Income Tax Appellate Tribunal - Hyderabad
Joginpally B.R.Educational Society, ... vs Assessee on 30 August, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
SHRI SAKTIJIT DEY, JUDICIAL MEMBER
S.
ITA No. A.Y. Appellant Respondent
No.
1. 29/Hyd/2013 2004-05
2. 30/Hyd/2013 2005-06
3. 31/Hyd/2013 2006-07 M/s. J.B. Educational The ACIT
4. 32/Hyd/2013 2007-08 Society, Hyderabad Central Circle-1
5. 33/Hyd/2013 2008-09 PAN: AAATJ3217A Hyderabad
6. 34/Hyd/2013 2009-10
7. 35/Hyd/2013 2010-11
8. 36/Hyd/2013 2005-06
9. 37/Hyd/2013 2006-07 M/s. Joginapally B.R.
The ACIT
10. 38/Hyd/2013 2007-08 Educational Society
Central Circle-1
11. 39/Hyd/2013 2008-09 Hyderabad
Hyderabad
12. 40/Hyd/2013 2009-10 PAN: AAATJ4159P
13. 41/Hyd/2013 2010-11
Appellant by: Sri S. Rama Rao
Respondent by: Sri K. Gyana Prakash
Date of hearing: 30.08.2013
Date of pronouncement: 28.10.2013
ORDER
PER CHANDRA POOJARI, AM:
The above appeals belonging to two different assessees are directed against different order of the CIT(A) for A.Ys. 2004-05 to 2010-11. Since issues involved are common in the above appeals, they are clubbed together, heard together and are being disposed of by this common order for the sake of convenience.
ITA Nos. 29 to 35/Hyd/2013 - J.B. Educational Society
2. First, we take up appeals pertaining to M/s. J.B. Educational Society in ITA Nos. 29 to 35/Hyd/2013.
3. Brief facts of the issue are that the assessee society had been granted registration u/s. 12A of IT Act, vide proceedings of 2 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== CIT, AP-II, Hyderabad in F. No. Hqrs-II/12A & 80G/38/2000- 01, dated 18-12-2000. It had also been granted approval u/s. 10(23C)(vi) of IT Act by the CCIT-I, Hyderabad vide proceeding in F.No.CC/Tech-I/22B (9,10,61 & 342)/2009-10, dt. 22-04-09. Its main activities are to establish and run schools, colleges, catering and hotel management institutes etc., and prepare students for schools and college examinations at State and Central levels of education. The society runs the following institutions:
1. JB Institute of Engineering and Technology
2. Bhaskar Pharmacy College
3. Bhaskar Engineering College
4. JB Institute of Hotel Management & Catering Technology
5. JB Institute of Computer Technology
6. JB Institute of PG courses
7. JB Women's Engg. College
4. The trustees holding important and decisive positions in the society are -
1. Shri J. Bhaskar Rao
2. Smt. J. Vasumathi Devi
3. Sri J.V. Krishna Rao
4. Sri J. Vamshidhar Rao In addition to the above, other family members Ms. J. Sunitha, D. Deepika, Ch. Krishna Rao and Ch. Vijayalakshmi, are the members of the society.
5. The Assessing Officer has mentioned that there are two categories of engineering seats in an engineering college. Whereas students in Category 'A' are admitted as per the ranks obtained in EAMCET, students are admitted in Category 'B', also known as the Management Quota, by the Management of the society, subject to certain restrictions. He noted that the number of seats under the Management Quota in Engineering 3 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== courses run by the assessee society for various years were as under:
J.B. Institute of Engg. & Technology No. of No. of Sl. Academic management management No. year seats seats filled permitted 1. 2003-04 65 64 2. 2004-05 64 60 3. 2005-06 64 57 4. 2006-07 114 97
5. 2007-08 144 121
6. 2008-09 180 151
7. 2009-10 234 176 Bhaskar Engineering college No. of No. of Sl. Academic management management No. year seats seats filled permitted 1. 2007-08 48 37 2. 2008-09 60 56 3. 2009-10 90 38
6. The AO also noted that the AP State Technical Education Board has prescribed various types of fees to be collected from students of two categories as under:
Category Fee per year
Category 'A' Regular fee prescribed by the
convener, EAMCET.
Category 'B' Regular fee prescribed by the
Convener, EAMCET i.e., Rs.
91,700.
7. As discussed in the assessment order, search operations were conducted in the cases of the assessee society and M/s. Joginpalli B.R. Educational Society (JBREC), as also the residences of the main trustees, viz., Shri J. Bhaskar Rao, Shri J. Vamsidhar Rao and Shri J.V. Krishna Rao, the Registrar of 4 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== the JBREC, Shri K. Ashok Mehta Reddy and the Manager Shri R. Kondal Rao, Manager of the Society. During the said searches, jewellery and cash of Rs. 66,00,000/- and Rs. 5,17,000 was seized from the residence of Shri J. Bhaskar Rao. Cash of Rs. 42,00,000, Rs. 7,00,000 and Rs. 15,00,000 was seized from the campus of JB Education Society at Yenkapalli, JB Education Society at Banjara Hills and campus of JB Educational Society at Tirupati also, in addition to the cash of Rs. 3,00,000 seized from the locker No. 2 of Shri J. Prabhakar Rao. Besides, certain incriminating material was also found and seized from the office premises of the assessee society, vide Annexure JB/A/3 to JB/A/10, which showed that the Society had collected fees from students over and above the prescribed fees (in the form of donations/capitation fess) for granting admission into the professional courses undertaken by the institutions of the society. It was also found that the excess amounts so collected were not recorded in the books of account.
8. Explaining the incriminating seized documents so found, Shri Puran Chand Pusti, employee of the society, clearly stated that the amount received in cash was mentioned on the right hand side, top portion' of each page, next to name of the student. He clarified that the. amounts mentioned therein should be considered by adding two more zeroes in .JB/A/10. For example, he explained that the amount of Rs. 3,500, mentioned at page No. 156 of the Annexure JB/A/10, stood for Rs. 3,50,000. Shri J. Vamsidhar Rao was confronted with the statement of Mr. Puran Chand Pusti. However he could not give any satisfactory reply in this regard. When the said statements and evidences were put before Shri J. Bhaskar Rao, Chairman of the society, he in his statement dated 15.12.2009 (Question No. 8) stated that he would offer his comments in a couple of 5 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== days, however, no reply was submitted by him in this regard, even subsequently.
9. The Assessing officer further noted that the trustees in their letter to the DDIT dated 5-1-2010 had themselves stated that the figure noted on the top right hand side corner of each paper of the seized note books, normally, is inclusive of the total amount of fees and other amounts expected/offered as voluntary contributions, collected by the consultant as stated above in respect of each of the candidates of the Management Quota. It was mentioned that there is no hard and fast rule about this figure and that it may vary from student to student, year to year and during the duration of the course in certain cases, depending upon the various circumstances. It was also explained that slight variations on a few occasions in noting these figures were only due to the communication gap between the said consultants and the Management. They had submitted that the Management generally notes down the fees collection details -and on the right hand side corner notes the amount of fees and the voluntary contributions received/proposed to be received," as intimated by the consultants. It was found that as per the evidences seized, capitation fee was collected in cash and not recorded in the books of account and only the regular fees was recorded. As discussed in the assessment order, Shri J. Vamshidhar Rao in his statement dated 10-9-2009 admitted Rs. 7.5 crores as the undisclosed income on the basis of discrepancies in the books of account in the individual hands for the entire group. However, the same was not linked to the society. The said admission of Rs. 7.5 crores was again confirmed by him in his statement dated 15-12-2009. However, Shri Rao did not furnish the break-up of such disclosure nor the disclosure was honoured while filing the returns of income.
6 ITA No. 29/Hyd/2013 & Ors.M/s. JB Educational Society & Anr.
===========================
10. The AO further noted that Shri R. Kondal Rao, Manager of the Society had filed an application before the Settlement Commission on 29-7-2011, admitting an additional income of Rs. 8.18 crores. He pleaded before the Commission that he was collecting amounts at the time of admitting students into the college without the approval of the Management and that the same was not revealed to the Management. He also stated that the said amounts were used by him towards the expenses of the Society. However, the Settlement Commission, vide its report dated 29-8-2011 u/s. 245D(2C) of the Act rejected the petition of Shri R. Kondal Rao, holding that Shri J. Vamsidhar Rao had admitted collection of unaccounted capitation fee in cash and had disclosed the income of Rs. 7.5 crores. They did not find any merit in the contention that Shri R. Kondal Rao had embezzled the funds received as unaccounted capitation fees and applied those for charitable purposes of the society.
11. In view of the above, the AO concluded that it was established that the society had collected amounts over and above the prescribed fees and that amounts were not brought in the books of account. For example, he noted that in the case of Sri A. Akash, for the academic year 2005-06 (page No. 158 of annexure JB/A/10), cash over and above the prescribed fee was recorded as "2,000", which meant Rs. 2,00,000/-. The recording of fees collected towards the prescribed fees was also recorded in the same page with full figures amounting to Rs. 3,25,000/-. The summary of collection of donations/capitation fees over and above the prescribed fee, year-wise, has been tabulated for the assessment years 2009-10 and 2010-11 as under:
7 ITA No. 29/Hyd/2013 & Ors.M/s. JB Educational Society & Anr.
===========================
Donation/ Seized
Accounted in Not accounted
S. No. A.Y. Capital fee material
the books in the books
(Rs.) reference
1. 2009-10 3,92,91,000 Nil 3,92,91,000 JB/A/3-10
2. 2010-11 3,72,25,000 Nil 3,72,25,000 JB/A/3-10
Total 7,65,16,000 Nil 7,65,16,000
12. It was further found that as per the recordings in pages 73, 75, and 89 of A/JBES/5, 21, 45 to 47, 63 and 68 of A/JBES/6 and 10 to 12 of AA/JBES/1, the trustees had made investments in construction of guest house at Tirumala and Yadagiri Gutta, donation of gold to Yadagiri Gutta Temple, out of the unaccounted donations received. The correspondent of the institute at Tirupati Shri Munirathanm, in his statement dated 14-12-2009, also confirmed that cash was received from J. Bhaskar Rao for this purpose. As per the letter of the Trustees to the DDlT, Rs. 35 lakhs were spent till that time towards construction of the guest house at Tirumala out of unaccounted donations/contributions. The investment in construction of guest house at Yadagiri Gutta was Rs. 15 lakhs, while the donation of gold was for Rs. 25 lakhs.
13. The search also resulted in seizure of unaccounted cash and jewellery from the locker and the residence of J. Bhaskar Rao and the campus of J.B. Education Society at Yenkapalli, Banjara Hills and Tirupati. The AO opined that the same could have been out of the fees collected over and above the prescribed fees only. The Assessing Officer concluded that donations/capitation fee were collected from students, which were not accounted for in the books of account of the society and further that this fact was evident from the Settlement Commission application moved by one of the employees of the group, wherein an amount of Rs. 8.18 crores was admitted as additional income, being collections over and above the prescribed fee from the students of the society. He noted that 8 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== Shri J. Vamsidhar Rao in his statement dated 10-9-2009 had also stated' (Question No. 42) that no receipts were issued for the collections made over and above the prescribed fee, which also indicates that these collections were not accounted for in the books. The Assessing Officer, on cross verification, noted that these collections are not reflected in the books of account.
14. The AO noted that Shri J. BhaskarRao, J.B. Krishna Rao and J. Vamsidhar Rao had declined to cross-examine Shri R. Kondal Rao, Shri Purnachand Pusti and Ashok Mehta Reddy, Shri Meghna and Shri B. Muniratnam. Rather, in their letter to the DDIT, dated 5-1-2001, the trustees had themselves accepted the fact of collection of, fees, over and above the prescribed fees. Therefore, the statement of Shri Purnachand Pusti could not be held as a hear-say evidence or 3rd party statement. The AO concluded that since the trustees had themselves confirmed the fact of suppression of zeroes, there was no need to go further to put the evidence to strict proof.
15. In addition to the above, it was found that the trustees had business interest in M/s. Arka Hotels P Ltd, M/s. Jaybee Hotels & Theatres P Ltd etc. It was noted that payments had been made by and on behalf of students, viz., Mst. B. Prasad Reddy (page 91 of AA/JB/1), and Mst. C. Suneel (Page 89 of AA/JB/1), to those concerns. In the case of the former, a student of Mechanical Engineering, a payment of Rs. 5 lakhs was found received by cheque No. 165143 on 5-9-2007 in the books of M/s, Arka Hotels Pvt Ltd under "accommodation receipts". Against the name of Mst. C. Suneel, an ECE student, there was a narration regarding receipt of cheque No. 717040 of Andhra Bank on 18-9-2007. On verification of books of M/s. Arka Hotels Pvt Ltd it was seen that the payment was routed through Shri Syed Ali, vide the above referred cheque and 9 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== credited on 20-9-2007. The amount of Rs. 1 lakh, paid by Shri Syed Ali was found credited in the assessee's bank a/c. No. 111 with Andhra Bank, Banjara Hills, branch on 20-9-2007 and the same was reflected as unsecured loan in the books of M/s. Arka Hotels Pvt Ltd. There were several other entries where a nexus was found between accommodation receipts and fees collected directly from the parents/students, instead of being accounted for in the books of the society. For example, it was noted that entries of Bhavishya Pharmaceuticals Ltd., were related to a student, B. Sahithi, while KVA Ramprasad was related to A.V. Seshu. There were direct receipts from the student, D. Sri Harsh.
16. The Assessing Officer has discussed the evidence suggesting collection of amounts over and above the prescribed fees in detail in the assessment order. He has discussed the entries in Annexure JB/A/5, JB/A/7, JB/A/9, JB/A/10, JB/A/26, JB/A/29 and JB/A/32 which relate to students admitted to various colleges of the society under various courses. He has also discussed page No. 25 of annexure JB/A/26 specifically, which is an email from sreekanth197910 @yahoo.co.in to [email protected], which contains the fee details regarding various courses offered by the two societies as under:
Branch JBIET JBREC BEC MNRao
ECE 6+fees 5+fees 4+fees 3+fees
MECH 4.5+fees Nil Nil Nil
EEE 2+fees 1+fees Nil 2+fees
CSE 5+fees 4+fees 3+fees 2+fees
CSIT 2+fees 1+fees Fees Fees
CIVIL 5+fees Nil 4+fees Nil
BME 1+fees Nil 4+fees Nil
Biotech 2+fees 2+fees 1.5+fees Nil
MBA (JNTU) 2+fees 2+fees 1.5+fees Nil
MBA (OU) 2.5+fees
MCA 2.5+fees
10 ITA No. 29/Hyd/2013 & Ors.
M/s. JB Educational Society & Anr.
===========================
VLSI CSE EPS SW IEM
2+fees 2+fees 2+fees 2+fees 2+fees
Bhaskar Pharmacy 3 + fees
JOGI Pharmacy 3+ fees
17. The Assessing Officer observed that during the course of search and seizure operations, Shri R. Kondal Rao had stated that for engineering seats (mostly ECE and presently for Civil Engineering also), amounts up to Rs. 2,50,000 had been collected in cash, either in one payment or in instalments (Question No. 37). For the medical seats also, he had stated that amounts ranging between Rs. 10 lakhs to Rs. 15 lakhs were collected for each seat. The AO noticed that the note books found, i.e., JBA/3, JBA/4 to JBA/10, had been written by Shri Puran Chand Pusti, who was the main person looking after the admissions in the engineering courses offered by the Societies. In his statement, dated 14-12-2008, he had deposed that fees over and above the regular fees were collected, which were written in 'coded form. He had also stated that in some instances single zero and sometimes two zeroes were eliminated while recording the cash collected admitted under the Management Quota in various engineering colleges.
