assessed to tax when the exemption is already withdrawn. The assessee society has only reiterated what has already been discussed in detail in the proceedings before the ld Pr. CIT (Central), Jaipur and no new facts has come on record. Thereafter, the Assessing Officer has reproduced the order passed by the Pr. CIT(Central), Jaipur withdrawing the approval u/s 10(23C)(vi) of the Act as well as section 12AA and basis the same, the benefit of section 11 and 12 were denied to the assessee society and the surplus of Rs. 6,34,41,423/- shown in the income & expenditure account was taxed without providing any 4 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur exemption u/s 10(23C)(vi) of the Act. The Assessing Officer further held that the assessee has claimed bogus/non genuine scholarship expenses on the basis of which the approval u/s 10(23C)(vi) has been withdrawn and therefore, an amount of Rs. 25,83,142/- was disallowed and added back to the total income of the assessee society and impugned assessment order determining total income at Rs. 6,60,24,570/- was passed on 28.12.2018 u/s 143(3) read with section 153C of the Act.
6. For A.Y 2015-16, under identical set of facts and circumstances of the case, the surplus amounting to Rs. 6,65,39,611/- shown in the income and expenditure account was brought to tax. In addition, disallowance was made towards bogus scholarship expenses amounting to Rs. 27,94,931/- and the total income was assessed at Rs. 6,93,34,540/- vide order dated 28.12.2018 u/s 143(3) r.w.s 153C of the Act.
7. For A.Y 2016-17, under identical set of facts and circumstances of the case, the surplus amounting to Rs. 11,18,05,539/- was brought to tax besides bogus scholarship expenses amounting to Rs. 53,70,250/- was disallowed. Further, the Assessing Officer has disallowed an amount of Rs. 47,10,589/- towards depreciation on building for the reason that the assessee society has no ownership rights over the land and subsequently no depreciation can be claimed on the building constructed on the said land. Accordingly, the total income was assessed at Rs. 12,18,86,380/- vide order dated 28.12.2018 u/s 143(3) read with section 153C of the Act.
5 ITA Nos. 1202-1205/JP/2019ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur
8. For A.Y 2017-18, under identical set of facts and circumstances of the case, the surplus amounting to Rs. 13,65,62,014/- was brought to tax. Further, the Assessing Officer had disallowed bogus scholarship expenses amounting to Rs. 9,74,954/- and has also disallowed depreciation claimed on building of Rs. 1,15,17,420/-. Further, an amount of Rs. 1,56,59,500/- was brought to tax as unexplained money u/s 69A of the Act. Accordingly, total income was determined at Rs. 16,47,13,890/- vide order dated 28.12.2018 passed u/s 143(3) read with section 153B(1)(b) of the Act.
9. Thereafter, the assessee had moved in appeal before the Tribunal against the withdrawal of approval u/s 10(23C)(vi) as well as cancellation of registration u/s 12AA of the Act and has also filed appeals in the quantum proceedings before the ld CIT(A) for each of the assessment years.
10. The Tribunal vide order dated 18.03.2019 in ITA No. 9 and 10/JP/2019 has directed to restore the approval u/s 10(23C)(vi) from the date the same was withdrawn and cancelled by the ld. Pr. CIT(Central), Rajasthan, Jaipur. Similarly, the registration u/s 12AA was directed to be restored from the date the same was withdrawn by the ld. Pr. CIT (Central), Jaipur.
11. Thereafter, when appeals in the quantum proceedings were taken up by the ld CIT(A), the order of the Tribunal restoring the approval u/s 10(23C)(vi) as well as the registration u/s 12AA was available on record and taking the order of the Tribunal into consideration and examination of the matter on merits, the ld CIT(A) vide its consolidated order dated 6 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur 14.08.2019 has granted relief to the assessee society for all the years under consideration against which the Revenue is now in appeal before us.
Grounds of appeal
12. The ld. CIT(A) has granted relief to the assessee society on the following grounds of appeal against which the Revenue is in appeal and the said grounds of appeal along with figures for the respective years have been tabulated as under:
Grounds of Appeal 2014-15 2015-16 2016-17 2017-18 1 Surplus of income 63441423 66539611 11805339 136562014 over expenditure account Bogus Scholarship 2 2583142 2794931 5370250 974954 expenses 3 Depreciation on building Not applicable Not applicable 4710589 11517420 Unexplained Cash u/s 4 15659500 69A
13. We shall now take up each of these grounds of appeal and the relevant contentions taken and material relied upon by both the parties.
Taxing surplus as per income and expenditure account (A.Y 2014-15 to A.Y 2017-18)
14. As we have noted above, for each of the years under consideration, the Assessing Officer has brought the surplus of income over expenditure to tax in the hands of the assessee society for the reason that the approval u/s 10(23C)(vi) as well as registration u/s 12AA has been withdrawn by ld. Pr. CIT(Central), Rajasthan, Jaipur.
7 ITA Nos. 1202-1205/JP/2019ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur The reason for the withdrawal of the approval by the ld. Pr. CIT(Central), Jaipur relates to diversion of funds of the trust for personal purposes, non genuine scholarship expenses and addition to fixed asset claimed the assessee society in view of the payment made to Rajasthan Housing Board. We find that each of these issues have been dealt with at length by the Co-ordinate Bench while restoring approval u/s 10(23C)(vi) as well as registration u/s 12AA and following the same, the ld. CIT(A) has directed the Assessing Officer not to tax the surplus of income over the expenditure.
15. During the course of hearing, the ld CIT DR has relied on the findings of the Assessing officer and the ld Counsel for the assessee has supported the findings of the ld CIT(A).
16. We find that the sole reason for the Assessing officer in taxing the surplus of income over expenditure account was withdrawal of approval u/s 10(23C)(vi) and registration u/s 12AA. Further, the Assessing Officer has solely relied on the findings of the ld. Pr. CIT(Central), Jaipur while withdrawing the approval u/s 10(23C)(vi) and registration u/s 12AA and there is no separate and independent findings recorded by the Assessing Officer in any of the assessment years involved in taxing the surplus income and given that the grounds on which the approval/registration has been withdrawn by the ld. Pr. CIT(Central), Jaipur has been dealt with at length by the Co-ordinate Bench vide order dated 18.03.2019 and the approval u/s 10(23C)(vi) and registration u/s 12AA has since been restored, we do not see any infirmity in the findings of the ld. CIT(A) who has taken into consideration the restoration of approval so granted by the Tribunal and 8 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur in absence of any other reasons/finding recorded by the Assessing officer, in granting the necessary relief to the assessee society wherein the surplus income was directed not to be brought to tax. The relevant findings of the Co-ordinate Bench restoring the approval u/s 10(23C)(vi) and registration u/s 12AA are reproduced as under:-
"58. In light of above discussions and in the entirety of facts and circumstances of the case, the findings of the ld Pr.CIT relating to diversion of fund of the assessee society for personal purposes, non- genuine scholarship expenses and payments made to Rajasthan Housing Board in contravention of Section 11(5) read with Section 13(1)(c) of the Act cannot be sustained. These are merely apprehension which have been raised by the ld. Pr. CIT and there is no credible evidence on record which can conclusively demonstrate that the assessee is not working as per the objects for which registration was initially granted, that the activities of the assessee's society are not genuine or any personal benefit has been derived by any person so defined u/s 13(3) of the Act. The case of the assessee therefore doesn't falls U/s 12AA(3) and 12AA(4) of the Act. In light of our details discussion and findings, the registration of the assessee society u/s 12AA is hereby directed to be restored from the date the same was withdrawn and cancelled by the ld. Pr. CIT in terms of the impugned order."
