PARUL UNIVERSITY,VADODARA vs. THE DY.CIT,EXEMPTION CIRCLE-1, AHMEDABAD

आदेश/O R D E R

PER BENCH: Out of these five appeals, two appeals being & 992/Ahd/2023 filed by the assessee, namely, Parul Arogya Seva Mandal Trust and Parul University for Assessment Years (AYs) 2016-17, 2017-18 & 2017-18 respectively and ITA Nos.1018 & 1019/Ahd/2023 filed by the Revenue for AYs 2016-17 & 2017-18 are directed against the separate orders of Ld. Commissioner of Income-tax (Appeals)-11, Ahmedabad [Ld. CIT(A)] all dated 22/09/2023. Since these appeals filed in the case of assessees belonging to the same group, involve common issues, the same have been heard together and are being disposed of by a single consolidated order for the sake of convenience.

Facts of the case

2.1. Parul University (PAN: AADAP4952C), the assessee, is also registered under section 12AA of the Act and also has got approval u/s 10(23C(vi) of the Act effective from A.Y.2015-16. It is also approved u/s 80G(5) of the act vide approval No. CITE/Ahd/80G(5)/781/PU/2016-17.

2.2. It is also pertinent to note that the co-ordinate bench of ITAT vide its order dated 26-7-2023 in case of for the A.Y. 2018-19 has denied the exemption u/s 10(23C)(vi) of the Act to Parul Arogya Seva Mandal Trust (PAN: AAATP4313K).

2.3. The survey action was carried out at the premises of Parul Arogya Seva Mandal Trust and Parul University. Various institutes/colleges/schools running at various places were covered and the documents found during the survey action pertains to both and various other institutes/colleges running under both the trust and incriminating documents lead to the discrepancies in accounting and governance of above such entities.

2.4. During the course of assessment proceedings, assessee filed a copy of computation, Income & Expenditure account, Balance Sheet. The AO received information from the investigation wing of the income tax Department along with the incriminating material. ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

4 2.5. Following are the observations of AO relating to such information and material found: 1. Survey u/s 133A was conducted in the case of Parul Arogya Seva Mandal Trust and Parul University on 31/01/2017.

2. During the survey, various incrimination documents were found along with data in the form of MS Excel files and impounded which show that the trustees of Parul Group were involved in the practice of receiving back the portion of salary paid by the trust to its staff in cash and cheque.

3. The salary payments were made through cheques and amount were recorded in the books as salary expenses.

6. This amount which was required to be returned in cash to the trustees, was withdrawn by the accountant/trusted employee using those bearer cheques.

7. The accountant, in turn would prepare a report on the amount of salary received back in cash from various employees and submit the report, along with the unaccounted cash to the trustees.

8. During the survey, huge number of blank bearer cheques of the staff were found.

,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

5 11. Bearer cheques were used to withdraw cash from the bank accounts of employees and hand over the cash to trustees.

Sr No. Month Cash Recovery in Rs. 1 March 2016 74,22,030 2 April 2016 76,05,040 3 May 2016 76,80,240 4 June 2016 77,59,130 5 July 2016 7843890 6 August 2016 76,27,110 7 September 2016 79,41,045 ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

8 October 2016 79,54,059 9 November 2016 74,77,138 Total 6,93,09,682 2.6. During the course of survey action, the trustees of Parul Arogya Seva Mandal Trust and Parul University explained that contents of the said MS Excel file was relating to the salary of non-teaching staff, and they have participated in the PMGKY (Pradhan Mantri Garib Kalyan Yojana) Scheme, 2016. Details of benefit of scheme PMGKY availed by them are:

F.Y. 2016-17 2016-17 A.Y. 2017-18 2017-18 PAN AAATP4313K AADAP4925C Name Parul Arogya Seva Parul University Mandal Trust Total Income Disclosed 10,90,00,000 8,00,00,000 in Rs. Tax in Rs. 3,27,00,000 2,40,00,000 Surcharge in Rs. 1,07,91,000 79,20,000 Penalty in Rs. 1,09,00,000 80,00,000 Total Taxes Paid in Rs. 5,43,91,000 3,99,20,000 Challan No. (Form 287) 43077 43014 Challan Dated 24/03/2017 27/03/2017 2.7. The assessee was involved in this activity of taking cash back from employees since last many years. Therefore, AO on the basis of the said MS excel file and as confirmed by Trustee, extrapolated the unaccounted cash receipt out of salary. Taking the average amount of Rs.77,01,076/- per month AO calculated the total cash withdrawal for the F.Y. 2015-16 to Rs.9,21,33,866/- and for F.Y. 2016-17 to Rs. 7,72,89,804/- ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

7 2.8. During the course of assessment proceedings, the assessee relied on the notifications, circulars and press release of the PMGKY Scheme and stated that the amount of undisclosed income declared under the PMGKY Scheme should not be included in the total income of the assessee. For the purposes of clarity, the relevant parts of circular and notification as relied upon by the assessee are reproduced hereunder: • Circular No. 2 of 2017, F.No. 143/33/2016-TPL(part) dated 18-1-2017.

Question No.5: Can a person against whom a search/ survey operation has been initiated, file declaration under the Scheme and whether the cash seized during search operation can be declared under the Scheme?

