9911796707
TMI Blog2004 (10) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,85,400 Unexplained expenses - 91,354 29,400 15,750 40,000 Compulsory consideration for admission - 17,54,786 40,18,215 31,08,500 1,80,000 Unexplained cash credit - - - 22,96,385 9,17,500 Other addition of cash credit - - - 4,99,385 - Undisclosed 3,78,093 - - - - income (no return filed) Common grounds exemption under s. 11 exemption under s. 10(22) /10(23C) - - - - - ---------------------------------------------------------------- Both the parties agreed that the above chart covers the entire additions disputed by the assessee by way of grounds Nos. 1 to 26 and, therefore, they propose to argue the various additions as per the above chart. I. Regarding addition of Rs. 3,31,250 in asst. yr. 1997-98 3. At the time of hearing before us, it is submitted by the learned counsel that the above income was as per P&L a/c enclosed along with the return of income for asst. yr. 1997-98 which was filed prior to the search. Therefore, it cannot be treated as undisclosed income. 3.1 The learned Departmental Representative, on the other hand, stated that in the assessment for asst. yr. 1997-98, the above income was treated as exempt under s. 10(22). Since in the block as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt book, bank account and vouchers were available. With the help of these materials, the cash book was written and the P&L a/c was prepared and the return was filed in the regular course. Thus, the income as per P&L a/c is not undisclosed income. In support of this contention, he referred to the definition of "undisclosed income" under s. 158B(b) and s. 158BB(d). 6. The learned Departmental Representative, on the other hand, relied upon the orders of authorities below and she stated that the assessee has not maintained any regular book of account. During the course of search, the cash book found was written upto July, 1998, only while the search took place in the month of June, 1999. Thus, it is evident that the assessee has not maintained any books of account and, therefore, the assessee cannot claim that the income of the accounting year relevant to the asst. yrs. 1999-2000 and 2000-01 was recorded in the book of account prior to the search. These books of account were prepared after the date of search and, therefore, the AO rightly treated this income to be undisclosed income. 7. We have carefully considered the arguments of both the parties and perused the material placed bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other documents maintained in the normal course before the date of search and, therefore, as per s. 158BB(1)(d) the above income cannot be treated as undisclosed income. However, the Revenue is at liberty to consider the same in the regular assessment. Subject to the above remark, the additions of Rs. 12,80,411 and Rs. 15,61,616 for asst. yrs. 1999-2000 and 2000-01 are deleted. III. Regarding inflation of expenses of Rs. 5,22,350 for asst. yr. 1997-98 8. At the time of hearing before us, it is submitted by the learned counsel that the AO has concluded that as per p. 26 found at the time of search, the expenses were recorded at Rs. 7,11,400 while as per the audited income and expenses account, the expenses shown are at Rs. 12,33,750. It is explained by the learned counsel that at the time of search, two loose papers were found. As per one loose paper, only part of the expenses was recorded. He has referred to the xerox copy of the paper enclosed at p. 5 of the paper book and pointed out that in that paper neither the receipt was recorded nor the expenses were totalled. That in the other loose paper which was also found and seized at the time of search the receipt was recorded a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of authorities below and restore the matter back to the file of AO and direct him to readjudicate this matter after proper verification. V. Regarding addition for inflation of expenses of Rs. 48,000 for asst. yr. 1997-98 13. At the time of hearing before us, it is submitted by-the learned counsel that this addition is double addition because the AO has already made the addition of Rs. 5,22,000 for inflation of expenses for asst. yr. 1997-98. The above addition made by the AO included this addition of Rs. 48,000 which was for snacks of Rs. 36,000 and cleaning expenses of Rs. 12,000. The learned Departmental Representative stated that this contention of the assessee also needs verification by the AO. In view of above, we set aside this matter back to the file of AO to be adjudicated as per our direction in para 12 above. VI. Regarding suppression of Rs. 25,000 for asst. yr. 1997-98 14. We have heard both the parties and perused the material placed before us. We find that the AO has recorded the finding that 25 receipts in receipt book No. B-21 were originally issued for Rs. 2,000. The receipts were later on changed to Rs. 1,000. When the assessee was asked to explain the above o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded in the building account. Thus, he stated that the receipt is duly disclosed in building fund account. However, this contention of the assessee needs verification at the end of the AO. We direct him to examine this contention of the assessee and thereafter readjudicate on this point. IX. Regarding addition of Rs. 5,85,400 for suppression of receipts for asst. yr. 2000-01 17. In para 5.5 of the assessment order, the AO has pointed out that the collection of fees as per the receipt book for the financial year 1999-2000 (i.e., asst. yr. 2000-01) was Rs. 19,45,000. However, as per the printout produced before the DDIT during the course of s. 131(1A) proceedings the collection of fees was shown at Rs. 13,59,600. Thus, there was suppression of fees to the extent of Rs. 5,85,400. At the time of hearing