"60. In ITA No. 10/JP/2019, the assessee has challenged the withdrawal of the exemption granted U/s 10(23C)(vi) of the Act. Both the parties have fairly submitted that under identical facts and circumstances of the case as in ITA no. 9/JP/2019 and following the same reasoning, the ld. Pr. CIT has withdrawn the exemption by invoking 15th Proviso to Section 10(23C) of the Act and similar contentions have been raised by both the parties. Therefore, our findings and directions as contained in ITA No. 09/JP/2019 shall apply mutatis mutandis to this matter as well. The exemption granted to the assessee society U/s 10(23C)(vi) of the Act is hereby directed to be restored from the date the same was withdrawn and cancelled by the ld. Pr. CIT in terms of the impugned order."
17. In light of aforesaid discussion, the ground of appeal so taken by the Revenue for each of the years under consideration is hereby dismissed.
9 ITA Nos. 1202-1205/JP/2019ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur Non genuine scholarship expenses (A.Y 2014-15 to A.Y 2017-18)
18. The Assessing Officer has disallowed the claim of the scholarship expenses for each of the years under consideration again on the basis the order of withdrawal of approval u/s 10(23C)(vi) and registration u/s 12AA passed by the ld. Pr. CIT(Central), Jaipur. The ld. CIT(A) has referred to the findings of the Co-ordinate Bench while restoring the approval u/s 10(23C)(vi) and registration u/s 12AA and has held that the scholarship payments are genuine payment and the additions so made by the Assessing Officer was directed to be deleted.
19. During the course of hearing, the ld CIT DR has relied on the findings of the Assessing officer and the ld Counsel for the assessee has supported the findings of the ld CIT(A).
20. Given that the Assessing Officer has solely relied on the findings of the ld. Pr. CIT(Central), Jaipur while withdrawing the approval u/s 10(23C)(vi) and registration u/s 12AA and there is no separate and independent findings by the Assessing Officer in any of the assessment years involved and given that the matter relating to scholarship expenses has been dealt with at length by the Co-ordinate Bench vide order dated 18.03.2019 and which has been followed by the ld CIT(A), we do not see any infirmity in the findings of the ld. CIT(A) in granting the necessary relief to the assessee society. The relevant findings of the Co-ordinate Bench are reproduced as under:-
"31. We have heard the rival contentions of both the parties and perused the material available on the record. The ld Pr CIT has 10 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur raised certain apprehension about non-verifiability and genuineness of the scholarship payments made by the assessee society to its 301 students during the financial year 2013-14. The basis of such apprehension is that notices u/s 133(6) issued by the Assessing officer to sixteen students were not complied with and in two cases, notices were returned unserved, and three students have denied receiving the scholarship during the financial year 2013-14. Further, these students were not produced for verification and it was concluded that the assessee has misused funds which were claimed as expenses in the guise of scholarship payments. In response, the assessee society has submitted that all scholarship payments have been paid through account payee cheques and except in case of one student who didn't present the cheque, all the cheques have been cleared and payments are duly reflected in the assessee's bank account. Further, students were produced for verification before the ITO and an affidavit of assessee's accountant who accompanied the students for verification has been placed on record and confirmation letters from the students have also been filed.
32. Firstly, we find that the apprehension raised by the ld PR CIT is based on proceedings conducted by the Assessing officer for AY 2014-15 whereby the AO has issued the summons to the students and basis that, he has reached certain preliminary findings as the Assessing officer has finally passed the assessment order for AY 2014-15 much after the conclusion of the present proceedings before the ld Pr.CIT. We therefore find that the ld Pr.CIT has proceeded on the preliminary findings 11 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur arrived at by the Assessing officer. Thereafter, even though he has issued the show-cause to the assessee during the impugned proceedings, however, his findings reflect that he was guided solely by the initial and preliminary findings so arrived by the Assessing officer and has not carried out any independent examination and verification of the transactions under consideration. There is nothing in law which prevents the Pr.CIT to rely on the findings of the Assessing officer, at the same time, he should carry out independent examination and verification and the final findings so arrived at should reflect his thought process and the reasoning. However, in the instant case, we find that ld Pr.CIT is guided by the findings of the Assessing officer and such findings which have even not attained finality as far as passing of the assessment order for AY 2014-15 is concerned which was passed subsequent to passing of the impugned order.
33. Having said that, though there have been contradictory claims regarding production of students for verification before the Assessing officer. At the same time, in our considered view, mere non-appearance of certain students for verification cannot be a sole basis to raise a question mark on the whole scheme and genuineness of scholarship payments to over 301 students on a sample survey size of around 8% and basis the same, to arrive at a finding that the assessee has misused funds which were claimed as expenses in the guise of scholarship payments. We find that the documents produced by the assessee society in support of the scholarship payments have not been considered. The scholarship payments have been paid to the regular students 12 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur who are enrolled in various courses conducted by the educational institutions run by the assessee society. During the course of hearing, the ld AR stated at the Bar that the criteria for such scholarship has been well laid down in terms of economic condition of the students and their parents, past academic results, etc and there is a well laid down process for seeking application from the students and after due verification and approval from the Head of the educational institution, scholarship payments are sanctioned and subsequently disbursed to the students. It is also not the case of the Revenue that these are not regular students which were enrolled with the assessee's educational institutions and that they were not eligible to receive the scholarship as per the policy framed by the assessee's educational institutions. The confirmation letters filed by the students have been placed on record and the contents thereof have not been disputed. We also find that the payments have been made through account payee cheques to all these students and all the cheques have been cleared (except in case of one student) and the said payments has been duly reflected in the assessee's bank account. In respect of three students who have denied receiving the scholarship, the assessee has submitted due explanation in terms of one of the student (Yuvraj Singh) having not presented the cheque no. 780228 for payment of Rs 3306 and the entry for such payments been reversed in the books of accounts on 31.3.2015, and in respect of other two students namely Anshu Agarwal and Pooja Kumar Jain, copy of their scholarship forms duly approved by the Principal, St. Wilfred's College for Girls, copy of account payee cheques issued in their 13 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur favour bearing cheque no. 780912 dated 13.01.2014 for Rs 3,180 cleared on 10.02.2014 and cheque no. 780917 dated 13.01.2014 for Rs 3,180 cleared on 17.02.2014 respectively and copy of their confirmations addressed to DCIT(Exemption), Circle 1, Jaipur are available on record. Therefore, there is nothing on record to suggest that the scholarship payments are not genuine and the amount has been withdrawn by the assessee society in the guise of scholarship expenses. Further, there is nothing on record which remotely suggests that the amount so claimed by the assessee society as scholarship expenses have reached back in the hands of the assessee society and the latter has misused such funds. We therefore found the apprehension so raised by the ld Pr.CIT based on preliminary enquiries drawn by the Assessing officer are not tenable and sustainable in the light of clear evidence on record brought by the assessee society that these are genuine payments of scholarship to its students as per well laid down scholarship policy and therefore, such apprehension has no legal legs to stand and the same cannot be a basis to disallow the claim of the scholarship expenses.
