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TMI Blog2016 (4) TMI 84X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. Therefore, we hold that the income cannot be charged to tax in the hands of society as well as in the hands of trustee cum secretary of the society. We are inclined to adjudicate that the additional fees collected should be assessed only in the hands of Mr. Mahi and the same should be deleted to be assessed in the hands of society. With regard to quantification of unaccounted receipts by the Assessing Officer, the Assessing Officer had quantified the same at ₹ 16.62 crores instead of ₹ 16.50 crores as accepted by Mr. Mahi. The calculation is based on the investment made by Mr. Mahi in his individual name as well as in his own companies and the material seized during search. As the Assessing Officer had assessed the same in the hands of Mr. K.T. Mahi, the same cannot be brought to tax in the hands of the society. Assessing Officer cannot estimate the unaccounted receipts for all the assessment years based on the material found in the search proceedings relating to a particular AY without any cogent material available for the other AYs and without any statement/deposition of any of the office bearers of the society that it has collected additional fees in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the Assessment Year 2006- 07 onwards. The assessee society is running an Engineering College by the name Sreenidhi Institute of Science and Technology (SNIST) and its main objects are to provide education, vocational guidance, training and research programmes, to promote technical, professional and vocational education etc. to the students. 2.2 In the course of search at the residence of Shri K.T. Mahi and Smt. Sarita Mahi, cash of ₹ 2,84,110/- and jewellery of ₹ 22,36,380/- were found, out of which ₹ 2,00,000/- and ₹ 8,59,680/- respectively, were seized. In addition to the same, documents relating to unaccounted Income generation and Investments thereof were also found and seized, which pointed to the fact that the assessee society was collecting amounts over and above the regular fees and the trustees were utilizing the amounts for their personal benefits and personal businesses. It was found that the donations/capitation fees collected are not accounted for in the books of account but are used for unaccounted Investments as personal assets. 2.3 Evidence collected in the course of search further indicated that the society was collecting fees fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g through the relevant material noticed that, the total unaccounted monies, received over and above the prescribed fee, came to ₹ 16,62,26,600/- (after reducing the amount of ₹ 6,42,97,600/- on account of fee collections and certain refunds), as against the admission of ₹ 16.50 crores by Shri Mahi. He also noted that even though Shri Mahi had admitted such additional income in his individual hands, source for the same stemmed from the college only. 2.7 The Assessing Officer has quantified the unaccounted receipts for various years, after reducing the fees and funds out of the total amounts collected from students as per the seized Annexure as under: Assessment Year Unaccounted receipts (Rs.) 2005-06 18,62,000/- 2006-07 1,35,17,000/- 2009-10 9,00,44,700/- 2010-11 6,04,02,900/- 2.8 The Assessing Officer has also listed out year-wise investments as appearing in the seized material in the names of other entities from out of donations/capitation fees collected from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es showing the unaccounted payments based on the seized material including the unaccounted credit card payments. 2.12 After analyzing the seized documents, the Assessing Officer concluded that part of the fees recorded therein was reflected in the books of account, implying that the remaining part appearing in the seized papers but not recorded in the books was also true. It was also found that the students whose names were appearing in the seized material were actually studying in the college and their names could be traced out in the books with the details of fees paid by them. He further noted that the above mentioned seized material was found and seized from the table of Shri Ramesh Babu only, who categorically stated that the said books reflected the amounts of cash received from various persons as consideration for courses offered to them. He also explained how the said cash was being used by Shri KT Mahi for Investments in real estate, personal expenditure, etc. Shri Ramesh Babu also explained the mode of receipt of fees and donation/capitation fee, stating that for the Management Quota seats, only fee is collected through Bankers Cheque/DD, while capitation fee is collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sess the income of the assessee as normal income without considering the claim of exemption u/s 11. 