9911796707
TMI Blog2004 (7) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... trust at Piplod, Surat. Pursuant to searches carried out at the residential premises of the aforesaid trustee, the AO initiated action under s. 158BD r/w s. 158BC in the case of assessee-trust on 16th July, 2001, and in response thereof the assessee filed the block return in the prescribed Form No. 2B on 13th March, 2003, showing undisclosed income at nil figure. The AO, however, made the block assessment computing the undisclosed income for the block period at Rs. 1,03,68,627 vide order dt. 31st July, 2003. While making the block assessment, the AO made, inter alia, the addition in respect of donations collected from the parents for admission by the assessee-trust as well as certain unaccounted expenses incurred by the trust. 3. The assessee carried the matter in appeal and the CIT(A) vide the impugned order dt. 27th Jan., 2004, allowed certain relief and sustained certain additions on account of donations as well as unexplained expenditure. The CIT(A) also upheld the finding of the AO that the assessee-trust is not entitled to the exemption under s. 10(22) of the IT Act, 1961. Both the parties, the Revenue as well as the assessee, are aggrieved and have come up in appeal befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for admission 5. Ground No. 1 is against sustaining the addition of Rs. 71,77,500 on account of donations received from the parents of the students. This addition is mainly based on the seized diary being BS-2 as well as p. 5 of Annex. BS-28 seized during the search operations at the residence of Smt. Pammy Manjit Singh and her husband, Dr. Manjit Singh. The AO has dealt with the issue vide paras 2 and 3 of the assessment order. 6. BS-2 is the diary of the calendar year 1995 and appears to be the mainstay of Revenue's case in support of receipt of donations from the parents of the students at the time of admission. The relevant portions of the diary, BS-2, which are heavily relied upon by the AO as well as p. 5 of Annex. BS-28 are available in the paper book vol. 1 filed by the learned counsel at pp. 29 to 98. Pages 1 to 74 of the diary appear to be photocopies of the relevant page of diary, BS-2, and are available at pp. 30 to 98 of the paper book vol. 1. This being a calendar diary, the dates have been mentioned. The dates are printed at the top of every page of the diary. On certain pages of the diary, the numbers are written in four columns supported by oblique sign and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 30th June, 2003, stated as under: "Your honour required to explain the contents of diary seized vide Annex. BS-2 from the residence of Smt. Pammi M. Singh, Principal of Lancers Army School, and further your honour asked to explain whether the donations recorded therein are reflected in the books of account of the school, therefore, we state on behalf of the assessee that this diary pertains to Mrs. Pammi M. Singh who is principal of the school and further it was her personal diary and she has written in this diary the names of the students and their sizes of the uniforms, sweaters, knickers, shirts, shoes, dangris, socks, berets, skirts, combat dress, belts, ties, etc. She has also written the books, note books, text books, drawing books, etc. provided to the students on various dates. Further, there was nothing mentioned at anywhere in the seized diaries that the assessee was receiving any donation in any form and merely on the basis of notings which all pertain to planning and projections, the inference cannot be drawn in favour of Revenue. In this diary there were mentioned only different sizes with names of students as well as various kinds of note books provided to them. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , etc. are given to the students on payment basis and for each petty items no record is required to be maintained especially in ledger format, i.e., one page is given to one student or two students. If these notings are pertaining to stationary, etc. given to the students then its cost and the money received could have also been entered in the said diary. On none of the pages such notings have been found. Further, size of uniforms etc. must also have been noted against the name of student. (iii) Against the name of each student, the different digits are added which clearly shows that the writer of these pages intends to know the totality of the said figure. In case of such situation as claimed by the assessee, why such totalling will be made specifically for a particular child. (iv) In support of the contention, the assessee has not produced any bills, vouchers or any evidence showing that the said noted number pertains to stationary, etc. which were given to the particular student. (v) There cannot be requirement of so much stationary for one year. Further, if at all these are notings for such things, there should not be such variation from one student to another. The