DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, GUNTUR vs. RAVINDRA BHARATHI EDUCATIONAL SOCIETY, NELLORE

PER S. BALAKRISHNAN, Accountant Member :

The captioned appeal is filed by the Revenue against the

order of the Ld. Commissioner of Income Tax (Appeals)-3,

Visakhapatnam in DIN & Order No. ITBA/APL/S/250/2022-

23/1043288118(1), dated 01/06/2022 arising out of the order

passed U/s. 147 of the Income Tax Act, 1961 [the Act] for the AY:

2018-19.

an Association of Persons [AOP] and engaged in the business of

imparting education to students. The assessee does not have a

registration U/s. 12A of the Act. The assessee e-filed its return of

income for the AY 2018-19 admitting a total income of Rs.

4,02,25,350/-. Thereafter, a survey operation U/s. 133A of the

Act was conducted in the case of the assessee on 18/7/2019 and

found that cash payments amounting to Rs. 2.81 Crs and Rs. 65

lakhs were made for purchase of Text Books and Note Books etc.,

and the same was impounded. Further, a provisional P & L

Account, Balance Sheet for the AY 2019-20 was found which

contained the details of cash payment of interest, rent and

payment to valuer for the FY 2018-19 which was impounded in

3 Annexure – A/RBES/OFF/HYD/01. Similarly, payment of interest

for the FY 2015-16 and 2017-18 and also the details of some

other receipts are noticed and impounded in Annexure –

A/RBES/OFF/HYD/02. It was clarified by the President of the

Society Sri M. Subrahmanyam, the provisional P & L Account was

prepared for the purpose of availing bank loan. The Survey Team

also observed that there are cash payments, declaration of low

profits which was intimated to the President of the assessee-

Society. The President of the Assessee-Society admitted an

additional income of Rs. 2.90 Crs for the AY 2018-19.

Considering the above admission of the assessee, the case was

reopened U/s. 147 of the Act and the notice U/s. 148 was issued

on 4/12/2019 for the AY 2018-19 which was served on the

assessee on 7/12/2019. Subsequently, a notice U/s. 142(1) of

the Act was issued on 4/2/2021 calling for information. In the

meantime, the assessee e-filed its return of income in response to

notice U/s 148 of the Act admitting a total income of Rs.

4,02,25,350/- as admitted in the original return. Further, a

notice U/s. 143(2) was issued on 19/4/2021. As there was no

response from the assessee, a letter was addressed to the

assessee on 16/4/2021 proposing an addition of Rs. 2.90 Crs as

admitted by the assessee at the time of survey and called for its

4 objections. In response, the assessee e-filed a letter in ITBA on

20/04/2021 explaining that the cash payments were not made

during the FY 2017-18 and all the payments for purchase of Text

Books and Note Books etc., were made through cheques only.

The Ld. AO considering the assessee’s explanation not

acceptable, made an addition of Rs. 2.90 Crs to the returned

income of the Assessee while framing the assessment U/s. 147 of

the Act and completed the assessment U/s. 144 of the Act.

Aggrieved by the order of the Ld. AO, the assessee is in appeal

before the Ld. CIT(A).

of the assessment based on the admission made by the President

of the Assessee-Society. The Ld. CIT(A) in his detailed order,

relying on various judicial pronouncements, considered the

submissions made by the assessee and allowed the appeal of the

assessee. Aggrieved by the order of the Ld. CIT(A), the Revenue

is in appeal before the Tribunal.

“1. The order of the Ld. CIT(A) is erroneous both on the facts and in law.

5 2. The Ld. CIT(A) is not justified in stating that reopening the assessment U/s. 147 of the Act is bad in law.

admitted Rs. 2.90 Crs during the survey but has failed to admit

the same while filing the return of income U/s. 148 of the Act.

The Ld. DR further submitted that the Ld. CIT(A) has relied on

the decision of Pullangode Rubber Producer Co. Ltd vs. CIT

6 [1973] 91 ITR 18 wherein it was held that reopening based on

admission is an extremely important piece of evidence. The Ld. DR

further submitted that since the assessee has not declared the

income admitted, the Ld. AO has rightly considered that there is

a reason to belief escapement of income by the assessee. The Ld.

DR also referred to the reasons for reopening. The Ld. DR

therefore pleaded that the order of the Ld. AO be upheld.

