Income Tax Appellate Tribunal - Mumbai
Vidya Vardhini, Thane vs Assessee on 20 January, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
"F" BENCH -MUMBAI
BEFORE SHRI R.S. PADVEKAR,(J.M.) AND
SHRI RAJENDRA SINGH,(A.M.)
ITA Nos.1956 to 1962/Mum/2009
Assessment Years : 2000-01 to 2006-07
Vidyavardhini Asstt. Commissioner of Income
C/o. A.V. College, Vasai tax ; Central Circle -2;
Road(W) Vs. Thane
Tal., Vasai Dist. Thane
Pin-401 201.
P.A. No.(AAATV 2687 C)
(Appellant) (Respondent)
ITA Nos.2309 to 2315/Mum/2009
Assessment Years : 2001-02, 2000-01 and 2002-03 to
2006-07
Asstt. Commissioner of Income Vidyavardhini
tax ; Central Circle -2; C/o. A.V. College, Vasai
Thane Vs. Road(W)
Tal., Vasai Dist. Thane
Pin-401 201.
P.A. No.(AAATV 2687 C)
(Appellant) (Respondent)
ITA Nos.6312 to 6315/Mum/2008
Assessment Years : 2000-01 to 2003-04
Asstt. Commissioner of Income Shri Arun Kashinath Patil
tax ; Central Circle -2;Thane Shram Safalya, Madhuban CHS
Pawar Indl Estate; Edulji Road, Vs. Ltd.
Charai, Thane-400 061. Bhaskar Ali, Vasai Road, Dist.
Thane
P.A. No.(ABQPP 9049 P)
(Appellant) (Respondent)
2 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07
Assessee by : Dr. Sunil U. Pathak and Shri
: Subodh L. Ratnaparkhi
Department by Shri Subachan Ram
Date of hearing : 13/12/2011 Date of pronouncement :20.1.2012.
ORDER
Per BENCH The cross appeals in the case of Vidya vardhini are directed against different orders all dated 31.7.2008 for assessment years 2000-01 to 2003-04 and different orders dated 15.12.2008 for the assessment years 2004-05 to 2006-07. The appeals of the revenue in case of Shri A.K. Patil are directed against different orders of CIT(A) dated 31.7.2008 for assessment years 2000-01 to 2003-04. Since the disputes raised are mostly common in all these appeals, these are being disposed of by a single consolidated order for the sake of convenience. The disputes relate to additions on account of voluntary donations, unaccounted donations, disallowance of depreciation, disallowance of penalty paid to Department of Technical Education etc.
2. It will be appropriate at this stage to give a brief background of the case before we proceed to deal with the individual disputes raised in these appeals. The assessee is a leading educational institution in Vasai, Dist. Thane, Maharashtra, who was running the following institutions:- 3 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07
(i) Vidya vardhini's College of Engineering & Technology; (ii) Bhausaheb Vartak Polytechnic; (iii) Annasaheb Vartak College of Arts; (iv) Kedarnath Malhotra College of Commerce and E.S. Andrades College of Science. The trust was headed by its chairman, Shri Prataprai Khokhani.
2.1 The details of the trustees were as under :-
S.No. Name of the trustee Age i) Smt. Tarabai Vartak 83 yrs. ii) Shri Prataprai Khokhani 74 yrs. iii) Shri Arun G. Vartak 65 yrs. iv) Shri Udhav J. Gharat 84 yrs. vi) Shri Madhukar N. Mohol 69 yrs. 2.2 The objects of the trust were as under :-
i) To provide for post-secondary school education in Arts, Science, Commerce & Trade, and Medicine, etc.
ii) To provide for education in agriculture and mechanical trades.
iii)To establish such other auxilliary/complementary facilities consistent with the above objectives. 2.3 The Income tax department had received allegations that some of the trustees were charging cash donations for admission to various courses which were not recorded in the books of account. Accordingly a search and seizure operation under 4 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 section 132 of the Income tax Act was carried out at the premises of the assessee on 20.7.2005 as well as in case of the two trustees namely Shri Prataprai Kokhani and Shri Arun G. Vartak and also in case of Honorary Secretary of the Trust i.e., Shri A.K. Patil. The survey under section 133A had also been carried out at the premises of Laxmi Zerox Blue Print Centre, a proprietary concern of Shri A.K. Patil. During the course of survey operations, certain incriminating documents in the form of diaries were found containing entries of unaccounted donations which were impounded on 20.7.2005, which related to assessment years 2000-01 to 2003-04. The AO made additions on account of unaccounted donations both in case of Shri A.K. Patil and in case of the assessee. The AO also treated the voluntary donation received as income of the trust, as the registration under section 12AA granted, to the assessee w.e.f. 1.4.2000 on 29.3.2004 had been cancelled by the CIT (Central) on 29.8.2007.
3. We first take up the appeal of the assessee in ITA Nos.1956 to 1962/Mum/09 for the assessment year 2000-01 to 2006-07. The main disputes raised in these appeals is regarding addition on account of unaccounted donations allowability of exemption under section 11 of the Act 5 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 and time barring of the assessments. There are also some small issues. All these disputes have been dealt with in the succeeding paras.
3.1 We first take up the main dispute regarding additions of unaccounted donations. As mentioned earlier, incriminating diaries were found at the time of survey from the business premises of Shri Shri A.K. Patil showing unaccounted donations which were not shown in the books of account of the trust. The AO, on detailed examination of the diaries, noted that page-16 of diary No.1 contained information of vital importance to assessment which is reproduced below:-
Rs.13,20,000/-
Rs. 5,00,000/- 13/08/99 Pratapbhai
Rs.8,20,000/- Shantra Ram
40,000/- Jadhav
Rs.8,60,000/-
5,00,000/- 18.09.99
PGK
Rs.3,60,000/-
Rs.3,60,000/- PGK
20.09.99
The AO observed that Shri Prataprai G. Khokhani, referred to as Shri PGK in the diary was one of the trustees and also the chairman. The entries clearly showed that a sum of Rs.5.00 6 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 lacs had been paid to Shri Pratapbhai on 13.8.1999 and again sums of Rs.5.00 lacs and Rs.3,60,000/- were paid to Shri PGK on 18.9.1999 and 20.9.1999.
3.1.1 Further, on page-18 of the diary No.1, the following entries were found showing various amounts against names of students. The names of the chairman, referred to as Pratapbhai, another trustee referred to as Maisaheb and the Secretary Shri Patil also appeared along with the names of students.
1999-2000 ENGINEERING
1) PEREEIRA MERVIN MANGEL ME 1.75 SMT. MAISAHEB
2) D'AS RUDHA DAVID CM 2.75 ARUN PATIL
3) SHANTANU S. GAVANKAR INSTRUMENTATION PRATAPBHAI 2.00 3.1.2 Similarly page-26 of the diary No.2 contained entries showing various amounts against the names of different students, which were shown under the head "management".
7 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07
Management
CM
1) Glim D'souza 2,25,000/-
Local CM
2) Pastan Stani 75,000/-
Rodrick(427)
G.No.344
3) Gid Roy Nelson 75,000/-
Gonsalves (500)
i. Riddy 2,50,000/-
------------
6,25,000/-
1,50,000/-
------------
7,75,000/-
7,75,000/-
Mehta CM
Engineering
5) Chiraj Varti
EL & Tel.
CF
CM
Amol Perira 2,25,000/-
(local) ---------
10,00,000/-
Vishal A. 1,75,000/-
Mhaskar
(local) -------------
ME 11,75,000/-
Shete Amaya
Arun
(Instrumentation) 1,00,000/-
----------------
12,75,000/-
3.1.3 Shri A.K. Patil in his statement during survey
admitted that entries were made in his own handwriting and donations which were received were not accounted. In his statement recorded on 25.7.2005 Shri A.K. Patil made the 8 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 following statement in relation to entry at page-18 of diary No.1.(reproduced earlier).
"Page-18- This page shows an amount of Rs.6,25,000/- collected as donation and further Rs.2,50,000/- donation collected from Shri Prashant Thite. Out of Rs.6,25,000/-, Rs.1,75,000/- has been collected on my instructions received from Shrimati Maisaheb (Smt. Tarabai Vartak) Rs.2,25,000/- has been received by me directly and Rs.2,00,000/- on instruction from Shri Prataprai Kokhani."
3.1.4 Similar entries were found on other pages of the four diaries seized giving details of donations which related to assessment years 2000-01 to 2003-04. The AO observed that the statement of Shri Patil in relation to the entries at page-18 of the diary No.1 and entries at page-26 of the diary No.2 clearly showed collection of donation on the instruction of the trustees and involvement of management.
