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TMI Blog2020 (1) TMI 445X X X X Extracts X X X X X X X X Extracts X X X X ..... ip - Held that:- the fact that a formal sale deed has not been executed in favour of the assessee society cannot be held as basis for denial of claim of depreciation Further, ld CIT DR has submitted during the course of hearing that where the assessee society has already claimed and allowed the capital expenditure on construction of building as an application of income, the assessee society cannot be allowed depreciation claim on the said building in view of specific embargo placed by virtue of section 11(6) of the Act. There is no dispute that these provisions introduced by the Finance, Act 2014 are applicable for both the years under consideration. Therefore, it is a matter of record and it can be examined by the Assessing officer as to whether the capital expenditure so incurred by assessee society has been claimed as an application of income in any of the years under consideration or in the earlier years. - Matter remanded back. Addition of unexplained cash u/s 69A - unexplained money - the same was not recorded in the books of Integral Bank nor entered in the cash books of accounts of the assessee society - fee was collected from students in old denomination - He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee society. The said details/information were subsequently submitted by the assessee and examined by the Assessing Officer. 4. During the pendency of reassessment proceedings, the ld. Pr. CIT (Central), Rajasthan, Jaipur passed orders withdrawing approval granted u/s 10(23C)(vi) on 14.12.2018 and approval u/s 12AA was also withdrawn vide letter No. 267 on 14.12.2018 on the grounds of diversion of the funds of the assessee society for personal purposes, non genuine scholarship expenses and addition to fixed asset claimed by the assessee society in view of the payment made to Rajasthan Housing Board. The Assessing Officer accordingly held that the pending reassessment proceedings have to be completed in view of the orders passed by the ld. Pr. CIT(Central), Rajasthan, Jaipur withdrawing the approval u/s 10(23C)(vi) of the Act as well as withdrawal of registration u/s 12AA of the Act. 5. A show cause notice dated 21.12.2018 was accordingly issued and served upon the assessee society to show cause as to why the surplus of income and expenditure account may not be taxed subject to other disallowances as may be noticed during the course of reasses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 11,18,05,539/- was brought to tax besides bogus scholarship expenses amounting to ₹ 53,70,250/- was disallowed. Further, the Assessing Officer has disallowed an amount of ₹ 47,10,589/- towards depreciation on building for the reason that the assessee society has no ownership rights over the land and subsequently no depreciation can be claimed on the building constructed on the said land. Accordingly, the total income was assessed at ₹ 12,18,86,380/- vide order dated 28.12.2018 u/s 143(3) read with section 153C of the Act. 8. For A.Y 2017-18, under identical set of facts and circumstances of the case, the surplus amounting to ₹ 13,65,62,014/- was brought to tax. Further, the Assessing Officer had disallowed bogus scholarship expenses amounting to ₹ 9,74,954/- and has also disallowed depreciation claimed on building of ₹ 1,15,17,420/-. Further, an amount of ₹ 1,56,59,500/- was brought to tax as unexplained money u/s 69A of the Act. Accordingly, total income was determined at ₹ 16,47,13,890/- vide order dated 28.12.2018 passed u/s 143(3) read with section 153B(1)(b) of the Act. 9. Thereafter, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4710589 11517420 4 Unexplained Cash u/s 69A 15659500 13. We shall now take up each of these grounds of appeal and the relevant contentions taken and material relied upon by both the parties. Taxing surplus as per income and expenditure account (A.Y 2014-15 to A.Y 2017-18) 14. As we have noted above, for each of the years under consideration, the Assessing Officer has brought the surplus of income over expenditure to tax in the hands of the assessee society for the reason that the approval u/s 10(23C)(vi) as well as registration u/s 12AA has been withdrawn by ld. Pr. CIT(Central), Rajasthan, Jaipur. The reason for the withdrawal of the approval by the ld. Pr. CIT(Central), Jaipur relates to diversion of funds of the trust for personal purposes, non genuine scholarship expenses and addition to fixed asset claimed the assessee society in view of the payment made to Rajasthan H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts for which registration was initially granted, that the activities of the assessee's society are not genuine or any personal benefit has been derived by any person so defined u/s 13(3) of the Act. The case of the assessee therefore doesn't falls U/s 12AA(3) and 12AA(4) of the Act. In light of our details discussion and findings, the registration of the assessee society u/s 12AA is hereby directed to be restored from the date the same was withdrawn and cancelled by the ld. Pr. CIT in terms of the impugned order. 