34. Further, seeking confirmations from the students as to whether they have received the amount is no doubt part of an investigate exercise and the officer is duly authorized under law, however solely guided by nonreceipt of confirmation and that too, from few students cannot be sole basis for denial of claim in the hands of the assessee society. Even where certain scholarship expenses remains unverified, the same at best may be a basis to disallow the said expenses limited to the extent it remain 14 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur unverified, how the same can be basis to hold that the assessee society has misused the funds of the society in garb of whole of the scholarship expenses and if the said analogy is accepted, then every expense claim where the same is not proved by personal appearance of the person to whom such payment has been made would be a basis to hold that the assessee society has misused the funds of the society. To our mind, as the assessee society has documentation to support its claim, such apprehension is ill- founded and is not supported by well established legal proposition and rule of law.
35. Further, we find that the Revenue authorities have to appreciate that a student studying in a College or University cannot be equated with a regular vendor or a service provider. A student involvement is limited to the educational sphere and to a limited extent where he/she and their parents/guardians are required to pay his fees and receive scholarship wherever he/she is eligible for the same and nothing beyond that. As against that, a vendor or a service provider is in the business of supply of goods and provision of services and is running a commercial establishment where he maintains its records and reports his receipts and expenses and is subject to scrutiny of the tax authorities. Therefore, the latter is in a position and is expected to timely respond and co-operate in the proceedings before the taxing authorities and in case of non-compliance, he can be fastened with appropriate penalty actions. However, a student who is studying or has recently passed out of his/her college or University and who is issued summons under section 131, he or 15 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur she is not expected to appreciate and respond in the manner as expected from any other service provider. Therefore, where there is a noncompliance on part of certain students to respond to such notices/summons in a timely manner and in some cases, where they have responded though with wrong facts, the authorities have to appreciate the same in a more realistic manner rather than in a ritualistic manner and their conclusions should not be guided solely by non-appearance of certain students before them. In other words, unless the Revenue authorities are ceased of sufficient material or information and such material/information is credible enough to prove that the assessee society is withdrawing the funds of the society in the guise of scholarship expenses systematically over a period of time and such funds are not reaching the students concerned in whose name the scholarship payments have been shown to have been made, in such a case, the authorities have all the right and the jurisdiction to proceed against the society. However, in the instant case, there is nothing on record which has been brought on record to prove such mis- management and diversion of society funds.
36. In light of above discussions and in the entirety of facts and circumstances of the case, in our considered view, scholarship payments are genuine payments made by the assessee society and there is no basis to hold that the assessee society has misused the society funds in guise of scholarship payments. Therefore, the said findings of the ld Pr CIT cannot be sustained and cannot be made a basis to hold that the assessee 16 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur society is not carrying out its activities as per its objects and the exemption granted under section 12AA should be withdrawn."
21. In light of aforesaid discussion, the ground of appeal taken by the Revenue for each of the years under consideration is hereby dismissed.
Depreciation on Building (A.Y 2016-17 & 2017-18)
22. For A.Y 2016-17, the relevant facts and findings of the Assessing Officer are contained at para 8 to 8.3 of the assessment order which we deem it appropriate to reproduce as under:-
"8. It is to pertinent to mention here that from the perusal of the audited final accounts of the society, it was gathered that the assessee-society has purchased land of 10,70,34,538/- during the F.Y. 2013-14.
8.1 It was observed that the payment of 6,73,70,930/- was made by the assessee to "RHB" towards allotment of land by RHB to M/s Adarsh Gyan Vidyalaya Samiti. A copy of "agreement to sell" between M/s Adarsh Gyan Vidyalya Samiti and M/s Saint Wilfred Education Society (assessee) was also submitted. No registry or title transfer was actually made in this case even after lapse of considerable time span. It is also relevant to mention here that as per the conditions of allotment, the Rajasthan Housing Board (RHB) has stipulated that the society to which land has been allotted cannot be transferred by it to any other person.17 ITA Nos. 1202-1205/JP/2019
ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur Therefore, the claim of the assessee that it has purchased the land is patently false as it is illegal for M/s Adarsh Gyan Vidyalya Samiti to sell/transfer the land to the assessee- society.
8.2 Also, this is a case of "use of society fund" for the benefit of M/s Adarsh Gyan Vidhalaya Society (a related entity u/s 13(3)) which is in violation of the provisions of section 13(3) of the Act. Further, it is against the objects of the Society, as it is diversion of funds.
Hence, it is clear that the assessee has made payment for purchase of land by its sister concern Adarsh Gyan Society. The assessee has only presented a purported agreement to sale which is illegal. In this case, the assessee has, by making payment on behalf of Adarsh Gyan Society, used part of its income for the direct benefit of its sister concern Adarsh Gyan Society and has therefore violated provisions of Section 13(1)(c) and consequently, Section 11 and 12 will not be applicable in the case of the assessee.
8.3 On the basis of above discussion, exemption u/s 10(23C)(vi) and approval u/s 12AA was withdrawn in the case of the assessee. From perusal of the statements of accounts of the assessee, it was observed that the assessee has claimed depreciation amounting to 47,10,589/- on the building on the same land. Since, the agreement to sale is already illegal which proves that the assessee has no ownership of the land and subsequently no depreciation can 18 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur be claimed on building constructed on the land in question. The assessee in no manner or form can justify the claim of depreciation when it has already violated provisions of sec. 13(1)(c) and consequently section 11 & 12 by illegally transferring the land in its books. Therefore, depreciation amount to 47,10,589/- is disallowed and added back to the total income of the assessee. Penalty proceedings u/s 271(1)(c) are initiated for concealment of income."
23. Similarly findings have been recorded by the Assessing officer for A.Y 2017-18 whereby he has disallowed depreciation claim of Rs 1,15,17,420/-. On appeal, the ld. CIT(A) has held that the matter has been extensively examined by the Co-ordinate Bench at Para 37 to 58 of its order dated 18.03.2019 and relying on the same, it was held that the bonafide of payment made to RHB and consequent expenditure on structure thereof is established by the Tribunal's findings and considering the same, the claim of depreciation cannot be denied to the assessee society and the Assessing Officer was directed to allow depreciation claim of Rs. 47,10,589/- and Rs. 1,15,17,420/- for A.Y 2016-17 and 2017-18 respectively.
24. In this regard, the ld. CIT DR submitted that the ld. CIT(A) has not taken into consideration the amendment brought in by the Finance Act, 2014 w.e.f 01.04.2015 by way of insertion of sub-section(6) to section 11 which reads as under:-
"(6) In this section where any income is required to be applied or accumulated or set apart for application, then, for such purposes the income shall be determined without any deduction 19 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year."
25. It was submitted by the ld CIT DR that where the assessee society has already claimed and allowed the capital expenditure on construction of building as an application of income, the assessee society cannot be allowed depreciation claim on the said building in view of specific embargo placed by virtue of section 11(6) of the Act. Further, he relied on the findings of the Assessing officer.
26. Per contra, the ld. Counsel for the assessee submitted that there is no dispute that this amendment is applicable for the two years under consideration i.e. A.Y 2016-17 and 2017-18 respectively and he has no objection where the matter is set aside to the file of the Assessing Officer to carry out necessary verification in this regard. Further, reliance was placed on Hon'ble Kerala High Court in case of CIT vs. Parthas Trust [2001] 116 Taxman 282 (Kerala), the Hon'ble Calcutta High Court in case of CIT vs. General Marketing & Mfg. Co. Ltd., [1989] 86 Taxman 488 (Calcutta) and the Hon'ble Supreme Court in case of CIT vs. Podar Cement (P.) Ltd. [1997] 92 Taxman 541 (SC) for the legal proposition that the assessee would be entitled to depreciation on building constructed by the assessee society even though the land on which building is constructed is not registered in the name of the assessee society.