18. The Assessing Officer noticed that while Shri J.V. Krishna Rao, Secretary of JB Educational Society, in his statement dated 15-12-2009, contended that the notings do not refer to any capitation fee, when probed further, he only stated that his father will be in a better position to explain this. Likewise, Shri J. Vamsidhar Rao, Secretary of the assessee society also in his statement dated 15-12-2009 only stated that his father would furnish the details in a couple of days. Though Shri J .Bhaskar Rao, Chairman of both the societies stated that he would submit his comments in a couple of days, nothing was stated in this regard even later.
11 ITA No. 29/Hyd/2013 & Ors.M/s. JB Educational Society & Anr.
===========================
19. On the other hand, on -the first day of search itself, Shri J. Vamsidhar Rao, after going through the incriminating evidences, had made a voluntary disclosure of Rs. 7.5 crores u/s 132(4) of the Act. He was also shown the statements recorded from the persons who had been actually recording the money collected over and above the prescribed fees from the students admitted in Management Quota and had accepted the statements given by them. Therefore, the Assessing Officer concluded that it was clear that the Management of both the society had accepted in principle the collection of amounts over and above the prescribed fee and the manner in which those were found recorded in the incriminating evidence.
20. As mentioned in the assessment order, during the course of assessment proceedings also, the assessee did not file any reply or clarification. In the letter dated 12-12-2011, the assessee only contended that the addition of two' zeroes to the figures and conversion of the cash collections into crores, instead of lakhs, is required to be put to strict proof by way of independent enquiry, evidence from students/parents etc and needs to be confirmed only by the persons making the payment and not hear-say evidence or third party statement. Except for the above denial, no other counter evidence could be submitted. On the other hand, from the evidence gathered it had been proved that the society has been charging amounts over and above the prescribed fees. In fact, on comparison with the books of a/c, it was clearly found that there was suppression of zeroes.
21. In addition to the fact of charging of amounts over and above the prescribed fees, the search revealed that there had been misuse of funds of the society also. During the course of post search enquiries, a statement on oath was recorded on 10.10.2009 from Shri V. Munirathnam, Correspondent of the 12 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== Educational Institutions run by the assessee society at Tirupati. He was confronted with the documents seized at the college at Tirupati. It was seen that, particularly pages 22 to 24 and 34 of AA/JBES/1, 175 and 35 to 51 of AA/JBES/l0, 124 of AA/JBES/13, 1 and 2 of AA/JBES/14, 1 and 2 of A/JBES/15, 1 of AA/JBES/16 and 1 to 3 of AA/JBES/17 contained fees under different heads such as bus fees, hostel fees, fines, admission fees etc. It was found that only the admission fees were recorded in the books and other collections were maintained in different registers kept for that purpose and expenditure was made there-from. Those transactions were not brought into the books of a/c of the society. Shri Munirathnam further stated that this practice of collecting and spending fees for specific purpose was being done by him as per the directions of the Chairman and Secretary of the Society only. The AO therefore, concluded that the funds of the society were being misused for the benefit of the trustees.
22. The seized documents also showed that there was diversion of funds of the society. For example, page No. 21 of JB/A/31 was the trial balance of Arka Hotels P Ltd, showed a credit balance of JBES at Rs. 55,93,343/- on 31-3-2009. Likewise, page No. 101 thereof, being the trial balance of M/s. Jaybee Hotels & Theatres Pvt Ltd, reflected a credit balance of Rs.50,06,950/- in the name of JBES as on 31-3-2007. The monthly summaries of the above companies in the books of the assessee society for different financial years, seized as pages 148 to 154 of JB/A/37, evidenced transfer of funds from the society to other business concerns of the group. Likewise, page No. 89 of JB/1 showed payments to Arka Hotels P. Ltd. by a student, C. Sunil and page No. 90, showed payment to Arka by JBIET. Page No. 91 also showed payment to Arka Hotel by 13 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== another student, B. Prasad Reddy. Page No. 92 showed payments to the two companies from other bank accounts.
23. In addition to these transactions, the AO noted that Shri J. Bhaskar Rao, Chairman had been allotted land at Tirumala and had commenced construction of a guest house thereon, as reflected from page 87 and 78 to 86. Documents seized as Annexures A/JBES/5 and 6, AA/JBES/1-2 and 5 also evidenced utilization of funds for construction of the guest house. It was also noticed that Shri J. Bhaskar Rao was also constructing a guest house at Yadagiri Gutta and no account for such construction was furnished during post search proceedings. Accordingly, the AO concluded that the construction was carried out through undisclosed sources, which were nothing but the funds of the society. Documents seized in the course of search also showed that expenditure were incurred towards various purposes which were not indeed the objects of the society. For example, page No. 57 of Annexure A/JBES/5 showed certain personal expenditure.
24. With regard to the utilization of funds for the construction of guest house at Tirumala, during the course of assessment proceedings, vide letter dated 7-9-2011, the assessee contended that the above documents did not belong to the society but to JB Health Care Research Foundation. However, the Assessing Officer found such contention as unsubstantiated as against the presumption u/s. 132(4A). With regard to the payments made by students directly to Arka Hotel, it was claimed that the same was duly accounted for in the books of account. However, the AO found that only a part payment, being the prescribed fee, had been received in the books while the payment over and above such fee had been directly credited into the accounts of 14 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== Arka Hotels either by way of accommodation receipts, share application money or unsecured loan.
25. The evidences seized during the course of search also revealed that funds of the society were being utilized for the benefit of trustees. For example, page No. 7l of A/JBES/05 shoed that funds of the society were utilized for incurring expenditure towards gold and silver, JNTU, AICTE Vastram, Nityanndanam etc. Page No. 89 was titled as "Non-account expenditure statement" and contained entries of expenditure towards MBA "Management, MCA Management, gold, Sri T. Srinivasa Rao, land conversion, fire etc., which were indeed not the objects of the society. The AO concluded that the sources for such expenditure were nothing but the funds of the society itself. Likewise, from page No. 118 of Annexure JB/A/31, it was found that the payment of Rs. 70,000/- had been made to Shri Ramesh towards "supply of granites for MD Sir residence". Page No. 120 thereof also pertained to a payment of Rs. 20,000/- to the same person. Page No. 121 also showed that Rs. 4,800 had been accounted for under "tuition fees" paid to Nursery school towards the fees of B. Swathi Bongu (grand daughter of Shri J. Bhaskar Rao). Page No. 93 of Annexure A/JBIT/l also showed an inter office communication evidencing payment of Rs. 50,000 to Shri J. Bhaskar Rao from the transport account though Shri J. Bhaskar Rao stated that he would file an explanation in this regard. During the assessment proceedings it was only stated that the transaction did not pertain to the society and that it was a personal transaction of Shri Rao. The AO opined that mere denial could not have discharged the liability of the assessee in view of the presumption u/s. 132(4A).
26. The AO further noted that during the course of search and seizure at the premises of the assessee and others at Road 15 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== No. 1, Banjara Hills on 10-9-2009, cash of Rs. 10,26,300 was found which was claimed to be fees collected. However, in the absence of any explanation for sources thereof, Rs. 7 lakhs out of the same. was seized. Likewise, from the campus of the assessee at Tirupati, Rs. 16,60,000 was found. Since Shri L. Nagamuni Reddy, professor and vice-principal was unaware of the cash itself and no explanation for the source thereof was given, Rs. 15 lakhs out of the same was seized. From the campus of the assessee and Joginpalli BR Educational Society at Yenkapalli also, evidence regarding payment of consideration in cash for purchase of land by the assessee society was seized (pages 89 and 90 of A/JBIT/1), which showed that Rs. 10 lakh and Rs. 5 lakh were paid to Sri P. Pentaiah and Sri P. Pedda Venkataiah in cash by JBIET on 21-4-2008 and on 18-3-2008 respectively. In his statement u/s. 131 dated 14-12-2009, Sri R. Kondal Rao stated that the society had purchased the entire land for actual consideration of Rs. 23,00,000 while the consideration of Rs. 10 lakhs was only shown in the sale deed. The AO noticed that though the balance amount of Rs. 11 lakhs was paid to the vendors, such cash payment was not shown in the books. It was also noted that from the campus of JBES of the assessee at Yenkapalli, cash of Rs. 43,83,150 was also found and claimed as fee collection. In the absence of any explanation, Rs. 42 lakhs out of the same was seized.
27. During the course of assessment proceedings, the assessee filed a reply dated 12-9-2011, enclosing the photocopies of cash receipts in support of the above contentions. It was claimed that the cash collections were Rs. 1,24,000, Rs. 15,80,100, Rs. 12,15,500 on 8-8-2009, 9.9.2009 and 10.10-2009 respectively. However, on being verified from the soft copy of the accounts seized during the course of search, such entries were not found. The AO noted that the books of 16 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== account were not updated at the time of search nor the assessee had furnished any source for such cash during the search or even during the post search proceedings. He felt that the receipts have to be instantly prepared, as at the time of collection, if any, students could not have been asked to come later and collect the receipts. On the other hand, no such copies of receipts were found at the time of search and even a list of students allegedly paying such fees could be submitted by the assessee. Accordingly, the above referred cash of Rs. 10,26,300, Rs. 43,83,300 and Rs. 16,60,000 was considered as undisclosed income in the hands of the assessee for the A.Y. 2010-11. Even the cash payment of Rs. 15 lakhs made over and above the recorded consideration for land purchased was treated as undisclosed income of the assessee for the A.Y. 2009-
10.
28. In view of the findings of the search and seizure operations, as discussed above, during the course of assessment proceedings, the Assessing Officer sent a proposal to the DGIT (Inv), Hyderabad, recommending rescinding of the approval granted u/s. 10(23C)(vi). The DGIT vide his proceedings in F. No. DGIT (Inv)/Hyd/APP & Renewal u/s. 10(23C)/JBRES/2011-12, dated 16-12-2011, withdrew/ rescinded the recognition with effect from 2007-08. The Hon'ble DGIT held that in the instant case, there was no dispute that amounts were collected by way of capitation fees/donations in cash which were not recorded in the books of accounts and there was no evidence to substantiate that the same was utilized for the purpose of education. He held that legally these amounts were required to be entered in the books of account to give factual and transparent picture. The AO, therefore, proposed to assess the income as normal income without considering the claim of exemption.
17 ITA No. 29/Hyd/2013 & Ors.M/s. JB Educational Society & Anr.
===========================
29. Even with regard to the claim of exemption u/s. 11, the AO noted that in the case of Mohini Jain vs. State of Karnataka and Others (1992) 2 SCC 666 have opined that capitation fee is nothing but a price for selling education. He noted that the assessee had also used the charitable activity/educational institution as an apparatus for selling education and that the element of charity no longer remained the activity of the assessee. He concluded that since the society was found admitting students under the Management Quota in consideration of an amount, which is over and above the prescribed fees, it clearly establishes the intention of the assessee to earn profits. He took note of the fact that even in the state of Andhra Pradesh a committee has fixed the fees that may be collected by the professional educational institutions per semester/year. The assessee society, however, had collected fees for the entire course in advance, besides collecting amounts over and above such fees, which was to be treated as collection of capitation fees. He noticed that even the advance fees was not deposited/invested in any bank, violating the provisions of sec. 11(5) of the Act and that the entire money was utilized by the persons interested in the society, showing misuse of funds of the institution. Therefore, it was clear that the assessee society did not exist solely for the purpose of education but existed only for profit. He further noticed that it would not affect the assessment of income in the hands of society if the capitation fee is collected by the trust per se or by some interested persons. He felt that in the assessee's case the collection of capitation fee could not even be termed as a business income as envisaged u/s. 11(4A). Besides, there had been violation of provisions of sec. 13(1)(c) as the amounts collected over and above the prescribed were being handed over to the Chairman and other interested persons of the society. Accordingly, he 18 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== concluded that even on this account the assessee would not be entitled to the exemption u/s. 11 of the Act.
30. The AO noted that even in view of the decision of the Hon'ble ITAT, Hyderabad in the case of Vodithala Educational Society and Adinatar Educational Institution vs. ACIT (224 ITR
310), the assessee was not eligible for exemption u/s. 11, as it did not exist for the purpose of education solely but for the purpose of profit. He also referred to the decision of Hon'ble Apex Court in the case (T.M. Pai vs. State of Karnataka (2002) 8 SSC 481, while holding that the society would not be eligible for exemption u/s. 11 or 10(23C) where it fails to prove that the contributions are not in the nature of capitation fees. Accordingly, he held the assessee is neither eligible for exemption u/s. 10(23C)(vi), nor it is eligible for exemption u/s. 11 of the Act. He accordingly, proceeded to assess the income of the assessee in the capacity of AOP. On appeal, the CIT(A) confirmed denial of exemption u/s. 11 as well as u/s. 10(23C)(vi) of the Act.
31. The first common issue arising in these appeals is with regard to denying exemption u/s. 11 and 10(23C) of Income-tax Act, 1961.
32. After hearing both the parties, we are of the opinion that cancellation of registration granted u/s. 12A by CIT has been confirmed by this Tribunal vide order dated 31.8.2012 in ITA No. 585/Hyd/2012 in case of Joginpally BR Educational Society and in ITA No. 586/Hyd/2012 in the case of JB Educational Society by observing as follows:
"10. We have heard both the parties and perused the material on record. The argument of the assessee is totally misconceived. The registration is granted by the DIT(E), Hyderabad u/s. 12A of the Act could be 19 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== cancelled as per provisions of section 12AA(3) of the Act. The registration authority is having power to cancel the same when the objects of the trust or institution remain on paper but actual activities of such trust or institution are contrary to the said objects or fictitious or fraudulent or not genuine or not within the scope of its object clause, the registration authority is vested with the power of cancellation. However, where the objects of the trust or institution, which were the basis of grant of registration are altered or not adhered to the very foundation of registration collapses and in that event the registration authority cannot close its eyes to continue such activity of the assessee and they have to be awake and the registration has to be cancelled. In the present case, as seen from the facts narrated by the CIT (Central), Hyderabad, the assessee is collecting the capitation/donation for admitting the students to the institution and also the seized material reflects violation of object clause of the assessee.
11. It is also on record that the seized material found during the course of search marked as JB/AA/1 to JB/AA5 that there is a collection of donation/capitation fee. Further unexplained cash and jewellery were found and seized from the premises of the assessee society as well as from residential premises of some of the members as under:
Sl. Found
Place where found Description Seized (Rs.)
No. (Rs.)
1. Residence of Jewellery 66,00,000 66,00,000
Sri J. Bhaskar Rao (substituted by Pay
Order)
2. Residence of Cash 5,17,000 5,17,000
Sri J. Bhaskar Rao
12. Further, it is worthwhile to refer to provisions of section 132(4A) of the Income Tax Act, 1961, as per which a presumption can be drawn that the documents found from the premises of the Society are true and it belongs to the society and the society has to explain it and mention as to who has prepared the documents. During the course of search, statement of Sri Ashok Mehta Reddy an employee of the society, was recorded, wherein he stated that the amount received in cash is mentioned on the right hand side, top portion of each of page 20 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== next to the name' of the student. He further clarified that the amount mentioned therein is in 'Rs. Lakhs', though the same was written in thousands. For example the amount of Rs. 25,000 mentioned against name K. Varuniya in book marked JB/AA/5,(Sl. No. 2 candidate), is stated to be Rs. 25,00,000 as confirmed by Sri Ashok Mehta Reddy. Sri J. Vamsidhar Rao, Secretary of the society was also confronted with the admission made by Sri Ashok Mehta Reddy on the date of search itself. He stated that the seized books contain the details of fees collected by way of cheques/DD and also in cash over and above what is collected by cheques and DDs and also the money is collected in cash for which no receipts are issued. The fact of amount written in thousands, by omitting two 'zeroes' to be read as Rs. lakhs was confirmed by Sri J. Vamsidhar Rao. Even Sri J. Bhaskar Rao, Chairman of the society was questioned on the issue and in the statement recorded on 15.12.2009, he stated that he will offer his comments in a couple of days but no explanation was furnished thereafter.
