2016 (4) TMI 914 - AT - Income Tax

Eligibility of exemption u/s 11 and 12 - income deemed to be chargeable to tax u/s 68 - Held that - A perusal of the statement recorded from Dr.Mahalingam specifically answers to question no.13, 19 in the statement recorded on 21st August,2006 and the question recorded in the subsequent statement dt. 25th August,2006 demonstrate that the disclosure of Dr.Mahalingam is based on the material Annexure A-2 to A-10. This is the very seized material based on which an addition is once again made in the hands of the assessee. We have asked the assessee to file photo copies of this material, he did so by way of a paper book. We have verified the same and found that the contentions of the Ld.Counsel for the assessee is correct. Once the income is relatable to particular material found during the course of survey and when the same is offered to and assessed to tax in the hands of Dr.Mahalingam in his individual capacity, then the same income cannot be brought to tax once again in the hands of the Trust. This would amount to double taxation of the same income. The Ld.D.R. before us could not demonstrate as to how the seized material could be said as evidence of income being earned by the Trust. Even otherwise as observed by the Ld.CIT(A) as the alleged unexplained receipts is aggregating to ₹ 1,70,23,219/- and the alleged unexplained expenditure is much above the same i.e. aggregating to ₹ 2,25,02,116/-. When the income of the assessee is exempt u/s 11, if this income is taxed as income of the Trust, then, as the same is applied, there would be no sum which can be taxed in the hands of the assessee. We also find that the Hon ble Delhi High Court in the case of DIT(E) vs. Raunaq Education Foundation (2007 (4) TMI 61 - HIGH COURT, DELHI ), held that exemption u/s 11 of the Act is to be granted when income is brought to tax u/s 68 of the Act. Out of the additions u/s 68 and 69C totalling to ₹ 4,22,48,338/-, no amount can be brought to tax, as the deemed application u/s 11(1) would be ₹ 5,44,75,960/- and the application of income in respect of capital expenditure would be ₹ 12,69,84,028/- totalling to ₹ 18,14,59,988/-. This results in a net deficit of ₹ 3,07,03,982/-. Thus looking at the issue from another angle, we have to uphold the order of the First Appellate Authority and dismiss this appeal of the Revenue. - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of exemption under Section 11 of the Income Tax Act.
2. Addition of undisclosed fees and unaccounted income.
3. Admission of additional evidence under Rule 46A.
4. Recognition under Section 80G of the Income Tax Act.

Detailed Analysis:

1. Denial of Exemption under Section 11 of the Income Tax Act:
The primary issue across multiple assessment years (2004-05, 2005-06, 2006-07, and 2007-08) was the denial of exemption under Section 11 of the Income Tax Act to the assessee, a registered educational trust. The Assessing Officer (AO) denied the exemption on the grounds that the trust was allegedly involved in commercial activities and was not maintaining proper books of accounts. However, the First Appellate Authority (CIT(A)) found that the AO had not invoked the provisions of Section 145(3) of the Act and had not pinpointed any unrecorded single entry in respect of fees received from students. The CIT(A) allowed the exemption under Section 11, noting that the trust's activities were in accordance with its objectives and there was no adverse finding on this aspect by the AO.

2. Addition of Undisclosed Fees and Unaccounted Income:
The AO made additions to the income of the trust based on material found during a survey conducted under Section 133A of the Act, which allegedly indicated unaccounted fees and other income. For instance, in the assessment year 2004-05, the AO added ?1.33 crores as undisclosed fees. The CIT(A) deleted these additions, stating that the AO's conclusions were based on guesswork and extrapolation without concrete evidence. The Tribunal upheld the CIT(A)'s order, emphasizing that the addition was not sustainable as it was not based on evidence and no inquiry or investigation was conducted by the AO from the concerned students or parents.

3. Admission of Additional Evidence under Rule 46A:
The AO objected to the CIT(A) admitting additional evidence under Rule 46A, which included a certificate from the Competent Authority confirming that the trust's records were destroyed in a tsunami. The Tribunal found no merit in the AO's objection, noting that the additional evidence was necessary to support the trust's claim that the vouchers for construction expenses were destroyed. The Tribunal upheld the CIT(A)'s decision to admit the additional evidence and grant exemption under Section 11.

4. Recognition under Section 80G of the Income Tax Act:
The assessee's appeal against the refusal of recognition under Section 80G was also considered. The DIT(E) had rejected the recognition on the grounds that the conditions laid down under Sections 11 to 13 were violated. However, since the Tribunal upheld the CIT(A)'s orders granting exemption under Sections 11 and 12 for the relevant assessment years, it directed the DG(Exemptions) to grant recognition to the assessee under Section 80G(v) of the Act.

Conclusion:
The Tribunal dismissed all the appeals filed by the Revenue and allowed the appeal filed by the assessee. The Tribunal upheld the CIT(A)'s orders granting exemption under Section 11, deleting the additions made by the AO, and admitting additional evidence under Rule 46A. Consequently, the Tribunal also directed the DG(Exemptions) to grant recognition to the assessee under Section 80G. The order was pronounced in the open court on 17th March 2016.