20 ITA Nos. 1202-1205/JP/2019ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur
27. We have heard the rival contentions and purused the material available on record. The case of the Revenue is that since the assessee society has no ownership over the land, no depreciation can be claimed on the building constructed on the said land. We note that the Coordinate Bench has recorded a finding that land is in effective possession of the assessee society and building has been constructed thereon where the educational activities have been carried out by the assessee society. In other words, the building has been constructed by the assessee society and used in furtherance of educational objectives of the assessee society, therefore the test of usage has been satisfied for claiming depreciation.
28. Regarding the test of ownership, it is true that an agreement to sell has been entered into by the assessee society and a formal sale deed has not entered into and the same is pending approval from Rajasthan Housing Board and the relevant findings of the Coordinate Bench at Para 51 of its order dated 18.03.2019 reads as under:
"51. We therefore find that the assessee society has entered into an agreement to sell with Adarsh Gyan Vidhalaya Samiti wherein the former has agreed to purchase an institutional plot of land which has been allotted to the latter vide conveyance cum perpetual lease deed for 99 years by the Rajasthan Housing Board. There are enabling provisions in the conveyance cum perpetual lease deed which allows such transfer subject to approval and sanction of Rajasthan Housing Board. Necessary permission has been sought from the Rajasthan Housing Board for such transfer in favour of the assessee society and the same is currently awaited and on receipt thereof, formal sale deed shall be executed in favour of the assessee society. The assessee society has already paid substantial amount of Rs 6.73 Crores, out of total purchase consideration of Rs 7.54 Crores in terms of agreement to sell, directly to Rajasthan Housing Board. Further, the assessee society is in effective possession of the said plot of land as it has since built a school building 21 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur thereon and carrying on its educational activities and the fees so received have been reflected in its books of accounts."
However, the fact that a formal sale deed has not been executed in favour of the assessee society cannot be held as basis for denial of claim of depreciation as held in case of CIT vs Parthus Trust (supra), where the Hon'ble Kerala High Court referring the decisions of the Hon'ble Supreme Court in case of Mysore Minerals Ltd reported in 239 ITR 775 has held as under:
"The question of law referred in this case is whether on the facts and in the circumstances of the case, was the Tribunal right in law and fact in holding that the assessee is entitled to depreciation? The facts are as follows :
The assessee is a private trust. While completing the assessment, the Assessing Officer disallowed the assessee's claim for depreciation on certain buildings. According to the Assessing Officer, the buildings had not been registered in the name of the assessee-trust. On appeal, the first appellate authority held that the assessee was entitled to depreciation on the buildings as they were constructed by the trust (though the land on which they stood was not registered in their name). The Tribunal held that even if the land does not belong to him, the assessee would be entitled to depreciation. The Tribunal also held that there is nothing in section 32 which bars such a claim being made.
2. The learned counsel for the department Sri P.K. Ravindranatha Menon brought to our notice the following decision in Kalpaka Trust Home (P.) Ltd. v. CIT [1988] 172 ITR 364 (Ker.), wherein it was held that the depreciation cannot be claimed by someone without any real connection with the asset and the claimant must be one with much more than some threads of rights. Depreciation is claimable only by the owner who uses the assets in question. In that case, this Court held that the Tribunal was justified in disallowing the claim of depreciation of the assessee in respect of its building on the ground that the assessee was not the owner of the building. Another decision cited was in Parthas Trust v. CIT [1988] 169 ITR 3341 (Ker.) (FB).
The learned counsel for the assessee brought to our notice a decision of the Supreme Court in CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 6252 and another decision of the Supreme Court in Mysore Minerals Ltd. v. CIT [1999] 239 ITR 7751. In Podar Cement (P.) Ltd.'s case (supra), the Supreme Court has held as follows :
". . . though under the common law 'owner' means a person who has got valid title legally conveyed to him after complying with the requirements of law such as the Transfer of Property Act, the Registration Act, etc., in 22 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur the context of section 22 of the Income-tax Act, 1961, having regard to the ground realities and further having regard to the object of the Income-tax Act, namely, to tax the income, 'owner' is a person who is entitled to receive income from the property in his own right. The requirement of registration of the sale deed in the context of section 22 is not warranted."
(p. 627) In Mysore Minerals Ltd.'s case (supra), the Supreme Court was considering the depreciation under section 32 of the Act. The Supreme Court held as follows :
"Section 32 of the Income-tax Act, 1961, confers a benefit on the assessee. The provisions should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee to secure the benefit intended to be given by the Legislature to the assessee. It is also well-settled that where there are two possible interpretations of a taxing provision, the one which is favourable to the assessee should be preferred.
Section 32 of the Act allows certain deductions, one of them being depreciation of buildings, etc., owned by the assessee and used for the purposes of the business or profession. The terms 'own', 'ownership' and 'owned' are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used. CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625 (SC), is a case under the Income-tax Act and has to be taken as a trend-
setter in the concept of ownership. Assistance from the law laid down therein can be taken for finding out the meaning of the term 'owned' as occurring in section 32(1) of the Act. The term 'owned' as occurring in section 32(1) of the Income-tax Act must be assigned a wider meaning. Anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having the right to use and occupy the property and/or to enjoy its usufruct in his own right would be the owner of the building though a formal deed of title may not have been executed and registered as contemplated by the Transfer of Property Act, the Registration Act, etc. 'Building owned by the assessee', the expression as occurring in section 32(1) of the Income-tax Act, means the person who having acquired possession over the building in his own right uses the same for the purposes of the business or profession though a legal title has not been convjeyed to him consistently with the requirements of laws such as the Transfer of Property Act and the Registration Act, etc. Generally speaking, depreciation is an allowance for the diminution in the value due to wear and tear of a capital asset employed by an assessee in his business. The very concept of depreciation suggests that the tax benefit on account of depreciation legitimately belongs to one who has invested in the capital asset and is utilising the capital asset and thereby losing gradually the investment caused by wear and tear, and would need to replace the same by having lost its value fully over a period of time. It is 23 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur well-settled that there cannot be two owners of the property simuntaneously and in the same sense of the term. The intention of the Legislature in enacting section 32 of the Act would be best fulfilled by allowing deduction in respect of depreciation to the person in whom for the time-being vests the dominion over the building and who is entitled to use it in his own right and is using the same for the purposes of his business or profession. Assigning any different meaning would not subserve the legislative intent." (p. 775) In this case there is no dispute that the assessee has put up the structure. It is also well-known concept that the property may belong to one person and the structure may belong to another person.
In view of the above facts and in the light of the Supreme Court decisions, we answer the question in the affirmative and in favour of the assessee."
