2022 (10) TMI 894 - AT - Income Tax

Exemption u/s 10(23C) - unaccounted money was generated in podar Group and same was rooted through sham companies - HELD THAT - According to the provision of Section 10(23C)(vi) any University or any Educational Institutions solely existing for education purposes and not for purposes of profit will have its whole of the income exempt. The proviso to section 10(23C) of the Act provides that if an educational institute applies its income on other than objects of trust or for the purpose of profit, it may lose exemption. Admittedly Ramrao Adik Education Society is also an educational institute, therefore, donation to that society cannot be said to be utilized by assessee for non-educational purposes. This fact has not been denied by the AO at any time. Thus it is not the case of the assessee that ₹1 crores given as a donation by the assessee is utilization of the fund for non-educational purposes. Even otherwise, the disallowance under Section 10(23C) made by the AO is pursuant to search dated 9 January 2018. The impugned assessment year before us is 2012-13. Only evidence based on which the ld AO held that Rs 1 Cr of Donation is not eligible for exemption u/s 10 (23C) are the statements of those persons. For this year, original assessment is already completed u/s 143(3) of the Act on 27 March 2014 therefore, it clearly shows that impugned assessment is a concluded assessment at the time of search. Such retracted statement also cannot be said to be incriminating material found during the course of search, which can be used to enhance the income of assessee u/s 153A of the Act. Thus , there is no incriminating material existing pursuant to search, which could have disturbed the concluded assessment in case of the assessee. Therefore, even on this ground, the exemption u/s 10(23C) cannot be denied to the assessee. Accordingly, ground of the appeal of the learned Assessing Officer is dismissed and order of the CIT (A) is confirmed. Gratuity and leave encashment provision - HELD THAT - We find that assessee runs educational institute and makes provision for gratuity and leave encashment of the staff on actuarial basis, which is ascertained liability, and not merely a provision. Merely because it is stated to be a provision, it is not disallowable. Even otherwise, the issue is squarely covered in favour of the assessee by the decision of co-ordinate Bench in assessee s own case for A.Y. 2014-15. In the result, ground no. 6 of the appeal of the learned Assessing Officer is dismissed.

Summary

Issues Involved:
1. Whether the donations made by the assessee trusts were bogus and thus not eligible for exemption under Section 10(23C) of the Income-tax Act, 1961.
2. Whether the provision for gratuity and leave encashment is allowable as an application of income for educational purposes under Section 10(23C) of the Income-tax Act, 1961.
3. Whether the assessment order was valid given the alleged procedural lapses, including reliance on retracted statements and lack of cross-examination opportunities.

Issue-wise Detailed Analysis:

1. Donations and Exemption under Section 10(23C):
The primary issue was whether the donations made by the assessee trusts (Podar Education Trust and Podar Education & Sports Trust) were genuine and thus eligible for exemption under Section 10(23C) of the Income-tax Act, 1961. The Assessing Officer (AO) alleged that the donations were bogus based on statements recorded during a search operation, which indicated that the donations were returned in cash to the Podar Group and then introduced into various companies. These statements were later retracted by the individuals who made them, and affidavits were filed to this effect. The AO rejected these retractions and relied on the original statements.

The Commissioner of Income-tax (Appeals) [CIT (A)] dismissed the AO's contentions, noting that the retracted statements had no evidentiary value and that the donations were made by account payee cheques to trusts registered under Section 12AA and recognized under Section 80G of the Act. The CIT (A) also referred to a previous order for A.Y. 2011-12, where similar additions were deleted. The Tribunal upheld the CIT (A)'s decision, stating that there was no independent evidence proving that the donations were bogus or that the funds were returned in cash to the Podar Group. The Tribunal emphasized that the AO did not examine the trustees of the donee trusts or provide any evidence that the donee trusts returned the donation amounts in cash.

2. Provision for Gratuity and Leave Encashment:
The second issue was whether the provision for gratuity and leave encashment made by the assessee trusts was allowable as an application of income for educational purposes under Section 10(23C). The AO disallowed this provision, arguing that it was merely a provision and not an actual expenditure. The CIT (A) deleted the disallowance, relying on a decision of the co-ordinate Bench in the assessee's own case for A.Y. 2014-15, which treated the provision as an ascertained liability and not merely a provision.

The Tribunal upheld the CIT (A)'s decision, noting that the provision for gratuity and leave encashment was made on an actuarial basis for the employees of the trust and was an ascertained liability. The Tribunal also referred to the co-ordinate Bench's decision, which had allowed the deduction for similar provisions in the past.

3. Procedural Validity of the Assessment Order:
The assessee challenged the assessment order on several procedural grounds, including the lack of incriminating material found during the search, reliance on retracted statements without providing an opportunity for cross-examination, and failure to provide copies of seized material in electronic form. The CIT (A) dismissed these contentions, holding that the statements of various persons constituted incriminating material.

The Tribunal, however, found that the retracted statements, which were confirmed during cross-examination, had no evidentiary value. It also noted that the AO did not provide any independent evidence to support the claim that the donations were bogus. The Tribunal concluded that there was no incriminating material found during the search that could justify disturbing the concluded assessment.

Conclusion:
The Tribunal dismissed all the appeals filed by the AO, upholding the CIT (A)'s decisions to allow the exemptions under Section 10(23C) for the donations made by the assessee trusts and to treat the provision for gratuity and leave encashment as an allowable application of income for educational purposes. The Tribunal emphasized the lack of independent evidence to support the AO's claims and the procedural lapses in the assessment process.