M/S.KUNHITHARUVAI MEMORIAL CHARITABLE TRUST,CALICUT vs. THE DCIT, CEN-CIRCLE-2, CALICUT

Per CHANDRA POOJARI, AM:

These appeals filed by the assessee are directed against the common order of

the CIT(A)-III, Kochi dated 14/03/2018 and pertain to the assessment years 2006-

07 to 2012-13.

I.T.A. Nos.255-261/Coch/2018 should have known that it is only from assessment year 2018-19 that the section 12A of the Act has been amended to provide that no exemption would be allowable if the return of income is not filed within the due date u/s. 139(1) and hence belated filing of such return is not fatal to the claim for exemption u/s. 12A till assessment year 2017-18.

business and connected institutions on 31/10/2011 on the strength of warrant of

authorization dated 27/10/2011 issued by Director of Income-tax(Investigation),

Cochin. The search revealed that there was violation of section 13(1)(c) and 11(4)

of the Act and the income of the Trust was chargeable to tax. M/s. Kunhitharuvai

Memorial Charitable Trust popularly known as KMCT is a Trust established in 1999.

The Trust was granted registration u/s. 12AA of the Act by the CIT, Calicut on

21/01/2002. Dr. K. Moidu is founder and the Managing Trustee of the Trust. The

other trustees are Mrs. Amina Moidu, W/o Dr. K. Moidu and their three sons Dr.

K.M. Mehboob, Dr. K.M. Ashik and Dr. K.M. navas. The Trust is running various

Medical, Dental, Ayurveda and Engineering colleges. All the institutions under the

Trust are self-financing bodies and they are run by collecting fees from students.

The search revealed that assessee is:

i) Not maintaining books of accounts properly.

ii) Irregular in filing of return of income.

iii)The assessee has diverted the fund of the Trust for the benefit of trustees who are wife and sons of the Managing Trustee i.e. family members.

iv) The assessee Trust had diverted funds to business concerns in which the trustees have substantial interest, and

v) The assessee has collected additional amount, commonly known as capitation fee from the students for admission in various courses. 2

I.T.A. Nos.255-261/Coch/2018 The Assessing Officer denied the benefit of sec. 11 to the assessee for the following

reasons:

“Section 13 of the IT Act, 1961 specify the circumstances under which the benefits under section 11 would be available to an organization.

income in normal course for many assessment years including AY 2006-07. The

return of income for AY 2006-07 was filed on 06/07/2012, i.e., almost 6 years from

the due date of filing of the return. It was observed that search was conducted in

this case on 31/10/2011, which only goes to prove that the return for AY 2006-07

was filed 8 months after the date of search. According to the CIT(A), such an

inordinate delay in filing the return of income proved that the books of accounts

were not properly maintained by the assessee and they were also not complete and

I.T.A. Nos.255-261/Coch/2018 correct. In the light of the above findings, the CIT(A) confirmed the denial of

exemption u/s. 11 of the Act to the assessee.

u/s. 11 of the Act, filing of return of income belatedly would not lead to denial of

exemption u/s. 11 of the Act even at the stage of appellate proceedings. The Ld.

AR relied on the judgment of the Punjab & Haryana High Court in the case of CIT

vs. Shahzadanand Charity Trust (228 ITR 292) wherein it was held that it is not

mandatory to furnish the audit report alongwith the return of income u/s. 12A(1)(b)

of the Act and the same could be furnished at a later stage and the delay could be

condoned after recording the reasons.

5.1 The Ld. AR further submitted that the assessee has applied the profit of the

assessee-Trust for charitable activities which is sufficient for claiming exemption u/s.

11 of the Act. For this proposition, he relied on the following Supreme Court

judgments:

1) American Hotel and Lodging Association vs. CBDT (301 ITR 86) (SC) 2) Queen’s Educational Society vs. CIT (372 ITR 699) (SC) 3) Chief CIT vs. St Peter’s Educational Soceity (385 ITR 66) (SC) 4) Visvesvaraya Technological University vs. ACIT (385 ITR 37) (SC)

5.2 Further, it was submitted that the assessee is solely existing for the purpose

of imparting education. Hence, the assessee cannot be denied exemption u/s. 11 of

the Act. He relied on the following judgments:

1) Pinegrove International Charitable Trust vs. Union of India & Others (327 ITR 63) (P&H). 4

I.T.A. Nos.255-261/Coch/2018

2) Vanitha Vishram Trust vs. Chief CIT (327 ITR 121 (Bombay).

5.3 The Ld. AR submitted that even if there is the violation of sections 11(5) and

13(1)(c) of the Act, the assessee is only liable to pay tax on maximum margin rate

and not on the entire income but only to the extent of violation of the above

sections. For this proposition, he relied on the following judgments:

1) CIT vs. Fr. Mullers Charitable Institute (363 ITR 230) (Kar.)