29. Further, the Assessing officer referring to the order of ld. Pr. CIT(Central), Jaipur has held that the assessee society has violated provisions of Section 13(1)(c) in this regard and on the basis of same, exemption u/s 10(23C)(vi) and approval u/s 12AA was withdrawn in the case of the assessee society and consequently, Section 11 and 12 will not be applicable in the case of the assessee. In this regard, we find that the matter has been examined at length by the Coordinate Bench wherein it was held that the assessee society has not violated provisions of Section 13(1)(c) read with section 13(3) of the Act and the relevant findings of the Coordinate Bench reads as under:
"51. We therefore find that the assessee society has entered into an agreement to sell with Adarsh Gyan Vidhalaya Samiti wherein the former has agreed to purchase an institutional plot of land which has been allotted to the latter vide conveyance cum perpetual lease deed for 99 years by the Rajasthan Housing Board. There are enabling provisions in the conveyance cum perpetual lease deed which allows such transfer subject to approval and sanction of Rajasthan Housing Board. Necessary permission has been sought from the Rajasthan Housing Board for such transfer in favour of the assessee society and the same is currently awaited and on receipt thereof, formal sale deed shall be executed in favour of the assessee society. The assessee society 24 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur has already paid substantial amount of Rs 6.73 Crores, out of total purchase consideration of Rs 7.54 Crores in terms of agreement to sell, directly to Rajasthan Housing Board. Further, the assessee society is in effective possession of the said plot of land as it has since built a school building thereon and carrying on its educational activities and the fees so received have been reflected in its books of accounts.
52. In light of above factual matrix, as far as proximate and immediate benefit of such payment of Rs 6.73 Crores is concerned, it is the assessee society which is benefitted whereby it has built a school building wherein it is carrying on its educational activities. At the same time, it cannot be ruled out that Adarsh Gyan Vidhalaya Samiti is not benefitted by such payment by the assessee society on its behalf to Rajasthan Housing Board. Had the assessee society not stepped-in and made the payment to Rajasthan Housing Board, Adarsh Gyan Vidhalaya Samiti was likely to default on its payments as per stipulated time frame and in all likelihood, the allotment of the plot of land would have got terminated. Therefore, till the time the approval of Rajasthan Housing Board is not received for transfer in favour of the assessee society, the plot of land stand in name of the Adarsh Gyan Vidhalaya Samiti and conveyance deed has not been executed in favour of the assessee society. At the same time, such right over the land is not an absolute right as the same is subject to the terms of "agreement to sell" entered into with the assessee society and at least to the extent of payment made by the assessee society to the tune of Rs 6.73 Crores, the latter can enforce its right over such land in priority to any third party.
53. Having said that, the question that arises for consideration is whether by entering into the subject transaction, the assessee society has violated the provisions of section 13(1)(c) read with section 13(3) of the Act as invoked by the ld Pr.CIT.
54. As per ld Pr. CIT, Adarsh Gyan Vidyalya society and the assessee society have three common members/trustees and therefore, M/s Adarsh Gyan Vidyalya Society is a related entity within the meaning of section 13(3) of the Act and society funds have been used for the benefit of Adarsh Gyan Vidhalaya Society in violation of the provisions of section 13(1)(c) of the Act. The argument of the assessee society is that no evidence has been placed on record by the Revenue with regard to any direct or indirect benefit flowing to the trustees/members of the Society which might bring it within the ambit of section 13(1) r.w.s.13(3) of the Act and further, the matter does not fall within any of the clauses or sub-clauses of section 13(3) of the Act.25 ITA Nos. 1202-1205/JP/2019
ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur
55. In order to appreciate the rival contentions, we again refer to the provisions of section 13(3) of the Act. The clauses from (a) to (cc) of section 13(3) are not applicable in the instant case as there is nothing on record that suggest that the common members have been benefitted in their individual and in their own right by such transaction. The clause (d) talks about any relative of any such author, founder, person, member, trustee or manager of the assessee society which is also not a case before us. The clause (e) talks about any concern in which any of the persons referred to in clauses (a), (b),
(c), (cc) and (d) has a substantial interest. If we were to read the said clause
(e) in the context of present facts, it means Adarsh Gyan Vidyalya society, being a concern in which members/trustees of the assessee society have a substantial interest. The term "substantial interest in a concern" has been defined in Explanation 3 to mean..."
"56. That is, members and trustees of the assessee society either individually or collectively are entitled at any time during the previous year, to not less than twenty per cent of the profits of such concern i.e, Adarsh Gyan Vidyalya Society. In the present case, the case of the Revenue is that there are three common members/trustees in both the societies and therefore, these are related entities and are covered by provisions of section 13(3) of the Act. On perusal of records, we find that there are fifteen members in the executive committee of Saint Wilfred Education Society and equally number of members in the executive committee of Adarsh Gyan Vidyalya Society. The President of the assessee society is holding the post of Secretary in Adarsh Gyan Vidyalya Society. Further, two members who are educationist and doctor by profession are common in both the societies. However, merely having common members in both the societies are not sufficient to hold the societies as related entities within the meaning of section 13(3) of the Act. What has to be proved is that these common members hold substantial interest in the related entity in their own right either individually or collectively and that too, by entitlement to not less than 20% of profits in such related entity. However, there is nothing on record either in the impugned order of the ld Pr.CIT or brought to our notice during the course of hearing by the ld CIT DR that these common members are entitlement to any profits and that too, exceeding the prescribed threshold in Adarsh Gyan Vidyalya Society. Per contra, the ld AR submitted that Adarsh Gyan Vidyalya Society is an old society registered under the Rajasthan Societies Registration Act in year 1961-62 vide registration no. 03/1961-62 and by virtue of being a registered society, it cannot transfer any surplus to its members and such surplus, if any has to be deployed in the society and even in the event of winding up, the assets and funds of the 26 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur society have to be transferred to any other registered society with similar objects. In light of the same, we don't find any legal basis to hold that Adarsh Gyan Vidyalya Society is a related entity within the meaning of section 13(3) of the Act. In absence thereof, even where it is held that some benefit has flown to Adarsh Gyan Vidyalya Society, the provisions of section 13(1)(c) are not attracted in the instant case.
57. Further, we note that the ld Pr.CIT has raised an apprehension at the time of issuance of show-cause that the payment to Rajasthan Housing Board on behalf of Adarsh Gyan Vidyalya Society is neither a loan nor a donation but appears to be an investment not allowable u/s 11(5) of the Act and thereafter, towards the end of his order while giving his concluding findings has held that the payment made is in contravention of section 11(5) r/w section 13(1)(c) of the Act. However, how the payment is in contravention of section 11(5) has not been spelt out in his order. If we look at the provisions of section 11(5), in clause (x), it provides for investment in immoveable property as one of the permissible mode of investment of amount of income which is accumulated or set-apart for being not included in the total income of the person in receipt of income. In the instant case, the assessee society having entered into an agreement to sell with Adarsh Gyan Vidyalya Society and having paid a substantial amount in consideration for purchase of land and in possession of the said land has clearly made an investment in an immoveable property though the same is subject to approval of Rajasthan Housing Board and signing of the final conveyance deed. Accordingly, in light of above discussions and in the entirety of facts and circumstances of the case, the payment to Rajasthan Housing Board is not in contravention of section 11(5) r/w section 13(1)(c) of the Act. Therefore, the findings of the ld Pr CIT cannot be sustained and cannot be made a basis to hold that the assessee society is not carrying out its activities as per its objects and the exemption granted under section 12AA should be withdrawn.
58. In light of above discussions and in the entirety of facts and circumstances of the case, the findings of the ld Pr.CIT relating to diversion of fund of the assessee society for personal purposes, non- genuine scholarship expenses and payments made to Rajasthan Housing Board in contravention of Section 11(5) read with Section 13(1)(c) of the Act cannot be sustained. These are merely apprehension which have been raised by the ld. Pr. CIT and there is no credible evidence on record which can conclusively demonstrate that the assessee is not working as per the objects for which registration was initially granted, that the activities of the assessee's society are not genuine or any 27 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur personal benefit has been derived by any person so defined u/s 13(3) of the Act. The case of the assessee therefore doesn't falls U/s 12AA(3) and 12AA(4) of the Act. In light of our details discussion and findings, the registration of the assessee society u/s 12AA is hereby directed to be restored from the date the same was withdrawn and cancelled by the ld. Pr. CIT in terms of the impugned order."
