M/S. SRI DEVARAJ URS EDUCATIONAL TRUST FOR BACKWARD CLASSES (REGD),KOLAR vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 1(4), BANGALORE

The brief facts of the case are that the assessee trust was formed in the year 1984 with a view to promote education among the backward classes and general public which is running various educational institutions for backward classes. Shri R L Jalappa is founder trustee and chairman of the assessee trust and his children Shri. J. Rajendra and Smt. J. Saraswati

The assessee trust has been filing return of income under the Income-tax Act, 1961 [“the Act”]. It is registered u/s. 12A of the Act as on date.

For the AY 2010-11, original return of income was filed on 16.09.2010 and intimation u/s. 143(1) dated 30.3.2011 was issued. Exemption u/s. 11 of the Act has been granted.

A search u/s. 132 of the Act was conducted on 6.8.2015 and statements recorded from various persons. It was stated by the assessee that the AO did not furnish a copy of the reasons recorded u/s. 132 nor copy of satisfaction note. After issuing various notices and examining the seized record and the statements recorded, the AO vide order dated 30.12.2017 passed the assessment order u/s. 153A r.w.s. 143(3) of the Act

It is submitted that the AO did not furnish the copy of satisfaction recorded u/s. 153A of the Act and in the notice u/s. 153A, there was no mention whether it is a case of assessment or reassessment.

For the AY 2011-12, registration u/s. 12A of the Act continued. The return was filed on 28.9.2011. Exemption u/s. 11 of the Act has been continued. On the basis of search u/s. 132 on 6.8.2015 and on similar facts and same reasoning as in AY 2010-11, the AO determined the total income at Rs.46,13,25,960 on the following components:- i. Surplus set apart u/s. 11(1)(a) – Rs.2,75,66,935. ii. Expenditure in the nature of Capital Expenditure – Rs.9,97,59,025. iii. Undisclosed cash receipts – Rs.33,40,00,000. The AO held that a sum of Rs.1457.75 lakh is entered as cash receipts in seized material. He further extrapolated that a sum of Rs.1,882 lakh would have been received which was not accounted even in the seized material.

For the AY 2012-13, registration u/s. 12A of the Act continued. The return was filed on 20.8.2013. The case was selected for scrutiny and notice u/s. 143(2) issued to the assessee. The assessment was concluded by order dated 31.3.2015 denying exemption u/s. 11 of the Act. The income was computed by applying the regular provisions of the Act as envisaged under Chapter VI of the Act as follows:- Particulars Amount (In Rs.) Excess of Income over Expenditure as per I&E Account 25,76,28,031 Add: Depreciation 7,29,88,721 Balance 33,06,16,752 Less: Allowable Depreciation 1,53,05,869 Balance 31,53,10,883 Add: Loss from redemption of mutual funds 8,65,293 Add: Maintenance expenses towards Benz Car 3,47,192 Taxable Income 31,65,23,368 Add: Long Term Capital gain as ROA 4,31,496 Total Taxable Income 31,69,54,864

Consequently, on the basis of search u/s. 132 on 6.8.2015 and on similar facts and similar reasoning as in AY 2010-11, the AO determined the total income at Rs.46,13,25,960 on the following components:- i. Total Income as per Order u/s. 143(3) – Rs.31,69,54,864. ii. Undisclosed cash receipts – Rs.38,48,00,000: Here again, on the search action u/s. 132 on 6.8.2015 and on similar facts as in AY 2010-11, the AO determined the total income at Rs. 38,48,00,000 concluding that a sum of Rs.228 lakh is entered as cash receipts in seized material. He further extrapolated that a sum of Rs.3620 lakh would have been received which has not been accounted even in the seized material. 10. For the AY 2013-14, registration u/s. 12A of the Act continued. The return was filed on 28.9.2011. Exemption u/s. 11 of the Act continued. On the basis of search u/s. 132 on 6.8.2015 and on similar facts and same

For the AY 2015-16, Registration u/s. 12A and Exemption u/s. 11 of the Act continued. On the basis of search u/s. 132 on 6.8.2015 and on similar facts and same reasoning as in AY 2010-11, the AO determined the total income at Rs.46,13,25,960 on the following components :-

For the AY 2016-17, Registration u/s. 12A and Exemption u/s. 11 of the Act continued. On the basis of search u/s. 132 on 6.8.2015 and on similar facts and same reasoning as in AY 2010-11, the AO determined the total income at Rs.121,63,33,681 on the following components :- i. Surplus set apart u/s. 11(1)(a) – Rs.19,21,19,133. ii. Surplus accumulated u/s. 11(2) – Rs. 5,77,28,333 : This disallowance was also made on the same ground that assessee had collected capitation fee from various students and incurred expenditure for non-charitable purposes. Therefore the activities of the trust were not charitable, but commercial. Depreciation was also denied on the same reasoning as held u/s. 11(1)(a). iii. Expenditure in the nature of Capital Expenditure – Rs.8,21,61,215.

The ld. AR submitted that there are common grounds of appeal involved in these years.

Ground No.1 This ground in these appeals is general in nature which does not require any adjudication.

Ground No.2 is that the order passed by the CIT(Appeals) is without proper application of mind. At the time of hearing, this ground was not pressed and accordingly the same is dismissed as not pressed.

Ground No.3 is with regard to validity of search. This is a common ground in AYs 2010-11 to 2015-16 (6 appeals). The contention of the ld. AR is that search action was not valid and due procedure laid down u/s. 132 of the Act was not followed. The ld. DR relied on the order of lower authorities and submitted that search was carried out in accordance with the provisions of section 132 of the Act after serving valid warrant to the assessee and after drawing proper Panchanama. There was no violation whatsoever as alleged by the ld. AR.

We have heard both the parties. In this case, search was conducted u/s. 132 of the Act on 15.10.2015 by issuing valid warrant in the name of assessee and also Panchanama was drawn with proper local witnesses.

Being so, this amendment will have effect in the present case. Therefore, the Tribunal cannot be expected to go into the said question. It is only for the Constitutional posts to examine the validity of search action. More so, this issue was also decided by the Hon’ble High Court of Karnataka in the case of Prathibha Jewellery House v. Commissioner of Income-tax, (Appeal) [88 taxmann.com 94 (Kar)] where the writ petition was dismissed holding that law was amended by insertion of aforesaid Explanation by the Parliament in section 132 by the Finance Act, 2017 w.r.e.f. 1.4.1962 and it was held that the Appellate Authorities could not go into the reasons recorded by the concerned Income Tax Authority for directing Search action. In view of this, we are of the opinion that the assessee is precluded in challenging the validity of search action before the Tribunal.

Further, the same view was taken by the Tribunal in the case of Rajesh Exports Ltd. in ITA Nos.928 to 931/Bang/2017 vide order dated 27.11.2018 as follows:- “14. First, we decide the technical aspects one by one. First technical aspect is about validity of search raised in A. Ys. 2008 – 09 to 2013 – 14. In this regard, various submissions are made

Ground No. 4 is regarding validity of notice issued u/s. 153A of the Act. This is a common ground in AYs 2010-11 to 2015-16 (6 appeals). The contention of the ld. AR is that notice u/s. 153A is issued without recording proper satisfaction and it does not specify whether the notice is issued to assess or reassess the income. As such, consequent assessment order is bad in law. According to the ld. AR, notice was issued requiring the assessee to file return of income for the relevant six years as per clause (a) of sub-section (1) of section 153A of the Act and the question of assessment/reassessment is as per clause (d) of sub-section (1) of section 153A. Both these clauses are separate and should not be mixed.

We have heard both the parties and perused the material on record. As per clause (a) of sub section (1) of section 153A, at the stage of issue of notice u/s 153A, the only requirement is to ask the assessee to file return of income for relevant six years covered by section 153A and whether after filing of return of income, the assessment to be made by the AO will be assessment or reassessment has to be determined afterwards and not at the time of issue of notice u/s 153A. Similar view was taken in the case of Rajesh Exports Ltd. (supra) in para 17 of the Tribunal’s order. In this view of the matter, this ground is dismissed.

Ground No.5 is with regard to status of the assessee. According to the ld. AR, trust is not a person referred to in section 2(31) of the Act and the CIT(Appeals) ought to have held that assessment made on a non- existent status is bad in law. The ld. DR relied on the order of lower authorities.

We have heard both the parties and perused the material on record. In this case, the assessee itself has filed return of income in the status of “trust” and the same was followed by the AO in framing assessment u/s. 153A of the Act. Being so, we do not find any infirmity in the order of AO. This ground is dismissed.

Ground No.6 is regarding the validity of assessment., which is a common ground in all the assessment years. According to the ld. AR, the seized material in the course of search in all the assessment years are not incriminating in nature and the AO also relied on the material handed over by the authorised officer beyond the time limit stipulated in section 132 of the Act ignoring the fact that such material has no evidentiary value in the eye of law. Approval u/s. 153A having been given mechanically without proper application of mind, as such consequent assessment order framed thereon is bad in law.

The ld. DR submitted that at the time of search action various incriminating documents relating to assessee were found and the same were handed over by the authorised officer to the concerned AO. Hence it is not acceptable that no incriminating material was found and therefore this ground of the assessee has to be rejected.

We have heard both the parties and perused the material on record. AS seen from the facts of the case, there are various incriminating material found during the course of search and as rightly pointed out by the ld. DR, it cannot be accepted that no incriminating material was found during the search action. The Hon’ble High Court of Karnataka in Canara Housing Development Co. v. DCIT, 274 CTR 122 (Kar) held that once the assessment is validly reopened, the AO has to take into account all the three types of income to complete the assessment or reassessment, as the case may be. The three types of income are (i) income disclosed in the return of income, (ii) undisclosed income during the search, and (iii) any other income which is not disclosed in the earlier return and not unearthed during the search. In our considered opinion, if incriminating material is found during the search u/s. 153A, all three types of income has to be assessed by the AO and in view of the judgment of the Hon’ble High Court of Karnataka in Canara Housing Development Co. (supra) this legal ground has no merit.

Being so, framing of assessment u/s. 153A is valid. However, the assessee is at liberty to challenge the addition made by the AO if aggrieved, but assessment cannot be quashed.

Ground No.7 relates to reliance on seized material and post-search statements. The ld. AR submitted that material seized during the course of search is as under:-

The ld. AR submitted that the AO has relied upon loose sheets, unsigned entries in note books to hold that the appellant has collected capitation fee in cash which is unaccounted. It is submitted that loose sheets, scribbled note books cannot be treated as incriminating material unless they are corroborated with cogent evidences. The loose sheets, note pads, etc., relied upon by the assessing officer are not speaking ones. They are dumb documents. They cannot be relied upon. In fact, the assessing officer at page 166 of the assessment order, has observed as under: “Only tabulated sheets of receipts from student need not be considered as incriminating material” The above observation would mean that the AO has acknowledged that the seized material are dumb documents. He relied on the decision of the Hon’ble Supreme Court in Common Cause (A Registered Society) v. UOI [2017] 394 ITR 220 (SC).

It was submission of the AR that the Tribunal in the case of Atul Kumar Jain v. DCIT [1999] 64 TTJ (Delhi) 786 construed the meaning of

He submitted that the Tribunal in ACIT v. Layers Exports P. Ltd [2017] 53 ITR (Trib) 416 (Mumbai) held as under:- “33. In entirety of the matter, we are of the view that an addition in assessments carried out pursuant to search action u/s 132 of the Act has to be related to cogent and positive materials found during search which prove conclusively that the assessee has either earned an income or made an investment which has not been recorded in his regular books of account or that his case is covered under any of the deeming provisions contained in sections 68, 69, 69A to 69D of the Act. However, additions cannot be sustained merely on the basis of rough noting made on few loose sheets of papers unless the AO brings on record some independent and corroborative materials to prove irrefutably that the said noting reveal either unaccounted income or unaccounted investment or unaccounted expenditure of the assessee. As discussed above, in the instant case, assessments for the impugned years have been completed u/s 153A of the Act which relates to assessment in case of search or requisition. The prerequisite condition for application of Sec. 153A of the Act is a search conducted under section 132 of the Act or any requisition made under section 132A of the Act to unearth hidden income or property. Thus, the very purpose/ essence of search conduced u/s 132 of the Act is to unearth hidden income or property or get hold of books of account or documents which has not been or will not be otherwise produced by the assessee in regular course on issue of summons or notice. In the assessee's case, as stated above, the purported search action did not lead to discovery of any unaccounted money, bullion, jewellery or other valuable article or thing. Further, no books of account revealing any undisclosed transactions of the assessee were found during the course of search. The entire assessment order revolves around scribbling in loose sheets of papers seized from premises of another person in course of search action on such other person. It is a fact that the said rough loose sheets of papers scribbled by some anonymous person and seized in course of search of another person cannot be termed as 'documents' having any evidentiary value within the

He further submitted that the AO at page 177 of his order, has observed that the decision in ACIT vs Layer Exports Pvt Ltd. 53 ITR (Trib) 416 relates to only those cases where addition is solely based on rough notings, contrary to the instant case where structured tabulations, notebooks and registers have been found and seized and also same have been corroborated with other evidence.” At pages 429 and 430 of 53 ITR (Trib), in the case of Layer Exports, the observations of the AO concerned are given. The relevant extract is as under:- “Further, these papers can't be just ignored as rough nothings, as the papers actually are informal ledger accounts of the flat purchasers. These pages contain nothings regarding the value of flats (including unaccounted receipts), noting of change in sales consideration (upon bargaining etc.), details of receipt of cash & cheque over a period of time. It has been written over a period of time, after due thinking and consideration, as and when events like rate finalization, rate renegotiation, cash received, cheque /draft received have taken place. It contains all or most of details in respect of the sale transactions mentioned therein, viz- XI. Name of the main person negotiating for purchase of flat. XII. Contact details of said person. XIII. Super built up area XIV. The rate finally decided to be charged per sq. f. & super built up area. XV. Total money receivable

He submitted that the Tribunal in the above cases it was noted that the document D-22 of Annexure A-18 did not give any clear picture about the nature and ownership of entries therein and, therefore, any addition in the hands of the assessee on the basis thereof would not be tenable. Learned counsel for the revenue made feeble attempt to show that document D-22 of Annexure A-18 clearly depicted undisclosed income but was unable to substantiate his plea. In the absence of any clear deciphering of document D-22 of Annexure A-18, the deletion of Rs.

The ld. AR submitted that the ld. AO himself stated at page 177 of the order as to when documents can be called as ‘dumb’ documents. A perusal of these observations would show that the AO has failed to note these are dumb documents. He has also failed to notice all the factors judicially discussed by various courts and tribunals. The AO has stated that only in three scenarios listed by him, a document can be termed as “dumb”. It is not so as is evident from the various decisions discussed in this regard. Even otherwise, the material in the present case are not backed by any corroborative evidence. The inferences drawn by the AO from the documents are also not supported by any explanation. Therefore, the material, in the present case can be termed as “dumb” even as per the narrow definition adopted by the AO. The appellant strongly objected with the finding of the AO that “Also the assessee has vide submission dated 20/12/2017 accepted the contents of such material partially.” Attention of was drawn to para 3 and 4 of the reply dated 09.12.2017 wherein the trustees in a meeting held on 6th December 2017 decided that to that extent the trust will make a conditional offer to the Income Tax department to include in its gross receipts provided the deduction towards the revenue and capital expenditure recorded in the seized materials is allowed. During the assessment proceedings the trustees categorically denied that the trust has anything to do with the entries in the seized records. It was averred that the trust had not authorized any person to collect the fees in cash from the students or the parents.

It was submitted that the notings in the loose sheets, note pads have been prejudicially and erroneously interpreted by the AO. The loose sheets do not evidence any concluded transactions. The inferences drawn by the

The ld. AR reiterated the submissions made supra with regard to the provisions of section 132(1)(i) to (v), 132(1)(a) to (c), 132(1)(iii), 132(9A), 132A and 132B and assessment under sec 153A on the jurisdiction of the AO in possession of valid seized material.

It was submitted that the presumption under section 292C is with reference to books of accounts, other documents, money, bullion, jewellery or other valuable article or thing. The loose sheets, scribbled note-pads do not qualify as books of accounts and other documents. That being the case the presumption contained in section 292C cannot be applied by the revenue merely because the loose sheets, note-pads are seized from the premises of the appellant. Therefore, the burden is cast upon the revenue to prove that the loose sheets or note pads belong to the appellant. There is nothing in the loose sheets, note pads to hold that they belong to the appellant. The loose sheets / note pads do not contain name of the appellant or seal of the appellant. Neither the authorised officer nor the assessing officer have discharged the burden cast upon them to prove that the loose sheets / note pads belong to the appellant. It is to be noted that the expression used in section 292C is “may be presumed”. Therefore, it is a rebuttable presumption. The appellant has contended that the seized material does not belong to it. The entries contained therein are not made at the behest of the executive committee of the appellant.

In fact, the AO has not even invoked the presumption under section 292C to hold that the seized material belongs to the appellant nor has he

According to AR the said seized material does not qualify even as books of accounts or other documents. Therefore, the presumption under section 292C cannot be raised in respect of the seized material. That is presumably the reason why even the assessing officer has not averred that the presumption under section 292C can be invoked in respect of the seized material.