before us, it is submitted by the learned counsel that in the books of account the fees received at Rs. 19,45,000 is correctly recorded. However, at the time of search there might be some mistake in taking the printout from the computer or may be by that time in the computer all the receipt of fees might not have been feeded, but in the books of account as well as in the regular retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -conditioners for a sum of Rs. 1,02,500 out of which only Rs. 62,500 were paid by cheque and balance amount of Rs. 40,000 was paid by cash. He, therefore, treated the above sum of Rs. 40,000 as unexplained expenses. It is contended by the learned counsel that the air-conditioners were purchased for the school and whatever was the cost of the air-conditioners was duly debited to the books of account and the same is paid by cheque. The learned Departmental Representative, on the other hand, relied upon the orders of authorities below on this point. 21. After considering the facts of the case and the arguments of both the sides, in our opinion, this matter also needs verification at the end of the AO. The AO will verify the details including the bill issued by the seller of the above air-conditioners and he will also verify from the sellers whether any cash payment was made by the assessee. Then he will cross-verify the same with reference to the assessee's books of account and will readjudicate the matter in accordance with law. XII. Regarding compulsory consideration for admission of Rs. 17,54,786 for asst. yr. 1997-98, Rs. 40,18,215 for asst. yr. 1998-99, Rs. 31,08,500 for asst y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for working out the exemption under s. 11, if any, claimed by the assessee and allowed to it. So far as the block assessment is concerned, the limited issue before us whether it is undisclosed income or not. In our opinion, when the receipt of donation is duly recorded in the assessee's books of account it cannot be said to be undisclosed income. It is not the case of the Revenue either that the receipt is undisclosed. The dispute of the Revenue is with regard to the nature of the receipt. That the Hon'ble jurisdictional High Court has considered the identical issue in the case of N.R. Paper & Board Ltd. & Ors. vs. Dy. CIT (1998) 146 CTR (Guj) 612 : (1998) 234 ITR 733 (Guj). In that case, their lordships have clearly pointed out that block assessment under Chapter XIV-B and normal regular assessment under s. 143(3) are two separate proceedings and both are having different purpose. The AO has to make both the assessments separately. Their Lordships held as under at pp. 742, 743 and 744 of the report: "There is yet another important indication to show that the assessment of undisclosed income is altogether a different matter from the regular assessments. Under s. 158BB of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot justified in recomputing the total income of the assessee for the various assessment years in the block assessment for which regular assessment is required to be made under s. 143(3) of the Act." Thus, under the block assessment, the AO is not permitted to determine the total income of the assessee but he has to determine only the undisclosed income. The learned Departmental Representative could not establish how the donation received by the assessee which is duly recorded in the books of account can be considered as undisclosed income. Therefore, respectfully following the above decision of Hon'ble jurisdictional High Court, we hold that the donations received by the assessee for the admission to the students which are recorded in the assessee's books of account are out of the purview of the block assessment. However, before we part with, we make it clear that as held by the Hon'ble jurisdictional High Court in the case of N.R. Paper & Boards Ltd., the AO is at liberty to make the regular assessment of the respective assessment year and determine the total income of the respective assessment year in accordance with law. Subject to the above remark, the addition made for the do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asst. yr. 1996-97 was filed by the assesses. Since the assessee had taxable income in asst. yr. 1996-97 and it did not file any return of income, therefore, in our opinion, the above, income was rightly considered as undisclosed income by the AO for the purpose of block assessment. Accordingly, the addition of Rs. 3,78,093 for asst. yr. 1996-97 is upheld. XV. Regarding denial of exemption under s. 10(22)/10(23C) 26. The AO has denied the exemption to the assessee-trust under s. 10(22) and 10(23C) on the following grounds: (i) That from the objects of the trust it is clear that the trust does not exist solely for the purpose of education. (ii) That the income of the trust is not exclusively from educational activity because during the course of search, the assessee-trust was found to have had income from undisclosed sources which has been taxed under ss. 68 and 69C of the IT Act. (iii) That the assessee has collected compulsory donation for the admission of the students which is against the norms fixed by the Education Department for the running of educational institutions. (iv) The trust has misused the funds. 27. The learned counsel for the assessee argued at length. At th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund because it needed huge funds for the purchase of land from the SMC and for the construction of building thereon. However, such donation was wholly voluntary and not compulsory donation. That the education officer had informed the assessee that some of the parents have complained about the compulsory donation collected from them. However, the assessee has furnished the confirmation from all the parents before the education officer stating that the donation given by them was voluntary. He further submitted that the money received by way of donation was duly recorded and utilised for the purpose of purchase of land from SMC and construction of building thereon. The above building is utilised for running of the school. Thus, the donation is utilised for educational purposes and the allegation of the AO that the assessee has undisclosed income and, therefore, it is not existing for educational purposes is contrary to the facts on record. In fact, the AO has treated the donation towards building fund as undisclosed income while the entire donation was duly recorded in the books of account utilised for the purpose of purchase of land/construction of building and thus, utilised for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to the decision of the Hon'ble jurisdictional High Court in the case of N.R. Paper & Board Ltd., wherein their lordships have held that under Chapter XIV-B, the AO has to determine the undisclosed income of the block period and not the total income of the previous year which is required to be assessed in the regular assessment under s. 143(3). In para 23 above, we have also extracted the definition of undisclosed income under s. 158B(b). The definition of undisclosed income was enlarged by the Finance Act, 2002, with retrospective effect from 1st July, 1995. By the above amendment the following words were included in the definition of undisclosed income: "or any expense, deduction or allowance claimed under this Act which is found to be false". Thus, after the amendment by the Finance Act, 2002, while making the assessment of undisclosed income, the AO may disallow any expense, deduction or allowance claimed by the assessee which is found to be false on the basis of material found during the course of search. Therefore, the precise question is whether during the course of search, the Revenue has found any material to hold that the exemption claimed under s. 10(22) was fals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption under s. 10(22) by the assessee was false. It is running an educational institution is not in dispute. In the regular assessment for which return was filed prior to the search, the Revenue has accepted that it is existing solely for educational purposes and not for the purpose of profit. In the block assessment, the AO is taking a different view than what was taken in the regular assessment and has come to the conclusion that it is existing for the purpose of profit. However, in our opinion, mere change of opinion will not bring the assessee's case within the ambit of "false" claim by the assessee. The Revenue has alleged that the assessee has charged compulsory donation. However, on the enquiry conducted by the Education Department this allegation is not found to be correct. It was also pointed out by the learned counsel that the assessee-trust is also registered as a charitable institution under s. 12A with the CIT. The donation to the assessee-trust is exempt under s. 80G. The registration under s. 12A and exemption under s. 80G have not been revoked by the CIT after the search and even after the block assessment. We find that the Tribunal, Ahmedabad Bench, has consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution. From the facts on record, it is evidently clear that accounts of the school are being audited from year to year and audit reports along with the statement of accounts are duly filed with the returns of income by the assessee-trust from year to year. No allegations of embezzlement or misappropriation of funds by the trustees or principal appear to have been made either by the Charity Commissioner of by the Registrar of Societies. With regard to the veracity of the accounts also, audit reports prepared by the auditors do not bring out any such misappropriation on the part of the management. Regarding the reasons cited by the AO in support of denial of exemption, we feel that the block assessment order abounds in glaring contradictions and inconsistencies which directly impinge upon the correctness of the reasoning adopted by the AO. On the one hand, the AO records the finding that expenses on rent for the school premises have been met out of unaccounted donations and further that trust fund has been credited in the books by non-genuine donations, the AO also records a finding that the principal and the trustees have misappropriated the funds of the school." The facts in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he return of income for asst. yr. 1997-98 which was filed prior to the search. Therefore, it cannot be treated as undisclosed income. 33. The learned Departmental Representative, on the other hand, stated that in the assessment for asst. yr. 1997-98, the above income was treated as exempt under s. 10(22). Since in the block assessment, the exemption under s. 10(22) is denied, therefore, the addition is made for the above income. 34. We have carefully considered the arguments of both the parties and perused the material placed before us. While disposing of the ground with regard to exemption under s. 10(22), we have already concluded that if in the regular assessment exemption under s. 10(22) is allowed, the same cannot be withdrawn in the block period unless the claim of the assessee is found to be false. We have also come to the conclusion that the Revenue has not been able to prove that the claim of the assessee for exemption under s. 10(22) was false. In view of above, we hold that when in the regular assessment for asst. yr. 1997-98 exemption under s. 10(22) was allowed there was no justification to refuse the same in the block assessment for the income of asst. yr. 1997-98. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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