DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(1), CHENNAI, CHENNAI vs. SRI MUTHUKUMARAN EDUCATIONAL TRUST, CHENNAI

Briefly stated, the facts of the case, insofar as they relate to the impugned issue, are that pursuant to a search action, certain loose sheets were seized vide ANN/CS/MAT/LS/S. Pages 16 to 36 of the said annexure contained particulars of cash deposits made into various bank accounts maintained by different educational institutions run by the assessee.

On examination of the said seized material, the AO issued a show cause notice dated 25.02.2016 (Ref: DCIT, CC-2(1)/AABTS6980L/2015-16), wherein the details of cash deposits were tabulated institution-wise as under:

The AO further worked out the month-wise break-up of the aforesaid deposits for the period April 2013 to July 2013 as follows: (Amount in Rupees Lakhs)

According to the AO, the aforesaid cash deposits represented anonymous donations received by the assessee and subsequently deposited into the respective bank accounts. Holding the same to fall within the ambit of section 115BBC of the Act, the AO treated the entire sum of Rs.27,18,43,000/- as anonymous donations and brought the same to tax accordingly.

Aggrieved by the assessment order, the assessee preferred an appeal before the Ld.CIT(A). The Ld.CIT(A), vide the impugned appellate order dated 25.02.2025, deleted the aforesaid addition amounting to Rs.27,06,71,020/-, observing and holding as under: “6.2.6 During the course of appellate proceedings, the appellant has provided a detailed breakdown and explanation of the sources of the cash deposits in the bank accounts of its institutions during the period from April to July 2013. The appellant has furnished the cash books for the respective periods which were made available before the AO during the course of assessment proceedings and clearly demonstrated that the cash deposits were made from legitimate fees receipts generated from their educational activities. The appellant has highlighted multiple sources for the cash deposits, including tuition fees, hostel fees, development fees, mess fees, transport fees, examination fees, rent collections, hospital donations, and transfers from other institutions within the trust. These receipts typically reflect the day-to-day operations of educational institutions, upon which the AO did not bring on record any adverse findings. In particular, the appellant has provided copies of cash books for all the institutions, including Sri Muthukumaran Medical College, Sri Muthukumaran Institute of Technology, Mangadu Public School, Sri Muthukumaran Arts and Science College, Thiru Seven Hills Polytechnic College, and Sri Muthukumaran College of Education, covering the periods from April 2013 to July 2013, which provide a detailed ledger of the receipts and expenditures of each institution. 6.2.7 The appellant explained that cash deposits were sometimes sourced from previous cash withdrawals, which were also documented in the cash books and bank statements. For example, cash withdrawals from the bank accounts of institutions were re-deposited, and the respective amounts were duly reflected in the cash books and bank statements. The AO did not dispute the existence or legitimacy of these withdrawals, and the re-deposits were fully explained as part of the normal financial cycle of the institutions. The cash book entries for all the institutions proves the source(s) for the cash deposits of the appellant’s claims. The AR emphasized that there was no observation from the AO that the withdrawals were unaccounted for or did not originate from legitimate sources. 6.2.8 A key aspect of the appellant’s submissions relates to inter-institutional transfers within the trust. The appellant explained that transfers were made between different institutions under the trust for various operational purposes. For instance, cash transfers from Sri Muthukumaran Medical College & Research Institute to Sri Muthukumaran Institute of Technology, as well as from the Sri Muthukumaran Educational Trust to other institutions like Mangadu Public School and Thiru Seven Hills Polytechnic College, were all duly recorded in the respective cash books. The appellant’s submission includes evidence to support the claim that these transfers were legitimate, with the cash being transferred from the opening balances of the trust and voluntary contributions received during the year. These transactions were documented, and relevant copies of cash books for the respective institutions were provided for review before the AO.

Aggrieved by the relief granted by the Ld.CIT(A), the Revenue has preferred the present appeal before this Tribunal.

The Ld.DR, appearing on behalf of the Revenue, invited our attention to the observations recorded by the AO in the assessment order and, placing reliance thereon, vehemently contended that the Ld.CIT(A) has erred both on facts and in law in deleting the addition of Rs.27,06,71,020/- made by the AO on account of anonymous donations embedded in the cash deposits reflected in the assessee’s bank accounts. It was accordingly pleaded by the Ld.DR that the impugned order of the Ld.CIT(A) be set aside on this issue and that the appeal of the Revenue be allowed.

Per contra, the Ld. AR, drawing our attention to the written submissions placed on record before the Ld.CIT(A) and placing reliance on the impugned appellate order, submitted that the Ld.CIT(A) has rightly deleted the addition of Rs.27,06,71,020/- made by the AO. It was contended that the findings recorded by the Ld.CIT(A) are based on proper appreciation of facts and law and cannot be termed as perverse. The Ld.AR, therefore, prayed that the order of the Ld. CIT(A) be upheld and the appeal filed by the Revenue be dismissed.

The AO has treated the aggregate cash deposits made in the bank accounts of various educational and medical institutions run by the assessee trust during the period April to July, 2013 as anonymous donations exigible to tax u/s.115BBC of the Act. The addition has been made on a generalized presumption that such cash deposits represent unidentified donations, without bringing on record any cogent or incriminating material to substantiate the said inference.

At the outset, we observe that the assessee had placed before the Ld.CIT(A) institution-wise cash books along with supporting annexures, explaining the source of each cash deposit. In so far as Sri Muthukumaran Medical College & Research Institute is concerned, the cash deposits were demonstrated to have arisen from opening cash balance, optical collections, MRD collections, pharmacy receipts, development fees, tuition fees, mess fees, surgery collections, canteen collections, hostel rent, bus fees, scholarship receipts, rent collections, cash withdrawals from bank and hospital donations. The opening cash balance of Rs.7,38,09,510/- admittedly tallies with the closing balance of the immediately preceding year and is duly supported by the cash book for March 2013.

The AO sought to discredit the opening balance by observing that the same was “nominal and not real”, relying upon observations made in the assessment order for A.Y.2013-14. However, it is an undisputed fact that hospital donations aggregating to Rs.8,49,66,500/- were already brought to tax in A.Y. 2013-14. Once such receipts have been assessed as income, the consequential cash balance cannot thereafter be characterized as merely notional. Reclassification or regrouping of accounting heads does not alter the :-9-: ITA. No: 1263/Chny/2025 & CO No.64/Chy/2025 physical existence of cash. Once the receipt itself has suffered tax, the resulting cash balance necessarily assumes the character of explained money. Therefore, the observation of the AO that the opening cash balance is “nominal” is factually incorrect and legally untenable.

With regard to optical, MRD, pharmacy, development fees, tuition fees, mess, surgery, canteen, hostel rent, bus fees, scholarship and rent collections, we find that the AO has neither alleged nor established that these receipts are non-genuine. On the contrary, during assessment proceedings, the assessee produced original OPD and MRD collection reports containing patient-wise details, which were verified by the AO and thereafter returned. No adverse finding has been recorded in respect of these receipts. In absence of any defect or incriminating material, the AO was not justified in treating the corresponding bank deposits as anonymous donations.

As regards hospital donations, we note that a separate addition of Rs.9,35,66,500/- has already been made in the impugned assessment year. The assessee has demonstrated that out of the cash deposits made between April and July 2013, a sum of Rs.3,16,07,000/- pertains to hospital donations, details of which were duly furnished. Once donations are directly assessed on receipt basis, a further addition on account of bank deposits of the same amount clearly amounts to double taxation, which is impermissible in law.

Coming to Sri Muthukumaran Institute of Technology, Mangadu Public School, Sri Muthukumaran Arts & Science College, Thiru Seven Hills Polytechnic College and Sri Muthukumaran College of Education, the assessee furnished institution-wise cash books evidencing that deposits arose from fee collections, examination fees, hostel and mess receipts, inter-institutional transfers and redeposit of earlier withdrawals. All such transfers were duly reflected in the cash books of both transferor and transferee institutions. The AO has not disputed the genuineness of these receipts, nor has any :-10-: ITA. No: 1263/Chny/2025 & CO No.64/Chy/2025 incriminating material been brought on record to establish that such collections were fictitious. Even the underlying fee receipts themselves have not been questioned.

It is a settled principle of law that once the assessee explains the source of cash deposits with books of account and supporting records, and the AO fails to point out any specific defect therein, additions cannot be sustained merely on surmises or presumptions. Section 115BBC of the Act can be invoked only where donations are received without maintaining the name and address of the donor. In the present case, substantial portions of the deposits arose from operational receipts and internal transfers, which by no stretch of imagination can be characterized as anonymous donations.

We also find merit in the contention that cash redeposited out of earlier withdrawals stands fully explained, particularly when the AO does not allege that such withdrawn cash was utilized elsewhere.

On an overall appreciation of facts, it is evident that the assessee trust has satisfactorily explained the source of cash deposits aggregating to Rs.27,18,43,000/- across various institutions. The additions have been made without rejecting the books of account u/s.145 of the Act, without identifying any bogus receipt and without bringing any incriminating evidence on record. The approach of the AO is purely conjectural and also results in double addition in respect of hospital donations already taxed separately.

We further note that the Ld.CIT(A) has examined the issue threadbare and recorded categorical findings of fact after appreciating voluminous documentary evidence, including institution-wise cash books, bank statements and supporting ledgers for the period April 2013 to July 2013, establishing a direct nexus between cash receipts and subsequent bank deposits. These records clearly demonstrate that the deposits emanated from routine educational and allied activities such as tuition fees, hostel charges,

It is also undisputed that the AO has not rejected the books of account u/s.145 of the Act, nor pointed out any defect therein. Once books are accepted, entries recorded therein carry a presumption of correctness. Additions cannot be made merely on conjectures.

Another significant aspect, correctly appreciated by the Ld.CIT(A), is the complete absence of incriminating material unearthed during search evidencing that the entire cash deposits in the bank accounts are out of anonymous donations. The AO relied solely on bank statements forming part of regular books of account. It is trite law that, particularly in search assessments, additions must be based on incriminating material found during search. Regular books of account cannot constitute incriminating evidence.

With respect to applicability of section 115BBC of the Act, we find that the bulk of receipts were not donations at all but represented fees and service- related collections, which fall outside the scope of the said provision. Even in respect of voluntary donations aggregating to Rs.21,37,32,946/-, donor-wise details with names and addresses were furnished for Rs.21,25,60,966/-, leaving only Rs.11,71,980/- unverifiable. In terms of section 115BBC(3) of the Act, donations cannot be treated as anonymous where donor particulars are maintained. The Ld.CIT(A) has therefore rightly restricted the addition to Rs.11,71,980/-.

The Revenue’s contention that denial by a few donors renders the entire receipts anonymous is misplaced. Sporadic non-verification of a small fraction cannot vitiate the entirety of properly documented receipts, particularly in absence of any incriminating evidence.

We also note that no material has been brought on record to establish that the assessee introduced its own unaccounted money in the guise of fees or donations. The burden cast upon the Revenue thus remains undischarged. Accordingly, the Ld.CIT(A) rightly deleted the addition of Rs.27,06,71,020/- and sustained only Rs.11,71,980/- as anonymous donation. We find no perversity or legal infirmity in the findings of the first appellate authority.

Before parting with the matter, it is pertinent to observe that the AO, in the assessment order, has extensively referred to various anomalies noticed during the course of search proceedings, allegedly indicating receipt of anonymous donations and accommodation entries, which were stated to have been routed through different heads in the books of account of the assessee. We further note that, in an apparent effort to regularize and neutralize the impact of such search findings, the assessee had suo moto made voluntary disclosures in A.Ys 2013-14 and 2014-15.

It is also a matter of record that certain additions made by the AO on account of anonymous donations and related issues were sustained by the Ld.CIT(A), and the assessee has not carried those confirmed additions in further appeal. The details of the voluntary disclosures and additions sustained by the Ld.CIT(A) for the relevant assessment years are tabulated hereinbelow:

From the above tabulation, it emerges that the assessee has already offered to tax and discharged its tax liability on an aggregate amount of Rs.30,47,70,725/- for A.Ys 2013-14 and 2014-15.

Admittedly, the AO has not brought on record any independent incriminating material or cogent evidence to demonstrate that the actual undisclosed income of the assessee exceeds the aforesaid sum of Rs.30,47,70,725/-. In the absence of any such positive finding or fresh material, it cannot be presumed that the assessee had earned income over and above the amounts already disclosed and taxed.

In our considered view, the so-called search anomalies stood fully subsumed and embedded in the aggregate income of Rs.30,47,70,725/- voluntarily disclosed by the assessee and further augmented by additions sustained by the Ld. CIT(A). Once the Revenue has accepted these disclosures and sustained additions, any further attempt to treat the cash deposits of Rs.27,18,43,000/- in the bank accounts as separate anonymous donations would clearly amount to double taxation of the same income, which is impermissible in law.

Accordingly, we find no infirmity in the action of the Ld.CIT(A) in deleting the impugned addition of Rs.27,06,71,020/- out of Rs.27,18,43,000/-. The order of the Ld.CIT(A) on this issue is therefore upheld, and the ground raised by the Revenue stands dismissed.

In the result, the appeal of the Revenue as well as the cross objection of the assessee are dismissed.