The ld. AR submitted that assuming but without admitting that section 292C applies even with reference to loose sheets, note pads containing unsigned entries a perusal of section 292C would show that the presumption is only with regard to books of account, other documents, money, bullion, jewellery or other valuable article or thing found during the course of search under section 132. Moreover, it is a search induced assessment. Section 132(4A) also contains similar presumption. Section 132(4A) should be read harmoniously with reference to sub-section (1) of section 132. The books of account or other documents referred to in section 132(4A) are those referred to in section 132(1)(iii) read with section 132(1)(a) / (b). The appellant has established that the authorising officer could not have formed a reasonable belief that eventualities stated in

Without prejudice to the above, it is submitted that assessment u/s. 153C have been made in the case of the trustees relying upon the very same material. Under such circumstances, the presumption under section 292C gets automatically rebutted. Section 153C(1) states that where the Assessing Officer of the searched person is satisfied that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A. Therefore, if the material seized belongs to or pertains to or relates to a person other than the searched person, only then section 153C comes into play. Hence, it is axiomatic to state that if the material seized belongs to or pertains to or relates to some other person, it does belong to or pertain to or relate to the searched person. Under such circumstances, one cannot invoke the presumption under section 292C that the material seized belongs to the searched person as the assessing officer by his own action of making assessment under section 153C in the case of trustees relying upon the very same seized material. The ld. AR placed reliance on the decision of the Delhi Tribunal in Vijay Kumar Aggarwal v. ACIT 2017 (5) TMI 1354 - ITAT Delhi.

Without prejudice to the submissions that loose sheets / note pads are neither books of accounts nor documents, it is submitted by AR that unless the burden of proving that the materials and cash belong to the assessee is discharged those materials can neither be seized under section 132 nor relied upon to make assessment under section 153A. Therefore the seizure of such material is illegal. The AO cannot rely upon such material whose seizure is illegal and the hence, assessment is void ab initio.

He drew our attention to the assessee’s letter dated 23.12.2017 in reply to notice dated 21.12.2017 issued under sec 142(1) of the Act, wherein the assessee had taken objection to assessment in the absence of seized material. The AO has not rebutted the assertions made by the appellant. He merely made a bald assertion that the assessment has been made based on incriminating materials found during the course of search. It is submitted that while the jurisdictional Tribunal and High Court have consistently held that assessment under sec 153A cannot be made in the absence of incriminating material, the AO cannot get away by making bald assertion by stating that the assessments have been made based on incriminating material. In fact, the assertion of the AO is contrary to his own reliance upon material belonging to a period other the period for which assessment is made. By relying upon material belonging to some other year other than the year for which the assessment is made, the AO has impliedly acknowledged that there is no material seized leave alone incriminating material. The findings in paragraph 10.9.2 at pages152 to 154 no doubt pertain to AY 2010-11. But this is one of the several instances where it can be demonstrated that the AO has made assessment in an arbitrary and capricious manner.

The AO while rebutting the contentions of the appellant that assessment cannot be made under sec 153A in the absence of incriminating material has stated that “material evidence found, have been discussed at length in the various paragraphs relating to receipt of capitation fee and various payments relating to the same. Comprehensive discussions have been made on various violations committed by the assessee in the preceding paragraphs of this order.” The AO has stated similarly at more than one place in the assessment order. It is submitted that the discussion which the AO refers to in the abovementioned counter is also general in nature. He has only made bald assertions that the assessment has been made based on incriminating material found during the course of search. It is not enough to state that the material seized is incriminating. It should be demonstrated that it is so. It can be demonstrated only if a reasonable person would be able to state categorically without mincing any words, that the material represents undisclosed income or an undisclosed asset.

As stated earlier, it was submitted by AR that the assessee has filed separate submissions in respect of each assessment year in respect of certain grounds. The appellant has made specific submissions for each assessment year so far as extrapolation of income is concerned. In these submissions, the appellant has discussed the arbitrary manner in which the assessing officer has extrapolated the income. These submissions would show that the AO has expressly in some cases and impliedly in certain other cases has conceded the fact that there is no incriminating material found based on which alleged undisclosed income could be assessed. The capricious manner in which the assessment is done is manifest in the manner in which the undisclosed income is quantified. Therefore, all said and done, the AO himself could not elevate the material seized to the level of incriminating material. This is evident from the remarks column of the

Further, the ld. AR submitted that the AO has stated at page 148 of the assessment order that “it is brought on record here, that various incriminating evidences to prove that capitation fee was being in all years subject to assessment have been seized and also discussed in detail as a part of this order. For the purpose of quantification, it was necessary to look for those material which give maximum possible detail with respect to

Further AO is merely trying to justify his estimation of unaccounted cash receipts. He has conceded that he has not found “directly incriminating evidence.” If he has not found any directly incriminating evidence, he cannot make any addition in section 153A assessment. The whole principle of an assessment which is preceded by search is that an officer specified in section 132(1) has reason to believe in consequence of information in his possession that any of the eventualities stated in section 132(1)(a) to (c) exist. So there are two stages: one stage, where the authorizing officer has information in his possession prior to the search and second stage, where the authorized officer finds during the course of search by exercising any of the powers stipulated in section 132(1)(i) to (v) for which he is authorized. Therefore, assessment under section 153A r.w.s. 132 is a unique kind of assessment where the focus is on assessing income on incriminating material and such material should be representative of concealed income. The AO cannot merely say that it is difficult to find directly incriminating evidence and hence, he wants to resort to estimation. Presence of incriminating material alone confers jurisdiction to make assessment under section 153A. It was submitted that in the specific submissions on grounds pertaining to extrapolation of income and these submissions, it is established that the seized materials do not qualify

This would show that the AO has not been able to ascertain the undisclosed income from the material. If he could ascertain the undisclosed income from the seized material, then there was no need to make estimation. The AO is making a lame attempt to justify the irrational manner in which he made the assessment. The very fact that the AO was left with no choice but to estimate the unaccounted cash generated would show that the material is not incriminating.

It was further submitted that the AO referring to the minutes of the trust meeting held on 06.12.2017, has observed “It would have been an appreciable if the department could have laid its hands on material evidences for the entire amount, but the trustees and Shri GH Nagaraj have all remained silent on what happened to the rest of the capitation fee collected.” It is submitted that these observations of the AO would show that there is no incriminating material found which would conclusively prove that the appellant has received any capitation fee. The AO has acknowledged that the department could not lay hands upon any material evidence.

On the one hand, the ld. AO states that incriminating material is available for each assessment year and on the other hand, he hastens to add that “it was necessary to look for those material which give maximum possible detail with respect to quantum of capitation fee being collected”. It is submitted that the assessment should be made for each of the years separately. The AO has completely missed the fundamental concept pertaining to assessment.

The ld. AR submitted that the seized material has not been analysed by the AO financial year-wise. He has made a consolidated analysis and has considered the same for all years. As a result, there is discord between the discussion made in respect of seized material and the table wherein the alleged unaccounted cash generated has been tabulated year- wise. It is submitted that the analysis of the seized material should be made year-wise considering the true spirit of the provisions pertaining to search and seizure. If a consolidated analysis is made for all the 6 years involved, it would be end-up being a subjective analysis rather than an objective analysis. An objective analysis alone would help in determining whether the seized material would qualify as incriminating material warranting an addition in the assessment under section 153A for a particular year. Otherwise, one would end-up making addition for one assessment year based upon the analysis for another assessment year. This is against the letter and spirit of the provisions dealing with search, seizure and consequent assessment.

He submitted that as can be seen from the decision in Singhad Technical Education Society’s case [2015] 378 ITR 84 (Bom.), the Court has reiterated the principle that no addition can be made in the absence of incriminating material in a search based assessment. Though the above decision has been held in the context of section 153C the same would

It is submitted that the department has not discharged the burden of proof cast on it to establish that the executive committee of the trustees was actively involved in collecting cash etc. The entire edifice of the case is built on the statement given by Mr. Goli Srinivas, the Accountant, Mr. G.H. Nagaraj, Secretary of the trust and parents of certain students. The appellant denies that it was involved in any manner in collecting cash from any student. The trustees deny any such collection. Assuming but without admitting that cash has been collected from the students it has been done without the knowledge of the executive committee and would have been collected for the personal benefit of the persons concerned. There is no proof that the trust had authorized collection of cash from the students nor it had authorized the alleged payments to various persons as alleged in the notice and assessment order.

It is submitted that various statements relied upon by the assessing officer are not valid and reliable. The AO sought to rely upon statement of parents of 5 students. The appellant vide its letter dated 22.02.2017 had requested the AO to furnish the copies of the statements of parents and also afford it an opportunity to cross-examine them. The AO has furnished copy of statements of parents of only 2 students. The statements of the remaining 3 have not been furnished at all. It is submitted that under such circumstances, the AO cannot rely upon the statements of the three parents which have been recorded behind the back of the appellant. When

Therefore, mere furnishing the copy of statements recorded is not sufficient. The assessee against whom the statements are to be used should be provided an opportunity to cross-examine the person who has given statement. Reliance is placed on the Hon’ble Delhi High Court in Principal Commissioner of Income-tax, Delhi-2 v. Best Infrastructure (India) (P.) Ltd. [2017] 84 taxmann.com 287 (Delhi) / [2017] 397 ITR 82 (Delhi).

The Hon’ble Tribunal in M/s Fateh Chand Charitable Trust v. CIT (Exemptions) Lucknow 2016 (4) TMI 1119 - ITAT Lucknow / [2016] 49 ITR (Trib) 276 held that it is settled position of law that any evidence collected at the back of the assessee cannot be used adversely unless and until it is confronted to the assessee and the assessee is allowed to cross-examine the witness, if any. It was similarly held in M/s Obulapuram Mining Company Pvt. Ltd. v. DCIT 2016 (7) TMI 1435 – ITAT Bangalore.

In the next judgment of the Hon’ble Delhi High Court rendered in the case of CIT Vs Pradeep Kumar Gupta (Supra) also, it was held by the Hon’ble Delhi High Court that it was mandatory for the revenue to produce A for cross examination by the assessee on the specific demand in this regard and thereafter, it was held that the violation of the revenue to

He drew our attention to the details of statements of parents whose statements have been extracted in the statement of G H Nagaraj recorded on 16.10.2015 are as under:- Date on Section under Recorded by Person whose statement is which the which the assessing officer recorded statement is statement is or authorized recorded recorded officer 30.09.2015 131 Authorised Sri. Rangaraju [Parent of a Officer student namely –Pavana C R] 28.09.2015 131 Authorised Smt. Vasudha G Padiyar Officer [Parent of a student namely – Badragiri V. Padiyar

It was further submitted by the ld. AR that the search was completed on 07.08.2015 . A perusal of the statements detailed above would show that the said statements have been obtained by DDIT (Inv), Unit – 1(3),

It was submitted by AR that a perusal of section 131(1A) would show that an authorized officer referred to in section 132(1) can make enquiry or investigation by exercising the powers under section 131(1). But such power is to be exercised prior to taking action under clauses (i) to (v) of section 132(1). In the present case, the action under clauses (i) to (v) of section 132(1) was taken on 07.08.2015. Therefore, the jurisdiction of the authorized officer ceased on 07.08.2015. The statement of Smt. Vasudha G. Padiyar recorded under section 131 on 28.09.2015 and the statement of Sri Rangaraju recorded under section 131 on 30.09.2015 by the authorized officer are invalid. Such statements cannot be relied upon as the statements have been recorded without any power by the authorized officer.

The appellant vide its dated 22.02.2017 requested the assessing officer to furnish the copy of the statements of parents and students who were summoned and whose statements were recorded. It is submitted that the AO has not given copies of all the statements of the parents and students that he had recorded. While taking the statement of Sri. G H Nagaraj on 16.10.2015, the authorised officer confronted him with 2 statements alleged to have been given by parents of some students. The copy of those statements is extracted in the copy of the statement of Sri. G H Nagaraj. The authorized officer has, further, confronted Sri G H Nagaraj with statements of parents of 4 more students. Copies of these statements have neither been extracted in the copy of statement of Sri G H Nagaraj nor has the same been separately furnished to the appellant. Appellant neither had the occasion to look into those statements nor an opportunity to cross-examine those persons (Parents). The AO has nowhere relied upon

Except for the above, no other statement of any other parent or student has either been confronted to Sri. G H Nagaraj or Sri. Goli V. Srinivas or furnished to the appellant. Therefore, it means that the assessing officer apart from the statements of Sri. G H Nagaraj and Sri. Goli V. Srinivas, he has not relied on statement of any other person. The assessing officer has categorically stated that whatever material he sought to rely upon has been furnished to the appellant. It is submitted that statements obtained under section 131 or 132(4) cannot be termed as information relating to investigation which the assessing officer has no obligation to share. Copies of statements obtained under sections 131 or 132(4) should necessarily be furnished to the assessee. If the same have not been furnished it means that the same have not been relied upon. The Hon'ble Apex Court in the case of Kishin Chand Chellaram vs. CIT, 125 ITR 713 has held that evidence to be used against the assessee must be provided to the assessee and an opportunity to confront should be given to the assessee else it cannot be used and no adverse inference can be drawn on such material.

He placed reliance on the judgement of the Hon’ble Supreme Court in the case of C. Vasantlal and Company v. CIT 1962 (2) TMI 7 - SUPREME COURT / [1962] 45 ITR 206 (SC) held as under:- “The Income-tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private enquiry. But if he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it. The statements made by Achaldas and Poonamchand before the Income-tax Officer were material on

The AO has not furnished the copies of all the statements recorded. The appellant had requested the assessing officer to afford an opportunity to cross-examine the persons whose statements were relied upon. The AO has not afforded any opportunity to the appellant to cross-examine the persons whose statements are relied upon.

Moreover, the statements of the parents have been recorded post- search. They do not have any evidentiary value. Reliance is placed on the decision of the Hon’ble Bombay High Court in Commissioner of Income-tax v. Shankarlal Bhagwatiprasad Jalan [2017] 84 taxmann.com 275 (Bombay) wherein it was held as under:-

It was submitted that the observation of the AO that the contents of the statements are corroborated by material found and seized during search is not true. How can loose sheets / notepads which themselves do not qualify as reliable material corroborate any other material? In the submissions made by the appellant vide letter dated 09.12.2017, it has nowhere acknowledged the correctness of the statements of Parents. These submissions do not imply even remotely that the appellant is acknowledging that statements made by Parents are true.

He also drew our attention to the details of statements obtained from Sri. Goli V. Srinivas and Sri. G H Nagaraj are as under:- Date on which Section under Recorded by assessing Person whose the statement is which the officer or authorized statement is recorded statement is officer recorded recorded 06.08.2015 132(4) ACIT, Circle – 7(1)(2) R L Jalappa 04.09.2015 132(4) Authorised Officer R L Jalappa 07.08.2015 131 Authorised Officer G H Nagaraj 13.08.2015 131 Authorised Officer G H Nagaraj 13.08.2015 131 Authorised Officer G H Nagaraj 20.08.2015 132(4) Authorised Officer G H Nagaraj 21.09.2015 132(4) Authorised Officer G H Nagaraj 16.10.2015 131 Authorised Officer G H Nagaraj 06.08.2015 132(4) Authorised Officer Goli V. Srinivas 13.08.2015 131 Authorised Officer Goli V. Srinivas 28.11.2017 131 Not known as copy Goli V. has not been given to Srinivas the appellant

He submitted that on perusal of the above table would show that certain statements have been obtained by the authorised officer after the completion of search. Those statements cannot be relied upon as they are invalid as submitted earlier. The reliability of the statements obtained from Sri. Goli V. Srinivas and Sri. G H Nagaraj have been discussed at various places in these submissions. The AO has discussed the reliability of the statements of Sri. Goli V. Srinivas and Sri. G H Nagaraj at pages 124 and 125 of the assessment order to the effect Sri G.H. Nagaraj has also admitted contents of the notebooks and assessee also vide letter dated 20.12.2017 has admitted/claimed certain entries from the seized material and from the same it can be concluded that such notebooks are admissible as evidence. It is submitted that the appellant has not admitted any entry in

It was further submitted that the AO has discussed regarding reliability of statements of Sri. Goli V. Srinivas. The AO has not demonstrated as to how the statement of Sri. Goli V. Srinivas is reliable evidence. Just because he is a close confidant of the trustees, it would not mean that whatever he states are to be accepted at face value without looking out for corroborating evidence to support what he has said. The AO throughout the order sought to rely upon the statement of Sri. Goli V. Srinivas. He did not make any further enquiries or collect any evidence to verify the veracity of the said statement. It is submitted that reliance on

In a nutshell, the statements cannot be relied upon for the following reasons:- • No opportunity to cross-examine the persons whose statements have been relied upon is afforded. • Some of the statements have been recorded under section 131 by the authorized officer subsequent to completion of search. • There is no documentary evidence either to support the statements of Sri. Goli V. Srinivas or of the parents of the students.

Without prejudice to the above, it is submitted that no additions can be made solely based on the statements of third parties. Reliance is placed on following decisions: • The Hon’ble Delhi High Court in Commissioner of Income-tax v. Harjeev Aggarwal [2016] 70 taxmann.com 95 (Delhi) held as under: “21. A plain reading of Section 132 (4) of the Act indicates that the authorized officer is empowered to examine on oath any person who is found in possession or control of any books of accounts, documents, money, bullion, jewellery or any other valuable article or thing. The explanation to Section 132 (4), which was inserted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1st April, 1989, further clarifies that a person may be examined not only in respect of the books of accounts or other documents found as a result of search but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Act. However, as stated earlier, a statement on oath can only be recorded of a person who is found in possession of books of accounts, documents, assets, etc. Plainly, the intention of the Parliament is to permit such examination only where the books of accounts, documents and

In this connection the ld. AR also relied on the case CIT Vs. S. Khader Khan Son reported in 352 ITR 480 (SC) where the Hon’ble Supreme Court has held that:- “Section 133A does not empower any IT authority to examine any person on oath, hence, any such statement has no evidentiary

Reliance is placed on the following decision wherein it was held that addition cannot be made based on the statement of an employee or partner in the absence of corroborative evidence:- • In CIT v. Indrajit Singh Suri 2013 (8) TMI 111 - Gujarat High Court, the Hon’ble Court held as under: “9. Question No. [G] concerns deletion of addition of Rs.7,43,000/- and Rs.2,00,000/- made by Assessing Officer being unaccounted investment made in Jay Shiv Apartments.