5.4 The Ld. AR submitted that even if there is any violation of sections 11(5) and

13(1)(c) of the Act, it is to be proved by the Revenue only and without proving it,

exemption u/s. 11 of the Act cannot be denied. For this proposition, he relied on

the following judgments:

1) Surat City Gymkhana vs. DCIT (254 ITR 733) (Guj.) 2) Chirec Education society vs. ACIT (354 ITR 605) (AP) 3) CIT vs. Kamala Town Trust (279 ITR 89) (All.)

the assessee to furnish return of income under section 139(1) of the Act so as to

avail exemption u/s. 11 of the Act. Since the assessee has not complied with this

requirement, the assessee is not entitled for exemption u/s. 11 of the Act. He relied

on para 5.4 at page 9 of the CIT(A) order.

this case, the assessee has not filed the regular return of income u/s. 139(4A) of 5

I.T.A. Nos.255-261/Coch/2018 the Act. The assessee has filed the return of income u/s. 153A(a) of the Act

consequent to search u/s. 132 of the Act for all the assessment years as under:

Assessment Year Date of filing of ROI 2006-07 06/07/2012 2007-08 15.01.2013 2008-09 15.01.2013 2009-10 15.01.2013 2010-11 22.05.2013 2011-12 21.08.2013 2012-13 09.12.2013

7.1 According to the Revenue authorities, even if the assessee is having valid

registration u/s. 12AA of the Act, the assessee is required to file return of income

accompanied by Form No. 10 of the I.T. Act so as to claim exemption u/s. 11 of the

I.T. Act. It is clear from the reading of sub-section 2 of section 11 that it is

mandatory for the assessee-Trust claiming exemption u/s. 11 to intimate the

Assessing Officer particulars required under Rule 7 in Form No. 10. If during the

assessment proceedings, the Assessing Officer does not have necessary

information, the question of excluding such income from assessment does not arise

at all. As a matter of fact, excluding the particulars of income from the net of tax

arises from sec. 11 and is subject to the conditions specified therein. Therefore, it

is necessary that the Assessing Officer must have the information at the time of

completing the assessment. In the absence of such information, it will not be

possible for the Assessing Officer to give the assessee benefit of such exclusion and

once the assessment is so completed, it would be futile to find fault with the

Assessing Officer for having included such income in the assessable income of the

assessee. Therefore, even assuming that there is no time limitation prescribed 6

I.T.A. Nos.255-261/Coch/2018 under the Act and Rules, even then, it is reasonable to presume that intimation

required u/s. 11 is to be furnished before the AO completes such assessment

because such assessment is mandatory and without furnishing the particulars of

income, the AO cannot ascertain the claim of exemption u/s. 11 of the Act.

Therefore, compliance of requirement of the Act will have to be at any time before

the completion of assessment proceedings. However, for claiming the benefit of

exemption u/s. 11 of the Act on the basis of information supplied consequent to the

completion of the assessment proceedings would mean that the assessment order

will have to be re-opened. The Act does not contemplate such reopening of the

assessment. However, in the present case, it was filed consequent to the notice

issued u/s. 153A(a) of the Act. Further, in the present case, exemption u/s. 11 was

denied because of non filing of return of income on time and also due to the

discrepancies mentioned above.

7.2 In our opinion, the returns of income were filed consequent to the notice u/s.

153A of the IT Act. The sections 11 & 12 of the Act nowhere prescribe filing of

return by any due date for the assessment years under consideration so as to grant

exemption u/s. 11 of the Act. Therefore, the findings of the CIT(A) that the

assessee having not filed its returns of income within the prescribed time had failed

to comply with the requirement prescribed under the Act, is not tenable.

7.3 In the case of CIT vs. Shahzadanand Charity Trust (1998) (96 taxman 494/

(228 ITR 292) (Pun.& Har.), the Court has categorically held as under:

I.T.A. Nos.255-261/Coch/2018 "10. Calcutta High Court in Rai Bahadur Bissesswarlal's case (supra) while interpreting s. 12A(b) held that the provision was directory in nature and the AO could allow the assessee to file the audit report, at any time before the completion of the assessment. In this case the assessee, a charitable trust registered with the CIT filed its return on 17th Sept., 1984, declaring a deficit of Rs. 1,61,452. The return so filed was not accompanied by audited accounts and audit report in Form No. 10B as required under s. 12A of the Act. The audit report dt. 12th Nov., 1984 was, however, filed by the assessee in the prescribed form on 6th March. 1987, before the completion of the assessment. The ITO while completing the assessment refused to allow the benefit of exemption under s. 11 of the Act to the assessee on the ground that audit report in Form No. 10B was not filed along with the return. Income of the assessee was put to tax. Order of the ITO was upheld by the CIT(A) against which assessee filed further appeal before the Tribunal which was accepted. On these facts, it was held that the IT authority had taken hyper-technical view of the matter where the assessee has complied with the provisions of the Act in the course of assessment by curing the defect in the return by filing an audit report. The ITO cannot ignore such audit report or the return in completing the assessment. The delay in getting the account audited and in filing the return (sic-report) in Form No. 10B did not defeat any object of the Act and, therefore, the provision was directory in nature. It also referred to the circular of the Board dt. 9th Feb., 1978.