13. The sample copies of the evidences in Annexure JB/AA/1 to 5 seized during the course of search indicate that the capitation fee was collected in cash which was not recorded in the books of account of the society. These documents indicate that the capitation fees which was collected in cash was not recorded in the books of account and only the regular fees is recorded in the books of account. It may be seen that the document evidencing payment of capitation fees in cash was also found though the assessee has denied the claim. This means that part of the document relating to regular fee is admitted whereas the part containing details of capitation fees which was received in cash and not recorded in the books of account is not admitted even though plethora of evidences are available in this regard.
14. In these circumstances, the assessee cannot be considered as a trust engaged in charitable activities. The objects of the trust have been violated in a wholesome manner and the basis on which registration is granted no longer survives or holds good, would call immediate interference by the registration granting authority. In these circumstances, the registration authority cancels the 21 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== registration. The argument placed before us by learned AR is superficial which cannot be considered. The CIT (Central), Hyderabad considering the entire facts of the case found that there is violation of the provisions of section 2(15) of the Act and the case cannot be called as a trust and it is carrying on the activities in a commercial manner for which registration u/s. 12A cannot be continued. In our opinion, the CIT (Central), Hyderabad has power to cancel the registration granted u/s. 12AA of the Act and considering the facts and circumstances of the case, we confirm the order of the CIT (Central), Hyderabad. The facts and circumstances in ITA No. 586/Hyd/2012 are similar. Therefore, the ground taken in this appeal is also dismissed.
15. In the result, both the appeals of the assessees' are dismissed."
33. Being so, we are of the opinion that denial of exemption u/s. 11 is justified. The assessee cannot re-argue this case by way of fresh ground in these appeals. Accordingly, this ground is rejected.
34. Regarding exemption u/s. 10(23C), the assessee having no valid approval u/s. 10(23C)(vi) of the Act and the approval granted to the assessee vide proceedings F. No. CC/Tech-
1)22B(3, 10, 61 & 342)/2009-2010 dated 22.4.2009 for A.Y. 2000-01 has been cancelled by the Director General of Income- tax (Inv.), Hyderabad vide his order dated 16.12.2011. This order was subject matter of dispute vide Writ Petition filed before the Hon'ble High Court of Andhra Pradesh in WP No. 9073/12. Being so, at this point of time, there is no valid approval u/s. 10(23C) and the assessee is not entitled for exemption u/s. 10(23C) of the Act for the assessment years under consideration. This ground of the assessee is dismissed.
35. The next common ground in these appeals is with regard to taxing of additional receipts in the hands of the assessee 22 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== while making substantive addition in the hands of one Mr. R. Kondal Rao.
36. Based on the seized material, the AO prepared a comprehensive chart, which showed that a sum of Rs. 7,65,15,000/- had not been accounted for in the books of the society. He, therefore, proceeded to tax the unaccounted income as also unaccounted investment in land and cash for the A.Ys. 2009-10 and 2010-11 as under:
Donation/ Unaccounted SI. No. AY. capital investment Total fee (Rs.) in land & cash 1 2009-10 3,92,91,000 15,00,000 4,07,91,000 2 2010-11 3,72,25,000 70,69,600 4,42,94,600 Total 7,65,16,000 85,69,600 8,50,85,600
37. In view of the evidence seized during the course of search, the AO concluded that the collection of amounts over and above the prescribed fees (capitation/donation) was not an isolated instance. He found that the search had also revealed substantial investments and personal expenditure in various years which remained unexplained and showed that those were incurred out of the sources not disclosed to the Department. Obviously, such source was the "collection of capitation fees", which surfaced as a result of search. Accordingly, the AO concluded that the society has been collecting capitation fees in previous years also. For this proposition, he drew support from the decision of the Hon'ble AP High Court in the case of Rajnik & Co. Vs. ACIT (251 ITR 561), wherein, referring to the decision in the case of H.M. Esuf Ali (90 ITR 271), estimation of suppressed income based on part period evidences and sworn deposition of partner of the assessee firm was upheld. He noted that even in the case of M/s. Bawarchi Restaurant vs. DCIT, the ITAT, Hyderabad Being in its order in IT(SS)A No. 23 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== 117/Hyd/2005, dated 14-7-2006, had observed that when the assessee is in the habit of suppressing turnover consistently, the only issue to be examined is whether the AO's estimation of undisclosed turnover is fair, bona fide and reasonable.
38. Applying the above ratio, in view of the facts available in the assessee's case regarding charging of capitation fee, the Assessing Officer concluded that the appellant society was into the practice of collection of capitation fee for the earlier years also. He also relied on the statement of Shri R. Kondal Rao dated 10-9-2009, recorded u/s. 132( 4), to the effect that at the relevant time amounts up to Rs. 2,50,000/- were being collected for engineering seats. In view of the -above, the Assessing Officer estimated the excess amount collected for A.Ys. 2004-05 to 2007-08 as under:
Estimated No. of Sl. Academic excess Total A.Y. Manage-
No. year amount amount
ment seats
collected
1 2003-04 2004-05 83 1,00,000 83,00,000
2 2004-05 2005-06 78 1,00,000 78,00,000
3 2005-06 2006-07 78 1,50,000 1,17,00,000
4 2006-07 2001-08 133 1,50,000 1,99,50,000
5 2007-08 2008-09 168 2,00,000 3,36,00,000
39. Accordingly, the Assessing Officer added the following amounts as unaccounted income in these assessment years as follows:
A.Y. 2004-05 - Rs. 83.00 lakhs
A.Y. 2005-06 - Rs. 78.00 lakhs
A.Y. 2006-07 - Rs. 117.00 lakhs
A.Y. 2007-08 - Rs. 199.50 lakhs
A.Y. 2008-09 - Rs. 336.00 lakhs
A.Y. 2009-10 - Rs. 392.91 lakhs
A.Y. 2010-11 - Rs. 372.25 lakhs
40. On appeal, the CIT(A) confirmed the addition for all the assessment years and he observed that estimation of 24 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== unaccounted receipt for A.Ys. 2004-05 to 2008-09 is also justified in view of the judgement of Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh v. H.M. Esuf Ali H.M. Abdul Ali 90 ITR 271 (SC) and also jurisdictional High Court judgement in the case of Rajnik & Co. vs. ACIT (251 ITR
561) (AP). Against this, the assessee is in appeal before us.
41. The AR submitted that Sri R. Kondal Rao who is a manager of the society, without the authority of the assessee, collected the donations and it was offered for taxation at Rs. 8.18 crores before the Settlement Commission and the same was subjected to tax by the AO for A.Ys. 2004-05 to 2010-11. Though it was rejected by the Settlement Commission, the same was brought to tax by the AO in the case of Sri R. Kondal Rao for A.Y. 2004-05 to 2010-11. As a proof of this, the assessee furnished a copy of assessment order in the case of Sri R. Kondal Rao which is placed on record in Paper Book page Nos. 402 to 438. Further, Sri R. Kondal Rao also filed an affidavit dated 29.8.2013 stating that he has collected fees more than the amount fixed for admission of students for management quota seats and only a part of the fees collected was recorded in the books of account of the assessee and the balance was retained by him. He has also acknowledged that without the knowledge of the Management Committee, he has collected a sum of Rs. 8,18,63,700 and retained the same with him. This fact was disclosed to the Deputy Director of Income-tax (Inv.), Unit-II, Hyderabad-1. He also submitted that the AO accepted the above amount and levied tax. Against this, he went in appeal before the CIT(A) with a delay of 307 days. The appeals are pending before the CIT(A)-I, Hyderabad. He further stated in the affidavit that in the event of deletion of the said addition in the hands of the assessee, he has no objection to withdraw the appeals filed by him before the CIT(A) and ready to pay tax as 25 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== per the assessment order passed in his case. Further he submitted that Sri R. Kondal Rao, Sri Krishna Rao and J. Prabhakar Rao have confirmed that they have collected additional fees from students seeking admission in JB Group of Colleges vide their letter kept on record at page No. 272 of the Paper Book. According to the AR, the additional income of Rs. 8,18,63,700 for the A.Ys. 2004-05 to 2009-10 offered by the Sri R. Kondal Rao to the Settlement Commission. So it is treated as income in A.Ys. 2004-05 to 2009-10 by the AO and there is no loss of revenue to the Dept. The AR submitted that there was no evidence for collection of additional fees for A.Y. 2004-05 to 2008-09 by the assessee. There is only evidence of collection of additional fees for A.Ys. 2009-10 and 2010-11. Whatever the additional fees collected was offered to tax by Sri R. Kondal Rao. The AR relied on the judgement in the case of Madhu Gupta v. DIT (Inv) & Ors. 350 ITR 598 (Del), DCIT vs. Sushil Kumar Jain (127 ITD 264) (Indore) and Fort Project Pvt. Ltd. vs. DCIT (145 TTJ 340) wherein held that when the assessee had offered suo moto alleged receipts of on-money in return of income filed u/s. 153C of the IT Act for the said assessment year, no further addition on that count was warranted. Thus, according to the assessee there cannot be further addition on the basis of assessment covering the search period for which there is no seized material.
42. On the other hand, the learned DR submitted that the employees of the assessee had acted on behalf of the employer and assessment of Sri R. Kondal Rao cannot exonerate the assessee from liability of tax. The right assessee is to be taxed for right amount in right assessment year. Whatever the additional fee collected by the assessee is to be taxed in the hands of the assessee only.
26 ITA No. 29/Hyd/2013 & Ors.M/s. JB Educational Society & Anr.
===========================
43. We have heard both the parties and perused the material on record. The first objection of the assessee's counsel is with regard to estimation of unaccounted receipt collected from students towards management quota fees. The learned AR submitted that there is no evidence in the form of seized material for the academic years 2003-4 to 2007-08 and there is only seized material collected during the course of search marked as JB/A/3 to JB/A/10 which shows that the assessee has collected fees from students over and above the prescribed fees for granting admission into the professional courses for the academic year 2009-2010 and 2010-2011. On the basis of seized material, the AO quantified the unaccounted income collected from the students at Rs. 392.91 lakhs and Rs. 372.25 lakhs for academic years 2008-09 and 2009-10, respectively. The AO applied the same basis for estimating the collection of excess fees for the academic years 2004-05 to 2007-08. The AO at one place recorded the number of management seats available and filled as follows:
J.B. Institute of Engg. & Technology No. of No. of Sl. Academic management management No. year seats seats filled permitted 1. 2003-04 65 64 2. 2004-05 64 60 3. 2005-06 64 57 4. 2006-07 114 97 5. 2007-08 144 121 Bhaskar Engineering college No. of No. of Sl. Academic management management No. year seats seats filled permitted 1. 2007-08 48 37 2. 2008-09 60 56 3. 2009-10 90 38 27 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
===========================
44. Later, once again the AO considered the management seats and estimated the excess amount collected for the academic years 2004-05 to 2007-08 as follows:
Estimated No. of Sl. Academic excess Total A.Y. Manage-
No. year amount amount
ment seats
collected
1 2003-04 2004-05 83 1,00,000 83,00,000
2 2004-05 2005-06 78 1,00,000 78,00,000
3 2005-06 2006-07 78 1,50,000 1,17,00,000
4 2006-07 2001-08 133 1,50,000 1,99,50,000
5 2007-08 2008-09 168 2,00,000 3,36,00,000
45. However, it is an admitted fact that while estimating the above excess fees collection, the AO based his conclusion on the basis of seized material available for A.Y. 2009-10 and 2010-11.
He relied on the judgement of Supreme Court in the case of H.M. Esuf Ali & Ors (cited supra) and also on the judgement of jurisdictional High Court in the case of Rajnik & Co. (cited supra). The Supreme Court in the case of H.M. Esuf Ali & Ors. (cited supra) held as under:
"Held, that the reassessments were valid. From the circumstance that the assessee had dealings outside the accounts of the value of Rs. 31,171.28 for 19 days, it was open to the officer to infer that the assessee had large- scale dealings outside the accounts. In such a situation, it was not possible for the officer to find out precisely the turnover suppressed and he could only make an estimate of the suppressed turnover on the basis of the material before him. So long as the estimate made by him was not arbitrary and had a reasonable nexus with the facts discovered, it could not be questioned. It 'was wrong to hold that the officer must have material before him to prove the exact turnover suppressed.
In estimating any escaped turnover, it is inevitable that there is some guess-work. The assessing authority while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a 28 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== rational basis, the fact that there is no good proof in Support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not anyone else's. The High Court cannot substitute its best judgment for that of the assessing authority."
46. As seen from the above judgement, there was unreported sales detected for a period of 19 days in a year. The AO estimated the turnover for the entire period of one year on the basis of unreported sales for the period of 19 days in a year. The question that arose before the Apex Court is as to whether the AO was right in doing so. It was held by the Apex Court that in a matter involving unreported sales, the AO has to proceed on the basis of estimation which involves some amount of guess work. The Apex Court, accordingly, upheld the order of the AO in estimating the turnover on the basis of the unreported sales for a short period. However, in the present case, we are concerned with the estimation of 5 years where there is seized material available only for two assessment years other than these 5 years. Ultimately, the said judgement of Supreme Court must be seen in the context of the facts of each case. In the present case, the assessee is an engineering college. It is highly improbable that the assessee could charge such excess fees for management quota seats in the initial stage of its commencement as the academic year 2003-04 is said to be the initial year of the assessee. For the initial academic years the assessee cannot be expected to charge such high fees as charged for academic year 2008-09 and 2009-10 and in the initial period for any educational institution to get students is very difficult. It is also seen from the tables reproduced on earlier occasion that all the management seats were not filled and there were certain seats kept unfilled. It is also fact that now-a-days Engineering Colleges in Andhra Pradesh are not 29 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== doing well and many colleges are seeking permission from the State Government to shut down due to lack of students. Some colleges have sent representations to the Technical Education Department and the All India Council for Technological Education (AICTE) in this regard. These facts should have been considered by the Department. Instead of this, the AO as well as the CIT(A) straightaway applied the amount collected from the students for admission in management quota seats in academic years 2008-09 and 2009-10 as per earlier years. The estimation of income of the assessee is not properly considered by the AO. Being so, the ratio of Supreme Court decision in the case of H.M. Esuf Ali & Ors (cited supra) cannot be applied to the facts of the present case.
47. Coming to the judgement of jurisdictional High Court in the case of Rajnik & Co. (cited supra) wherein the High Court held that estimation of undisclosed income is based on relevant material and there is absolutely no reasonableness or arbitrariness while making such estimation. Though there is no material for the A.Ys. 1986-87 to 1995-96, but it is an admitted fact by the partner of the assessee firm that the assessee had practiced suppression of sales turnover. Taking the quantum of business that was carried on by the assessee firm, the AO estimated the suppression at 20% and adopted the gross profit rate that was returned by the assessee. The evidence of the partner clearly showed that the firm has suppressed the turnover even in those years also. Being so, there was no case to the assessee to contend that the estimation is not based on any material. However, in the present case, admittedly, there is no evidence for collection of excess fees in the academic years 2003-04 to 2007-08. There is no admission by the assessee.
30 ITA No. 29/Hyd/2013 & Ors.M/s. JB Educational Society & Anr.
=========================== Being so, the ratio laid down by the jurisdictional High Court in the case of Rajnik & Co. (cited supra) also cannot be applied.
48. Now coming to the latest judgement of jurisdictional High Court in the case of Gopal Lal Bhadruka & Ors. vs. DCIT (346 ITR 106) wherein their Lordships held as under:
"By virtue of section 158BI of the Act, the various provisions of Chapter XIV-B of the Act are made inapplicable to proceedings under section 153A/153C of the Act. The effect of this is that while the provisions of Chapter XIV - B of the Act limit the inquiry by the Assessing Officer to those materials found during the search and seizure operation, no such limitation is found in so far as section 153A/153C of the Act are concerned. Therefore, it follows that for the purposes of section 153A/153C of the Act the Assessing Officer can take into consideration material other than what was available during the search and seizure operation for making an assessment of the undisclosed income of the assessee."
49. In the above case, there was collection of on-money with reference to the real estate dealt by the assessee firm. The partners had admitted the on-money in their hands in the return of income. The AO rejected their plea and assessed the on-money receipts for all the plots in the firm hand i.e., M/s. Ahura Holdings. On the basis of evidence collected during the course of search it shows 3 persons admitted payment of on- money, 5 persons denied the payment of on-money and no evidence with regard to payments of on-money for remaining 24 plots. However, the partners Gopal Lal Bhadruka and Avadesh Bhadruka confirmed the receipt of on-money. However, in the present case, there is no admission by the assessee for collection of excess fees for management quota seats for the assessment year 2004-2005 to 2008-2009. Further, unless there is evidence or material indicating any suppression of 31 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== collection of fees towards management quota seats for the academic year 2003-2004 to 2007-2008 having been found during search, and no admission from the assessee, Assessing Officer was not justified, to estimate the same on the materials seized relating to academic year 2008-2009 and 2009-2010 indicating suppression of collection of fees for management seats, in assuming suppressed/unaccounted receipts of fees for earlier assessment years. The calculation of unaccounted income from collection of fees from management seats should be based on materials and it should be on scientific basis and cannot be merely on assumptions. Considering the facts of the present case, we are inclined to direct the AO to quantify the receipt of fees for management quota seats if any, on the basis of available seized material as well as other material if any, relating to academic year 2003-2004 to 2007-2008 and not on the basis of seized materials relating to academic years 2008- 2009 and 2009-2010. In other words, instead of estimating the unaccounted receipt for the academic years 2003-2004 to 2007- 2008 (A.Ys. 2004-2005 to 2008-2009) on the basis of seized material relating to academic year 2008-2009 and 2009-2010 (A.Ys. 2009-2010 and 2010-2011 respectively), the AO shall take into consideration the seized material as well as other material what was available during the course of assessment relating to very same assessment years for determining the unaccounted income. For this purpose, we place reliance upon the Orders of the Tribunal in the case of DCIT vs. Royal Marwar Tobacco Product (P) Ltd. (2009) 120 TTJ (Ahd.) 387, CIT vs. Anil Bhalla (322 ITR 191) (Del). In this case search and seizure was carried out in the premises of the assessee and the premises of a company of which the assessee was a director. The Assessing Officer made additions under the head of unexplained expenditure under section 69C of the Income-tax Act, 1961.
32 ITA No. 29/Hyd/2013 & Ors.M/s. JB Educational Society & Anr.
=========================== The Commissioner (Appeals) and the Tribunal examined the entire evidence on record including the statements made by the assessee in the proceedings as well as before the Assessing Officer and then came to the conclusion that the additions could not be sustained in the absence of any other corroborative evidence. The Commissioner (Appeals) deleted the additions and this was confirmed by the Tribunal. On appeal, it was held that there should be independent corroborative material to support the additions. In the case of Dr. R.M.L. Mehrotra vs. ACIT (1999) 68 ITD 288 (All.) which has been affirmed by Allahabad High Court in 320 ITR 403 with detailed reference to Supreme Court Ruling in H.M. Esufali H.M. Abdulali's case and observed as follows :
"One should not forget that it is a search case in which a search party is supposed and expected to find out all the incriminating documents, material as also undisclosed assets. A search assessment, much less a block assessment, therefore, stands on a footing different than a normal assessment much less an assessment based on the best judgment of an A.O. During search, firstly, no other diary or other record comparable to the notebook marked as 'B-1/23' were found by the search party for the remaining period, which normally ould have been, were it being maintained and kept. Though such a record could have been destroyed also from time to time, but in such asituation also, if the assessees had actually made a fortune of similar receipts in respect of the remaining part of the year, they must be reflected by certain assets, movable or immovable ought to have been found during the course of search. No such assets, despite the extreme step of search which amounts to a serious invasion on the rights of subjects and which is perhaps the last weapon in the arsenal of the Department, were found, which could be attributed to any such patently hypothetical receipts. In view of this the multiplication formula adopted by the A.O. was not valid.33 ITA No. 29/Hyd/2013 & Ors.
M/s. JB Educational Society & Anr.
===========================
50. The other contention of the assessee on the unaccounted receipts is that this was collected by Sri R. Kondal Rao without the knowledge of the assessee and the same was subject to tax in the hands of Mr. R. Kondal Rao though he filed appeal against the assessment order before the CIT(A). The appeals pending with CIT(A) would be withdrawn in the event of deletion of addition in the hands of the assessee. To this effect, Sri R. Kondal Rao filed an affidavit before us which reads as follows:
"AFFIDAVIT I, R. Kondal Rao, son of late Sri Chandra Rao, aged about 55 years, resident of Hyderabad do hereby solemnly affirm and state as under:
I am the Manager working with J.B. Group of Educational institutions and hence well acquainted with the facts of the case. Therefore, I am competent to depose the following facts.
I am employed by the J.B. Group of Educational institutions including the above mentioned J.B. Educational Society and Joginapally BR Educational Society as the Manager looking after the admissions to their educational institutions.
During the periods relevant for the Assessment Years mentioned above, I was in-charge of the admissions to the management quota seats. The Management fixed the fees for admission to such seats. However, I was collecting the fees more than the amount so fixed from the students admitted to the management quota. The fees so collected was not entirely accounted for in the books of the society but that part of the amount which is fixed by the management was only accounted for. The balance was retained with me. The following table would indicate the total amount collected from all the students admitted to the institution and the amount recorded in the books of account of the institution are extracted in the annexure:
The amount collected by me without knowledge of the management committee i.e., Rs. 8,18,63,700/- was retained by me. These facts were already stated 34 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== by me vide letter filed before the Dy. Director of Income-Tax (Inv.), Unit-II(1), Hyderabad. I have also agreed in the said letter that the amount would be offered to tax as the additional income. I accordingly filed a petition before the Settlement Commission admitting the above mentioned difference for tax in the respective years. The said petition was not admitted by the Settlement Commission. However, the Assessing Officer i.e. Asst. Commissioner of Income- Tax, Central Circle-I, Hyderabad issued notices u/s. 153A of the Act and completed the assessments u/s 153A r.w.s. 143(3) of the IT Act on 30-12-2011 and taxed the difference in my assessments. The Assessing Officer in the assessment order clearly mentioned that the income offered in the petition before the Settlement Commission is assessed in my assessment. The said orders were received by me on 31-12-2011 and appeals were filed before the CIT(A) with a delay of 307 days. The appeals are pending before the learned Commissioner of Income-Tax (A)-I, Hyderabad.
I understand that such amounts were also added in the assessment of the societies.
I state that I will have no objection to withdraw the appeals filed before the CIT (A) and pay the taxes as per the assessment orders passed, in case the amounts added as the income of the above mentioned society are to be deleted. I agree to pay the taxes on the income so arrived. As stated by me in the earlier paragraphs, the amounts were collected by me and were appropriated by me towards the institutions only. Therefore, I have no objection to withdraw the appeals in case the assessment of such additional income made in the above mentioned society for various assessment years is deleted. What is stated above is true and correct to the best of my knowledge, information and belief.
Sd/-
R. Kondal Rao DEPONENT"
Date: 29.8.2013 35 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== Annexure:
Medical College Engineering College
Amount Amount Amount Amount
S. Difference Difference
A.Y. collected as recorded as collected as recorded as
No. of the of the
per the per the per the per the
amount amount
books diary books diary
1. 2005-06 4,70,89,000 5,15,25,000 44,36,000 - - -
2. 2006-07 3,44,90,000 6,32,50,000 2,87,60,000 - - -
3. 2007-08 5,48,00,000 6,41,00,000 93,00,000 - - -
4. 2008-09 4,56,75,000 5,53,12,500 96,37,500 2,00,34,500 3,63,29,500 1,62,95,000
5. 2009-10 4,28,00,000 4,40,00,000 12,00,000 65,06,900 1,91,57,500 1,26,50,600
5,33,33,500 2,89,45,600
51. Further, Sri J.V. Krishna Rao, Secretary of the J.B. Educational Society filed an affidavit which reads as follows:
"AFFIDAVIT I, J.V. Krishna Rao, son of Sri J. Bhaskar Rao, aged about 47 years, resident of Hyderabad do hereby solemnly affirm and state as under:
I am the Secretary of the above mentioned society and as such I know the facts of the case. Therefore, I am competent to depose the following facts:
The above mentioned society is running, the following educational institutions having started their activities in the academic years mentioned against each.
Academic year in Sl.
Name of the Institution which the activities are No. started
1. J.B. Institute of Engineering & Technology 1998-99
2. Bhaskar engineering College 2007-08
3. J.B. Institute of Engineering & Technology, MBA 2003-04
4. J.B. Institute of Computer Technology 1996-97
5. J.B. Institute of P.G. Courses 1996-97
6. Bhaskar Pharmacy College 2007-08 During the periods relevant for the assessment years mentioned above, Sri R. Kondal Rao, Manager, was in-charge of the admission of students under the management quota. The Management used to fix the fees to be collected by him. However, he was fixing and collecting the fees from the students amounts higher than the fees fixed. The fees so collected by him was not entirely accounted for in the books of the society but that 36 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== part of the amount as suggested by the management was only accounted for. In his deposition, Sri R. Kondal Rao has mentioned the amounts actually received by him and amounts recorded in the books of account. The difference of the amount is also worked out by him. He deposed to the effect that the difference of the amount was retained by him without the knowledge of the management committee.
I further state that the amount to the extent received by the society were recorded in the books of account and the amounts not recorded were received by Sri R. Kondal Rao who utilized the amounts. I further state that Sri R. Kondal Rao has filed the returns of income and was assessed on the difference between the amounts realized and the amounts actually credited in the books of account. He seems to have filed the appeals with a delay. I state that the difference of the amount does not represent the income of the society and it represents the receipt by Sri R. Kondal Rao and he shall be responsible for such amounts.
I agree with the deposition of Sri R. Kondal Rao that he collected the amounts and spent the amounts for the purpose of the society for which data was not available. I state that the amount is assessable in the assessment of Sri R. Kondal Rao and the same cannot be subjected to tax in the assessment of the society.
I state that out of the amounts received by Sri R. KondaI Rao, the amount shown in column No. 3 of his deposition is accounted for in the books of account and the balance is taxed in his assessment. What is stated above is true and correct to the best of my knowledge, information and belief.
For J.B. Educational Society Sd/- J.V. Krishna Rao DEPONENT Date: 29.8.2013"
52. Further, the assessee filed copies of assessment order of Sri R. Kondal Rao for A.Ys. 2004-05 to 2010-11. As seen from the above record, the income from the unaccounted receipt was 37 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== also subject to tax in the hands of Sri R. Kondal Rao. Taxing the same income from those receipts in the hands of the assessee amounts to double taxation which cannot be permitted. In our opinion, if Sri R. Kondal Rao does not contest the addition in his hands towards this receipt before the higher forum then there is no necessity of taxing the very same income from these receipts in the hands of the assessee. The learned DR submitted that the plea taken by the assessee that the impugned receipts belong to Sri R. Kondal Rao was with a view to shield the assessee and Sri R. Kondal Rao is only a decoy to protect the assessee. Sri R. Kondal Rao accepted the receipt of money without the knowledge of the assessee by using his position in assessee's office. Sri R. Kondal Rao has accepted that all the money which has been received would be accepted as his income and he owns the entire responsibility and accordingly disclosed the same to the Department and he would pay the tax. It is also an admitted fact that the AO has assessed all the income from those receipts in his hands and assessment order was duly passed by the AO after considering these receipts in his hands and the appeals are pending before the CIT(A). Sri R. Kondal Rao has taken full responsibility of the impugned receipts. Therefore, these impugned receipts cannot be considered to be exclusively relating to the assessee, especially, when Sri R. Kondal Rao who has admitted that he has collected money and also admitted to pay the tax on it. The AO of Sri R. Kondal Rao having treated the income from unaccounted receipts in the hands of Sri R. Kondal Rao, in our opinion, the assessee could not be saddled with all these unaccounted receipts as it is at its hands. It is an admitted fact that Sri R. Kondal Rao was in a position to collect the money from the students who were seeking admission in the assessee's college and he used his position to collect these impugned 38 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== receipts from the students and while passing the assessment order the same was treated in his hands as undisclosed income and he accepted himself for being assessed by the Department vide affidavit filed before us. Therefore, in this context, these unaccounted receipts which have been assessed by the Department in his hands cannot be once again considered in the hands of the present assessee, once Sri R. Kondal Rao acted in accordance with the affidavit filed before us. In our opinion, the explanation offered by both assessees can be believed to be true unless there is contrary evidence brought on record that the assessee itself has collected the money from the students. Being so, in our opinion, in the event of Sri R. Kondal Rao paying the tax on the unaccounted income from the receipts in his hands then the same unaccounted receipts cannot be brought to tax in the hands of the assessee. Accordingly, to the extent of unaccounted receipts which were considered in the hands of Sri R. Kondal Rao, the same cannot be treated as unaccounted income in the hands of the assessee once again. In otherwords, the receipts as per seized documents accepted to have been collected by Sri R. Kondal Rao during the course of search action as well as before us and offered for taxation by Sri R. Kondal Rao, the same cannot be considered in the hands of the assessee once again in the event he complied with the payment of tax. Accordingly, the AO shall pass fresh order on this issue after giving an opportunity of hearing to the assessee. This ground is partly allowed.
53. The next common ground ITA Nos. 29 to 32/Hyd/2013 (A.Ys. 2004-05 to 2007-08) is with regard to sustaining the addition towards capital fund. Facts of the issue are that the AO taxed the capital fund received by the assessee as follows:
39 ITA No. 29/Hyd/2013 & Ors.M/s. JB Educational Society & Anr.
===========================
A.Y. 2004-05 - Rs. 7,45,000
A.Y. 2005-06 - Rs. 7,57,000
A.Y. 2006-07 - Rs. 63,40,000
A.Y. 2007-08 - Rs. 75,45,441
54. According to the AR this is tied up fund and cannot be taxed. The amount was collected for a specific purpose and spent for the same purpose. He relied on the judgement of jurisdictional High Court in the case of Tirumala Tirupathi Devasthanam v. CCIT & Anr. (251 ITR 849) (AP) and on the judgement of Gujarat High Court in the case of CIT v.
Sthanakvasi Vardhman Vanik Jain Sangam (260 ITR 366) wherein held contributions received towards specific purpose would not form part of the income of the trust. Further he submitted that while delivering this judgement the Hon'ble Gujarat High Court followed the judgement of the Hon'ble Supreme Court in the case of State of Kerala vs. M.P. Shanti Verma Jain (231 ITR 787) (SC) and CIT vs. Nagpur Hotel Owners' Association (247 ITR 201) (SC).
55. On the other hand, the DR submitted that there was no valid registration to the assessee u/s. 12A of the Act which have been already cancelled by the CIT and confirmed by the Tribunal. Being so, it was rightly brought to tax. He relied on the order of the Tribunal Hyderabad Bench in the case of Nirmal Agricultural Society (71 ITD 152).