The AO has tabulated the amounts alleged to have been diverted to the trustees which is reproduced below:- AY G. H. Nagaraj R. L. Jalappa J. P. Rajesh Narayanaswamy Jagdale 2012-13 219,93,000 181,48,250 2013-14 966,00,000 697,09,850 614,00,000 800,00,000 2014-15 1535,68,711 380,72,104 300,00,000 400,90,000 2015-16 3275,68,850 458,55,350 250,00,000 270,00,000 2016-17 397,15,833 200,00,000 TOTAL 5997,30,561 2115,01,387 1164,00,000 1670,90,000

Based on the above analysis, the AO has made assessments in the case of the above mentioned trustees under section 153C of the Act on protective basis. From the assessment order dated 30.12.2017 passed under section 153C r.w.s 143(3) for AY 12-13 in the case of Sri R L Jalappa, it is submitted that on the one hand, the assessing officer states that the payments evidenced by the seized material are not verifiable and on the other hand, he makes addition on protective basis in the hands of trustees on the ground that the seized material evidencing payments are adequate to make additions in the hands of the trustees. The very fact that the AO has made protective assessment and not substantive assessment would show that the assessing officer has no incriminating material to prove that any funds of the trust have been diverted to the trustees. This would lead only to two possibilities; one, unaccounted cash has not been received by the appellant at all and the other possibility is that the funds have been used for the purpose of the objects of the trust. Reason is if the

The jurisdiction under section 153C(1) can be assumed if the assessing officer of the searched person has reason to believe that the seized material pertains to or relates to a person other than the person referred to in section 153A, then such seized material is to be handed over to the assessing officer of the other person to initiate assessment or reassessment proceedings in case of such other person. The expression used is “belongs to or………………….pertains to or…………………relates to the other person.” Therefore, the mandate is it should belong to or pertain to or relate only to the “other person” and not to the “searched person”. Having not reached this conclusion, the AO chose to make protective assessment. Two inferences can be drawn from this action of the AO:- (i) the seized material is not conclusive proof to make assessment under section 153A in case of appellant and hence, he chose either to invoke section 153C himself [where he has jurisdiction over the trustees] or hand over the material to the assessing officer having jurisdiction over the trustees in order to enable them to invoke section 153C in case of trustees. (ii) The seized material is not conclusive proof that it belongs to the trustees. Hence, though section 153C is invoked, only protective assessment has been sought to be made in the case of trustees. Therefore, according to the ld. AR, the seized material is not incriminating at all.

The assessing officer, at page 113, observed that the said Rs. 109 crores [being the funds alleged to have been diverted to trustees] is in the nature of “drawing, dividends or other such appropriation of profits” If the said Rs. 109 crores is in the nature of “drawing, dividends or other such appropriation of profits” the AO could not have made any assessment on the trustees. But despite that he has chosen to make assessment under section 153C. This leads to two inferences. The AO has, in the garb of diversion of funds to trustees, in fact made a protective assessment of a portion of the alleged unaccounted cash collected, in the hands of trustees. In other words, he has characterised a portion of alleged unaccounted cash collected as diversion of funds for the benefit of trustees. Therefore, the AO has assessed a portion of the unaccounted cash receipts in the hands of the trustees. He has used the very same material to tax the appellant as well as the trustees. This would show that the AO could not ascertain to whom the seized material belonged to. Under such circumstances, neither assessment could be made under section 153A [in the case of appellant] nor under section 153C [in the case of trustees].

Without prejudice to the above, it is submitted that the AO by making protective assessment in the hands of trustees based on which very material he has denied exemption under section 11 of the Act to the appellant on the ground that the funds have been diverted for the benefit of the trustees, would show that the material cannot be transcended to qualify as incriminating material so as to form conclusive proof for making assessment under section 153A. It can, at the most, arouse a suspicion which cannot be substituted for legal evidence.

The AO has held that the payments contained in the seized material are not verifiable. It means that there is no incriminating material to support his analysis which he has used to make allegations regarding diversion of

The AO has stated that the assessee which has gone ahead and collected capitation fee and not recorded the same in books of account, has now come around and admitted that fact of having received amounts in cash which were not recorded in books of account vide submissions received in this office dated 20/12/2017 and revised submissions of returns dated 26/12/2017. He also noted that vide submission dated 20/12/2017 assessee has admitted having received around Rs 140 crores based on the evidences forming part of the very same seized material. The AO observed how can some part of same notebook or loose sheet be true and the other part false. In this regard, it is submitted that just because the appellant has filed revised returns considering the alleged unaccounted cash receipts and cash payments, it does not mean that the appellant has conceded that it has received portion of the fee in cash. The appellant has filed revised return for reasons stated in letter dated 09.12.2017. The appellant taking cue from the manner in which the AO made the computation, made an attempt to compute the alleged unaccounted cash generated on the same lines as that of the AO. The appellant stuck to the seized material relied upon by the assessing officer. Just because the appellant filed revised returns based on its calculations taking a cue from the calculation made by the AO, it does not mean that the appellant has made any sort of concession. Mere filing of the revised returns is not an

Without prejudice to the submissions made above, it is submitted that assessment cannot be made under section 153A in the absence of incriminating material for those years where assessment is either not pending or has not abated. An analysis of section 153A would show that it states, inter alia, that where a search is initiated under section 132 in case of a person the assessing officer shall issue notice to such person to file return of income and assess or reassess the total income of 6 assessment years preceding the assessment year relevant to the previous year in which such search is conducted. The second proviso to section 153A(1) states that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in section 153A(1) which is pending on the date of initiation of search under section 132 shall abate. Therefore, the assessment or reassessment pending on the date of initiation of search would alone abate. The assessment or reassessment of the rest of the years falling within the said 6 assessment years stands unabated. Therefore, an assessment under section 153A in respect of those years whose assessment is unabated can be made only if any incriminating material is found during the course of search. This is without prejudice to the main contention that no assessment can be made under sec 153A in the absence of incriminating material. The search in the present case has been initiated on 06.08.2015. The history of assessment of the assessment year 2010-11 to 2015-16 is as under:

It is seen from the above table that assessment for AY 2010-11, 2011-12, 2012-13 has been completed prior to 06.08.2015. The assessments completed under section 143(3) would remain unabated. Under such circumstances, the assessment can be made only on the basis of incriminating material pertaining to the said year found during the course of search. This is inherent in the scheme of section 153A. If the intention of the legislature is that the entire assessment would open up in case of non-pending and unabated assessments, the second proviso to section 153A(1) would lose its relevance. It is a well-settled legal principle that one cannot artificially increase the scope of the provisions. The provisions of the statute should not be interpreted in a manner that it increases the scope of what the provision actually intends to achieve. If the entire assessment of the non-pending and unabated assessment of any assessment year is opened up, it would render the second proviso to section 153A(1) otiose. In the submissions on the ground on extrapolation of income in case of AY 2010-11, the appellant has established that there is no material leave alone incriminating material which is found and seized for AY 2010-11. Therefore, no addition can be made in an assessment under sec 153A for AY 2010-11. In the submissions on the ground on extrapolation of income in case of AY 2011-12 and 2012-13, the appellant

The AO has stated that acceptance of unaccounted capitation fees in cash from those seeking admission into the medical college is a violation of The Karnataka Educational Institutions (prohibition of Capitation Fee) Act, 1984. This shows that the trust is involved in activities which are illegal and is collecting funds in the guise of charitable purpose in illegal manner. This evidences for the same include the materials seized from the premises of the trust including Annexure A/DUU/01, A/DUU/07, and A/DUU/13, apart from other seized material, wherein explicit mention of ‘demand’ and ‘receipt’ of fee in violation of the said Act has been made. Other evidences include the statements given by various persons including the accountant receiving and managing accounts of such cash collections.

At the cost of repetition, the ld. AR submitted that the AO erred in relying upon materials maintained by others even though the appellant had not authorized the collection of any receipts in cash or incurring expenditure in cash. The said material does not belong to the appellant. The appellant in specific submissions to ground pertaining to extrapolation of income has established that the seized materials do not belong to it. It has also submitted therein that the seized materials constitute only loose sheets and note pads containing unsigned entries are dumb documents and cannot be treated as incriminating material to make any addition. The

The AO held that the funds of the trust have been utilized for the acquisition of land, repair of personal properties for the trusties for their personal gain as seen from multiple entries in seized material Annexures A/DUU/02 to A/DUU/04, and A/DUU/11). He also alleged that the appellant has violated section 13(1)(c)(ii).

The ld. AR submitted that the above allegations of the AO are not tenable. All the expenses incurred including the capital expenditure have been properly accounted in the books of account and audited. The appellant denies the allegation that it has spent any of its funds or income for the personal benefits of the trustees. The evidence brought on record by the department is sketchy and cannot be relied on to show that the trust has incurred the expenses for the personal benefit of the trustees. At the cost of repetition, it is submitted that the entries in documents are made by private persons and the trust has nothing to do with it. Just because they happen to be a trustee or accountant of the trust it cannot be presumed that they have acted at the behest of the trustees or on the authorization of the executive committee. Any such conclusions are tenuous and are not legally tenable. The appellant has established therein that it has not violated section 13(1)(c)(ii). The findings regarding violation of section 13(1)(c)(ii) are perverse as they are not supported by any materials and evidences on record. The findings of the assessing officer regarding violation of section 13(1)(c)(ii) are based on totally unreliable documents. The ld. AR further submitted that the entire assessment is made based on the statement of Sri. Goli V. Srinivas, G H Nagaraj and parents of certain students. The appellant vide its letter dated 22.02.2017 had requested the AO to afford it an opportunity to cross-examine the above persons. The

The AO has stated that summons was sent during the course of assessment proceedings to the aforementioned parents in order to allow cross-examination by the assessee’s representatives. One of the parents appeared and reconfirmed. The ld. AR submitted that though statements of parents of 5 students were said to have been obtained, only one parent has appeared and reconfirmed the contents of his earlier statement. As the parents of 4 of the students did not appear for cross-examination, their statements cannot be relied upon as the appellant could not cross-examine them. The fact that they did not respond to the summons would show that the credibility of their statements is highly doubtful. When the appellant has neither been given copy of the statement nor has got the opportunity to cross-examine the person giving statement, such statements cannot be relied upon.

With regard to the AO’s observations that the responses given by the said parent remained the same during the course of cross examination by assessee and he reiterated that the parents have been cross-examined by the appellant, the ld. AR submitted that the above observations are perverse. The appellant was not afforded any opportunity to cross- examine any of the persons including the parents whose statements were relied upon for the purpose of making assessment. Such statements cannot be relied upon.

The ld. AR pointed out to the observations of AO referring to the judgment of the Hon’ble Karnataka High Court in Kothari Metals Ltd 377 ITR 581 about statements of a third party. The AO noted in the instant

The ld. AR submitted that the above observations of the AO are not legally tenable. The right to cross-examine is not dependent upon the assessee’s relationship with the deponent / witness. The right to cross- examine is dependent upon the fact that the statement of a party is used to the prejudice of the assessee. Therefore, mere fact that the statement sought to be relied upon by the assessing officer is that of an employee would not deprive the assessee of his right to cross-examine. Therefore, the ratio of the decisions relied upon by the appellant squarely apply. Moreover, it is assessee’s prerogative to decide whom it wants to cross- examine. For the proposition that the right to cross-examine is not restricted only to those cases where the deponent / witness is a third party, reliance is placed on the decision of Smt. Madhu Gupta v. DCIT 2006 (2) TMI 496 - ITAT MUMBAI / [2006] 8 SOT 691 (Mum.) and Gargi Din Jwala Prasad v. CIT [1974] 96 ITR 97 (All).

In the case of Nagulakonda Venkata Subba Rao (supra) almost the same proposition was accepted by the Hon’ble Andhra Pradesh High Court. The Hon’ble High Court held that while estimating the income from other materials, it is the duty of the Assessing Officer to disclose such materials to the assessee and to give him an opportunity to rebut. For the same proposition, assessee’s reliance on the decision in the case of M.O. Thomakutty (supra) is to be accepted. This was a case wherein the finding of the income-tax authorities was influenced by the information gathered from the Government authority, but brought without the knowledge of the assessee and the assessee was not given an opportunity to controvert the statement obtained. The stand of the revenue is that since the persons from whom statements/evidences obtained were assessee’s own employees, it was not necessary to give the assessee an opportunity. We are unable to concur with the above view. The evidences being used against the assessee; as such it should have been brought to the knowledge of the assessee and the assessee should have been questioned. It was held that assessee’s contention on this point is acceptable.

In Sunrise Tooling Systems Pvt. Ltd v. ITO 2012 (11) TMI 1081 - ITAT Delhi, the Tribunal held as under:- “The opportunity of cross-examining, Sh. Nitin Aggarwal, a partner of Shree Laxmi Industrial Corporation has also been denied to the assessee on wrong basis by the authorities below that an opportunity of cross examines needs to be given only when third party is involved or a party not known to the assessee or a hostile witness is involved and further that the onus for cross examination does not lie with the department but lies with the assessee who allegedly made purchases in his books of accounts from the said concerns.” 102. Without prejudice to the above, it is submitted that the AO has sought to rely upon those portions of the statements which favoured the

It is submitted that the AO cannot do cherry-picking while relying upon the statements recorded. The finding of the AO in page 113 of the order is perverse as such explanation is verifiable.

It is submitted that the finding of the AO that the appellant had admitted the contents of the seized materials vide its letter dated 09.12.2017 submitted on 20.12.2017 is perverse as it ignores the fact that it was a conditional offer and without prejudice to the main contention that no capitation fee in cash was ever authorized to be collected by the trust.

The AO relied on certain cheque leaves mentioned in paragraph 5.2.1.4 at pages 47 to 49 of the assessment order. It is submitted that such materials were not mentioned in any of the notices/letters issued by the learned assessing officer during the assessment proceedings. The assessing officer did not provide an opportunity to the appellant to rebut these observations. The appellant has not been provided copy of the materials relied upon to make the said analysis.

A perusal of the seized material which is extracted in the assessment order and the reply to the queries from the statement of Sri. Goli V. Srinivas which is relied upon would show that they are not conclusive evidence to hold that the appellant has received any capitation fee. The conclusions drawn by the AO cannot be inferred from the seized material. Few instances are discussed in the following paragraphs.

The AO sought to rely upon reply to question no 19 of the statement under section 132(4) of Sri. Goli V. Srinivas recorded on 06.08.2015. The said question and the same were confronted to Sri. Goli V. Srinivas. Relying upon the said pages of the seized material and the statement of Sri. Goli V. Srinivas, the AO observed as under at page 14 of the assessment order:

The AO extracted pages 9 and 11 of the seized material no. A/DUU/01 and also confronted the same to Sri. Goli V. Srinivas. The reply of Sri. Goli V. Srinivas is reproduced at page 18 of the assessment order. These two pages cannot be treated as evidence. It is not known to which period these two sheets belong to. No dates are mentioned in these sheets. It contains only names of certain persons with some figures. These sheets also cannot be relied upon to hold that the appellant has collected capitation fee.

At page 19 of the assessment order, the AO has extracted page 31 of A/DUU/01 and observed as under:- “The above exhibit is an image of seized material A/DUU/01, Page no. 31 which has information tabulated about the “Statement of MBBS Admissions for year 2014-15”. In reading the above table it can easily be inferred that the third column refers to the fee “Demand” made, followed by columns of fee “collected” and “balance” fee receivable as can be seen from the

The AO has at pages 33 to 41 extracted pages 84 to 91 of the seized material no. A/DUU/01 and observed as under:- • At page 34 of the assessment order: “From the above image, it is seen that a collection in dollars has been made. The same is being written in the conversion formula as 135USD = 5L. From the same, it can be concluded that 135 actually means 13,500 US Dollars given the then conversion rates. Subsequent exhibits show how the dollars received were dealt with” • At page 35 of the assessment order: “From the above3 scanned exhibits of the materials seized it can be total of 28 students were admitted under NRI category and against multiple names such as entry number 65, 63, 58, 56, etc, it has been clearly mentioned as “40 + fee” or “66 package”. Therefore, it can be inferred that in the case of NRI category student capitation fee was being received over and above the stipulated regular fee. An interesting observation made from the said scanned material is that in some instances receipts are made in dollars which are later being returned in cash.” • At page 39 of the assessment order: “From a cursory glance also, it can be seen from the above sheets as to what is the total number of students in whose case it is seen

The AO has similarly extracted certain other pages of the seized material no. A/DUU/01 and made observations which are not supported by the page relied upon. After noting the extracts of the aforementioned seized materials and the statement of Sri. Goli V. Srinivas recorded on 06.08.2015, the AO observed at page 41 of the assessment order:- “On analysis of the seized materials and the reply given by GVS to the questions asked w.r.t the seized materials goes to show that fees are received in cash. The noting are made in loose sheets to keep an account of the payment received in cash and also to keep the entry out of books. Hence it can be inferred that cash receipt is not accounted in books. Further, the reply given to questions asked from Q. No. 13 to Q. No. 17 during the course of search operation u/s 132 on 06.08.2015 by GVS again goes to show that cash is received and is not accounted in the books”

At pages 42 to 46 of the assessment order, the AO extracted certain pages from seized material no. A/DUU/13 and certain queries and replies from the statement of Sri. Goli V. Srinivas. He observed at page 46 of the assessment order as under:- “The seized material in A/DUU/13 as well as digital evidence confirm the fact that cash has been received over and above the course fee and the same is also not accounted in the books. Again extract of the reply of GVS to Q. No. 39 when shown seized material A/DUU/4 from the aforementioned statement also confirms the fact that capitation fees was received in cash.” 116. It is submitted that the above observations of the AO are not sustainable. “He has merely relied upon the loose papers, obscure notings made in certain note books, statement of Sri. Goli V. Srinivas and has come to the above conclusion. The conclusions drawn by him are not forthcoming from the documents and statements. The AO has made his own analysis below each extract of the seized material. The analysis is not supported by any corroborative evidence.

In the submissions made with respect to ground on extrapolation of income, the appellant has demonstrated with reference to specific instances that seized material which the AO has sought to rely upon to compute the unaccounted cash is not cogent evidence. The appellant reiterates those submissions.

Without prejudice to the contention that the replies given to various queries are not tenable in law as they are not supported by any material evidence, it is submitted that the inferences drawn by the AO do not directly emerge from the statement of Sri. Goli V. Srinivas. The only base for the analysis of the loose sheets, note books containing obscure notings and the excel sheets is the statement of Sri. Goli V. Srinivas. The inferences

At page 10 of the assessment order, the AO relied upon reply to query no. 12 from the statement under section 132(4) of Sri. Goli V. Srinivas recorded on 06.08.2015 which is as under:- “In the sworn statement u/s 132(4) of the Income-tax Act, 1961 recorded from Shri Goli Veeravenkata Srinivas during the course of search operation u/s 132 dt: 06.08.2015 he was asked about his role and responsibilities in Sri Devaraj URS Medical College. The extract of his reply with respect to the question asked and answer given to vide Sl. No. 12 taken from his statement on oath is: ......... From the above statement of GVS it can be inferred that capitation fee is received in cash. Brokers / agents are used as intermediaries for bringing of students for admission with the payment of capitation fee. Further from the statement it can also be inferred that the secretary and Chairman is also involved in the receipt of cash as Sri. Goli V Srinivas follows the directions given by them.” 120. It is submitted that merely because the accountant has made a statement that capitation fee is received, it is not sufficient. It is necessary to corroborate with external evidence. The perusal of the entire assessment order would show that the AO merely relied upon statement of Sri. Goli V. Srinivas. He did not make any further enquiry and collect evidence to verify the veracity of the same. In fact, in the statement given on 13.08.2015, Sri. Goli V. Srinivas in response to question no. 6, partly retracted from the response given to question no. 12 in his statement recorded on 07.08.2015. Question no. 6 and reply as per the statement of Sri. Goli V. Srinivas recorded on 13.08.2015 is as under:-

The AO has merely relied upon reply to question no. 12 of statement recorded on 06.08.2015 and ignored the reply to question no. 6 in the statement recorded on 12.08.2015. It is submitted that the AO cannot pick and choose to rely upon a portion of the statement. All the statements that are recorded during the course of search or subsequently should be read together. In case of inconsistency and in the absence of any corroborative evidence which resolves the inconsistency, the inconsistent portion should be ignored. We hasten to add that mere consistency in the statement would not be sufficient for it to be relied upon for making addition in an assessment under section 153A. The same is required to be corroborated with external evidence.

It is submitted that Sri. Goli V. Srinivas manages all the accounts of medical college and works directly under the Registrar of the medical

The AO, at page 6 of the assessment order, extracted question no. 7 and the reply from the statement under section 131 of Sri. G H Nagaraj recorded on 07.08.2015. It pertains to the role of Sri. G H Nagaraj in the trust. Sri. G H Nagaraj stated that he looked after the day-to-day affairs of all the educational institutions under the aegis of the trust except the medical college. He has stated that the medical college comes under the deemed university. So its affairs are managed by the Vice-Chancellor of the deemed university. Further in reply to question no. 13 regarding functions and duties in the capacity of Secretary of Trust, Sri. G H Nagaraj, in statement under section 131 recorded on 13.08.2015 stated that the appointment of staff and disbursement of salaries to staff to all institutions except the deemed university is taken by him. The same is ratified by the trustees during the trust meetings. In case of deemed university, the syndicate members take decisions in running the administration of the University. The deemed university is headed by the Vice-Chancellor and Registrar. Therefore, the role of Sri. G H Nagaraj is less when it comes to administration of deemed university. Sri. Jalappa in reply to question no. 25 in the statement under section 132(4) recorded on 06.08.2015 has stated that he has nothing to do with the management of medical college. That being the case, how can Sri. Goli V. Srinivas blindly obey their instructions? If Sri. Goli V. Srinivas has blindly followed the instruction of Jalappa or Sri. G H Nagaraj as he deposed, it is his mistake. He does not have a mandate to follow an instruction of a trustee if such instruction is contrary to the rules and regulations governing the trust or the university. If, for any reason, he has obeyed any such instruction of any trustee which

It is to be noted that Sri. Goli V. Srinivas nowhere stated that the cash is collected at the behest of the executive committee. Therefore, the statement of Sri. Goli V. Srinivas cannot be treated as evidence to hold that the appellant has received capitation fee in cash. In answer to question no. 19 of statement dated 16.10.2015, Sri. G H Nagaraj has clearly stated that no cash was received from students and all fees are received through cheques and DDs. In fact in answer to question no. 22 to a pointed question that cash has been collected from Mr. Rangaraju T, father of Ms. C.R. Pavana, but however, Mr. Nagaraj has denied the receipt of cash. He has stated “this is absolutely false”. A further perusal of the answer would show that the fees are collected only through cheque and DDs and not through cash. Therefore, the conclusion reached by the AO that capitation fee is received in cash is a mere surmise and conjecture not based on any material on record.

Apart from the loose sheets / note pads, the AO also relied upon the seized material no. A/DUU/16 consisting of copies of unrealized cheques. At paragraph 6.23 of the submissions, the appellant established that the same cannot qualify as incriminating material at all. The AO has drawn certain inferences below the extract of scanned copy of the said unrealized cheques. This analysis is not borne out from any evidence. The said inferences cannot even remotely be connected to the statement of Sri. Goli V. Srinivas. In fact, Sri Goli V. Srinivas stated in his statement in reply to question no. 33 that cheques are received only from NRI and management quota. There is nothing in this reply to support the contention of the AO that cheques are received as security for future instalment of fee. It does

Without prejudice to the above, the analysis made by the AO is baseless and devoid of any merit. The AO did not even obtain statements from the candidates whom he has referred to in the assessment order at pages 47, 48 and 49 of the assessment order [where he has discussed regarding unrealized cheques] nor any of their parents.

It is relevant to note query no. 18 and reply in the statement under section 131 of Sri G H Nagaraj recorded on 13.08.2015. They are reproduced below: “Q. 18 Whether the above mentioned fees is for one academic year or for full duration of the course. Ans. Rs. 5,70,000 which is fixed for the meritorious students is an annual fee and $ 1,40,000 is the fees fixed for the NRI students for the entire duration of the course. Sum of Rs. 5,70,000 is normally paid in one instalment. However, in the case of NRI students as the fees payable is quite high and for the entire duration of the course, hence, the same is often paid by the students in 2 or 3 instalments as per their requests. Before that the post dated cheques are collected as a security as and when the fees is paid in installment either through DD or RTGS / NEFT, the cheques are returned to the candidates.” 129. The above would show that the post-dated cheques are collected as security as against future instalments of fee payable by the candidates who request for instalment facility for paying the fee. It is not meant for holding as security against future instalments receivable in respect of cash portion of the fee. Therefore, the seized unrealized cheques are also not reliable

At pages 78 to 86, the AO has discussed regarding the admission process and the modus operandi adopted allegedly followed by the appellant to collect capitation fee. He has observed at page 80 of the assessment order that “From the above it can be clearly inferred that for admission to various courses, the Trust also makes use of agents who used to supply candidates for admission with capitation fee as requested by the Trust. The amount of commission paid to the agents is also not accounted in the Books of the Trust as the same is in cash”. He relied upon seized material A/DUU/01, A/DUU/02 and statement under section 132(4) of Sri. Goli V. Srinivas recorded on 06.08.2015 to arrive at this conclusion. It is submitted that seized material which is relied upon does not demonstrate the allegation that certain agents supply candidates for the appellant. There is nothing in the seized material which would demonstrate the process of admission followed by the appellant. The appellant vide its letter dated 28.11.2017 has submitted the detailed process of the admission followed by it. The AO has ignored the same. Sri G H Nagaraj in his statement under section 131 recorded on 13.08.2015, in reply to query no. 16 has explained the admission process. The AO ignored it completely. He has merely relied upon the statement of Sri. Goli V. Srinivas. There is no evidence to corroborate the statement of Sri. Goli V. Srinivas regarding the admission process stated to be followed by the appellant. Even the seized material does not corroborate with the statement of Sri. Goli V. Srinivas. In the reply to question no. 14 of the statement of Sri. Goli V. Srinivas recorded on 07.08.2015 wherein he was asked to furnish information regarding consultants engaged for getting candidates for admission in NRI / management quota, Sri. Goli V. Srinivas mentioned names of certain consultants. Neither the authorized officer nor

At this juncture, it is also relevant to note the statement of Sri Goli V. Srinivas with regard to contrary stands taken by him with regard to engagement of agents for the purpose of admission. Initially, in reply to

The authorized officer confronted Sri. Goli V. Srinivas, while recording his statement under section 131 on 13.08.2015, whether he would confirm the reply to query no. 12 of the statement recorded on 06.08.2015. [query 6 of the Statement of Sri Goli V Srinivas recorded on 13.08.2015]. Query no. 6 and the reply from the statement dated 13.08.2015 of Sri Goli V Srinivas are as under: “Q.6 I am showing you, your reply to Q. No. 12 of the statement recorded on 06.08.2015 on the day of the search u/s 132 conducted in the premises of Sri Devaraj Urs Medical College. Do you confirm the same? Ans. Yes, I confirm the contents of the statement given by me during the course of search conducted on 06.08.2015 as mentioned above. However in respect of payments / brokers, it is clarified that it is not a routine or regular affair. But the same is an occasional event / happening.” 133. The above would show that Sri Goli V. Srinivas partially retracted from his statement with regard to payments to brokers / agents.

Statement of Sri Goli V. Srinivas was obtained once again on 28.11.2017. Queries no. 12, 14 and 16 from the said statement and the relevant replies are reproduced at pages 78 and 79 of the assessment order. The perusal of the said replies would show that Sri Goli V. Srinivas did not know any details of the modus operandi of the alleged agents / brokers. The AO, when he discussed regarding the process of admission by using agents, did not consider the retraction of Sri. Goli V. Srinivas on 13.08.2015 and the ignorance of Sri Goli V. Srinivas as expressed in his

At paragraph 5.2.4.2, the AO has discussed regarding the system of quota conversion allegedly followed by the appellant. He has observed as under:- “During the course of assessment proceedings the assessee vide this office letter dated 25.01.2017 was asked to furnish the list of students who have been admitted to Medical College / Dental College / Engineering College as the case may be, both UG and PG courses along with details of fee collected from them under various head. In response to the same the assessee vide letter dated 16.02.2017 submitted the same. On going through the submissions it is seen that for the AY: 2012-13 with respect to admission for MBBS seat a total of 127 students have been admitted with a fees of Rs. 4,10,000/-, 3 are NRI sponsored seats with fees ranging from 60000$ to 75000$ and balance 20 are Malaysian students admitted with fees of Rs. 37750$ (Sic)” ............ “The above material seized during the course of search u/s 132 on 06.08.2015 in A/DUU/01 Page 33 contains statement of dues of MBBS students for the Academic Year 2011-12. On comparison of the names of the above mentioned students with the list

Mere appearance of the names of the students appearing in page 33 of the seized material in the list of merit students furnished by the appellant is not sufficient to prove that there is conversion of merit seats into management quota. There should be documentary evidence to prove that capitation fee has been received from such students.

The AO, at paragraph 5.2.4.2, has discussed the scheme of drop- outs alleged to have been carried out by the appellant. The AO sought to rely upon pages 77, 79 and 102 of seized material no. A/DUU/13.

It is submitted that the analysis of the AO does not emerge from the sheet of paper that he has relied upon. Why would merit students take up entrance exam with an intention to drop-out subsequently. This defies logic. Mere fact that the students have taken up entrance exam and dropped out does not mean that it is done so intentionally. The AO has not brought on record as to what benefit would such student would get. The AO has not obtained statements of either the parents of such students or of such students who have written entrance exam and dropped-out subsequently after counselling. Page 77 of the seized material no A/DUU/13 relied upon by the AO to show that drop-outs have been provided does not even give the list of candidates who have written the entrance exam and backed-out. It does not state the period. This page nowhere evidences the fact that merit students have written entrance exam and dropped out at the behest of Abrar. The reason for dropping-out can be various. The AO ought to have obtained list of students who wrote the entrance exams and dropped-out. He should have taken statements from them to enquire the reasons as to why they wrote the entrance exam and dropped-out subsequently. No material has been brought on record to prove that the alleged agent named “Abrar” approached the merit candidates, insisted them to give the entrance exam and later drop-out.

In fact, Sri G H Nagaraj in reply to query no. 11 of the statement recorded on 07.08.2015, regarding fixation of fee had stated that percentage of management fee varied from course to course. For most demanded courses, management seats would be given priority. In case of any withdrawal of admission after counselling by meritorious students, the vacant seats would be converted into management seats and admission

The AO, at pages 84 to 86, paragraph 5.2.4.5, has discussed the violation of examination process. The AO has relied upon the statement of Sri. Goli V. Srinivas and the alleged drop-outs scheme discussed at pages 82 to 84, paragraph 5.2.4.2 of the assessment order. It was submitted that it was already established that the materials relied upon in paragraph 5.2.4.2 to support the allegation about drop-outs are no evidence at all. They do not lead a person with reasonable mind to reach a conclusion which the AO has arrived at. The statement of Sri. Goli V. Srinivas is also general and not supported by any corroborative evidence. In view of the above, the material relied upon by the AO to hold that there are violations in examination process cannot be treated as evidence and hence, the allegation regarding violation of examination process should also fall.

The AO has discussed the findings relating to fee collection and the alleged fee negotiations. The AO reproduced query 4 and reply from the statement of Sri. Rangaraju. The AO, subsequently observed as under: “Further there are also evidence in material seized during the course of search u/s. 132 on 6.5.2015 (Sic) marked as A/DUU/01 in Page 33 wherein an amount of Rs. 3 lakhs waived off with respect to candidate Pavan C R. All these evidence goes to show that negotiation in fees is carried out by Sri G H Nagaraj with the knowledge of the Chairman Sri R L Jalappa.” 143. The ld. AR submitted that neither the statement of Sri. Goli V. Srinivas nor the statement of Sri Rangaraju Thimmaiah would prove that the appellant is involved in fee negotiations. The allegation is only with respect to students admitted under management / NRI quota. The statement of Sri. Goli V. Srinivas and Sri Rangaraju Thimmaiah is not enough to prove this allegation. The appellant has not been permitted to

The AO has discussed regarding fee charged per seat to hold that fee collected is more than what is fixed by the committee. There is no proof to hold that the appellant has charged fee per seat as alleged. At page 90, the AO observed as under:- “As per the fee fixation committee the fee charged for each of the NRI seat is outside the fee to be fixed by the committee. After studying the general trend prevailing in the field and also considering the fact that during the previous year the college has taken NRI seats at extra fee, the committee has decided that the extra fee collected from NRI category should be considered while fixing the fees for the remaining 85% of the seats in each of the under graduate and post graduate courses. Thus, the amount collected by the college from the NRI students is considered while fixing the fee for non NRI students. From the aforesaid exhibit it can be seen that in the case of the students named Vartika and Alekhya Reddy though the course fee is 20.49 lakhs the amount of fee collected in cash is a huge 104.51 and 109.51 lakhs respectively. From this it can be inferred that the Trust has taken money in cash to prevent the fee fixation committee from fixing the course fee at a lower rate for the remaining 85% of seats in UG and PG Courses.” 145. According to the ld. AR, these observations of the AO are perverse. The AO has not brought on record any material to demonstrate that the appellant has collected fee in cash from NRI students in order to influence the fee that would get fixed by the fee fixation committee in case of non-NRI

Further, the AO discusses the modus operandi of fee collection. He relied upon replies to questions no. 13 to 17 and 33 of statement of Sri. Goli V. Srinivas recorded on 06.08.2015 and observed at page 92 as under:- “From the above it can be inferred that Nagaraj decides the course fee under management and NRI quota. The candidates reserve the seats of their choice after making advance booking in the range of Rs. 5 – 25 lacs in cash for which receipts are also not issued and the seats are reserved for them. At the same time the installment for balance payment will also be fixed and cleared before the admission is made Sri Goli V Srinivas keeps track of the payment. Further in PG courses under NRI quota the amount over and above which is published in the brochures are collected in cash. Further it is also seen that the Trust collects cheques as a security against the installment granted for the balance payment.” 147. It is submitted that there is nothing at all to support the above allegations of the AO . As stated earlier, the appellant has submitted the detailed process of admission. No contravention has been reported by any of the authorities regarding violation of admission process. A perusal of the

The AO discussed mode of receipts of fee and held that no receipts have been given by the Academy for the fee received by it from the students. He relied solely upon the statement of Smt. Vasudha G. Padiyar [Parent] and Sri Rangaraju T [Parent]. As discussed earlier in these submissions, it was submitted that these statements are not reliable. Sri G H Nagaraj, in the statement recorded on 16.10.2015, was confronted with the statements of the above 2 parents. He categorically stated that fee receipt is issued for every receipt of fee and that no fee is received in cash.

It was submitted, at this juncture, it is necessary to assail the statements of the parents relied upon on merits. The statements of Smt. Vasudha G Padiyar and Sri. Rangaraju had been confronted to Sri. G H Nagaraj while recording his statement under section 131 on 13.10.2015. We shall first discuss the statement obtained from Smt. Vasudha G.

A perusal of reply to question no. 7 of Smt. Padiyar would show that the student, in question, Sri. Badragiri V. Padiyar had obtained 432nd rank. He was not interested in the branch which was offered to him in keeping with his rank. If a student does not want to take up a branch which he is entitled as per his rank, he cannot get the branch that he is interested in through merit quota as the rank does not entitle him to get seat in that branch. If he still wants to get admitted to the same college, he can do so by getting admitted only through management quota. How can this statement given by Smt. Padiyar help anyone to conclude that merit quota is being converted into management quota and that capitation fee is received even from students who get admitted through merit quota.

The statement dated 30.09.2015 of Sri Rangaraju T, father of Ms. Pavana C R who had obtained admission in the year 2011-12 to MBBS

At page 97, the AO has stated as under: Findings relating to cash handling “Cash of around Rs. 2.7 crores was found during the course of search proceedings at the premises of the trust office. Cash was being collected at the very trust office. Shri GVS has in his statement recorded during search proceedings admitted that cash was being collected at the trust office. Cash was being collected in installments from the students……….” Maintenance of parallel books for unaccounted payments “It is seen from the seized materials numbers as A/DUU/02, A/DUU/03, A/DUU/04 various payments from the capitation fee collected in the form of cash were being made on a daily basis. For these purposes, parallel form of unaccounted books of account were being maintained. A/DUU/02, A/DUU/03, A/DUU/04 are some such books which were being maintained by Shri GVS in which the entries were verified by Shri GH Nagaraj and Shri Anjanappa.”

It is submitted that these findings are perverse. Sri Goli V. Srinivas did not state that cash is being collected at trust office. There is no evidence found to demonstrate that cash is held at the trust office to make disbursements in cash. The observations of the AO that the appellant is maintaining parallel books for unaccounted payments is incorrect. The appellant has stated time and again that the executive committee did not authorize entries found in the seized material. Mere fact that the seized material contains initials of G H Nagaraj and his brother does not mean that the entries therein have been made at the behest of the executive committee of the trust. In fact, the AO rejected the alternate claim of the appellant regarding expenditure on the ground that it is not routed through books. The AO cannot blow hot and cold.

At para 7.2, page 101, the AO has made observations on the Violations of The Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. The appellant denies that it is involved in any illegal activities and that it has violated the provisions of Karnataka Educational Institution (Prohibition of Capitation Fees) Act 1984. The authorities under those Acts have not taken any action against the appellant. When authorities constituted under specific Act have not taken any action it is not open for the department to allege violation of those Acts. The appellant relies on the decision of the Hon’ble CESTAT in S.K. Kareemun v. CCE 2016 (42) STR 988 (Tri-Bang) wherein it was held as under:- “If the parties have entered into an agreement which is contrary to the provisions of any law, it is for the law enforcing authority to take proper action. The contract is between the two parties and if both of them have no grievance with the proposition and entered into an agreement, it is voidable at the option of the person who did not know the legal provision. It is for the parties concerned or for the law enforcing authority to take proper action. In this case if the contract between APSRTC and the

A perusal of the observations of the AO that “once it comes to their notice, only then if them (sic) clear the assessee off all allegations, could it be considered that the assessee has perhaps not violated the said Act.” This observation by itself proves that the AO also believes that the seized material would not be sufficient to conclusively prove that the appellant has received capitation fee. The AO has not categorically stated that the authorizes under the Karnataka Educational Institution (Prohibition of Capitation Fees) Act, 1984 would hold the appellant guilty of violation of that Act based on the seized material. This would imply that the AO is in doubt as to the reliability of the seized material for holding appellant guilty of capitation fee. It means the seized material is not a conclusive proof for receipt of capitation fee.

Further, it was submitted that there are lot of loose ends and contradictions in the theory advanced by the AO to support his allegation that appellant has collected capitation fee. The AO stated that the appellant collected capitation fee by weaving a scheme of conversion of merit quota into management quota. To achieve this scheme, it has engaged agents who procured merit students, made them to take entrance

In view of the above, it is submitted that the allegations of the AO that the appellant has collected capitation fee are perverse being not based upon any evidence are liable to be quashed.

Now, to rebut the allegations regarding diversion of funds for the benefit of trustees, the ld. AR submitted that the AO has made observations that the primary objective of collecting capitation fee is to be able to misappropriate as much funds as possible for personal benefit of the trustees. This is in stark contrast to the very principles of charity of trust. It is noted that without prejudice to the illegal nature of capitation fee

The ld. AR submitted that the theory advanced by the AO is that the appellant has collected capitation fee in cash so as to divert it to the trustees for their personal benefit. He submitted that in the submissions made supra, it has been demonstrated that the allegations of AO that appellant has received capitation fee are perverse it being not supported by any evidence. Therefore, this by itself would also destroy the allegation that the funds are diverted to the trustees for their private benefit because when the very existence of source from which funds are said to have been diverted has not been proved, the allegation of diversion should fail.

Without prejudice to the above, the ld. AR made submissions to deal with the allegations of the AO regarding diversion of funds to trustees for their personal benefit and hence, has violated section 13(1)(c)(ii) of the Act.

The AO extracted pages 1 to 5 of seized material no. A/DUU/2. The AO also extracted the relevant portion of the statement of Sri. Goli V. Srinivas recorded under section 132(4) of the Act on 06.08.2015 wherein the said pages 1 to 5 were confronted to him. After extracting the seized material and the portion of the statement of Sri. Goli V. Srinivas, the AO observed at page 56 as under: “From the above it can be seen that GVS has admitted that the amount has been paid to the parties described above.” 165. The AO made analysis of some more pages of seized material no. A/DUU/02 and has put his analysis at paragraph 5.2.3.1a, pages 57 to 60

The AO sought to rely upon the statement of Sri. Goli V. Srinivas to hold that funds were diverted for to the trustees for their personal benefit. He ignored the statement made by Sri. G H Nagaraj. It is relevant to note the following query and reply from the statement of Sri. G H Nagaraj recorded on 07.08.2015:- Q. No. 16 Please go through the page numbers from 1 to 7 of folder A/DUU/13 seized and explain about the entries made in the said pages. Ans: Yes, I have gone through the page numbers 1 to 7. These entries are mostly payments given to the respective persons. The decision of making the payments were taken collectively by all the trustees. But at this point of time I am not able to remember for whom and why the payments were made but I would like to state that all the payments were made for the well being of the trust and no personal payments were taken for myself and by the trustees. If any payments where trustees or my name is written in those loose sheets, those payments are received by us and spent for the objects of the Trust. 168. It is further relevant to note the following query and reply from the statement of Sri. G H Nagaraj recorded on 13.08.2015:

It is pertinent to note the following observations of the AO at page 134 of the assessment order:- “It is strange that some of the unaccounted activities, such as construction of wall, buildings etc, for the purpose of objects of the assessee is not known to the trustees, when they were carried out in the properties belonging to the assessee.” 172. It was submitted that the above observation would show that the AO has acknowledged that the unaccounted cash is utilised towards the objects of the trust. Therefore, the observation of the AO that the expenditure is not incurred for the objects of the trust is contrary to his own findings. This is without prejudice to the main contention that the appellant has not collected any capitation fee.

From the above, it is clear that the payments have been made only for the purpose of the objects of the trust. The AO has carried out a cherry-picking exercise while relying upon the statements recorded.

Further, while analysing various payments, the AO noted that certain payments pertain to repairs / renovation of the house of the Chairman. Without prejudice to the contention that no funds have been diverted for the personal benefit of the trustees, it was pointed to query 15 from the statement under section 132(4) of Sri Jalappa recorded on 04.09.2015. The said query and reply are as under:- Q. 15 In whose name the residential house located at No. 147, 2nd Main, 2nd Stage, I Block, RMV Extension, Bangalore stands? Ans. This house was purchased by me way back in 1978. On 05.04.2010 I have made a will in the name of the Trust for the above mentioned property. I am submitting the copy of the will. 175. Further, query no 16 and reply from the statement of Sri. G H Nagaraj recorded under section 132(4) on 20.08.2015 are as follows:- Q. 16 I am showing you your reply to Q. No. 14 of the statement recorded on 13.08.2015 u/s 131 of the Income Tax Act wherein you have stated that certain sums were spent for renovation of the house of Chairman located in Dollars colony. Please confirm your statement Ans. Yes, I confirm that the said sum was spent for the renovation of the house of Chairman located in Dollars colony. It is further stated that the said house which was in the name of Shri R L Jalappa was donated to the trust.”

The ld. AR submitted that the above would show that the house in which Sri Jalappa stays has been willed to the trust. Any amount alleged to have been spent towards repairs and maintenance of the house of the Chairman would benefit the trust. Therefore, the allegation that amount spent towards repairs and maintenance of the house of the Chairman would amount to diversion of funds of the trust for personal benefit of the Chairman is not tenable.

It was further submitted that the AO has tabulated the alleged payments made to trustees. Based on this table, the AO has chosen to make protective assessment upon the trustees mentioned there. This by itself would show that the material is not sufficient to prove that funds have been diverted for the benefit of the trustees. The AO has noted that the payments are made out of alleged capitation fee received in cash and not out of the funds duly accounted. The appellant has established that it has not received capitation fee at all. Funds collected by private person would not become funds of the trust.

Moreover, except for making a bald allegation that the payments have been made for the benefit of the trustees, the AO has not brought on record any material to prove the same. Mere payment to trustees does not automatically mean that it is for their benefit. The AO has not brought on record any evidence to show that the trustees were actually benefitted. Mere reliance on the statement of Sri. Goli V. Srinivas is not sufficient. The AO ought to have made enquiries as to how the payments made to trustees or purported to have been made to trustees were utilised for their benefit.

The ld. DR submitted that during the search proceedings various incriminating documents were found and seized and the same were authenticated by the assessee. The evidence with regard to unaccounted capitation fee and cash were seized from the premises of assessee as per Annx. A/DUU/01, A/DUU/03 & A/DUU/07. The trustee of the assessee was confronted with the incriminating material which was seized and thereafter assessment order was passed placing reliance on such seized material. Being so, there is no merit in the arguments of the ld. AR for the assessee.

We have heard both the parties and perused the material on record on this issue. The material seized during the course of search is as under:-

With regard to seized material A/DDU/1 to 4 (Page no 508 to 864 of paper book), the details of the content of these seized materials are mentioned in above table. The AO verified these seized documents according to him it shows certain receipts of unaccounted fees and payments to trustees and others mentioned therein. These seized material does not bare any signatures of any person. Our observations are that these seized material consisting of loose sheets and note books and the statement recorded from Mr. Goli Srinivas. The assessee vide letter dated 22.02.2017 and 09.12.2017 asked for cross-examination of Shri Goli Srinivas which was not provided by the authority. The contention of the ld. DR is that Mr. Goli Srinivas being employee of the assessee, it is not necessary to provide such an opportunity to the assessee. The AO has

The contention of the ld. DR is that the department relied upon the statement of assessee’s own employee, who need not cross-examine its own employee and there is no mistake in not providing opportunity of cross-examination to the assessee. However, we are not in agreement with the contention of the ld. DR. The right to cross-examine is not dependent upon the assessee’s relationship with the witnesses. The right to cross-examine depends upon the fact that statement of the party is used against the assessee. Therefore the mere fact that the statement sought to be relied upon by the AO is that of the employee would not disentitle the assessee to cross-examine. Therefore, the ratio relied upon by the assessee squarely applies and it is the prerogative of assessee whether it wants to cross-examine or not. It was held in the case of Smt. Madhu Gupta v. DCIT 2006 (2) TMI 496 - ITAT MUMBAI / [2006] 8 SOT 691 (MUM.) that even if the assessee was provided a copy of the statement recorded by the revenue on the spur of the moment, that should not be treated as an effective opportunity given to the assessee. In that case the Tribunal relied upon the judgment of the Hon’ble Allahabad High Court in the case of Gargi Din Jwala Prasad v. CIT [1974] 96 ITR 97 (All) wherein it was held that permission to cross-examine witness given, but names of the witnesses and substance of the statement made by them not given is not a proper opportunity and on that ground assessment was vitiated by the principles of natural justice as permission to cross-examine all the witnesses are illusory. Further in the present case, these seized material A/DUU/1 to 4 though did not contain the name of assessee or signature of any person, they are merely unsubstantiated loose sheets. As held by the Tribunal in the case of ACIT v. Layers Exports P. Ltd [2017] 53 ITR (Trib) 416 (Mumbai), addition cannot be sustained merely on the basis of rough

In view of the aforesaid judgments, since the impugned seized papers are undated, have no acceptable narration and do not bear the signature of the assessee or any other party, they are not in the nature of self-speaking documents having no evidentiary value and cannot be taken as a sole basis for determination of undisclosed income of the assessee. When documents like the present loose sheets of papers are recovered and the Revenue wants to make use of it, the onus rests on the Revenue to collect cogent evidence to corroborate the noting therein. The Revenue has failed to corroborate the noting by bringing some cogent material on record

The Tribunal in the case of Sri Y. Siddaiah Naidu, Tirupathi vs. Asst. Commissioner Of Income-Tax 2015 (2) TMI 403 - ITAT HYDERABAD held that it is very much clear that from such notings, it cannot be deduced whether they are receipt or payments nor it can be concluded whether they are in relation to any particular transaction as no names have been mentioned. In these circumstances, no addition can be made on the basis of such document.

In CIT v. M/S Khosla Ice & General Mills 2013 (1) TMI 451 - Punjab & Haryana High Court, the Hon’ble Court held that assessee rightly contended that the impugned document was a non-speaking document inasmuch as it does not contain any intelligible narration in support of the inference drawn by the Assessing Officer that it reflected sales carried out by the assessee outside the regular books of account. When a dumb document, is to be made the basis to fasten tax liability on the assessee, the burden is on the Revenue to establish with corroborative evidence that

Further the AO relied on the statement of Shri Nagaraj, Secretary wherein the AO mentioned that Mr. Nagaraj was aware of the transactions and confirmed it. The AO has not referred to the following answers of Mr. Nagaraj to Question Nos.8 to 11:-

Hence the revenue authorities contention that Mr.Nagaraj has admitted payment of cash and receipt of fees in cash is not based on statement of Mr. Nagaraj.

Further from the seized material A/DUU/02 & 03, the AO came to the conclusion that cash been paid to trustees either directly or to a third party for their benefit. The statements of Shri R.L. Jalappa, Shri Rajesh Jagdale and late Shri J.P. Narayan Swamy were recorded, but no questions were put to them whether statement of Mr. Srinivas that cash has been paid to trustees or to a third party on their behalf is correct. The statement of Mr. Jalappa is on record at page 2140 to 2158 of PB. Perusal of the same shows that he was not confronted with the statement of Mr. Srinivas. The observations in para 8 & 9 of the assessment order do not show that Shri Rajesh Jagdale and late Mr. J.P. Narayan Swamy were also not confronted with the statement of Mr. Srinivas. The AO stated that seized material A/DUU/01 revealed that trust has engineered dropout seats and converted the merit quota seats into management quota seats through services of middlemen like Mr. Abrar. The AO discussed these facts in Page no 78 to 86 of the assessment order it shows that he relied on the statement of Shri G Srinivasa. Shri G Srinivasa has stated that Mr. Syed Abrar, Mr. Shiva Prasad, Mr. Basavaraja, Mr. Amanullah, Mr. Prasad and Mr. Thomas are the commission agents who bring prospective students for admission to NRI quota seats and some other seats. These candidates have to make payments in cash for which no receipts are issued. But the AO has not examined Mr. Abrar or any other alleged middlemen. In the

The seized material A/DUU/03 which is placed on record at PB page no 669 to 775 which shows certain payment entries and it is very strange to believe that the assesse has authorised any person to write it as it does not contain any attestation from the assesse side being not having any name or seal of the assesse.

The seized material A/DUU/04 which is placed on record at PB page no 776 to 864 which shows certain payment entries and it is very strange to believe that the assesse has authorised any person to write it as it does not contain any attestation from the assesse side being not having any name or seal of the assesse. It also shows certain amount taken from PG students. However there is no attestation to this document from the trust side to suggest that it was authorised by the assesse. Being so no credence to be given to this document.

The seized material A/DUU/05 to 09 is not relied upon by the AO while framing assessment and making additions, hence no findings are required.

The seized materials A/DUU/10 are placed in pages 1420 to 1554 of PB. The AO relied on page 5 placed at page 1549 of PB. According to AO, this amount has been paid to agents for seat conversion. The AO mentioned about this in page 61 of assessment order and there is only reference to page 5 of seized material (placed at 1549 of the paper book) in this order. According to him, it contains details of cash payments made to agents. We have carefully gone through the above seized material. In our humble opinion this seized material does not show any payment which has been made to an agent for seat conversion. Being so, as discussed earlier,

The Bangalore Tribunal in the case of Kirloskar Investments & Finance Ltd. v. Assistant Commissioner of Income-tax [1998] 67 ITD 504 (Bang.) held that the provision of the copy of the statement or letters is not sufficient opportunity. Oral evidence of persons concerned with the transaction are important piece of evidence and before it could replace the written evidence, the party against whom such oral evidence is being used must be allowed the opportunity of examining the person because, both the types of evidences need to weighed properly before rejecting one for the other.

In view of the above, in our opinion, it cannot be concluded as payments by the assessee towards seat conversion.

The seized material A/DUU/11 is placed at pages 1555 to 1635 of PB. According to the ld. DR, it shows unaccounted utilisation of capitation fees for the benefit of trustees. These are unsigned documents and not supported by any corroborative material. Further the beneficiaries are not examined or cross-examined. At this point, it is appropriate to rely on the judgment of the Mumbai Bench in the case of ACIT v. Layers Exports P. Ltd [2017] 53 ITR (Trib) 416 (Mumbai), wherein it was held that no addition could be simply made on the basis of uncorroborated notings in the loose papers found during the search because addition on account of alleged receipt made simply on the basis of uncorroborated noting and scribbling on loose sheets made by some person have no evidentiary value and is unsustainable and bad in law.

The Hon’ble Supreme Court in Common Cause (A Registered Society) v. UOI [2017] 394 ITR 220 (SC) observed with regard to evidentiary value that entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another. In Hira Lal v. Ram Rakha the High Court, while negativing a contention that it having been proved that the books of account were regularly kept in the ordinary course of business and that, therefore, all entries therein should be considered to be relevant and to have been proved, said that the rule as laid down in Section 34 of the Act that entries in the books of account regularly kept in the course of business are relevant whenever they refer to a matter in which the Court has to enquire was subject to the salient proviso that such entries shall not alone be sufficient evidence to charge any person with liability. It is not, therefore, enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is further incumbent upon the person relying upon those entries to prove that they were in accordance with facts. It is apparent from the aforesaid discussion that loose sheets of papers are wholly irrelevant as evidence being not admissible under Section 34 of Evidence Act so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value. The entire prosecution based upon such entries which led to the investigation was quashed by the Court. There has to be some relevant and admissible evidence and some cogent reason, which is prima facie reliable and that too, supported by some other circumstances pointing out that the particular third person against whom the allegations have been levelled was in fact involved in the matter or he

In view of the above, reliance on Seized material A/DUU/11 for making addition cannot be sustained.

The AO has not referred to the seized material Seized material A/DUU/12 and there is no necessity of commenting on it.

Regarding seized material A/DUU/13, placed at PB 1698 to 1805 which contains computer typed statements, scribbling’s and manual scribbling’s and noting’s. Most of the entries is a repeat of hard copy of seized material A/DUU/01. Further there are certain letters as follows:

The seized material A/DUU/14 is digital data. According to the AO, it shows unaccounted capital receipts received in cash from Management/NRI quota students utilized for payment to political parties as per instruction of Mr. G.H. Nagaraj. These digital data are used by the AO without providing any opportunity of cross-examination of Mr. Srinivas. There is no evidence to show that assessee has authorised collection of these payments. These are repeat of hard copy of A/DUU/01. With regard to the digital evidence, the purpose of such electronic record is not known. The manner in which such electronic record is produced and by whom it is produced is not known. The data and time of preparation and search or list

Assessment u/s. 153C has been made in the case of the trustees relying upon the very same material. Under such circumstances, the presumption under section 292C gets automatically rebutted. Section 153C(1) states that where the Assessing Officer of the searched person is satisfied that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A. Therefore, if the material seized belongs to or pertains to or relates to a person other than the searched person, only then section 153C comes into play. Hence, it is axiomatic to state that if the material seized belongs to or pertains to or relates to some other person, it does belong to or pertain to or relate to the searched person. Under such circumstances, one cannot invoke the presumption under section 292C that the material

The Delhi Tribunal in Vijay Kumar Aggarwal v. ACIT 2017 (5) TMI 1354 held that it is clear that the presumption of facts u/s 292C of the Act is not a mandatory or compulsory presumption but a discretionary presumption. Since, the word used in the said Section is “ may be” and not “shall”. Secondly, such a presumption is rebuttable presumption and not a conclusive presumption because it is a presumption of fact not a presumption of law. In the present case, the assessee from the very beginning stated that the documents found during the course of search did not belong to him. Therefore, the addition made by the AO is only on the basis of surmises and conjecture without bringing any cogent material on record to substantiate that the assessee was engaged in the business of gold and jewellery and the AO had not brought any material on record to substantiate that the denial of the assessee was false.

Unless the burden of proving that the materials and cash belong to the assessee is discharged those materials can neither be seized under section 132 nor relied upon to make assessment under section 153A. Therefore the seizure of such material is illegal. The AO cannot rely upon such material whose seizure is illegal and the hence, assessment is void ab initio. Therefore, addition made on account of such seized material is not sustainable.

Seized material A/DUU/15 PB page no 1839 to 2028 a note book containing names, mobile numbers and address having no attestation of the assessee with regard authenticity that it belong to assessee. This was not discussed in the assessment order being so it is to be treated that it

The AO also relied on seized materials A/DUU/16 placed at Paper book page no 2029 to 2138. We have carefully gone through it, these are blank cheques found at the premises of the assesse during the course of search action. The AO discussed this issue in his order at page number 46 to 50, and drew inference that these are the cheques given by the students as a security for payment of capitation fees. He also relied on the statement of Goli Srinivas. However we found that these are blank cheques without mentioning the name of the assesse. Further, the person who has issued the cheques has not been examined by the AO. Similarly, no cross examination was provided to the assesse. In this circumstances, the inference drawn by the AO have no legs to stand and deserve to be rejected. Other being loose sheets cannot be relied upon since no opportunity to cross examine Mr. Goli Srinivas was provided as discussed earlier.

The assessee vide letter dated 22.02.2017 asked for copies of the statements recorded from the students, parents and donors during the search proceedings and also opportunity to cross-examine the parties. Further copy of statements recorded and cross-examination of the parties was requested by the assessee’s letter dated 09.12.2017. Vide assessee’s letter dated 22.02.2017, copies of seized / incriminating material relied upon to make the addition was requested. The assessee vide letter dated 29.10.2017 also requested for documents in digital form taken at the time of search u/s. 132.

The AO vide letter dated 01.08.2017 furnished copies of seized material A/DUU/01 to A/DUU/17 to the assessee. However, it is crucial to

The assessee by letter dated 09.12.2017 made submissions that collection of amounts by Shri G.H. Nagaraj, Secretary of the trust were on his own and spent a portion of the amount on the infrastructure and development activities.

In our opinion, the statement of Mr. G.H. Nagaraj, who is Secretary of the trust cannot be considered as true and correct. He has changed his versions and proved to be an evasive person as a witness. At one stage, he admitted collection of fees over and above the prescribed fees and not paid the same back to the institution. There was a letter dated 09.12.2017 wherein the trustee stated that Mr. G.H. Nagaraj collected the amount from students / parents and spent the amount for the activities of the trust. He alone has to explain the collection of fees to the income-tax authority. Therefore, his statements are contradictory in nature. No value could be attached to his statement and his conduct is neutralizing the value as a witness. Further, the AO in para 3.4 the tabulated statement in response to assessee’s submission at page 206-207 of his order noted as follows:- “Shri G.H. Nagaraj, has time and again changed his position Therefore that version of his statements which is in line with the material found and seized during the search is only being considered. Also seized material has sheets with tabulations where the word ‘cash’ has been consistently used. Also, the assessee has not made any submissions to prove that the subsequently admitted receipts of Rs.146 crores were taken through cheques or DDs.” 211. The Hon’ble Supreme Court in Andaman Timber Industries v. Commissioner of Central Excise, 281 CTR 241 (SC) held as follows:- “Not allowing the assessee to cross-examine the witness by the Adjudicating Authority though the statements of those witnesses

The Hon’ble Supreme Court in the case of Mehta Parikh & Co. v. CIT, 30 ITR 181 held as under:- “In the instant case a mere calculation of the nature indulged in by the ITO or the AAC was not enough, without any further scrutiny, to dislodge the position taken up by the assessee, supported as it was, by the entries in the cash book and the affidavits put in by the assessee before the AAC. The Tribunal also fell into the same error. It could not negative the possibility of the assessee being in possession of a substantial number of these high denomination currency notes. It, however, considered that it was impossible for the assessee to have had 61 such notes in the cash balance in their hands on 12-1-1946, and then it applied a rule of the thumb treating 31 out of such 61 notes as within the bounds of possibility, excluding 30 such notes as not covered by the explanation of the assessee. This was pure surmise and had no basis in the evidence, which was on the record of the proceedings. Facts proved or admitted may provide to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question. The High Court treated this finding of the Tribunal as a mere finding of fact and recognised this position in effect but went wrong in applying the true principles of interference with such findings of fact to the present case. Really speaking the Tribunal had not indicated upon what material it held that Rs. 30,000 should be treated as secret profit or profits from undisclosed sources and the order passed by it was bad. The assessee had furnished a reasonable explanation for the possession of the high denomination notes of the face value of Rs. 61,000 and there was no justification for having accepted it in part and discarded it in relation to a sum of Rs. 30,000.

We have also carefully gone through the statement of Mr. G H Nagraj, Secretary of the assessee trust. It was mainly discussed in Page no 64, 65, 74, 75 and 76 of assessment order. He was asked to explain the seized materials A/DUU/03 and A/DUU/13 on 13-08-2015. He has confirmed the collection of capitation fees on some occasions. However, on certain occasions when confronted, the statements of some persons who has stated that they have paid the capitation fees in cash, he denied the collection of capitation fees which is evident from the answer to question no.

The AO also relied on seized material A/DUU/02 to A/DUU/04 to come to conclusion that the assessee has made payment to the trustees. These statements are made by the AO without confronting this seized material to the trustee though they were examined by the authorities concerned. Without confronting the seized material and statement of Shri Srinivas it is not possible to hold that there was unaccounted cash payment to the trustees. Further, Shri. R L Jalappa one of the trustee denied the fact of receiving any money as noted in the seized document. However, the assessing officer made protective additions in hands of Shri. R L Jalappa in these assessment years after making substantiative assessment in hands of trust. This shows that assessing officer is not sure in whose hands the additions to be made. Being so, we find force in argument of assessing counsel that AO is not justified in holding that there was violation of provisions of section 13(1)(c)(ii) of the IT Act on this count.

Further, the AO taken the support of assessee letter dated 09.12.2017 placed at PB 2704 to 2706 wherein assessee stated that a sum of Rs.14,611.94 lakhs has been spent for object of the trust. It is also stated that Shri G H Nagraj, Secretary of the trust collected the unaccounted capitation fees on his own without the knowledge of the trustees or without authorisation of the committee of trustees and also out of it he has spent Rs.14,611.94 lakhs for the purpose of trust activities. It was also reiterated

Further, there was an allegation by AO that assessee has received donation in return for giving cash to them and facilitated to the donor to claim deduction u/s 80G and accordingly AO observed that donation is bogus. After examining one donor by name Shri Hanumantharaya whose statement is available on record on PB page no 2181. Shri Nagaraj when confronted him with regard to his statement, he denied the same. Being so, it cannot be held that the assessee received any bogus donation.

There was an allegation by AO that assessee made illegal payments into MCI officials. According to ld. DR the seized material marked as A/DUU/02 shows such alleged payment. The Secretary Shri Nagraj deposed before the authorities and recorded his statement on 13-08-2015 placed at PB page no 2165 that the Officials of MCI refused to receive any gifts and there was no any payment of cash to them. There was no examination of recipient such allegation cannot be made without examining the concerned parties and no adverse inference could be drawn against the assessee on this count.

Further, there was an allegation that on the basis of seized material marked as A/DUU/13 there was a payment of donation to political parties. As we observed on earlier occasion the noting’s in seized material which is obscure being loose sheets cannot be relied upon without any corroboration.

Seized material A/DUU/17 copy of which is not provided to the assessee and cross-examination of Mr. Goli Srinivas was not provided to the assessee cannot be relied upon.

The assessing officer has stated that summons was sent during the course of assessment proceedings to the parents in order to allow cross- examination by the assessee’s representatives. One of the parents appeared and reconfirmed. It is noted that though statements of parents of 5 students were said to have been obtained, only one parent has appeared and reconfirmed the contents of his earlier statement. As the parents of 4 of the students did not appear for cross-examination, their statements cannot be relied upon as the appellant could not cross-examine them. The fact that they did not respond to the summons would show that the credibility of their statements is highly doubtful. When the appellant has neither been given copy of the statement nor has got the opportunity to cross-examine the person giving statement, such statements cannot be relied upon.

With regard to the AO’s observations that the responses given by the said parent remained the same during the course of cross examination by assessee and he reiterated that the parents have never been cross- examined by the appellant. Had there was a cross-examination, the DR very well could have produced the copy of the same for our consideration. The DR failed to do so. Hence, it is observed that the assessee was not afforded any opportunity to cross-examine any of the persons including the

Further, the AO recorded at page 125 of his order that he has sent summons to parents of students out of which only 5 students statements were recorded. Only two persons confirmed the payment of capitation fee. Vide assessee’s letter dated 02.12.2017 assessee asked for information about enquiry with the students. No information was provided by the AO to the assessee. In this regard, statement of 2 persons out of 800 cannot be relied upon and it is not appropriate to come to the conclusion that these are full-proof of evidence which the AO can rely upon. Reliance on this incomplete statement cannot be appreciated as held by the Hon’ble Supreme Court in the case of Kishinchand Chellaram v. CIT, 125 ITR 713 (SC) as follows:- “Held, reversing the decision of the High Court, (i) on the facts, that the two letters dated February 18, 1955 , and March 9, 1957 did not constitute any material evidence which the Tribunal could take into account for the purpose of arriving at the finding that the sum of Rs.1,07,350 was remitted by the assessee from Madras, and if these two letters were eliminated, there was no material evidence at all which could support its finding. The statements of managers in those two letters were based on hearsay, as in the absence of evidence, it could not be taken that he must have been in charge of the Madras office on October 16, 1946, so as to have personal knowledge. The department ought to have called upon the manager to produce the documents and papers on the basis of which he made the statement and confronted the assessee with those documents and papers. It was true that proceedings under the income-tax law were not governed by the strict rules of evidence, and, therefore, it might be said that even without calling the manager of the bank in evidence to prove the letter dated February 18, 1955, it could be taken into account as evidence. But before the income-tax

Further, the Bangalore Bench in the case of Anand Social & Education Trust in ITA Nos. 2542-2548(B)/2017 dated 29.05.2020 by placing reliance on the judgment of Hon’ble Madras High Court in the case of Balaji Educational & Charitable Public Trust, 56 taxmann.com 182 in similar circumstances observed that the AO had not conducted any enquiry with the students or parents or others. The cash seized during the search was accepted as not belonging to the assessee. There was no complaint received from any student or parent regarding capitation fee charged by the institution. In the above case also the AO had estimated the capitation fee received from the students under the management quota for various years. The Hon’ble Madras High Court held it to be a perverse inference. Further

In this case also, the addition made by the AO is based on unsubstantiated loose sheets and jottings without proper cross-examination of the person who has admitted the contents therein. Being so, it cannot be stated as full-proof of material evidence to substantiate the addition. In our opinion seized documents do not support the AO’s contention that assessee has received unaccounted capitation fees for admission of the students to the college. It also does not suggest that the assessee has paid commission to agents to bring the students for admission to college. Similarly it does not suggest payment of any amount to the trustees for their self-benefit. Going through the entire facts of the case it creates only a suspicion in the minds of the revenue authorities that the assessee has collected unaccounted capitation fees. However, the suspicion not enough to hold that the assessee has collected unaccounted capitation fees in absence of concrete evidence bought on record by the authorities concerned. The suspicion cannot replace the material evidence brought on record by the authorities. It is also noted that the assessee vide their letter dated 22-02-2017 asked for following information: (i) Number of student/parents to whom summons were issued (ii) How many of such notices were served ? (iii) How many were returned unserved? (iv) The number of students/parents who appeared before the AO

Further at a cost of repetition, we observe that the revenue authorities recorded statement of only 5 students out of more than 800 students and out of 5 only 2 are confirmed. The two statements recorded cannot be relied upon without confronting the same to the assessee. The statement of these two persons confirming payment of capitation fees is fully uncorroborated and non-production of them for cross-examination cannot be considered as incriminating material so as to sustain the addition. The rough notings in the loose papers are not full-proof evidence without proving the correctness of the same. Nothing was recorded in the orders of lower authorities that assessee has deviated from its objects for which approval u/s. 12A was granted and not applied its funds towards its objects. No evidence was brought out to show that the amount of capitation fees alleged to have been collected resulted in creation of any unaccounted assets by the trust or trustees or by any interested person. On this count also the addition cannot be sustained.

No assets commensurate with the alleged estimated collection of capitation fees by the revenue authorities were found. The unbounded loose sheets having jottings are not speaking either by itself or in the company of others and not corroborated by enquiry, cannot be the basis of any inference that capitation fees was collected not entered in the accounts so as to sustain the addition.

Considering the facts of the case, we are of the opinion that the evidence collected by the authority is not sufficient to establish that the stand that the assessee has collected unaccounted capitation fees for admission of students to various courses in the assessee’s college. We are aware that entire evidence has to be appreciated in a wholesome manner and even where there is documentary evidence, the same can be overlooked if there are surrounding circumstances to show that the claim of

Further reference is made to the judgment of the Hon’ble High Court of Karnataka in the case of DIT(E) V. Sri Belimatha Mahasamsthana Socio Cultural and Educational Trust, 336 ITR 694 (Karn). In this case, the assessee a social, cultural and educational trust, running educational institutions and having various professional courses filed its return of income for the AY 2001-02. The AO denied exemption u/s. 11 of the Act holding that the sums collected towards donations from students were contrary to the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. The AO also disallowed the sum shown as corpus donation as the source of such donations had not been proved by the assessee and, therefore, the said amount was also not allowed as an exemption under section 11(1)(d) of the Act. The CIT(Appeals) confirmed the order of AO. The Tribunal allowed the benefit of exemption u/s. 11. On appeal, it was held that merely because the assessee is an institution which is running professional courses, the AO could not have presumed that the amounts which are received as donation were attributable to the allotment of seats in the relevant assessment year. In the absence of there being any foundation for such a contention that the donation received during the period was not in violation of the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984 and the assessee has not acted as opposed to the public policy, exemption u/s. 11 could not have been denied.