30. Further, ld CIT DR has submitted during the course of hearing that where the assessee society has already claimed and allowed the capital expenditure on construction of building as an application of income, the assessee society cannot be allowed depreciation claim on the said building in view of specific embargo placed by virtue of section 11(6) of the Act. There is no dispute that these provisions introduced by the Finance, Act 2014 are applicable for both the years under consideration. Therefore, it is a matter of record and it can be examined by the Assessing officer as to whether the capital expenditure so incurred by assessee society has been claimed as an application of income in any of the years under consideration or in the earlier years. Therefore, for this limited purpose, the matter is set-aside to the file of the Assessing officer and the ground of appeal so taken by the Revenue is allowed for statistical purposes.
Addition of unexplained cash u/s 69A (A.Y 2017-18)
31. Briefly, the facts of the case are that during the course of search operations conducted at the premises of Integral Urban Co-operative Bank Limited, cash amounting to Rs 1,56,59,000 has been found in possession of the Bank. The AO has treated the said cash as unexplained money in hands of the assessee society for reason that 28 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur the same was not recorded in the books of Integral Bank nor entered in the cash books of accounts of the assessee society and transferred directly to the bank, that the fee was collected from students in old denomination illegally with an objective of converting in new denomination notes and that that there was certain discrepancy in inventory of old & new denomination notes. Accordingly, addition of Rs 1,56,59,500 was made as unexplained money u/s 69A of the Act.
32. On appeal, the ld CIT(A) held that the issue of cash found at the premises of Urban Co-Operative Bank was duly examined by the Tribunal as the same was one of the reasons for withdrawal of approval u/s 10(23C)(vi) and section 12AA of the Act and referred to the relevant findings of the Tribunal which are contained in para 18- 23 which reads as under:
"18. We have heard the rival contentions of both the parties and pursued the material available on the record. During the course of search operations conducted at the premises of Integral Urban Co-operative Bank Limited, cash amounting to Rs 1,56,59,000 has been found in possession of the Bank at its clearing house room. The statement of General Manager of the Bank, Shri Harish Gupta was recorded u/s 131 on 9.12.2016. In response to question no. 30, he has stated that the said amount of Rs 1,56,59,000 has been received during last 4-5 days till 8.12.2016. In response to question no. 34 where he was asked as to who has sent the said amount of Rs 1,56,59,000 to the Bank, he has stated that the said amount is the fees collection of Saint Wilfred College and has been sent by Shri Keshav Badaya. In response to question no. 41, he has stated that the said amount has been 29 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur kept in the custody of Branch Manager, Shri Dilip Maheswari and cashier, Shri Vikram Singh Shekawat. The statement of Shri Vikram Singh Shekawat was also recorded u/s 131 on 10.12.2016 and he has also been asked specific questions regarding the source of said amount of Rs 1,56,59,000. In response to question no. 13, he has stated that the said amount has been received in 2-4 times in the first week of December 2016. In response to question no. 14; he has stated that the said amount has been received from Saint Wilfred College, Mansarovar. Therefore, we find that there is a consistency in the statement of Bank's employees wherein they have confirmed that the source of cash of Rs 1,56,59,000 found in possession of the Bank at its premises is the amount of fees collection of Saint Wilfred College, Mansarovar. Now, coming to the statement of accountant of the assessee society, Mr. Ganesh Narayan Gupta recorded u/s 131 of the Act on 9.12.2016. In response to question no. 8, he has stated that Saint Wilfred College has only one bank account in form of current account maintained with Mansarovar Branch of Integral Urban Co-operative Bank Limited. In response to question no. 11, he has stated that approx. Rs 2 crore fees have been collected in cash during the period 1.12.2016 to 9.12.2016. Further, the tax authorities during the course of survey have gone through the receipt vouchers issued by the Saint Wilfred College to its students towards receipts of fees and other charges collected from students as is evident from question no. 13 raised by the survey team to Ganesh Narayan Gupta wherein there is reference to vouchers and receipts as per which fees and other related charges have been collected in cash amounting to Rs 2.15 30 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur Crores from the students. Further, we refer to the statement of Shri Mahavir Prasad, another accountant of the assessee society whose statement was recorded u/s 131 on 9.12.2016. In response to question no. 19, he has stated that they issue receipt to the students against deposit of their fees and subsequently in response to question no. 51, he has again confirmed that students have been given receipt against deposit of their fees and the same is recorded in the computers. Further, in response to question no. 9 wherein he was asked the status of cash in hand, he has stated that they prepare a daily collection sheet and based on the same, the daily collection is deposited in the bank. Further, he has stated that they update the books later as and when they get time. In response to question no. 10, he has further stated that books have been updated till 30.11.2016 and for the remaining days, vouchers have been prepared but they couldn't do the entry. If we correlate the said statements of accountants of the assessee society with the statements of the Bank's employees, we find that the said statements corroborates the fact that the source of cash found in the possession of the bank is the fees collected from students by Saint Wilfred College. It is also clear on close examination of these statements that the fee receipts are issued to the students at the time of receiving the fees from them, these receipts are updated in the individual student register maintained online in the computer system, daily cash collection summaries and relates vouchers are prepared. The said fee receipts and vouchers were available on record at the time of survey and has in fact been examined by the survey team and are very much part of books of accounts maintained by 31 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur the assessee society in regular course of its activities. Therefore, once the source of cash has been established to be fees collected from the students, such fees have been recorded in the books of accounts and the cash has been physically found in possession of the assessee's bank, there is no basis to hold that there is any diversion of finds of the assessee society. In fact, the Id Pr CIT has also not recorded any categorical finding that funds of the assessee society have actually been diverted, rather he has only cast suspicion regarding intended application and diversion of funds by the assessee society for the personal benefit of the Badaya family. The basis of such suspicion, as we have noted from his findings is the non-recording of fee receipts in the books maintained by the assessee society as found at the time of survey on 9.12.2016 and the involvement of Shri Keshav Badaya in the functioning of the assessee society and the Bank. In ordinary course where there is movement of cash, once the cash is deposited in the bank account, necessary entries are made in the cash book. In the instant case, there seems to be certain slippages on part of the assessee society in terms of not updating its cash book when the cash was received and sent for deposit in its bank account and at the time of survey, it was not updated. At the same time, as we have noted above, the fact of the matter is that fee received from the students is recorded in the books of accounts as corroborated by fee receipts, individual student register maintained online in the computer system, daily cash collection summaries and relates vouchers. These documents ore written/printed documents available on record and are very much part of books of accounts maintained in the regular course and 32 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur clearly fall in the inclusive definition of books of accounts so defined u/s 2(12A) of the Act. Such fee receipts and related vouchers have been examined by the survey team at the time of survey as evident from the question no. 13 raised to Ganesh kumar Gupta, the accountant of the assessee society where the tax official has asked a question that based on perusal of vouchers, it is apparent that after 21.11.2016, fees and other related charges have been collected in cash amounting to Rs 2.15 Crores. Therefore, we find that though the cash book has not be updated at the time of survey in terms of recording the movement of cash for deposit in its bank account, cash inward in form of fees collected from the students have been duly recorded in the books of accounts as demonstrated by fee receipts, individual student register, daily cash collection sheets and related vouchers prepared by the assessee society. We therefore find that there was suspicion in the mind of authorities that assessee's funds have been diverted as the cash book doesn't reflect any outward movement of cash. Further, even the Bank has not recorded such funds and there are allegations regarding exchange of old currency notes with new notes. To our mind, once the cash is found in possession of the bank where the assessee maintains its bank account and it is confirmed by the Bank officials that the cash so found belong to the assessee society, there is no basis to hold anto such suspicion as far as the assessee society is concerned.