Answer: Yes, a person against whom a search/survey operation has been initiated is eligible to file declaration under the Scheme in respect of undisclosed income represented in the form of cash or deposit in an account maintained with specified entity

Question No.8: Can a person come under the Scheme with respect to deposit made in a bank account prior to the Financial Year 2016-17?

Answer: A person can avail the Scheme for any assessment year commencing on or before the 1st day of April, 2017. Hence, deposits made in bank account prior to financial year 2016-17 can also be declared under the Scheme. • Circular No. 432 of 2016, F.No. 142/33/2016-TPL(part) dated 26-12- 2017.

Effect of valid declaration 11. Where a valid declaration as detailed above has been made, the following consequences will follow:

(a) The amount of undisclosed income declared shall not be included in the total income of the declarant under the Income-tax Act for any assessment year; ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

8 (b) A declarant under this Scheme shall not be entitled, in respect of undisclosed income or any amount of tax and surcharge paid thereon, to re- open any assessment or reassessment made under the Income-tax Act or the Wealth-tax Act, 1957, or to claim any set-off or relief in any appeal, reference or other proceeding in relation to any such assessment or reassessment.

(c) The contents of the declaration shall not be admissible in evidence against the declarant for the purpose of any proceeding under any Act other than the Acts referred in Para- 8 above.

2.9. However, AO did not accept the submission of the assessee due to following reasons: 1. Total of amount worked out as per extrapolation exercise comes to Rs. 9,21,33,866/- for F.Y. 2015-16 and Rs. 7,72,89,804/- for F.Y. 2016-17 totalling to Rs. 16,94,23670/- which is more than the amount disclosed.

2. As per Form 1 filed u/s 199C of the Act the declaration is for F.Y. 2016-17 relevant to A.Y. 2017-18 and the declaration was never for F.Y. 2015-16 and earlier years.

2.10. The AO thus made an addition of Rs.9,21,33,866/- in income of F.Y. 2015-16 and Rs. 7,72,89,804/- in the income of F.Y. 2016-17 as unaccounted cash.

2.11. The data related to amounts received back from salary of teaching staff by cheque was also found from the impounded documents marked as Annexure A-13. The total of such amounts received by cheque from employees for the month of March 2016 was Rs.83,96,700/-. During the ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

9 course of survey assessee could not contradict this. Even during the course of assessment proceedings, the assessee could not contradict these facts. The assessee only reiterated that they have made disclosure in PMGKY and stated that all the discrepancies are covered in the said disclosure. Therefore, AO calculated total amount received from salary of teaching staff by cheque and accounted as Corpus Donations for the financial year 2015-16 to Rs.10,07,60,400/- (Rs.83,96,700/- * 12 months). Total amount received as corpus donations for F.Y. 2015-16 as per financial statements were Rs.16,98,54,200/-. Out of this total amount AO allowed only Rs.6,90,93,800/- (Rs.16,98,54,200 (-) Rs.10,07,60,400/-) as Corpus donations disallowing the balance amount of Rs.10,07,60,400/- being bogus corpus donations.

2.12. For the financial year 2016-17, the amount of bogus corpus donations was calculated at Rs.8,01,76,700/- on the basis of actual data recovered from impounded documents marked as Annexure A-13.

2.13. From the impounded documents and excel file marked as Annexure- O, the AO found that the assessee has also taken cash donations from the students on account of admission and other activities which worked out to Rs.84,06,194/- for F.Y. 2015-16 which was not accounted for by the assessee.

2.14. From the impounded documents and excel file, the AO found that the MS Excel sheet contained details of ATM PIN of different bank accounts. It was informed by the officer Shri Atul Pandya and later confirmed by the managing trustee Smt.Parul Patel that assessee paid salary of non-existing staff members in bank accounts per month and the entire amount was ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18 withdrawn using ATM cards and PIN. Total for the month of January 2016 came to Rs. 16,84,991/- and total for the F.Y. 2015-16 on account of such bogus salary was quantified at Rs. 50,54,973/- (Rs.16,84,991/- * 3 months). As explained by the assessee during the course of assessment this amount was also covered by disclosure under PMGKY.

2.15. The AO concluded that the unaccounted cash thus generated was not available with the assessee trust on survey action on 31-1-2017. The AO concluded that the said cash was diverted to the trustees and other for investments in bullions and properties before commencement of PMGKY as well as before survey action.

2.16. The AO further concluded that the assessee violated the basic objects for which it is established and recognized /approved u/s. 12 and 10(23C) of the 1961. By indulging in the practice of generating cash through inflation of expenses and by obtaining funds in a fraudulent way and by diverting the income for the purposes other than the object of the Trust, it can be reasonably held that assessee violated the basic objects for which trust is created. In view of the same, the activities of the trust cannot be held to be for the charitable or religious or educational purposes and hence assessee is not entitled to claim the benefit of Section 11 & 12 of the I.T. Act, 1961.

2.17. Accordingly, AO computed the income of the assessee as normal business income as it is established that the assessee is engaged in the activity other than the object for which it was established. Since the income of the assessee was computed as normal income without giving benefit of ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

11 the exemptions, the capital expenditure claimed by the assessee was also not allowed as application / exempt.