60. In ITA No. 10/JP/2019, the assessee has challenged the withdrawal of the exemption granted U/s 10(23C)(vi) of the Act. Both the parties have fairly submitted that under identical facts and circumstances of the case as in ITA no. 9/JP/2019 and following the same reasoning, the ld. Pr. CIT has withdrawn the exemption by invoking 15th Proviso to Section 10(23C) of the Act and similar contentions have been raised by both the parties. Therefore, our findings and directions as contained in ITA No. 09/JP/2019 shall apply mutatis mutandis to this matter as well. The exemption granted to the assessee society U/s 10(23C)(vi) of the Act is hereby dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial year 2013-14. Further, these students were not produced for verification and it was concluded that the assessee has misused funds which were claimed as expenses in the guise of scholarship payments. In response, the assessee society has submitted that all scholarship payments have been paid through account payee cheques and except in case of one student who didn t present the cheque, all the cheques have been cleared and payments are duly reflected in the assessee s bank account. Further, students were produced for verification before the ITO and an affidavit of assessee s accountant who accompanied the students for verification has been placed on record and confirmation letters from the students have also been filed. 32. Firstly, we find that the apprehension raised by the ld PR CIT is based on proceedings conducted by the Assessing officer for AY 2014-15 whereby the AO has issued the summons to the students and basis that, he has reached certain preliminary findings as the Assessing officer has finally passed the assessment order for AY 2014-15 much after the conclusion of the present proceedings before the ld Pr.CIT. We therefore find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t these are not regular students which were enrolled with the assessee s educational institutions and that they were not eligible to receive the scholarship as per the policy framed by the assessee s educational institutions. The confirmation letters filed by the students have been placed on record and the contents thereof have not been disputed. We also find that the payments have been made through account payee cheques to all these students and all the cheques have been cleared (except in case of one student) and the said payments has been duly reflected in the assessee s bank account. In respect of three students who have denied receiving the scholarship, the assessee has submitted due explanation in terms of one of the student (Yuvraj Singh) having not presented the cheque no. 780228 for payment of ₹ 3306 and the entry for such payments been reversed in the books of accounts on 31.3.2015, and in respect of other two students namely Anshu Agarwal and Pooja Kumar Jain, copy of their scholarship forms duly approved by the Principal, St. Wilfred s College for Girls, copy of account payee cheques issued in their favour bearing cheque no. 780912 dated 13.01.2014 for ₹ 3,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar vendor or a service provider. A student involvement is limited to the educational sphere and to a limited extent where he/she and their parents/guardians are required to pay his fees and receive scholarship wherever he/she is eligible for the same and nothing beyond that. As against that, a vendor or a service provider is in the business of supply of goods and provision of services and is running a commercial establishment where he maintains its records and reports his receipts and expenses and is subject to scrutiny of the tax authorities. Therefore, the latter is in a position and is expected to timely respond and co-operate in the proceedings before the taxing authorities and in case of non-compliance, he can be fastened with appropriate penalty actions. However, a student who is studying or has recently passed out of his/her college or University and who is issued summons under section 131, he or she is not expected to appreciate and respond in the manner as expected from any other service provider. Therefore, where there is a noncompliance on part of certain students to respond to such notices/summons in a timely manner and in some cases, where they have responded though wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Samiti and M/s Saint Wilfred Education Society (assessee) was also submitted. No registry or title transfer was actually made in this case even after lapse of considerable time span. It is also relevant to mention here that as per the conditions of allotment, the Rajasthan Housing Board (RHB) has stipulated that the society to which land has been allotted cannot be transferred by it to any other person. Therefore, the claim of the assessee that it has purchased the land is patently false as it is illegal for M/s Adarsh Gyan Vidyalya Samiti to sell/transfer the land to the assesseesociety. 8.2 Also, this is a case of use of society fund for the benefit of M/s Adarsh Gyan Vidhalaya Society (a related entity u/s 13(3)) which is in violation of the provisions of section 13(3) of the Act. Further, it is against the objects of the Society, as it is diversion of funds. Hence, it is clear that the assessee has made payment for purchase of land by its sister concern Adarsh Gyan Society. The assessee has only presented a purported agreement to sale which is illegal. In this case, the assessee has, by making payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d without any deduction or allowance by way of depreciation or otherwise in respect of any asset, acquisition of which has been claimed as an application of income under this section in the same or any other previous year. 25. It was submitted by the ld CIT DR that where the assessee society has already claimed and allowed the capital expenditure on construction of building as an application of income, the assessee society cannot be allowed depreciation claim on the said building in view of specific embargo placed by virtue of section 11(6) of the Act. Further, he relied on the findings of the Assessing officer. 