9911796707
TMI Blog2013 (12) TMI 777X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutions 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 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .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: S. No. A.Y. Donation/ Capital fee (Rs.) Accounted in the books Not accounted in the books Seized material 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 credited on 20-9-2007. The amount of Rs. 1 lakh, paid by Shri Syed Ali was found credited in the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 another student, B. Prasad Reddy. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 (granddaughter 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 N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt received in cash is mentioned on the right hand side, top portion of each of page 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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: SI. No. AY. Donation/ capital fee (Rs.) Unaccounted investment in land & cash Total 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 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. 40. On appeal, the CIT(A) confirmed the addition for all the assessment years and he observed that estimation of 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 & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 43. We have heard both the parties and perused the material on record. The first objection of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nbsp; "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 rational basis, the fact that there is no good proof in Support of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 coll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lection 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of this the multiplication formula adopted by the A.O. was not valid. 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 abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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 Annexure: Medical College Engineering College S. No. A.Y. Amount collected as per the books Amount recorded as per the diary Difference of the amount Amount collected as per the books Amount recorded as per the diary Difference of the amount 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 ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pts 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d outgoing need not be reflected in the income and 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):- &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 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 ed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 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 B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 in lakhs. When the said statements and evidences were put before Shri J. Bhaskar Rao, Chairman of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fees over and above prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 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 Rithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 15-12-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tta. 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 Rs. 20,000 to the same person. Page No. 121 also showed that Rs .4,800 had been accounted for under "tuitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 balance as on 1-4-2004 was Rs. 57,68,612 showing an excess liability of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 18-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 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. seiz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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