56. We have heard both the parties and perused the material on record. According to the AR these funds are contributed by members of the trust for specific purpose and it being capital receipt it cannot be taxed and this is not collected from the students so as to treat the same as income of the assessee u/s. 2(24) of the Act in view of the amendment to this section w.e.f. 1.4.1989, though the assessee having no valid registration u/s. 12AA of the Act. The assessee drew our attention to Paper Book 40 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== page Nos. 637 to 656 to show that this amount was collected from members and associated companies of the members towards "building construction fund" with a specific direction for capital expenditure and the amount so received was spent for construction of building and other civil works. According to the AR it cannot be treated as income of the assessee as it is a tied up grant. According to the AR the entire receipts received towards specific purpose cannot be taxed as it is a tied up fund.
57. The co-ordinate Bench had an occasion to examine similar issue in the case of Society for Integrated Development in Urban and Rural Areas (SIDUR) vs. DCIT (90 ITD 493) wherein the Tribunal followed the order of this Bench in the case of Nirmal Agricultural Society (71 ITD 152) and observed as follows:
"24. Coming to the second limb of the argument of the learned counsel for the assessee that the entire receipts cannot be taxed, we find that the issue is covered by the judgment of this Bench in Nirmal Agricultural Society v. ITO, 71 ITD 152. In that case, it has been held (as per head note) as under:-
"The assessee had not been granted registration under Section 12A, as the Commissioner thought it fit to refuse to condone the long delay caused by the assessee in applying for the registration. Therefore, the Assessing Officer had no other option but to complete the assessments in the status of AOP also closing his eyes towards Section 11 and Section 13. To that extent, the Assessing Officer was right as he had acted only according to will of law.
But as far as the contents of the assessments were concerned, even when the assessee had been assessed as AOP and deprived of Section 11 benefits, the Assessing Officer could assess only net income of the assessee and not gross receipts. As far as the assessee was concerned, construction of houses, reclamation of land, etc., were part of its regular activities. Houses were built on the land of poor agriculturists. The assessee-society had no legal 41 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== title or right over the land or houses of those villagers/agriculturists who were the beneficiaries. The purpose and activity of the assessee-society was to engage in such charitable activities. Whatever amount had been spent on those programmes/projects, it was spent in the usual course of carrying on its acclaimed objects. Therefore, there was no basis whatsoever, factual or legal, to hold that the amounts spent by the assessee in constructing houses or reclaiming land were capital expenditure. As far as the assessee was concerned, those expenses were revenue expenses. The assessee had no right or title over those properties. Those expenses were incurred as part of its normal activities for which the society was formed. Therefore, the money spent by the assessee- society in constructing houses, reclaiming the land, for non-formal education, etc., had to be allowed as deduction in the computation of income. The grants received from foreign donor were for specific purposes. The grants which were for specific purposes did not belong to the assessee-society; such grants did not form corpus of the assessee or its income. Those grants were not donations to the assessee so as to bring them under the purview of Section 12. Voluntary contributions covered by Section 12 are those contributions freely available to the assessee without any stipulation, which the assessee can utilise towards its objectives according to its own discretion and judgment. Tied-up grants for a specified purpose would only mean that the assessee which was a voluntary organisation, had agreed to act as a trustee of a special fund granted by donor with the result that it need not be pooled or integrated with the assessee's normal income or corpus. In the instant case, the assessee was acting as an independent trustee for that grant, just as same trustee could act as a trustee of more than one trust. Tied-up amount need not, therefore, be treated as amounts which were required to be considered for assessment for ascertaining the amount expended or the amount to be accumulated.
The assessee should have actually credited the grant in the personal account of the donor and any amount spent against that grant should have been debited to that separate account of the donor. That incoming and outgoing need not be reflected in the income and 42 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== expenditure account of the assessee. At the end of the project, the balance, if any, available to the credit of the donor, could be treated as income of the assessee, if the donor did not insist for the repayment of the balance amount.
Therefore, the Assessing Officer was to be directed to redo the assessment on the following lines.
(1) The tied-up grants received from the donor, Bread for the World, will be taken out of the computation of income from the income-side.
(2) All the money spent under the tied-up programmes directed by the donor also will be taken out of the computation of income from the expenses-side.
(3) Any non-refundable credit balance in the personal account of Bread for the World will be treated as income in the year in which such non-
refundable balance was ascertained.
(4) The expenses incurred by the assessee for house construction, reclamation of land, non-formal education programme (other than covered by the tied-up grants) will be deducted as revenue expenses."
25. Honourable Rajasthan High Court in the case of Sukhdeo Charity Estate (supra) held as follows (as per head note):-
"It was for the specific purpose of implementation of the water supply scheme that the request for contribution had been made by the assessee-trust and it was in response to that request that the amount had been given by the Calcutta trust. It was clear that the intention of the donor and the donee was to treat the money as capital to be spent for the water supply scheme. The fact that the amount had not been paid over to the State Government and was kept unutilised in the account of the assessee-trust was not relevant. The amount could not be said to be "income" and could not be included as part of the assessable income of the trust under the provisions of Section 12(2)."43 ITA No. 29/Hyd/2013 & Ors.
M/s. JB Educational Society & Anr.
=========================== In Yet another judgment in the case of Sukhdeo Charity Estate (supra), the Honourable Rajasthan High Court held as follows (as per head note):-
"The intention of the donor-trust as well as the donee-trust was to treat the money as capital to be spent for the Ladnu Water Supply Scheme. It was of no significance whether the amount had since been paid to the State Government or kept in the account of the said scheme by the assessee-trust. The amount of Rs. 70,000/- did not constitute income of the petitioner. The reassessment proceedings were not valid and were liable to be quashed."
This Bench of the Tribunal in the case of Arya Vysya Abhyudaya Sangham (supra) for asst. year 1998-99, in its order dated 25-6-2002 to which one of us was a party, was inclined to uphold the view of the Commissioner (Appeals) in that case by holding in para 15 of that order as follows:
"Though we find considerable force in the other argument of the assessee's counsel i.e. the income should be computed on commercial principles, as we have held that the assessee-society is eligible for exemption Under Section 11 of the Act and as we have also held that the objects of the society were of charitable nature within the meaning of Section 2(15) of the Act, and as we have further held that there is no violation, whatsoever of the provisions of Section 13(1)(c) and (d) of the I.T. Act, 1961, the other grounds of the assessee need not be gone into, as it would be of academic interest only."
The Revenue has not brought to our notice any judgment from any High Court which has dealt at length on this issue and which is in its favour. It is also not clear whether the Revenue has accepted or gone on appeal against the judgment of this Bench in the case of Nirmal Agricultural Society (supra).
26. Honourable Andhra Pradesh High Court in the case of Chairman, Andhra Pradesh Welfare Fund v. CIT, as per head note, held as follows:-
"(i) That the finding of the Tribunal, that the assessee could not be regarded as a branch or as a part of the 44 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== parent body, was a finding of fact and no question of law arose for reference.
(ii) That the mere fact that the rice millers paid contributions with an oblique motive would not affect the character of the contributions, as voluntary contributions.
(iii) That the finding of the Tribunal, that the assessee was not entitled to exemption as a trust under Section 12 because some of the funds were being utilised for purposes other than charitable and religious was a finding of fact and no question of law arose for reference."
This judgment was relied upon by the Reference. A careful reading of this judgment does not indicate that the question raised by the assessee before us was posed to the court. We do not feel that this is a precedent for laying down a proposition of allowability of expenditure for computation of income of a charitable institution which is denied benefit Under Section 11. Honourable Supreme Court in the case of Goodyear India Ltd. v. State of Haryana (1991) 188 ITR 402 (SC), as per head note, held as follows:
"Precedent -- Authority only for what it decides - Not for what may remotely or even logically follows - Decision on question not argued cannot be treated as precedent."
Thus, the judgment of Honourable Andhra Pradesh High Court (supra) does not help the case of the Revenue.
27. On other hand, learned authors Chaturvedi and Pithisaria in their book Income Tax Law, Fifth edition, Vol.1, at page 424, under the heading "Income, when falls into the tax net", observed as follows:-
"Although Section 14 of the 1961 Act classifies income under six heads, the main charging provision is Section 4(1) which levies income-tax, as only one tax, on the "total income" of the assessee as defined in Section 2(45) of that Act. AO income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the 45 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== "total amount of income referred to in Section 5".
Secondly, it must be "computed in the manner laid down in this Act". If either of these conditions fails, the income will not be a part of the total income that can be brought to charge [CIT v. Harprasad & Co. P. Ltd., (1975) 99 ITR 118, 125 (SC)]".
28. As argued by the Revenue, though by virtue of Section 2(24)(iia) voluntary contributions are income, to our mind this by itself does not entitle the tax gatherer to ignore all other well settled principles of taxation and general law and levy tax on gross receipts without considering the claim for deductions. Principles such as capital versus revenue, doctrines of overriding title, form versus substance, interpretation of "deeming" provisions etc., have to be applied wherever necessary. Only the surplus or profit can be brought to tax and the same has to be computed in the manner laid down in the Act applying the normal principles of accountancy and taxation laws.
29. The learned authors Kanga and Palkhivala in the book The Law and Practice of Income Tax, Eighth edition, Vol. I, at page 387, state the legal position as follows:-
"Voluntary contributions towards corpus of recipient trust.--
The present Section 12 is expressly made applicable to voluntary contributions which are made with a specific direction that they shall form part of the corpus of the trust [original in italics]. Therefore, such contributions on capital account do not have to be applied to charitable purposes but can be retained as the corpus of the recipient trust without attracting any tax liability. Although the italicized words have now been omitted from Section 2(24)(ii-a), the exclusion of such capital donations from the definition of "income" implicit in that section. The correct legal position is as under:
(a) All contributions made with a specific direction that they shall form part of the corpus of the trust are capital receipts in the hands of the trust. They are not income either under the general law or under Section 2(24)(ii-a) rightly construed. (See under 46 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== Section 2(24)(ii-a), "Voluntary contributions received by charity".)
(b) Section 2(24)(ii-a) deems revenue contributions to be income of the trust. It thereby prevents the trust from claiming exemption under general law on the ground that such contributions stand on the same footing as gifts and are therefore not taxable. (See under Section 10(3), "Voluntary payments ..." p.320.)
(c) Section 12 goes one step further and deems such revenue contributions to be income derived from property held under trust. It thereby makes applicable to such contributions all the conditions and restrictions under Sections 11 and 13 for claiming exemptions. (See also Expln. (1) to Section 11(1).]
(d) Section 11(1)(d) specifically grants exemption to capital contributions to make the fact of non- taxability clear beyond doubt. But it proceeds on the erroneous assumptions that such contributions are of income nature - "income in the form of voluntary contributions". This assumption should be disregarded."
30. In the case of AWARE (Supra), these issues were not argued before the Tribunal and hence that judgment cannot be taken as a precedent. Thus, that case also does not further the case of the Revenue.
31. We find that the Assessing Officer and the first appellate authority have not examined or dealt with these aspects of this case. Natural justice demands that these claims of the assessee be examined by the revenue authorities by applying the well settled propositions of taxation law.
32. In view of the binding nature of the judgment of this Tribunal in the case of Nirmal Agricultural Society (71 ITD 152) on the revenue authorities and the view taken in the case of Arya Vysya Abhyudaya Sangham (supra) and also in view of the ratio decidendi of the judgments of the Honourable Rajasthan High Court in the case of Sukhdeo Charity Estate (149 ITR 470 and 192 ITR 615) referred to above, we direct the Assessing Officer to redo the assessment de novo in accordance with law.
47 ITA No. 29/Hyd/2013 & Ors.M/s. JB Educational Society & Anr.
===========================
33. For statistical purposes, the appeal of the assessee is treated as allowed."
58. Further, in the case of Shri Shankar Bhagwan Estate vs. ITO (61 ITD 196) wherein even after considering section 2(24)(iia) of the Act it was held as follows:
"Section 2(24)(iia) has to be read in the context of the introduction of present section 12. In the instant case the Assessing Officer on evidence had accepted the fact that all the donations had been received towards the corpus of the endowments. In view of this clear finding, they could not be assessed as income of the assessees. Therefore, the voluntary contributions received by the assessees towards the corpus could not be brought to tax."
59. Now the issue for our consideration is whether the amounts received by the assessee were in the nature of voluntary donations received for specific purpose. If yes, whether the same could be considered towards corpus of the trust. Alternatively, if the donations are not voluntarily made, then whether such donations could be considered as income chargeable to tax. The assessee has taken a plea before us that these donations are received from members of the trust and their associated companies/persons for a specific purpose, it is a tied up grant. Sections 11, 12 and 2(24)(iia) of the Act speak of voluntary contributions. Therefore, firstly, it has to be seen whether such donations are voluntary or not. According to the dictionary meaning, an act can be said to be voluntary if it is done by free choice of once own accord, without compulsion or obligation, without valuable consideration, gratuitous, etc. There is no material on record to suggest that such donations are given against the will of the donors or by any compulsion or under any obligation. In that sense, it can be said that the donations are voluntary. Before us, the assessee filed a list of donors in Paper Book form at page Nos. 637 to 656 giving 48 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== details of the donors. If the donations are not voluntarily made, the same fall outside the ambit of sections 11, 12 and 2(24)(iia) of the Act. Consequently, general provisions of Income-tax Act would become applicable. According to the general provisions of the Act all receipts are not income. Donations received for specific object are to be considered as tied up fund and it is capital receipt. If the donations are made voluntarily for specific purpose, the same cannot be held as income of the assessee, since the donations were, in our opinion, given for specific purpose as tied up grant and it cannot be taxed as income.
60. In the present case, the resolution passed by the assessee shows that it has been received from members of the trust and their associated companies/persons towards "building construction" and the same were expended for that purpose. So far as section 2(24)(iia) is concerned, this section has to be read in the context of introduction of section 12. It is significant that section 2(24)(iia) was inserted with effect from 1.4.1973 simultaneously with the present section 12, both of which were introduced from the said date by Finance Act, 1972. Section 12 makes it clear by the words appearing in parenthesis that contributions made with a specific direction that they shall form part of the corpus of the trust or institution shall not be considered as income of the trust. The Board circular No. 108 dated 20.3.1973 is extracted at page 1754 of Volume I of Sampath Iyengar Law of Income-tax (10th Edition), in which the interrelation between sections 12 and 2(24) has been brought out. Gifts made with clear direction that they shall form part of the corpus of the religious endowment can never be considered as income. In the case of R.B. Shreeram Religious and Charitable Trust v. CIT (172 ITR 373) (Bom) the Hon'ble High Court held that even ignoring the amendment to section 12, which means that even before the words appearing in 49 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== parenthesis in the present section 12, it cannot be held that voluntary contributions specifically received towards corpus of the trust may be brought to tax. The aforesaid decision was followed by the Bombay High Court in the case of CIT vs. Trustees of Kasturbai Scindia Commission Trust (189 ITR 5) (Bom). In the present case donations being received for specific purpose, towards corpus of the trust, cannot be assessed as income of the assessee.
61. Same view was taken in the case of Shri Dwarakadeesh Charitable Trust vs. ITO (98 ITR 557), DCIT vs. Nasik Gymkhana (77 ITD 500), ITO vs. M/s. Gaudiya Granth Anuved Trust in ITA No. 386/Agra/2012 order dated 2.8.2013, Penta Software Employees Welfare Foundation vs. ACIT in ITA Nos. 751-752/Mds/2007 and DIT (Exemptions) & Anr. vs. Sri Belimath Mahasamsthana Socio, Cultural and Educational Trust (336 ITR 694) (Kar).