figure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existing for the cause of education enjoying exemption under s. 10(22) cannot possibly indulge in collection of donation outside the books of accounts. Once the income of the trust as an educational institution is entitled to exemption from tax, there is no earthly reason for the school to collect donations outside the books of account. Regarding the seized diary, BS-2, the learned counsel argued that an explanation regarding the entries recorded in the said note book has been duly given before the AO pointing out that these entries appearing in four columns represent number of items out of a designated total of items mentioned in col. No. 2 that are collected from the principal according to the requirement as well as schedule. The learned counsel submitted that the conjectural presumption of the AO that the four columns represent amounts in thousands in respect of donations paid by the students for admission has no basis whatsoever. The learned counsel further submitted that there are number of students whose names appear in BS-2 but who were never admitted as students in Lancers Army School and their names do not appear in the GR (General Register) or any other record. In suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-students on payment of fee which is duly accounted for in the books of account of the assessee. 12. The learned counsel further referred to various other pages of diary, BS-2, and invited our attention to p. 31 of the paper book wherein entries with regard to salary held back in respect of staff members have been recorded. According to the learned counsel, these entries record the amounts like Rs. 650, Rs. 500, etc., and there is no question of using any code as alleged by the AO whereby three zeroes are to be added against the figures used by the principal in the diary. The learned counsel urged that the presumption regarding code by the assessee is thus eloquently controverted by entries recorded in the diary as per p. 31 of the paper book. 13. The learned counsel next referred to the statements of Shri Alkesh Patel and Shri Dipankar Dutta recorded during the course of search operations and relied upon by the AO. He submitted that Shri Alkesh Patel is brother-in-law of Shri Hardik Patel, student of the school, and the statement is based on mere heresay. Shri Alkesh Patel expressed his ignorance as to who has made the payment and to whom the payment has been made by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... donation figures are as under: Rs. (i) Total in respect of students admitted in 1995 13.23 lakhs (ii) In respect of students never admitted in the school 4.05 lakhs (iii) Students admitted prior to 1995 or subsequent to 1995 5.67 lakhs 22.95 lakhs According to the learned counsel, addition on account of donation if at all to be sustained should be restricted to Rs. 13.23 lakhs relating to students admitted in 1995 to which period the diary relates. 15. Shri Sanjay Prasad, the learned senior Departmental Representative, on the other hand, strongly supported the impugned addition on account of donation and argued that the onus squarely lay on the assessee to satisfactorily explain the entries recorded in the seized diaries, BS-2 and BS-28 by virtue of the provisions of s. 132(4A) of the Act. He submitted that the assessee has failed to discharge the onus. Regarding the explanation furnished by the assessee, the learned Departmental Representative emphasised that the assessee has taken shifting stand from time to time and the claim made before the AO that the entries represent items relating to extra-curricular activities issued by the principal is bereft of any trace of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd pp. 171 and 172 of the paper book contained in seized Annex. BS-21 duly supports the reconstructed GR produced before the AO. In this connection, it is further stated that the number of students in the school can further be ascertained from the contributions credited to the trust funds at the rate of Rs. 100 per annum from each student. On this basis also, during the financial year 1995-96 number of students are 145 as confirmed by seized Annex. BS-21. 17. We have carefully considered the rival submissions and gone through the orders of tax authorities below. The facts and documents placed in the paper book filed by the learned counsel to which our attention has been drawn during the course of hearing have also been carefully perused by us. In our considered opinion, the facts and evidence on record, particularly seized diary BS-2 and p. 5 of BS-28 relied upon by the Revenue, indicate that donations have been received by the assessee for admission from the parents of the students. The entries in the diary as per extract placed in the paper book do not, in our opinion, represent issue of number of items relating to extra-curricular activities as claimed by the assessee during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussion, we would, therefore, uphold the addition on account of unaccounted donation relating to admission of the students to Rs. 22,95,000 as against Rs. 71,77,500 sustained by the learned CIT(A). Ground No. 1 is, therefore, partly allowed. Addition—Unaccounted rent Rs. 2,16,000 18. Ground No. 2 is with regard to addition of Rs. 2,16,000 on account of unexplained expenditure on rent. The AO has dealt with the issue vide para 4.1 of the assessment order. In the course of search, the lease agreement for shop at Anand Mahal Apartment was found where the school was originally being run. The lease agreement indicates that rent was to be paid to the three lessors, namely, Mahinder Kaur, Malik Singh and Sukhjit Singh @ Rs. 18,000 per month from 1st April, 1994, onwards. The school was shifted from Anand Mahal Apartment, Adajan, to its present location at Piplod in the month of April, 1996, and the assessee has used the earlier premises till April, 1996. Since the payment of rent as per the lease agreement has not been accounted for in the books for the period April, 1994 to April, 1996, the AO held that the entire expenditure has been met out of unexplained sources. The AO worked out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... takes effect prospectively w.e.f. 1st April, 1999. The proviso would, therefore, not be applicable in the instant case. The prospective operation of the proviso to s. 69C has been upheld by the Tribunal in the following decisions relied upon by the learned counsel: (i) S.F. Wadia vs. ITO (1987) 27 TTJ (All) 437 : (1986) 19 ITD 306 (All) (ii) M.K. Mathivathanan vs. ITO (1989) 31 ITD 114 (Mad) (iii) Nishant Housing Development (P) Ltd. vs. Asstt. CIT (1995) 52 ITD 103 (Pat) We would, accordingly, delete the addition of Rs. 2,16,000 on merits. Ground No. 2 in the assessee's appeal is thus allowed. 23. Ground No. 3 is with regard to the addition of Rs. 59,449 which has been upheld by the learned CIT(A) on merits. However, allowing the benefit of set off against the undisclosed income on donation the addition has been deleted. Ground No. 3 in assessee's appeal and ground No. 2 in Revenue's appeal are concerned with this issue. The AO has dealt with the issue vide para 5 of the block assessment order. In the books of account, the assessee has credited the trust funds by two types of entries as follows: (i) Fee of Rs. 100 per month received from the students. The assessee expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed income can be made on the basis of evidence found as a result of search and such other material or information as are available with the AO and relatable to such evidence as provided in s. 158B(6). Block assessment under Chapter XIV-B of the IT Act, 1961, is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to material unearthed during search. It is in addition to the regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of the search and such other material or information as are available with the AO. In support of this view, reliance is placed on the following decisions which have been cited by the assessee in the statement of facts as well as written submissions filed before the CIT(A) which do not appear to have been considered by the CIT(A): (i) CIT vs. GOM Industries (2002) 176 CTR (MP) 527 : (2002) 257 ITR 78 (MP) (ii) CIT vs. Vikram A. Doshi (2002) 256 ITR 129 (Bom) (iii) CIT vs. Sambhbhai C. Bachkaniwala (2000) 162 CTR (Guj) 435 : (2000) 245 ITR 488 (Guj) (iv) N.R. Paper & Board Ltd. vs. Dy. CIT (1998) 146 CTR (Guj) 612 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O further made addition of Rs. 28,08,900 in different years in respect of the amount credited to the trust fund by way of collection of Rs. 100 from each student for extra-curricular activities. The facts and issues involved are the same as relating to the addition on account of contributions from different persons as discussed above. On behalf of the assessee, it has been contended that no addition can be made as undisclosed income as amounts are reflected in audited accounts filed with the returns of income before the date of search or otherwise reflected in the books of account maintained in normal course. There is, therefore, no justification for treating the amount as unexplained. For the reasons discussed by us while dealing with ground No. 3 as above, we are inclined to delete the impugned addition of Rs. 28,08,900 being outside the purview of block assessment. Ground No. 5—Addition of Rs. 52,778 on account of income and expenditure account for various years 28. The AO further made addition in respect of income reflected in income and expenditure account in different years. Here again, the facts and issues involved are identical as discussed by us while dealing with grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entirely misconceived and incorrect. The learned counsel further submitted that the findings of the misappropriation are controverted by various communications sent by the AO himself to the trustees praising them for the laudable services rendered by them for the noble cause of spreading education. In this connection, the learned counsel referred to letter of the AO dt. 27th Nov., 2002, addressed to Dr. Manjit Singh placed in the paper book at p. 173 wherein the AO has observed "while we appreciate your noble cause of rendering honorary services to the school and your selfless dedication to the institution, I am duty-bound to advise you that once the tax demand is due from you…. you should be logically drawing the requisite salary for the performance of your additional duty as the principal of secondary and higher secondary sections of Lancers Army School, Surat." According to the learned counsel, it is the AO who advised Dr. Manjit Singh that he should draw salary from the school for the services rendered by him. The learned counsel further referred to the letter of AO dt. the 1st Oct., 2002, which is again addressed to Dr. Manjit Singh. The letter is placed at p. 205 of the pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7) 139 CTR (SC) 7 : (1997) 224 ITR 310 (SC). According to the learned counsel, grounds of mismanagement or misappropriation by a principal or trustee, even if substantiated, would not lead to denial of exemption under s. 10(22). In support of his contention, reliance is placed on the decision of Rajasthan High Court in the case of Dy. CIT vs. Cosmopolitan Education Society (1999) 157 CTR (Raj) 209 : (2000) 244 ITR 494 (Raj). The learned counsel submitted that the Supreme Court has dismissed the Special Leave Petition filed by the Department against this judgment. 32. The learned Departmental Representative, on the other hand, strongly supported the denial of exemption under s. 10(22) on the ground that the assessee-trust does not exist for educational purposes and is merely an instrument utilised by the trustees for their own personal benefits. The learned Departmental Representative relied upon the seized documents, BS-2, BS-28 and the two statements of the parents, Shri Alkesh Patel and Shri Dipankar Dutta, in support of his argument that donations have been collected by the assessee-trust from the parents which have not been accounted for in the books. According to the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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. 34. Regarding donations received from the parents for admission of the children, the AO has reached the conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee-society is a registered society under the Rajasthan Societies Act and that it is also recognised by the CBSE; if there was any misutilisation or mismanagement, action could be taken against the members of the society, but, from the records and facts, it is not possible to say that any amount of funds of the society was not utilised for educational purposes. The Tribunal concurred with this finding of fact. The authorities also referred to a decision of the apex Court in the case of Aditanar Educational Institution vs. Addl. CIT (1997) 139 CTR (SC) 7 : (1997) 224 ITR 310 (SC), in which, it is held that an overall view is to be taken and without being hyper-technical in granting exemption under s. 10(22) of the Act, which include the objects of the society." The decision applies squarely to the facts of the case before us and lends direct support to the view being taken by us. The Supreme Court has dismissed the Special Leave Petition filed by the Department against this judgment as reported in (2000) 241 ITR (St) 132. 36. We may next examine the contention of the learned senior Departmental Representative that the availability of the exemption under s. 10(22) is to be eva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see-trust is entitled to exemption under s. 10(22). Ground No. 6 is, therefore, allowed. 38. Ground No. 7 regarding levy of interest has not been decided by the learned CIT(A). Therefore, we remit the issue of levy of interest to the file of the CIT(A) for adjudication after allowing opportunity to the assessee. 39. Ground No. 8 regarding validity of the assessment under s. 158BD has not been pressed by the learned counsel before us and the same is, therefore, dismissed. 40. In the result, the appeal of the assessee is partly allowed. 41. Now, we take up the appeal of the Revenue, IT(SS)A No. 88/Ahd/2004. The grounds of appeal raised by the Revenue read as under: 1. The CIT(A) has erred in law and on facts in directing to allow set off of the addition of Rs. 2,16,000 made on account of unexplained expenditure by way of rent against the undisclosed income of Rs. 71,77,500 addition of which has been sustained by the learned CIT(A). 2. The CIT(A) has erred in law and on facts in directing to allow set off of the addition made of Rs. 59,449 on account of unexplained cash credit against the undisclosed income of Rs. 71,77,500 addition of which has been sustained by the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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