Further, the Bangalore Bench of the Tribunal in the case of Venkatesha Education Society in ITA Nos.100 to 106/Bang/2012 and M.J. Balachander in ITA Nos.90 to 94/Bang/2012, order dated 21.12.2012 considered the case in similar circumstances where Mr. M.J. Balachander was collecting extra tuition fees without any authority or consent of the society and the conclusion of the CIT(Appeals) was that extra tuition fees was collected by Mr. Balachander on his own and society has nothing to do

Further the Hyderabad Tribunal in the case of Prathima Educational Society, Hyderabad in ITA No.720/Hyd/2012 vide order dated 08.11.2013 wherein the Accountant Member is a party to the order, held that the evidence collected not speaking with regard to collection of cash of unaccounted capitation fees, cannot be a reason to deny exemption u/s. 11 of the Act. The seized material on which reliance is placed by the revenue authorities is not conclusive evidence to sustain the addition and deny exemption u/s. 11 of the Act.

Further the Hyderabad Bench of the Tribunal in the case of ACIT v. B. Srinivasa Rao, 159 TTJ 483 (Hyd) [wherein the AM herein was the author observed as under:-

Thus, it is seen from the seized material and Excel sheets that these are handwritten loose documents and Excel sheet print-outs taken from the computer and undisclosed income of the assessee is determined on the

In our opinion, the unsubstantiated and uncorroborated seized material alone cannot be considered as conclusive evidence to frame these assessments. The words “may be presumed” in section 132(4) of the Act given an option to the AO concerned to presume these things, but it is rebuttable and it does not give a definite authority and conclusive evidence. The assessee is having every right to rebut the same. The entire case depends upon the rule of evidence. There is no conclusive presumption with regard to unsubstantiated seized material to come to the conclusion that that assessee has collected unaccounted capitation fees. In the present case, the assessee categorically denied collection of capitation fees. If it was collected, it was unauthorized collection by the person who is looking after the admission and that it is why it is unauthorized by the trust. Further, there is no confirmation from the students who get admitted into various courses and even there was statements recorded from two students/parents which were not confronted to the assessee for cross- examination. The revenue authorities cannot draw inference on the basis of suspicion, conjectures and surmises. Suspicion, however strong, cannot take place the material in place of evidence of the AO. The AO should act in a judicial manner, proceed in a judicial spirit and come to the judicial

The contention of the ld. DR is that cross-examination of parties whose statements were relied on by the AO to frame the assessment need not be given. On the other hand, if it is required to be given, the issue may be remitted back to the AO to give such opportunity. For this purpose, he relied on the judgment of the Hon’ble Allahabad High Court in the case of Moti Lal Padampat Udyog Ltd. v. CIT, 293 ITR 565 (All) wherein it was held that :

Further ld. DR relied on the judgment of the Hon’ble Supreme Court in the case of ITO v. M. Pirai Choodi, 334 ITR 262 (SC) wherein the facts are that the department refused to accept the interest income shown

Coming to the reliance placed by the ld. DR on the order of the Tribunal in the case of Centurion Investment & International Trading Co. (P.) Ltd. v. ITO, 126 ITD 356 (Del) wherein it was held as follows:-

In our opinion, the facts of the present case before us are entirely different. In the present case, we have already held that there are various loose sheets, scribblings, jottings and Excel sheets taken from the computer having no signature or authorization from the assessee’s side. These are unsubstantiated documents and there is nothing to suggest any undisclosed assets of assessee found during the course of search. More so, it does not show any recovery of the undisclosed assets in the form of landed property, building, investments, money, bullion, jewellery or any kind of movable or immovable assets. In such circumstances, we are of the opinion that the decisions relied on by the ld. DR cannot be applied to the facts of the assessee’s case. 246. Further it is to be noted that we have already relied on the Supreme Court judgment in Andaman Timber Industries v. Commissioner of Central Excise, 281 CTR 241 (SC) wherein it was held that opportunity of cross- examination not given leads to nullity and assessment order to be quashed. It is also pertinent to mention herein the decision of Special Bench of the Tribunal in ACIT v. Vireet Investments (P) Ltd. 165 ITD 27 (Delhi – Trib.) (SB) wherein it was held that when two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted, which is in line with the Supreme Court judgment in the case of CIT v. Vegetable Products, 88 ITR 192 (SC). This is a well- accepted construction recognized by various courts. Accordingly, we also reject this argument of the ld. DR. 247. Being so, in our opinion the seized material relied by the assessing officer for sustaining addition is not speaking one in itself and also not speaking in conjunction with some other evidence with authorities found during the course of search or post search investigation. Thus, the well settled legal position is that a non-speaking document without any corroborative material, evidence on record and finding that such document

Thus, we are agreeing with the contention of ld. AR that placing reliance on the seized material is not proper and all the additions on the basis of the above are deleted in all the assessment years since,:

The AO has alleged that the appellant has received capitation fee in cash and same has not been accounted in the books and that the capitation fee so received has been diverted for the benefit of trustees as well as expended on illegal activities. The AO has relied upon the following material:- • Seized material marked as A/DUU/01 which contains loose sheets serially numbered from 1 to 91 • Seized material marked as A/DUU/13 being folder containing loose sheets serially numbered from 1 to 102 • Seized material marked as A/DUU/14 being digital data retrieved from the system • Seized material marked as A/DUU/04 being note book containing certain receipts and payments serially numbered from 1 to 85 • Seized material marked as A/DUU/16 being scanned copy of unrealized cheques serially numbered from 1 to 54 255. Apart from the above seized material, the AO has relied upon the statement under section 132(4) of Sri. Goli V. Srinivas recorded on 06.08.2015.

In the submissions made in respect of ground number 7. the appellant has established that the seized material is not incriminating in nature. Therefore, it is not conclusive proof for receipt of capitation fee. The appellant reiterates those submissions. Under such circumstances, the AO erred in relying on such material to deny exemption under section

The AO has concluded that the appellant has received capitation fee merely on the basis of statements and unsigned documents which cannot be relied on as evidence. As far as the statements of Mr. Srinivas and Mr. Nagaraj are concerned, the appellant reiterates that they have not acted at the behest of the trust.

The appellant has stated categorically that the said loose sheets / note books referred to above have not been maintained by it. The mandate under section 11(1)(a) is that “income derived from property held under trust” should be applied for charitable purposes. Para 9 of the trust deed states that the property of the trust shall be the initial contributions and such other properties as may be donated or otherwise acquired by the trust. Therefore, income from such property should be applied for charitable purposes in order to claim benefit of section 11(1)(a). Para 5 of the trust deed states that “The properties, the assets, effects, funds and the like of the trust shall vest upon the Trust, the trustees perpetually and irrevocably for the due fulfilment and effectuation of the object, and the purpose of the SRI DEVARAJ URS EDUCATIONAL TRUST FOR BACKWARD CLASSES / CASTES.” All the donations, gifts, etc, shall be taken over possession only in the name of the Trust and the Chairman or the Secretary in his official capacity as a true representations of the Trust and can never be in his personal capacity.”

Trust has responsibility only vis-à-vis what is received in its name by the Chairman or Secretary in their official capacity. The trust cannot be made accountable for what the trust personnel have received in their personal capacity by abusing their position. The trust cannot be made responsible for such receipts. All consequences on account of such receipts cannot affect the charitable nature of the trust. The violation on the part of the personnel of the trust who have abused their position would

One needs to put a dividing line between what is done by the personnel of the trust in their official capacity and their personal capacity. The trust cannot be held responsible for the acts of the personnel of the trust in their personal capacity. Therefore, the consequences of such acts cannot affect the trust in any manner including its eligibility to claim exemption u/s. 11. When the trust has neither received the alleged capitation fee nor has control on such alleged capitation fee where is the question of it being responsible for the receipt and utilization of the same.

In view of the above submissions, it is submitted that the appellant has not diverted any funds for the benefit of trustees and there is no violation of section 13(1)(c)(ii).

The AO relied upon the decision of the Hon’ble Delhi High Court in Mool Chand Khairati Ram Trust v. DIT (Exemption) [2015] 377 ITR 650 (Del) and held at para 8.2, page 104 of the assessment order holding that in the instant case also the assessee has grossly violated the provisions by not applying the receipts earned through capitation fee collection, and rather by the trustees appropriating the same.

It is submitted that the decision relied upon by the AO does not support the conclusion drawn by him. Without prejudice to the main contention that the appellant has neither received any capitation fee nor diverted any of its funds for the benefit of the trustees, it is submitted that the above decision is not applicable to the facts of the present case. The issue in the above case was whether income from property held under trust can be applied for a purpose even though charitable, if such purpose is not the object of the trust. This is not at all the issue in the present case. The ratio of the said decision does not support the allegations made by the AO .

Without prejudice to the contention that funds have not been diverted for the benefit of trustees, the AO has tabulated the payments made to trustees based on his analysis of the seized material (supra). A perusal of the said table would show that there are no such payments pertaining to AY 2010-11 and 2011-12 as per the analysis of the AO himself. It is pertinent to note that the assessments for AY 2010-11 and 2011-12 have been completed under section 143(3) prior to date of search. The assessments for these years would not abate. No addition or allegation can be made without incriminating material found and seized during the course of search. Therefore, in the absence of incriminating

Now, to rebut the allegations made by the AO that the appellant has made payments for illegal activities and hence, has violated the objects of the trust and also allegation that the appellant has been a conduit for tax evasion. It is submitted that the theory advanced by the AO is that the appellant has collected capitation fee in cash and used such funds to make payments towards illegal activity. In paragraphs 8.1 to 8.39, supra, it has been demonstrated that the allegation of AO that appellant has received capitation fee is perverse as it is not supported by any evidence. Therefore, this by itself would also destroy the allegation that the funds are utilized for illegal activities because when the very existence of source from which funds are said to have been diverted has not been proved, the allegation of diversion should fail.

Without prejudice to the above, regarding the allegations regarding expenditure on illegal activities, the AO has alleged that the activities of the appellant are not in accordance with the objects of the trust and it has been used as a conduit for tax evasion, it was submitted that the allegation of deviations from the objects of the trust is based on the seized documents. The appellant has already established that these documents have no connection whatsoever with the trust. These are privately maintained by some other person. And if they have spent some money out of such collection, it cannot be said that trust has carried on its activities in violation of its objects. Therefore, the exemption u/s 11 cannot be denied on this ground.

The various allegations of the AO regarding payment for illegal activities and being a conduit for tax evasion can be categorized as under: (i) Payment to political parties for funding elections

The AO has tabulated his analysis of seized material no. A/DUU/13 with respect to alleged payment made for elections. The relevant entry no. 85 of seized material no. A/DUU/13 was confronted to Sri. Goli V. Srinivas and Sri. G H Nagaraj. The relevant portion of the statements is extracted in the earlier submissions. Based on the above material, the AO observed as under:- • “Para vide Sl. No. 5.2.3.1h deals with the payment of Rs. 300 lacs made to political parties. When Pg. 85 of the seized materials A/DUU/13 was shown and GVS and Sri G H Nagaraj was confronted they have stated that this amount was paid to various political parties and candidates contesting election. An extract of their reply has been annexed in para 5.2.3.1h. However, they have not given further details of as to whom such payments were made to. It is pertinent at this juncture to note that the Chairman of the Trust is Politician. Such payments made to political parties have two violations, one being that they violate the objective of the Trust by spending income from property of Trust to the purposes other than charitable purpose and second being the fact that they directly or indirectly aid benefit one of the trustees.” [Para 5.2.3.3.4, page 70]

Without prejudice to the above, the AO has stated that there are multiple entries in seized material marked as A/DUU/02 to A/DUU/04 which would show that the trust funds have been diverted for funding elections. It is submitted that the AO cannot generalize a stray entry noted and confronted to Sri. Goli V. Srinivas / Sri. G H Nagaraj to hold that there are multiple such cases. The AO has not drawn attention to not even one such entry in seized materials marked as A/DUU/02 to A/DUU/04. The AO is not permitted to extrapolate the same to other years in the absence of any material. As stated earlier, the entry in page 85 of the seized material marked A/DUU/13 and the statement of Sri. Goli V. Srinivas / Sri. G H Nagaraj are not supported by corroborative evidence. The AO ought to appreciate the fact that elections are not conducted all years. Therefore, there is not even circumstantial evidence for him to extrapolate one stray entry. The finding of the AO regarding diversion of funds for elections is to be restricted only to AY 14-15 and it cannot be extended to other years. This is without prejudice to the contention that the finding of the AO that trust funds have been diverted for funding elections is perverse as it is not based on cogent evidence.

Without prejudice to the above, it is submitted that the seized material marked as A/DUU/02 to A/DUU/04 and A/DUU/13 do not contain any entry pertaining to FY 2009-10, relevant to AY 2010-11. Therefore, this finding of the AO cannot be extended to AY 2010-11 even on this ground.

At pages 78 and 79, the AO has extracted the relevant portion of the statements of Sri. Goli V. Srinivas recorded on 06.08.2015 under section 132(4) and on 28.11.2017 under section 131 with reference to role of agents.

Relying upon the above materials, the AO, at page 100, para 7.1 of the assessment order, alleged as under:- “The trust funds have been mis-utilized for making payments to various brokers/agents to procure students for admission into the Medical colleges and facilitation of payment of capitation fees as seen from seized material Annexure A/DUU/01 page 67, A/DUU/02 Page 61, A/DUU/13 pages 10, 11 and various other such evidences found and seized.”

The ld. AR submitted that a perusal of the above paragraphs would show that the AO has relied upon certain portion of seized material marked as A/DUU/01, A/DUU/02, statement of G H Nagaraj recorded u/s 132(4) on 20.08.2015, statement of Sri. Goli V. Srinivas recorded under section 132(4) on 06.08.2015 and under sec 131 on 28.11.2017. The AO also sought to rely upon page 5 of seized material no. A/DUU/10. This page consists only of certain obscure notings and figures. Nothing can be deciphered from the same. The portion of seized material relied upon cannot be held as corroborative evidences to support the allegations that the appellant has paid commission to agents for getting candidates for admission with capitation fee. There is nothing in the seized material to support the above. Even the statement of Sri. Goli V. Srinivas /Sri. G H Nagaraj which is relied upon is not supported by any cogent evidence. We have already established that the statement of Sri. Goli V. Srinivas cannot be relied upon to prove the role of agent. The AO ought to have summoned the various persons referred to in the statement given by Sri. Goli V. Srinivas. The AO cannot merely rely upon a statement which is not supported by any evidence. The AO has sought to rely on statement of Sri. Goli V. Srinivas recorded under sec 131 on 28.11.2017 which is much later than the date of search. It is submitted that reliance cannot be placed on a statement recorded under section 131 post–search in the absence of reliable material during the course of search. Moreover, it is recorded only a month before the time-limit to make assessment could expire.

Without prejudice to the above, it was submitted that the statement recorded on 28.11.2017 has neither been furnished to the appellant nor the appellant has been afforded an opportunity for cross-examination. For reasons stated earlier submissions, it was submitted that such statement cannot be relied upon.

Relying upon the above materials, the AO at serial no. 5, page 100, para 7.1 of the AO , alleged as under: “The trust funds have been mis-utilized for payment of gifts and bribes during MCI Inspections to unknown officials /persons as seen from seized material vide Annexure A/DUU/02 (such entries found in multiple pages).” 280. At para 7.8, page 102 of the assessment order, the AO has alleged “Payment of kickbacks and promotion of corruption” observing as under:- “Regular kickbacks in the form of cash, silver plates, gold chains, gifts, etc have been paid of inspectors from medical council of India, in order to receive favorable inspection reports. This also proves that the institution is not maintaining the necessary standards and complying with norms and is therefore attempting to buy the officials through bribery.” 281. The AO relied upon the aforementioned material and statement of Sri. Goli V. Srinivas recorded on 07.08.2015 under sec 132(4) of the Act and statement of Sri. Goli V. Srinivas recorded on 28.11.2017 under sec 131 of the Act.

The appellant strongly denies the allegation that it has paid bribes to MCI inspectors. The allegation is based on totally unreliable documents

The AO has sought to rely on statement of Sri. Goli V. Srinivas recorded under sec 131 on 28.11.2017 which is much later than the date of search. It is submitted that reliance cannot be placed on a statement recorded under section 131 post – search in the absence of reliable material during the course of search. Moreover, it is recorded only a month before the time-limit to make assessment could expire.

Without prejudice to the above, the statement recorded on 28.11.2017 has neither been furnished to the appellant nor has the appellant been afforded an opportunity for cross-examination. For reasons stated in earlier submissions supra such statement cannot be relied upon.

It was submitted that the AO ought to have issued summons to the MCI inspectors to whom Sri. Goli V. Srinivas, in his statement, alleged to have given bribe. The AO erred in merely relying upon the statement of Sri. Goli V. Srinivas without verifying its veracity. There is no evidence to prove the correctness of the statement.

In query no. 14 posed to Sri G H Nagaraj while recording statement under section 131 on 13.08.2015, he was confronted with reply to question no. 37 in the statement of Sri. Goli V. Srinivas and was asked to offer his comments. In reply to aforesaid query no. 14, Sri. G H Nagaraj stated that no cash payments are made to MCI Inspectors.

The appellant, in its reply dated 02.12.2017 to notice under sec 142(1) dated 15.11.2017 had objected to the allegation of the AO that it

Without prejudice to the above, the material relied upon by the AO contains dates falling in FY 13-14. Sri G H Nagaraj in the statement under section 132(4) recorded on 20.08.2015 in reply to question no. 8 has stated that MCI Inspection takes place every year till the year of recognition and once recognition is granted, the inspection is made once in 5 years. Deemed University recognition was granted in the year 2006. That being the case, how can there be occasion of making any payments to MCI Inspectors. Therefore, there is not even circumstantial evidence for him to extrapolate one stray entry. At worst, the finding of the AO regarding payment to MCI Inspectors is to be restricted only to AY 14-15 and it cannot be extended to other years. This is without prejudice to our claim that no bribes were paid to MCI inspectors.