19. Now, in terms of involvement of Shri Keshav Badaya and intended benefit of such funds so found in the possession of the 33 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur bank for the personal benefit of the Badaya family, the Id AR drawn our reference, during the course of hearing, at the constitution of the executive committee of Saint Wilfred Education Society where we find that Shri Keshav Badaya holds the post of the Secretary and his uncle, Shri Suresh Kumar is the President of the Society. Further, our reference was drawn to the list of Board of Directors of the Integrated Urban Co-operative Bank Ltd and we find that none of these two persons or any other Badaya family member is holding the post of Directors. Further, the Id AR has stated at the Bar that neither Shri Keshav Badaya nor any other members of the Badaya family hold any stake or financial interest/shareholding in Integrated Urban Co-operative Bank Ltd. Therefore, the only common linkage between the two entities is the involvement of Shri Keshav Badaya who is holding the post of secretary in the assessee society and also holding the post of chief executive officer in the Integrated Urban Co-operative Bank Ltd. from where he is growing his remuneration and the question is whether the provisions of section 13(3) are attracted in the instant case. In this regard, we refer to the provisions of section 13(3) which reads as under:
***** not reproduced for the sake of brevity***
21. That is, members and trustees of the assessee society either individually or collectively are entitled at any time during the previous year, to not less than twenty per cent of the profits of such concern i.e, Integral Urban Co-operative Bank. In the present case, the said condition is not satisfied as none of the members and trustees of the assessee society including that of Badaya family 34 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur holds any financial interest in the Integral Urban Cooperative Bank.
Merely on account of Shri Keshav Badaya, being the chief executive officer of the Integral Urban Co-operative Bank and also holding the post of the Secretary to the assessee society, in our view, will not make the Integral Urban Co-operative Bank and the assessee society as related entity in terms of section 13(3) of the Act.
22. Now, in order to invoke the provisions of section 13(1)(c) of the Act, the question that arise for consideration is whether Shri Keshav Badaya, being a related person in relation to the assessee society has actually benefited directly or indirectly by virtue of cash belonging to the assessee society found in the possession of the Integral Urban Co-operative Bank where he hold the position of chief executive officer. The provisions of section 13(1)(c) states that if any part of the income during the previous year used or applied directly or indirectly for the benefit of any person referred to sub-section (3) to section 13 of the Act. It thus talks about the usage or application i.e, there has to be actual utilization or application of funds for the benefit of the related person. It doesn't contemplate a situation of intended or future application of such funds for the benefit of such person. In the instant case, firstly the funds belonging to the assessee society have been physically found in the possession of the Bank at its strong room and not in possession of Shri keshav Badaya. Secondly, such funds have not been used or applied and have been physically found and thus, there is no benefit which can be said to have actually been gained by Shri Keshav Badaya either directly or indirectly in his individual capacity by having such funds in the possession of the Bank. In light of above, we are of the considered view that the provisions of 35 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur section 13(1)(c) are not attracted in the instant and the contentions so advanced by the Revenue and the ld. CIT DR cannot be accepted.
23. We therefore find that it was merely a suspicion gathered through the preliminary enquiry conducted during the survey and search operations. A suspicion howsoever strong cannot be a basis to deny a legible claim of the assessee unless and until it is supported by verifiable evidence on record brought out through the process of detailed investigation. In the hands of the Integrated Bank where the cash was physically found in its premises, no addition has been made on account of unaccounted cash and there is also no finding regarding illegal exchange of old currency vis-à- vis new currency as evident from the assessment order passed in case of the Integrated Bank for AY 2017-18. The same rather supports the case of the assessee society that the cash so found belongs to the assessee society and the Department has thus accepted the said fact and it has attained finality. Further, it is not the case of the Revenue that old currency which is not a legal tender cannot be brought to tax. Therefore, unless and until there is a finding by the appropriate authority that there was any illegality in the act of the assessee in accepting the fees in old currency, the same cannot be held against the assessee society. Therefore, we find that it is a case of mere suspicion and not a conclusive finding and even the Department itself has given a clean chit to the Bank. As far as the assessee society is concerned, bank officials as well as the assessee's records conclusively prove that the funds so found are fees collected from the students duly 36 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur recorded in the books of accounts and infact, such amount has been seized by the Department which further proves that there was no diversion of funds and no application for personal benefit of any person. Therefore, there is no basis to sustain the findings of the Id Pr CIT. Only in a scenario, where it is proved beyond doubt that the funds of the assessee society have actually been diverted for purposes other than the stated objects of the assessee society, it can be said that such funds have not been utilized for the purposes the exemption under the Income Tax Act has been granted to the assessee society and to the extent of such diversion, the provisions of section 11 and 12 shall not apply. Further, where the Revenue through its investigation finds that there is actual diversion of funds of the assessee society and such diversion has actually resulted in direct/indirect benefit of the related persons so defined u/s 13(3) of the Act, the activities and the conduct of the assessee society will surely come under the cloud. In the instant case, the cash has been physically found in possession of the assessee's bank and the said cash belongs to the assessee society as corroborated by the statements of the bank employees, there is thus no basis to hold that there is any diversion of funds of the assessee society for the personal benefit of Badaya family and the same cannot be a basis to withdrawn the exemption so granted to the assessee society u/s 12AA of the Act."
33. Thereafter, the ld CIT(A) has recorded his own independent findings after detailed examination of the matter as under:
"10. I have perused the written submissions submitted by the learned A/R and the order of AO. Along with the reply I have also 37 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur perused the reply filed by the appellant before Hon'ble ITAT Jaipur in respect to cash. Besides the receipts and acknowledgment issued in respect to cash. Same were reproduced before the Hon'ble ITAT Jaipur too.
Perusal of reply filed by the appellant and order by Hon'ble ITAT Jaipur indicates the following:
10.2 That the cash undisputedly belong to students which have deposited the same with the appellant society predominantly from 01-12-216 to 08-12-2016. Same is clear from the various statements recorded during the course of survey at the appellant society, and also the statement recorded at the premises of integral bank cooperative. Noticeably the statements are;
1) Statement of Ganesh Narain Gupta Accountant, appellant dated 09-12-2016 (refer Ques. 11)
2) Statement of Harish Gupta GM, Integral Cooperative Bank Ltd dated 11-12-2016 (refer Ques. 13, 30, 34 41)
3) Statement of Vikram Singh, Cashier, Integral Cooperative bank Ltd dated 10-12-2016 (refer Ques. 14 & 21) 10.3 That the cash undisputedly belong to the appellant society as it is consistently evident from the statement of bank employees and also the statement of the accountant of the appellant.
10.4 All these statement are consistent & confirms the fact that cash of 1,56,59,500/- was fees deposited from student of appellant society. Photocopies of sample receipts were placed on 38 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur record. The fact that same is fee received from the student was also fact verified by the survey team at the spot. This fact is also mentioned by Hon'ble ITAT Jaipur in its order.
10.5 That such cash accumulation of fee received from the students from 01-12-2016 onwards. The receipts of cash was evident from the receipts issued to the student from time to time. The receipts issues find a corresponding entry in the computer where date wise receipt from the student are entered by the data entry operator. Thus the fee collected is duly recorded in the books of accounts as is evident from the fee receipts, individual student register, daily cash collection sheet and related vouchers prepared by the appellant.
11. Admittedly the cash book was not updated nor was exit of cash to the bank was recorded in the cash book. Yet the nature & source of cash was adequately explained as it is the fee from the student received over period of time which is duly attributable to each of the student (with name & IDs available), the receipts issued to them and corresponding entry in the fee register maintained in the computer. Noticeably, a pointed out earlier, the survey team has examined the receipt vouchers issued by the appellant and nothing adverse is noted by them nor adversely commented upon by the Ld. AO. Thus merely there is no debit entry in the cash book it is not prudent to hold the cash as unexplained when other it is duly entered in the other books of accounts as defined in the section 2(12A) of the I.T. Act.
39 ITA Nos. 1202-1205/JP/2019ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur 11.2 Thus the it is not the case that the cash so fond is unexplained. Such cash is duly explained by the documentary evidence which is maintained in the regular course and no suspicion is cash on them. It may be pointed out that following is the date wise collection of cash which his duly reflected in the cash book:
Date Amount (in Rs.)
01.12.2017 9,87,037
02.12.2017 14,58,400
03.12.2017 16,60,730
04.12.2017 4,08,140
05.12.2017 22,46,415
06.12.2017 28,11,255
07.12.2017 31,04,060
08.12.2017 27,38,816
09.12.2017 15,00,895
Total 1,69,15,748/-
11.3 Thus the cash found form the appellant is duly supported
form the fee collection from the student. I have also examined the aspect of fee collection in cash and in cheque for various quarters for 2 financial years. The details are as under:
F.Y. 2015 F.Y. 2016-17
Quarter Cash Cheque Total % of Quarter Cash Cheque Total % of
cash cash
to to
total total
April- June 7231255 2728399 9959654 72.6 April- 7687345 2744364 10431709 73.67
June
July- 86001040 4230336 90231376 95.31 July- 98127627 4543212 102670839 95.57
September September
October- 63306437 3514758 66821195 94.74 October- 66292102 1035449 67327551 98.46
December December
January- 8349309 4140201 12489510 66.85 January- 6150893 3920601 10071494 61.07
March March
40 ITA Nos. 1202-1205/JP/2019
ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur Total 164888041 14613694 179501735 Total 178257967 12243626 190501593 11.4 From the table above one can infer that by and large the appellant is receiving the fee in cash in each of the quarter. Same is also evident from the cash book or fee collection register as the range of fee accepted from each student in each quarter is 4000 to 6000. The proportion of fee in cash to the total fee received in each of the quarter is by and large same though there is minor increases in the October-December quarter of 2017. The minor increase does not to point out towards any infirmity, in my view as the fee is duly accounted for in the books so also.
Aspect of acceptance of old currency notes by appellant
12. I have examined the aspect of acceptance of old currency notes by the appellant after 08-11-2016. Out of the total cash found and seized of Rs. 156,59,500 the currency in new notes and old notes is as under:
Old currency Rs. 1002500
New currency Rs. 14657000
Total seized Rs. 15659500
12.2 Post demonetization the GOI barred using old notes and only at few places the old notes were permitted. They are extracted from web search from Google.
NEW DELHI: The government has stopped over the counter exchange of old notes of Rs 500 and Rs 1000 from today midnight. Government has permitted various exemptions for 41 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur certain transactions and activities wherein payment could be made only through old Rs. 500 notes. All these places will allow usage of Rs 500 notes till the midnight of 15 December 2016.
1) Payments towards pre paid mobile top-up to a limit of Rs. 500 per top-up.
2) Purchase from Consumer Cooperative Stores will be limited to Rs. 5000 at a time.
3) Payment of fees in Central or State Government colleges.
4) Foreign citizens will be permitted to exchange foreign currency up to Rs. 5000 per week. Necessary entry to this effect will be made in their passports.
5) Payment of current and arrear dues to utilities will be limited to only water and electricity. This facility will continue to be available only for individuals and households.
6) It has been decided that toll payment at toll plazas to be made through old Rs. 500 notes from 3.12.2016 to 15.12.2016.
7) Payment of School fees up to Rs. 2000 per student in Central Government, State Government, Municipality and local body schools.
8) Government hospitals
9) Railway tickets
10) Public transport
11) Airline tickets at airports
12) Milk booths
42 ITA Nos. 1202-1205/JP/2019
ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur
13) Crematoria/burial grounds
14) Petrol pumps
15) Metro rail tickets
16) Medicine prescribed by a doctor
17) LPG gas cylinders
18) Railway catering
19) Power and water bills
20) Entry tickets of ASI monument
21) Consumer cooperative stores
22) Taxes and penalties to government bodies Court fees
23) Seeds at state-owned outlets 12.3 Thus Vide letter dated 30-07-2019 the appellant was show caused to explain why part of the fee (about 6.4 % of the total) was received in old notes when the GOI has specifically was barred in doing so and the appellant was not in the exempted category of parson entitled to received the old notes.
12.4 The appellant vide undated letter received on 07-08-2019 submitted that a copy of circular dated 28-11-2016 issued by Rajasthan University asking all the Universities and schools to accept fees by 14-12-2016. It was submitted that the fee collection was in view of the circular for the incoming examination in the December-January.
43 ITA Nos. 1202-1205/JP/2019ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur 12.5 I am of the view that appellant continued to receive fee etc from student despite ban by the RBI in this regard. There seems to be no income tax violation as the nature & source of fee is explained. However there is violation of guidelines issued by RBI. The Ld. AO thus will write a letter to the Reserve Bank of India, Tonk Road, Ram Bagh, Jaipur regarding this violation for further action.
12.6 On the facts and in the circumstances of the case and subject to the above for the purposes of Income Tax, I am of the view the addition of Rs.1,56,59,500/- by the Ld. AO is untenable & the same is directed to be deleted."
34. During the course of hearing, ld CIT DR relied on the findings of the Assessing officer and ld Counsel for the assessee relied on the findings of the ld CIT(A). We find that the matter has been exhaustively examined by the Coordinate Bench and thereafter, by the ld CIT(A) again during the quantum proceedings. Undisputed and undeniable facts are that cash so found represents fees deposited by students with the assessee society as emerging from the statements of various persons recorded during the course of survey and even from the findings of the survey team. The cash so found is duly explained by the documentary evidence which is maintained in regular course by the assessee society. During the course of hearing, nothing has been brought to notice by the Revenue which controverts the said factual position. In light of the same, we don't see any infirmity in the order of the ld CIT(A) deleting the addition made u/s 69A of the Act and the 44 ITA Nos. 1202-1205/JP/2019 ACIT, Jaipur vs. St. Wilfred Education Society, Jaipur same is hereby confirmed and the ground so taken by the Revenue is dismissed.
35. In the result, the appeal of the Revenue in ITA No. 1202/JP/2019, 1203/JP/19 are dismissed and the appeal of the Revenue in ITA No. 1204/JP/19 and 1205/JP/19 are partly allowed for statistical purposes.
Order pronounced in the open Court on 02/01/2020
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