26. Per contra, the ld. Counsel for the assessee submitted that there is no dispute that this amendment is applicable for the two years under consideration i.e. A.Y 2016-17 and 2017-18 respectively and he has no objection where the matter is set aside to the file of the Assessing Officer to carry out necessary verification in this regard. Further, reliance was placed on Hon ble Kerala High Court in case of CIT vs. Parthas Trust [2001] 116 Taxman 282 (Kerala), the Hon ble Calcutta High Court in case of CIT vs. General Mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajasthan Housing Board. Further, the assessee society is in effective possession of the said plot of land as it has since built a school building thereon and carrying on its educational activities and the fees so received have been reflected in its books of accounts. However, the fact that a formal sale deed has not been executed in favour of the assessee society cannot be held as basis for denial of claim of depreciation as held in case of CIT vs Parthus Trust (supra), where the Hon ble Kerala High Court referring the decisions of the Hon ble Supreme Court in case of Mysore Minerals Ltd reported in 239 ITR 775 has held as under: The question of law referred in this case is whether on the facts and in the circumstances of the case, was the Tribunal right in law and fact in holding that the assessee is entitled to depreciation? The facts are as follows : The assessee is a private trust. While completing the assessment, the Assessing Officer disallowed the assessee's claim for depreciation on certain buildings. According to the Assessing Officer, the buildings had not been registered in the name of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 of the Income-tax Act, 1961, confers a benefit on the assessee. The provisions should be so interpreted and the words used therein should be assigned such meaning as would enable the assessee to secure the benefit intended to be given by the Legislature to the assessee. It is also well-settled that where there are two possible interpretations of a taxing provision, the one which is favourable to the assessee should be preferred. Section 32 of the Act allows certain deductions, one of them being depreciation of buildings, etc., owned by the assessee and used for the purposes of the business or profession. The terms 'own', 'ownership' and 'owned' are generic and relative terms. They have a wide and also a narrow connotation. The meaning would depend on the context in which the terms are used. CIT v. Podar Cement (P.) Ltd. [1997] 226 ITR 625 (SC), is a case under the Income-tax Act and has to be taken as a trendsetter in the concept of ownership. Assistance from the law laid down therein can be taken for finding out the meaning of the term 'owned' as occurring in section 32(1) of the Act. The term 'owned' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, the Assessing officer referring to the order of ld. Pr. CIT(Central), Jaipur has held that the assessee society has violated provisions of Section 13(1)(c) in this regard and on the basis of same, exemption u/s 10(23C)(vi) and approval u/s 12AA was withdrawn in the case of the assessee society and consequently, Section 11 and 12 will not be applicable in the case of the assessee. In this regard, we find that the matter has been examined at length by the Coordinate Bench wherein it was held that the assessee society has not violated provisions of Section 13(1)(c) read with section 13(3) of the Act and the relevant findings of the Coordinate Bench reads as under: 51. We therefore find that the assessee society has entered into an agreement to sell with Adarsh Gyan Vidhalaya Samiti wherein the former has agreed to purchase an institutional plot of land which has been allotted to the latter vide conveyance cum perpetual lease deed for 99 years by the Rajasthan Housing Board. There are enabling provisions in the conveyance cum perpetual lease deed which allows such transfer subject to approval and sanction of Rajasthan Housing Board. Necessary permission has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y have three common members/trustees and therefore, M/s Adarsh Gyan Vidyalya Society is a related entity within the meaning of section 13(3) of the Act and society funds have been used for the benefit of Adarsh Gyan Vidhalaya Society in violation of the provisions of section 13(1)(c) of the Act. The argument of the assessee society is that no evidence has been placed on record by the Revenue with regard to any direct or indirect benefit flowing to the trustees/members of the Society which might bring it within the ambit of section 13(1) r.w.s.13(3) of the Act and further, the matter does not fall within any of the clauses or sub-clauses of section 13(3) of the Act. 55. In order to appreciate the rival contentions, we again refer to the provisions of section 13(3) of the Act. The clauses from (a) to (cc) of section 13(3) are not applicable in the instant case as there is nothing on record that suggest that the common members have been benefitted in their individual and in their own right by such transaction. The clause (d) talks about any relative of any such author, founder, person, member, trustee or manager of the assessee society which is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciety and even in the event of winding up, the assets and funds of the society have to be transferred to any other registered society with similar objects. In light of the same, we don't find any legal basis to hold that Adarsh Gyan Vidyalya Society is a related entity within the meaning of section 13(3) of the Act. In absence thereof, even where it is held that some benefit has flown to Adarsh Gyan Vidyalya Society, the provisions of section 13(1)(c) are not attracted in the instant case. 57. Further, we note that the ld Pr.CIT has raised an apprehension at the time of issuance of show-cause that the payment to Rajasthan Housing Board on behalf of Adarsh Gyan Vidyalya Society is neither a loan nor a donation but appears to be an investment not allowable u/s 11(5) of the Act and thereafter, towards the end of his order while giving his concluding findings has held that the payment made is in contravention of section 11(5) r/w section 13(1)(c) of the Act. However, how the payment is in contravention of section 11(5) has not been spelt out in his order. If we look at the provisions of section 11(5), in clause (x), it provides for investment in immoveable proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be allowed depreciation claim on the said building in view of specific embargo placed by virtue of section 11(6) of the Act. There is no dispute that these provisions introduced by the Finance, Act 2014 are applicable for both the years under consideration. Therefore, it is a matter of record and it can be examined by the Assessing officer as to whether the capital expenditure so incurred by assessee society has been claimed as an application of income in any of the years under consideration or in the earlier years. Therefore, for this limited purpose, the matter is set-aside to the file of the Assessing officer and the ground of appeal so taken by the Revenue is allowed for statistical purposes. Addition of unexplained cash u/s 69A (A.Y 2017-18) 31. Briefly, the facts of the case are that during the course of search operations conducted at the premises of Integral Urban Co-operative Bank Limited, cash amounting to ₹ 1,56,59,000 has been found in possession of the Bank. The AO has treated the said cash as unexplained money in hands of the assessee society for reason that the same was not recorded in the books of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the source of cash of ₹ 1,56,59,000 found in possession of the Bank at its premises is the amount of fees collection of Saint Wilfred College, Mansarovar. Now, coming to the statement of accountant of the assessee society, Mr. Ganesh Narayan Gupta recorded u/s 131 of the Act on 9.12.2016. In response to question no. 8, he has stated that Saint Wilfred College has only one bank account in form of current account maintained with Mansarovar Branch of Integral Urban Co-operative Bank Limited. In response to question no. 11, he has stated that approx. ₹ 2 crore fees have been collected in cash during the period 1.12.2016 to 9.12.2016. Further, the tax authorities during the course of survey have gone through the receipt vouchers issued by the Saint Wilfred College to its students towards receipts of fees and other charges collected from students as is evident from question no. 13 raised by the survey team to Ganesh Narayan Gupta wherein there is reference to vouchers and receipts as per which fees and other related charges have been collected in cash amounting to ₹ 2.15 Crores from the students. Further, we refer to the statement of Shri Mahavi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benefit of the Badaya family. The basis of such suspicion, as we have noted from his findings is the non-recording of fee receipts in the books maintained by the assessee society as found at the time of survey on 9.12.2016 and the involvement of Shri Keshav Badaya in the functioning of the assessee society and the Bank. In ordinary course where there is movement of cash, once the cash is deposited in the bank account, necessary entries are made in the cash book. In the instant case, there seems to be certain slippages on part of the assessee society in terms of not updating its cash book when the cash was received and sent for deposit in its bank account and at the time of survey, it was not updated. At the same time, as we have noted above, the fact of the matter is that fee received from the students is recorded in the books of accounts as corroborated by fee receipts, individual student register maintained online in the computer system, daily cash collection summaries and relates vouchers. These documents ore written/printed documents available on record and are very much part of books of accounts maintained in the regular course and clearly fall in the inclusive definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the only common linkage between the two entities is the involvement of Shri Keshav Badaya who is holding the post of secretary in the assessee society and also holding the post of chief executive officer in the Integrated Urban Co-operative Bank Ltd. from where he is growing his remuneration and the question is whether the provisions of section 13(3) are attracted in the instant case. In this regard, we refer to the provisions of section 13(3) which reads as under: ***** not reproduced for the sake of brevity*** 21. That is, members and trustees of the assessee society either individually or collectively are entitled at any time during the previous year, to not less than twenty per cent of the profits of such concern i.e, Integral Urban Co-operative Bank. In the present case, the said condition is not satisfied as none of the members and trustees of the assessee society including that of Badaya family holds any financial interest in the Integral Urban Cooperative Bank. Merely on account of Shri Keshav Badaya, being the chief executive officer of the Integral Urban Co-operative Bank and also holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old currency vis- vis new currency as evident from the assessment order passed in case of the Integrated Bank for AY 2017-18. The same rather supports the case of the assessee society that the cash so found belongs to the assessee society and the Department has thus accepted the said fact and it has attained finality. Further, it is not the case of the Revenue that old currency which is not a legal tender cannot be brought to tax. Therefore, unless and until there is a finding by the appropriate authority that there was any illegality in the act of the assessee in accepting the fees in old currency, the same cannot be held against the assessee society. Therefore, we find that it is a case of mere suspicion and not a conclusive finding and even the Department itself has given a clean chit to the Bank. As far as the assessee society is concerned, bank officials as well as the assessee's records conclusively prove that the funds so found are fees collected from the students duly recorded in the books of accounts and infact, such amount has been seized by the Department which further proves that there was no diversion of funds and no application for personal ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9-12-2016 (refer Ques. 11) 2) Statement of Harish Gupta GM, Integral Cooperative Bank Ltd dated 11-12-2016 (refer Ques. 13, 30, 34 41) 3) Statement of Vikram Singh, Cashier, Integral Cooperative bank Ltd dated 10-12-2016 (refer Ques. 14 21) 10.3 That the cash undisputedly belong to the appellant society as it is consistently evident from the statement of bank employees and also the statement of the accountant of the appellant. 10.4 All these statement are consistent confirms the fact that cash of 1,56,59,500/- was fees deposited from student of appellant society. Photocopies of sample receipts were placed on record. The fact that same is fee received from the student was also fact verified by the survey team at the spot. This fact is also mentioned by Hon'ble ITAT Jaipur in its order. 10.5 That such cash accumulation of fee received from the students from 01-12-2016 onwards. The receipts of cash was evident from the receipts issued to the student from time to time. The receipts issues find a corresponding entry in the computer where date wise receipt from the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,69,15,748/- 11.3 Thus the cash found form the appellant is duly supported form the fee collection from the student. I have also examined the aspect of fee collection in cash and in cheque for various quarters for 2 financial years. The details are as under: F.Y. 2015 F.Y. 2016-17 Quarter Cash Cheque Total % of cash to total Quarter Cash Cheque Total % of cash to total April- June 7231255 2728399 9959654 72.6 April-June 7687345 2744364 10431709 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of old currency notes by the appellant after 08-11-2016. Out of the total cash found and seized of ₹ 156,59,500 the currency in new notes and old notes is as under: Old currency ₹ 1002500 New currency ₹ 14657000 Total seized ₹ 15659500 12.2 Post demonetization the GOI barred using old notes and only at few places the old notes were permitted. They are extracted from web search from Google. NEW DELHI: The government has stopped over the counter exchange of old notes of ₹ 500 and ₹ 1000 from today midnight. Government has permitted various exemptions for certain transactions and activities wherein payment could be made only through old ₹ 500 notes. All these places will allow usage of ₹ 500 notes till the midnight of 15 December 2016. 1) Payments towards pre paid mobile top-up to a limit of ₹ 500 per top-up. 2) Purchase from Consumer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income tax violation as the nature source of fee is explained. However there is violation of guidelines issued by RBI. The Ld. AO thus will write a letter to the Reserve Bank of India, Tonk Road, Ram Bagh, Jaipur regarding this violation for further action. 12.6 On the facts and in the circumstances of the case and subject to the above for the purposes of Income Tax, I am of the view the addition of ₹ 1,56,59,500/- by the Ld. AO is untenable the same is directed to be deleted. 34. During the course of hearing, ld CIT DR relied on the findings of the Assessing officer and ld Counsel for the assessee relied on the findings of the ld CIT(A). We find that the matter has been exhaustively examined by the Coordinate Bench and thereafter, by the ld CIT(A) again during the quantum proceedings. Undisputed and undeniable facts are that cash so found represents fees deposited by students with the assessee society as emerging from the statements of various persons recorded during the course of survey and even from the findings of the survey team. The cash so found is duly explained by the documentary evidence which is maintained in regular course ..... X X X X Extracts X X X X X X X X Extracts X X X X
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