2.14 In addition to the above, while considering the eligibility of the assessee to claim exemption u/s 11, the AO noted that in the case of Mohini Jain Vs. State of Karnataka and Others (1992) 2 SCC 666, the Hon'ble Supreme Court has opined that capitation fee is nothing but a price for selling education. The Assessing Officer 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 sells seats of professional courses and collects Capitation Fee and therefore, the activity of the assessee no more remains charitable activity within the meaning of sec. 2(15) of the Act. The Assessing Officer held that the material seized in the course of search clearly establishes the collection of money over and above the prescribed fees and this fact was admitted by the employees of the society, who even admitted that the amount so collected was being handed over to the Chairman and interested persons in the soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve 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 is it, eligible for exemption u/s 11. He accordingly, proceeded to assess the income of the assessee in the capacity of AOP. 2.16 With the above view, .the Assessing Officer issued a show cause notice to the assessee to offer its comments on his proposition to tax the unaccounted receipts for various years, considering the situation that the cover of sec.10(23C)(vi) was not available to it. He also provided copies of various statements recorded during the course of search, as requested by the assessee, Vide letter dated 26-12-2012, the assessee stated that the statement given by Shri Ramesh Babu is false, baseless, incorrect and without knowing the facts. It was also stated that the books seized were not at all related to any of the transactions of the assessee society and were maintained purely by Shri Ramesh Babu in his personal capacity. Therefore, the assessee claimed that those could not be accepted as the books of account of the society. It also relied upon the Affidavit filed by Shri KT Mahi before the ADIT, emph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimation of suppressed income based on part period evidences and sworn deposition of partner of the assessee firm was upheld. He note that even in the case of M/s Bawarchl Restaurant vs. DCIT, the Hon'ble ITAT, Hyderabad in their order in IT(SS)A No.117/Hyd/2005, dated 14-7-2006 have 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. 2.19 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 assessee society was into the practice of collection of capitation fee for the earlier years also. Relying on the seized material, the average excess fee received was worked out by him. In view of the above conclusion, the Assessing Officer estimated the excess amount collected for AYs 2004-05 to 2007-08 as under: S. No. Academic Year AY No. Management seats Estimated excess amount collected Total amount 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for this asst. year showed a surplus of ₹ 8,37,525/-. Besides, in view of the payment of TDS deducted from payments towards contracts and rent, after March of the year, the claim of expenditure under those heads of ₹ 29,18,370/- and ₹ 3,47,570/- respectively, were disallowed u/s.40(a)(ia), after including the surplus, disallowances and the unaccounted income, the total income was worked out at ₹ 2,51,58,145/-. 2.24 Asst. Year 2007-08: In the I E, Statement, the assessee had shown a deficit of ₹ 53,20,801/-. Besides, in view of the payment of TDS deducted from payments towards contracts, rent and professional/consultancy charges, after March of the year, the claim of expenditure under those heads of ₹ 11,08,180/-, ₹ 23,22,540/- and ₹ 4,50,230/- respectively, were disallowed u/s.40(a)(ia), after including the surplus, disallowances and the unaccounted income, the total Income was worked out at ₹ 3,81,51,751/-. 2.25 Asst. Year 2008-09: In the I . E Statement, the assessee had shown a deficit of ₹ 5,92,51,208/-. Besides, it had also debited ₹ 86,472/- on account of loss on sale of vehicles which in his opinion w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... putedly imparting education, cancellation of registration was not in accordance with law. The same ratio has been followed by the Lucknow Bench of ITAT in the case of Kapoor Educational Society vs. CIT (2010) 134 TTJ(lucknow) 250. Further, we are of the opinion that Sri K.T. Mahi seems to have collected capitation fees on his own without any authority of the society, therefore, the society is not involved in collection of capitation fees in cash. The argument of the learned DR that the acts of the servant will bind the master cannot be applied to the facts of the present case for the reason that Sri K.T. Mahi was never authorized to collect the excess capitation fees. The authority to collect the excess fees should have been given by the society and it is only, then, it can be said that the acts of the employees will bind the principal. Anything done by the employee beyond the scope of powers given to him will not bind the principal society. The cash deposited in the Head Office by itself cannot be treated as fund collected by the society. The said amount has been assessed in the personal hands of Sri K.T. Mahi as the collected amounts have not reached the society, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of advancement of education and not to earn profit. In fact, no profit has been established to have been earned by the assessee. The DIT has failed to specify as to how profit earning is the predominant activity of the assessee and the society has been pursuing its object of imparting education to students. Therefore, the assessee-society cannot be deprived off of the benefit of registration granted by the DIT(E) u/s 11 of the Act. Being so, in our opinion, registration granted u/s.12AA of the Act cannot be cancelled. However, the aforesaid findings given by us are nothing to do with the allowability of exemption u/s.11 of the act. In case any discrepancy or irregularity with regard to the allowability of u/s.11 is noticed by the Assessing Officer, he can make an independent enquiry/exemption at the time of assessment for each assessment year and decide in accordance with law. 4.2 The CIT(A) observed that though the Hon'ble Tribunal has restored the registration of the Society u/s. 12AA of I.T. Act, as per the said decision, the allowability of exemption u/s 11 of I.T. Act needs to be decided on the facts of the case as observed by the Hon'ble ITAT. It may be noted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee and worked out the likely undisclosed income on the basis of the evidence available for the subsequent years. Accordingly, the extrapolation of income for Asst. years 2004-05, 2005-06, 2007-08 and 2008-09 is justified. Since the society does not enjoy the exemption cover, the income so estimated needs to be assessed in the hands of the society and therefore, the undisclosed income estimated by the Assessing Officer for Asst. years 2004-05, 2005-06, 2007-08 and 2008-09 totalling to ₹ 8,71,00,000/- is confirmed. 5. Aggrieved by the order of the CIT(A), the assessee is in appeals before us for the AYs 2004-05 to 2010-11 and has raised the following grounds of appeal, which are common in all the appeals, except for the quantum of the additions made: Grounds of Appeal: 1. The Commissioner (Appeals) has erred on facts and in law and the order is bad in law. 2. The Commissioner (Appeals) ought to have held that the search on the Society was without proper jurisdiction. The Commissioner (Appeals) ought to have held that the AO did not acquire jurisdiction to do the assessments and that it ought to have been declared a nullity. 3. The Commissioner (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argument of the learned DR that the acts of the servant will bind the master cannot be applied to the facts of the present case for the reason that Shri K.T. Mahi was never authorized to collect the excess capitation fees. The authority to collect the excess fees should have been given by the society and it is only, then, it can be said that the acts of the employees will bind the principal. Anything done by the employee beyond the scope of powers given to him will not bind the principal/society. The cash deposited in the Head Office by itself cannot be treated as fund collected by the society. The said amount has been assessed in the personal hands of the Shri K.T. Mahi as the collected amounts have not reached the society, therefore, the exemption u/s 11 cannot be denied. It cannot also be said that the seized documents, on which, the AO had placed reliance conclusively proved that it was only the society, which is received the excess money. The circumstances only show that it was Shri K.T. Mahi, who has collected excess money without the knowledge or the authority of the society. In other words, none of the monies were collected by Shri K.T. Mahi on the authority of the society ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer, Commissioner or Commissioner (Appeals). He, therefore, submitted that the Hon'ble Tribunal, in the present case, may kindly follow its own order in ITA No. 564/H/12. (supra). 6.3 Finally, the ld. AR submitted that in view of the findings of the Hon'ble Tribunal that the said amounts was collected by Shri K T Mahi as an individual and never reached the Society, they could not be assessed in the hands of the assessee. He pointed out that the order of the Hon'ble Tribunal in ITA No. 564/H/12 is binding on the Hon'ble Tribunal in this matter because the earlier order is based on the very same facts and records and the Tribunal has given categorical findings which are required to be considered in the present case. For this proposition, he relied on the following case laws: 1. Marubeni Corporation (liaison Office) vs JCIT 83 ITD 577 Precedent-Binding nature-Order of Tribunal-When the facts are similar, then there should not be contrary decision and the order of the Tribunal should be followed for the sake of consistency-A departure from this principle is not ordinarily called for, unless it is shown that earlier decision was an error arising o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also unequivocal compliance and adherence by lower judicial authorities- Order of the Tribunal is binding on the AO and the first appellate authority-Action of CIT(A) in not following the Tribunal's order given in assessee's own case in earlier years, and that too without distinguishing the facts and terming it as running counter to the law, was an outrageous and contemptuous act which deserves outright condemnation and reprimand by the Tribunal 2. MTNL vs Ad CIT 8 SOT 376 (Delhi) ITA 3448 to 3450/Del/2003 A judgment delivered by the Tribunal is binding on the AO. He is bound to follow the judgment of the Tribunal in its true letter and spirit, The AO being an inferior officer vis-a-vis the Tribunal, was bound by the judgment of the Tribunal and therefore, he should not have tried to distinguish the same on untenable grounds. It is also necessary for the judicial unity and discipline that all the authorities below Tribunal must accept as binding Judgment of the Tribunal. The CIT (A), therefore, should not have committed any judicial impropriety in refusing to follow the order of the Tribunal. Even if she had some reservations about the correctness of the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted that if there are any discrepancies or irregularities (other than the findings given by it), then they ought to be considered by the assessing officer during assessment. The Hon'ble Tribunal could not have given categorical findings and then passed observations allowing the lower authorities to ignore such findings without any new evidence or material. 6.6 Ld. AR submitted that even for the years where no incriminating evidence was discovered during the search, the AO has made additions by estimations, extrapolating figures from other years. It is submitted that if the original amounts are not assessable in the hands of the assessee, the question of extrapolations would not arise. No estimation would, therefore, be permissible. 6.7 Ld. AR submitted that in the case of the Society, by the date of search, assessments up to AY 2008-09 were completed and no proceedings were pending, or the time to issue notices u/s 143(2) had expired. He submitted that the law on the matter is that completed cases are not permitted to be disturbed unless there is material discovered during the search warranting such reconsideration. For this, he relied on the following decision: 1. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustained for the following reasons: The AO has not done any investigation into why there is no evidence in some years and ignored the possibility that there was no capitation fee collected for those years. Basis of computation by AO is not rational, not considering realities about different streams of education, making the estimation arbitrary. Was not put up to the assessee Without showing parallels in other years There is erroneous assumption that all management seats led to collection of capitation fees which would not happen. 6.10 As regards the disallowances u/s 40(a)(ia), the ld. AR submitted that it is not sustainable in view of the following orders: ITAT order in Vaishnavi Educational Society, ITAT Hyderabad, ITA No. which relied upon Mahatma Gandhi Seva Mandai, ITAT Mumbai, 21 Taxman.com 321 ITA No. 4138/Mum/2011. Mahatma Gandhi Seva Mandai, ITAT Mumbai, 21 Taxman.com 321 ITA No. 4138/Mum/2011 7. The Learned Departmental Representative besides relying on the orders of the revenue authorities, relied upon the following decisions in support of contention supporting the orders of the authorities below: 1. ITA No. 430/H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be charged to tax in the hands of society as well as in the hands of trustee cum secretary of the society. 8.1 We are inclined to adjudicate that the additional fees collected should be assessed only in the hands of Mr. Mahi and the same should be deleted to be assessed in the hands of society. 9. With regard to quantification of unaccounted receipts by the Assessing Officer, the Assessing Officer had quantified the same at ₹ 16.62 crores instead of ₹ 16.50 crores as accepted by Mr. Mahi. The calculation is based on the investment made by Mr. Mahi in his individual name as well as in his own companies and the material seized during search. As the Assessing Officer had assessed the same in the hands of Mr. K.T. Mahi, the same cannot be brought to tax in the hands of the society. 10. With regard to estimation/extrapolation of excess amount collected for AY 2004-05 to AY 2007-08 based on the assumption of the Assessing Officer that the assessee was in the practice of collection of capitation fees for the earlier years also, we find that relying on the seized material, the average excess fees received was worked out at ₹ 3.5 lakhs in the latest year. Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of section 153A/153C of the Act, the A.O. 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. As pointed out by the Ld. Counsel for the assessee in this regard, the said decision of Hon'ble jurisdictional High Court in the case of Gopallal Bhadruka (supra) has already been considered by the Coordinate Bench of this Tribunal in the case of ACIT vs. Srinivasa Rao (ITA.No.1767 1768/Hyd/2011 dated 08.11.2013) and the same has been found to be distinguishable on facts as in the said case, the partners of the assessee firm had confirmed the receipt of on money in other years which was relied upon for making the assessment of the undisclosed income of the assessee firm. Since in the case of B. Srinivasa Rao (supra), there was no such admission by the assessee, the Tribunal held by relying inter alia on decision of Hon'ble Delhi High Court in the case of CIT vs. Anil Bhalla 322 ITR 19 (Del.), Allahabad High Court in the case of CIT vs. RML Mahapatra 320 ITR 403 (All) and Hon'ble Supreme Court decision in the case of Commissioner of Sales Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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