62. Further, we have also carefully gone through the order of the Tribunal in the case of Nirmal Agricultural Society vs. ITO (71 ITD 152) relied on by the DR. Specifically paragraphs 9 to 12 of that order support the case of the assessee rather than the Revenue. For clarity, we reproduce the said paragraphs as under:
"9. But as far as the contents of the assessments are concerned, we find much force in he contentions advanced by the assessee. Even when the assessee has been assessed as AOP deprived of s. 11 benefits, the AO could assess only net income of the assessee and not gross receipts. As far as the assessee is concerned, construction of houses, reclamation of land, etc., are part of its regular activities. Houses are built on the land of poor agriculturists. The assessee-society has no legal title or right over the land or houses of those villagers/agriculturists who are the beneficiaries. The purpose and activity of the assessee-society is to 50 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== engage in such charitable activities. Whatever amount has been spent on those programmes/ projects, they were spent in the usual course of carrying on its acclaimed objects. Therefore, there is no basis whatsoever, factual or legal, to hold that the amounts spent by the assessee in constructing houses or reclaiming land are capital expenditure. As far as the assessee is concerned, those expenses are revenue expenses. The assessee has no rig ht or title over those properties. Those expenses were incurred as part of its normal activities for which the society was formed. Therefore, the money spent by the assessee-society in constructing houses, reclaiming the land, for non-formal education, etc., has to be allowed as deduction in the computation of income.
10. The grants received from Bread for the World were for specific purposes. The grants which are for specific purposes do not belong to the assessee- society. Such grants do not form corpus of the assessee or its income. Those grants are not donations to the assessee so as to bring them under the purview of s. 12 of the Act. Voluntary contributions covered by s. 12 are those contributions freely available to the assessee without any stipulation which the assessee could utilise towards its objectives according to its own discretion and judgment. Tied-up grants for a specified purpose would only mean that the assessee, which is a voluntary organisation, has agreed to act as a trustee of a special fund granted by Bread for the World with the result that it need not be pooled or integrated with the assessee's normal income or corpus. In this case, the assessee is acting as an independent trustee for that grant, just as same trustee can act as a trustee of more than one trust. Tied-up amounts need not, therefore, be treated as amounts which are required to be considered for assessment, for ascertaining the amount expended or the amount to be accumulated.
11. The assessee should have actually credited that grant in the personal account of the donor, Bread for the World and any amount spent against that grant should have been debited to that separate account of the donor. That incoming and outgoing need not be reflected in the income and expenditure account of the assessee. At the end of the project, the balance, if 51 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== any, available to the credit of Bread for the World, the donor, could be treated as income of the assessee, if the donor did not insist for the repayment of the balance amount.
12. Therefore, in the light of the examination of the facts of the case, we direct the AO to redo the assessments in the following lines:
(1) The tied-up grants. received from the donor, Bread for the World, will be taken out of the computation of income from the income side.
(2) All the money spent under the tied-up programmes directed by the donor also will be taken out of the computation of income from the expense side.
(3) Any non-refundable credit balance in the personal account of Bread for the World will be· treated as income in the year in which such non-
refundable balance was ascertained.
(4) The expenses incurred by the assessee for house construction, reclamation of land, non-formal education programme (other than covered by the tied-up grants) will be deducted as revenue expenses."
63. Being so, as seen from the above order of the Tribunal the amount received by the assessee for specific purpose would only mean that the assessee agreed to act as a trustee of a special fund granted by assessee's trustees/members or associated persons. As a result it need not be pooled or integrated with the assessee's normal income or corpus. The assessee is acting as an independent trustee for that amount received from the assessee's trustees/members just as some trustee can act as a trust for more than one trust. Tied up or specific grant need not, therefore, be treated as amounts which are required to be considered for assessment. In other words, tied up grant received from donors for a specific purpose cannot form part of assessee's income.
52 ITA No. 29/Hyd/2013 & Ors.M/s. JB Educational Society & Anr.
===========================
64. In view of the above discussion, we are of the opinion that voluntary contributions in the nature of tied up grant received by the assessee cannot be brought to tax even the trust is not registered u/s. 12AA of the Act. The tied up donations received by the assessee should not be taxable as income of the assessee, if it is used for specific purpose for which it has been given and it cannot be considered as revenue receipts so as to tax the same. On the other hand, the donations used for the benefit of the trustees it should be brought to tax as income of the assessee. The AO is directed to segregate these donations which are diverted for personal benefit of the Members of the trust and tax the same accordingly. Further, other than tied up grant/donations, if any, should be treated as income in the hands of the assessee in accordance with law as business income after allowing usual deductions under the provisions of the Act while computing income under the head 'business income', more so, deduction u/ss. 30 to 38 of the Act is to be allowed, if it is not already granted to the assessee.
65. The next ground in ITA No. 30/Hyd/2013 is with regard to chit loss. Though the AR argued this ground, there is no such ground raised before us. Accordingly, this ground is dismissed.
66. The next ground common in ITA Nos. 30, 31, 33 and 34/Hyd/2013 is with regard to confirmation of action of the AO in making addition on the ground that there is a difference in opening balance of the capital fund which is as follows:
A.Y. 2005-06 - Rs. 4,285
A.Y. 2006-07 - Rs. 3,300
A.Y. 2008-09 - Rs. 35,13,736
A.Y. 2009-10 - Rs. 16,61,590
53 ITA No. 29/Hyd/2013 & Ors.
M/s. JB Educational Society & Anr.
===========================
67. The learned AR submitted that the lower authorities have not properly examined these additions and the issue may be remitted back to the AO for re-consideration and he drew our attention to Paper Book page Nos. 657 to 660 which shows that there is no excess liability attributable to income of the assessee. According to the AR, there is delay in updating the cash book due to search activities at the assessee's premises and he prayed to remit the issue to the AO for fresh consideration. The DR relied on the orders of the lower authorities.
68. We have heard both the parties and perused the material on record. These additions are made on account of difference in the opening balance of capital fund without properly reconciling carried forward balance as per the assessment records. In our opinion, it is appropriate to remit the issue back to the file of the AO with a direction to the assessee to furnish statement of capital fund on year to year basis. Thereafter the AO has to decide the same afresh in accordance with law. This ground is remitted back to the AO for fresh consideration.
69. The next ground in ITA No. 34/Hyd/2013 is with regard to the addition of Rs. 15 lakhs made by the AO on the ground that it represents unaccounted investment in the land.
70. The learned AR submitted that this was subjected to tax in the hands of Mr. Bhaskar Rao. Being so, it may be remitted back to the Assessing Officer for fresh consideration.
71. Considering argument of both the parties, we are inclined to remit the issue to the file of the AO for fresh consideration to verify whether the purchase of land admeasuring 3 acres 8 guntas at Rs. 23 lakhs were accounted or not. If the same is 54 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== accounted in either of the accounts of assessee or Mr. Bhaskar Rao, the addition cannot be made in the hands of the assessee.
72. The next ground in ITA No. 35/Hyd/2013 is with regard to addition of Rs. 70,69,600 on account of unaccounted cash. According to the AR sufficient cash balance is available with the assessee and the addition cannot be made towards unaccounted cash. The DR relied on the orders of the lower authorities.
73. We have heard both the parties and perused the material on record. If there is cash balance in the books of the assessee on the date of search, the addition cannot be made and the assessee shall prove the availability of cash balance in the hands of the assessee as on the date of search in the books of account and the issue is remitted back to the AO for fresh consideration.
74. The assessee raised the ground with regard to levy of interest u/s. 234A and 234B of the Act in ITA Nos. 29 to 35/ Hyd/2013. According to the assessee, the interest u/s. 234A and 234B is not leviable in view of the judgement of Calcutta High Court in the case of Imami Ltd. vs. CIT (337 ITR 470). In our opinion, interest under section 234A and 234B is to be charged on assessed income and it is mandatory and consequential in nature. The judgement in the case of Imami Ltd. is not applicable to the facts of this case. In that case, the assessee filed return of income for the A.Y. 2001-02 on 31.10.2001 and returned nil income and paid no tax even on book profit as there is no book profit. Later there was an amendment to section 115JB by Finance Act, 2002 which was published in official gazette on 11.5.2002 giving retrospective effect to the amendment to section 115JB from 1.4.2001 as per 55 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== which assessee is liable for tax on book profit. The assessee challenged the levy of interest u/s. 234B and 234C. The Hon'ble Calcutta High Court held that as the amended provisions of section 115JB having come into force with effect from 1.4.2001, the assessee could not be held defaulter of payment of advance tax, on the last day of financial year preceding the relevant assessment year, as the book profit of the assessee in accordance with the then provisions of law was nil, one could not conceive of any "advance tax" which in essence was payable within the last day of financial year preceding the relevant assessment year as provided in section 207 and 208 or within the date indicated in section 211 which inevitably fall within the last date of financial year preceding the relevant assessment year. Consequently, the assessee could not be branded as defaulter in payment of advance tax as mentioned above. Being so, the assessee in the present case is liable for levy of interest u/s. 234A and 234B of the Act.
75. The assessee raised additional grounds as follows in ITA Nos. 29 to 35/Hyd/2013:
(1) The Assessing Officer and the learned CIT(A) erred in determining the receipt on cash basis and in assessing the fees received for the entire course in one year.
(2) The Assessing Officer and the learned CIT(A) ought to have held that the proportionate amount of receipt alone is taxable in the respective year.
76. The assessee filed petition stating that these grounds are not raised before the lower authorities. The learned AR submitted that the assessee has filed return of income before the withdrawal of exemption u/s. 11/10(23C) of the Act. Prior to the said withdrawal, for the assessment year under consideration the assessee filed the return of income. In the said return of income, the amounts received towards fees and 56 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== expenditure was recorded as the assessee had to work out the applicability of the provisions of section 11 of the IT Act. The Assessing Officer while completing the assessment did not grant exemption u/s. 11 of the Act. Therefore, the income is to be computed in accordance with the principles of accrual. The assessee submitted that the receipt of fees from the students who are joining the institution under management quota is for the entire course. The duration of Engineering courses is four years and that of medicine is five years. The Assessing Officer adopted the entire amount of receipt as the income for the assessment year under consideration. The assessee submitted that the amount received is towards the fees for the course. Therefore, the proportionate amount only is to be included as the receipt for the year under consideration. This was not raised before the CIT(A). The assessee also did not raise a formal ground of appeal before the Tribunal at the time of filing the appeal. Accordingly, he prayed for admitting the additional grounds. The AR relied on the order of Chennai Bench of this Tribunal in the case of S. Priyadarsini vs. JCIT (73 TTJ 738) (Chennai).
77. The DR objected to the admission of additional grounds.
78. In our opinion, additional grounds have to be adjudicated as the income has to be computed on accrual basis. After admitting the additional grounds, we are inclined to remit the issue to the file of the Assessing Officer for proper quantification of the income on accrual basis. If the fees received for full course from a student in one assessment year, it should be appropriated proportionately for each year under consideration during the course period. The additional grounds are remitted back to the Assessing Officer with the above observations.
57 ITA No. 29/Hyd/2013 & Ors.M/s. JB Educational Society & Anr.
=========================== 78.1. The learned A.R. argued before us the issue relating to treatment of donation, loss on sale of vehicle and chit loss. However, these grounds are not raised by the assessee in its Memorandum of Appeal before us. Accordingly, these grounds are not considered.
79. In the result, ITA Nos. 29 to 35/Hyd/2013 are partly allowed.
ITA Nos. 36 to 41/Hyd/2013 - Joginpally B.R. Educational Society
80. Now we take up the appeals in ITA Nos. 36 to 41/Hyd/ 2013 pertaining to Joginpally B.R. Educational Society.
81. Brief facts of the case are that the assessee society was granted registration u/s. 12A of IT Act vide proceedings of CIT, AP-II, Hyderabad in F. No. Hqrs-II/12A & 80G/38/2000-01 dated 18-12-2000. It had also been granted approval u/s 10(23C)(vi) of IT Act by the CCIT-I, Hyderabad vide proceeding in F. No. CC/Tech-I/22B (9, 10, 61 & 342)/2009-10 dated 22.04.2009. Its main activities are to establish and run schools, colleges including colleges for catering and hotel management etc. The society runs the following institutions:
1. Joginpally BR Educational Society (assessee herein)
2. Bhaskar Medical College
3. Joginpally BR Pharmacy College
4. MN Rao Women's Engineering College
82. The trustees holding important and decisive positions in the society are -
1. Shri J.Bhaskar Rao
2. Smt. J. Vasumathi Devi
3. Sri J.V.Krishna Rao
4. Sri J .Vamshidhar Rao 58 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== In addition to the above, other family members Ms. J. Sunitha, D. Deepika, Ch. Krishna Rao and Ch. Vijayalakshmi are the members of the society.
83. The Assessing Officer noted that there are three categories of MBBS seats in a medical college whereas students in Category 'A' and Category 'B' are admitted as per the ranks obtained in EAMCET. Students are admitted in Category 'C', known as the Management Quota, by the Management of the society subject to certain restrictions such as ceiling of fee, non- collection of any other money by way of fee or any other receipt. He noted that the number of seats under the Management Quota in MBBS and in Engineering courses run by the assessee society were as under:
No. of Academic Sl. No. management year seats
1. 2005-06 38
2. 2006-07 25
3. 2007-08 31
4. 2008-09 29
5. 2009-10 32
84. The Assessing Officer also noted that the NTR Health University has prescribed various types of fees to be collected from students of three categories. The details of annual fees to be collected from the students of MBSS in Bhaskar Medical College were as under:
Fee per year Category 'A' Regular fee prescribed by the Convenor, EAMCET Category 'B' Convener fee + Rs. 2 lakhs Category 'C' Convener fee + Rs. 4 lakhs 59 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
===========================
85. As discussed in the assessment order, search operations were conducted in the cases of the assessee society and M/s. J.B. Educational Society, as also the residences of the main trustees viz., Shri J. Bhaskar Rao, Shri J. Vamsidhar Rao and Shri J.V. Krishna Rao, the Registrar of the Society Shri K. Ashok Mehta Reddy and the Manager Shri R. Kondal Rao. During the said searches, besides jewellery and cash of Rs. 66,00,000/- and Rs. 5,17,000/- seized from the residence of Shri J. Bhaskar Rao, certain incriminating material was found and seized from the office premises of the assessee society vide Annexures JB/AA/1 to JB/AA/5, which showed that the Society had collected fees from students over and above the prescribed fees (in the form of donations/capitation fess) for granting admission into the professional courses undertaken by the institutions of the society. It was also found that the excess amounts so collected were not recorded in the books of account.
86. Explaining the incriminating material so found, Shri Ashok Mehta Reddy, employee and registrar of the society clearly stated that the amount received in cash was mentioned on the right hand side, top portion of each page, next to name of the student and that the amount was mentioned in thousands, though received in lakhs. For example, he explained that the amount of Rs. 25,000 mentioned against the name of K. Varuniya in Annexure JB/NA/5 stood for Rs. 25,00,000. This statement of Mr. Ashok Mehta Reddy was confirmed by Shri J. Vamsidhar Rao, who is the Secretary of the Society, on the same day. Shri Rao stated that the seized books contained the details of fees collected by way of cheques/DDs and also in cash over and above what was collected by cheques and Demand Drafts and also that the money was being collected in cash for which no receipts were issued. He also confirmed that the amounts were written in thousands, by omitting two zeroes, is to be read 60 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== in lakhs. When the said statements and evidences were put before Shri J. Bhaskar Rao, Chairman of the society, he in his statement dated 15-12-2009 (Question No. 8) stated that he would offer his comments in a couple of days, however, no reply was submitted by him in this regard, even subsequently.
