SRI SRINIVASA EDUCATIONAL & CHARITABLE TRUST ,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE-2(1), BANGALORE

PER BENCH:-

The assessee has filed appeals for assessment years 2010-11 to 2013-14 and the revenue has filed appeals for assessment years 2008-09 to 2014-15. The assessee has filed Cross Objections for assessment years 2008-09, 2009-10 and 2014-15. All these appeals are directed against the common order dated 17-02-2016 passed by Ld CIT(A)-11, Bengaluru. The grounds urged in these

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appeals arise out of common set of facts. Hence all these appeals were heard together and are being disposed of by this common order, for the sake of convenience

(b) Direction of the Ld CIT(A) to disallow depreciation @ 10% of the above said amounts.

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(i) Whether in the facts and circumstances of the case, the CIT(A) erred in granting benefit of exemption u/s 11 to the assessee even though the trust applied its income for purposes other than those admissible u/s 11(2)(b) read with section 11(5) by diverting to its trustees and other specified persons.

(ii) Whether in the facts and circumstances of the case, the CIT(A) erred in granting benefit of exemption u/s 11 to the assessee even though the trust utilized its income in contravention of the provisions of section 13(1)(c) for the benefit of the persons specified in section 13(3) in support of which there are clear documentary evidences available in the seized material as also referred to in the assessment order by the Assessing Officer.

(iii) Whether in the facts and circumstances of the case, the CIT(A) erred in ignoring the noting in the seized material and also the admission of Principal Person u/s 132(4) which clearly established the fact that there is no documentary evidences with the assessee trust to claim that the income generated in the name of collection of capitation/development fee has been applied for its object.

(iv) Whether in the facts and circumstances of the case, the CIT(A) is correct in granting exemption u/s 11 even though on one hand he sustained a total addition of Rs.25 crores for various years on the ground that the assessee has not been able to prove genuineness of the expenditure made in cash for which also no evidences produced by the assessee to prove that the same were incurred towards application of its income on objects of the trust.

(v) Whether in the facts and circumstances of the case, the CIT(A) failed to ignore the fact that the assessee trust, as evidenced from the seized documents relating to collection of capitation/development fees, paid commission @ Rs.1,75,000 to an agent for soliciting students which is surely not an object of the trust and by doing so, the assessee trust indulged into a commercial activity.

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(vi) For these and such other grounds that may be urged at the time of hearing with the plea that the orders of Ld CIT(A) may be set aside and that of the assessing officer may be restored.”

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*** These two additions of Rs.703.00 lakhs and Rs.554.50 lakhs have been made in AY 2013-14 only. However, the revenue has inadvertently raised the above said issues in AY 2012-13 and 2014- 15 also. Hence the ground relating to the above said additions raised in AY 2012-13 and 2014-15 has been dismissed by Ld CIT(A) by observing that it does not arise out of assessment order. For the very same reason, we dismiss the said ground in AY 2012-13 and 2014-15.

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concerns, promoters etc., which have been made by way of cash. According to the AO, the search officials have considered these payments as amount spent for non-specified purposes, i.e., not towards attainment of objects of trust. The year-wise break-up of such payments have been quantified as under by the AO:- Assessment Year Amount 2012-13 9,93,00,000 2013-14 43,33,00,000 2014-15 4,76,00,000 ------------------ 58,02,00,000 ============ The assessee was asked to clarify the nature and purpose of above payments. The assessee submitted that these payments have been made towards construction and other expenses pertaining to college only. However, in the statements taken u/s 132(4) of the Act, the Chairman of the assessee institution stated that he may not be able to prove satisfactorily the utilisation of funds which have been made in cash and accordingly admitted that an amount of Rs.25.00 crores may be disallowed from the amount of “application of income” in assessment years 2010-11 to 2013-14 as detailed below:- Assessment years Amount 2010-11 4,00,00,000 2011-12 6,00,00,000 2012-13 7,50,00,000 2013-14 7,50,00,000 ---------------- 25,00,00,000 ============ Consequently, the assessee agreed for disallowance of above said amount from the claim of “Application of income” for the purposes

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of sec.11(1)(a) of the Act, vide its letter dated 13.09.2013. The assessee also furnished to the AO a revised computation of total income on 14.12.2015excluding the above amounts from the claim of “application of income”alongwithfollowing explanations:- “The Trust has incurred certain expenditures towards construction of building and has made cash payments to contractors and other suppliers. In the search proceedings, on these findings of the department, we have agreed for the disallowance of sum of Rs.25.00 Crores, out of application of funds of the trust in the capital and other related expenditures.

However, we would like to further state that, the above application of funds have been actually incurred towards construction of Medical College building and the same is run by the Trust and the payment has been made for the same for various persons. The Trust is managing Medical, engineering colleges and Hospital as per the objects of the Trust In the said premises

The above said disallowance has been accepted by the assessee, since at the time of search, they could not provide all the related evidences in connection with the expenditure made for construction of the college and hospital. We once again reiterate that the above expenditures are actually spent by the assessee and recorded the same in the books of accounts of the trust maintained in the regular course of operations and has agreed for disallowance for the sake of buying peace with the department.

We also state that, there is no violation of the objects of the Trust. Hence the question of withdrawing the exemption u/s.11 of the Income Tax Act, 1961 to the trust does not arise and request you to drop the proposal.