Per contra, the Ld. AR argued that the Ld. AO has relied on

the admission made by the President of the Assessee-Society and

has not brought in any corroborative evidence to support the

reopening U/s. 147 of the Act. The Ld. AR further submitted that

the Ld. AO has also not rejected the books of account while

estimating the income of the assessee based on the admission.

Further, the Ld. AR also referred to the reasons for reopening in

paper book page No. 24 wherein the Ld. AO has purely relied on

the admission of the assessee as a valid reason for reopening of

the assessment for the AY 2018-19. The Ld. AR also referred to

the Hon’ble Supreme Court decision in the case of Pullangode

Rubber Producer Co. Ltd vs. CIT (supra) wherein it has been held

that “even though an admission is an extremely important piece of

evidence, it cannot be said to be a conclusive”. Further, the Ld.

7 AR also placed heavy reliance in the decision of the Hon’ble

Madras High Court in the case of CIT vs. M/s. S. Khader Khan

Son. The Ld. AR also referred to page 6 of the paper book wherein

a table was given justifying the increase in interest and

depreciation expenditure being the cost for the lower declaration

of profits for the impugned assessment year. Further, the Ld. AR

also submitted that Annexure – A/RBES/OFF/HYD/02 wherein

there are cash payments of interest of Rs. 26 lakhs, which are

already included in the sundry expenses in the P & L Account

and hence there is no escapement of income as relied on by the

Ld. AO. Further, the Ld. AR also submitted that during the

course of survey proceedings, no material which is incriminating

in nature to have a bearing on the assessment was found.

Further, the Ld. AR also referred to the retraction of President of

the Assessee-Society and stated that the assessee has wrongly

submitted that the admission of additional income at the time of

survey was made due to miscomprehension of facts and low

profits of margins were correctly justified and recorded. The Ld.

AR therefore pleaded that the reopening of assessment was bad

in law, invalid and unsustainable in law as it is based on the

admission during the survey and not based on any corroborative

8 evidence hence pleaded that the order of the Ld. CIT(A) be

upheld.

available on record as well as the orders of the Ld. Revenue

Authorities. Admittedly, we find that the reopening is based on

the admission of additional income of Rs. 2.90 Crs by Sri. M.

Subrahmanyam, President of the Assessee-Society at the time of

survey. Subsequently, the President of the Assessee-Society

retracted his statement and stated that the admission was due to

low profit ratios at the time of survey was made due to

miscomprehension of facts whereas the low profit margins were

justified and correctly recorded. Further, we find that the Hon’ble

Supreme Court in the case of Pullangode Rubber Producer Co.

Ltd vs. CIT [1973] 91 ITR 18 (supra) held that “an admission is an

extremely importance piece of evidence but it cannot be said to be

conclusive”. There is merit in the argument of the Ld. AR that the

Ld. AO has erred in relying on the statement of admission by the

assessee was the sole reason to reopen the assessment U/s. 147

of the Act without bringing any additional corroborative material

on record. Various judicial pronouncements have held that a

confessional statement made during the survey cannot be

9 considered as a reason for reopening of the assessment in the

absence of any supportive incriminating material having direct

nexus / correlation with the statement. For having a reason to

believe there must be some tangible material which indicates the

income escaped assessment. Merely based on the suspicion or

surmises, the Ld. Assessing Officer is not permitted to reopen the

assessment. It is also seen from the submissions made by the

Ld. AR that the assessee has incurred huge expenditure in the

form of interest and hence the low profit margin. The Ld. AO has

also not brought on record any material or finding based on the

suppression of receipts or unrecorded transactions for the year.

The reference was made by the Ld. AR to the Circular Dated

10/03/2003, deserves consideration, which reads as under:

“Instances have come to the notice of the Board where assessees have come to confess the undisclosed income during the course of the search & seizure and survey operations. Such confessions, if not based upon credible evidence, are later retracted by the concerned assessees while filing returns of income. In these circumstances, on confessions during the course of search & seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Department. Similarly, while recording statement during the course of search & seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely.