I.T.A. Nos.255-261/Coch/2018 furnished at a later date with the permission of the AO who may permit the assessee to do so after recording its reasons for so doing."

7.4 In the case of Director of IT(Exemption) vs. Divyajyot Foundation (2010) (321

ITR 53), the Gujarat High Court relying on the decision in CIT vs. Gujarat Oil &

Allied Industries (1993)109 CTR (Guj.) 272: (1993) 201 ITR 325 (Guj.) held that

though the assessee trust has not submitted its accounts in Form No.10AA before

the prescribed authority in given time, the same does not justify the addition and

disallowance of the claim of the assessee. The entire donation received having been

spent within the time allowed under the Act, failure to submit accounts in Form No.

10AA within prescribed time does not warrant addition. 9

I.T.A. Nos.255-261/Coch/2018 7.5 In the case of Genius Education Society vs. ACIT(Exemptions) in ITA No. 238/Chd/2018 dated 20th August, 2018, the ITAT, Chandigarh Bench followed the

judgment of the Punjab & Haryana High Court in the case of CIT vs. Shahzadanand

Charity Trust (1998) (96 taxman 494/ (228 ITR 292) and observed as under:

“10. Undoubtedly, the requirement of filing of return of income and the report of audit have been specified for being eligible for claiming exemption u/s. 11&12 of the Act, alongwith the grant of registration u/s. 12AA of the Act. In the case of the assessee, we find that the return of income has been filed in response to notice u/s. 148 of the Act. Therefore, the condition of filing of return of income stands fulfilled. The section, we find, nowhere prescribes the filing of return by any due date, therefore the findings of the CIT(A) that the assessee having not filed its return within the prescribed time it had failed to comply with the requirement prescribed, is not tenable. As for the requirement of filing report of audit in the prescribed form, the said condition has been held by courts to be merely procedural and therefore directory in nature and not mandatory for the purpose of claiming exemption u/s. 11 and 12 of the Act “.

7.6 Further, a new section s. 12A(1)(ba) was inserted by Finance Act, 2017 with

effect from 01/04/2018 which states as follows:

“the person in receipt of the income has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139 within the time allowed under that section.”

7.7 In the matter, the memorandum explaining the relevant provisions of the

Finance Bill, 2017 reads as under:

"as per the existing provisions of said section, the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. However, there is no clarity as to whether the said return of income is to be filed within time allowed u/s 139 of the Act or otherwise. In order to provide clarity in this regard, it is proposed to further amend section 12A so as to provide for further condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income within the time allowed under section 139 of the Act. 10

I.T.A. Nos.255-261/Coch/2018 These amendments are clarificatory in nature.

These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent years."

7.7 Further, an excerpt of circular No..02/2018 dated 15.0,2013 "Explanatory Notes to the Provisions of the Finance Act, 2017” on insertion of clause (ba) in Sub section (1) of section 12A is quoted as under:

"the entities registered under section 12AA are required to file return of income under sub-section (4A) of section 139 of the Income-tax Act, if the total income without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax. Amendment to section 12A of the Income-tax has been made so as to provide for additional condition that the person in receipt of the income chargeable to income-tax shall furnish the return of income within the time allowed under section 139 of the Income-tax Act.”

“Thus, for a trust registered u/s 12AA of the Act to avail the benefit of exemption u/s 11 shall inter-alia file its return of income within the time allowed u/s 139 of the Act. Accordingly, orders u/s 143(1)(a) in those cases in which demand has been raised on this issue may please be rectified.”

Hence, the Assessing Officer can deny the grant of exemption u/s. 11 of the Act for belatedly filing of return from the assessment year 2018-19 onwards.”

7.8 In view of the above discussions, this ground of appeals of the assessee is

allowed in all the appeals.

ITA Nos. 258 to 261/Coch/2018

collection of capitation fee for the assessment years 2009-10 to 2012-13.

I.T.A. Nos.255-261/Coch/2018

8.1 The facts of the case are that during the course of search, it was found that

the assessee was collecting capitation fees in addition to regular fees from its

students. The details of students admitted to MBBS, BDS. BAMS and the money

collected from each student was recorded in the laptop of the administrative officer,

Shri Shibu and printouts of the same for financial year 2011-12 were taken and

seized (CHN/21/VJ/A-1). During the course of search, statement of Shri Shibu was

recorded and he confirmed the receipt of additional fee. The relevant question and

answer is reproduced as under:

"As per the details found during the course of search the actual collection of fees and other amounts from various students have been unearthed as per the seized item no.CHN/21/VJ-1-A. However on verification of account, it is seen that only a portion of the receipt have been accounted in the accounts maintained in the computer. For example, in the case of Akhil Murali, the accounted amount is Rs.10,75,000/- and in the case of Rinu Raheed the accounted portion is Rs.8,29.100/- as against the actual receipts of Rs.25 Lakhs and 28 Lakhs respectively. Why such discrepancies happened in the account in not only the above cases but in almost all of the 50 MBBS admission cases for the academic year 2011-12?

Ans. A portion of the fees/amount collected from management and NRI seats of MBBS are not accounted in the accounts due to various stipulation of law. I am not able to explain the above discrepancies.

8.2 In view of the unearthing of the chart evidencing collection of capitalization

fees from management and NRI quota seats and the statement of Shri. Shibu, the

Assessing Officer held that the assessee had been collecting capitation charges from

the aspiring students. According to the Assessing Officer, collection of capitation

fees is a common knowledge and in the instant case, it was supported by 12

I.T.A. Nos.255-261/Coch/2018 documentary evidence, found and seized from the premises of the assessee and

further supported by the statement of administrative officer of the assessee

concern.

8.3 On appeal, before the CIT(A), Dr. K.M. Navas, Trustee of the assessee

concern wrote a letter dated 14.02.2018, contents of which are reproduced as

under:

"Sir, Sub: Note on capitation fee - reg. Ref: Appeals for the AY 2006-07 to 2012-13

During the income tax search dated 31/10/2011 the Income Tax Officers found the collection of additional fees from MBBS 2011 batch management students to the tune of Rs.2.40 crores. We have admitted the same and accounted for in our books of accounts in that year itself. Apart from that there is neither any collection of additional fees nor any findings by the Income Tax officers/assessing officer. Instead in the assessment order the assessing officer added some imaginary figures as additional fees on a year to year basis for each course like medical, dental and Ayurveda and finalized the assessment accordingly.

So we request your goodself to consider our submission and allow our claim."

8.4 The CIT(A) found that document evidencing receipt of on-money from aspiring

students had been found for FY 2011-12 relevant to AY 2011-12 only which proved

that the assessee had been taking capitation fees for admissions in MBBS courses

from management and NRI quota seats. The CIT(A) also noted from the seized

document that the assessee charged varying amount from students and in some

cases, no amount had been charged. Therefore, according to the CIT(A), since

there is no change in circumstances between AY 2011-12 and earlier and

I.T.A. Nos.255-261/Coch/2018 subsequent years, it cannot be said that the assessee took capitation fees in one

year only and other years it was not charging anything and it is also not necessary

that the assessee would maintain the account of capitation fees diligently for all

years for all students. According to the CIT(A), the assessee would destroy details

of such unaccounted capitation fees collected. The CIT(A) was of the opinion that

the evidence found was sufficient to prove that the assessee had been collecting

unaccounted capitation fees. From the seized document, the CIT(A) found that

Rs.2.40 crores had been collected from a total number of 50 MBBS students, though

varying amounts had been collected on this account which makes an average of

about Rs.5 lakhs per student. According to the CIT(A), the charges for earlier years

would be less and subsequent years would be higher. Since there was no MBBS seat

in AY 2008-09, there was no reason to make an estimated addition in that year.

Therefore, the CIT(A) deleted the addition made in AY 2008-09 for Rs.6,25,000/-.

However, the CIT(A) confirmed the additions for AYs 2009-10 onwards.

8.5 Against this, the assessee is in appeal before us. The Ld. AR submitted that

during search, there was no incriminating material found regarding collection of

additional fees for the assessment years and the additions were made by

extrapolating backwards the figures relating to the subsequent years.

8.6. The Ld. DR submitted that there was seized material representing the

unaccounted collection of fees for these assessment years under consideration. He

I.T.A. Nos.255-261/Coch/2018 submitted that judgment of the Jurisdictional High Court in the case of CIT vs. Hotel

Meriya (332 ITR 537) is applicable to the facts of the assessee’s case.

case, there was a seized material found during the course of search marked as

CHN/21/VJ-1-A which contained the details of students admitted for BBS, BDS and

BMS courses and money collected from each student was recorded in the laptop of

the Administrative Officer, namely, Shri Shibu and print out was taken relating to

financial year 2011-12 and corresponding year 2012-13. During the course of

search, statement of Shri. Shibu was recorded and he confirmed the receipt of

additional fee. The relevant question and answer is reproduced as under:

"As per the details found during the course of search the actual collection of fees and other amounts from various students have been unearthed as per the seized item no.CHN/21/VJ-1-A. However on verification of account, it is seen that only a portion of the receipt have been accounted in the accounts maintained in the computer. For example, in the case of Akhil Murali, the accounted amount is Rs.10,75,000/- and in the case of Rinu Raheed the accounted portion is Rs.8,29.100/- as against the actual receipts of Rs.25 Lakhs and 28 Lakhs respectively. Why such discrepancies happened in the account in not only the above cases but in almost all of the 50 MBBS admission cases for the academic year 2011-12?

Ans. A portion of the fees/amount collected from management and NRI seats of MBBS are not accounted in the accounts due to various stipulation of law. I am not able to explain the above discrepancies.

9.1 In view of the unearthing of the chart evidencing collection of capitalization

fees from management and NRI quota seats and the statement of Shri. Shibu, the

Assessing Officer held that the assessee had been collecting capitation fees from the 15

I.T.A. Nos.255-261/Coch/2018 aspiring students. According to the Assessing Officer, collection of capitation fees is

a common knowledge and in the instant case, it was supported by documentary

evidence, found and seized from the premises of the assessee and further

supported by the statement of administrative officer of the assessee. In the post

search, the assessee had given details of collection of additional fee for the Batch

2010 and 2011 on the basis of which the assessee remitted the collection of

additional fees for the assessment year 2012-13 as follows:

i) The additional fees collected from 25 students admitted to BAMS course under Management quota for 25 students is Rs.50 lakhs (25 x Rs. 2 lakhs)

ii) The additional fees collected for the MBBS from 50 students & BDS course from 25 students under Management quota is Rs.3,75,00,000/- (75 x Rs.5,00,000) = Rs.3.75 crores

Grand Total Rs.4.25 crores

9.2 For making the above addition, the Assessing Officer relied on the judgment of

the Jurisdictional High Court in the case of CIT vs. Hotel Meriya (332 ITR 537) and

also the judgment of the Andhra Pradesh High Court in the case of Rajnik & Co.vs.

ACIT (251 ITR 561).

9.3 In the case of Meriya Hotel cited supra which is a bar cum restaurant, there was a search conducted u/s. 132 of the Act on 28th June, 2001. During the search,

a seized material was found showing undisclosed sales turnover. The cash book was seen recorded upto 25th June, 2001. The cash book showed cash balance of

Rs.21,31,523/- but the physical cash balance was Rs.34,552/-. On enquiry of the

Managing Partner and the employee, it was revealed that only 80% actual sales 16

I.T.A. Nos.255-261/Coch/2018 turnover in respect of liquor was recorded in the cash book. In this case, the

partner of the hotel had in ambiguous terms stated that 20% of the sales turnover

was suppressed and only 80% was recorded in the books of accounts of the

assessee and it was a practice from the beginning. So, the High Court was of the

opinion that it is just and appropriate to presume that there was uniform

concealment of income in all the assessment years during the block period. There

is no material to show that concealment of the sales during any of the assessment

years in the block period is less than concealment detected u/s. 132 of the I.T. Act.

There was no whisper in the statement given by the staff of the assessee firm or

any of the employees that there was any concealment in any assessment year

during the block period. No good reason was given to reject the above mentioned

statements of the partner and the employees recorded during the search. Oral

evidence was corroborated by documentary evidence. So, it is just and appropriate

to conclude that the concealment was same in all the assessment years during the

block period. The assessee adopted the mercantile method to conceal income. The

ratio of this judgment cannot be applied to the present assessee’s case as there was

no statement recorded u/s. 132(4) of the Act from the Managing Trustee to show

that there was uniform collection of additional fees by the assessee from year to

year covering the block period which was unaccounted. More so, what is applicable

to Bar & Restaurant to estimate the suppressed income cannot be applied to the

present assessee which is an educational institution. It is imparting medical

education. The turnover of Bar cum Restaurant cannot be equated to the collection

of fees from students. Collection of fees by an educational institution is dependent

I.T.A. Nos.255-261/Coch/2018 upon different factors like payment of fees, quality of education imparted by the

institution, Government Rules and Regulations and reputation of the Institution, etc.

9.4 Further, at the time of hearing before the Assessing Officer on 13/11/2013, the

assessee was asked to explain the additional fees collected from the students

admitted in MBBS, BDS & BAMS and the method of accounting the same. The

assessee vide letter dated 10/12/2013 stated that “we have not collected any

additional fees during the above years. We have collected some amount of advance

and accounted the same. The assessee was again asked to explain about

additional fees, capitation fees, explanation on settlement of various assets among

the family members of Dr. K. Moidu during the course of hearing. The authorized

representative stated that he was not aware of the details of settlement and the

difference in variation of receipts as per assessee’s statement and as per search

material. Therefore, a detailed letter narrating:

9.5. The assessee vide letter dated 17/01/2014 stated that in the assessment year

2011-12 they had not collected any additional fees we have only collected some

advance fees which was accounted in the books. In the assessment year 2012-13,

I.T.A. Nos.255-261/Coch/2018 it was stated that they had collected additional fees from MBBS and BAMS students

which have been accounted as additional fees. Now the assessee has admitted the

receipt of additional fees during the previous year relevant to the assessment year

2012-13.

9.6 Coming to the judgment of the Andhra Pradesh High Court in the case of

Rajnik & Company cited supra, the High Court held that assessment of undisclosed

income is based on relevant material and there is absolutely no merit in the

contention of the assessee that the estimations made by the Assessing Officer as

well as by the Tribunal are not based on any material but merely based on

conjunctures and hypotheses. Though there is no material found for the assessment

year 1986-87 to 1995-96 but it is fact confirmed by the partner of the assessee firm

that the assessee had organized suppression of sales turnover and taking the

quantum of business that was carried out by the assessee-firm, the Assessing

Officer estimated the suppression of 20% sales and determined the gross profit rate

that was returned by the assessee. The admission by the partner of the assessee-

firm clearly shows that the firm had suppressed the sales turnover even in those

years also. Being so, there was no case to the assessee to contend that the

assessment is not based on any seized material.

9.7 In the present case, there is no evidence collected by the Department for the

assessment year 2006-07 to 2011-12 and there was evidence only in the

assessment year 2012-13. As said in earlier paras of this order, there was no

I.T.A. Nos.255-261/Coch/2018 admission by any of the Trustees of the assessee-Trust. Being so, the ratio laid

down by the Andhra Pradesh High Court in the case of Rajnik & Co. cited supra

cannot be applied to the present assessee’s case. Similarly, in the case of

Travancore Diagnostics P. Ltd. vs. ACIT (390 ITR 167) the Jurisdictional High Court

held that when suppression had been found from the documents and the statement

on record, the Assessing Officer was completely justified in adopting those figures

for the whole year and for the next year which was based on sound rationale, since

from the statement on behalf of the assessee, the suppression was found to be

continued. In view of the uncontroverted and admitted statement given on behalf

of the assessee u/s. 133A and the documents impounded during the survey, which

were also virtually admitted by the assessee, there was no error in the order of the

Tribunal in accepting the materials on record in order to arrive at an assessment.

However, in the case of present assessee, there was no admission by the Trustees

of the Trust. Hence, this judgment of the Jurisdictional High Court cited supra

cannot be applied to the assessee-Trust.

9.8 In the present case, addition towards additional fees collected by the assessee

was solely based on the statement of one of the employees of the Trust, Shri Shibu

and later details were furnished by the assessee at the time of assessment. Hence,

there was no incriminating evidence regarding the receipt of additional fees either

found or seized during the search. What was found was the seized material

CHN/21/VJ-1-A showing the details of students admitted to MBBS, BDS. BAMS and

the money collected from each student recorded in the laptop of the administrative

I.T.A. Nos.255-261/Coch/2018 officer, Shri Shibu and printouts of the same for financial year 2011-12 relevant to

assessment year 2012-13. Later, the assessee furnished details of fees collected in

the year 2010-11 in the tabular form. From this, the Assessing Officer arrived at the

additional fees collected by the assessee. However, the assessee vide letter dated

10/12/2013 stated that the assessee had not collected any additional fees and only

collected advance fees. Being so, whatever was found was the break up of number

of students who were admitted under different quotas in various courses.

Therefore, there cannot be any addition in the hands of the assessee towards

additional fees collected in the absence of any material seized or found during the

search for the assessment years 2006-07 to 2011-12. However, we direct the

Assessing Officer to confine the addition to the extent of seized material found

during the search for the assessment year 2012-13/. In other words, for the

assessment years 2006-07 to 2011-12, there was no seized material found during

the search and hence, there cannot be any addition towards additional fees

collected by the assessee.

9.8 Further, the Central Board of Direct Taxes had issued instructions by Circular

No. 286/2/2003-IT, wherein it had been directed that the search party should not

obtain confessions. So the admission made under section 132(4) by the

Administrative Officer cannot be treated as a valid piece of evidence. Moreover,

there was no proof that the assessee had collected additional fees in the guise of

donation and there was no violation of Prohibition of Collection of Capitation fees

act, 1992. The donation voluntary given by anybody to a Trust towards its corpus

I.T.A. Nos.255-261/Coch/2018 was a permissible and legal activity, and not an illegal activity resulting in denial of

exemption u/s. 11 of the Act. There was no evidence on record to show any link

between the investment made in the hands of various trustees with the Trust’s

activities under the provisions of section 164(1) r.w.s. 13(1)(c) and 13(1)(d) of the

Act. Therefore, the addition could not be sustained in the eye of law. It is also

admitted by the assessee vide letter dated 17/01/2014 that for the assessment year

2011-12, the assessee has not collected any additional fees and collected only

advance fees which was accounted for in the books of accounts. In our opinion, for

the assessment year 2011-12, the additional fees or advance fees which was

offered for taxation by the assessee by accounting the same, cannot be brought to

tax once again which amounts to double taxation. Similarly for the assessment year

2012-13, it was admitted by the assessee that it had collected additional fees from

MBBS and BAMS students which have been accounted by the assessee, hence, for

this assessment year also, the Assessing Officer cannot bring to tax once again. For

this assessment year, the Assessing Officer has to verify whether it is duly

accounted for the assessment year 2012-13 only. Hence, we are not in a position

to uphold the order of the CIT(A) on the issue of collection of additional fees for the

assessment years 2009-10 to 2011-12.

9.9 However, the Assessing Officer is to restrict the addition towards collection of

additional fees for the assessment year 2012-13 to the extent of the seized material

found during the course of search. This ground of appeal in ITA No.

I.T.A. Nos.255-261/Coch/2018 261/Coch/2018 relating to the addition towards collection of additional fees is partly

allowed for statistical purposes.

9.9.1 Further, the provisions of section 11 of the Act was considered by the

Tribunal while restoring the registration granted to the assessee u/s. 12AA of the

I.T. Act in assessee’s own case in ITA No.246/Coch/2014 dated 16/01/2017 wherein

it was held as under:

“19. Coming to other observations of the CIT for cancellation of registration of trust u/s 12AA(3). The CIT observed that the trust js not maintaining proper books of account and not filed regular returns of income as prescribed under law. As regards observations of the CIT with regard to non maintenance of books of account and non filing of regular returns of income it was submitted that it is true returns of income from the A.Y. 2007-08 have not been filed regularly and such returns have been filed after search but before the Commissioner issued her show cause notice on 6-9-2013 which is evident from the fact that returns of income up to A.Y. 2011-12 have been filed before 21-8-2013, The trust has filed regular returns for A.Y, 2012-13 and subsequent years. The AR further submitted that even assuming that there is delay in filing returns of income, it cannot be said that it is fatal so as to withdraw registration u/s 12AA(3). Non filing of returns is purely a procedural laps which can be cured by filing return of income or some other penal provision is provided to deal with non filing return of income, but it cannot be a ground for cancellation of registration as long as the trust objects are charitable in nature and its activities are carried out in accordance with its objects. Therefore, we are of the view that non maintenance of regular books of accounts, belated filing of returns of income, are all by way of passing reference having no relevance to whether or not the assessee was pursuing education, as its main object. There are no facts brought out in the impugned order regarding the genuineness of the activities of the trust or as to whether the object of education was not pursued by the assessee as its main and predominant activity. In fact, the order of the CIT does not anywhere show that the assessee is not imparting education. The complaint of the revenue seems to be that education is being imparted on commercial lines. The definition of 'Charitable Purpose’ is given in Sec.2(15) of the Act. The same refers to "relief to poor, medical relief, education and the advancement of any other object of general public utility". The proviso 23

I.T.A. Nos.255-261/Coch/2018 to Sec.2(15) of the Act introduced by the Finance Act, 2008 w.e.f. 1.4.2008 regarding excluding organizations where there is profit motive from the definition of charitable purpose applies only to the category of trusts which has as its object, the object of "advancement of any other object of general public utility". It does not apply to the other categories of charitable purpose viz., "relief to poor, education and medical relief. It is also not a necessary element in a charitable purpose that it should provide something for nothing or for less than it costs or for less than the ordinary price. The surplus generated, if it is held for charitable purpose and applied for charitable purpose of the assessee, and then the assessee has to be considered as existing for charitable purpose. There are enough safeguards provided in Sees.12 and 13 of the Act to ensure that personal benefits of the persons in control of the trusts are not treated as having applied for charitable purpose and for being brought to tax like provisions of Sec.13(1)(c) of the Act which restricts unreasonable and excessive payments to certain category of persons connected with a trust or other institution. In such circumstances, we are of the view, that the order u/s 12AA(3) of the Act, cannot be sustained."

I.T.A. Nos.255-261/Coch/2018 has been used for objects of the trust. As regards allegation of diversion of funds, it was submitted that the trust has given temporary advance to Dr. K.M. Navas, managing trustee of the trust with interest @16% per annum and such loan has been repaid within a short period. The CIT completely erred in cancelling registration on the ground that Trust funds are diverted for the benefit of trustees without appreciating the fact that advances to trustees is with adequate interest and security and such interest has been charged at double the bank rate. Even assuming that there is diversion of funds in contravention of sections 11(5) and 13(1)(c) for these reasons registration cannot be cancelled as the newly inserted sub section 4 with effect from 01/10/2014 is applicable from AY 2015-16 onwards. If there is violations of section 11(5) and 13(1)(c), for these reasons registration cannot be cancelled as the newly inserted sub section 4 with effect from 01/10/2014 is applicable from AY 2015- 16 onwards. If there is violations of section 11(5) and 13(1)(c), at the most, the same be taxed in the hands of the Trust or the Trustees as the case may be and may even trigger penal action against the Trustees in accordance with Law. Moreover, no conclusive findings supported by cogent evidence are established by the Revenue to prove that the trustees have siphoned off the income of the Trust. It is also not established before us by the Revenue that the trustees who have received funds by siphoning off the undisclosed income of the trust are brought to tax. On the other hand, the assessee proves that allegations made by the CIT are baseless and without any cogent materials. The activities conducted by the assessee Trust are only promoting education within the ambit of Section 2(15) of the Act and it was not engaged in any other activity other than imparting education. Therefore, we are of the view that the other reasons given by the CIT in the order u/s. 12AA(3) of the Act, do not make out a case, which can show the activities of the assessee are genuine or that the activities of the assessee are not being carried out in accordance with the objects of the trust or institution.

I.T.A. Nos.255-261/Coch/2018 charitable purpose of advancement of education, and not to earn profit. In fact, no profit has been established to have been earned by the assessee. The CIT has failed to specify as to how profit earning is the predominant activity of the assessee instead of carrying out its said charitable purpose. On the other hand, the assessee has filed various details of income from property held under trust and application of income for charitable purpose as per which its application of income for its object is more than its income generated from property held under trust for all these years. In fact, its application of income is more than 100% which is evident from the fact that the assesses has filed chart showing income and expenditure as per which its expenditure is 118% to 140% for the A.Y. 2007-08 to A.Y. 2011-12.(Refer page No. 157 of PB). In any of the year, the trust is having surplus. Insofar as the observations of the CIT with regard to expenditure incurred for charitable purpose, we find that the CIT's observations are baseless as the administrative expenditure shown by the assessee in its financial statements predominantly consists of amount spent for objects of the trust which is evident from the fact that the assessee has filed a statement of expenditure showing details of administrative expenses which is enclosed in paper book page no. 159. Therefore, the allegation of the CIT that the trust is running education on profit motive in baseless and without any application of mind. Therefore, the assessee Trust cannot be deprived of the benefit of promissory estoppel against the Department to allow the assessee to keep on enjoying the registration granted to it long ago. No finding has been recorded by the IT that any part of the income of the assessee society has been misutilised. Thus, the cancellation of the registration granted to the assessee Trust has been erroneously ordered.

9.9.2 In view of the above discussions, we are inclined to allow this ground of

appeals of the assessee in ITA Nos. 258-260/Coch/2018 for the assessment years

2009-10 to 2011-12. On the other hand, the appeal of the assessee in ITA

No.261/Coch/2018 for assessment year 2012-13 is partly allowed for statistical

purposes.

as follows:

I.T.A. Nos.255-261/Coch/2018 Without prejudice to the above, it is submitted that the CIT(A) should have noted that since the assessee is a charitable trust registered u/s. 12A, the only precondition in granting exemption u/s. 11 was mandatory application of 85% o the income received, towards the objects of the trust. The CIT(A) should have noted that for an institution which is charitable in nature, once it has complied with the condition that it should compulsorily spend 85% of the income received during the same year, then there is no scope for denial of exemption in total. As long as this amount has been applied for the purposes of the objects of the Trust, the same cannot be held to be taxable. The CIT(A) has erred in ignoring the fact that the receipts may be voluntary or involuntary but as long as it is applied for the purpose of charity in furtherance of the objects of the Trust, exemption cannot be denied to the institution and no income could be assessed as taxable income. Section 11 and 11(4A) makes it abundantly clear that, the property held under the Trust can even be a business as long as it is in furtherance of the objects of the Trust and the surplus is used for the purpose of objects of charity as per the objects of the Trust, then there is no question of taxing any part of the income of the assessee.

10.1 In our opinion, this ground does not require any adjudication as we have

already held that the assessee is entitled for exemption u/s. 11 of the I.T. Act.

Hence, this ground of appeals of the assessee is dismissed as infructuous in ITA

Nos. 258-261/Coch/2018 for the assessment years 2009-10 to 2011-12.

i) ITA Nos. 255 to 257/Coch/2018 - Allowed ii) ITA Nos. 258 to 260/Coch/2018 – Partly allowed iii) ITA Nos. 261/Coch/2018 – Partly allowed for statistical purposes.

Order pronounced in the open Court on this 27th May, 2019

sd/- sd/- (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Kochi Dated: 27th May, 2019 GJ 27

I.T.A. Nos.255-261/Coch/2018 Copy to: 1. M/s. Kunhitharuvai Memorial Charitable Trust, KMCT Corporate Office, Malabar Christian College Cross Road, Calicut-673 011. 2. The Deputy Commissioner of Income-tax, Central Circle-2, Kozhikode. 3. The Commissioner of Income-tax(Appeals)-III, Kochi. 4. The Commissioner of Income-tax, (Central), Kochi. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin

I.T.A. Nos.255-261/Coch/2018