87. The Assessing officer further noted that the trustees in their letter to the DDIT dated 5.1.2010 had themselves stated that the figure noted on the top right hand side corner of each paper of the seized note books, normally, is inclusive of the total amount of fees and other amounts expected/offered as voluntary contributions, collected by the consultants as stated above in respect of each of the candidates of the Management Quota. It was submitted that there is no hard and fast rule about this figure and that it may vary from student to student, year to year and during the duration of the course in certain cases, depending upon the various circumstances. It was also explained that slight variations on a few occasions in noting these figures were only due to the communication gap between the said consultants and the Management. They had submitted that the Management generally notes down the fees collection details and on the right hand side corner notes the amount of fees and the voluntary contributions received/proposed to be received as intimated by the consultants. It was found that as per the evidences seized as Annexure JV/A/1 to 5, capitation fee was collected in cash and not recorded in the books of account and only the regular fees was recorded.
88. As discussed in the assessment order, Shri J. Vamshidhar Rao in his statement dated 10.9.2009 admitted Rs. 7.5 crores as the undisclosed income on the basis of discrepancies in the books of account in the individual hands for the entire group. However, the same was not linked to the 61 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== society. The said admission of Rs. 7.5 crores was again confirmed by him in his statement dated 15-12-2009. However, Shri Rao did not furnish the breakup of such disclosure nor the disclosure was honoured while filing the returns of income.
89. The AO further noted that Shri R. Kondal Rao, Manager of the Society had filed an application before the Settlement Commission on 29-7-2011, admitting an additional income of Rs. 8.18 crores. He pleaded before the Commission that he was collecting amounts at the time of admitting students into the college without the approval of the Management and that the same was not revealed to the Management. He also stated that the said amounts were used by him towards the expenses of the Society. However, the Settlement Commission, vide its report dated 29-8-2011 u/s. 245D(C) of the Act rejected the petition of Shri R. Kondal Rao holding that Shri J. Vamsidhar Rao had admitted collection of unaccounted capitation fee in cash and had disclosed the income of Rs. 7.5 crores. They did not find any merit in the contention that Shri R. Kondal Rao had embezzled the funds received as unaccounted capitation fees and applied those for charitable purposes of the society.
90. In view of the above, the AO concluded that it was established that the society had collected amounts over and above the prescribed fees and that amounts were not brought in the books of account. For example, he noted that in the case of K. Meghana, for the academic year 2005-06 (page No. 34/JB/AA/l), cash over and above the prescribed fee was recorded as "12,000", which meant Rs. 12,00,000. The recording of fees collected towards the prescribed fees was also recorded in the same page with full figures amounting to Rs. 15,00,000. The summary of collection of donations/capitation 62 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== fees over and above prescribed fee, year-wise, has been tabulated for the two colleges as under:
Bhaskar Medical College:
Total cash Amount
Total
received Total cash received and
undisclosed
S. (written in received utilised by the
FY receipts to
No. coded form (after society for
be
by omitting decoding) sister
quantified
two zeroes) concerns
1. 2005-06 551750 55175000 10250000 65425000
2. 2006-07 632500 63250000 Nil 63250000
3. 2007-08 646500 64650000 Nil 64650000
4. 2008-09 526125 52612500 Nil 52612500
5. 2009-10 423000 42300000 110000 42410000
Total 2779875 277987500 10360000 288347500
MN Rao College of Engineering
Total cash received
S. (after decoding being
FY Remarks
No. undisclosed receipts
to be quantified )
1. 2008-09 153300 Excess of amounts
collected over and above
the regular fee.
2. 2009-10 750000 -do-
3. unaccounted 903000
cash received
91. It was further found that as per the recordings in pages 73, 75, and 89 of A/JBES/5, 21, 45 to 47, 63 and 68 of A/JBES/6 and 10 to 12 of AA/JBES/l, the trustees had made investments in construction of guest house at Tirumala and Yadagiri Gutta, donation of gold to Yadagiri Gutta Temple, out of the unaccounted donations received. The correspondent of the institute at Tirupati, Shri Munirathanm, in his statement dated 14-12-2009 also confirmed that cash was received from J.
Bhaskar Rao. As per his letter to the DDIT, Rs. 35 lakhs were spent till that time towards construction of the guest house at Tirumala out of unaccounted donations/contributions. The investment in construction of guest house at Yadagiri Gutta 63 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== was Rs. 15 lakhs while the donation of gold was for Rs. 25 lakhs.
92. In addition to the above investments, evidences found (pages 88 to 99 of AA/JB/l) also showed that funds of the society were diverted towards the business concerns of the trustees. It 'was found that donations were being paid even directly into the accounts of the 3 star hotel being constructed under M/s. Arka Hotels Pvt. Ltd. The search also resulted in seizure of unaccounted cash and jewellery from the locker and the residence of J. Bhaskar Rao and the campus of J.B. Education Society at Yenkapalli, Banjara Hills and Tirupati. The AO opined that the same could have been out of the fees collected over and above the prescribed fees. The AO noted that' Shri J. Bhaskar Rao, J.B. Krishna Rao and J. Vamsidhar Rao had' declined to cross-examine Shri R. Kondal Rao, Shri Purnachand Pusti and Ashok Mehta Reddy, Shri Meghna and Shri B. Muniratnam. Therefore, the statement of Shri Purnachand Pusti could not be held as a hearsay evidence or 3rd party statement. The AO concluded that since the trustees had themselves confirmed the fact of suppression of zeroes, there was no need to go further to put the evidence to strict proof. In addition to the above, it was found that the trustees had business interest in M/s. Arka Hotels P Ltd, M/s. Jaybee Hotels & Theatres P Ltd etc and in the case of M/s. Arka Hotels P Ltd, unsecured loans had been obtained from others as under:
Saraswathi Jayaraman Mallichetti : Rs. 5,00,000 Dr. Jayachandra Reddy : Rs. 25,00,000 M. Madhu Mohan Reddy : Rs. 5,50,000 Rajesh Patel : Rs. 50,00,000 S. Dashrath Goud : Rs. 17,00,000 Shankar R. Ahuja : Rs. 92,400 M.R. Waghruy : Rs. 25,00,000 Total : Rs. 1,28,42,400 64 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
===========================
93. The AO noted that Shri M. Madhumohan Reddv was the father of M. Rahul Reddy, Shri S. Dasarath Goud was the father of Sai Pradeep Goud and Shri M. R. Waghruy was the father of Rithesh Waghruv, all students of MBBS 2007-08 batch. Therefore, it was clear that part of- the fee had been introduced as unsecured loans. In the AY 2006-07, it was also found that even share application money had been introduced in the names of pa rents during the year, the appellant had introduced Rs. 53,30,000 towards share application money in M/s. Arka Hotels P. Ltd. in the following names:
M. Narender Rs. 10.00 lakhs
Mohd. Abdul Bari Rs. 6.15 Iakhs
Valluri Prasad Rs. 13.50 lakhs
Samiullah Shahakhan Rs. 5.00 lakhs
Shahid ali Rs. 10.00 lakhs
Others Rs. 1.65 lakhs
Total Rs. 53.30 lakhs
94. It was found from the seized documents that the above amounts were introduced by the parents seeking admission under the Management Quota as Dr. T. Linga Rao was the father of T. Abhinav, V. Prasad was the father of Karthika, Samiullah Shah Khan was the father of Azha Mullah Khan, Md. Abdul Bari was the father of Salma Abdul Bari all students of MBBS 2005-06 batch. Therefore the amounts introduced were nothing but the part of fees not accounted for in the books of account of the society. In addition to the above, there were several entries where annexure were found between accommodation receipts and fees collected directly from the parents/students instead of being accounted for in the books of a/c of the society, which was indeed a violation of sec. 13(l)(c) and sec. 11(5) of the IT Act.
65 ITA No. 29/Hyd/2013 & Ors.M/s. JB Educational Society & Anr.
===========================
95. As discussed in the assessment order, the evidence seized in the course of search clearly shows collection of amounts over and above the fees. The Note Books seized as Annexures JB/AA/1 to 5 contain details like, name of the student, father's name, total fee for the seat, fee received in cash, fee received through cheque/DD, balance fee to be collected during the relevant 5 years etc., for example Annexure JB/AA/1 is a note book in respect of MBBS students of Bhaskar Medical College under the management quota for the academic year 2005-06. At page No. 36 thereof, it can be seen that Sandhya Sreekanth, father's name Dr. S. Ananthakumar was given a management quota seat for Rs. 27 lakhs (out of which Rs. 20 lakhs is shown as "20000=00" in the right hand top corner) and Rs. 27 lakhs is shown as due tuition fee, as against the prescribed fee of Rs. 4 lakhs. Similar entries have been described by the Assessing Officer in seized Annexures JB/AA/2 to JB/AA/5, JB/A/3, 6, 28 and 32, showing the meticulous practice of encrypting the total consideration by omitting two zeroes.
96. The Assessing Officer observed that during the course of search and seizure operations, Shri K. Ashok Mehta Reddy, Registrar of the Society, was confronted with the facts regarding the admission under Management Quota. In his statement u/s. 132(4) Shri Mehta stated that the fee collected is about Rs. 30 lakhs, out of which receipt is given for Rs. 20 lakhs only. He explained that cash and cheques for which receipts are issued are entered in the books of account while other amounts received, for which no receipts are issued, are not entered. He also stated that the excess cash is sometimes kept in the locker with Syndicate Bank in Moinabad campus or with Purnachand Pusti. He further stated that part of the excess money is utilized for construction of hotel.
66 ITA No. 29/Hyd/2013 & Ors.M/s. JB Educational Society & Anr.
===========================
97. Shri G. Meghnath, Accountant, assisting Shri Ashok Mehta Reddy also accepted the fact of receiving capitation fees in his statement dated 10-9-2009. While Shri R. Kondal Rao also confirms these facts in his statement dated 10-9- 2009, Shri J.V. Krishna Rao, Secretary of JB Educational Society in his statement dated 15-12-2009, contended that the notings do not refer to any capitation fee. However, when probed further, he only stated that his father will be in a better position to explain this. Likewise, Shri J. Vamsidhar Rao, Secretary of the appellant society also in his statement dated 15-12-2009 only stated that his father would .furnish the details in a couple of days. Though Shri J. Bhaskar Rao, Chairman of both the societies stated that he would submit his comments in a couple of days, nothing was stated in this regard even later. On the other hand, on the first day of search itself, Shri J .Vamsidhar Rao, after going through the Incriminating evidences had made a voluntary disclosure of Rs. 7.5 crores u/s. 132(4) of the Act. He was also shown the statements recorded from the persons who had been actually recording the money collected over and above the prescribed fees from the students admitted in Management Quota and had accepted the statements: given by them. Therefore, it was clear that the Management of both the society had accepted in principle the collection of amounts over and above the prescribed fee and the manner in which those were found recorded in the incriminating evidence.
98. During the course of assessment proceedings, the assessee did not file any reply or clarification. In the letter dated 12-12-2011, the assessee contended that the addition of two zeroes to the figures and conversion of the cash collections into crores instead of lakhs is required to be put to strict proof by way of independent enquiry, evidence from students/ parents etc and needs to be confirmed only by the persons making the 67 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== payment. Except for the above denial, no other counter evidence could be submitted. On the other hand, from the evidence gathered it had been proved that the society has been charging amounts over and above the prescribed fees.
99. The seized material clearly shows diversion of funds of the society towards business concerns of the trustees. It was found that the group was constructing a 3 star hotel under M/s. Arka Hotel Pvt. Ltd and donations had been paid directly into the accounts of the hotel. Besides, expenses for construction of a guest house at Tirumala were also borne out of the donations/contributions received. The AO noted that despite being called for, the appellant had not furnished the ledger account of the construction carried out at Yadagirigutta. For example, the AO noted that page No. 89 of AA/JB/l showed payment by a student, C. Suneel to Arka Hotels Pvt. Ltd, while page No. 19 showed payment to Arka by JBIET. Page No. 91 reflected payment to Arka Hotel by another student, V. Prasada Reddy and 92 to J.B. Hotel and Arka Hotel from other bank accounts. Though it was claimed that the payments by students directly to Hotel Arka are duly accounted in the books, the AO noted that only a part payment, which is the prescribed fee was so received by the assessee in the books and the payment over and above the prescribed fee had been directly credited into the account of Arka Hotel by way of accommodation receipts, share application money or unsecured loan.
100. The evidences seized during the course of search also revealed that funds of the society were being utilized for the benefit of trustees. For example, from page No. 118 of Annexure JB/A/31 it was found that the payment of Rs. 70,000 had been made to Shri Ramesh towards "supply of granites" for MD Sir residence. Page No. 120 thereof also pertained to a payment of 68 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== Rs. 20,000 to the same person. Page No. 121 also showed that Rs .4,800 had been accounted for under "tuition fees" paid to Nursery school towards the fees of B. Swathi Bongu (granddaughter of Shri J. Bhaskar Rao). Page No. 93 of Annexure A/JBIT/1 also showed an inter office communication evidencing payment of Rs. 50,000/- to Shri J. Bhaskar Rao from the transport account though Shri J. Bhaskar Rao stated that he would file an explanation in this regard. During the assessment proceedings it was only stated that the transaction did not pertain to the society and that it was a personal transaction of Shri Rao. The AO opined that mere denial could not have discharged the liability of the appellant in view of the presumption u/s. 132(4A).
101. During the course of search; cash of Rs. 3 lakhs was also found and seized from the locker No. 2 standing in the name of Sri J. Prabhakar Rao, employee of JBIET. Shri Rao in his statement dated 25-9-2009 stated that the cash belonged to the assessee's society and pertained to the college JBREC. Since no explanation regarding the source of such cash was furnished nor the same was found recorded in the books of a/c, the cash of Rs. 3 lakhs was seized. Shri Rao also stated that the cash had been given to him by one Sesha Sai, staff member for safe custody. However, he could not show that any entry was made in this regard. During the assessment proceedings it was claimed that the amount was out of the tuition fee collected and had been kept with Mr. Rao due to the closure of banking hours. However, no copies of receipts from the students could be submitted even during the assessment proceedings.
102. In view of the findings of the search and seizure operations, a proposal was sent to the DGIT (Inv), Hyderabad, recommending rescinding of the approval granted u/s.
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=========================== 10(23C)(vi). The DGIT vide his proceedings in F. No. DGIT (Inv)/ Hyd/APPELLANT & Renewal u/s. 10(23C)/ JBRES/2011-12 dated 16-12-2011 withdrew/rescinded the recognition with effect from 2007-08. The DGIT held that in the instant case there was no dispute that amounts were collected by way of capitation fees/donations in cash which were not recorded in the books of accounts and there was no evidence to substantiate that the same was utilized for the purpose of education. He held that legally these amounts were required to be entered in the books of account to give factual and transparent picture. The AO, therefore, proposed to assess the income as normal income without considering the claim of exemption.
103. Even with regard to the claim of exemption u/s. 11, the AO noted that in the case of Mohini Jain Vs. State of Karnataka and Others (1992) 2 SCC 666, and it was opined that capitation fee is nothing but a price for selling education. He noted that the assessee had also used the charitable activity/educational institution as an apparatus for selling education and that the element of charity no longer remained-the activity of the assessee. He concluded that since the society was found admitting students under the Management Quota in consideration of an amount which is over and above the prescribed fees, it clearly establishes the intention of the assessee to earn profits. He took note of the fact that even in the state of Andhra Pradesh a committee has fixed the fees that may be collected by the professional educational institutions per semester/year. The assessee society, however, collected the fees for the entire course in advance besides collecting amounts over and above such fees which; has to be treated' as collection of capitation fees. He noticed that even the advance fees was not deposited/invested in any bank, violating the provisions of sec.
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=========================== 11(5) of the Act and that the entire money was utilized by the persons interested in the society, showing misuse of funds of the institution. Therefore,. it was clear that' the appellant society did not exist solely for the purpose of' education but existed only for profit. He further noticed that it would not affect the assessment of income in the hands of society if the capitation fee is collected by the trust per se or by some interested persons. He felt that in the assessee's case the collection of capitation fee could not even be termed as a business income as envisaged u/s. 11(4A). Besides, there had been violation of provisions of sec. 13(1C) as the amounts collected over and above the prescribed were being handed over to the Chairman and other interested persons of the society. Accordingly, he concluded that even on this account the appellant would not be entitled to the exemption u/s. 11 of the Act.