2.18. In case of Parul University, the AO concluded that the amount of bogus salary was Rs.16,47,64,572/- for the F.Y. 2016-17. The disallowed capital expenditure amounted to Rs. 7,93,12,126/-. The AO also identified unexplained transaction of Rs. 89,21,987/- and added to the total income.

2.19. While assessing the income of the assessee for A.Y. 2017-18, the AO gave credit of Rs. 8,01,76,700/- in case of Parul Arogya Seva Mandal Trust and Rs. 8,00,00,000/- in case of Parul University relating to PMGKY, 2016.

3. The Assessee, being not satisfied with the order of AO, filed an appeal in all the cases with the Ld.CIT(A). During the course of appellate proceedings, the assessee submitted bifurcation of year-wise of amounts disclosed in the PMGKY. The summary of these details is as follows: F.Y. 2013-14 Total Rs. 4,93,60,913/- F.Y. 2014-15 Total Rs. 1,01,16,000/- F.Y. 2015-16 Total Rs. 84,06,194/- F.Y. 2016-17 Total Rs. 8,42,92,326/- ---------------------- Grand Total Rs.15,21,75,433/- --------------------- 3.1. Whereas the total amount disclosed in PMGKY Scheme was Rs.18,90,00,000/-.

3.2. The Ld.CIT(A), after giving due opportunity of being heard partly allowed the appeals of assessee and decided as follows: • In case of Parul Arogya Seva Mandal Trust for A.Y. 2016-17. ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

12 o Restricted the addition on account of unaccounted cash receipts from Salary of Rs. 9,21,33,866/- to Rs. 8,47,11,836/-. o Deleted the cash donation of Rs. 84,06,194 treating it as duplicate. o Restricted the addition of Rs. 50,54,973/- on account of Bogus Salary Expenses to Rs. 33,69,982/-. o Confirmed the Bogus Corpus donations of Rs. 10,07,60,400/-.

• In case of Parul Arogya Seva Mandal Trust for A.Y. 2017-18. o Confirmed the addition on account of unaccounted cash receipts from Salary of Rs. 8,01,76,700/-. o Restricted the credit of PMGKY to Rs.4,11,16,893/- for the A.Y. 2017-18 as per the summary submitted by the assessee. • In case of Parul University for A.Y. 2017-18 the CIT(A) Confirmed the addition on account of Bogus Salary of Rs. 16,97,06,274/-.

3.3. However, in case of both the assessee relating to all the assessment years under consideration, the Ld.CIT(A) concluded that the AO was not justified in denying the exemption under sections 11 and 12 of the Act. Regarding violation of section 13, the Ld.CIT(A) concluded that there is no apparent violation of section 13. The relevant paras (which are common in all the orders) from the order of the Ld.CIT(A) is reproduced hereunder for ready reference: “5.5 On perusal of assessment order and submission filed by appellant, it is observed that there is nothing to suggest that the trust has deviated from the objects for which registration was granted and not applied the funds for its objects. No evidence was brought on record to show that amount of alleged cash recovery, Bogus salary etc. which have been collected was misused by the assessee or by any interested persons.

,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

13 5.6 The appellant has also relied upon decision of Hon'ble Madras High court in the case of Kammavari Sangham v. Deputy Director of Income-tax (Exemptions)[2023] 146 taxmann.com 367 wherein it was held that " the department has not established a case that the assessee had in this case not utilized the donations or income for charitable purpose. The clear finding of the Tribunal is that if the assessee had not utilized the amount for charitable purpose, it would automatically become taxable, and the assessee would not be entitled to exemption. But, on the contrary, without there being a finding of violation of section 13 of the Act, an inference is drawn on an alleged receipt of donation and consequently, the allegation is made that there is a violation of section 13(1)(d) of the Act. A hypothetical finding is given that because capitation fee is charged, it is not an income in terms of section 11 of the Act and, therefore, there is a violation of section 13(1)(d) of the Act. The Tribunal held that such a reasoning cannot be accepted because if the donations are offered for income and if the department wants to disprove the nature of income on the basis of material, as has been pointed out by the Commissioner of Income-tax (Appeals), it should be borne out by records based on investigation, which the Assessing Officer failed to do, except falling back on a statement which is not supported by materials." The ratio of such decision is clearly applicable to facts of the case as Assessing officer without there being a finding of violation of section 13 of the Act, an inference was drawn on an alleged receipt of cash recovery and other and the allegation was made that there is a violation of section 11 & 12 of the Act. On perusal of assessment order, it is found that there is no allegation that cash recovery against alleged misappropriation of salary expenditure was used by trustee for their personal purpose. Even otherwise, the appellant has already made separate disclosure under PMGKY and on such income, no application u/s 11 or 12 is claimed against such income.

5.7 It is observed that as per provisions of Section 13 of the Act, provisions of Section 11 and 12 are not applicable for income of trust if certain violation as mentioned therein is made. As per section 13(1)(a) and 13(1)(b) of the Act, exemption is not available if "any part of the income from the property held under a trust for private religious purposes which does not ensure for the benefit of the public;" While passing the assessment order, AO has not disputed the income shown by appellant and not proved that such income is used for private religious purpose hence there is no violation of such sections. As per provisions of Section 13(1)(c) of the Act, any part of such income or any property of the trust should not be directly or indirectly for the benefit of any person referred to in sub-section (3). On perusal of assessment order, it ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

14 is apparent that AO has not proved any live nexus between utilisation of trust income for any benefits for the purpose of persons (mainly trustees and its relatives) as defined in Section 13(3) of the Act. The provisions of Section 13(1)(d) further speak about utilisation of trust income and investments thereof in particular manners. There is prohibition of utilisation of trust funds to be invested or deposited otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 and on perusal of assessment order, it is apparent that appellant has not made any violation of such subsection. Even otherwise, if it is found that there is any violation, denial u/s 11 and 12 of the Act should be restricted to such income which is utilised in violation of provisions of Section 13 of the Act and not on entire income earned by trust. If exemption under Section 11 is not available due to application of Section 13, then the income of the trust is taxable under Section 164 of the IT Act. Section 164 provides that where 'the whole or any part of the relevant income' is not exempt under Section 11 or 12, tax shall be charged on the relevant income at the maximum marginal rate. The use of the expression whole or any part of the relevant income in Section 164, lends a meaning that denial of entire exemption is not contemplated in Section 13. As there is no apparent violation of provisions of Section 13 as discussed herein above, benefit provided in Section 11 and 12 cannot be denied.

5.8 So far as the activities of the trust are genuine, and income of the trust are applied for the purpose for which registration u/s 12A was granted and there in no violation of section 13 is found, the trust is eligible to get exemption under section 11& 12 of the Act in presence of registration granted u/s 12A of the Act. Similar view also given by Hon'ble Madras High court in case of Commissioner of Income-tax, Central- Ill, Chennai V. Balaji Educational & Charitable Public Trust [2015] 56 taxmann.com 182.

5.9 As discussed above, the denial of exemption section 11 & 12 by the AO is based on the incriminating documents found during the course of survey. In this regard the appellant reiterated that they have offered sum of Rs. 18.90 crore in PMGKY and taken the benefit of the scheme which covers more than the amount which is found in the incriminating documents.

,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

5.10 Considering such facts, the AO was not justified in denying exemption u/s 11 & 12 of the Act. The AO is directed to compute income of the trust after considering such provisions and discussion made herein below for other grounds of appeal. These grounds of appeal are thus allowed.”

3.4. Since the Ld.CIT(A) allowed the exemption under sections 11 and 12, the capital expenditure added by the AO in respect of each year under consideration was also allowed by the Ld.CIT(A), after disallowing depreciation on such capital expenditure.

4. Aggrieved by the orders of Ld.CIT(A), both the Revenue as well as the Assessee(s) are in appeal(s) before us with following grounds of appeal:

In case of appeal by Assessee in for A.Y. 2016-17 1. The Hon. CIT Appeal erred both in law and on facts in confirming an addition of Rs. 8,47,11,836/- on account of alleged cash generated out of salary paid to employees presumed to be received back in cash and presumed to be relating to F.Y. 2015-16 relevant to assessment year 2016-17. The addition is confirmed merely on presumption by ignoring the submissions made.

2. The Hon. CIT Appeal further erred both in law and on facts in confirming an addition of Rs. 10,07,60,400/- towards corpus donation out of Rs. 16,98,54,200/- on extrapolation by computing the said amount at average of March 2016. The addition is confirmed for the year under consideration on presumption and estimation is untenable in law. It be so held now, and addition be deleted.

3. The Hon. CIT Appeal erred both in law and on facts in confirming addition of Rs. 33,69,982/- in respect of alleged bogus salary expenses on the presumption on the basis of so-called monthly average computed by him at Rs. 16,84,991/- The addition is confirmed without any evidence and material deserves to be deleted. It be deleted now.

4. The assessee craves leave to add, amend, alter, delete, change or modify any or all grounds of appeal before or at the time of the hearing. ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18 In case of appeal by Assessee in A.Y. 2017-18 1. The Hon CIT Appeal erred both in law and on facts in confirming disallowance of Rs. 6,93,09,682/- on account of bogus salary expenses to employees who are not on pay roll and alleged cash generated out of salary paid to employees presumed to be received back in cash and disallowance of Rs. 8,01,76,700/- on account of salary received back from employees as Corpus Donation, aggregating disallowance of Rs. 16,97,06,274/- Rs. 6,93,09,682 + Rs. 8,01,76,700/-) by ignoring the submissions made to Ld. CIT(Appeal) during the hearing. The Ld. CIT(Appeal) confirmed addition of corpus donation of Rs. 8,01,76,700/- in the hands of appellant as it has been already disallowed and made additions in the assessment of Parul Arogya Seva Mandal Trust.

2. The assessee craves leave to add, amend, alter, delete, change or modify any or all grounds of appeal

before or at the time of the hearing. In case of appeal by Assessee in for A.Y. 2017-18

1. The Hon. CIT Appeal erred both in law and on facts in confirming an addition of Rs. 3,90,59,807/- towards corpus donation wholly without considering submission made by appellant which is untenable be deleted.

2. The assessee craves leave to add, amend, alter, delete, change or modify any or all grounds of appeal before or at the time of the hearing.

Revised Grounds of Appeal

1. The Hon. CIT Appeal erred both in law and on facts in confirming an addition of Rs. 8,01,76,700/- towards corpus donation wholly without considering submission made by appellant which is untenable be deleted.

2. The assessee craves leave to add, amend, alter, delete, change or modify any or all grounds of appeal before or at the time of the hearing.

In case of appeal by Revenue in For A.Y. 2016-17 1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in allowing the assessee's status as trust and granting benefits of exemption u/s.11 & 12 of the IT Act, even after gross violation of section 12AA and 10(23C) of the Act.

2. Whether on facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing deduction of as corpus donation. Whether on facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in allowing ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18 17 capital expenditure of Rs.61,76,45,516/-, even after violation of section 12AA of the Act. In case of appeal by Revenue in For A.Y. 2017-18.

1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was justified in allowing the assessee's status as trust and granting benefits of exemption u/s.11 & 12 of the IT Act, even after gross violation of section 12AA and 10(23C) of the Act.

2. Whether on facts and in the circumstances of the case and in law, the Ld. CIT (A) was justified in allowing deduction of Rs.2,19,31,550/- u/s. 11(1)(d) which is found to be non-genuine. Whether on facts and in the circumstances of the case and in law, the La. CIT(A) was justified in allowing capital expenditure of Rs.26,40,11,606/-, even after violation of section 12AA of the Act.

On grounds of appeal 5. The Ld.Authorised Representative for the assessee(s) contented that instead of accepting the disclosure under PMGYKY in its true spirit, the Id. AO proceeded to hold that that benefit of such declaration could not be given to the appellant on irrelevant grounds.

5.1. The Ld.AR submitted that the calculation of undisclosed income was already furnished in respect of issues pertaining to various earlier assessment years and worked out an amount of Rs. 10.90 Crores for A.Y. 2016-17 in case of Parul Arogya Seva Mandal Trust and Rs. 8 Crore for A.Y. 2017-18 in case of Parul University. Such working was based on all documents found during the course of survey. This fact is noted by AO at para 4.6 of the assessment order. A file containing the documents found during the course of survey based on which, the computation of undisclosed income of Rs. 10.90 Crores is made was referred in the assessment order. As can be seen from the said file where in the total of seized document's comes to Rs 15,21,75,433/- and hence total disclosure, of ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

18 Rs. 18.90 Crores as admitted during the course of survey statement has already been covered by disclosure in PMGKY viz the total amount of Rs. 10.90 Crores declared under PMGKY 2016 in Parul Arogya Seva Mandal Trust and Rs. 8.00 Crores in Parul University. The disclosure therefore fully covers all such papers and materials pertaining to income in respect of all the years and hence the observation of the AO that the declaration does not cover all the undisclosed income of all the earlier years is not correct and is contrary to the facts as above.

5.2. He further stated that the error committed by the Id.AO in making such observation is because of extrapolation made by him on the basis of only part of the data and by averaging the part of such data. It is trite law that there is no scope of extrapolation for months or period other than for which the documents are found during the survey/ search.

5.3. Therefore, the observation of the Id AO that on the basis of average of nine months at Rs.77,01,076/- (average of period from March 2016 to November 2016) the total comes to Rs. 9,21,33,866/ for FY 2015-16 and Rs.7,72,89,809/- is factually incorrect when the total of Rs. 18.90 Crores as per statement dated 1.12.2017 recorded of Parul S Patel in reply to question No: 44 is disclosed in PMGKY and is fully adhered to.

5.4. The Ld.AR placed reliance on following judicial pronouncements in respect of extrapolation of receipts:

2. M.R. Corporation Vs. ITO (ITA No. 3401/Ahd/2010). 3. M/s Nepute Reality Pvt. Ltd. Vs. DCIT (ITA No. 2918/Ahd/2011).

,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

19 4. CIT Vs. Anandkumar Deepak Kumar 294 ITR 497 (Delhi). 5.5. The Ld.AR also stated that it is crystal clear from the various answers to the questions in Scheme of PMGKY that once disclosure is made for any assessment year, the same cannot be included in the total income of the declarant for any assessment year. It is also clear from the scheme that disclosure can be made for any assessment year commencing on or before 1st April 2017 and in accordance therewith, the assessee had made disclosure in respect of the undisclosed income as computed by it on the basis of seized documents. Therefore, due to erroneous approach of AO additions are made.

5.6. On the grounds of appeal filed by Revenue, the Ld.AR contented that the Ld.CIT(A) has rightly granted the benefits of exemption under sections 11 and 12 of the Act as the assessee-trust is registered as charitable trust us 12A of the Act. He further stated that the Ld.CIT (A) has rightly granted benefit of PMGKY relating to disclosure of Rs. 18.90 Crores (Rs. 10.90 Crore in the hands of the Parul Arogya Seva Mandal and Rs. 8.00 Crore in the hands of Parul University) and paid taxes.

5.7. The Ld.AR also brought to our attention the fact that assessee was issued notice u/s 148 of the Act for A.Y. 2014-15 after the survey proceedings, and AO has passed order u/s 143(3) r.w.s to 147 of the Act on 04/03/2021 accepting returned income and after giving benefit of exemption under sections 11/2 of the Income Tax Act. He further stated that disclosure made in PMGKY in A.Y. 2014-15 was also subject matter of assessment wherein similar exemption is given to appellant and similar ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

20 claim was allowed by AO in the assessment order passed for A.Y. 2018-19 & A.Y. 2020-21.

5.8. The AO contented that there has not been any withdrawal of registration granted u/s 12A to the appellant. The AO also invited our attention to the fact that the Ld.CIT(A) has relied on the judgement of Hon'ble Supreme Court in case of ACIT Vs Surat City Gymkhana [2008] 170 Taxman 612 in which it was held that Registration under section 12A of the Act is a fait accompli to hold Assessing Officer back from further probe into objects of trust.

5.9. The Ld.AR pointed out that as held by the Ld.CIT(A) that there is nothing to suggest that the trust has deviated from the objects for which registration was granted and not applied the funds for its objects and no evidence was brought on record to show that amount of alleged cash recovery, Bogus Salary etc. which have been collected was misused by the assessee or by any interested persons. He stated that the Ld.CIT(A) has rightly followed the decision of Hon'ble Madras High Court in the case of Kammavari Sangham V. Deputy Director of Income-tax Exemptions) [2023 146 taxmann.com 367, wherein it was held that– "the department has not established a case that the assessee had in this case not utilized the donations or income for charitable purpose. The clear finding of the Tribunal is that if the assessee had not utilized the amount for charitable purpose, it would automatically become taxable and the assessee would not be entitled exemption. But on the contrary, without there being a finding of violation of section 13 of the Act, an inference is drawn on an alleged receipt of donation and consequently, the allegation is made that there is a violation of section 13(1)(d) of the Act.” ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

21 5.10. He also invited our attention to CIT (A)’s order in which it was concluded that - "on perusal of assessment order, it is found that there is no allegation that cash recovery against alleged misappropriation of salary expenditure was used by trustee for their personal purpose. Even otherwise, the appellant has already made separate disclosure under PMGKY and on such income, no application u/s 11 & 12 is claimed against such income."

5.11. The Ld.AR further stated that since the Ld.CIT(A) has granted exemption under sections 11 &12 of the Act he rightly allowed the corpus donation of Rs.2,19,31,550/- as deduction u/s 11(1)(d) of the Act and allowed the capital expenditure as an application of income under section 11 of the Act.

22 before salary payments, and the recovered amounts were recorded as corpus donations. Various employees confirmed these practices during the survey. The AO calculated total cash withdrawals and bogus corpus donations based on incriminating documents and extrapolating the available data. The AO disallowed exemptions under Sections 11 and 12, treating the income as normal business income due to violations of the trust's objectives. The Ld.CIT(A) partially upheld the AO's additions but allowed the exemptions under Sections 11 and 12, concluding there was no apparent violation of Section 13 of the Act.

7.1. We have also noted that the survey was conducted on 31/01/2017 and the taxes relating to PMGKY were paid in the month of March-2017. Cash collected from employees was used by the trustees for the period till it is deposited in bank as corpus donations. Some expenses are also incurred in cash which were not accounted for and could not be explained during the course of survey and assessment. There was some discrepancy even after providing year-wise bifurcation to the Ld.CIT(A).

7.2. At this juncture, we consider the legal framework of section 11. Section 11 of the Act, provides exemptions to income derived from property held under trust for charitable or religious purposes, provided the income is applied for such purposes. However, this exemption can be withdrawn under certain circumstances, especially if the trust violates the provisions of Section 13. Section 13(1)(c) of the Act denies the benefits of Section 11 of the Act, if any part of the income or property of the trust is used or applied directly or indirectly for the benefit of certain specified persons, such as the author of the trust, trustees, or their relatives. ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18 7.3. As regards the exemption available under section 11 of the Act, the provisions of section 13 are quite relevant. The heading of section 13 is “Section 11 not to apply in certain cases”. In other words, section 13 provides that exemption under section 11 will not be available in cases of violation of the provisions of section 13 of the Act. Most of the violations under section 13 of the Act fall under section 13(1)(c) of the Act, whereas few violations also fall under section 13(1)(d) of the Act. Besides, section 13(2) of the Act lists conditions which are deemed to be violation under sections 13(1)(c) or 13(1)(d) of the Act.

7.4. As regards denial of exemption under section 11, in respect of total income of a trust/institution, because of misuse of income or property of the trust by the interested persons, there have been unusual instances. In such instances, a very insignificant use of the income/property by a trustee, has been held to be a violation of section 13(1)(c) of the Act and as a result thereof, exemption under section 11 of the Act has been denied to the total income of the trust/institution. One such instance is provided by the judgement of Hon’ble Kerala High Court, in the case of Agappa Child Centre Vs CIT [1997] 226 ITR 211 (Ker). In this case the assessee purchased a refrigerator and kept it at the residence of its managing trustee. As the trustee was enjoying the use of the property of the trust, the ITO held that the provisions of Section 13 were attracted. The Court observed that from a bare reading of the provisions, it can be inferred that the legislative emphasis is on availability for the use of any person referred to Section 13(3) and that too for any period during the previous year without charging adequate rent or compensation. The Court held that the Managing Trustee ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

24 was one of the prohibited persons as per Section 13(3). Therefore, the Court held that the entire exemption of the trust is to be denied.

In the present case, we deal with the violation of Section 13(1)(c) and Section 13(1)(d) of the Act:

7.5. The AO presented substantial evidence indicating that the trustees benefited from the trust's income through the systematic recovery of staff salaries in cash and the misrepresentation of corpus donations. This evidence included employee statements and an MS Excel file detailing the cash recoveries, corroborating that trustee used trust funds for personal gain, in violation of Section 13(1)(c) of the Act, which prohibits the direct or indirect benefit of any interested person.

7.6. The AO established that the trust's funds were not invested or utilized in accordance with Section 11(5) of the Act. Instead, funds were diverted through fraudulent means such as inflating expenses and obtaining unaccounted cash, which were not aligned with the charitable objectives of the trust. These actions contravene the provisions of Section 13(1)(d) of the Act, which mandates that the income and assets of the trust be applied solely for charitable purposes and invested in specified modes.

7.7. In our opinion, simply participation in some amnesty scheme like PMGKY does not absolve the assessee from the wrongdoing. Intent of any amnesty scheme is to comply and rectify previous non-compliance.

7.8. In the judgement of Union of India v. Dharmendra Textile Processors (2008) 13 SCC 369, the Supreme Court held that mens rea (intention) is an ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

25 essential ingredient of fraud and that heavy penalties can be imposed for fraudulent acts. In the present case, we have no hesitation to say that the intent was to defraud the object of the trust.

7.9. In case of CIT v. Suresh N. Gupta (2008) 297 ITR 322 (SC), the Supreme Court discussed the principles of amnesty schemes and held that such schemes aim to promote voluntary compliance and cannot be equated with fraudulent conduct.

7.10. Thus, in the present case, the stand of assessee that their participation in PMGKY is absolving them from defaults is not correct.

7.11. The Ld.CIT(A) failed to provide specific reasons demonstrating how the assessee was meeting the objects of the trust. Given the systematic fraudulent activities uncovered, the accounts of the trust cannot be relied upon. Additionally, the principle of res judicata does not apply in income tax proceedings, and each assessment year must be evaluated based on its facts and circumstances. Therefore the Ld.CIT(A)’s contention that AO has granted credit of PMGKY in A.Y. 2014-15 cannot be the basis to decide the merit of denial of exemption u/s 11 of the Act.

7.12. The Ld.CIT(A) also failed to consider the facts the trustees benefited from such cash misappropriation. The principle of preponderance of probability can be used to determine whether the trustee benefited by taking back cash from employees' salaries. Using the principle of preponderance of probability, it can be concluded that the trustee benefited from taking back cash from employees’ salaries as the overall evidence ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

26 suggests that it is more likely than not that the trustee personally benefited. The trustee’s explanations do not align with the available evidence and surrounding circumstances. Thus, patterns and context indicate a likelihood of personal gain. In case of Sumati Dayal vs. CIT (214 ITR 801 SC), the Hon’ble Supreme Court emphasized considering human probabilities and the overall context. The principle was applied to assess whether the taxpayer's explanation of her income was credible, given the surrounding circumstances and the lack of direct evidence. 7.13. The trust's consistent involvement in fraudulent activities was evident from the systematic recovery of staff salaries, bogus corpus donations, and other manipulative practices. The admission of undisclosed income under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) itself is an acknowledgment that the trust deviated from its objects and violated the conditions of Section 13. Furthermore, the tax paid under PMGKY represents a gross misuse of the trust’s funds, which were supposed to be applied exclusively for charitable purposes.

7.14. The decisions relied Upon by the Assessee and the Ld.CIT(A) can be distinguished as follows: • ACIT vs. B.N. Corporation [2001] 116 Taxman 579 (Gujarat):

Context: In this case, the Gujarat High Court held that the principle of extrapolation could be applied when there was sufficient evidence indicating systematic underreporting of income.

Distinguishing Factor: The case involved a business entity where the extrapolation was based on a set pattern of underreporting discovered during the assessment. In contrast, the present case involves a charitable trust where the evidence pointed to systematic and fraudulent diversion ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

27 of funds for personal gain, violating the trust’s charitable objectives and conditions under Sections 11 and 13 of the Income Tax Act. • M.R. Corporation vs. ITO (ITA No. 3401/Ahd/2010):

The ITAT Ahmedabad held that extrapolation should be based on concrete evidence for the specific period under consideration, and not merely on assumptions or isolated instances.

This decision is based on the principle that extrapolation should not be arbitrary. However, in the current case, the AO’s extrapolation is supported by substantial evidence, including employee statements, MS Excel files, and corroborative documents showing systematic fraudulent activities over an extended period, justifying the AO’s methodology. • M/s Nepute Reality Pvt. Ltd. vs. DCIT (ITA No. 2918/Ahd/2011):

In this case, the ITAT emphasized the need for a reasonable basis and direct evidence to support the extrapolation of income.

7.15. The present case involves direct evidence of the trust's fraudulent activities, including cash recoveries from salaries and bogus corpus donations, which provide a reasonable basis for the AO's extrapolation. Unlike Nepute Reality, where extrapolation was challenged for lack of direct evidence, the evidence here is robust and systematic. • CIT vs. Anandkumar Deepak Kumar 294 ITR 497 (Delhi):

The Delhi High Court dealt with the principle that estimates should be based on concrete evidence rather than on assumptions or surmises.

7.16. In this case, the issue was about the reliability of estimates. In the present case, the AO’s estimates are not merely assumptions but are grounded in substantial and corroborative evidence of systematic fraud and ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18

28 misappropriation of funds by the trust, providing a strong basis for the extrapolation of income. • ACIT vs. Surat City Gymkhana [2008] 170 Taxman 612 (SC):

The Supreme Court held that registration under Section 12A of the Income Tax Act is a fait accompli, meaning once granted, the AO cannot question the objects of the trust unless the registration is cancelled or withdrawn.

7.17. While this judgment affirms the protection granted by Section 12A registration, it does not preclude the AO from disallowing exemptions under Sections 11 and 12 if the trust is found to have violated the provisions of Section 13, which is the case here. The evidence shows that the trust engaged in activities that directly benefited the trustees, violating Sections 13(1)(c) and 13(1)(d) of the Act, which mandates the denial of exemptions regardless of the 12A registration status.

7.18 There are many judicial pronouncements relating to extrapolation and denial of exemption u/s 11 which upheld the principle of extrapolation, allowing tax authorities to estimate undisclosed income based on available evidence. The Courts have ruled that when there is sufficient evidence of systematic and recurring bogus transactions, the use of extrapolation is justified. In the present case, the trust's repeated practice of inflating salary expenses and recovering amounts in cash provides a reasonable basis for the AO's extrapolation of unaccounted income. Courts have supported the application of extrapolation in cases where there is substantial evidence indicating that the assessee has been systematically booking bogus expenses. The courts emphasized the need for a reasonable basis for such extrapolation. In the present case, the AO’s detailed findings and the ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18 corroborative evidence from the survey support the application of extrapolation to estimate the trust’s unaccounted income accurately.

7.19. The Ld.CIT(A) and assessee both have referred decision of Madras High Court in case of Kammavari Sangham v. Deputy Director of Income- tax (Exemptions) [2023] 146 taxmann.com 367 where it was held that if the department fails to establish that the assessee did not utilize donations or income for charitable purposes, then the income should not be taxed. However, this case is distinguished from the present one because the department here provided sufficient evidence of the trustees' misutilization of funds and systematic fraudulent activities. Unlike in Kammavari Sangham, where the allegations were not supported by material evidence, the present case involves substantial documentation and witness statements confirming the misuse of funds.

7.20. There are also some decisions / judgements which denies exemption u/s 11 on apparently very small but unusual issues. These judgements underline the importance of adherence to the strict implementation of principles of property held under trust and governance of the trust. One such example of High Court of Kerala in Agappa Child Centre (supra) is discussed in earlier in this order.

7.21. These judgments clearly show that any form of financial mismanagement or misutilization can lead to the withdrawal of exemptions. In the present case, the assessee trust fraudulently generated cash through inflated salary expenses and then showed this cash as corpus donations. This is misuse of Fund and can be seen as benefiting certain individuals ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18 associated with the trust, violating Section 13(1)(c). Showing fraudulent cash as corpus donations misrepresents the financial statements and violates the purpose of corpus donations. In a strict view of this is a financial manipulation.

7.22. We conclude that the evidence presented by the AO, including the systematic recovery of staff salaries, bogus corpus donations, and other fraudulent activities, constitutes violations under Sections 13(1)(c) and 13(1)(d). The trustees' direct involvement in fraudulent activities, admission of the same during the course of survey and disclosing unaccounted cash transaction in PMGKY and gaining direct benefit from these activities disqualifies the trust from exemptions under Sections 11 and 12.

7.23. The Ld.CIT(A)'s failure to specifically justify how the trust met its objects, coupled with the unreliable accounts and the consistent fraudulent activities by trustees, further supports this conclusion. The admission of undisclosed income under PMGKY and the misuse of trust funds to pay taxes under the scheme are clear indicators of deviation from charitable objectives. The principles of extrapolation applied by the AO are validated by the cited judicial precedents, reinforcing the decision to uphold the additions and disallowances made in the assessment order.

7.24. Thus, appeals filed by the assessee are dismissed, and the revenue’s appeals are allowed to the extent that the exemptions under Sections 11 and 12 are denied, and the additions based on the AO’s findings are confirmed. ,992,993,1018 & 1019/Ahd/2023. Parul Arogya Seva Mandal Trust & Parul University (ITA 993/Ahd/2023) Asst. Years :2016-17 & 2017-18 7.25. The Assessing Officer is directed to recompute the income of the assessee in accordance with Section 164 of the Income Tax Act. Since the trust is found to have violated the provisions of Sections 13(1)(c) and 13(1)(d) of the Act, resulting in the denial of exemptions under Sections 11 and 12 of the Act, the income of the assessee trust should be taxed at the maximum marginal rate as specified under Section 164(2) of the Act. This recalculation should exclude any benefits of exemptions previously claimed under Sections 11 and 12, and all additions made on account of unaccounted income and bogus expenses should be included in the taxable income. The AO should take care in avoiding duplication of addition as pointed out by Ld.CIT(A) and give due credit of income disclosed in PMGKY with taxes paid.

Order pronounced in the Open Court on 12th July, 2024 at Ahmedabad.