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With regard to proposal for disallowance of application of funds for the earlier A.Ys. 2008-09 and 2009-10, similar to our acceptance for A.Ys.2010-11 to2013-14, we would like to state that, the Trust has started its Medical college and hospital only from the A.Y 2010- 11 onwards. Earlier to that, the trust was carrying on the object of promoting education by way running Engineering College only. The Trust has maintained proper books of accounts in the regular course of its operations along with all other compliances like getting their books of accounts audited and filing of Income tax returns on or before the prescribed due dates as per the provisions of Income Tax Act, 1961.

In light of the above, the proposed disallowance of the construction expenses for earlier years also does not arise and request you to drop the proposal and conclude the Assessment.”

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Since the AO added the above said amount of Rs.58.02 crores to the total income in the three years cited above respectively, there was no necessity to make addition of Rs.25.00 crores voluntarily offered by the assessee in AY 2010-11 to 2013-14, since it formed part of the above said amount of Rs.58.02 crores. It is also pertinent to note that the AO made the above said additions u/s 69C of the Act as unexplained expenditure.

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lakhs and Rs.554.50 lakhs as income of the assessee in AY 2013- 14.

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deleted the said additions in the rectification order passed u/s 154 of the Act on noticing that the assessee has already disclosed the same as its receipts.

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Asst. year Additions made Spent on building Work in Progress By AO as per Balance Sheet 2012-13 9,93,00,000 59,86,33,201 5,18,36,069 2013-14 43,33,00,000 10,43,89,317 8,78,50,636 2014-15 4,76,00,000 18,62,46,418 2,44,75,837

The Ld CIT(A) noticed that the amount spent on buildings in the year relevant to AY 2013-14 was only Rs.1922 lakhs (10.43 + 8.79), whereas the AO has made an addition of Rs.4333 lakhs. Hence the Ld CIT(A) expressed the view that the AO should have identified the expenses, which were incurred in cash and for which no voucher was produced. Accordingly, the Ld CIT(A) opined that the AO could not have made these additions without pointing out the violation of provisions of the Act in respect of any particular item of expenditure. Accordingly, the Ld CIT(A) deleted the above said additions.

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Before Ld CIT(A), the assessee contended that the additions were inadvertently agreed by its trustee on a mistaken notion on both facts and law. However, the Ld CIT(A) rejected the same by observing that the assessee has not retracted from its Statement and by making such a voluntary offer, the assessee has estopped the AO from probing the matter further. Accordingly, the Ld CIT(A) sustained addition to the extent of Rs.25.00 crores as per the voluntary offer made by the assessee in aggregate, which was spread between assessment years 2010-11 to 2013-14.

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the said transactions do not belong to it. The seized record showed that these transactions were entered between Hotel Solitaire (a concern belonging to the trustees) and other persons. It is pertinent to note that the assessee had stated before the AO during the course of assessment proceedings that these transactions represent repayment of loan taken by it from M/s Srinivasa Enterprises and Shri G Dayanad. Since there is change in explanations, the Ld CIT(A) sought clarifications from the assessee. The assessee explained that the assessee had earlier offered the explanations without examining the seized materials, i.e., it was explained on mistaken notion and also as a possible scenario. It was further explained that the assessee could ascertain the actual nature of transactions after examining the seized materials. The Ld CIT(A), accordingly, took the view that the explanations now furnished before him are proper and are also based on supporting documents. Accordingly, he deleted the addition of Rs.703.99 lakhs made in AY 2013-14.

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general observations, i.e., ignoring the findings given by search officials and finding fault with the action of the assessing officer.

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have been made on the reasoning that the assessee has incurred construction expenses by way of cash. He submitted that there is no bar in incurring construction expenses in cash, since they are capital expenses and further the provisions of sec.40A(3) shall not apply to the assessee. He submitted that the assessee has accounted for all the expenses including those incurred by paying cash in the books of accounts. Entire expenses have been incurred for construction of buildings only for medical college. Further, all the expenses are duly supported by vouchers and the books of accounts of the assessee have been audited. He submitted that the auditors have not found any deficiency either in the maintenance of vouchers or in books of accounts. Accordingly, he submitted that there is no reason to hold that the expenses incurred by way of cash are for non-specified purposes and, in fact, there is no basis available with the AO in order to hold so. He submitted that the tax authorities cannot accept part of construction expenses recorded in the books of accounts as genuine and reject part thereof on the reasoning that some portion of construction expenses have been incurred in cash. He submitted that the aggregate amount of construction expenses incurred by the assessee during the financial year relevant to AY 2013-14 was only Rs.1921 lakhs only, whereas the assessing officer has added a sum of Rs.4333 lakhs in that year. He submitted that the Ld CIT(A) has rightly appreciated the above said fact and has also noticed that the assessing officer has not furnished the basis for arriving at the figures of above said additions. The Ld CIT(A) has expressed the following view in this regard:-

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“….The AO should have listed the expenses where the cash has been spent and no supporting vouchers are produced. If the cash payment has been made only to some specified concerns and no bills are produced, the same should have been specified. Without pointing out any particular violation in respect of any particular item of expenditure, it is not possible to sustain the addition. No addition can be made on adhoc basis.”

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amount of “application of income” on the reasoning that the assessee may not be in a position to furnish vouchers. However, the assessee has clarified in its letter dated 14-12-2015 furnished before the AO, that the assessee has offered so at the time of search, since he was under the opinion thatthe assessee could not furnish all the related evidences in connection with the expenditure incurred for construction of the college and hospital. It was reiterated that the expenditure was actually spent by the assessee and it has been duly recorded in the books of accounts of the assessee trust. It was also clarified that the assessee had accepted for the disallowance of Rs.25.00 crores for the sake of buying peace from the department. Accordingly, it was contended that there was no violation of the objects of Trust and hence the question of withdrawing exemption u/s 11 of the Act does not arise. Accordingly, the assessee had requested the AO to drop the proposal.

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have any basis. Hence the very basis on which the AO sought to deny exemption u/s 11 of the Act to the assessee has failed.

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sec.13(1)(c) as alleged by the AO. Hence the very basis cited by the assessing officer for withdrawal of exemption u/s 11 also would also fail.

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noted the fact that the development fee was not collected from all the students. The Ld CIT(A) has also given finding that the assessee has issued receipts for collection of voluntary donations and has also accounted for the same. Hence the Ld CIT(A) has taken support of the decision rendered by Hon'ble Madras High Court in the case of CIT vs. Balaji Educational and Charitable Public Trust (2015)(374 ITR 0274) in order to hold that the voluntary donations do not partake the character of Capitation fee. He submitted that the facts available in the case of Balaji Educational and Charitable Public Trust is in parity with the facts of the assessee. Accordingly, he submitted that the finding of the assessing officer on alleged collection of Capitation fee is based on surmises and conjectures, without conducting any enquiry. Accordingly, the Ld A.R submitted that this reasoning of the AO given for denying exemption u/s 11 also would fail.

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consequential denial of depreciation thereon, the Ld A.R submitted the following:- (a) The assessee has agreed that the amount of Rs.25.00 crores may be reduced from the amount taken as application of income. Accordingly, he submitted that the above said surrender does not lead to addition of Rs.25.00 crores to the total income of the assessee, but results in reduction of amount spent on construction of buildings.

(b) He submitted that the assessee has actually spent the above said amount of Rs.25.00 crores for construction of building and the assessee had agreed to surrender only for the reason that it may not be able to provide all related evidences at that point of time. He submitted that the assessee has since duly accounted for all the expenditure in the books of accounts, which has also been duly audited.Accordingly he submitted that the basis on which the amount of Rs.25.00 crores was offered by the assessee no longer exists.

(c) He submitted that the assessing officer did not make addition of Rs.25.00 crores in the assessment orders passed by him for AY 2010-11 to 2013-14. It is the Ld CIT(A) who has added the amount of Rs.25.00 crores in aggregate in the above said years. He submitted that the addition was made by Ld CIT(A) only for the reason that the assessee has agreed for the addition. The Ld A.R submitted that the assessee had

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agreed for reduction of amount from the amount of application of income and did not agree for addition to total income.

(d) The LdA.R submitted that the Hon'ble Supreme Court has held in the case of PullangodeRubber Produce Co. Vs. State of Kerala (1973)(91 ITR 18) has held as under:- “An admission is an extremely important piece of evidence, but it cannot be said that it is conclusive. It is open to the person who made the admission to show that it is incorrect.” He submitted that the assessee has demonstrated that the surrender of Rs.25.00 crores made by the assessee is based on wrong appreciation of facts and law. Further, the assessee has also demonstrated that all the expenses relating to construction of buildings have been duly accounted for in the books of accounts and further they are also supported by the vouchers.

(e) The Ld A.R submitted that the assessee has clarified before the AO, in its letter dated 14.12.2015, that there is no reason for agreeing for surrender of Rs.25.00 crores. The AO also did not make addition, out of the above said amount, in AY 2010-11 to 2013-14. He submitted that it is the Ld CIT(A), who has made the above said addition of Rs.25.00 crores on the reasoning that the assessee has agreed for the same.

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(f) Even if it is taken that the addition of Rs.58.02 crores made by the AO (in AY 2012-13 to 2014-15) would include the amount of Rs.25.00 crores surrendered by the assessee (in AY 2010-11 to 2013-14), yet the fact would remain that the AO did not make any addition in AY 2010-11 and 2011- 12. Hence the addition made by the Ld CIT(A) in the above said two years would amount to enhancement of income by the Ld CIT(A), which he could have made only after serving notice of enhancement upon the assessee.

(g) The explanations given by the assessee in its letter dated 14-12-2015 would amount to retraction.

Accordingly, the Ld A.R submitted that the addition of Rs.25.00 crores made by the Ld CIT(A) is not sustainable in law and accordingly prayed for deletion of the same. He submitted that the disallowance of depreciation is consequential in nature and hence liable to be deleted.

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and was also justified in directing disallowance of depreciation on such surrender.

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which such income is applied to such purposes in India and where any such income is accumulated or set apart for application to such purposes in India, to the extent to which the income so accumulated or set apart is not in excess of fifteen percent of the income from such property. Accordingly, the amount exempt u/s 11 of the Act is the aggregate amount of the amount applied for objects of the trust and the amount accumulated u /s 11(1)(a) not exceeding 15% of income. Under the Explanation given below section 11(1) of the Act, the assessee could postpone the application of income, if it is not able to apply its income for the reasons stated in the above said Explanation. It is also pertinent to note that the provisions of sec.11(2) enables the assessee to accumulate the income, if assessee is not able to apply 85% of its income or is not deemed to have been applied. It can be seen that even if the assessee is not able to apply 85% of its income for charitable purposes, the Act permits the assessee to apply the shortfall in the subsequent years, in which case, the amount so postponed/accumulated is deemed to be income applied to charitable purposes during the year in which the income was derived. Hence, the object of the provisions of sec.11(1), Explanation given under sec.11(1) and sec.11(2) is to enable the assessee to apply its income for charitable purposes only.

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college during the financial year relevant to AY 2010-11. During the course of search operations, it was noticed that the assessee has incurred expenses in cash. The assessee has agreed to offer a sum of Rs.25.00 crores for AY 2010-11 to 2013-14 as unexplained in the statement taken u/s 132(4) of the Act, by stating that the assessee would not be able to prove the application of money with proper bills and vouchers. The details of amounts admitted as unexplained and agreed for each of the assessment year is given below:- Asst. Year Amount 2010-11 Rs.4.00 crores 2011-12 Rs.6.00 crores 2012-13 Rs.7.50 crores 2013-14 Rs.7.50 crores ------------ Rs.25.00 crores ========= The assessee has agreed for disallowance of above said amounts from out of “Application of income” for the purposes of sec.11(1)(a) of the Act, meaning thereby, the assessee intended that the above said amounts should be reduced from the amount claimed as applied for the objects of the trust, i.e., it was not the intention of the assessee to offer the above said amount as its undisclosed income, which would warrant separate addition. In fact, the question of undisclosed income shall not arise in the facts of the present case. The assessee has also furnished revised computation of income on 14.12.2015 along with a detailed explanation, which was extracted earlier by us. However, it is pertinent to note that the assessing officer did not make above said additions in the above

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said years. Instead, he proceeded to add a sum of Rs.58.02 crores in AY 2012-13 as detailed below:- Asst. Year Amount 2012-13 9.93 crores 2013-14 43.33 crores 2014-15 4.76 crores --------- 58.02 crores ======= The case of AO is that the above said addition of Rs.58.02 crores would include the amount of Rs.25.00 crores offered by the assessee. The AO also made additions in AY 2013-14 to the tune of Rs.703.99 lakhs and Rs.554.50 lakhs for alleged violation of provisions of sec.13(1)(c) r.w.s 13(3) of the Act. He has further held that the assessee has collected Capitation fee under the name “Development Fee” over and above the fee prescribed by the Government and such collection was in violation of Constitutional Scheme and hence non-charitable in nature. All the above said observations and additions made by the AO has led him to come to the conclusion that the assessee is not entitled to exemption u/s 11 of the Act.Accordingly he held that the assessee is not entitled to exemption u/s 11 of the Act.

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collection of Capitation fee, the Ld CIT(A) held that the development fee collected by the assessee represents voluntary donation. In view of the decision taken by him on the above said issues, the Ld CIT(A) held that the assessee cannot be denied exemption under section 11 of the Act.Accordingly, the Ld CIT(A) allowed exemption u/s 11 of the Act to the assessee.

Asst. Year Amount 2012-13 9.93 crores 2013-14 43.33 crores 2014-15 4.76 crores --------- 58.02 crores =======

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The assessee furnished a reply dated 14.12.2015 stating that it has maintained proper books and all the expenditure has been recorded in the books and it has agreed for the reduction of Rs.25.00 crores from the amount of application of income to buy peace from the department. However, the AO rejected the contentions of the assessee by observing that the findings during the course of the search operations and the admission of the assessee that it was not in a position to prove expenses to the tune of Rs.25.00 crores for various assessment years would prove that the funds received were not utilized for the objects of the trust and the same is in clear violation of the provisions of sec. 11 of the Income tax Act. He also observed that the assessee has not been able to provide said supporting documentary evidences even during the course of assessment proceedings. Accordingly, he held that the entire amount of Rs.58.02 crores is to be treated as expenditure, which were not incurred for the objects of the Trust and also remains unexplained. Alternatively, the AO held that the above said expenses squarely fits into the provisions of sec.69C of the Act, since the source for these expenses remains unexplained. Accordingly, the AO has assessed the above said amount of Rs.58.02 crores in AY 2012-13 to 2014-15 as stated above.

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vouchers and bills which were incurred in cash. The major part of the expenditure stated to have been incurred in cash appears to be for the “Buildings”. There is no indication in the assessment order that the Assessing officer attempted to obtain the evidence by issue of notice u/s 142(1). The assessing officer has relied upon the outcome of search proceedings only. The basis for arriving at the figures for disallowance is not discernible from the assessment order. When compared to the expenditure on addition to the building in the Balance Sheet of the appellant and the disallowance made by the Assessing Officer, some peculiar results emerge. Though the caption for addition in the assessment order is “Payment for non-specified purposes in cash to contractors, other related concerns, to promoters etc.”, the ultimate addition appears to be only for moneys spent on buildings. No other particular expenditure has been referred to, nor has the concerns to whom payments are made have been mentioned. Quoting of the statement recorded from the Managing Director during search demonstrates that the Assessing Officer concentrated on cash spent for construction only. No other purpose for which huge cash has been spent has been mentioned in the assessment order. Therefore, the addition made in the assessment order and the addition to building is compared below:-

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Asst. year Additions made Spent on building Work in Progress By AO as per Balance Sheet 2012-13 9,93,00,000 59,86,33,201 5,18,36,069 2013-14 43,33,00,000 10,43,89,317 8,78,50,636 2014-15 4,76,00,000 18,62,46,418 2,44,75,837

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could not applied during the year in which the income was derived. The provisions of sec. 13 provides for compliance of certain conditions and violation of the same would result in forfeiture of exemption granted u/s 11 of the Act. Thus, it can be notied that the method of computation of total income of a Charitable Trust is different from the method of computation total income of a business concern. It is pertinent to note that, for the purpose of determining the quantum of income applied for objects of the trust, no distinction shall be made between Capital expenditure and Revenue expenditure, i.e., even capital expenditure is also treated as application of income. In the case of a business concern, the assessee would not be entitled for deduction of capital expenditure. Of course, depreciation is allowed thereon at prescribed rates. The focus in respect of a charitable trust is that it should apply its income for charitable purposes only. Only in case of violation of provisions of sec.13, then the charitable trust shall be liable to lose exemption u/s 11 of the Act and would be liable to pay tax on its total income as computed u/s 11 to 13 of the Act.

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income. The case of the assessing officer is that, during the course of search proceedings, several instances of payments made in cash to contractors, other related concerns, to promoters etc., were found. The AO has taken the view that the cash payments so made represent income applied for non-specified purposes.Accordingly he has proceeded to add Rs.58.02 crores to the total income in AY 2012-13 to 2014-15.However, as observed by Ld CIT(A), the assessing officer has not listed out the details of such payments, which were given for non-specified purposes. Even though, the assessing officer has stated that the payments have been made to contractors, other related concerns, to promoters etc., the Ld CIT(A) has concluded that the impugned amount of Rs.58.02 crores was spent on the construction activity only.

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has not attempted to make enquiries and obtain evidences by issuing notice u/s 142(1) of the Act. He has also observed that the AO seems to have relied upon the outcome of the search proceedings. The Ld CIT(A) has also observed that the addition made in AY 2013-14 is more than or disproportionate to the actual amount spent for construction during that year. He also observed that the assessing officer has not specified the basis on which the addition of Rs.9.93 crores, Rs.43.33 crores and Rs.4.76 crores respectively for AY 2012-13 to 2014-15 was quantified.

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details as to how the above said amounts were arrived. As noticed earlier, the revenue could not furnish the details.

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provisions of Explanation given under sec. 11(1) and sec.11(2) of the Act while determining the total income of the assessee, i.e., the assessee should have been given an opportunity to avail the benefits given in the Explanation under sec.11(1) and sec.11(2), since it is the AO who has held that the payments made in cash should be considered as payment for “non-specified purposes.”It is also pertinent to note that the provisions of sec. 13 of the Act are not applicable to the alleged application for non-specified purposes”. Accordingly, we are of the view that the AO was not justified in assessing the income so considered as spent for “non- specified purposes”, as it is against the scheme of taxation of Charitable trusts.

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Solitaire, a group concern, and the above said persons. It was submitted that the assessee was not aware of the contents in the seized material while giving explanations before the AO and it could ascertain actual nature of transactions only after examination of seized material. The Ld CIT(A) was convinced with the explanations of the assesseeand accordingly deleted the addition of Rs.703 lakhs.

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officer. However, in principle, we agree with the view taken by Ld CIT(A) on this issue.

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ITO vs. Dr. Radhakrishnan RamjivanBhootra (ITA No.3202/Ahd/2008 dated 27-04-2012). It was further submitted that the assessing officer has made the addition on mere allegations, surmises and conjectures. Further it was submitted that the AO has not given details such as, the dates on which the assessee had withdrawn cash from bank; when it was given to the above said persons and the purpose for which the payments were made. It was submitted that, without the above said details, it cannot be proved that there was violation of provisions of sec.13(1)(c) of the Act.

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such basic details, the Assessing Officer could not have put across to the appellant, whether the same have been entered in the books of account, much less question the violation of the provisions of sec.13(1)(c) and 13(3) of the Act. The withdrawal of cash from the bank is not unusual feature, that too for an institution of the size of the appellant. It is for the Assessing Officer to first find out the link between the cash withdrawal and the possible purpose for which the same has been utilized which has enured to the benefit of specified persons of the appellant. The appellant cannot be asked to answer a bland question. Without doing any such exercise, the Assessing Officer cannot jump to the conclusion that the appellant has failed to explain the transactions. Strangely, the Assessing Officer wants the appellant to substantiate the claim that cash withdrawals are made to meet regular expenditure of capital and revenue nature, with documentary evidence. That way the cash book itself is the documentary evidence, as it will contain entries relating to the withdrawal of cash and the purpose for which it is spent, or re-depositing of cash also into the bank. Having said that no documentary evidence has been produced, the Assessing Officer in the very next sentence mentions: “The present claims made by submitting copies of accounts is clearly an afterthought and a self-serving document created to take shelter regarding the claim. Hence it does not, in any way, support the claim of the assessee.”

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In these circumstances, it is but natural for the appellant to disparage the comments of the Assessing Officer. Therefore, I have no hesitation to delete the addition of Rs.5,54,50,500/- from the computation of income under the head “Payment to related persons”.

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actually given to the above said persons or not. The AO could have also asked explanations from the assessee by furnishing the break- up details. The AO has not carried out any of the above said steps. On the contrary, it is the submission of the assessee that all cash withdrawals made from the bank have been duly accounted for in the books of accounts and no payment, as alleged by the AO, has been made to the above said three persons during the year relevant to AY 2013-14. According to the assessee, it has furnished the above said explanations on the basis of books of accounts. Hence we are of the view that there is merit in the contention of the assessee that the AO has made the impugned addition on surmises and conjectures.Accordingly, we are of the view Ld CIT(A) was justified in deleting this addition.

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fees has been accounted for as revenue receipts and applied for only educational purposes.

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the income of the Trust is applied for the purpose other than the objects of the Trust. The benefit of Section 11 of the I T Act, in so far as the income derived from property held as a Trust, is given on a stipulation that the income shall be applied for the purposes of objects of the Trust and if 85% of the income is applied for the purposes of objects of the Trust, which includes both revenue and capital expenditure, the entire income is exempt from the tax and if application of the income is short of 85% of the total income, such shortage of application can be accumulated for application over a period of five subsequent years. The Assessing Officer has not established that the activities of the appellant are not genuine or that the activities of the appellant have not been carried on in accordance with the objects for which registration was granted.

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ADIT (2008)(20 SOT 353), wherein the ITAT has referred to the decision of the Madras High Court in the case of T.Devasahaya Nadar vs. CIT (51 ITR 20). The appellant has brought out in its written submissions a plethora of case laws to meet the points raised by the Assessing Officer. The very same Madras High Court in the case of COMMISSIONER OF INCOME TAX vs. BALAJI EDUCATIONAL AND CHARITABLE PUBLIC TRUST (2015) 374 ITR 0274 (Mad) has held that so long as there is no involuntary nature of collection, exemption to the trust cannot be denied. The observation of the Madras High Court is extracted below:

7.7 In our considered opinion, based on the loose sheets and cash seized, which have been held as irrelevant to the present issue, it cannot be held that for all the assessment years the assessee received capitation fee for admission of students in the management quota. This is a perverse inference. Without conducting any enquiry in this regard to make allegation is unsustainable. The information obtained from the Public Information Officer to a query raised under the Right to Information Act to the effect that "There is no any complaint received from any student/parent regarding capitation fee charged by the above institutions so far" also tilts the balance in favour of the assessee. It disproves the department's allegation of involuntary collection of amounts. That apart, the order passed under Section 264 of the Act for the assessment years 1998-1999 to 2001-2002 clearly states that the donation received from students or the parents is not compulsory in nature and, therefore, the same is not capitation fee. There is no material to controvert this fact

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which is to the knowledge of the department. No endeavour is made to sustain the allegation of involuntary donation. In any event, as rightly held by the Tribunal, it is not relevant in the present case as the allegation is violation of Section 13 r/w Section 11 of the Act. 7.8 We find that factually the Commissioner of Income Tax (Appeals) and the Tribunal have come to the conclusion that the donations received do not partake the character of capitation fee. There is no element of involuntary nature of donation. A specific finding is given that no investigation has been done to show that any parent or student has complained about the nature of donation. The department has failed to dispel the finding of fact. 7.9 In any event, the learned Standing Counsel for the department pleads that since the assessee had not submitted the list of students, the Assessing Officer had to make an estimate adopting his own methodology. This we cannot accept for the simple reason that the show cause notice proceeds on the basis that the assessee has to submit the list of donors alone. A reply was submitted by the assessee and in paragraph 6(iii), the Assessing Officer states that all the statements tallied. However, the assessing officer comes to a different conclusion that contribution is not voluntary, and it is relatable to admission of students. We find this finding of the Assessing Officer, as has been rightly held by the Commissioner of Income Tax (Appeals) and the Tribunal, is not supported by documents, but on the basis of Assessing Officer's inference. It cannot be now stated that something was not furnished, nevertheless, he tallied all the materials and came to the conclusion as stated above. If the Assessing Officer has tallied the figures then the assessees case of actual contribution to Trust has to be

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accepted. It has been shown in the return of income. A bald statement in paragraph (7) of the assessment order that the assessee is not carrying on charitable activities for the purpose of Section 13 read with Section 11 of the Act appears to be the mainstay of the department's case. 7.10 In effect, it is clear that the authority has confused himself with the admission of students in management quota with the carrying on activities of the trust. The distinction is obvious that if the department wanted to make out a case of violation of Section 13 of the Act by the trust, it cannot be based on the perception of the Assessing Officer that donations to the trust are not voluntary. We hasten to add that there is no material to support the plea that the donations are not voluntary. 7.11 Having invoked Section 13, the mainstay of the case of the department should be based on the activities of the trust to plead that the same are not in consonance with Section 13 of the Act and, therefore, exemption under Section 11 of the Act should be denied, which we find is abysmally silent in the show cause notice and the assessment order. 7.12 We do not find any reason to come to a different conclusion on facts, as has been addressed by the Commissioner of Income Tax (Appeals) as well as the Tribunal on these two issues relating to seizure of cash and loose sheets. Apparently, there is no dispute on that fact. All that the department is trying to show is that there is something improper in the manner in which the donations are handled. Both these factors clearly establish that the allegations have nothing to do with the trust and its activities in relation to the charitable objects. 7.13 There appears to be no second opinion on this finding because the scope of Sections 11, 12 and 13, as we

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find is in relation to application of income and the utilization thereon for charitable purpose, as defined under Section 2(15) of the Act, which reads as under: "Section 2(15) 'charitable purpose' includes relief of the poor, education, medical relief, and the advancement of any other object of general public utility." ……. 7.15 We find that the department has not made out a case of collection of capitation fee under the guise of donation and it has not established a case of involuntary nature of donations. Therefore, the questions of law (i) and (ii) are answered against the revenue and in favour of the assessee.

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Capitation fee, since it is over and above the fees prescribed by the Government. However, the submission of the assessee is that the development fee so collected represents voluntary donation given by the donors. The Ld CIT(A) has given a finding that the assessee has not received development fee from all the students and further the quantum of donation varies from one person to another. In the instant case, the AO has not brought on record any credible material to prove that the donations were not voluntary. The AO had placed his reliance on the statement given by two persons named Shri K J Pramod and Sri Shivarame Gowda. However, the AO has not allowed the opportunity of cross examining them. Further the statements so given by them is contrary to the books of accounts, i.e., no evidence was found to show that the assessee has collected money outside the books of accounts. It is stated that all the amounts collected by the assessee has been duly accounted for in the books of account. Hence the AO could not have placed his reliance on the statements so given by them. The Ld CIT(A) has observed that the prohibition to collect capitation fee has been implemented by the Government of Karnataka under Karnataka Educational Institutions (Prohibition of Capitation Fees) Act, 1984. The AO has not brought any material on record that any action has been taken upon the assessee under the above Act. All these facts would show that it is the AO, who has taken the view that the development fee collected by the assessee is in the nature of Capitation fee and said view can only be held to be an inference drawn by the AO on the basis of surmises and conjectures. The Ld CIT(A) has also taken support of the decision rendered by Hon'ble

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Madras High Court in the case of Balaji Educational and Charitable Public Trust (supra), wherein under identical set of facts, the Hon'ble High Court held that there is no material to show that the donations were not voluntary. We are of the view that the decision rendered by Hon'ble Madras High Court in the case of Balaji Educational and Charitable Public Trust (supra) shall apply to the facts of the present case.

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directed to be added by Ld CIT(A) and also consequent disallowance of depreciation thereon.

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Asst. Year Amount 2010-11 Rs.4.00 crores 2011-12 Rs.6.00 crores 2012-13 Rs.7.50 crores 2013-14 Rs.7.50 crores ------------ Rs.25.00 crores ========= In the letter, the assessee has, inter alia, stated as under:- “The above said disallowance has been accepted by the assessee, since at the time of search, they could not provide all the related evidences in connection with the expenditure made for construction of the college and hospital. We once again reiterate that the above expenditures are actually spent by the assessee and recorded the same in the books of accounts of the trust maintained in the regular course of operations and has agreed for disallowance for the sake of buying peace with the department.”

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deleted the above said additions, the Ld CIT(A) took the view that the statement recorded from the Chairman of the assessee institution during the course of search proceedings could not be overlooked. Accordingly, the Ld CIT(A) held that the admission made voluntarily in the statement taken u/s 132(4) of the Act expressing inability to produce vouchers and bills for Rs.25.00 crores spread over four years cannot be ignored. He also expressed the view that the assessee had sufficient time between the date of search and completion of assessment to produce all vouchers and bills to the satisfaction of the AO, but did not comply with it.

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is not admissible on the above said addition. Accordingly, he directed the AO to add 10% of the addition agreed towards building for various years towards depreciation disallowance. He also directed the AO to levy tax at maximum marginal rate on the addition of Rs.25.00 crores and disallowance of depreciation.

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assessee, which have also been audited, would show that the admission made by the Chairman is incorrect.

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disallowance for the sake of buying peace with the department. However, in the assessment order, the assessing officer has observed as under while rejecting the submission of the assessee:- “3.6 The explanation of the assessee and its submissions are taken cognizance of along with the evidences found and seized during the course of the search operations conducted. The explanation of the assessee that the said expenditures were actually spent by the assessee and recorded the same in the books of accounts of the trust maintained in the regular course of operations and that it has agreed for disallowance for the sake of buying peace with the department is not plausible, without any basis and hence is not acceptable. The findings during the course of search operations and the admission of the assessee company that it was not in a position to prove expenses to the tune of Rs.25,00,00,000/- for various assessment years proves that the funds received were not utilized for the objects of the trust, in clear violation of the provisions of sec.11 of the Income tax Act, 1961. The assessee has also not been able to provide the said supporting documentary evidences even during the course of the assessment proceedings.”

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assessment order that the Assessing Officer attempted to obtain the evidence by issue of notice u/s 142(1) of the Act. He has further observed that the assessing officer has relied upon the outcome of the search proceedings only. This observation of the Ld CIT(A) would show that the AO has chosen to rely upon the report of search officials only during the course of assessment proceedings. Hence, in our view, no credence could be given to the observation of the AO that the assessee did not produce documentary evidences supporting expenditure. On the contrary, the assessee has furnished books of accounts and also submitted that all the expenses have been duly accounted for in the books of accounts, which have also been audited. It is also pertinent to note that the assessing officer has not rejected the books of accounts. On the contrary, the AO has relied upon the books of accounts to ascertain the receipts and other expenses. It is well settled proposition that the AO should reject the books of accounts, when he prefers to make addition on the basis of entries recorded in the books of accounts.

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merely on the basis of admission made by the assessee in the statement recorded u/s 132(4) of the Act?

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under the taxing statute or it is not. If it is not, the Income- tax Officer has no power to impose tax on the said income."

Hence, mere admission of additional income would not automatically entitle the assessing officer to assess the same, if the assessee disputes the same subsequently with corroborative evidences.

"31. Having said so, we must observe that the Apex Court and the various High Courts have ruled that the authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconceptions or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected (see S.R. Kosti v. CIT [2005] 276 ITR 165 (Guj.), CPA Yoosuf v. ITO[1970] 77 ITR 237 (Ker.), CIT v. Bharat General Reinsurance Co. Ltd. [1971] 81 ITR 303 (Delhi), CIT v. Archana R. Dhanwatey [1982] 136 ITR 355 (Bom.).

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"8. The controversy raised in the second question is as to whether the annual letting value of the property determined by the Tribunal could be a figure lower than that returned by the assessee. The principles for determining the annual letting value under section 23 are now well-settled and if the value returned is not in accordance with such principles, it is open to the assessee to contend that the value as may be determined upon correct application of the law should form the basis of assessment. The revenue authorities, in our view, cannot be heard to say that merely because the assessee has returned a figure which is higher than the annual value determined in accordance with the correct legal principles, such higher amount and not the correct amount should be lawfully assessed. An assessee is liable to pay tax only upon such income as can be in law included in his total income and which can be lawfully assessed under the Act. The law empowers the ITO to assess the income of an assessee

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according to law and determine the tax payable thereon. In doing so he cannot assess an assessee on an amount, which is not taxable in law, even if the same is shown by an assessee. There is no estoppel by conduct against law nor is there any waiver of the legal right as much as the legal liability to be assessed otherwise than according to the mandate of the law (sic). It is always open to an assessee to take the plea that the figure, though shown in his return of total income, is not taxable in law. The Tribunal, therefore, in our view did not commit any error in directing to fix the correct annual letting value of the premises in question, in accordance with the provisions of section 23 of the said Act with reference to the municipal valuation, although such sum was lower than the figure shown by the assessee in his returns of total income."

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show the purpose for which the amount was spent and also failed to show that the said purpose was not relating to the objects of the trust. On the contrary, the assessee has stated in its letter dated 14.12.2015 filed before the AO that the expenditure was actually spent and recorded in the books of accounts and further stated that the assessee has agreed for disallowance for the sake of buying peace with the department. When the assessee has recorded the expenses in its books of accounts and when those expenses were spent on construction of buildings, in our view, there is no scope for presuming that the said expenses were not spent for attaining objects of the trust. If that was real position, then it is the duty of the assessing officer to give a finding with corroborative evidences that the amount claimed to have been spent for construction of buildings were not actually spent for that purpose, but diverted for some other purpose. The assessing officer has not done so. In fact, for the above said reasons only, the Ld CIT(A) has deleted the addition of Rs.58.02 crores made by the assessing officer, which included the above said amount of Rs.25.00 crores also. Hence, the Ld CIT(A), after deleting the addition of Rs.58.02 crores, was not justified in sustaining addition to the extent of Rs.25.00 crores simply for the reason that the assessee has accepted the same in the statement recorded u/s 132(4) of the Act. We have noticed that the assessee has submitted before the Ld CIT(A) that the said admission was given on wrong notion on fact and law. Before the AO also, the assessee has submitted that all the expenses have been duly accounted for in the books of accounts. Accordingly, we are of the view that the assessee has established that the admission

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made by it was incorrect. In any case, the admission was not related to Undisclosed income, which would warrant any addition, but it was only a plea to reduce the amount from the quantum of application of income, which in the present case was construction expenses incurred on buildings. The fact of construction of buildings by the assessee has been accepted by the tax authorities, in which case, they are not justified in accepting part of expenses and rejecting part thereof only for the reason that the same has been incurred in cash. Accordingly, we are of the view that the Ld CIT(A) was not justified in sustaining addition to the extent of Rs.25.00 crores merely on the reason that the assessee has accepted the same. We have noticed that the assessee has established that the admission so made by it is incorrect.Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the addition of Rs.25.00 crores in aggregate made in AY 2010-11 to 2013-14.

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not related to inflation of expenses, but related to whether the expenses were incurred for the objects of the trust or not.

(N.V Vasudevan) (B.R Baskaran) Vice President Accountant Member

Bangalore, Dated, 4th September, 2019. /vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

Asst. Registrar, ITAT, Bangalore.

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