104. The AO noted that even in view of the decision of the ITAT, Hyderabad in the case of Vodithala Educational Society and Adinatar Educational Institution vs. ACIT (224 ITR 310), the assessee was not eligible for exemption u/s. 11, as it did not exist for the purpose of education solely but for the purpose of profit. He also referred to the decision of Hon'ble Apex Court in the case of T.M. Pai vs. State of Karnataka (2002) 8 SSC 481 while holding that the society would not be eligible for exemption u/s. 11 or 10(23C) where it fails to prove that the contributions are not in the nature of capitation fees. Accordingly, he held that the assessee is neither eligible for exemption u/s. 10(23C)(vi) nor it is eligible for exemption u/s.
11. He accordingly, proceeded to assess the income of the assessee in the capacity of AOP.
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===========================
105. Based on the seized material, the AO prepared a comprehensive chart which on cross verification showed that Rs. 28,83,47,500, being receipts of Bhaskar Medical College and Rs. 9,03,300 being the receipts of M.N. Rao college were not accounted for in the books of a/c. of the society for the financial years 2005-06 to 2009-10. The AO has given assessment year- wise tabulation for the 5 academic years i.e. 2005-06 to 2009- 10 as under:
Total Total
undisclosed undisclosed Total
S. receipts from receipts Unaccounted undisclosed
A.Y.
No. Bhaskar from MN cash receipts
Medical Rao quantified
College College
1. 2006-07 6,54,25,000 6,54,25,000
2. 2007-08 6,32,50,000 6,32,50,000
3. 2008-09 6,46,50,000 6,46,50,000
4. 2009-10 5,26,12,500 1,53,000 5,27,65,800
5. 2010-11 4,24,10,000 7,50,000 3,00,000 4,34,60,000
Total 28,83,47,500 9,03,300 28,95,50,800
106. In view of the above findings, the AO proceeded to compute the total income for A.Ys. 2005-06 to 2010-11 as under:
(a) Asst. Year 2005-06: The Assessing Officer noted that in the Income and Expenditure Statement a surplus of Rs. 7,92,584/- had been arrived at. He noted that there was an addition of Rs. 5,40,32,110 to the "capital fund" in the absence of eligibility for exemption, he concluded that the "capital fund"
partook the nature of income and was not to be treated as capital receipts. Besides he found that no evidence could be filed for the claim of Rs. 4,36,749/- towards Tsunami Relief Fund. In addition to this, he found that the closing balance of capital fund as on 31-3-2004 was Rs. 42,27,976/- whereas the opening 72 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== balance as on 1-4-2004 was Rs. 57,68,612 showing an excess liability of Rs. 15,40,636considering the above therefore, he determined the total income for the AY 2005-06 at Rs. 56,45,330 by denying the claims of exemption u/s. 11 and 10(23C) of the Act.
(b) Asst. Year 2006-07: For the asst. year 2006-07, the AO considered the surplus of Rs. 6,51,166 and the capital fund of Rs. 68,05,600 as income of the appellant. In addition to this, he noted that the closing balance of capital fund as on 31-3-2005 was Rs.
5,98,40,772 as against the opening balance of Rs. 6,64,51,596. Accordingly, the excess liability of Rs. 66,10,874 was also disallowed and added to the total income.
(c) Asst. Year 2007-08: The income and expenditure statement for this asst. year showed a surplus of Rs. 3,02,398. Besides, there was addition to the capital fund of Rs. 1,43,22,635, which too was not treated as capital receipts. The AO also added the difference between the closing and opening balance of capital fund as on 31-3-2006 (Rs. 7,32,57,196) and 1-4-2006 (Rs. 7,74,19,332 respectively of Rs. 41,62,126).
(d) Asst. Year 2008-09: In addition to the surplus of Rs. 1,02,80,910, the capital fund of Rs. 56,56,986 was treated as income. Besides, the AO also added the difference between the closing and opening balance of capital fund as on 31-3-2007 (Rs. 9,17,41,957) 1-4- 2007 (Rs. 10,36,74,999 respectively) of Rs. 1,19,33,042.
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===========================
107. In addition to the above, the Assessing Officer noted that the assessee had offered "other income " of Rs. 6,17,543/ - only, whereas the TDS certificates reflected the total interest. income of Rs. 26,60,107. Accordingly, the difference of Rs. 20,42,564 was also brought to lax for the AY 2008-09.
(a) Asst. Year 2009-10: In addition to the surplus of Rs. 60,61,922/-, the capital fund of Rs. 3,75,000/- was treated as income. Besides, the AO also added the difference between the closing and opening balance of capital fund as on 31-3-2008 (Rs. 10,93,31,985) and 1-4- 2008 (Rs. 11,97,61,067) respectively, of Rs. 1,04,29,082.
(b) Asst. Year 2010-11: The AO considered the surplus of Rs. 31,24,577/-, as income of the appellant. Besides, he noticed that there was nothing to substantiate the claim of the cash of Rs. 3,00,000 found from the locker standing in the name of Sri J. Prabhakar at Syndicate Bank, Yenkapalli village, being the fee collection from the JBREC college. He noted that no receipts in this regard or a list of such students giving such fees could be submitted even during the course of search. Accordingly, the sum of Rs. 3 lakhs was also treated as unexplained income of the society for the asst. year 2010-11. Further, the AO also disallowed the claim of donation of Rs. 6,29,518
108. The CIT(A) observed that the denial of claim of exemption u/s. 10( 23C) and 11 of the Act, in the asst. years 2005-06 to 2010-11 is to be upheld. Once the assessee has not been found eligible for exemption u/s. 10(23C) or 11 of the Act, it is clear that its income during the year has to be computed on commercial lines, and therefore, surplus, if any, in these years 74 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== is liable to be taxed. Accordingly, he decided these grounds against assessee.
109. Further, the CIT(A) observed that as regards the treatment of "capital fund" as income of the assessee, it is the contention of the assessee that the same is a capital receipt, with specific direction for capital expenditure, and hence not taxable. However, it is clear that the registration granted u/s. 12A to the assessee society on 18-12 2000 with effect from 1-4-2000 has already been cancelled by the CIT (Central), Hyderabad. Accordingly, in view of the decision of the ITAT, Hyderabad in the case of Nirmal Agricultural Society vs. ITO (71 ITD 152), even if the amounts received towards "capital fund" were those received with specific directions for capital expenditure, these cannot be considered for the benefit u/s .11 to 13 of the Act. Accordingly, he upheld the treatment of amounts received under the head "capital fund" as income of the assessee and decided the issue against the assessee.
110. As regards the addition of Rs. 6,54,25,000, Rs. 6,32,50,000, Rs. 6,46,50,000, Rs. 5,27,65,800 and Rs. 4,31,60,000 in assessment years 2006-07, 2007-08; 2008-09, 2009-10 and 2010-11 respectively, the CIT(A) observed that it is clear that the same amount has been arrived at on the basis of the seized material itself as annexed in the assessment order. Even in the course of appellate proceedings, the assessee has not disproved the observation of the Assessing Officer that the entries on whose basis such unaccounted income was worked out were not found accounted for in the books of account of the society. Accordingly, he upheld the additions of the above amounts as unaccounted income from "donation/capitation fee"
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111. The CIT(A) observed that it is also clear that' the above mentioned additional amounts were given and received as quid pro quo for granting admission to the students into various colleges/institutions of the assessee society only. Accordingly, all of such amounts are to be taxed in the hands of the assessee society only. Merely because Shri R. Kondal Rao accepted having collected such amounts personally, without the knowledge of the society, it cannot be said as the income of Shri Rao. It is clear that the society has never raised any complaint of embezzlement also. Therefore, it can be said without any doubts that such amounts, even if collected by Shri Kondal Rao or any other person, were the unaccounted receipts of the assessee society only. It is also clear that under a well laid down system, the persons of institutions received such amounts and recorded those in the diaries meticulously after a systematic encryption by omitting two zeroes.
112. As regards the contention raised in the course of appellate proceedings that amounts of Rs. 1,02,50,000 in the assessment year 2006-07 and Rs. 11,00,000 in the asst. year 2009-10 are double additions, it is seen that the assessee has contended that out of Rs. 1,02,50,000 stated above, Rs. 46,50,000, Rs. 49,00,000 and Rs. 7,00,000 have already been taxed in the hands of J.B. Educational Society, Arka Hotels and J.B. Health Care. It is stated that Rs. 11 lakhs has been taxed in the hands of Arka Hotels in the asst. year 2009-10. However, it cannot be denied even if the amounts were received by Arka Hotels and J.B. Health Care on behalf of the assessee society, these constituted the unaccounted income of the appellant society only. Accordingly, no infirmity can be said to exist in the addition of Rs. 49 lakhs and Rs. 7 lakhs made in the asst. year 2006-07 and Rs. 11 lakhs in the A.Y. 2009-10. As regards the sum of Rs. 46,50,000 received. by J.B. Educational Society, it is 76 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== seen that while the seized documents indeed showed receipt of such unaccounted income by the assessee society, M/s. J.B.· Educational Society's books do not show anything payable on this account to the assessee. Therefore, it cannot be said that the amount received by JB Educational Society was not over and above the total amount recorded in the. seized documents pertaining to the assessee society. Accordingly, he was of the view that the claim of double addition is not tenable in the facts and circumstances of the case.
113. As regards the claim of the assessee that the Assessing Officer erred in taxing the cash receipts in full without deducting the amounts accounted for in the books of account, the assessee has not been able to substantiate that any amount so accounted for has again. been added in the additions discussed above. Accordingly, while upholding the additions made by the Assessing Officer, he decided the issue against the assessee.
114. With regard to the year-wise issues, the CIT(A) observed that in the asst. year 2010-11, the Assessing Officer disallowed the claim of donation of Rs. 6,29,518/- in the absence of any evidence. In the course of appellate proceedings it has been stated that the same was paid to Chief Minister's Relief Fund, which is eligible for 100% deduction u/s. 80G(2). The Representative also submitted details of cheques of Rs. 2 lakh and Rs. 3 lakh bearing Nos. 835373 and 835498 dated 15-10- 2009 and 26-12-2009. Therefore, he directed the Assessing Officer to verify the said contention of the assessee and grant deduction as per law. Accordingly, he decided this issue in favour of the assessee.
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115. As regards the difference in the closing balance of capital fund, it has been submitted that there was no difference in opening balance in any of these years. The Representative also submitted extracts of Balance Sheets for different years to substantiate his contention. The Assessing Officer; therefore, is directed to verify such contention of the assessee and delete the additions made on account of difference, in case the contention is found to. be correct. Accordingly he decided the issue in favour of the assessee subject to verification.
116. As regards the addition of Rs. 3,00,000 made in the asst. year 2010-11 on account of unaccounted cash, the CIT(A) observed that it is clear from the discussion in the foregoing paragraphs that the assessee could not explain the source of such cash in the course of search. Though it was claimed that all of it was out of fee collections, no receipts to support such claim could be furnished at the relevant time. The assessee could not even furnish any list of students allegedly paying such fees. Under the circumstances, he concurred with the view taken by the Assessing Officer that had there been any part of regular fees in the cash so found, the assessee must have been in a position to substantiate the same by way of bills, which indeed are issued instantly as a practice. The copies of bills for fees furnished subsequently are indeed only an afterthought and fail to substantiate the assessee's contention. Accordingly, he upheld the treatment of unaccounted cash of Rs. 3,00,000 as undisclosed income. He observed that the assessee has not been able to demonstrate that even such undisclosed income was part of unaccounted income worked out on the basis of seized records evidencing collection of capitation fees. Accordingly, finding no infirmity in the action of the Assessing Officer, the separate addition of Rs. 3,00,000 on account of 78 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== unaccounted cash was also upheld by the CIT(A) and he decided the issue against the assessee.
117. With regard to the addition of Rs. 20,42,564 (AY 2008-09) on account of unaccounted interest, the CIT(A) observed that the assessee has submitted that the other income of Rs. 6,17,543/-shown in the Income and Expenditure A/c is the net of interest income and interest paid. The assessee explained that while the total bank interest on fixed deposits: was Rs. 51,85,671, interest paid on loan against deposits was Rs. 45,68,127. It is claimed that TDS certificates showed total interest income of Rs. 26,60,107 only, which was much less than the total interest income offered to tax. Before the CIT(A), the AR of the assessee also submitted ledger account of "Interest on FDs" and "Interest on loan against FD, along with copies of TDS certificates. In view of the contentions of the assessee, the CIT(A) directed the Assessing officer to verify the same and delete the addition made on this account, in case contentions of the AR are found to be correct. Accordingly he decided the issue in favour of the assessee subject to such verification. Hence the assessee is in appeal before us on the above issue.
118. The first common ground is with regard to denial of exemption u/s. 11 or 20(23C) of the Act. Similar issue was already decided above in ITA Nos. 29-35/Hyd/2013. On the same ratio this ground is dismissed accordingly as discussed in para 34 of this order.
119. The next common ground is with regard to addition of unaccounted income holding the additional receipts in the hands of the assessee while making substantive addition in the hands of one Mr. R. Kondal Rao.
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===========================
120. We have heard both the parties and perused the material on record. This is already discussed in ITA Nos. 29 to 35/Hyd/ 2013. This issue is partly allowed as in ITA Nos. 29 to 35/Hyd/2013 as discussed in paras 43 to 52 of this order.
121. The next common ground is with regard to addition towards capital fund. Similar issue is already discussed in ITA Nos. 29 to 35/Hyd/2013 in paras 56 to 64. Accordingly, this ground is partly allowed.
122. The next ground is with regard to addition towards disallowance of opening balance. This ground is discussed in ITA Nos. 29 to 35/Hyd/2013 in para 68. Following the same ratio, this ground is remitted back to the file of the AO for fresh consideration.
123. The next ground is with regard to unaccounted cash. This issue is already discussed in ITA Nos. 29-35/Hyd/2013 in para 73. Accordingly, this ground is remitted to the AO for fresh consideration.
124. The assessee raised the ground challenging levy of interest u/s. 234A and 234B of the Act. This issue is already decided in ITA Nos. 29-35/Hyd/2013 in para 74. Accordingly, in these appeals also the issue is decided against the assessee.
125. The assessee also raised additional grounds in these appeals. This issue is already decided in ITA Nos. 23- 35/Hyd/2013 in para 78. Accordingly, in these appeals this ground is remitted back to the AO for fresh consideration.
126. The learned A.R. argued issue relating to donations to C.M. Relief Fund in the assessment year 2010-2011. However, 80 ITA No. 29/Hyd/2013 & Ors. M/s. JB Educational Society & Anr.
=========================== there is no such ground before us. Hence, this issue is not considered.
127. In the result, ITA Nos. 36 to 41/Hyd/2013 are partly allowed.
Order pronounced in the open court on 28th October, 2013.
Sd/- Sd/-
(SAKTIJIT DEY) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated 28th October, 2013
tprao
Copy forwarded to:
1. M/s. J.B. Educational Society, c/o. M/s. Mahesh, Virender & Sriram, Chartered Accountants, 6-3-788/36 & 37A, Ameerpet, Hyderabad.
2. M/s. Joginpally B.R. Educational Society, c/o. M/s. Mahesh, Virender & Sriram, Chartered Accountants, 6-3-788/36 & 37A, Ameerpet, Hyderabad.
3. The ACIT, Central Circle-1, Hyderabad.
4. The CIT(A)-I, Hyderabad
5. The CIT (Central), Hyderabad
6. The DR - 'B' Bench, ITAT, Hyderabad