Therefore, this ground cannot be applied to all years for denying exemption under section 11. This is without prejudice to the contention that the finding of the AO that trust funds have been used for bribing is perverse as it is not based on cogent evidence.

The statement of Sri. Goli V. Srinivas is not supported by any evidence. The statement made by Sri. Goli V. Srinivas can be true only if he has access to the income-tax returns and assessment records of the bogus donors. He has nowhere accepted in his statement that he has access to any such documents. That being the case, he cannot make an authoritative statement that the “……..paid for various 80G receipt holders who had made cheque payment to our organization for the period………………to avail benefit under the Income Tax Act.” The said

Further, it was stated that statements whatever relied on by the AO was not confronted to the assessee. Hence, it may not be relied upon.

The ld. AR submitted that the appellant denies the allegation that it has paid remuneration in cash to enable the faculty to evade tax. The allegation made by the AO is absolutely baseless. The AO has not brought on record any material to prove his statement. In fact, while dealing with the claim of the appellant regarding deduction of expenditure, the AO has sought to rely upon statements of two faculties – Dr. Kishore Kumar and Dr. Nagaraj S. A portion of these statements is extracted at pages 145 and 146 of the assessment order. The faculties, in the statements, have denied receipt of any additional salary as stated in page no. 81 of seized material no. A/DUU/01. The AO sought to rely upon the statements of faculties to deny the claim of the appellant in respect of deduction for expenditure. It is submitted that the statement contradicts the allegation of the AO that the appellant has paid salary in cash to staff to aid them to avoid tax. When the faculties have denied accepting additional salary, the question of aiding them to avoid tax by paying salary in cash does not arise. If the AO had reason to believe that the remuneration is paid in cash without TDS to enable the faculty to evade tax, he should have handed over the relevant material to the AO who had jurisdiction over such faculties to enable initiation of proceedings under section 153C in respect of such faculties. But the AO did not choose to do so. He has not even called for the income-tax returns and assessment records of those

The ld. DR contended that the modus operandi of the assessee is that the trust receives capitation fees from students which are routed into books of account as voluntary donation from various individuals / entities. Further a significant part of the capitation fees collected in cash was utilized for personal purposes of the trustees. Also huge cash was sized from the premises of the trust and explained by the trustee that the same was received as capitation fee. Thus the gist of modus establishes that assessee’s activities cannot be called as charitable activities as per the objects of the trust and it is not genuine, hence exemption u/s. 11 cannot be granted.

We have heard both the parties and perused the material on record on this issue. In the present case, exemption u/s. 11 was denied on the reasons that assessee has collected unaccounted capitation fee from management and NRI quota which is based on unsupported seized material on which no opportunity to cross-examine was given to the assessee. Hence we have observed that no addition can be made on this basis. Now coming to the activities of the assessee, no material has been brought on record that the assessee has not solely existed for the purpose of carrying out educational activities and books of account have not been rejected. It cannot be said that the activities carried on by the assessee is not genuine. In our opinion, the assessee solely existing for non-profit purpose. Unless the department shows that there was breach of conditions

Ground No.9 is with regard to allowance of depreciation (original ground in AY 2010-11).

The AO observed that given the fact that the benefits u/s 11 are being denied the surplus as specified u/s 11(1)(a) & 11(1)(b), the surplus specified u/s 11(2) are considered to be taxable income of the assessee. The claims of capital expenditure made by the assessee are capitalized and therefore disallowed as expenditure that that can be claimed by the assessee against the receipts. As depreciation has already been claimed by the assessee against the capital expenditure made, no further depreciation is allowed. Therefore, he denied depreciation on the ground that the depreciation has already been claimed by the assessee against the capital expenditure made, hence no further depreciation is allowed. The assessment has been made under section 143(3) for the impugned assessment year.

The ld. AR submitted that a perusal of the computation of income shows that the surplus before claiming exemption under section 11(1)(a) is Rs. 6,85,70,097. The same has been arrived at as under:- Gross receipts 58,73,36,562 Less: Application of income Revenue Expenditure as per Income & Expenditure Account (excluding depreciation) 44,58,41,894 Capital Expenditure 7,29,24,571 Total application of income 51,87,66,465 Balance 6,85,70,097 Less: Exemption u/s 11(1)(a) [15% of gross receipts – Restricted to surplus available]

It is submitted that the surplus considered by the AO in the computation of total income in the order dated 30.12.2017 passed under section 153A is also Rs. 6,85,70,097. Therefore, the same is before the claim for depreciation. The AO also added back the capital expenditure claimed as application of income as exemption under section 11 is denied. Therefore, the observation of the AO that the appellant has claimed depreciation is incorrect.

Therefore, without prejudice to the main contention that the appellant is entitled to claim exemption u/s. 11 of the Act, it is submitted that the appellant is entitled to claim depreciation as per the provisions of the Act.

Without prejudice to the above, it was submitted that the AO has denied exemption under section 11 of the Act. Therefore, the AO is required to grant deduction towards depreciation irrespective of the fact whether depreciation has been claimed and allowed in the books of accounts or not. The AO is required to grant depreciation as per the normal provisions of the Act. When the AO has sought to compute the income under Chapter IV-D, he ought to have granted depreciation as per section 32 of the Act. It is submitted that deduction towards depreciation should be compulsorily be given whether the assessee has made the claim or not. Explanation 5 to section 32 reads as under:- “Explanation 5.—For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income;”. 302. The ld. DR submitted that the assessee claimed the cost of assets as capital expenditure in its Income & Expenditure statement. Being so, there cannot be any allowance of depreciation.

We have heard both the parties and perused the material on record on this issue. The assessee is entitled for depreciation u/s. 32 on assets where it has been laid out as application of income for charitable purposes u/s. 11(1)(a) of the Act. The amendment brought to section 11(6) of the Act by the Finance (No.2) Act, 2014 which became effective from AY 2015-16 and depreciation in such case being precipitation in nature. Accordingly, by placing reliance on the decision of the Hon’ble Supreme Court in the case of CIT v. Rajasthan & Gujarati Charitable Foundation Poona, 402 ITR 441 (SC), the AO is directed to grant depreciation for AY 2010-11.

In AYs 2011-12 to 2016-17, the ground relating to depreciation is not pressed. Accordingly, the same is dismissed as not pressed.

Ground No.10 with regard to computation of income under the heads of income applying the provisions of sections 28 to 43C of the Act is not pressed at the time of hearing and hence the same is dismissed as not pressed.

Ground No.11 is with regard to extrapolation of income in all years. The AO has added Rs. 27,42,00,000 towards undisclosed cash receipts in AY 2010-11. Similar is the position in other assessment years. The break- up of the same for AY 2010-11 is as under:- Description of course Alleged unaccounted cash generated during FY 2009-10 (Amount in Rs.) UG-MBBS course 12,34,00,000 PG course 15,08,00,000 Total 27,42,00,000 307. The AO has computed the alleged undisclosed cash receipts from UG-MBBS course and PG course for the impugned assessment year AY 2010-11. The relevant computation for AY 2010-11 is given at page 149 [UG-MBBS course] and page 151 [PG course]. He has computed the

It is pertinent to note that the column I which deals with “Total unaccounted cash generated as per seized material” is blank so far as AY 2010-11 is concerned. It means that the learned Assessing Officer has acknowledged that there is no incriminating material to prove that the appellant has received unaccounted fee in cash during the financial year 2009-10.

Without prejudice to the above, the AO has estimated the total number of seats at 63 in respect of which capitation fee is received. The quota of total seats for assessment year 2010-11 is 150, out of which 85%

At pages 152 and 153 of the assessment order, at para 10.9.2, the AO has discussed the evidences in support of quantification of unaccounted cash receipts for AY 2010-11. The evidences relied upon are as under:- • The AO has extracted three tables under the heading “Evidences relating to AY 2009-10 i.e., FY 2008-09” The first table has the caption “STATEMENT OF NRI STUDENTS 2008-09”. Below the table, the source is stated. Source is stated to be “Digital seized material: file name: Seats 2008-09.xls;Sheet:1” • The second table has the caption “STATEMENT OF INSTITUTIONAL QUOTA STUDENTS 2008-09”. Below the table, the source is stated. Source is stated to be “Digital seized material: file name: Seats 2008-09 1.xls;Sheet:2” • The third table has the caption “STATEMENT OF ADMISSION AGAINST DROPS (sic) OUT 2008-09”. Below the table, the source is stated. Source is stated to be

The ld. AR submitted that the evidences extracted and the conclusion of the AO would show that he has relied upon the material pertaining to FY 2008-09 for quantifying the cash generated during the FY 2009-10. It is submitted that addition can be made only on the basis of incriminating material found in respect of the impugned assessment year during the course of search. If no incriminating material is found for the impugned assessment year, the addition cannot be made based on earlier year’s data. The AO has merely presumed that the appellant has received capitation fee during the FY 2009-10 just because he found certain material pertaining to AY 2009-10 which, according to him purportedly represented proof for alleged capitation fee received during FY 2008-09. Assuming but without admitting that the material pertaining to FY 2008-09 represents evidence for alleged capitation fee received during that year, it is submitted that a presumption cannot be drawn that there must have been similar receipt even during FY 2009-10 in the absence of incriminating material pertaining to FY 2009-10. The appellant relies on the following decisions:-

The AO regarding the Evidence of opening balance on 1/4/2010 observed upon examination of seized material relating to payments, that there is an opening cash balance of Rs. 81 lakhs as on 1/4/2010. According to the AO, this means that Rs. 81 lakhs was the closing balance of AY 2010-11 i.e., as on 31/3/2010. If no capitation fee was collected during AY 2010-11, then the closing balance of cash (unaccounted) would be zero instead of Rs. 81 lakhs as is seen from the seized material. The same opening balance is also seen from the submissions of the assessee vide its submissions dated 20/12/2017.

The ld. AR submitted that just because the opening cash balance is Rs. 81 lakh as on 01.04.2010, it cannot be presumed that the same is out

Without prejudice to the above, it is submitted that the findings of the AO are contradictory. At page 149, AO seeks to rely upon page 151 of the seized material no. A/DUU/06 to support his computation of the alleged unaccounted cash generated during FY 2009-10. In para 10.9.2, where he has attempted to explain the evidences in support of his quantification for AY 2010-11, there is no reference to the aforementioned page 151 of the seized material no. A/DUU/06. At para 10.9.2, he extracts certain evidences which purportedly belong to FY 2008-09. As stated in earlier paragraph, even this evidence for FY 2008-09 is not reliable and acceptable and cannot form basis for drawing any conclusion for FY 2009- 10. Moreover, the alleged evidences have neither been confronted to Sri Goli V Srinivas / Sri G H Nagaraj nor copy of the same is given to the appellant. It is submitted that all the above would go to prove that there is no material found during the course of search which supports the allegations that the appellant received capitation fee during the FY 2009-10.

Without prejudice to the above, the AO issued notice no 142(1)/ACIT/CC-1(4)/2017-18 dated 21.12.2017 u/s.142(1) requiring the appellant to show cause as to why the unaccounted cash generated be not estimated as per the annexure attached to the said notice. A perusal of the annexure would show that so far as AY 2010-11 is concerned, the AO sought to rely only on page 151 of the seized material no. A/DUU/06. There is no mention at all of the evidences which the assessing officer

Without prejudice to the above, it is also pertinent to note that the AO relied upon data pertaining to AY 2009-10 though it doesn’t fall within the block of 6 years contemplated under section 153A(1). It is submitted that the authorized officer is not permitted to seize the material belonging to a period which doesn’t fall or is unlikely to fall within the period of 6 assessment years contemplated by section 153A. As stated earlier, the search can be initiated if the authorizing officer has reason to believe that in consequence of information in his possession any of the eventualities stated in clauses (a) to (c) of section 132(1) exist. Section 153A(1) states that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall issue notice to such person requiring him to furnish return of income. Section 132 and sec 153A need to be read harmoniously. The assessment under section 153A is permitted only in respect of assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted. On a harmonious reading of section 132 and section 153A, it is trite to state that section 132

It was submitted that the addition of Rs. 12,34,00,000 made in the assessment u/s.153A for AY 2010-11 in respect of UG-MBBS course is based on no material at all and in the absence of incriminating material, it is not sustainable and hence, is liable to be quashed.

The ld. AR submitted that the AO has computed the capitation fee and the unaccounted cash generated in respect of PG course for AY 2010- 11 as under:- Column heading as per Column reference the table given at page 151 of the assessment order Total Seats D 68 No. of seats for which capitation fee is E 42 collected Unaccounted cash component generated F - per seat per course

The ld. AR submitted that column F which deals with “Unaccounted cash component generated per seat per course” and the column G which deals with “Total unaccounted cash generated as per seized material” are blank so far as AY 2010-11 is concerned. It means that the AO has acknowledged that there is no incriminating material to prove that the appellant has received unaccounted fee in cash during the financial year 2009-10.

Without prejudice to the above, it is not known as to how the AO has adopted the no. of seats in respect of which capitation fee is received at 42. The quota of total seats for assessment year 2010-11 is 55, out of which 80% seats are reserved under merit quota. The management quota is only 20% which works out to 11. One fails to understand as to how one can estimate that cash was collected from 42 students. It is axiomatic that the merit students will not pay any cash. The appellant has vide its letter dated 23.12.2017 filed on 26.12.2017 has enclosed the year-wise details of number of students permitted and actual number of seats admitted to the college in respect of UG and PG courses.

It is also not known as to how the number of seats in respect of which the capitation fee is collected is arrived at. An asterisk mark has been put next to the number of seats i.e., 42. But there is no note below the table explaining the asterisk mark. The seized material does not contain any such data so far as AY 2010-11 is concerned. In the remarks

A perusal of the basis of computation as given in the remarks column would show that the addition is made towards alleged unaccounted cash generated during FY 2009-10 in respect of PG course is merely based on estimation. The estimation is made based on growth rate of 21.46% which percentage is arrived at by considering the data for FY 2010- 11 and FY 2011-12. It is pertinent to note that the value for FY 2011-12 is estimated based on data for FY 2010-11 and 2012-13. To make an estimation again based on such data which itself is derived by way of estimation is an unscientific manner of computation. In fact, in the evidences discussed at pages 152 and 153 of the assessment order, none of the materials pertain to PG course. Therefore, it means that the AO had absolutely nothing on hand to make any addition towards unaccounted cash generated during FY 2009-10 in respect of PG course. It is submitted that the addition made based on growth of some other years is irrational. Merely because there is growth there cannot be presumption that capitation fee is received.

It was submitted that the addition made towards unaccounted cash generated during FY 2009-10 in respect of PG course based on such unscientific method is not sustainable. The submissions made supra regarding invalidity of additions made in absence of incriminating material would apply mutatis mutandis.

The addition of Rs. 15,08,00,000 made in the assessment u/s.153A for AY 11-12 in respect of PG course based on no material at all and in the absence of incriminating material, it is not sustainable and hence, is liable to be quashed.

Though the AO has considered various materials, at various places in the assessment order, when it came to computation of unaccounted cash for AY 2010-11, he has sought to make an estimation purely based on data for some other year or years. This means that he has implicitly acknowledged that no incriminating material is found for AY 2010-11 in respect of both UG-MBBS course as well as PG course. The analysis of the documents and the conclusions arrived at based on such analysis made in the assessment order is not relevant for AY 2010-11 at all. Assessment under section 143(3) of the Act was completed in the case of AY 2010-11 on 12.03.2013. Hence, the assessment for AY 10-11 is unabated. No addition can be made in the absence of incriminating material. Therefore, the entire assessment under section 153A for AY 2010-11 is liable to be quashed in the absence of incriminating material found and seized in respect of the said assessment year.

Without prejudice to the above, the appellant has analysed the seized material and arrived at the alleged unaccounted cash generated for AY 2010-11 from UG-MBBS course and PG course. The unaccounted cash generated as per the said analysis is nil. The learned assessing officer has extrapolated that a sum of Rs. 2,742 lakh would have been received which has not been accounted even in the seized material. These submissions are made without prejudice to the main contention that the appellant has not received any capitation fee.

The ld. DR relied on the orders of lower authorities.

We have heard both the parties and perused the material on record on this issue. In all these years, the undisclosed cash receipts on the basis of incriminating material in the form of notings, jottings in the loose sheets are unsubstantiated material. We have already held in earlier para of this order that unsubstantiated material cannot be full-proof material evidence

Ground No.12 for AY 2010-11 is regarding disallowance of donation for the AY 2010-11 only. The AO has disallowed donation of Rs. 10,00,000 under section 37 of the Act. At page 192 he held that “The donations if any made by the assessee as not being for the purpose of business are disallowed u/s 37.” He has not demonstrated as to how the donation made has no nexus to activities of the appellant. It was submitted that the appellant donated Rs. 10,00,000 to Vijayalakshmi (R L Jalappa Education Foundation) through cheque.

Without prejudice to the main contention that the appellant is not engaged in any commercial activities and that the appellant is entitled to exemption under section 11, it is submitted that the donation of Rs. 10,00,000 is allowable as deduction under section 37 of the Act. Section 37 of the Act as it stood during the relevant period is as under: “37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation.—For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. (2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party.” 333. In order to claim deduction u/s.37, the expenditure under consideration, should satisfy the following conditions:- a. It should not be of the nature described in sections 30 to 36 b. It should not be capital expenditure c. It should not personal in nature d. It should be laid out wholly and exclusively for the purpose of business or profession e. It should not be incurred for any purpose which is an offence or which is prohibited by any law f. It should not have been incurred on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party 334. It is nobody’s case that the conditions stated in (a) to (c), (e) and (f) are not satisfied in case of donations made by the appellant. The only

Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order