3.1.5 In the statement recorded during the course of assessment on 29.4.2008, Shri Patel, however, denied that he had collected donations on the instructions of the trustees. The statement of Shri Prataprai Khokhani was also recorded on 23.4.2008 in which he stated that he was not aware of the contents of the diaries impounded. It was also stated by him that admissions were done by the principals of various 9 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 institutions and management supervised the admission process. Shri A.K. Patil was doing supervision work.
3.1.6 Shri A.K. Patil owned up the donations entered in the four diaries and declared the same as his income from undisclosed sources in the returns filed under section 153A for the assessment year 2000-01 to 2003-04. Shri Patil explained that the diaries contained the entries relating to the donations and at the end of the diary there was cash summary. There was, however, difference in the aggregate amount of donations recorded in the diaries and the total of cash summary given at the end of the diary. Shri Patil explained that higher of the two figures was taken by him as income and after deducting the expenses @ 50%, the undisclosed income was declared by him. The details of donations as declared by Shri Patil, the details of cash summary and details of undisclosed income declared under section 153A are given below:-
A.Y. Donations Total of cash Income
recorded in the summary at the end disclosed by
diary as per of the diary Shri Patel
Shri Patel after
deducting
50% of
expenses
2000-01 Rs.9,65,000/- Rs.17,67,591/- Rs.8,84,500/-
2001-02 Rs.14,71,000/- Rs.12,26,000/- Rs.7,35,500/-
2002-03 Rs.9,85,000/- Rs.1,55,000/- Rs.4,92,500/-
2003-04 Rs.7,75,000/- Rs.1,25,000/- Rs.3,87,500/-
10 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07
Shri Patil had thus declared undisclosed income on account of donations at Rs.8,84,500/-, Rs.7,35,500/-, Rs.4,92,500/- and 3,87,500/- for assessment year 2000-01 to 2003-04 respectively.
3.1.7 The AO however did not accept the working of donations made by Shri Patil. According to him certain donations recorded in diaries were not considered in the computation made by Shri Patil. He compiled the page wise summary of donations recorded in four diaries which related to the four assessment years under reference, details of which have been given in the assessment order. The total donations recorded in the diaries as per AO for different years were as under :-
Assessment Year .........................donations 2000-01 Rs.28,04,591/-
2001-02 Rs.51,75,798/-
2002-03 Rs.25,66,000/-
2003-04 Rs.7,75,000/-
3.1.8 The AO also did not accept the contentions raised
that the donations were income of Shri Patil. It was observed by him that the entries made in the diaries clearly showed that the donations were being collected on the instructions of trustees on behalf of the trust. Shri Patil at the time of survey had also 11 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 admitted that the donations had been collected on the instructions of the trustees as mentioned earlier. Subsequently, he denied the statement which was only an afterthought. The assessee had asked for an opportunity to cross examine Shri Arun K. Patil which had been allowed by the AO. The opportunity was allowed to the chairman Shri Pratap Kokhani. Shri Kokhani, however, wanted cross examination through his authorized representative who was also the authorized representative of Shri Arun K. Patil, which was not allowed by AO. The AO again requested Shri Kokhani to cross examine Shri Patil which was declined by him. The AO, therefore, made additions on account of unaccounted donations in each of the four years as mentioned above. The AO had also made additions in case of Shri Arun K. Patil after allowing expenses @ 20% against the claim of 50% made by Shri Patil.
3.1.9 The assessee disputed the decision of AO and submitted before CIT(A) that the diaries had been found during independent survey conducted in case of Shri Patil and, therefore, no income can be attributed to the assessee. It was also submitted that even the working of donations made by AO was not correct. It was pointed out that the AO had considered the same amount twice, once in the transaction wise record 12 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 appearing in the earlier part of the diary and again in the cash summary portion in the later part of the diary which resulted into double addition. It was also submitted that the entries also included the professional income of Shri Patil. It was further pointed out that certain entries were wrongly taken as donation.
For instance, a sum of Rs.72,000/- based on the payments of four challans of Rs.18,000/- each treated as donation in assessment year 2000-01 is not correct as the amounts were fees paid by the students. Similarly, in relation to assessment year 2001-02, it was submitted that the figure of Rs.3,80,000/- at page-1 of the diary was not donation but working of the cost of studies of a student given to parents. The said sum consisted of 3 entries. The first entry of Rs.1,80,000/- was probably the annual expenses @ Rs.15,000/- per month. The other two entries of one lac each also related to approximate working of cost given to a parent. Further, on page-2 of the diary, the figure written was 2000 but AO had considered the same as 2,00,000/-.
3.1.10 The CIT(A) after detailed examination held that the contention of the assessee that individual transactions of money collected were entered on earlier pages of diary and cash 13 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 summary of inflow and outflow was noted in the later pages could not be accepted as entries could not be co-related. Similarly, CIT(A) also rejected the claim that some of the entries related to professional income of Shri Patil as same was not supported by any documentary evidence. CIT(A), however, accepted the claim of Rs.72,000/- being fees, paid by students relating to assessment year 2000-01 and accordingly allowed relief to that extent. He also accepted the claim in assessment year 2001-02 that sum of Rs.2,000/- noted in the diary was wrongly taken by AO as Rs.2,00,000/-. He thus gave relief of Rs.1,80,000/- in assessment year 2001-02. In relation to assessment year 2002-03, the assessee pointed out that a sum of Rs.3,96,000/- written on back side of page-23 of diary was opening balance on 1.4.2003 and not part of the income of the relevant year. It was also pointed out that notings on the back side of page-25 which had been treated by the AO as donation of Rs.10,30,000/- was not of the nature of income. It was only rough scribbling of figures and did not give name of any student or any indication that the same was income. CIT(A) however observed that he had examined the entries minutely and was not convinced by the argument of the assessee. Thus in assessment year 2002-03 and 2003-04, CIT(A) confirmed the entire addition 14 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 made by AO as explanation of the assessee pointing out error in quantification of donations was not found acceptable. 3.1.11 CIT(A) also did not accept the claim of the assessee that Shri Patil was receiving donations in his personal capacity. It was observed by him that notings in the diary showed that the donations received by Shri Patil were being passed on to some of the trustees. The names of students mentioned in the seized diary also appeared in the list of candidates admitted to colleges. The donations were being received by Shri Patil on behalf of the trust which was within the full knowledge of the trustees. The AO had also given opportunity to the trustee for cross examination of Shri Patil. The rejection of request of the trustee for cross examination by the authorized representative who was also authorized representative of Shri Patil was justified. CIT(A) also observed that the chairman and other trustees were well versed with the affairs of the trust, and, therefore, they should have cross examined Shri Patil which they declined. CIT(A), therefore, held that donations were to be assessed in the name of the assessee. It was also observed by him that addition on this account made in the case of Shri Patil 15 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 has already been deleted by CIT(A). Aggrieved by the decision of CIT(A), the assessee is in appeal before the Tribunal. 3.1.12 Before us, the ld. AR for the assessee strongly objected to the order of AO assessing the donations in the name of the assessee. It was argued that the diaries were found from the premises of Shri A.K. Patil and not from the premises of the assessee or any of the trustees. Therefore, the presumption u/s. 132(4A) was not applicable to the assessee which was a third party. No addition in the case of the assessee could be made on the basis of the entries in the documents found from a third party. Reliance for this proposition was placed on the judgment of Hon'ble Supreme Court in the case of CBI vs. V.C. Shukla and Others 3(SCC) 410(1998). Reference was also made to the judgment of Hon'ble High Court of Bombay in the case of Lata Mangeshkar (47 ITR 696) and decision of Calcutta Bench of the Tribunal in the case of T.S. Venkateshan vs. ACIT (74 ITD 298). It was also submitted that the same additions had been made by the AO in the case of Shri A.K Patil on substantive basis, and, therefore, making substantive addition in case of assessee could not be justified. Reliance was placed on the judgment of Hon'ble 16 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 Jurisdictional High Court in case of Jekisondas Tribhuvandas Vs CIT (Bom) (31 ITR 376).
3.1.13 It was also submitted that Shri Patil had declared the income on account of donations in his name and had also subsequently denied that donations were being collected on instructions of the trustees. Shri Patil had also resigned from the trust and a copy of his resignation letter was placed at page- 36 of the paper book. The ld. AR further argued that entries in the diaries pertained to only few students numbering 40 whereas there were 9000 students and, therefore, it was not correct to presume that the trustees were involved in taking donations. The trust cannot be penalized on the basis of wrong doings by an office bearer of the trust. The assessee had also not been allowed opportunity to cross examine Shri Patil. It was accordingly urged that addition made should be deleted. The ld. AR also pointed out that there were mistakes in computation of donations mentioned in the seized diaries. The entries in diaries also included professional income of Shri Patil which could not be treated as donation. Further, the additions had been made on account of individual receipt entries as well as summary of receipts mentioned in the last portion of the diary which resulted 17 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 into double addition. Thus quantum of donations determined by the authorities below was also not proper.
3.1.14 The ld. DR on the other hand strongly supported the order of CIT(A). It was argued that Shri AK Patil was Hon. Secretary of the trust and was supervising the admission process and was acting under the supervision and control of the trustees. He was not a third party but was closely connected with the work of the trust. The entries in the diary clearly showed that he was collecting donations on the instructions of the trustees. He had no authority of his own to collect donations for admission. It was also submitted that the trustees had been given opportunity to cross examine Shri Patil which they did not avail of. As regards substantive additions in two names, it was submitted that additions were made in case of Shri Patil as a protective measure, though, it was not clearly mentioned and ultimately only one of the additions would be upheld. It was also submitted that though department had filed appeal against the order of CIT(A) in case of Shri A.K. Patil, the same was only as a protective measure and, the stand of the department was that addition had to be made in case of trust as any donation collected was income of the trust and not of the office bearer or 18 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 trustee of the trust. As regards the claim of expenditure against donations collected, it was submitted that no papers were found showing incurring of any expenditure which were not accounted. Moreover, for collecting donation, no expenditure is required to be incurred. It was accordingly urged that the AO had rightly not allowed any expenditure against the donations collected. 3.1.15 We have perused the records and considered the rival contentions carefully. The dispute raised in this ground is regarding additions made in case of the assessee based on unaccounted donations entered in the four diaries recovered from the business premises of Shri A.K. Patil who was the Hon. Secretary of the trust. There is no dispute that the entries made in the diaries showed donations received from students/parents for admission to various colleges functioning under the trust. Shri Patil admitted that the entries had been made in his own handwriting and that these related to donations received for admissions to various courses. Shri Patil in the statement recorded on 25/7/2005 at the time of survey had also stated that donations had been collected on the instructions of the trustees. However, later in the statement on 29/4/2008 he stated that donations were collected in his personal capacity and were his income and had also declared undisclosed income from 19 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 donations in the returns of income filed under section 153A of the Act. The dispute is about quantification of donations based on entries made in the diaries and whether the same could be assessed in the name of the assessee trust.
3.1.16 It has been argued on behalf of the assessee that the diaries had been found from the business premises of Shri A.K. Patil and not from the premises of the trust or premises of any trustee and, therefore, no presumption could be drawn that the entries made therein related to the trust which was a third party. The ld. AR for the assessee has relied on several judgments to argue that no addition can be made in case of the assessee on the basis of diary belonging to a third party. No doubt, it is true that the diaries had been found from the premises belonging to Shri Patil and, therefore, it has to be presumed that entries made therein belonged to him. But such presumption is not conclusive and actual nature of entries and income relating thereto has to be decided after considering all the relevant material and surrounding circumstances of the case. It may be pointed out here that Shri Patil was not a third party and was closely associated with the working of the school as Hon. Secretary. He was also assisting the trustees in the supervision of admission process and was functioning under the 20 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 control and supervision of the trustees. The survey under section 133A at the business premises of the Secretary was an integral part of search action taken at the premises of the trust and connected persons on the basis of complaints that the trustees were collecting donations for admissions which were not accounted. The survey proceedings did result into recovery of incriminating material showing unaccounted donations. 3.1.17 The entries on some of the pages of the diaries have been reproduced earlier as an illustration. The entries made at page-16 of diary No.1 which have been reproduced in para 3.1 earlier show different amounts entered against the name of the chairman of the trust. Similarly, page-18 of diary No.1 reproduced in para 3.1.1 contains names of trustees and Hon. Secretary along with names of students against whom the donations have been shown. Shri Patil in his statement relating to page-18 of the diary No.1 had clearly stated that amounts had been collected on the direction of chairman Shri Prataprai Khokhani and Smt. Tarabhai Vartak. His statement has been reproduced in para 3.1.3 earlier. The notings on page 26 of the diary No.2 reproduced in para 3.1.2 earlier show different amounts entered against names of several students mentioning the name of course also and these were shown under the 21 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 heading "management" which clearly points out involvement of management in collection of donations. Shri Patil had no independent authority to influence the principals for admissions. 3.1.18 The principals were working under the control and supervision of trustees and, therefore, it cannot be accepted that Shri Patil was accepting donations independently in his personal capacity. It is also an undisputed fact that the students whose names appeared in the diaries from whom donations had been collected had also been admitted to the school. The trust is an artificial juridical person and, therefore, it cannot itself collect donations. It has to act through trustees of the trust or anybody authorized by trustees. The acts of the trustees have to be considered as acts on behalf of the trust. Though Sri Patil later denied that he had collected any donations on instructions of the trustees, the said denial was after a lapse of more than two years from the date of original statement made at the time of survey. Such denial has been rightly considered by the authorities below as an afterthought. This conclusion is further strengthened by the fact that the trust had not taken any action against Shri Patil. In case the trust thought that Shri Patil collected donations in violation of rules in his personal capacity, 22 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 they would have definitely taken action against him but the trust had not even dismissed Shri Patil. He was allowed to resign voluntarily and leave the trust without any serious action. Had he been dismissed it would have acted as a stigma in his further employment. Trustees also did not initiate any criminal proceedings against Shri Patil which they were expected to in case Shri Patil had collected donations unauthorisedly. Therefore, considering the material on record and the entire surrounding circumstances, we hold that the unaccounted donations collected by the Hon. Secretary were on instructions of the trustees on behalf of the trust and have been rightly assessed as income of the assessee trust.
3.1.19 The various judgments relied upon by the ld. AR are distinguishable and not applicable to the case. The judgment of Hon'ble Supreme Court in the case of CIT vs. V.C. Shukla & Others (supra), was in relation to the prosecution proceedings launched under prevention of corruption Act. The standard of evidence required to prove a prosecution case is very high compared to that in case of assessment of income. It is a settled legal position as held by Hon'ble Supreme Court in the case of DP More (82 ITR 540) that the revenue authorities are entitled to look into surrounding circumstances and apply test of 23 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 human probability for giving a finding about any factual situation. The same is not true in case of prosecution proceedings. The issue in the case of CBI vs. V.C. Shukla (supra), was whether the diaries, notebooks and loose sheets found during the search could be considered as books of account regularly kept in the course of business and thus treated as admissible evidence under section 34 of the Evidence Act. It was held that entries in the note books have to be treated as admissible under section 34 of Evidence Act and not loose sheets. Hon'ble Supreme Court also held that entries even if relevant evidence, shall not be alone be sufficient evidence to charge a person with criminal liability. These could be considered only as corroborative evidence and not independent evidence required to prove a criminal case. There was no evidence in that case to show that Shri Shukla and Others had given any favours to the business houses, which could be linked to the alleged payments mentioned in the seized diaries.
The case is obviously different and not relevant to the revenue appeal under consideration before us in which finding of fact can be given after considering the surrounding circumstances and circumstantial evidence, which have been duly considered in this case as discussed earlier.
24 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07 3.1.20 The ld. AR has also placed reliance on the judgment of Hon'ble Bombay High Court in case of Lata Mangeshkar (supra). In that case, addition had been made on the basis of statement of two persons alleging that they had paid money in black to the assessee and entries to that effect were made in the books of account of those persons. The Tribunal on examination of statement pointed out that there were infirmities in the evidence tendered by the two persons. The Tribunal held that the entries in the books were not sufficient as there was no guarantee that the same were genuine. There was no proof that the amount represented income of the assessee. On further appeal, the Hon'ble Bombay High Court held that the Tribunal had reached the conclusion on proper appreciation of evidence and therefore there was no question of law that arose in the case. The facts in the case of the assessee are different. In this case not only there were entries but also person making entries admitted that these were donations collected for donations of students. There is no dispute that the entries represented income from donations and considering the entire surrounding circumstances as mentioned earlier, it has to be held that the donations were collected on behalf of the trust and on instruction of the trustee and were therefore income of the trust. 25 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07 3.1.21 The decision of Calcutta Bench of the Tribunal in case of T.N. Venkateshan (supra), relied upon by the ld. AR is also distinguishable. In that case, a document containing the entries on loose sheet had been found indicating payment of Rs.10.00 lacs to the assessee. The documents were not books of account maintained during the business. Person recording the entry did not state that the payments were made to the assessee. Therefore it was held that amount could not be assessed as income of the block period of the assessee in the absence of any corroborative evidence. In the present case Shri Patil admitted that the entries represented donations collected from students for admission to various colleges and these had been collected on the instructions of the trustees. Though he later denied, the denial as pointed out earlier has to be rejected on the facts of the case. The case cited, therefore, can not be applied to the facts of the present case.
3.1.22 The ld. AR for the assessee has also raised objections which were also raised before CIT(A) that the assessee had not been provided opportunity of cross examination of Shri Patil. Argument is however contrary to the facts. The AO had given opportunity for cross examination. The 26 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 trustee wanted cross examination through his authorized representative who was also authorized representative of Shri Patil, and therefore, the plea was rejected. The AO had again provided opportunity of cross examination to the assessee which was declined. Under these circumstances, we are of the view that it cannot be said that the assessee had not been provided opportunity of cross examination of Shri Patil. It has also been argued that donations were collected only from small number of students totaling about 40 when there were total 9000 students and, therefore, entries could not be considered as donations being collected on behalf of the trust. We are not convinced by the arguments advanced. The donations are usually collected only from some undeserving students and, therefore, the number has to be lower. It has also been submitted that in case donations are treated as income, some expenditure should be allowed as deduction as done by the AO in case of Shri Patil. The authorities below have, however, given a finding that no documents were found showing incurring of expenditure for collecting donations and this finding has not been controverted before us. Even otherwise no expenditure is required for collecting donations. We, therefore, see no merit in the plea and the same is rejected. It has also been argued that the AO had 27 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 made substantive additions based on entries in the diaries both in the case of assessee and in case of Shri A.K. Patil which should not be upheld. We agree that addition has to be made only in one case but merely because addition has been made in the name of more than one person, it cannot be the sole ground to delete addition in case of the assessee to whom the income belongs. The other addition in case of Shri A.K. Patil has already been deleted by CIT(A) and this aspect has been considered in the appeal in case of Shri A.K. Patil, in later part of this order in para-5.
3.1.23 The other aspect of the issue is quantification of donations based on entries in the diaries found. It has been argued that entries recorded in the earlier pages of diary were donation entries whereas the entries made towards the end of diaries were summary of entries recorded earlier. The AO had added both the amounts while working out total amount of donations. CIT(A) has given a clear finding that the assessee could not show any co-relation between entries and the summary and therefore claim was rejected. There is no material produced before us to controvert the finding of CIT(A). Further, we also note that in case entries towards end of diaries were summary of donations entered earlier, the total of individual 28 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 donation entered earlier and total of summary would have tallied but it is not so in the present case. There is wide discrepancy in the two figures as mentioned in para 3.1.6 earlier. Therefore, claim of the assessee of double addition has been rightly rejected. Some of the entries such as those based on school fee, challans and wrong noting of figures, have already been considered by CIT(A) and relief has been given. Other claims which were not found convincing have been rejected by CIT(A) as mentioned in para 3.1.10 earlier. Considering the facts and circumstances of the case, we see no infirmity in the order of CIT(A) regarding quantification of donation and the order of CIT(A) is therefore upheld.
3.1.24 In view of the foregoing discussion and for the reasons given earlier, we uphold the order of CIT(A) confirming addition of unaccounted donations in case of the assessee. 3.2 The assessee has also raised a ground regarding applicability of provisions of section 13(1)(c). Under the said provisions, exemptions allowable under section 11 is not applicable in case any part of income or any property of trust or institution is applied directly or indirectly for benefit of persons referred to in section 13(3) which includes trustees of the trust 29 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 or manager by whatever name called or any relative of any such person. In case donations have been used by the Hon. Secretary or trustees and not applied for the objects of the trust, provisions of section 13(1)(c) will be attracted. The AO in the assessment orders had made the additions of unaccounted donations without making any mention of provisions of section 13(1)(c).
3.2.1 CIT(A) however examined the provisions and observed that the trust had been granted registration only w.e.f. 1.4.2000 which was relevant to assessment year 2001-02 and onwards. He, therefore, held that provisions of 13(1)(c) were not applicable in case of assessment year 2000-01, as in that year income of the assessee could not be exempt under section 11 for want of registration under section 12A. In relation to other years, CIT(A) asked the assessee to explain as to why the provisions of section 13(1)(c) should not be applied. The assessee submitted that there was no concrete material to prove that income of the trust had been applied for the benefit of trustees or the secretary. It was pointed out that Shri Patil admitted that donations had been collected in his individual capacity and, therefore, there was no question of application of provision of section 13(1)(c). It was also submitted that the AO 30 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 had not applied the said provisions and, therefore, the same could not be applied at the appellate stage. CIT(A), however, did not accept the contentions raised. It was observed by him that CIT(A) had the power to consider the aspects which were omitted to be considered by the AO. CIT(A) further observed that Shri Patil had been collecting donations for 3-4 years which was in the knowledge of the trustees. The donations were being passed on to the trustees who were not recording the same in the books of account. It was established from records that the students from whom donations had been collected had been admitted to the colleges. Both Shri Patil, the Hon. Secretary and the trustees were covered by provisions of section 13(1)(c) and, therefore, CIT(A) held that there were violations of the provisions of section 13(1)(c). CIT(A) accordingly held that assessee was not entitled to any benefit of provisions of section 11 or 12. Aggrieved by said decision assessee is in appeal before the Tribunal.
3.2.2 Before us the ld. AR for the assessee reiterated the submissions made before the CIT(A) that there was no cogent material to establish that the assessee had received donations being collected by Shri Patil. Moreover, provisions of section 31 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 13(1)(c) were not applied by AO and therefore, the same could not be applied by CIT(A). Further, AO had made substantive addition in two names which showed that he was not sure as to whom the income belonged. Therefore, it was argued that the assessee was not hit by the provisions of section 13(1)(c). The ld. DR on the other hand strongly supported the orders of CIT(A) and placed reliance on the findings given in the appellate order. 3.2.3 The dispute raised in this ground is regarding applicability of provisions of section 13(1)(c) in assessment years 2000-01 to 2003-04 on ground of unaccounted donations having been used by Hon. Secretary and trustees of the trust. The ld. AR for the assessee has argued that provisions of section 13(1)(c) were not applied by AO and therefore the same cannot be applied by CIT(A), for the first time. In our view, arguments have no merit. It is a settled legal position that powers of CIT(A) are co-terminus with that of the AO and he can do what the AO can do and can also consider aspects which have been omitted to be considered by the AO. The arguments of the ld. AR are, therefore, rejected. Under the provisions of section 13(1)(c), the exemption allowable under section 11 of the IT Act is not available, if any portion of income or any property of the trust or institution is applied directly or indirectly for the benefit 32 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 of persons referred to in section 13(3) which includes trustees of the trust or manager by whatever name called or any relative of any such person. In this case, while dealing with the earlier ground, we have already held that the donations collected by Shri A.K. Patil and entered in the diaries were the donations collected on behalf of the trust which have to be treated as income of the trust. However, the said donations were not accounted in the books of assessee trust and had been used by the trustees and the secretary who are the persons specified in section 13(3). Therefore, in our view, provisions of section 13(1)(c) are applicable. However, the assessee trust was not registered under section 12AA for the assessment year 2000-01 and, therefore, the provisions of section 13(1)(c) are not applicable for assessment year 2000-01 as assessee is not entitled for exemption under section 11. The unaccounted donations have been collected for admission of students to various course. These receipts are, therefore, of the nature of income of the assessee trust. Since exemption under section 11 is not available in assessment year 2000-01, unaccounted donations in assessment year 2000-01 have to be assessed as income. As for assessment years 2001-02 to 2003-04, the assessee had been registered under section 12AA on direction 33 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 the Tribunal and, therefore, the provisions of section 11 are applicable. But since assessee trust is hit by the provisions of section 13(1)(c), exemption under section 11 will not be available to the assessee for the assessment years 2001-02 to 2003-04. Thus the unaccounted donations have been rightly assessed as income of the assessee for assessment year 2000- 01 to 2003-04.
3.3 The third ground raised by the assessee which relates to only assessment years 2001-02 to 2006-07 is regarding the benefit of deduction/exemption under section 11 of the IT Act. The benefit of deduction under section 11 has not been allowed by CIT(A) for assessment years 2001-02 to 2006-07 on the ground that the registration under section 12AA granted to the assessee had been cancelled by CIT(Central). In assessment years 2004-05 to 2006-07, the benefit of deduction under section 11 also has been denied on the additional ground of violation of provisions of section 13(1)(c) due to user of donations for the benefits of secretary/trustees. Aggrieved by the decision of CIT(A), the ground has been raised before Tribunal claiming exemption under section 11. 34 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07 3.3.1 Before us the ld. AR of the assessee submitted that the assessee had challenged the order of CIT(C) dated 29.8.2007 canceling the registration granted u/s. 12AA of the IT Act. The Tribunal vide order dated 14.5.2010 in ITA No.6509/M/07 has set aside the order of CIT(C) and restored the registration granted u/s. 12AA. The assessee thus stood registered under section 12AA w.e.f. 1.4.2000 and was thus entitled to exemption in the assessment years 2001-02 to 2006-
07. The ld. DR on the other hand argued that exemption under section 11 could not be granted for assessment years 2001-02 to 2003-04 as in these years there were violations of provisions of section 13(1)(c) and for assessment year 2000-01, exemption under section 11 could not be granted on the additional ground of there being no registration u/s. 12A.
3.3.2 We have perused the records and considered the matter carefully. The dispute is regarding allowability of deduction/exemption under section 11 of the IT Act for assessment years 2001-02 to 2006-07. No ground has been raised for the assessment year 2000-01 as in that year, assessee was not registered under section 12AA and, therefore, not entitled to exemption under section 11. CIT(A) has confirmed the disallowance of exemption under section 11 for 35 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 assessment years 2001-02 to 2003-04 on the ground of violations of provisions of section 13(1)(c). The exemption under section 11 has been denied for assessment years 2004-05 to 2006-07 on the ground that registration granted under section 12AA had been cancelled by CIT(A)(C) vide order dated 29/8/1997. In so far as assessment years 2001-02 to 2003-04 are concerned, while dealing with the earlier ground we have held that provisions, of section 13(1)(c) are applicable and therefore, exemption under section 11 cannot be allowed in these years even if the assessee trust was registered under section 12AA. As regards assessment years 2004-05 to 2006-07, the registration of the assessee under section 12AA has been restored by the Tribunal vide order dated 14/5/2010 in ITA N.6509/M/07 and no violations of provisions of section 13(1)(c) have been found in these years and therefore, exemption under section 11 has to be allowed to the assessee.
3.4 In the 4th ground which is relevant for all the assessment years, the assessee has challenged the assessment orders passed by the AO on the ground that the same were barred by limitation as extended period for making assessment due to special audit under section 142(2A) was not available as there was no justification recorded by the AO that the accounts were 36 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 complex requiring special audit. Therefore, provisions of section 142(2A) were not applicable and the AO was not entitled to avail extended period and the assessments were thus barred by limitation. The ld. AR for the assessee, however, at the time of hearing of these appeals did not press this ground. This ground is therefore, dismissed as not pressed in all the assessment years.
3.5 In the 5th ground raised by the assessee in all the years, the assessment orders have been challenged on the ground that the same were not passed independently by the AO but under influence of order of CIT(C) passed u/s. 12AA of the IT Act. At the time of hearing of the appeal, no arguments were advanced by the ld. Authorised Representative in support of the ground. The AO, in our view, has passed a reasoned and speaking order and he has only used the cancellation of registration under section 12AA(3) by CIT(C), while considering the claim for exemption under section 11 of the IT Act. The ground which was also not argued by the ld. AR is dismissed as infructuous. 3.6 The 6th ground which is relevant only for assessment year 2000-01 is regarding disallowance of expenditure of Rs.4,192/- on account of payment of GPF interest in relation to an 37 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 employee. The AO disallowed the claim on the ground that payment was for violation of statutory provisions. CIT(A) confirmed the disallowance aggrieved by which, assessee is in appeal before Tribunal. However at the time of hearing of the appeal, the ld. AR of the assessee did not press this ground and, therefore, this ground is dismissed as not pressed. Appeals by the revenue in ITA Nos.2309 to 2315/Mum/2009 (Assessment Years 2000-01 to 2006-07):
The main dispute raised in these appeals relates to assessment of income from voluntary contributions received by the assessee and disallowance of depreciation. In addition, there are also some minor disputes raised only in some of the years.
4.1 We first take up the dispute relating to additions on account of voluntary contributions. In addition to unaccounted donations found at the time of survey/search, the assessee had also received voluntary contributions which were accounted in the books of account. Details of these contributions were as under :-
38 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07 Assessment Amount(Rs.) year 2000-01 73,91,505/-
2001-02 60,27,001/-
2002-03 87,19,002/-
2003-04 61,27,000/-
2004-05 21,53,000/-
2005-06 61,20,001/-
2006-07 56,50,000/-
4.1.1 The assessee had treated these donations as capital
receipts on the ground that the same were corpus donations. The assessee had taken the stand that in the assessment year 2000-01, corpus donations were capital receipts as assessee was not registered as a charitable institution under section 12AA of the IT Act whereas in assessment years 2001-02 to 2006-07 in which the assessee had been registered under section 12AA, the corpus donations were claimed as exempt under the specific provisions of section 11(1)(d)/12(1). The AO, however, observed that the assessee had not furnished any details in respect of donations. He, therefore, asked the assessee to furnish details as well as confirmations giving name, address, PAN, mode of payment and stating whether the donation was for corpus fund. The assessee filed the confirmations on perusal of which AO observed that the confirmations were in standard format in which the details had been filled up by the same person and name of the donors were also written by the same 39 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 person. There was no option in the format to mention the purpose of donation and only the standard phrase "donation towards corpus fund" had been typed out. The AO also observed that, in case, evidence of corpus donation was available, the assessee should have furnished before the Special Auditor which had also not been done. It was also observed by him that benefit of provisions of section 11(1)(d) was not available to the assessee as the registration of the assessee under section 12A had been cancelled by the CIT(C). The AO, therefore, held that entire voluntary donations had been rightly treated as revenue receipts by the special auditors and the AO accordingly treated the entire donations in all the years as revenue receipts exigible to tax.
4.1.2 The assessee disputed the decision of AO and submitted before the CIT(A) that the donations received were only towards corpus. It was submitted that several donors had given specific letters for treating their donations as corpus fund and a number of such letters had been found during search. The special auditors had also categorized the donations partly as corpus and partly as general donations. The assessee had issued receipt in each and every case on which it was specifically 40 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 mentioned that the donations received was towards corpus. The assessee had also filed confirmations from all donors on specific direction of AO during assessment proceedings in which also donors had confirmed the donations as corpus. The AO rejected the confirmations only on the ground that these were in standard format. CIT(A) was convinced by the explanation given by the assessee. It was observed by him that there was no material placed on record by AO for rejecting the confirmations in which donations were specifically mentioned as corpus donations. He referred to the decision of Madras Bench of the Tribunal in case of N.A. Ramchandra Raja Charity Trust vs. ITO (14 ITD 230) in which it was held that where the counterfoils of receipts of donations were rubber stamped as "towards corpus only", the donations were to be treated as corpus donations and thus exempt. CIT(A), therefore, held that the voluntary donations received by the assessee were corpus donations. 4.1.3 CIT(A) also observed that voluntary contributions received by a trust or an institution created wholly or partly for charitable or religious purposes has to be treated as income under the provisions of section 2(24)(iia). Further, in section 12, it was provided that voluntary contributions could be treated 41 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 as income only if these were not received towards corpus funds.
CIT(A), therefore, on combined reading of Section 2(24)(iia) and Section 12 concluded that voluntary contributions could be treated as income only if they were received by trust or institution created wholly or partly for charitable or religious purposes. It was also observed by him that voluntary contributions received by any other person had to be treated as capital receipt. In this case, registration under section 12A had been cancelled by CIT(Central) and the AO had consciously taken the status of assessee as AOP. Therefore, in this case, the voluntary contribution/donation could not be treated as income. It was also observed by CIT(A) that donation could also not be taxed as gift under the provisions of section 56(2) as these provisions were applicable only in case of individual or HUF. He also referred to the decision of the Tribunal in case of M/s. Pentafour Software Employees Welfare Foundation vs. ACIT (2008) TIOL-535-ITAT-Mad. and the judgment of Hon'ble High Court of A.P. in the case of CIT vs. S.R.M.T. Staff Association (221 ITR 234) in which it was held that voluntary contributions received by a person other than a trust established for charitable or religious purposes could not be treated as income. CIT(A) accordingly held that voluntary contributions received by the 42 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 assessee could not be treated as income in view of the provisions of section 2(24)(iia) and section 12. Accordingly he directed the AO to treat the voluntary contributions as capital receipts in the hands of the assessee aggrieved by which the revenue is in appeal in all the years before the Tribunal. 4.1.4 Before us, the ld. AR for the assessee reiterated the submissions made before the CIT(A) and submitted that in so far as assessment years 2001-02 to 2006-07, were concerned, the registration under section 12AA had been restored to the assessee w.e.f. 1.4.2000 by the Tribunal in the order dated 14.5.2010 in ITA No.6509/M/2007. Therefore, in these years the corpus donations have to be treated as exempt under section 11(1)(d)/12(1). Assessee had filed confirmations from donors in which it was clearly stated that the donations were made towards corpus and AO had produced no material to controvert the said claim. Therefore, the finding of CIT(A) that the donations were towards corpus fund had to be accepted and following the said finding, the donations had to be treated as capital receipt for assessment years 2001-02 to 2006-07. In so far as assessment year 2000-01 was concerned, it was an admitted fact that the assessee had no registration under section 12A. It was pointed out that voluntary contributions received by 43 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 a charitable or religious trust is income in view of fiction created by section 2(24)(iia) of the Act. Since the assessee has been assessed as AOP, the voluntary contribution could not be treated as income. Reliance for the said proposition was placed on the following judgments.
i) M/s. Pentafour Software Employees Welfare Foundation vs. ACIT (2008) TIOL-535-ITAT-Mad.;
ii) (221 ITR 234)(A.P.)CIT vs. S.R.M.T. Staff Association and
iii) (50 ITD 472) Mahila Sidh Nirman Yojna vs. IAC 4.1.5 The ld. DR on the other hand supported the order of AO. It was argued that the assessee had not given full details before the special auditors and, therefore, details given in standard format subsequently should not be accepted and donations should be treated as general donations. It was also submitted that in so far as assessment year 2000-01 was concerned, the assessee was not registered under section 12AA and, therefore, donations whether general or corpus had to be treated as income. The ld. DR placed reliance on the findings given in the assessment order.
4.1.6 We have perused the records and considered the rival contentions carefully. The dispute raised in this ground is regarding taxability of the income received by the assessee trust 44 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 from voluntary contributions. These contributions had been accounted by the assessee in the books of account. The assessee had treated these contributions as donations with a specific direction to form part of the corpus of the trust and, accordingly, the same was treated as capital receipt not taxable. The AO, however, noted that the assessee had not filed full details and confirmations before the special auditors. Though confirmations giving names, addresses, PAN, mode of payment etc. had been filed during assessment proceedings, the same were in standard format which had been filled up by the same person. The AO, therefore, did not accept the claim that these were corpus donations and accordingly assessed the same as income of the assessee trust. The CIT(A) on detailed examination has reversed the finding of the AO and accepted the claim that donations were corpus donations. On careful perusal of material on record, we see no infirmity in the order of CIT(A). There is no dispute that the assessee had issued receipts in each and every case on which it was specifically mentioned and that donations were received towards corpus. Assessee also filed confirmations from all donors giving name, address, PAN, mode of payment, etc. in which it was clearly mentioned that donations were towards corpus. The AO has not placed any 45 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 adverse material on record to prove that donations were not towards corpus. Merely because the confirmations were in standard format, the same could not be rejected, when it contained full details of donors and also mentioned that donations were towards corpus. The AO neither made any enquiries nor placed any adverse material to dispute the claim made in the confirmations and in the receipts issued by the assessee. We, therefore, confirm the finding of the CIT(A) that voluntary contributions received by the assessee which were accounted in the books were with specific direction to form corpus of the assessee trust.
4.1.7 We have now to address the other aspect as to whether the voluntary contribution even if made with specific direction to form corpus of the trust could be assessed as income. The word "income" has been defined in section 2(24) which includes voluntary contributions received by a trust or an institution established wholly or partly for charitable or religious purposes and also voluntary contributions received by other institutions such as scientific research association/ institution as mentioned in section 10(21), association/institution established with the object of controlling, supervising, regulating or encouragement of certain specified games as mentioned in 46 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 section 10(23), fund/institution established for charitable purposes as mentioned in 10(23C)(iv)(v), university or other institutions existing solely for educational purposes as mentioned in section 10(23)(vi) or hospital or other institution referred to in section 10(23C)(via). The said provision of section 2(24)(iia) is reproduced below as ready reference.
"2(24)(iia) - voluntary contributions received by a trust created wholly or partly for charitable or religious purposes by an institution established wholly or partly for such purposes or by an association or institution referred to in clause (21) or clause (23), or by a fund or trust or institution referred to in sub-clause (iv) or sub-clause (v) of clause (23C) of section 10 or university or other educational institution referred to in 10(23C)(vi) or hospital or other institutions referred to in section 10(23C)(via).
Explanation : For the purposes of this sub-clause, "trust" includes any other legal obligation."
4.1.8 Section 11(1)(a) exempts income derived from property held under trust wholly for charitable or religious purposes if income is applied for such purposes with provision of accumulation of income to the extent of 15% of receipts for application in future. Further, section 11(1)(d) provides that income from voluntary contributions with specific direction to form part of corpus of the trust is not to be included in the total income. The voluntary contribution received from donors is normally not income derived from property held under trust. 47 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07 However, section 12 deems any voluntary contribution received by a trust or institution created wholly for charitable or religious purposes not being contributions with specific direction to form part of the corpus of the trust or institution as income derived from property held under trust. The provisions of section 11 and 12 are applicable only when trust or institution is registered under section 12AA of the Income tax Act. This has been made clear in section 12A of the IT Act. Therefore, in case, a trust or institution is registered under section 12AA of the IT Act, voluntary contributions without any specific direction to form corpus of trust or institution will be treated as income derived from property held under trust and exemption under section 11 will be allowable subject to the fulfillment of conditions mentioned in section 11 and section 13 of the IT Act. In case of trust or institution registered under section 12AA, voluntary contribution with specific direction to form part of the corpus cannot be included in the total income except in cases in which the trust or institution is hit by the provisions of section 13 in which case, provisions of section 11 and 12 are not applicable. In case the trust or the institution is not registered under section 12AA, the provisions of section 11 and 12 are not applicable and therefore, deeming provision of section 11(1)(d) and section 12 48 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 as per which voluntary contribution towards corpus can not be included in the total income is not available. Such contributions have to be treated as income under the provisions of section 2(24)(ii) if received by trust or institutions mentioned therein. 4.1.9 In the present case, the assessee trust was registered under section 12AA by CIT on 29/3/2004 w.e.f. 1/4/2000. The registration was subsequently cancelled by CIT(A)(C) by order dated 29.8.2007. The order of CIT was set aside by the Tribunal vide order dated 14/5/2010 in ITA No.6509/M/2007. The effect of the said order of the Tribunal is that the assessee trust stands registered under section 12AA w.e.f. 1/4/2000 i.e. from assessment years 2001-02 onwards, Thus for assessment years 2001-02 to 2006-07, the voluntary contributions received by the assessee trust which as held earlier were with specific directions to form part of the corpus of the trust have to be treated as capital receipt and will not be included in the total income of the assessee in the years in which the trust or institution is not hit by the provisions of section 13(1)(c) in which case the provisions of section 11 and 12 which exclude voluntary donations with specific direction to form part of corpus from the purview of total income are not applicable. 49 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07 We have already held vide para 3.2.3 of this order earlier that the assessee trust is hit by the provisions of section 13(1)(c) in assessment years 2001-02 to 2003-04. Therefore, in these years, voluntary contributions are not eligible for exemption under section 11. In so far as assessment years 2004-05 to 2006-07 are concerned, there is no violations of provisions of section 13(1)(c) and the assessee trust will be eligible for exemption under section 11 subject to fulfillment of conditions mentioned therein.
4.1.10 The case of the assessment year 2000-01 is, however, different because in that year the assessee had not filed any application for registration and, therefore, it was not registered under section 12AA. Once the assessee is not registered under section 12AA, the provisions of section 11 and 12 are not applicable, and the character of income on account of voluntary contribution has to be decided in terms of definition of income as given in section 2(24)(iia) In terms of the said provision which has been reproduced earlier, voluntary contributions received by a trust or institution created wholly or partly for charitable or religious purposes have to be treated as income of the trust or the institution. The section does not 50 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 make any distinction between ordinary contributions and contributions with direction to form corpus of the trust. Therefore, all contributions whether ordinary or towards corpus have to be treated as income if the trust or institution is found to have been created wholly or partly for charitable or religious purposes. In the present case, the trust had been created for charitable purposes which is clear from the fact that it had been registered under section 12AA of the IT Act for the assessment years 2001-02 to 2006-07, based on the same objects. Therefore, in assessment year 2000-01, the assessee trust having the same objects has to be treated as charitable trust or institution though not registered under section 12AA. The definition of income under section 2(24)(iia) does not differentiate between trust or institution registered under section 12AA and those not registered under section 12AA. Any trust or institute created partly or wholly for charitable or religious purposes whether registered or not is covered under section 2(24)(iia). Therefore, in our view, considering the unambiguous provisions of section 2(24)(iia), the voluntary contributions received with specific direction to form corpus fund have to be treated as income of the assessee trust.
51 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07 4.1.11 The ld. AR for the assessee has argued that voluntary contributions received only by charitable and religious trust are income under section 2(24)(iia) and that the voluntary contributions received by other persons. It has been submitted that the AO had held that the assessee was an AOP and therefore, voluntary contribution received by it could not be considered as income. We are unable to accept the arguments advanced. The section 2(24)(iia) covers not only trusts but also institutions created wholly or partly for charitable or religious purposes. The character of an institution as a charitable entity depends upon its objects and activities and not on the status in which it is assessed. We have already held earlier that the assessee was a trust or institution created for charitable purposes and, therefore, it is covered by section 2(24)(iia) and any voluntary contribution received has to be treated as income. 4.1.12 The ld. AR for the assessee has placed reliance on certain decisions mentioned in para 4.1.4 earlier which in our view are distinguishable and are of no help to the assessee. In case of CIT vs. SRMT Staff Association (supra), relied upon by the ld. AR, the assessee was registered as a society of employees which had collected amounts from businessmen for 52 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 advertising in souvenir for augmenting its funds. Therefore there was no dispute that the assessee was not a charitable institution. It was also not one of the institutions as mentioned in section 2(24)(iia). It was, therefore, held by the Hon'ble High Court that contribution received could not be assessed as income under section 2(24)(iia) as conditions mentioned therein were not satisfied. In the present case, the assessee was a charitable trust/institution and, therefore, conditions of section 2(24)(iia) are satisfied. In case of M/s. Pentafour Software Employees Welfare Foundation vs. ACIT (supra), the assessee company had been formed for providing medical aid and other facilities to the employees of Pentafour group of companies. The assessee was not holding any property for charitable or religious purposes. It had received donations from employers towards corpus. Since the assessee trust had not been created for charitable or religious purposes, the donations could not be considered as income under section 2(24)(iia) as the assessee was not a trust or institution referred to in the said section. The present case is obviously different from that case.
4.1.13 The ld. AR has also placed reliance on the decision of the Tribunal in the case of Mahila Sidh Nirman Yojna (supra). In 53 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 that case also, the assessee was not registered under section 12AA. The issue was taxability of voluntary contributions made towards corpus of the trust. It had been argued by the department that since the trust was not registered under section 12AA and provisions of section 11 and 12 were not applicable, the corpus donations had to be treated as income under section 2(24)(iia). The Tribunal held that even if the trust was not registered under section 12AA, the voluntary contributions received towards corpus could not be assessed as income as the same were capital receipts. The Tribunal gave no reasons for arriving at the said conclusion. It appears to us that the said conclusion had been drawn by the Tribunal in the understanding that the trust could not be considered as created for charitable purposes if the same was not registered under section 12AA and, therefore, could not be covered under section 2(24)(iia). Any other interpretation will be contrary to the provisions of section 2(24)(iia) as per which any voluntary contribution received by the trust/institution created for charitable or religious purposes has to be treated as income. In the present case we have held earlier that the assessee even though not registered under section 12AA, is a trust or institution created for charitable purposes. Therefore, the case is different on facts. Moreover in 54 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 that case, the Tribunal had also noted that the assessee had filed application for registration under section 12A which was pending since long and had not been rejected. Therefore, the Tribunal held that it was unfair for the department to deny exemption under section 11. Thus the Tribunal had impliedly treated the assessee as registered under section 12AA and, therefore decision could not be considered as a precedent for cases in which neither the trust is registered nor there is application for registration under section 12A. The voluntary contributions defined as income under section 2(24)(iia), cannot be treated, in the absence of any specific provision, as capital receipt only on the ground that these have to be applied towards corpus. It is a settled position of law that nature of income does not depend upon the application of the income.
4.1.14 In view of the foregoing discussion and for the reasons given earlier, we are of the considered view that in so far as assessment year 2000-01 is concerned in which assessee had neither filed application for registration under section 12A nor it was registered, the voluntary contributions with direction to form corpus have to be treated as income. In assessment year 2001-02 to 2003-04 also provisions of section 11 and 12 55 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 were not applicable due to violation of provisions of section 13(1)(c) and therefore, in these years also, voluntary contributions towards corpus have to be treated as income. However, in assessment year 2004-05 to 2006-07 in which the assessee was registered under section 12AA, and in which no violation of section 13(1)(c) were found, voluntary contributions have to be treated as capital receipt, not taxable. We hold accordingly.
4.2 The 2nd dispute which is also common in all the assessment years is regarding disallowance of depreciation. AO in the assessment orders observed that the assessee had not claimed depreciation as provided in the IT Act. The assessee had filed returns of income as trust and claimed capital expenditure as full deduction in the computation of income. He, therefore, asked the assessee to explain as to why the depreciation should not be disallowed in respect of assets appearing as opening balance for assessment year 2000-01. He referred to the judgment of Hon'ble Supreme Court in the case Eicher Goodearth Ltd. Vs Union of India (SC) (199 ITR 43) in which it was held that in respect of capital expenditure on scientific research allowed as deduction under section 35(2)(iv), no depreciation was allowable. The assessee submitted that 56 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 income of the assessee was exempt under section 10(22) up to assessment year 1998-99 and in assessment year 1999-00, the assessee did not have registration under section 12AA, and, therefore, any capital expenditure could not be said to have been allowed against the surplus of the year. The AO, however, observed that the assessee did not file details of capital expenditure claimed as expenditure in the earlier years. He, therefore, disallowed depreciation in respect of opening block of assets as on 1.4.1999. The depreciation claimed by the assessee and allowed by AO in different years were as under :-
Assessment Depreciation Depreciation
year claimed by allowed by
assessee AO(Rs.)
(Rs.)
2000-01 1,70,40,444/- 57,25,149/-
2001-02 1,55,58,219/- 52,49,820/-
2002-03 1,91,14,605/- 1,16,36,165/-
2003-04 1,92,67,147/- 1,31,74,088/-
2004-05 2,19,51,302/- 1,68,84,604/-
2005-06 2,59,67,741/- 2,16,16,307/-
2006-07 2,14,19,414/- 1,85,86,762/-
4.2.1 The assessee disputed the decision of AO and
submitted before CIT(A) that income of the assessee was exempt under section 10(22) upto assessment year 1998-99 and therefore, there was no need to claim depreciation. In assessment years 1999-00 to 2000-01, the assessee did not 57 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 have registration under section 12AA and therefore, benefit of deduction on account of capital expenditure under section 11(1) was not available. It was also submitted that the assessee was not precluded from claiming depreciation on the assets claimed as capital expenditure while computing benefits under section 11, which was supported by the judgment of Hon'ble High Court of Bombay in the case of CIT vs. Institute of Banking Personnel Selection (264 ITR 110). It was pointed out that the AO was not correct in arbitrarily taking WDV as on 1.4.1999 at Nil. The WDV of any asset has to be determined only on the basis of actual cost as reduced by the depreciation actually allowed to the assessee as held by Hon'ble Supreme Court in the case of Madeva Upendra Sinai Vs Union of India (SC)(98 ITR 209). 4.2.2 CIT(A) after necessary examination observed that the assessee had not claimed any benefit for application of income under section 11 of the Income tax Act up to 31.3.2000. The assessee had been allowed normal depreciation till 1998-99 in its income and expenditure account and WDV of each asset as on 1.4.1999 was clearly mentioned in the books of account. Therefore, the AO was not correct in taking the WDV as on 1.4.1999 as Nil. The CIT(A) also observed that while computing 58 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 WDV, only depreciation actually allowed has to be deducted from the actual cost as held by Hon'ble Supreme Court in case of Madeva Upendra Sina (supra), and phrase 'actually allowed' was limited to depreciation which actually had been taken into account or granted and given effect to and not notionally allowed. CIT(A) further observed that special auditors had computed the depreciation correctly under the provisions of the Act. The AO on the other hand had not computed WDV correctly as the exercise undertaken by him had resulted into negative depreciation and negative WDV in case of many assets. CIT(A), therefore, did not accept the order of AO making variations in the depreciation chart prepared by the special auditor. He, therefore, allowed the depreciation as claimed by the assessee aggrieved, by which the revenue is in appeal before the Tribunal in all the years.
4.2.3 Before us, the ld. DR appearing for the revenue argued that the assets in respect of which depreciation was being claimed in earlier years were used in business and, therefore, it could not be said that no depreciation had been allowed. He supported the order of AO and placed reliance on the findings given in the assessment orders. The ld. AR on the other hand placed reliance on the orders of CIT(A). 59 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07 4.2.4 We have perused the records and considered the rival contentions carefully. The dispute is regarding the computation of depreciation. The AO did not allow depreciation fully as claimed by the assessee. It was observed by him that the assessee had claimed the capital expenditure as full deduction in the computation of income in the earlier years and therefore, no depreciation could be allowed in respect of such assets. He treated the opening WDV as on 1/4/1999 as nil and thereafter computed depreciation for different years after denying the depreciation claimed in respect of capital expenditure claimed as full deduction. The details of depreciation claimed and depreciation allowed year wise have been given in para 4.2 earlier. CIT(A) noted that the assessee was not registered under section 12AA till 31.3.2000 and, therefore, the assessee was not entitled for exemption under section 11 under IT Act. He, therefore, concluded that the assessee could not have claimed the capital expenditure as application of income till 31.3.2000 CIT(A) has further given a finding that the assessee had been allowed normal depreciation till assessment year 1999-00 in the income and expenditure account and WDV of each asset as on 1/4/1999 was clearly 60 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 mentioned in the books of account. He has referred to the judgment of the Hon'ble Supreme Court in the case of Madeva Upendra Sina (supra), in which it was held that while computing WDV the depreciation actually allowed and not notional depreciation has to be deducted from actual cost. CIT(A) has observed that the special auditors had computed depreciation correctly under provisions pf the Act. On the other hand, the entire exercise of re-computation of depreciation made by AO had resulted into absurd result such as negative depreciation and negative WDV in case of many assets.
4.2.5 The finding of facts recorded by CIT(A) has not been controverted before us. As regards the allowability of depreciation in relation to capital expenditure allowed as full deduction while computing exemption under section 11, the issue is settled by the judgment of Hon'ble Bombay High Court in case of CIT vs. Institute of Banking Personnel Selection, (264 ITR 110) in which it has been held that allowing full deduction in respect of capital expenditure in relation to the provisions of section 11 only meant that expenditure incurred on acquisition of capital asset to be used for charitable /religious purposes has to be treated as application of income. The depreciation has to be 61 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 allowed in respect of capital assets so acquired and used for charitable activity. The High Court accordingly upheld the view that depreciation has to be allowed in respect of capital assets acquired for charitable purposes out of application of income of the trust. In view of the foregoing discussion, we do not see any infirmity in the orders of CIT(A) and the same are therefore, upheld.
4.3 The 3rd dispute in the appeal by the revenue is relevant to only assessment years 2000-01 and 2001-02 and is regarding relief allowed by CIT(A) in relation to unaccounted donations added by the AO. As mentioned earlier while dealing with the appeal of the assessee, the AO had treated the payments made on the basis of 4 challans of Rs.18,000/- each as donation. The assessee, however, claimed that these were the school fees paid by students and not donations and this claim was accepted by CIT(A). Similarly in the seized diary there was an entry of 2000 in relation to assessment year 2001-02 which had been treated by AO as 2.00 lacs. CIT(A) accepted the claim of the assessee that the amount involved was only 2000 and gave relief of Rs.1,98,000/- in 2001-02. Aggrieved by the decision of CIT(A) revenue is in appeal before Tribunal in 2000-01 and 2001-02. 62 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07 4.3.1 We have heard both parties, perused the records and considered the matter carefully. In our view, the approach adopted by CIT(A) is reasonable. It has not been explained before us by the ld. DR as to how the payment of Rs.18,000/- mentioned in the four challans can be treated as donation. Similarly it has also not been explained as to how the AO added Rs.2.00 lacs when the actual noting in the diary was only Rs.2000/-. We, therefore, confirm the order of CIT(A) on these points and dismiss the grounds raised by the revenue. 4.4 The 4th dispute which is relevant only to assessment year 2000-01 is regarding disallowance of deduction of Rs.2,32,000/- claimed by the assessee on account of payment to Director of Technical Education. The AO noted that Vidya vardhini's College of Engineering and Technology had paid penalty of Rs.32,000/- and Rs.2.00 lacs to Director of Technical Education. The AO held that the said payments were for infraction of statutory provisions and, therefore, deduction was not allowable in view of explanation to section 37(1) as per which any expenditure incurred for any purpose which is an offence or which is prohibited by law is deemed to have not been incurred for the purpose of business or profession. He, therefore, disallowed the 63 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 claim of the assessee. In appeal, the assessee submitted before CIT(A) that college had inadvertently admitted six students in excess of the permissible number. The payment had been made by the assessee not for violation of any statutory provisions but for violation of administrative guidelines issued by the Director of Technical Education and, therefore, the payment was not for infraction of law and, was allowable as deduction. CIT(A) being satisfied by the explanation given by the assessee, allowed the claim aggrieved by which, the revenue is in appeal before Tribunal.
4.4.1 We have heard both parties, perused the records and considered the matter carefully. The dispute is regarding allowability of deduction of Rs.2,32,000/- paid by the assessee to the director of technical education for admitting extra students. The case of the assessee is that extra students had been admitted inadvertently in violation of administrative guidelines and, therefore, there was no infraction of law. The ld. DR, could not explain before us as to how there was any violation of statutory provisions in admitting students. Therefore, in our view the deduction claimed cannot be disallowed under the provisions of Explanation to section 37(1). We do not see 64 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 any infirmity in the order of CIT(A) in allowing the claim and the same is therefore upheld.
5. Appeals of the revenue in case of Shri A.K. Patil in ITA No.6612 to 6315/Mum/2008 (assessment years 2000-01 to 2003-04):
The only dispute raised by the revenue in these appeals is regarding deletion of addition made by AO in case of Shri Arun K. Patil, Hon. Secretary of the assessee trust. As mentioned earlier while dealing with the appeal of the assessee relating to the addition on account of unaccounted donations, four diaries had been found from the business premises of Laxmi Zerox Blue Print Centre, Parnaka, Vasai a proprietary concern of Shri A.K. Patil who was also Hon. Secretary of the trust. The diaries contained entries of unaccounted donations taken from the students/parents for admission to various colleges, which related to assessment years 2000-01 to 2003-04.
5.1 Shri Patil at the time of survey under section 133A had stated that donations had been collected on the instruction of the trustees. However, during the assessment proceedings, he denied that any donation had been collected on the instruction of the trustees. It was stated by him that the donations were 65 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315 A.Y. :00-01 to 06-07 collected in his individual capacity. He had also declared income on account of donations entered in the four diaries as his unaccounted income and after claiming deduction for expenses @ 50%, he declared income in the returns filed under section 153A for the assessment years 2000-01 to 2003-04. The facts have been discussed in detail while dealing with the connected ground of the assessee trust in para 3.1 onwards. The AO had assessed the income from unaccounted donations in case of the trust. In view of our decision taken earlier vide para 3.1.24 of this order while dealing with the appeal of the trust, we have to hold income from any unaccounted donations has to be assessed in case of the trust for assessment years 2000-01 to 2003-04.
The orders of CIT(A) deleting the additions on account of unaccounted donations in case of the Shri A.K. Patil are accordingly upheld and appeals filed by the revenue in assessment years 2000-01 to 2003-04 are dismissed. 5.2 In the result :
(i) The appeals of Vidyavardhini for assessment years 2000-
01 to 2003-04 are dismissed and those for assessment years 2004-05 to 2006-07 are partly allowed.
66 No. 1956 to 1962 ; 2309 to 2315 & 6312 to 6315
A.Y. :00-01 to 06-07
(ii) The appeals of the revenue in case of vidyavardhini for assessment years 2000-01 to 2003-04 are partly allowed whereas those for assessment years 2004-05 to 2006-07 are dismissed.
(iii) The appeals of the revenue in case of Shri A.K. Patil for the assessment years 2000-01 to 2003-04 are dismissed. Order pronounced in the open court on 20.1.2012 Sd/- Sd/-
(R.S. PADVEKAR) (RAJENDRA SINGH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dated: 20.1.2012.
Jv.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.