Income Tax Appellate Tribunal - Cochin
Sabarigiri Educational Cultural ... vs Assessee on 10 December, 2013
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IT(SS)A No. 188/Coch/2005
CO No. 20/Coch/2006
IN THE INCOME TAX APPELLATE TRIBUNAL
COCHIN BENCH, COCHIN
Before Shri N.R.S. Ganesan (JM) and Shri B.R. Baskaran(AM)
IT(SS)A No.188/Coch/2005
(Block period 01-04-1996 to 28-05-2002)
The A.C.I.T., Cent.Cir. vs M/s Sabarigiri Educational
Kollam & Cultural Society, Anchal
Kollam
PAN : AAATS6514R
(Appellant) (Respondent)
C.O. No.20/Coch/2006
(Arising out of IT(SS)A No.188/Coch/2005)
(Block period 01-04-1996 to 28-05-2002)
M/s Sabarigiri Educational & vs The D.C.I.T., Cent.Cir.
Cultural Society, Anchal Kollam
(Cross Objector) (Respondent)
Revenue by : Shri K.K. John
Assessee by : Shri CBM Warrier
Date of hearing : 10-12-2013
Date of pronouncement : 31-01-2014
ORDER
Per N.R.S. Ganesan (JM) The revenue has filed the present appeal against the order of CIT(A)-I, Kochi dated 10-08-2005 for the block period 01-04-1996 to 28- 05-2002.
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IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006
2. The first ground of appeal is with regard to addition of R.75,09,700.
3. Shri K.K. John, the ld.DR submitted that the assessee society owns two schools. The application filed by the assessee for registration u/s 12A of the Act was rejected by the Commissioner of Income-tax. The assessee has not applied for approval u/s 10(22) / u/s 10(23C) of the Act. Therefore, the assessee society was also not approved by the competent authority u/s 10(22) / u/s 10(23C) of the Act; hence, the assessee is not eligible for exemption either u/s 10(22) or u/s 10(23C) of the Act. According to the ld.DR, for the assessment years 2000-01 and 2001-02, admittedly, the gross receipts exceeded Rs.1 crore, therefore, approval by the competent authority is a pre-condition for claiming exemption u/s 10(23C) of the Act. In respect of other years, the assessee has to satisfactorily explain that the society does exist without profit motive. In this case, according to the ld.DR, the assessee society collected capitation fee for admission of the students. The capitation fee collected was not accounted in the books of account of the society. The assessee claimed that the capitation fee, viz. building fund or development fund was received through an intermediary society. According to the ld.DR, the amounts collected by the assessee outside the books of account were deposited in the bank account in the personal name of Dr V.K. Jayakumar and Mrs. Sula Jayakumar. The 3 IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006 property was also purchased in the name of Dr V.K. Jayakumar and Mrs, Sula Jayakumar. Since the money was collected from the students for admission over and above the fees by Dr V.K. Jaykumar and Mrs. Sula Jayakumar outside the books of account, according to the ld.DR, the society was in existence with profit motive, therefore, not entitled for exemption u/s 10(22) / 10(23C) of the Act.
4. Referring to the order of the CIT(A), the ld.DR submitted that the CIT(A) found that the amount received by the assessee towards building fund and development fund are capital in nature, therefore, it cannot be taken as income of the assessee. According to the ld.DR, the amount received is not in relation to a capital asset. This was received in the course of running the school for admission of the students. Therefore, this cannot be treated as a capital receipt. According to the ld.DR, there is no direction from the parents, who paid the money to treat the amount a corpus of the society. There is no instruction from the parents, who paid the money to use the funds for a particular purpose. This amount was collected compulsorily at the time of admission of the students by the society. Therefore, it cannot be treated as capital receipt as found by the CIT(A). Hence, the CIT(A) is not correct in deleting the addition made by the assessing officer.
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IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006
5. On the contrary, Shri CBM Warrier, the ld.DR submitted that the assessee society runs two schools and it exists only for charitable purpose. According to the ld.representative, the assessee trust has no profit motive. The ld.representative submitted that the assessee has not collected any money from the students. There is another society called Parents Teachers' Association (PTA hereinafter called) which collected the money from the students at the time of admission for construction of the building and development fund. The funds collected by PTA was transferred to the assessee society and after utilization of the funds, the surplus fund was deposited in the name of Dr V.K. Jayakumar in the nationalized bank. According to the ld.representative, the seized material shows the name of the donor, the purpose for which the amount was given. The ld.representative submitted that receipts were issued to the respective parents and it was also fully accounted in the books of account. The ld.representative further submitted that the assessee society applied for registration u/s 12A of the Act on 23-07-1991. However, the Commissioner, after expiry of 7 years' period, on 19-08-1998, rejected the application of the assessee for registration u/s 12A of the Act by a non speaking order. According to the ld.representative, rejecting the application after 7 years is not justified. The ld.representative further submitted that since the amount was not collected by the assessee and it 5 IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006 was collected by PTA of the school, the same cannot be added in the hands of the present assessee.
6. We have considered the rival submissions on either side and also perused the material available on record. The question arises for consideration is - whether the assessee is entitled for exemption u/s 10(22) / u/s 10(23C) of the Act or u/s 11 of the Act. The application filed by the assessee for registration u/s 12A was admittedly rejected by the Commissioner of Income-tax. The only objection of the assessee is that it was rejected after expiry of 7 years, therefore, the assessee should be given exemption. This Tribunal cannot accept the contention of the ld.representative for the assessee. The Income-tax Act does not provide for any deemed registration for non disposal of the application within a particular time. In other words, the consequence of non disposal of the application u/s 12A is not provided in the Income-tax Act. Therefore, there is no question of any deemed registration. Moreover, the assessee has not challenged the order of the Commissioner of Income-tax whereby the application u/s 12A was rejected. Therefore, the order of the Commissioner of Income-tax has attained finality. This view of ours is fortified by the judgment of the Madras High Court in the case of CIT vs 6 IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006 Sheela Christian Charitable Trust (2013) 354 ITR 478 (Mad). Therefore, the assessee is not entitled for exemption u/s 11 of the Act.
7. Now whether the assessee is entitled for exemption u/s 10(22) / u/s 10(23C) of the Act? For the assessment years 2000-01 and 2001-02 the assessee's gross receipts admittedly exceeded Rs.1 crore, therefore, unless and until the assessee obtained the approval of the competent authority, it is not exempt u/s 10(23C) of the Act. In respect of other assessment years where the gross receipt is less than Rs.1 crore, the approval of the competent authority may not be necessary. But the society has to establish that the society existed solely for educational purpose without any profit motive. To examine whether the assessee trust was established for profit motive, we have to first examine the trust deed under which the trust / society was established. Both the parties did not file before us the deed under which the society was established. Therefore, this Tribunal is unable to record any finding whether the society was established for profit motive or not? Moreover, collection of capitation fee for admission of the students is prohibited by state enactment. It is also a fact that the act of collection of capitation fees by any educational institution at the time of admission of the students is made as a punishable offence. Therefore, the money received either by the educational 7 IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006 institution or by the trust which runs the institution or anybody else in the name of the school has to be considered as capital receipt. The capitation fee cannot be considered as income which generated in the course of running educational institution. The assessee claims that PTA collected the money and the name and address of the parents, the purpose for which the money was collected are accounted and recorded in the books of account. The CIT(A) refers to some of the seized material marked as 'A-1 to A-18', 'AM-19', and 'AM II 33'. Unfortunately, copies of the above seized materials are not filed before this Tribunal. Therefore, this Tribunal is unable to say whether the money collected by the assessee from the students at the time of admission is capitation money or not.? The fact remains is that the assessee collected the money over and above the prescribed fee for admission of the students. Therefore, the nature of the money collected needs to be examined before examining whether the assessee is entitled for exemption u/s 10(22) / u/s 10(23C) of the Act. In the absence of any material before this Tribunal in the form of copies of the seized material or the copies of the deed under which the trust was established, this Tribunal is unable to uphold the contention of the assessee. Therefore, this Tribunal is of the considered opinion that it needs to be examined by the assessing officer afresh in the light of the trust deed and the search material. Accordingly, the orders of the lower 8 IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006 authorities are set aide and the addition of Rs.75,09,000 is remitted back to the file of the assessing officer. The assessing officer shall re-examine the issue in the light of trust deed and the search material and thereafter record a categorical finding whether the surplus funds are reinvested and utilized for educational purpose or it was appropriated for any of the individual's benefit. The assessing officer shall also examine the seized material which are claimed to be having the names of the donors and the purpose for which it was donated. The assessing officer shall also give reasonable opportunity of hearing to the assessee and decide the same in accordance with law.
8. The next ground of appeal is with regard to addition of Rs.50,000.
9. Shri K.K. John, the ld.DR submitted that the assessee has filed a cash flow statement showing the opening cash balance as on 01-04-1996 at Rs.50,000. The cash balance as on 01-04-1996 as per the books of account was Rs.46,282. No explanation was forthcoming from the assessee for showing the cash balance at Rs.50,000. Dr V.K. Jayakumar was examined at the time of search. He admitted that for the development of the school, funds were received without issuing receipts. Since the 9 IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006 amount was received without issuing any receipts it was added to the total income of the assessee for the assessment year 1996-97.
10. On the contrary, Shri CBM Warrier, the ld.DR submitted that no material was found during the course of search operation. Therefore, this amount cannot be treated as income of the assessee for the block period. According to the ld.representative, without any seized material, there cannot be any addition as undisclosed income for the block period.
11. We have considered the rival submissions on either side and also perused the material available on record. Section 158BB(1) clearly says that undisclosed income shall be calculated on the basis of the material found during the course of search operation and evidence relatable to the material found during the course of search operation. While interpreting section 158BB(1), the Kerala High Court in the case of CIT vs Hotel Meriya (2011) 332 ITR 537 (Ker) found that statement recorded u/s 132(4) of the Act also forms part of the material / evidence found during the course of search operation. In the course of recording statement u/s 132(4), Dr V.K. Jayakumar admitted that the amount was collected without issuing receipts. Therefore, this Tribunal cannot say that there was no seized material. The statement recorded u/s 132(4) of the Act forms part of the seized material wherein it was admitted that amount of Rs.50,000 was 10 IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006 collected without issuing receipts. Therefore, the CIT(A) is not justified in deleting the addition made by the assessing officer. Accordingly, the order of CIT(A) is set aside and the addition made by the assessing officer is restored.
12. The next ground of appeal is with regard to addition of Rs. 2,85,940 towards sale of application form.
13. Shri K.K. John, the ld.DR submitted that the sale consideration received for sale of application forms was not accounted for in the books of account. Therefore, the sale proceeds of the application forms were taken as unaccounted income of the assessee. However, the CIT(A) deleted the addition on the ground that the seized material belongs to another society by name 'Sabarigiri School Society'. According to the ld.DR, the seized material does belong to the assessee. According to the ld.DR, the application form was sold for the school run by the assessee. Whether it is sold by the assessee directly or through any other society, the sale was of the assessee society, therefore, the sale proceeds of application form has to be accounted for in the books of the assessee. It is not the case of the assessee that the application form was printed and delivered to other society free of cost. Therefore, all the sale proceeds has to be accounted 11 IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006 for in the books of the assessee; hence the CIT(A) is not justified in deleting the addition.
14. On the contrary, Shri CBM Warrier, the ld.representative for the assessee submitted that the entire receipts on sale of application forms were properly accounted for. The amount of Rs.2,85,940 is the result of working made by the assessing officer from the seized books of account of another society by the name 'Sabarigiri School Society'. Therefore, if at all any addition should be made that should be in the hands of the 'Sabarigiri School Society' and it cannot be made in the hands of the assessee.
15. We have considered the rival submissions on either side and also perused the material available on record. It is not in dispute that an amount of Rs.2,85,940 towards the sale of application forms was not accounted for in the books of account of the assessee. The assessee now claims that the seized books relate to 'Sabarigiri School Society' and not to the assessee under appeal. The department claims that the application form belongs to the school run by the present society but this fact is not coming out of the orders of the lower authority. If the application form belongs to the school run by the assessee society, it is not known how another society was authorised to sell the application forms. These facts 12 IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006 need to be verified. In the absence of any material on the file of this Tribunal, this Tribunal is of the considered opinion that the assessing officer has to verify the details. Accordingly, the orders of lower authority are set aside and the issue of addition of Rs.2,85,940 is restored to the file of the assessing officer for reconsideration. The assessing officer shall re- examine the issue afresh in the light of the material available on record and thereafter decide the same in accordance with law after giving reasonable opportunity of hearing to the assessee.
16. The next ground of appeal is with regard to addition of Rs.8,37,630.
17. Shri K.K. John, the ld.DR submitted that the collection of monthly fee and other fees for the assessment year 2001-02 was entered in the ledger after omitting the thousand digits. According to the ld.DR, the receipt of 13,720 was shown in the ledger as 720. Similarly 31,560 was shown in the ledger as 560. This method is continued for all other entries. Though the period for filing the return of income has not expired, according to the ld.DR, since the assessee has not maintained the accounts properly, this could not have been disclosed to the department but for the search. Therefore, the assessing officer has rightly made the addition. However, the CIT(A) deleted the addition on the ground that the assessee has filed 13 IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006 the return of income u/s 139(1) declaring the above said amount. According to the ld.DR, the assessee would not have declared this amount in the return filed subsequent to the search but for the search, therefore the CIT(A) is not justified.
18. On the contrary, Shri CBM Warrier, the ld.representative for the assessee submitted that the time limit for filing the return of income has not been expired as on the date of search. According to the ld.representative, omission in the accounting has occurred as a result of misappropriation of funds by the cashier who was incharge of cash. As soon as it was brought to the notice of the assessee society, the same was declared to the department by filing return u/s 139(1) before the due date for filing the return of income. Therefore, this cannot be treated as undisclosed income.
19. We have considered the rival submissions on either side and also perused the material available on record. No doubt, the entries found in the books of account maintained in the regular course of business cannot be treated as undisclosed income provided the time limit for filing the return of income has not expired on the date of search. In this case, the assessee apparently maintained two sets of books for receipt of monthly fee, term fee, etc. The assessing officer, after comparing the two sets of 14 IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006 books found that thousands digits were omitted. As rightly pointed out by the ld.DR, instead of 13,720, the assessee has entered only 720. Similarly for 31,560 the assessee has shown only 560. Therefore, the collection of fund was not entered in the books of account properly. This is not an omission as claimed by the ld.representative for the assessee. When the assessee knew that there were two sets of books of account maintained and thousands' digits were left out, this Tribunal is of the considered opinion that this is an obvious suppression of receipt for the known reasons. Therefore, but for the search, the assessee could not have disclosed the income in the regular return of income. In view of the language employed in section 158BB(1)(d), this Tribunal is of the considered opinion that this amount cannot be excluded while computing the undisclosed income. Therefore, the CIT(A) is not justified in deleting the addition. Accordingly, the order of CIT(A) is set aside and the addition made by the assessing officer is restored.
20. The revenue has taken one more ground with regard to levy of surcharge u/s 113 of the Act.
21. After hearing both sides, we find that in view of the judgment of the Apex Court in the case of CIT vs Suresh N Gupta (2008) 297 ITR 322 (SC) 15 IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006 the assessee is liable to pay surcharge even though the search took place in the period subsequent to insertion of Proviso to section 113 of the Act. Therefore, the order of the CIT(A) is set aide and that of the assessing officer is restored.
22. Now coming to the cross objection filed by the assessee, the first objection is with regard to assessment made u/s 158BD of the Act. Admittedly, search took place in the case of Dr V.K. Jayakumar and the assesee is a person other than the person searched, therefore, the assessment has to be made only u/s 158BD of the Act. Hence, this Tribunal do not find any infirmity in framing the assessment u/s 158BD of the Act.
23. The next ground of cross objection is that there is no search warrant in the name of assessee. This Tribunal is of the considered opinion that when the warrant was issued in the name of Dr V.K. Jayakumar and the place of search was shown as the premises of the assessee, then the department has validly initiated search proceedings. Therefore, we do not find any infirmity in the order of the lower authorities. Accordingly, the same is confirmed.
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IT(SS)A No. 188/Coch/2005 CO No. 20/Coch/2006
24. The next ground of cross objection is with regard to the issuance of corrigendum. The corrigendum said to be issued by the assessing officer is only to correct the block period. Therefore, the issuance of corrigendum will not vitiate the proceedings at all.
25. In view of the above, the appeal of the revenue is partly allowed for statistical purpose and the cross objection of the assessee is dismissed.
Order pronounced in the open court on this 31st January, 2014.
Sd/- sd/-
(B.R. Baskaran) (N.R.S. Ganesan)
ACCOUNTANT MEMBER JUDICIAL MEMBER
st
Cochin, Dt : 31 January, 2014
pk/-
copy to:
1. The ACIT, Cent.Cir., Kollam
2. M/s Sabarigiri Educational & Cultural Society, Anchal, Kollam
3. The Commissioner of Income-tax, Central, Kochi
4. The Commissioner of Income-tax(A)-I, Kochi
5. The DR (True copy) By order Asstt. Registrar, Income-tax Appellate Tribunal, Cochin Bench