Further, in respect of pending assessment proceedings also, Assessing Officers should rely upon the evidences / materials gathered during the course of search / survey operations or thereafter while framing the relevant assessment orders”.

given any evidentiary value obviously for the reason that the

Officer is not authorized to administer oath and to take any

sworn statement as contemplated in law. Further, the word “may”

used in Section 133A(3)(iii) of the Act makes it clear that the

materials collected and the statement recorded during the survey

U/s. 133A are not conclusive piece of evidence by itself. The

case relied on by the Ld. DR in ACIT vs. Rajesh Jhaveri Stock

Brokers Pvt Ltd in Appeal (Civil) No. 2830 of 2007) (Supreme

Court), dated 23/05/2007 is distinguishable on the fact that

wherein para 16 it has been held by the Hon’ble Apex Court that

the question is whether there was any relevant material on which

a reasonable person could have formed a requisite belief. Whether

the materials would conclusively prove the escapement is not the

concern at this stage?” However, in the instant case, the Ld. AO

has not brought in any relevant materials conclusively to prove

that there is escapement of income. In the light of the above

discussions, we find no infirmity in the order of the Ld. CIT(A) in

para 5.4 of his order which reads as under:

“5.4. During the assessment proceedings the appellant society had established that what was said and admitted in the survey was not correct and hence the admission for offer of additional income on account of low profit margin had no justification. It was explained that the interest payments on loans taken by the appellant from the banks for its working capital requirements had increased over the years resulting in low profit margins. A comparative chart showing the net profit receipts to the gross receipts for various financial years from assessment year 2015-16 to 2018-19 was submitted during the assessment proceedings through which low profit margins was explained. On perusal of the comparative chart, it is noticed that the bank interest has been showing an increasing trend which was Rs. 23,19,56,781/- in Assessment year 2015-16 rose to Rs. 26,94,41,160/- in the Assessment Year 2018-19 having an impact on the profit margins. In comparison the net fee receipts from the students did not register significant increase as concessions have been allowed to the students. With respect to cash payments of interest of Rs. 26 lakhs for the year under consideration it was submitted that the same was included in the sundry expenses in the profit & loss account for the year under consideration and hence was not an unaccounted item. The low profit margin at the time of survey was only observation made by the AO and not a conclusive finding based on suppression of receipts of unrecorded transaction for the year. The appellant had clarified subsequently that what he had said during the survey was not correct due to misapprehension of facts. I observe that the AO has not taken into account the submissions made by the appellant during the assessment and has made the addition only on the basis of confessional statement at the time of survey without any supporting material. If the AO disagreed with the claims of the appellant with respect to the justification for low profit margins he ought to have brought on record with relevant material that the justification for the claims being made by the appellant are not correct. Instead the AO has only relied on the admission given at the time of survey and made the addition. Considering the above facts and circumstances of the case and the judicial pronouncements cited above grounds no.2, 3, 4 & 5 are allowed.”

that the reopening is bad in law and allowed the appeal of the

assessee. We therefore are of the considered view that no

interference is required in the order of the Ld. CIT(A) and hence

the grounds raised by the Revenue are dismissed.

No. 1, 2, 3, 4 & 6 are supportive in nature and therefore they are

considered as infructuous and dismissed as such.

the objection was raised by the assessee with respect to

estimation of income without rejecting the books of account, we

note that since the appeal of the Revenue is dismissed based on

considering the reopening of assessment is bad in law, this

ground needs no separate adjudication and hence this ground is

dismissed.

dismissed as infrutuous.

13 13. Ex-consequenti, appeal of the Revenue and the Cross Objection of the Assessee are dismissed.

Pronounced in the open Court on the 23rd May, 2023.

Sd/- Sd/- (दु�वू�आर.एलरे�डी) (एसबालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखासद�य/ACCOUNTANT MEMBER Dated : 23.05.2023 OKK - SPS

आदेशक���त�ल�पअ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee–M/s. Ravindra Bharathi Educational 1. Society, Dr. No. 23/812, Ravindra Bharathi Bhavan, Fathekhanpet, Nellore, Andhra Pradesh – 524003. राज�व/The Revenue –Deputy Commissioner of Income Tax, Central 2. Circle, 3rd Floor, Raj Kamal Complex, Lakshmipuram Main Road, Guntur – 522007, Andhra Pradesh. 3. The Principal Commissioner of Income Tax (Central), Visakhapatnam. आयकरआयु�त (अपील)/ The Commissioner of Income Tax 4. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, �वशाखापटणम/ 5. DR,ITAT, Visakhapatnam गाड�फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam