Appeal Details
Counselvise Citation
[2022] 106 COUNSELVISE.COM (IT) 9358 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
3 month(s) 4 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
07-06-2022
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Assessment Year
2020-2021
Appeal Filed On
03-03-2022
Judgement Text
ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar IN THE INCOME TAX APPELLATE TRIBUNAL “C’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No.155/Bang/2022 Assessment Year: NA M/s. Devaraj Urs Educational Trust for Backward Classes (Regd) No.1, Tamaka Kolar 563 103 PAN NO : AAATS5344P Vs. Principal CIT (Central) Bangalore APPELLANT RESPONDENT Assesseeby : Sri Ramasubramaniyan, A.R. Respondent by : Sri Pradeep Kumar, D.R. Date of Hearing : 19.04.2022 Date of Pronouncement : 08.06.2022 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by assessee is directed against the order of Principal CIT, Bangalore with regard to cancelling of registration u/s 12A of the Income-tax Act,1961 ['the Act' for short] granted to the assessee on 20.1.1992. 2. Facts of the case are that the assessee is a Trust established for the purpose of providing education and medical relief. The assessee was registered u/s 12A of the Act by the Commissioner of Income Tax — 1 Karnataka vide Registration No. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 2 of 61 ACCTS.718/10A/Vol.B.1/D.113/CIT-1 dated 20.01.1992. The Commissioner of Income Tax Karnataka -1 had jurisdiction over trusts claiming exemption u/s 11 of the Act. The assessee had been carrying on charitable activities by running, schools, engineering colleges and medical colleges. The assessee has been regularly filing the return and for various years the exemption u/s 11 of the Act was allowed. 2.1 A search was carried out in the premises of the assessee u/s 132 of the Act on 6.8.2015. Various documents were seized. Notice u/s 153A of the Act was issued for assessment years 2010-11 to 2015-16. For the assessment year 2016-17, a notice u/s 143(2) of the Act was issued. The assessments were completed u/s.153A of the Act up to assessment year 2015-16 and u/s 143(3) of the Act for the assessment year 2016-17. The assessee filed appeals against the assessment orders before the learned Commissioner of Income Tax (Appeals)-11, Bangalore. The learned Commissioner of Income Tax (Appeals)-11, Bangalore passed orders on 28.02.2020 dismissing the appeals. Further appeals were filed before the Tribunal, and vide its order dated 16.08.2021 in ITA Nos. 500 to 506/Bang/2020, the Tribunal substantially allowed the appeals and held that exemption u/s. 11 of the Act cannot be denied. The assessee as well as Principal Commissioner of Income-Tax have filed appeals before the Hon'ble Karnataka High Court. 2.2 When the assessment proceedings were pending, the learned Principal Commissioner of Income Tax (Central), Bangalore issued a notice on 11.10.2017 proposing to cancel the registration as provided in S. 12AA(3) of the Act. The assessee filed a detailed objection vide its letter dated 23.10.2017. The assessee also vide its letter dated 9.12.2017 filed on 11.12.2017 objected to the ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 3 of 61 jurisdiction of the learned Principal Commissioner of Income Tax (Central) to cancel the registration. 2.3 After hearing the assessee, the learned Principal Commissioner of Income Tax (Central), Bangalore vide the order dated 23r d March 2018 cancelled the registration. The finding of the learned Principal Commissioner in brief is as under: a. The activities of the trust have not been carried out in accordance with the objects of the trust. b. Agents have been appointed to identify probable candidates who will pay capitation fees in cash. c. Agents were also appointed to find candidates to enable the assessee to convert the merit seats into management quota seats. d. The capitation fees were received in cash from students and not accounted. The fee collected are not in accordance with the norms laid down by the Fees Fixation Committee. e. Fees collected in cash was spent for benefit of the trustees and for payment of bribe to MCI inspectors. f. The fees collected in cash was routed into the accounts of the trust through dubious means. Based on the alleged findings the learned Principal Commissioner cancelled the registration w.e.f assessment year 2010-11. 2.4 It is submitted by the Ld. A.R. that the assessee had filed an appeal before the Tribunal challenging the order cancelling the registration. The Tribunal vide its order dated 20.10.2021 in ITA No. 1463/Bang/2018 set aside the order passed by the learned Principal ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 4 of 61 Commissioner of Income-Tax and restored all the issues to his file for examining the claims of the assessee. 2.5 Ld. A.R. submitted that when the appeals against the assessment orders and the cancellation of the registration order were pending before the Tribunal, the assessee was subjected to another search u/s. 132 of the Act on 10.10.2019. The assessments were completed u/s. 153A of the Act for the assessment years 2014-15 to 2019-20 and u/s. 143(3) for AY 2020-21. The assessee had filed appeals before the learned Commissioner of Income-Tax (Appeals) — 11, Bangalore. For the assessment years 2014-15, 2015-16 and 2016-17, no fresh incriminating materials were found during the search conducted on 10.10.2019. Even in the assessment orders passed u/s. 153A of the Act consequent to the second search for the above assessment years, the learned assessing officer simply confirmed the total income determined in the earlier assessment orders passed u/s. 153A of the Act even though the Tribunal had deleted all the additions. In the Order Giving Effect (OGE) to the ITAT Order for AY 2014-15 to 2016-17, the entire additions made were deleted but simply confirmed the total income determined in the earlier assessment orders passed u/s. 153A of the Act in the assessment orders passed on 30.09.2021 consequent to the second search conducted on 10.10.2019. Based on the directions given by the Tribunal in ITA No. 1463/Bang/2018, the learned Principal Commissioner of Income Tax (Central), after giving an opportunity of being heard to the assessee, confirmed the earlier order cancelling the registration. Ld. A.R. submitted that the main reason for upholding the cancellation of registration as under; ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 5 of 61 a. The department has filed an appeal against the order of the Tribunal in appeal no. 500 to 506/Bang/2020 and the matter has not reached finality. b. In the subsequent search conducted on 10.10.2019, it is found that the assessee continues to receive capitation fee and has not carried out the activities in accordance with the objects of the Trust. c. It is submitted that the action of the learned Commissioner of Income Tax erred in not following the categorical findings of the Tribunal in appeals number 500 to 506/Bang/2020 that the assessee is entitled to exemption u/s 11 of the Act, has not violatedS.13(1) of the Act and all the seized materials found during the search on 6-82015 are not reliable and the findings in the assessment orders passed on 31-12-2017 have been quashed. The above action of learned Principal CIT is not in accordance with the standards of judicial discipline. Ld. A.R. relied on the decision of the Hon'ble Supreme Court in Kamalakshi Finance Corporation 55 ELT 433 for the above proposition. The above decision may have been rendered under Excise Law ; however, the ratio of decision is equally applicable to income tax matters as the principle of hierarchy remains same. Hence, the action of the learned Principal Commissioner of Income Tax in not following the directions and findings of the Tribunal and also holding that the order of the Tribunal has not reached finality is bad in law. 2.6 Ld. A.R. further submitted that the second search conducted on 10.10.2019 has no relevance for deciding the validity of order passed on 23-3-18 u/s 12AA(3). The validity of such order has to be decided on the basis of materials available on record as on 23-3-2018 (whose' validity has been challenged in appeal) only subject to outcome of ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 6 of 61 appeals wherein the validity of materials were challenged. Any other subsequent events are wholly irrelevant. Hence, the reasons for denial of restoration of registration u/s 12A of the Act given in the order dated 18.2.2022 by the learned Principal Commissioner of Income Tax is bad in law and liable to be quashed. 2.7 Ld. A.R. further submitted that the assessment years from 2014-15 to 2016-17 will overlap in the second search. However, the additions made in the assessment years dated 30.09.2021 are identical to the additions made in the assessment orders passed on 30.12.2017 consequent to first search. Hence, there are no new findings in the assessment orders for these assessment years and the learned Principal Commissioner of Income Tax cannot take the aid of these assessment orders for denying the restoration of registration u/s 12A of the Act. 2.8 The Ld. A.R for the assessee also submitted that the registration having been granted by learned Commissioner of Income Tax (Exemption), the order passed by Principal Commissioner, Central Circle is without jurisdiction. Transfer of jurisdiction of assessing officer to Central Circle u/s 127 does not clothe the respondent with powers that could be exercised only by Director of Exemption. It is trite law that authority granting registration alone has the powers to cancel the same. Hence, the learned respondent cannot assume jurisdiction to cancel the registration just because the jurisdiction of assessing officer has been transferred to an officer who is subordinate to the respondent. 2.9 In view of the above submissions, Ld. A.R. prayed that the Tribunal be pleased to direct the learned Principal Commissioner of ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 7 of 61 Income Tax to restore the registration u/s 12A of the Act with immediate effect. 3. The Ld. D.R. relied on the order of Principal CIT and submitted the Ld. Principal CIT had cancelled the registration based on the findings of first search on 6.8.2015 as well as on 10.10.2019. The violation noted in that order is very crucial and the assessee has been collecting unaccounted capitation fees by person coming under the ambit of section 13(3) of the Act and there is violation of section 13(1)(c) of the Act. Thus, he relied on the earlier order of the Ld. Principal CIT in cancelling the registration granted u/s 12A of the Act based on the findings of the first search dated 6.8.2015 and also the documents found during the course of second search on 10.10.2019. 4. We have heard the rival submissions and perused the materials available on record. Admittedly, assessee has been granted with the registration u/s 12A of the Act w.e.f. 20.1.1992. This has been originally cancelled by Ld. Principal CIT vide his order dated 23.2.2018. Against this assessee came in appeal before this Tribunal. Tribunal vide its order in ITA No.1463/Bang/2018 dated 20.10.2021 decided as follows:- “8. We heard the rival contentions and perused the record. It is the contention of the assessee that the impugned order cancelling the registration granted to the assessee u/s 12A of the Act has been passed by the Ld Principal CIT on the basis of findings noticed by the search officials and also by the AO during the course of assessment proceedings. It is the contention of the Ld. A.R. that all the findings and additions have since been deleted by the Tribunal. Accordingly, it was submitted that the grounds on which the registration was cancelled no longer survive now. Besides, the above, the assessee is also questioning the validity of jurisdiction assumed by the Ld. Principal CIT while cancelling the registration u/s 12AA(3) of the Act and also challenging the validity of cancelling the registration with retrospective effect. On the contrary, it is the contention of the Ld D.R that the assessment orders passed by the AO were not entirely relied upon by Ld PCIT. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 8 of 61 9. Be that as it may, the fact remain that the Tribunal has now passed orders for AY 2010-11 to 2016-17 against the assessment orders passed for the above said years u/s 153A of the Act. There is no dispute that the Ld PCIT has also referred to the assessment orders passed u/s 153A of the Act. Now there is change in circumstances on account of passing of the orders by the Tribunal. Under these set of facts, we are of the view that the entire issues urged by the assessee before us require re-examination at the end of Ld. Principal CIT, who can take judicial view of the matters after considering the order passed by the Tribunal. 10. Accordingly, we set aside the order passed by Ld. Principal CIT and restore all the issues to his file for examining the claims of the assessee. After affording adequate opportunity to the assessee, Ld. Principal CIT may take appropriate decision in accordance with law on all the issues. 11. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.” 5. Consequent to this, Ld. Principal CIT passed a fresh order vide his order dated 18.2.2022 confirming his earlier order by cancelling the registration. Admittedly, the Principal CIT considered the various discrepancies found during the course of search action on 6.8.2015. Consequent to search action on 6.8.2015, assessment orders are framed u/s 153A of the Act for the assessment years 2010-11 to 2016-17. These orders are subject matter of appeal before Ld. CIT(A) and he disposed of appeals vide his order dated 28.2.2020 confirming the action of the AO. Further, these orders of Ld. CIT(A) were subject matter of appeal before this Tribunal. The Tribunal disposed of the appeal vide its order in ITA No.500 to 506/Bang/2020 vide order dated 16.8.2021. Following observation of this Tribunal in its order is very crucial, which are reproduced hereunder:- “183. In view of the aforesaid judgments, since the impugned seized papers are undated, have no acceptable narration and do not bear the signature of the assessee or any other party, they are not in the nature of self-speaking documents having no evidentiary value and cannot be taken as a sole basis for determination of undisclosed income of the assessee. When documents like the present loose sheets of papers are recovered and the Revenue wants to make use of it, the onus rests on the ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 9 of 61 Revenue to collect cogent evidence to corroborate the noting therein. The Revenue has failed to corroborate the noting by bringing some cogent material on record to prove conclusively that the noting in the seized papers reveal the unaccounted capitation fees/receipts of the assessee. Further, no circumstantial evidence in the form of any unaccounted cash, jewellery or investments outside the books of account was found in course of search in the case of assessee. Thus, the impugned addition was made by the AO on grossly inadequate material or rather no sufficient material at all and as such, deserves to be deleted. Hence, we are of the view that an assessment carried out in pursuance of search, no addition can be made simply on the basis of uncorroborated noting in loose papers found during search because the addition on account of alleged receipts made simply on the basis of uncorroborated noting and scribbling on loose sheets of papers made by some unidentified person and having no evidentiary value, is unsustainable and bad-in-law. 184. The Tribunal in the case of Sri Y. Siddaiah Naidu, Tirupathi vs. Asst. Commissioner Of Income-Tax 2015 (2) TMI 403 - ITAT HYDERABAD held that it is very much clear that from such notings, it cannot be deduced whether they are receipt or payments nor it can be concluded whether they are in relation to any particular transaction as no names have been mentioned. In these circumstances, no addition can be made on the basis of such document. 185. In CIT v. M/S Khosla Ice & General Mills 2013 (1) TMI 451 - Punjab & Haryana High Court, the Hon’ble Court held that assessee rightly contended that the impugned document was a non-speaking document inasmuch as it does not contain any intelligible narration in support of the inference drawn by the Assessing Officer that it reflected sales carried out by the assessee outside the regular books of account. When a dumb document, is to be made the basis to fasten tax liability on the assessee, the burden is on the Revenue to establish with corroborative evidence that the nature of entries contained therein reflect income and also that such income was in the control of the assessee. Thus, Revenue has to establish, with necessary corroborative evidence, that various entries contained in the seized document reflect sales of rice and broken rice effected by the assessee. Considering the entirety of circumstances, in the absence of any material to support the nature and ownership of the entries found in the seized document, no addition is permissible in the hands of the assessee as undisclosed income by merely arithmetically totalling various figures jotted down on such document. 186. Further the AO relied on the statement of Shri Nagaraj, Secretary wherein the AO mentioned that Mr. Nagaraj was aware of the transactions and confirmed it. The AO has not referred to the following answers of Mr. Nagaraj to Question Nos.8 to 11:- (a) In answer to Q.8 to the statement recorded on 13.8.2015, [page 2164 PB), he has stated that he does not know anything about the entries made in the loose sheets. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 10 of 61 (b) In answer to Q14 (page 2165 PB), he denied any consideration paid to MCA Inspectors nor any cash paid to donors to enable them claim 80G deduction. (c) In answer to Q.8 (page 2167 PB), in the statement record on 21.9.2015, he did not agree to disclose any amount as undisclosed income of the trust. (d) In answer to Q. 14 (page 2183 PB) of statement recorded on 13.10.2015, he denied payment of cash to any donor. (e) In answer to Q.22 (pg. 2191 PB), he emphatically denied that any cash was received from student/parent in response to statement of Shri Rangaraju (pg. 2189 & 2190 PB). (f) In answer to Q.24 (pg. 2192 PB), he denied collection of fee in cash. 187. Hence the revenue authorities contention that Mr.Nagaraj has admitted payment of cash and receipt of fees in cash is not based on statement of Mr. Nagaraj. 188. Further from the seized material A/DUU/02 & 03, the AO came to the conclusion that cash been paid to trustees either directly or to a third party for their benefit. The statements of Shri R.L. Jalappa, Shri Rajesh Jagdale and late Shri J.P. Narayan Swamy were recorded, but no questions were put to them whether statement of Mr. Srinivas that cash has been paid to trustees or to a third party on their behalf is correct. The statement of Mr. Jalappa is on record at page 2140 to 2158 of PB. Perusal of the same shows that he was not confronted with the statement of Mr. Srinivas. The observations in para 8 & 9 of the assessment order do not show that Shri Rajesh Jagdale and late Mr. J.P. Narayan Swamy were also not confronted with the statement of Mr. Srinivas. The AO stated that seized material A/DUU/01 revealed that trust has engineered dropout seats and converted the merit quota seats into management quota seats through services of middlemen like Mr. Abrar. The AO discussed these facts in Page no 78 to 86 of the assessment order it shows that he relied on the statement of Shri G Srinivasa. Shri G Srinivasa has stated that Mr. Syed Abrar, Mr. Shiva Prasad, Mr. Basavaraja, Mr. Amanullah, Mr. Prasad and Mr. Thomas are the commission agents who bring prospective students for admission to NRI quota seats and some other seats. These candidates have to make payments in cash for which no receipts are issued. But the AO has not examined Mr. Abrar or any other alleged middlemen. In the absence of such examination, the statement of Shri Srinivas that middlemen were engaged for seat conversion cannot be relied upon. 189. The seized material A/DUU/03 which is placed on record at PB page no 669 to 775 which shows certain payment entries and it is very strange to believe that the assesse has authorised any person to write it as it does not contain any attestation from the assesse side being not having any name or seal of the assesse. 190. The seized material A/DUU/04 which is placed on record at PB page no 776 to 864 which shows certain payment entries and it is very strange to believe that the ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 11 of 61 assesse has authorised any person to write it as it does not contain any attestation from the assesse side being not having any name or seal of the assesse. It also shows certain amount taken from PG students. However there is no attestation to this document from the trust side to suggest that it was authorised by the assesse. Being so no credence to be given to this document. 191. The seized material A/DUU/05 to 09 is not relied upon by the AO while framing assessment and making additions, hence no findings are required. 192. The seized materials A/DUU/10 are placed in pages 1420 to 1554 of PB. The AO relied on page 5 placed at page 1549 of PB. According to AO, this amount has been paid to agents for seat conversion. The AO mentioned about this in page 61 of assessment order and there is only reference to page 5 of seized material (placed at 1549 of the paper book) in this order. According to him, it contains details of cash payments made to agents. We have carefully gone through the above seized material. In our humble opinion this seized material does not show any payment which has been made to an agent for seat conversion. Being so, as discussed earlier, these are loose sheets having no signature of any person, cannot be treated as incriminating material without any supportive document and the statements are relied upon by the AO without giving opportunity of cross-examination. ................................... .................................. 195. The seized material A/DUU/11 is placed at pages 1555 to 1635 of PB. According to the ld. DR, it shows unaccounted utilisation of capitation fees for the benefit of trustees. These are unsigned documents and not supported by any corroborative material. Further the beneficiaries are not examined or cross- examined. At this point, it is appropriate to rely on the judgment of the Mumbai Bench in the case of ACIT v. Layers Exports P. Ltd [2017] 53 ITR (Trib) 416 (Mumbai), wherein it was held that no addition could be simply made on the basis of uncorroborated notings in the loose papers found during the search because addition on account of alleged receipt made simply on the basis of uncorroborated noting and scribbling on loose sheets made by some person have no evidentiary value and is unsustainable and bad in law. 196. The Hon’ble Supreme Court in Common Cause (A Registered Society) v. UOI [2017] 394 ITR 220 (SC) observed with regard to evidentiary value that entries in books of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate and in absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another. In Hira Lal v. Ram Rakha the High Court, while negativing a contention that it having been proved that the books of account were regularly kept in the ordinary course of business and that, therefore, ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 12 of 61 all entries therein should be considered to be relevant and to have been proved, said that the rule as laid down in Section 34 of the Act that entries in the books of account regularly kept in the course of business are relevant whenever they refer to a matter in which the Court has to enquire was subject to the salient proviso that such entries shall not alone be sufficient evidence to charge any person with liability. It is not, therefore, enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is further incumbent upon the person relying upon those entries to prove that they were in accordance with facts. It is apparent from the aforesaid discussion that loose sheets of papers are wholly irrelevant as evidence being not admissible under Section 34 of Evidence Act so as to constitute evidence with respect to the transactions mentioned therein being of no evidentiary value. The entire prosecution based upon such entries which led to the investigation was quashed by the Court. There has to be some relevant and admissible evidence and some cogent reason, which is prima facie reliable and that too, supported by some other circumstances pointing out that the particular third person against whom the allegations have been levelled was in fact involved in the matter or he has done some act during that period, which may have co-relations with the random entries. In case we do not insist for all these, the process of law can be abused against all and sundry very easily to achieve ulterior goals and then no democracy can survive in case investigations are lightly set in motion against important constitutional functionaries on the basis of fictitious entries, in absence of cogent and admissible material on record, lest liberty of an individual be compromised unnecessarily. 197. In view of the above, reliance on Seized material A/DUU/11 for making addition cannot be sustained. 198. The AO has not referred to the seized material Seized material A/DUU/12 and there is no necessity of commenting on it. 199. Regarding seized material A/DUU/13, placed at PB 1698 to 1805 which contains computer typed statements, scribbling’s and manual scribbling’s and noting’s. Most of the entries is a repeat of hard copy of seized material A/DUU/01. Further there are certain letters as follows: (i) PB 1767 – Letter from A Murthy confirming the voluntary payment of Rs.50,000 towards corpus donation by cheque (ii) PB 1768 (duplicate of above) Letter from A Murthy confirming the voluntary payment of Rs.50,000 towards corpus donation by cheque. (iii) PB 1771 – Letter from B Rajashekhar confirming the voluntary payment of Rs.30,000 towards corpus donation by cheque. (iv) PB 1772 (Duplicate of above) Letter from B Rajashekhar confirming the voluntary payment of Rs.30,000 towards corpus donation by cheque. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 13 of 61 (v) PB 1777 – Letter from K Shantharam confirming the voluntary payment of Rs.30,000 towards corpus donation by cheque. (vi) PB 1779 – Letter from T Venkatsubbaiah confirming the voluntary payment of Rs.70,000 towards corpus donation by cheque. (vii) PB 1780 (Duplicate of above) Letter from T Venkatsubbaiah confirming the voluntary payment of Rs.70,000 towards corpus donation by cheque. (viii) PB 1784 – Letter from P Kumara Swamy confirming the voluntary payment of Rs.50,000 towards corpus donation by cheque. (ix) PB 1787 – Letter from B S Amarnatha confirming the voluntary payment of Rs.50,000 towards corpus donation by cheque. (x) PB 1790 & 1791 – Letter from Dr.C.L.Gayathridevi confirming the voluntary payment of Rs.50,000 towards corpus donation by cheque. (xi) PB 1793 – Letter from B P Ravi Kumar confirming the voluntary payment of Rs.25,000 towards corpus donation by cheque. 200. In all the above cases the voluntary contribution towards corpus donation has been received by cheque and duly accounted in the books of account of the assesse. There are also some photocopy of bank receipts and cheque receipts other than this which are insignificant papers does not suggest any material evidence. 201. The seized material A/DUU/14 is digital data. According to the AO, it shows unaccounted capital receipts received in cash from Management/NRI quota students utilized for payment to political parties as per instruction of Mr. G.H. Nagaraj. These digital data are used by the AO without providing any opportunity of cross- examination of Mr. Srinivas. There is no evidence to show that assessee has authorised collection of these payments. These are repeat of hard copy of A/DUU/01. With regard to the digital evidence, the purpose of such electronic record is not known. The manner in which such electronic record is produced and by whom it is produced is not known. The data and time of preparation and search or list of such electronic data is not brought on record. Source of such record and data and time and printing of such record is not known. The assessee’s knowledge of the contents therein and the correctness of the contents is not known. The resources used for preparation of such data and the correctness of functioning of the computer is not known. Print-out or copy furnished was taken from which computer is not known. In such circumstances, these digital data cannot be relied upon. The contention of ld. DR is that presumption u/s. 292C shows that it belongs to the assessee and it cannot be denied. However, we are not in a position to appreciate the argument of the ld. DR for the reasons discussed below. ......................................... ......................................... ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 14 of 61 205. Seized material A/DUU/15 PB page no 1839 to 2028 a note book containing names, mobile numbers and address having no attestation of the assessee with regard authenticity that it belong to assessee. This was not discussed in the assessment order being so it is to be treated that it does not relate to the addition made by the AO and requires no adjudication. 206. The AO also relied on seized materials A/DUU/16 placed at Paper book page no 2029 to 2138. We have carefully gone through it, these are blank cheques found at the premises of the assesse during the course of search action. The AO discussed this issue in his order at page number 46 to 50, and drew inference that these are the cheques given by the students as a security for payment of capitation fees. He also relied on the statement of Goli Srinivas. However we found that these are blank cheques without mentioning the name of the assesse. Further, the person who has issued the cheques has not been examined by the AO. Similarly, no cross examination was provided to the assesse. In this circumstances, the inference drawn by the AO have no legs to stand and deserve to be rejected. Other being loose sheets cannot be relied upon since no opportunity to cross examine Mr. Goli Srinivas was provided as discussed earlier. 207. The assessee vide letter dated 22.02.2017 asked for copies of the statements recorded from the students, parents and donors during the search proceedings and also opportunity to cross-examine the parties. Further copy of statements recorded and cross-examination of the parties was requested by the assessee’s letter dated 09.12.2017. Vide assessee’s letter dated 22.02.2017, copies of seized / incriminating material relied upon to make the addition was requested. The assessee vide letter dated 29.10.2017 also requested for documents in digital form taken at the time of search u/s. 132. 208. The AO vide letter dated 01.08.2017 furnished copies of seized material A/DUU/01 to A/DUU/17 to the assessee. However, it is crucial to note that the assessee’s request for cross-examination of students, parents and donors of capitation fees was not provided by the revenue authorities. 209. The assessee by letter dated 09.12.2017 made submissions that collection of amounts by Shri G.H. Nagaraj, Secretary of the trust were on his own and spent a portion of the amount on the infrastructure and development activities. 210. In our opinion, the statement of Mr. G.H. Nagaraj, who is Secretary of the trust cannot be considered as true and correct. He has changed his versions and proved to be an evasive person as a witness. At one stage, he admitted collection of fees over and above the prescribed fees and not paid the same back to the institution. There was a letter dated 09.12.2017 wherein the trustee stated that Mr. G.H. Nagaraj collected the amount from students / parents and spent the amount for the activities of the trust. He alone has to explain the collection of fees to the income- tax authority. Therefore, his statements are contradictory in nature. No value could be attached to his statement and his conduct is neutralizing the value as a witness. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 15 of 61 Further, the AO in para 3.4 the tabulated statement in response to assessee’s submission at page 206-207 of his order noted as follows:- “Shri G.H. Nagaraj, has time and again changed his position Therefore that version of his statements which is in line with the material found and seized during the search is only being considered. Also seized material has sheets with tabulations where the word ‘cash’ has been consistently used. Also, the assessee has not made any submissions to prove that the subsequently admitted receipts of Rs.146 crores were taken through cheques or DDs.” 211. The Hon’ble Supreme Court in Andaman Timber Industries v. Commissioner of Central Excise, 281 CTR 241 (SC) held as follows:- “Not allowing the assessee to cross-examine the witness by the Adjudicating Authority though the statements of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. It is to be borne in mind that the order of the Commissioner was based upon the statements given by the aforesaid two witnesses. Even when the assessee disputed the correctness of the statements and wanted to cross- examine, the Adjudicating Authority did not grant this opportunity to the assessee. It would be pertinent to note that in the impugned order passed by the Adjudicating Authority he has specifically mentioned that such an opportunity was sought by the assessee. However, no such opportunity was granted and the aforesaid plea is not even dealt with by the Adjudicating Authority. (para 6) Assesseehad contested the truthfulness of the statements of these two witnesses and wanted to discredit their testimony for which purpose it wanted to avail the opportunity of cross-examination. That apart, the Adjudicating Authority simply relied upon the price-list as maintained at the depot to determine the price for the purpose of levy of excise duty. Whether the goods were, in fact, sold to the said dealers/witnesses at the price which is mentioned in the price-list itself could be the subject matter of cross-examination. Therefore, it was not for the Adjudicating Authority to presuppose as to what could be the subject matter of the cross-examination and make the remarks as mentioned above. (para 7) If the testimony of these two witnesses is discredited, there was no material with the Department on the basis of which it could justify its action, as the statement of the aforesaid two witnesses was the only basis of issuing the Show-Cause Notice. (para 8)” 212. The Delhi Tribunal in the case of Veena Gupta v. ACIT in ITA No.5662/Del/2018 dated 27.11.2018 relying on the above judgment of Hon’ble Supreme Court in the case of Andaman Timber Industries (supra) quashed the ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 16 of 61 assessment order on the reason of not providing cross-examination of witnesses whose statements were recorded. 213. The Hon’ble Supreme Court in the case of Mehta Parikh & Co. v. CIT, 30 ITR 181 held as under:- “In the instant case a mere calculation of the nature indulged in by the ITO or the AAC was not enough, without any further scrutiny, to dislodge the position taken up by the assessee, supported as it was, by the entries in the cash book and the affidavits put in by the assessee before the AAC. The Tribunal also fell into the same error. It could not negative the possibility of the assessee being in possession of a substantial number of these high denomination currency notes. It, however, considered that it was impossible for the assessee to have had 61 such notes in the cash balance in their hands on 12-1-1946, and then it applied a rule of the thumb treating 31 out of such 61 notes as within the bounds of possibility, excluding 30 such notes as not covered by the explanation of the assessee. This was pure surmise and had no basis in the evidence, which was on the record of the proceedings. Facts proved or admitted may provide to support further conclusions to be deduced from them, which conclusions may themselves be conclusions of fact and such inferences from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appears that the fact finding authority has acted without any evidence or upon a view of the facts, which could not reasonably be entertained or the facts found are such that no person acting judicially and properly instructed as to the relevant law would have come to the determination in question. The High Court treated this finding of the Tribunal as a mere finding of fact and recognised this position in effect but went wrong in applying the true principles of interference with such findings of fact to the present case. Really speaking the Tribunal had not indicated upon what material it held that Rs. 30,000 should be treated as secret profit or profits from undisclosed sources and the order passed by it was bad. The assessee had furnished a reasonable explanation for the possession of the high denomination notes of the face value of Rs. 61,000 and there was no justification for having accepted it in part and discarded it in relation to a sum of Rs. 30,000. The High Court ought to have held that there were no materials to justify the assessment of Rs. 30,000 from out of the sum of Rs. 61,000, for income-tax and excess profits tax and business profits tax purposes, representing the value of the high denomination notes which were encashed.” ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 17 of 61 214. Further the Hon’ble Supreme Court in the case of CIT v. Odeon Builders (P.) Ltd., 418 ITR 315 (SC) head-note is as follows:- “Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of (Bogus purchase) - Certain portion of purchases made by assessee was disallowed - Commissioner (Appeals) found that entire disallowance was based on third party information gathered by Investigation Wing of Department, which had not been independently subjected to further verification by Assessing Officer and he had not provided copy of such statements to appellant, thus, denying opportunity of cross examination to appellant, who on other hand, had prima facie discharged initial burden of substantiating purchases through various documentation including purchase bills, transportation bills, confirmed copy of accounts and fact of payment through cheques, VAT Registration of sellers and their Income-tax Return - He held that purchases made by assesseewas acceptable and disallowance was to be deleted - Tribunal dismissed revenue's appeal - High Court affirmed judgments of Commissioner (Appeals) and Tribunal being concurrent factual findings - Whether no substantial question of law arose from impugned order of Tribunal - Held, yes [Para 4] [In favour of assessee]” 215. The Hon’ble High Court of Karnataka in Kothari Metals v. ITO, 377 ITR 581 (Karn) held as under:- “Held, allowing the appeal, that the non-furnishing the reasons for re- opening an already concluded assessment goes to the very root of the matter. Since such reasons had not been furnished to the appellant, even though a request for them had been made, proceedings for the re- assessment could not have been taken further on this ground alone. Besides this, the statement of some other person which was recorded was the basis of reassessment and the assessee was asked to explain it but the statement was itself not furnished to the assessee. As such, besides non-furnishing of the reasons for re-opening there was also a gross violation of the principles of natural justice. The reassessment was not valid.” 216. The Hon’ble Calcutta High Court in the case of CIT v. Eastern Commercial Enterprises, 210 ITR 103 (Cal) held as follows:- “8. We have considered the contesting contentions of the parties. It is true that Shri Sukla has proved to be a shifty person as a witness. At the earlier stages, he claimed all his sales to be genuine but before the Assessing Officer in the case of the assessee, he disowned the sales specifically made to the assessee. This statement can at the worst show that Shri Sukla is not a trustworthy witness and little value can be attached to what he stated either in his affidavits or in his examination by the Assessing Officer. His conduct neutralises his value as a witness. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 18 of 61 A man indulging in double-speaking cannot be said by any means a truthful man at any stage and no court can decide on which occasion he was truthful. If Shri Sukla is neutralised as a witness what remains is the accounts, vouchers, challans, bank accounts, etc. But, we would observe here that which way lies the truth in Shri Sukla's depositions, could have been revealed only if he was subjected to a cross-examination by the assessee. As a matter of fact, the right to cross-examine a witness adverse to the assessee is an indispensable right and the opportunity of such cross-examination is one of the corner-stones of natural justice. Here Shri Sukla is the witness of the Department. Therefore, the Department cannot cut short the process of taking oral evidence by merely having the examination-in-chief. It is the necessary requirement of the process of taking evidence that the examination-in-chief is followed by cross-examination and re-examination, if necessary. 9. It is not just a question of form or a question of giving an adverse party its privilege but a necessity of the process of testing the truth of oral evidence of a witness. Without the truth being tested no oral evidence can be admissible evidence and could not form the basis of any inference against the adverse parties. We have also examined the records and we find that this Shri Sukla was examined by a number of officers. The Assistant Director of Investigation examined him on August 4, 1987, and in reply to question No. 2 in that deposition he confirmed that he was a dealer in lubricating oil since 1977. In reply to question No. 3, he confirmed having been assessed to income-tax. Again, in reply to question No. 4, he explained that he used to purchase lubricating oil from different garages as well as through various brokers. Such lubricating oil was processed by him in his factory for sale. All payments were received by him through account payee cheques. In reply to question No. 5, he stated that he had seven full-time employees whose names are mentioned by him. He also claimed to have maintained books of account like sales books, purchase books, cash books and sale bills. In reply to question No. 18, he, on his own, stated that his big customers were the Reliance Oil Mills and Eastern Commercial Enterprises, the assessee, in the present reference. As for his cash withdrawals, he explained that his business required ready cash for purchase of raw materials which explained his large drawings of cash from the bank. Learned counsel then cited a host of decisions to bring home the point that no evidence or document can be relied upon unless it is shown to the assessee. Kishanchand Chellaram v. CIT. Similarly, the requirement of cross-examination as the requirement of the rules of natural justice has been underlined by the Bombay High Court in Vasanji Ghela and Co. v. CST [1977] 40 STC 544. It is trite law that cross-examination is the sine qua non of due process of taking evidence and no adverse inference can be drawn against a party unless the party is put on notice of the case made out against him. He must be supplied the contents of all such evidence, both oral and documentary, so that he can prepare to ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 19 of 61 meet the case against him. This necessarily also postulates that he should cross-examine the witness hostile to him. 10. In any case, we have nothing to rely upon to come to a decision this way or the other. The first thing is that which of the statements of Shri Sukla is correct, is anybody's guess. Therefore, it is necessary to delve out the truth from him and for that matter a cross-examination is necessary. Secondly, if the statement of Shri Sukla as a witness against the adverse party, the assessee, is relied upon as truthful, still remains the question of estimation of the profit. The assessee no doubt has given a comparative instance of gross profit rate but it is also necessary for the Department to come to a finding as to the norm of the gross profit on the basis of comparative cases. Therefore, it is the duty of the Assessing Officer to counter the comparative statement cited by the assessee before he can have the option to estimate the gross profit. Again, it is the comparative instance that alone can be the foundation of such estimate in case the accounts are really found to be unreliable and requiring to be rejected. Therefore, in the interest of justice for both the parties, the assessee and the Revenue, it is necessary for us to direct the Tribunal to remand the case to the Assessing Officer for reconsidering the whole matter in the light of the observations made by us in the foregoing and redo the assessment accordingly. All opportunities should be given to the assessee in order to lead any evidence that the assessee may feel necessary to rebut the case against him. As a result we decline to answer the question.” 217. As held by the Hon’ble Calcutta High Court in the above judgment, in the present case, Mr. Nagaraj cannot be considered as a reliable witness. More so, when the assessee was not given any opportunity to cross-examine him. In this regard, we also place reliance on the decision of the Hon’ble Supreme Court in the case of Kishinchand Chellaram v. CIT, 125 ITR 713 (SC) wherein it was held that evidence collected from witness cannot be considered without giving opportunity of cross-examination to the assessee. 218. We have also carefully gone through the statement of Mr. G H Nagraj, Secretary of the assessee trust. It was mainly discussed in Page no 64, 65, 74, 75 and 76 of assessment order. He was asked to explain the seized materials A/DUU/03 and A/DUU/13 on 13-08-2015. He has confirmed the collection of capitation fees on some occasions. However, on certain occasions when confronted, the statements of some persons who has stated that they have paid the capitation fees in cash, he denied the collection of capitation fees which is evident from the answer to question no. 16 of his statement recorded on 16-10-2015 which is placed on record in PB 2183. He also stated that the payment from the persons which alleged to have been received is only in the form of cheque and they are genuine donations. In answer to question no 22 he has stated that the statement of Shri Rangaraju is absolutely false and all the fees are collected only in cheque. There are contradictions in his statements which cannot be relied upon. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 20 of 61 219. The AO also relied on seized material A/DUU/02 to A/DUU/04 to come to conclusion that the assessee has made payment to the trustees. These statements are made by the AO without confronting this seized material to the trustee though they were examined by the authorities concerned. Without confronting the seized material and statement of Shri Srinivas it is not possible to hold that there was unaccounted cash payment to the trustees. Further, Shri. R L Jalappa one of the trustee denied the fact of receiving any money as noted in the seized document. However, the assessing officer made protective additions in hands of Shri. R L Jalappa in these assessment years after making substantiative assessment in hands of trust. This shows that assessing officer is not sure in whose hands the additions to be made. Being so, we find force in argument of assessing counsel that AO is not justified in holding that there was violation of provisions of section 13(1)(c)(ii) of the IT Act on this count. 220. Further, the AO taken the support of assessee letter dated 09.12.2017 placed at PB 2704 to 2706 wherein assessee stated that a sum of Rs.14,611.94 lakhs has been spent for object of the trust. It is also stated that Shri G H Nagraj, Secretary of the trust collected the unaccounted capitation fees on his own without the knowledge of the trustees or without authorisation of the committee of trustees and also out of it he has spent Rs.14,611.94 lakhs for the purpose of trust activities. It was also reiterated that the committee never authorised Shri G H Nagraj for collection of any fees or spending any amount for trust activities. The assessing officer considered this letter as an acceptance of collection of capitation fees without considering the real meaning of that letter. It cannot be construed as the acceptance of collection of capitation fees by assessee. It was clearly stated that if it is collected, it is unauthorised collection by the Secretary and Shri G H Nagraj has to explain to the Income Tax authorities, even after considering the expenditure incurred out of it for the purpose of trust activities. In our opinion assessment in search cases has to be framed on the basis of seized material bought on record and not on the basis of confession. The action of assessing officer placing reliance on the letter of assessee dated 09-12-2017 is unjustified. 221. Further, there was an allegation by AO that assessee has received donation in return for giving cash to them and facilitated to the donor to claim deduction u/s 80G and accordingly AO observed that donation is bogus. After examining one donor by name Shri Hanumantharaya whose statement is available on record on PB page no 2181. Shri Nagaraj when confronted him with regard to his statement, he denied the same. Being so, it cannot be held that the assessee received any bogus donation. 222. There was an allegation by AO that assessee made illegal payments into MCI officials. According to ld. DR the seized material marked as A/DUU/02 shows such alleged payment. The Secretary Shri Nagraj deposed before the authorities and recorded his statement on 13-08-2015 placed at PB page no 2165 that the Officials of MCI refused to receive any gifts and there was no any payment of cash to them. There was no examination of recipient such allegation cannot be made without ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 21 of 61 examining the concerned parties and no adverse inference could be drawn against the assessee on this count. 223. Further, there was an allegation that on the basis of seized material marked as A/DUU/13 there was a payment of donation to political parties. As we observed on earlier occasion the noting’s in seized material which is obscure being loose sheets cannot be relied upon without any corroboration. 224. Seized material A/DUU/17 copy of which is not provided to the assessee and cross-examination of Mr. Goli Srinivas was not provided to the assessee cannot be relied upon.” 225. The assessing officer has stated that summons was sent during the course of assessment proceedings to the parents in order to allow cross-examination by the assessee’s representatives. One of the parents appeared and reconfirmed. It is noted that though statements of parents of 5 students were said to have been obtained, only one parent has appeared and reconfirmed the contents of his earlier statement. As the parents of 4 of the students did not appear for cross-examination, their statements cannot be relied upon as the appellant could not cross-examine them. The fact that they did not respond to the summons would show that the credibility of their statements is highly doubtful. When the appellant has neither been given copy of the statement nor has got the opportunity to cross-examine the person giving statement, such statements cannot be relied upon. 226. With regard to the AO’s observations that the responses given by the said parent remained the same during the course of cross examination by assessee and he reiterated that the parents have never been cross-examined by the appellant. Had there was a cross-examination, the DR very well could have produced the copy of the same for our consideration. The DR failed to do so. Hence, it is observed that the assessee was not afforded any opportunity to cross-examine any of the persons including the parents whose statements were relied upon for the purpose of making assessment. Such statements cannot be relied upon. Reliance was placed upon by the AR on various case law is support the case of the assessee. 227. Further, the AO recorded at page 125 of his order that he has sent summons to parents of students out of which only 5 students statements were recorded. Only two persons confirmed the payment of capitation fee. Vide assessee’s letter dated 02.12.2017 assessee asked for information about enquiry with the students. No information was provided by the AO to the assessee. In this regard, statement of 2 persons out of 800 cannot be relied upon and it is not appropriate to come to the conclusion that these are full-proof of evidence which the AO can rely upon. Reliance on this incomplete statement cannot be appreciated as held by the Hon’ble Supreme Court in the case of Kishinchand Chellaram v. CIT, 125 ITR 713 (SC) as follows:- “Held, reversing the decision of the High Court, (i) on the facts, that the two letters dated February 18, 1955 , and March 9, 1957 did not constitute any material evidence which the Tribunal could take into ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 22 of 61 account for the purpose of arriving at the finding that the sum of Rs.1,07,350 was remitted by the assessee from Madras, and if these two letters were eliminated, there was no material evidence at all which could support its finding. The statements of managers in those two letters were based on hearsay, as in the absence of evidence, it could not be taken that he must have been in charge of the Madras office on October 16, 1946, so as to have personal knowledge. The department ought to have called upon the manager to produce the documents and papers on the basis of which he made the statement and confronted the assessee with those documents and papers. It was true that proceedings under the income-tax law were not governed by the strict rules of evidence, and, therefore, it might be said that even without calling the manager of the bank in evidence to prove the letter dated February 18, 1955, it could be taken into account as evidence. But before the income- tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the bank with reference to the statements made by him. Nor was there any explanation regarding what happened when the manager appeared in obedience to the summons referred to in the letter dated March 9, 1957, and what statement he had made.” 228. Further, third party statement cannot be relied upon without proper enquiry and providing proper cross-examination to the assessee. In CIT v. P.V. Kalyana Sundaram, 294 ITR 49 (SC), the Hon’ble Supreme Court observed that no reliance could be placed on loose sheets seized during the course of search and third party statements unless provided cross-examination. Collection of capitation fee is governed by Karnataka Institutions (Prohibition of Capitation Fees) Act, 1984 and there was no violation noticed by the State authorities and also Medical Council of India. In such circumstances, it is not possible to conclude on the basis of various loose sheets and jottings found during the search action u/s. 132 that assessee has collected unaccounted capitation fees from management and NRI quota. 229. Further, the Bangalore Bench in the case of Anand Social & Education Trust in ITA Nos. 2542-2548(B)/2017 dated 29.05.2020 by placing reliance on the judgment of Hon’ble Madras High Court in the case of Balaji Educational & Charitable Public Trust, 56 taxmann.com 182 in similar circumstances observed that the AO had not conducted any enquiry with the students or parents or others. The cash seized during the search was accepted as not belonging to the assessee. There was no complaint received from any student or parent regarding capitation fee charged by the institution. In the above case also the AO had estimated the capitation fee received from the students under the management quota for various years. The Hon’ble Madras High Court held it to be a perverse inference. Further the Tribunal observed the AO had only drawn certain inference on surmises and conjectures. He did not conduct any independent enquiry with the related party to find out the truth. He has also not brought any material on record to show that the explanation given by the assessee was not correct. In any case, the assessee was not ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 23 of 61 given opportunity to cross-examine the parties whoever managed the diary. Accordingly the Tribunal deleted the addition by placing reliance on the judgment of Balaji Educational & Charitable Public Trust (supra). 230. In this case also, the addition made by the AO is based on unsubstantiated loose sheets and jottings without proper cross-examination of the person who has admitted the contents therein. Being so, it cannot be stated as full-proof of material evidence to substantiate the addition. In our opinion seized documents do not support the AO’s contention that assessee has received unaccounted capitation fees for admission of the students to the college. It also does not suggest that the assessee has paid commission to agents to bring the students for admission to college. Similarly it does not suggest payment of any amount to the trustees for their self- benefit. Going through the entire facts of the case it creates only a suspicion in the minds of the revenue authorities that the assessee has collected unaccounted capitation fees. However, the suspicion not enough to hold that the assessee has collected unaccounted capitation fees in absence of concrete evidence bought on record by the authorities concerned. The suspicion cannot replace the material evidence brought on record by the authorities. It is also noted that the assessee vide their letter dated 22-02-2017 asked for following information: (i) Number of student/parents to whom summons were issued (ii) How many of such notices were served ? (iii) How many were returned unserved? (iv) The number of students/parents who appeared before the AO (v) How many of them denied the transaction? (vi) How many of them accepted the transaction? (vii) How many of them stated that they paid the fees in cash at the instance of the Trustee. 231. The AO failed to respond to the assessee’s letter. It is admitted fact that in every year 150 MBBS students were admitted to the college in addition to 68 post graduate students. The total number of students in college admitted during the last 7 years was approximately 1526 persons. The ld. AO alleged in the assessment order that assessee has been collecting the capitation fees from around 800 students for admission in various courses. Out of 800, 5 students/parents responded to the AO’s letter and out of them 2 persons have given statement. There is no discussion in Assessment order with regard to other 3 persons. In our opinion the statement of 2 cannot be basis for making such huge additions on collection of capitation fees. It cannot be considered as appropriate sample to frame the assessment on the basis of their statement. Further, the assessee requested for cross examination of all the parties whoever have given the statements against the assessee, if any, which was not provided at all. In view of this, such statements cannot be relied upon. The department despite its attempts failed to collect any corroborative information regarding collection of capitation fees, except relying on uncorroborated entries in the loose papers/Excel sheets, wants to frame the assessments in all these assessment ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 24 of 61 years relying upon the same which is not acceptable. The revenue authorities bound to follow the principle of natural justice and ought to have given proper opportunity of examination and cross examination of the parties concerned whose statements are relied upon to frame the assessment. In our opinion the discovery of documents not only sufficient to conclude the collection of unaccounted capitation fees, cross examination of concerned parties is also important. 232. Further at a cost of repetition, we observe that the revenue authorities recorded statement of only 5 students out of more than 800 students and out of 5 only 2 are confirmed. The two statements recorded cannot be relied upon without confronting the same to the assessee. The statement of these two persons confirming payment of capitation fees is fully uncorroborated and non-production of them for cross-examination cannot be considered as incriminating material so as to sustain the addition. The rough notings in the loose papers are not full-proof evidence without proving the correctness of the same. Nothing was recorded in the orders of lower authorities that assessee has deviated from its objects for which approval u/s. 12A was granted and not applied its funds towards its objects. No evidence was brought out to show that the amount of capitation fees alleged to have been collected resulted in creation of any unaccounted assets by the trust or trustees or by any interested person. On this count also the addition cannot be sustained. 233. No assets commensurate with the alleged estimated collection of capitation fees by the revenue authorities were found. The unbounded loose sheets having jottings are not speaking either by itself or in the company of others and not corroborated by enquiry, cannot be the basis of any inference that capitation fees was collected not entered in the accounts so as to sustain the addition. 234. Considering the facts of the case, we are of the opinion that the evidence collected by the authority is not sufficient to establish that the stand that the assessee has collected unaccounted capitation fees for admission of students to various courses in the assessee’s college. We are aware that entire evidence has to be appreciated in a wholesome manner and even where there is documentary evidence, the same can be overlooked if there are surrounding circumstances to show that the claim of assessee is opposed to normal course of human thinking, conduct and human probability. Even applying this principle to the present case, we have difficulty in rejecting the assessee’s plea as opposed to normal course of human conduct. The circumstances surrounding the case are also not enough to reject the assessee’s explanation. We have considered all the material on record and also the statement of the parties as discussed in the earlier paragraphs. We are of the opinion that the department cannot rely on those statements, more so when it was not confronted to the assessee for cross-examination and the same cannot be relied upon. The department failed to collect proper information from any source corroborating payment of capitation fees, except in corroborating entries in the loose sheets. All attempts for corroboration failed. 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 capitation fees which have been collected was misused by the ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 25 of 61 assessee or by any interested persons. There is no instance of recovery of any assets commensurate with the alleged estimated unaccounted collection of capitation fees as found by the AO. The activities of the trust are genuine. There is no allegation by the lower authorities that activities of the trust are not genuine. Also there was no allegation that the activities of the trust are not carried on in accordance with the objects of the trust. There is no allegation that the assessee is not imparting education and it is an admitted fact that thousands of students are studying in the college and assessee has been carrying on educational activities imparting medical education. It fulfilled the requirement of imparting education which are not doubted or challenged by the authorities. Being so, exemption u/s. 11 of the Act cannot be denied. 235. Further reference is made to the judgment of the Hon’ble High Court of Karnataka in the case of DIT(E) V. Sri Belimatha Mahasamsthana Socio Cultural and Educational Trust, 336 ITR 694 (Karn). In this case, the assessee a social, cultural and educational trust, running educational institutions and having various professional courses filed its return of income for the AY 2001-02. The AO denied exemption u/s. 11 of the Act holding that the sums collected towards donations from students were contrary to the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. The AO also disallowed the sum shown as corpus donation as the source of such donations had not been proved by the assessee and, therefore, the said amount was also not allowed as an exemption under section 11(1)(d) of the Act. The CIT(Appeals) confirmed the order of AO. The Tribunal allowed the benefit of exemption u/s. 11. On appeal, it was held that merely because the assessee is an institution which is running professional courses, the AO could not have presumed that the amounts which are received as donation were attributable to the allotment of seats in the relevant assessment year. In the absence of there being any foundation for such a contention that the donation received during the period was not in violation of the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984 and the assessee has not acted as opposed to the public policy, exemption u/s. 11 could not have been denied. 236. Further, the Bangalore Bench of the Tribunal in the case of Venkatesha Education Society in ITA Nos.100 to 106/Bang/2012 and M.J. Balachander in ITA Nos.90 to 94/Bang/2012, order dated 21.12.2012 considered the case in similar circumstances where Mr. M.J. Balachander was collecting extra tuition fees without any authority or consent of the society and the conclusion of the CIT(Appeals) was that extra tuition fees was collected by Mr. Balachander on his own and society has nothing to do with extra tuition fees collection. Being so, the Tribunal held that the assessee cannot be faulted and approval cannot be withdrawn so as to deny the benefit of section 11 of the Act. The relevant observations of the Tribunal are as follows:- ““In this regard, the ld. counsel for the assessee brought to our notice that the agreed tuition fee which the Society can collect for admission has also been collected and this is duly reflected in the statement found in the seized documents. It was submitted that the total collections in the form of DD was a sum of Q 1,16,74,975 and the amount stated to have ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 26 of 61 been deposited by the Secretary in the Head Office is only a sum of Q 80,000 on 02.06.2005 and Q 14,33,500 on 19.10.05. It was submitted that the reference in the seized document might be with regard to the normal tuition fee which the society can collect. It was submitted that the entries in page 54 cannot be conclusive to show that the Secretary was also involved in collecting the ETF. We are of the view that the submissions made on behalf of the assessee in this regard appear to be convincing. In this regard, we also find that Indira Devi, who is stated to have written letter dated 08.12.07, has not been examined by the AO . In those circumstances, it cannot be said that the seized document on which the AO has placed reliance conclusively proves that it was only the Society which received the ETF. On the other hand, the circumstances pointed out by the Society only go to show that it was MJB who was collecting ETF without the knowledge and authority of the Society.” • ACIT v. Mamatha Educational Society 2015 (8) TMI 367 - ITAT Hyderabad [Paragraphs 24 and 25] • In CIT v. KLE University [ITA No. 5016 of 2012 C/W 5017 of 2012], the Hon’ble Karnataka High Court held as under:- “11. Our answer to the above point is in the affirmative for the following reasons : (i) that the donations received by the society cannot be construed as capitation fee for the admission of students by the KLE University ; (ii) that providing hostel to the students/ staff working for the society is incidental to achieve the object of providing education, namely, the object of the society ; (iii) that the Revenue appears to have not properly appreciated the legal point that though the chairman and a few members of "the society" are the chairman and members of "the KLE University", they are separate legal entities ; (iv) that there is no violation of any of the conditions stipulated under the Income-tax Act, warranting for cancellation of registration of the society ; (v) that the Tribunal on proper appreciation of the grounds urged by the society and the Revenue, has rightly restored the registration.” 237. Further the Hyderabad Tribunal in the case of Prathima Educational Society, Hyderabad in ITA No.720/Hyd/2012 vide order dated 08.11.2013 wherein the Accountant Member is a party to the order, held that the evidence collected not ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 27 of 61 speaking with regard to collection of cash of unaccounted capitation fees, cannot be a reason to deny exemption u/s. 11 of the Act. The seized material on which reliance is placed by the revenue authorities is not conclusive evidence to sustain the addition and deny exemption u/s. 11 of the Act. 238. Further the Hyderabad Bench of the Tribunal in the case of ACIT v. B. Srinivasa Rao, 159 TTJ 483 (Hyd) [wherein the AM herein was the author observed as under:- “8. As for the first reason put forth for cancellation of registration, viz., collection of capitation fee, it is submitted that in the course of search, excel sheets were found containing the names of students, names of parents and the amount. In the course of search and, thereafter, statements of chairman of the assessee trust were recorded on a number of occasions, with reference to the entries in these excel sheets. It was explained that circumstances in which the excel sheets were found were not ascertainable. It was contended that uncorroborated notings in the excel sheets should not be acted upon to derive any inference against the society. In support of this contention that the said excel sheets are not reliable, the learned counsel for the assessee put forth the following reasons : (a) The notings in the excel sheets lacked corroboration of the notings although the Department attempted in that direction. (b) In course of search and post-search investigation, in the statements recorded under s. 132(4)/131, chairman of the assessee trust, Sri Srinivasa Rao expressed his inability to explain the circumstances in which those sheets were found from the premises of the assessee-society. (c) Despite repeated questioning on various occasions, the said Srinivasa Rao denied that the assessee-society has collected capitation fee from any student. (d) The computer printout was not recovered/retrieved from any of the computers maintained in the society's office at the time of search, although the same were verified and that too with the recovery tool which is a usual method adopted by the Department at the time of search. (e) In the course of assessment proceedings, the seized hard disks were operated in the office of the AO with the help of IBM official but there was no impression in the hard disk that the same was typed and prepared in any of the computers belonging to the society. No data conforming to the notings in the excel sheets could be found from the seized computer hard disks. He submitted that the only purpose of scanning the seized hard disk was intended for recovery of the excel sheets so as to corroborate the same, as the assessee has denied to have generated the same. Since it resulted in a futile exercise, it was clearly established that the excel sheets were not ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 28 of 61 prepared by the assessee-society. The assessment order passed by the AO makes no mention of any such recovery. (f) The author of the excel sheets could not be identified. In terms of s. 60 of the Indian Evidence Act, computerised information is within the realm of hearsay evidence and therefore, not relevant at all by itself. In such cases either authority who has fed the information must be identified or he must appear personally and testify before the Court about the source of information. Hence, in the absence of any such corroboration, the evidence remained a hearsay evidence, carrying no evidentiary value, in the absence of any corroboration. (g) At the time of seizure, the excel sheets were not authenticated either by the assessee or by the witnesses or by an authorized officer. This is an unsigned document and as such it loses its evidentiary value for want of authentication. In support of this proposition reliance is placed on the decision of Ahmedabad Bench of the Tribunal in the case of Sanskruti Township v. Department of IT [IT Appeal No. 1885 (Ahd.) of 2006, dated 23-9-2011] and Hyderabad Bench of the Tribunal in the case of Dy. CIT v. C. Krishna Yadav [2011] 12 taxmann.com 4/46 SOT 250 (Hyd.)(URO). (h) There is evidence in the seized record that the Department has typed some information by making use of assessee's computer and made part of the Panchnama. This fact was pointed out by the chairman of the assessee, Sri B. Srinivasa Rao in the course of his statement recorded on 17th Dec, 2009. This act on the part of the search party raises an eyebrow. (i) The Dy. Director of IT in course of post-search investigation made extensive enquiries to corroborate the notings in the excel sheets. One of the steps taken by him was that he summoned all the parents of the students under s. 131 to take evidence. In course of assessment proceedings, the assessee made requests to supply the copies of these statements. Repeated requests made by the assessee fell in deaf ears and so far these statements have not been provided. On being directed by the AO in course of assessment proceeding, the assessee contacted the office of Director General of IT and reminded on a number of occasions but no information was supplied, despite the fact that this fact was also brought to the notice of Director General of IT. As a principle, neither the assessee can suppress the best evidence in his possession nor the Department. It is settled principle that whenever the assessee desires, he can have access to all information, whether favourable or adverse to him as laid down in Suraj Mall Mohta & Co. v. A.V. Visvanatha Sastri [1954] 26 ITR 1 (SC), SMC Share Brokers Ltd. v. CIT [2008] 22 SOT 7 (Delhi)(URO), CIT v. Simon Carves Ltd. [1976] 105 ITR 212 (SC). In this case the assessee has every reason to believe that the evidences tendered by the parents, who were Departmental witnesses, were all favourable to assessee and therefore, the Department was apprehensive of providing these statements as the same ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 29 of 61 would go against the Department. The conduct of the Department is not fair as the notings in the Excel sheets formed the basis of addition and subsequent cancellation. Assessee is enclosing herewith some of the summons issued to the parents who appeared to give testimony. (j) Even the AO failed to summon these witnesses in course of assessment proceedings for corroboration when the assessee was consistently denying collection of capitation fees and based his entire conclusion on the report of the Dy. Director of IT which was based on suspicion. This shows total non-application of mind by the adjudicating officer when the informations supplied to him were disputed and not-corroborated by the Dy. Director of IT. His attempt to verify the facts from two witnesses namely Sri Tirupathi Reddy and Madhav Reddy could not yield any further evidence. (k) It was brought to the notice of authorities that notings in the loose sheet remained uncorroborated till end as the same was not a speaking document and no supporting evidence by way of money receipt and other evidences was found. It was pointed out that the same was a dumb document and therefore not to form the basis of cancellation of registration under s. 12AA. With regard to evidentiary value of notings in the loose sheet, the appellant relies on the following decisions : (a) C. Krishna Yadav (supra); (b) Asstt. CIT v. Satyapal Wassan [2007] 295 ITR (AT) 352 (Jab.) ; (c) Asstt. CIT v. Dr. Kamla Prasad Singh [2010] 3 ITR (Trib) 533 (Pat.) ; (d) CIT v. Khazan Singh & Bros. [2008] 304 ITR 243/[2007] 164 Taxman 30 (Punj. & Har.) ; (e) CIT v. Girish Chaudhary [2008] 296 ITR 619/[2007] 163 Taxman 608 (Delhi) ; (f) Bansal Strips (P.) Ltd. v. Asstt. CIT [2006] 99 ITD 177 (Delhi) ; (g) CIT v. Maulikkumar K. Shah [2008] 307 ITR 137 (Guj.). (l) As regards the presumption under s. 132(4A), it was submitted that a loose sheet is not a book/document so as to raise the presumption. For this proposition, reliance was placed on the decision of Apex Court in the case of CBI v. V.C. Shukla [1998] 3 SCC 410. Further the presumption in this section is not mandatory. This can supplement but cannot supplant evidence. Nothing was found by the Department to support their suspicion. (m) Therefore, the Excel sheets which are not speaking either by itself or in the company of others, or corroborated by enquiry, cannot be the basis of any inference that capitation fees were collected and not entered in the accounts to cancel registration. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 30 of 61 239. Thus, it is seen from the seized material and Excel sheets that these are handwritten loose documents and Excel sheet print-outs taken from the computer and undisclosed income of the assessee is determined on the basis of these documents. There is no direct evidence or conclusive evidence to prove the collection of the capitation fees. The statements of parties of whosoever is relied upon are evasive replies given to the revenue authorities on the basis of which the AO made an estimate of collection of capitation fees. This is only based on conjectures and surmises and only on circumstantial evidence. The AO failed to established the link between the seized material and the capitation fees which resulted in creation of any unaccounted assets in the form of possession of money, bullion, jewellery or other articles or any immovable properties in the name of the trust or the trustees. 240. In our opinion, the unsubstantiated and uncorroborated seized material alone cannot be considered as conclusive evidence to frame these assessments. The words “may be presumed” in section 132(4) of the Act given an option to the AO concerned to presume these things, but it is rebuttable and it does not give a definite authority and conclusive evidence. The assessee is having every right to rebut the same. The entire case depends upon the rule of evidence. There is no conclusive presumption with regard to unsubstantiated seized material to come to the conclusion that that assessee has collected unaccounted capitation fees. In the present case, the assessee categorically denied collection of capitation fees. If it was collected, it was unauthorized collection by the person who is looking after the admission and that it is why it is unauthorized by the trust. Further, there is no confirmation from the students who get admitted into various courses and even there was statements recorded from two students/parents which were not confronted to the assessee for cross-examination. The revenue authorities cannot draw inference on the basis of suspicion, conjectures and surmises. Suspicion, however strong, cannot take place the material in place of evidence of the AO. The AO should act in a judicial manner, proceed in a judicial spirit and come to the judicial conclusions. The AO is required to act fairly as a reasonable person, not arbitrarily and capriciously. The assessment u/s. 153A of the Act should have been supported by adequate material and it should stand on its own leg. The AO without examining the students / parents who have paid the capitation fees cannot come to the conclusion that the assessee has received unaccounted capitation fees. The basis for donation is notebook / loose sheet. This notebook or loose sheets found during the course of search is only circumstantial evidence and not full proof evidence to sustain the addition. No addition can be made in the absence of any corroborative material. If it is circumstantial evidence in the form of loose sheets and notebook, it is not sufficient to come to the conclusion that there is conclusive evidence to hold that assessee has collected unaccounted capitation fees. The notes in the diary/loose sheets are required to be supported by corroborative material. Since there was no examination or cross-examination of persons concerned, the entire addition in the hands of the assessee on the basis of uncorroborated writings in the loose papers found during the course of search cannot be sustained. The evidence on record is not sufficient to uphold the stand of revenue that assessee is collecting huge unaccounted capitation fees in the guise of carrying on educational activities. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 31 of 61 241. The contention of the ld. DR is that cross-examination of parties whose statements were relied on by the AO to frame the assessment need not be given. On the other hand, if it is required to be given, the issue may be remitted back to the AO to give such opportunity. For this purpose, he relied on the judgment of the Hon’ble Allahabad High Court in the case of Moti Lal Padampat Udyog Ltd. v. CIT, 293 ITR 565 (All) wherein it was held that : “It was not in dispute that the adverse material which was found by the Income- tax authorities during the course of search in the business premises of ‘V’ had been confronted to the assessee who was having regular business dealing with the said firm. Some of the entries, recorded in the rough cash book seized during the search operation, tallied with the entries recorded in the regular books of account of the assessee as also that of ‘V’. The assessee was issued the copy of the rough cash book as also the statements of partners of ‘V’. It had submitted its reply by letters. The explanation furnished by the assessee had been disbelieved. In one letter, the opportunity to cross-examine the partners and the employees of ‘V was sought for in the event their statements had not already been recorded with a request that they might be summoned and their statements on oath be recorded in their presence. The said request was made in the event the statements had not already been recorded earlier. As the statements had already been recorded, the opportunity to cross-examine the said persons did not arise. The assessee had ample opportunity to explain the things. [Para 12] In the instant case, the copies of the rough cash books and the statements of the partners of ‘V’ which were recorded, had been provided to the assessee and, in fact, the assessee had also submitted its reply. In the letter an opportunity to cross-examine was asked for only in case the statements had not been recorded. As, in the instant case, the assessee had proper opportunity to controvert the material gathered by the assessing authority and used against it, there had been compliance of the principle of natural justice. [Para 14] In view of the above, the Tribunal was fully justified in the view it had taken.” 242. In our opinion, this judgment of the Allahabad High Court cannot be applied to the facts of the present case. In that case, the assessee asked for cross- examination of persons was sought for in the event their statements were not recorded, as such the Hon’ble High Court observed that cross-examination of those persons were not required as their statements had already been recorded during the course of search and the assessee had proper opportunity to controvert the gathered material. 243. Further ld. DR relied on the judgment of the Hon’ble Supreme Court in the case of ITO v. M. Pirai Choodi, 334 ITR 262 (SC) wherein the facts are that the department refused to accept the interest income shown by the assessee placing reliance on a statement alleged to have been obtained from the Village Administrative Officer behind the back of the petitioner, overlooking the material furnished by the assessee to substantiate his agricultural income and without giving ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 32 of 61 opportunity to cross-examine the Village Administrative Officer, violating the principles of natural justice. Therefore, writ petition could not be dismissed on alternative remedy and assessment order could not be quashed. On further appeal by the department, the Honb’le Supreme Court held that that instead of setting aside the assessment order, the High Court should have remitted the matter to the Assessing Officer to grant opportunity of cross-examination of the concerned witnesses. Further the assessee failed to avail of the statutory remedy. The assessee was given to move the CIT(Appeals). 244. Coming to the reliance placed by the ld. DR on the order of the Tribunal in the case of Centurion Investment & International Trading Co. (P.) Ltd. v. ITO, 126 ITD 356 (Del) wherein it was held as follows:- “It was a matter of record that the assessee had not been allowed the cross-examination of the party whose statement had been used against it in making the assessment. The addition was, thus, in violation of principles of natural justice. Not allowing cross examination is a defect which is procedural in nature. It is only a procedural requirement to be complied with before making the assessment under the Act. Not following the procedural provisions like allowing cross examination will not make an assessment null and void. At most it can be an irregularity liable to be cured and in such a case, the assessment can be set aside to be redone. An addition made does not cease to be an addition merely by reason of want of cross-examination. It will be a proceeding liable to be challenged and corrected. [Para 13] The order of the Assessing Officer though was vitiated by an illegality which supervened, not at the initial stage of the proceedings but during the course of it and, therefore, assessment could neither be annulled, nor the addition could be deleted because of that illegality or irregularity. The matter was required to be set aside to be reprocessed and restart from that stage of illegality/irregularity. [Para 14] Therefore, the order of the Assessing Officer on this issue was to be set aside with a direction to him that the statement of ‘S’ should be made available to the assessee. The assessee must be allowed cross- examination of the said person and thereafter the matter be decided afresh on the basis of the result of the cross-examination. [Para 22] From the discussion above, it was evident that merely by reason of want of cross-examination, the addition cannot be deleted. It will be an addition liable to be challenged and corrected. An omission to serve notices or any defect in the service of notices does not efface or erase the liability to pay tax where such liability is created by distinct substantive provisions (charging sections). Any such omission or defect may render the order made irregular depending upon the nature of the provisions not complied with but certainly not void or illegal. At the worst, they are ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 33 of 61 defective proceedings or irregular proceedings liable to be cured. An addition made on the basis of a statement not tested by cross-examination is invalid and it is vitiated, but the invalidity is not, however, of such a nature, which goes to the root of the proceedings. It can be set aside for being re-done de novo. The Commissioner (Appeals) should not have upheld the addition on the basis of such a statement. [Para 24] The omission to allow cross-examination merely prevents the Assessing Officer from making an addition and can be corrected by allowing the cross-examination and the Assessing Officer can be directed to proceed further to examine the matter afresh on the basis of cross-examined statement. The power of setting aside the order of assessment, where it is illegal, is inherent in any Appellate Court. Its order would be perfectly legal order in directing the Assessing Officer to issue notice to the assessee before making an assessment because it was not satisfied regarding the correctness of the assessee’s return. The Tribunal/ Commissioner (Appeals) has ample jurisdiction to give directions to the Assessing Officer to comply with the requirements of law. It has inherent power to set aside illegal order of assessment and direct the Assessing Officer to comply with requirements while making de novo assessment. [Para 25]” 245. In our opinion, the facts of the present case before us are entirely different. In the present case, we have already held that there are various loose sheets, scribblings, jottings and Excel sheets taken from the computer having no signature or authorization from the assessee’s side. These are unsubstantiated documents and there is nothing to suggest any undisclosed assets of assessee found during the course of search. More so, it does not show any recovery of the undisclosed assets in the form of landed property, building, investments, money, bullion, jewellery or any kind of movable or immovable assets. In such circumstances, we are of the opinion that the decisions relied on by the ld. DR cannot be applied to the facts of the assessee’s case. 246. Further it is to be noted that we have already relied on the Supreme Court judgment in Andaman Timber Industries v. Commissioner of Central Excise, 281 CTR 241 (SC) wherein it was held that opportunity of cross-examination not given leads to nullity and assessment order to be quashed. It is also pertinent to mention herein the decision of Special Bench of the Tribunal in ACIT v. Vireet Investments (P) Ltd. 165 ITD 27 (Delhi – Trib.) (SB) wherein it was held that when two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted, which is in line with the Supreme Court judgment in the case of CIT v. Vegetable Products, 88 ITR 192 (SC). This is a well- accepted construction recognized by various courts. Accordingly, we also reject this argument of the ld. DR. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 34 of 61 247. Being so, in our opinion the seized material relied by the assessing officer for sustaining addition is not speaking one in itself and also not speaking in conjunction with some other evidence with authorities found during the course of search or post search investigation. Thus, the well settled legal position is that a non-speaking document without any corroborative material, evidence on record and finding that such document has not materialised into transactions giving rise to income of the assessee which had not been disclosed in the regular books of accounts of the assessee has to be disregarded for the purpose of assessment to be framed pursuant to search and seizure action. In these cases, moreover these documents are relied upon by the AO without confronting them for cross examination. In our opinion, these documents cannot bring assessee into tax net by merely pressing to service the provision of Sec 132(4A) r.w.s Sec 292C of the IT act, which creates deeming fiction on the assessee subject to search wherein it may be presumed that any such document found during the course of search from the possession and control of such document are true. What has to be noted here is that deemed presumption cannot bring such a document in the tax net and the presumption is rebuttable one and the deemed provisions have no help to the department. In our opinion, in these cases addition is made by AO on arbitrary basis relying on the loose papers, containing scribbling, rough and vague noting’s in the absence of any corroborative material and these material cannot be considered as transacted into collection of capitation fees by assessee giving rise to income which are not disclosed in the regular books of accounts by assessee. We place reliance on the following judgements in support of our above findings: (i) CIT vs D.K.Gupta 174 Taxman 476 (Delhi) (ii) Ashwini Kumar vs ITO 39 ITD 183 (Delhi) (iii) S.P.Goyal vs DCIT (Mum) (TM) 82 ITD 85 (MUM) (iv) D.A.Patel vs DCIT 72 ITD 340 (Mum) (v) Amarjeet Singh Bakshi (HUF) vs ACIT 86 ITD 13 (Delhi) (TM) (vi) Nagarjuna Construction Co Ltd vs DCIT 23 Taxman.com 239 (vii) CIT vs C.L.Khatri 174 Taxman 652 (viii) T.S.Venkatesan vs ACIT 74 ITD 298 (ix) CIT vs Atam Valves Pvt Ltd 184 Taxman 6 (P&H) 248. Thus, we are agreeing with the contention of ld. AR that placing reliance on the seized material is not proper and all the additions on the basis of the above are deleted in all the assessment years since,: i) no opportunity to cross-examine the persons whose statements have been relied upon is afforded; ii) some of the statements have been recorded under section 131 by the authorized officer subsequent to completion of search; iii) there is no documentary evidence either to support the statements of Sri. Goli V. Srinivas or of the parents of the students; and ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 35 of 61 iv) the seized material are in the form of various loose sheets, scribblings, jottings and Excel sheets taken from the computer having no signature or authorization from the assessee’s side. These are unsubstantiated documents and there is nothing to suggest any undisclosed assets of assessee found during the course of search. More so, search action not resulted in recovery of any undisclosed assets in the form of landed property, building, investments, money, bullion, jewellery or any kind of movable or immovable assets. 249. However, on the date of search action on 6.8.2015, the search party found physical cash of Rs.2,67,28,900. This should be compared with the books of account on the day and the balance over and above the book balance should be brought to tax in the assessment year relevant to the financial year in which the search took place i.e., AY 2016-17. This ground of appeal is allowed in AYs 2010-11 to 2015- 16 and partly allowed in AY 2016-17. 250. Ground No.8 is regarding denial of exemption u/s. 11 of the Act in all the years. The AO denied the exemption under sec 11 of the Act for the major reason that the trust has received capitation fee in cash and has been carrying on the activities which are not in accordance with the objects of the trust. 251. The appellant is a trust registered under sec 12A of the Act w.e.f. 14.11.1984. The main object of the trust is to establish educational institutions in all faculties including medical, dental, pharmacy, engineering and electronics and other higher technical institutions in all parts of Karnataka particularly in backward areas like Kolar. For this purpose the trust has established educational institutions. 252. It is submitted that exemption under sec 11 can be denied only under certain specific circumstances. Section 11(1) reads as under:- “11. (1) Subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the person in receipt of the income— (a) income derived from property held under trust wholly for charitable or religious purposes, to the extent to 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 per cent of the income from such property; (b) income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act, to the extent to which such income is applied to such purposes in India; and, where any such income is finally set apart for application to such purposes in India, to the extent to which the income so set apart is not in excess of fifteen per cent of the income from such property; ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 36 of 61 (c) income derived from property held under trust— (i) created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and (ii) for charitable or religious purposes, created before the 1st day of April, 1952, to the extent to which such income is applied to such purposes outside India: Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income; (d) income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.” 253. As long as the income derived from the property held for charitable purposes has been spent for the objects of the trust, exemption under section 11 cannot be denied. There is no allegation either in the show cause notice or in the assessment order that any of the transactions accounted in the books of account show that they are not for the objects of the trust. The entire expenditure i.e., both revenue or capital are incurred only for the purpose of objects of the trust. This is not disputed by the AO . It is submitted that the accounts of the appellant have been audited regularly and there has been not even a single instance of violation reported. 254. The AO has alleged that the appellant has received capitation fee in cash and same has not been accounted in the books and that the capitation fee so received has been diverted for the benefit of trustees as well as expended on illegal activities. The AO has relied upon the following material:- • Seized material marked as A/DUU/01 which contains loose sheets serially numbered from 1 to 91 • Seized material marked as A/DUU/13 being folder containing loose sheets serially numbered from 1 to 102 • Seized material marked as A/DUU/14 being digital data retrieved from the system • Seized material marked as A/DUU/04 being note book containing certain receipts and payments serially numbered from 1 to 85 • Seized material marked as A/DUU/16 being scanned copy of unrealized cheques serially numbered from 1 to 54 255. Apart from the above seized material, the AO has relied upon the statement under section 132(4) of Sri. Goli V. Srinivas recorded on 06.08.2015. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 37 of 61 256. In the submissions made in respect of ground number 7. the appellant has established that the seized material is not incriminating in nature. Therefore, it is not conclusive proof for receipt of capitation fee. The appellant reiterates those submissions. Under such circumstances, the AO erred in relying on such material to deny exemption under section 11. The AO has concluded that the appellant has received capitation fee merely on the basis of statements and unsigned documents which cannot be relied on as evidence. As far as the statements of Mr. Srinivas and Mr. Nagaraj are concerned, the appellant reiterates that they have not acted at the behest of the trust. 257. The appellant has stated categorically that the said loose sheets / note books referred to above have not been maintained by it. The mandate under section 11(1)(a) is that “income derived from property held under trust” should be applied for charitable purposes. Para 9 of the trust deed states that the property of the trust shall be the initial contributions and such other properties as may be donated or otherwise acquired by the trust. Therefore, income from such property should be applied for charitable purposes in order to claim benefit of section 11(1)(a). Para 5 of the trust deed states that “The properties, the assets, effects, funds and the like of the trust shall vest upon the Trust, the trustees perpetually and irrevocably for the due fulfilment and effectuation of the object, and the purpose of the SRI DEVARAJ URS EDUCATIONAL TRUST FOR BACKWARD CLASSES / CASTES.” All the donations, gifts, etc, shall be taken over possession only in the name of the Trust and the Chairman or the Secretary in his official capacity as a true representations of the Trust and can never be in his personal capacity.” 258. Trust has responsibility only vis-à-vis what is received in its name by the Chairman or Secretary in their official capacity. The trust cannot be made accountable for what the trust personnel have received in their personal capacity by abusing their position. The trust cannot be made responsible for such receipts. All consequences on account of such receipts cannot affect the charitable nature of the trust. The violation on the part of the personnel of the trust who have abused their position would be breach of trust. This breach of trust is concerned with internal management of the trust and cannot be made the basis for holding that the trust is not charitable in nature. It is relevant to note the decision of the Hon’ble Gujarat High Court in the case of K.T. Doctor v. Commissioner of Income-tax [1980] 4 Taxman 208 (Guj.) / [1980] 124 ITR 501 (Guj.) wherein it was held as under: “As regards the alternative argument regarding lifting of the veil, we are afraid, no such exercise is permissible in law so far as trustees are concerned. The concept of lifting the veil is permissible only in the case of a company with a view to find out the real persons behind the corporate body, namely, the company, but in the case of trustees, they are under legal obligation to carry out the objects of the trust and to act in accordance with the deed of trust subject to the overall provisions of the Indian Trusts Act, and if they fail in their duty or if they do carry on certain activity as trustees, they are accountable in their capacity as trustees. Thus, lifting of veil or piercing of the veil is an exercise which ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 38 of 61 is not permissible in the field of the law of trusts. The only conclusion was that there was no trust of the business because there was no obligation to carry on the business. That was the only conclusion which the Tribunal arrived at and when one analyses the order of the Tribunal and finds that its approach is wrong, the conclusion is of no consequence.” 259. The above decision has been affirmed by the Hon’ble Supreme Court in CIT v. K T Doctor [1998] 230 ITR 744 (SC). 260. One needs to put a dividing line between what is done by the personnel of the trust in their official capacity and their personal capacity. The trust cannot be held responsible for the acts of the personnel of the trust in their personal capacity. Therefore, the consequences of such acts cannot affect the trust in any manner including its eligibility to claim exemption u/s. 11. When the trust has neither received the alleged capitation fee nor has control on such alleged capitation fee where is the question of it being responsible for the receipt and utilization of the same. 261. In view of the above submissions, it is submitted that the appellant has not diverted any funds for the benefit of trustees and there is no violation of section 13(1)(c)(ii). 262. The AO relied upon the decision of the Hon’ble Delhi High Court in Mool Chand Khairati Ram Trust v. DIT (Exemption) [2015] 377 ITR 650 (Del) and held at para 8.2, page 104 of the assessment order holding that in the instant case also the assessee has grossly violated the provisions by not applying the receipts earned through capitation fee collection, and rather by the trustees appropriating the same. 263. It is submitted that the decision relied upon by the AO does not support the conclusion drawn by him. Without prejudice to the main contention that the appellant has neither received any capitation fee nor diverted any of its funds for the benefit of the trustees, it is submitted that the above decision is not applicable to the facts of the present case. The issue in the above case was whether income from property held under trust can be applied for a purpose even though charitable, if such purpose is not the object of the trust. This is not at all the issue in the present case. The ratio of the said decision does not support the allegations made by the AO . 264. Without prejudice to the contention that funds have not been diverted for the benefit of trustees, the AO has tabulated the payments made to trustees based on his analysis of the seized material (supra). A perusal of the said table would show that there are no such payments pertaining to AY 2010-11 and 2011-12 as per the analysis of the AO himself. It is pertinent to note that the assessments for AY 2010- 11 and 2011-12 have been completed under section 143(3) prior to date of search. The assessments for these years would not abate. No addition or allegation can be made without incriminating material found and seized during the course of search. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 39 of 61 Therefore, in the absence of incriminating material, diversion of funds for the benefit of trustees cannot be ground for these two years for denying exemption u/s. 11. 265. Now, to rebut the allegations made by the AO that the appellant has made payments for illegal activities and hence, has violated the objects of the trust and also allegation that the appellant has been a conduit for tax evasion. It is submitted that the theory advanced by the AO is that the appellant has collected capitation fee in cash and used such funds to make payments towards illegal activity. In paragraphs 8.1 to 8.39, supra, it has been demonstrated that the allegation of AO that appellant has received capitation fee is perverse as it is not supported by any evidence. Therefore, this by itself would also destroy the allegation that the funds are utilized for illegal activities because when the very existence of source from which funds are said to have been diverted has not been proved, the allegation of diversion should fail. 266. Without prejudice to the above, regarding the allegations regarding expenditure on illegal activities, the AO has alleged that the activities of the appellant are not in accordance with the objects of the trust and it has been used as a conduit for tax evasion, it was submitted that the allegation of deviations from the objects of the trust is based on the seized documents. The appellant has already established that these documents have no connection whatsoever with the trust. These are privately maintained by some other person. And if they have spent some money out of such collection, it cannot be said that trust has carried on its activities in violation of its objects. Therefore, the exemption u/s 11 cannot be denied on this ground. 267. The various allegations of the AO regarding payment for illegal activities and being a conduit for tax evasion can be categorized as under: (i) Payment to political parties for funding elections (ii) Payment to agents for procuring candidates (iii) Payment of Kickbacks and promotion of corruption (iv) Payments for routing money into books and aiding tax evasion through receipt of bogus donations (v) Aiding tax evasion by making additional payments of salary in cash to staff 268. The abovementioned allegations are countered below. Counter to the Allegation: Payment to political parties 269. The AO has tabulated his analysis of seized material no. A/DUU/13 with respect to alleged payment made for elections. The relevant entry no. 85 of seized material no. A/DUU/13 was confronted to Sri. Goli V. Srinivas and Sri. G H Nagaraj. The relevant portion of the statements is extracted in the earlier submissions. Based on the above material, the AO observed as under:- ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 40 of 61 • “Para vide Sl. No. 5.2.3.1h deals with the payment of Rs. 300 lacs made to political parties. When Pg. 85 of the seized materials A/DUU/13 was shown and GVS and Sri G H Nagaraj was confronted they have stated that this amount was paid to various political parties and candidates contesting election. An extract of their reply has been annexed in para 5.2.3.1h. However, they have not given further details of as to whom such payments were made to. It is pertinent at this juncture to note that the Chairman of the Trust is Politician. Such payments made to political parties have two violations, one being that they violate the objective of the Trust by spending income from property of Trust to the purposes other than charitable purpose and second being the fact that they directly or indirectly aid benefit one of the trustees.” [Para 5.2.3.3.4, page 70] • “The trust funds have been misutilized by diverting them for the funding Elections for candidates of various political parties as seen from multiple entries in seized material Annexures A/DUU/02 to A/DUU/04 which was confronted to the Secretary also during the recording of his statement.” [Serial no. 3, para 7.1, page 100] Diversion of Trust funds for political purposes • As can be seen from the seized material (as discussed in earlier sections of this order), at least Rs. 3,00,00,000 have been paid by the trust from the capitation fee funds for funding parties in elections, in stark violation of objects of the trust and in violation of laws governing elections in India.” [Para 7.10, page 103] 270. The learned AR submitted that the AO relying upon a stray entry at page 85 of the seized material marked as A/DUU/13 and the statement of Sri. Goli V. Srinivas and Sri. G H Nagaraj has generalized that the appellant has diverted funds for funding elections for candidates of various political parties. The replies given by Sri. Goli V. Srinivas and Sri. G H Nagaraj does not divulge the details of political parties to whom such payments have been made. The AO also has not brought on record as to whether any elections did take place during the relevant period when the alleged payments were made. Just because the Chairman is a politician, it does not mean that payments are made to political parties. It is submitted that the allegations of the AO are incorrect. There is nothing either in the said page 85 of the seized material or the statement of Sri. Goli V. Srinivas and Sri. G H Nagaraj to hold that the appellant has diverted the funds of the trust for funding elections. The appellant has not authorized such payments. The entry has been made by Mr. Srinivas at the behest of Sri G H Nagaraj in his personal capacity and not upon authorization by the trust. There is no allegation that the relevant payment has been made out of the funds of the trust which are duly accounted. The very fact that the payment has been made out of the funds not connected to the trust, would show that the payment has been made without the authority of trust. The entry at page 85 of the seized material and the statement of Sri. Goli V. Srinivas / Sri. G H Nagaraj is ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 41 of 61 not supported by any corroborative evidence. The AO has stated that the payments made to political parties have two violations, one being that they violate the objective of the Trust by spending income from property of Trust to the purposes other than charitable purpose and second being the fact that they directly or indirectly aid benefit one of the trustees. It is submitted that these findings are contrary to his own finding that the payments have been made out of alleged capitation fee. It has been established by the appellant that the capitation fee has been neither received by the trust nor does it form part of the funds of the trust. Such being the case, the question of diverting funds of the trust for the purpose of benefit of trustees does not arise. 271. Without prejudice to the above, the AO has stated that there are multiple entries in seized material marked as A/DUU/02 to A/DUU/04 which would show that the trust funds have been diverted for funding elections. It is submitted that the AO cannot generalize a stray entry noted and confronted to Sri. Goli V. Srinivas / Sri. G H Nagaraj to hold that there are multiple such cases. The AO has not drawn attention to not even one such entry in seized materials marked as A/DUU/02 to A/DUU/04. The AO is not permitted to extrapolate the same to other years in the absence of any material. As stated earlier, the entry in page 85 of the seized material marked A/DUU/13 and the statement of Sri. Goli V. Srinivas / Sri. G H Nagaraj are not supported by corroborative evidence. The AO ought to appreciate the fact that elections are not conducted all years. Therefore, there is not even circumstantial evidence for him to extrapolate one stray entry. The finding of the AO regarding diversion of funds for elections is to be restricted only to AY 14-15 and it cannot be extended to other years. This is without prejudice to the contention that the finding of the AO that trust funds have been diverted for funding elections is perverse as it is not based on cogent evidence. 272. Without prejudice to the above, it is submitted that the seized material marked as A/DUU/02 to A/DUU/04 and A/DUU/13 do not contain any entry pertaining to FY 2009-10, relevant to AY 2010-11. Therefore, this finding of the AO cannot be extended to AY 2010-11 even on this ground. Counter to the allegation: Payments to agents 273. The AO has, at para 5.2.3.1d, page 60, tabulated his analysis of seized material no. A/DUU/2 with respect to alleged payments made to agents. He also relied upon page 5 of seized material no. A/DUU/10. The AO has extracted the relevant portion from the statement of G H Nagaraj with reference to payment to agents. He has also extracted at the said paragraph, pages 71 and 72, the replies received from Sri. Goli V. Srinivas when he was confronted with the aforementioned entries in seized material no. A/DUU/02. 274. At pages 78 and 79, the AO has extracted the relevant portion of the statements of Sri. Goli V. Srinivas recorded on 06.08.2015 under section 132(4) and on 28.11.2017 under section 131 with reference to role of agents. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 42 of 61 275. Relying upon the above materials, the AO, at page 100, para 7.1 of the assessment order, alleged as under:- “The trust funds have been mis-utilized for making payments to various brokers/agents to procure students for admission into the Medical colleges and facilitation of payment of capitation fees as seen from seized material Annexure A/DUU/01 page 67, A/DUU/02 Page 61, A/DUU/13 pages 10, 11 and various other such evidences found and seized.” 276. The ld. AR submitted that a perusal of the above paragraphs would show that the AO has relied upon certain portion of seized material marked as A/DUU/01, A/DUU/02, statement of G H Nagaraj recorded u/s 132(4) on 20.08.2015, statement of Sri. Goli V. Srinivas recorded under section 132(4) on 06.08.2015 and under sec 131 on 28.11.2017. The AO also sought to rely upon page 5 of seized material no. A/DUU/10. This page consists only of certain obscure notings and figures. Nothing can be deciphered from the same. The portion of seized material relied upon cannot be held as corroborative evidences to support the allegations that the appellant has paid commission to agents for getting candidates for admission with capitation fee. There is nothing in the seized material to support the above. Even the statement of Sri. Goli V. Srinivas /Sri. G H Nagaraj which is relied upon is not supported by any cogent evidence. We have already established that the statement of Sri. Goli V. Srinivas cannot be relied upon to prove the role of agent. The AO ought to have summoned the various persons referred to in the statement given by Sri. Goli V. Srinivas. The AO cannot merely rely upon a statement which is not supported by any evidence. The AO has sought to rely on statement of Sri. Goli V. Srinivas recorded under sec 131 on 28.11.2017 which is much later than the date of search. It is submitted that reliance cannot be placed on a statement recorded under section 131 post–search in the absence of reliable material during the course of search. Moreover, it is recorded only a month before the time-limit to make assessment could expire. 277. Without prejudice to the above, it was submitted that the statement recorded on 28.11.2017 has neither been furnished to the appellant nor the appellant has been afforded an opportunity for cross-examination. For reasons stated earlier submissions, it was submitted that such statement cannot be relied upon. Counter to the allegation: Payment of kickbacks and promotion of corruption 278. The AO has, at page 62, tabulated his analysis of seized material no. A/DUU/2 with respect to alleged payments made to MCI Inspectors. He has extracted the relevant portion from the statement of Sri. Goli V. Srinivas with reference to the aforementioned entries in seized material no. A/DUU/02. At page 70, the AO extracted the statement under section 131 of Sri. Goli V. Srinivas recorded on 28.11.2017 pertaining to deposition before CBI. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 43 of 61 279. Relying upon the above materials, the AO at serial no. 5, page 100, para 7.1 of the AO , alleged as under: “The trust funds have been mis-utilized for payment of gifts and bribes during MCI Inspections to unknown officials /persons as seen from seized material vide Annexure A/DUU/02 (such entries found in multiple pages).” 280. At para 7.8, page 102 of the assessment order, the AO has alleged “Payment of kickbacks and promotion of corruption” observing as under:- “Regular kickbacks in the form of cash, silver plates, gold chains, gifts, etc have been paid of inspectors from medical council of India, in order to receive favorable inspection reports. This also proves that the institution is not maintaining the necessary standards and complying with norms and is therefore attempting to buy the officials through bribery.” 281. The AO relied upon the aforementioned material and statement of Sri. Goli V. Srinivas recorded on 07.08.2015 under sec 132(4) of the Act and statement of Sri. Goli V. Srinivas recorded on 28.11.2017 under sec 131 of the Act. 282. The appellant strongly denies the allegation that it has paid bribes to MCI inspectors. The allegation is based on totally unreliable documents and evidences. It is submitted that allegation on bribes, etc cannot be made lightly. Merely based on the statements of Mr. Srinivas or the entries made in the registers it cannot be alleged that bribes have been paid. Kindly refer to the decisions of the Hon’ble Supreme Court in Common Cause and V.C. Shukla referred to in earlier paragraph supra. 283. The AO has sought to rely on statement of Sri. Goli V. Srinivas recorded under sec 131 on 28.11.2017 which is much later than the date of search. It is submitted that reliance cannot be placed on a statement recorded under section 131 post – search in the absence of reliable material during the course of search. Moreover, it is recorded only a month before the time-limit to make assessment could expire. 284. Without prejudice to the above, the statement recorded on 28.11.2017 has neither been furnished to the appellant nor has the appellant been afforded an opportunity for cross-examination. For reasons stated in earlier submissions supra such statement cannot be relied upon. 285. It was submitted that the AO ought to have issued summons to the MCI inspectors to whom Sri. Goli V. Srinivas, in his statement, alleged to have given bribe. The AO erred in merely relying upon the statement of Sri. Goli V. Srinivas without verifying its veracity. There is no evidence to prove the correctness of the statement. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 44 of 61 286. In query no. 14 posed to Sri G H Nagaraj while recording statement under section 131 on 13.08.2015, he was confronted with reply to question no. 37 in the statement of Sri. Goli V. Srinivas and was asked to offer his comments. In reply to aforesaid query no. 14, Sri. G H Nagaraj stated that no cash payments are made to MCI Inspectors. 287. The appellant, in its reply dated 02.12.2017 to notice under sec 142(1) dated 15.11.2017 had objected to the allegation of the AO that it had paid bribe to MCI inspectors. The AO, in the final assessment order, has not addressed the objections taken by the appellant. It means that the AO has not disagreed with the contentions of the appellant. That being the case, the AO erred in retaining the perverse findings in the final assessment order. 288. Without prejudice to the above, the material relied upon by the AO contains dates falling in FY 13-14. Sri G H Nagaraj in the statement under section 132(4) recorded on 20.08.2015 in reply to question no. 8 has stated that MCI Inspection takes place every year till the year of recognition and once recognition is granted, the inspection is made once in 5 years. Deemed University recognition was granted in the year 2006. That being the case, how can there be occasion of making any payments to MCI Inspectors. Therefore, there is not even circumstantial evidence for him to extrapolate one stray entry. At worst, the finding of the AO regarding payment to MCI Inspectors is to be restricted only to AY 14-15 and it cannot be extended to other years. This is without prejudice to our claim that no bribes were paid to MCI inspectors. 289. Therefore, this ground cannot be applied to all years for denying exemption under section 11. This is without prejudice to the contention that the finding of the AO that trust funds have been used for bribing is perverse as it is not based on cogent evidence. Countering the allegation: “Aiding Tax evasion through receipt of bogus 80G donations: 290. It is submitted that the perusal of the entries in the said seized material do not support the above allegation. There is nothing on record to prove that the capitation fee collected in cash is paid to certain persons who, in turn, routed it back to the trust by way of donation and claimed deduction under section 80G in respect of such donations. The returns of the alleged bogus donors who have claimed deduction under section 80G in respect of such donations has not been brought on record. An allegation of aiding in tax evasion cannot be made in a bald manner. It should be proved that the alleged bogus donor has claimed deduction u/s. 80G in respect of such donations and the amount of tax evaded by such donor by claiming such deduction is to be ascertained. The assessment records of such donor should be brought on record to show that donation claim has been found to be bogus during the assessment of such donor. The copy of assessment order wherein such bogus donation is disallowed is to be confronted to the trust that has received such donations. Without even looking at the income-tax returns and assessment records ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 45 of 61 of the donors, the AO has made a sweeping statement that the appellant has aided bogus donors to evade tax. The seized material which is relied upon does not demonstrate that the appellant has aided bogus donors to evade tax. If the AO is of the opinion that the donations made are not genuine, the AO ought to have taken action against the alleged bogus donors who sought to claim 80G benefit through such bogus donations. The AO should have initiated proceedings under section 153C in case of donors if he is the AO of the donors or should have handed over the relevant documents to the jurisdictional AO of the alleged bogus donors. There is nothing on record to show that the AO has taken any such action. 291. The statement of Sri. Goli V. Srinivas is not supported by any evidence. The statement made by Sri. Goli V. Srinivas can be true only if he has access to the income-tax returns and assessment records of the bogus donors. He has nowhere accepted in his statement that he has access to any such documents. That being the case, he cannot make an authoritative statement that the “........paid for various 80G receipt holders who had made cheque payment to our organization for the period..................to avail benefit under the Income Tax Act.” The said statement cannot be relied upon in the absence of cogent material. The AO has alleged that the appellant has not submitted anything to prove that the donations received are genuine. It is submitted that the appellant has received donations through cheque and it has issued receipts for the same. 292. Further, it was stated that statements whatever relied on by the AO was not confronted to the assessee. Hence, it may not be relied upon. Counter to allegation: “Additional Salary Payments made to staff” 293. The ld. AR submitted that the appellant denies the allegation that it has paid remuneration in cash to enable the faculty to evade tax. The allegation made by the AO is absolutely baseless. The AO has not brought on record any material to prove his statement. In fact, while dealing with the claim of the appellant regarding deduction of expenditure, the AO has sought to rely upon statements of two faculties – Dr. Kishore Kumar and Dr. Nagaraj S. A portion of these statements is extracted at pages 145 and 146 of the assessment order. The faculties, in the statements, have denied receipt of any additional salary as stated in page no. 81 of seized material no. A/DUU/01. The AO sought to rely upon the statements of faculties to deny the claim of the appellant in respect of deduction for expenditure. It is submitted that the statement contradicts the allegation of the AO that the appellant has paid salary in cash to staff to aid them to avoid tax. When the faculties have denied accepting additional salary, the question of aiding them to avoid tax by paying salary in cash does not arise. If the AO had reason to believe that the remuneration is paid in cash without TDS to enable the faculty to evade tax, he should have handed over the relevant material to the AO who had jurisdiction over such faculties to enable initiation of proceedings under section 153C in respect of such faculties. But the AO did not choose to do so. He has not even called for the income-tax returns and assessment records of those faculties. He has not even ascertained whether they are liable to pay tax at all. In the absence of any evidence, the AO cannot make any ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 46 of 61 such sweeping allegations. The payment to staff, whether reasonable or not, is not hit by section 13. With a mere intention of making these alleged payments of additional salary as a ground to deny section 11, the AO has made the allegation of abetting tax evasion having no legal sanctity. 294. The ld. DR contended that the modus operandi of the assessee is that the trust receives capitation fees from students which are routed into books of account as voluntary donation from various individuals / entities. Further a significant part of the capitation fees collected in cash was utilized for personal purposes of the trustees. Also huge cash was sized from the premises of the trust and explained by the trustee that the same was received as capitation fee. Thus the gist of modus establishes that assessee’s activities cannot be called as charitable activities as per the objects of the trust and it is not genuine, hence exemption u/s. 11 cannot be granted. 295. We have heard both the parties and perused the material on record on this issue. In the present case, exemption u/s. 11 was denied on the reasons that assessee has collected unaccounted capitation fee from management and NRI quota which is based on unsupported seized material on which no opportunity to cross-examine was given to the assessee. Hence we have observed that no addition can be made on this basis. Now coming to the activities of the assessee, no material has been brought on record that the assessee has not solely existed for the purpose of carrying out educational activities and books of account have not been rejected. It cannot be said that the activities carried on by the assessee is not genuine. In our opinion, the assessee solely existing for non-profit purpose. Unless the department shows that there was breach of conditions laid down for grant of exemption u/s. 11 of the Act, the benefit of exemption u/s. 11 cannot be denied. The assessee enjoyed registration granted during this period and the assessee also demonstrated that the assessee’s predominant objects remain the same i.e., carrying out the charitable activities for the purpose of advancement of education and not to earn profit. Earning surplus income by carrying out educational activities is not a reason to deny exemption u/s. 11 of the Act. The assessee’s predominant activity is carrying out educational activities which is charitable in nature. The trust cannot be deprived of the benefit of exemption u/s. 11. Further, as we have discussed in elsewhere in the order there is no concrete evidence for collection of unaccounted capitation fees and it is not possible to deny the exemption u/s 11 of the act. It is also noted that even if the assessee constructed the temple inside the campus of the education institution for the benefit of the students and employees and also for public, it cannot be construed as violation of section 12(1)(a) of IT Act. There was one more allegation that assesse has collected exorbitant fees but in our opinion the fees has been fixed by the state authority and there was no violation noted by the state authority or MCI. As discussed in earlier para of this order about the authenticity of the seized material, we have held that it is not foolproof. In such circumstances it cannot be relied upon. The various decisions relied by the AO that is the Delhi High Court in DIT(exemptions) vs. Charanjiv Charitable Trust, Mool Chand Khairati Ram Trust vs. DIT(Exemption) and Vodithala Education Society vs. Addl. DIT(Exemption) to hold that assesse has violated the section 13(1) are not applicable to the facts of the ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 47 of 61 case on the reason that there was no conclusive evidence to hold that there was collection of capitation fees or violations of the section 13(1) of the act. In view of the above, this ground of the assessee is allowed in all AYs. 296. Ground No.9 is with regard to allowance of depreciation (original ground in AY 2010-11). 297. The AO observed that given the fact that the benefits u/s 11 are being denied the surplus as specified u/s 11(1)(a) & 11(1)(b), the surplus specified u/s 11(2) are considered to be taxable income of the assessee. The claims of capital expenditure made by the assessee are capitalized and therefore disallowed as expenditure that that can be claimed by the assessee against the receipts. As depreciation has already been claimed by the assessee against the capital expenditure made, no further depreciation is allowed. Therefore, he denied depreciation on the ground that the depreciation has already been claimed by the assessee against the capital expenditure made, hence no further depreciation is allowed. The assessment has been made under section 143(3) for the impugned assessment year. 298. The ld. AR submitted that a perusal of the computation of income shows that the surplus before claiming exemption under section 11(1)(a) is Rs. 6,85,70,097. The same has been arrived at as under:- Gross receipts 58,73,36,562 Less: Application of income Revenue Expenditure as per Income & Expenditure Account (excluding depreciation) 44,58,41,894 Capital Expenditure 7,29,24,571 Total application of income 51,87,66,465 Balance 6,85,70,097 Less: Exemption u/s 11(1)(a) [15% of gross receipts – Restricted to surplus available] 6,85,70,097 Total income Nil 299. It is submitted that the surplus considered by the AO in the computation of total income in the order dated 30.12.2017 passed under section 153A is also Rs. 6,85,70,097. Therefore, the same is before the claim for depreciation. The AO also added back the capital expenditure claimed as application of income as exemption under section 11 is denied. Therefore, the observation of the AO that the appellant has claimed depreciation is incorrect. 300. Therefore, without prejudice to the main contention that the appellant is entitled to claim exemption u/s. 11 of the Act, it is submitted that the appellant is entitled to claim depreciation as per the provisions of the Act. ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 48 of 61 301. Without prejudice to the above, it was submitted that the AO has denied exemption under section 11 of the Act. Therefore, the AO is required to grant deduction towards depreciation irrespective of the fact whether depreciation has been claimed and allowed in the books of accounts or not. The AO is required to grant depreciation as per the normal provisions of the Act. When the AO has sought to compute the income under Chapter IV-D, he ought to have granted depreciation as per section 32 of the Act. It is submitted that deduction towards depreciation should be compulsorily be given whether the assessee has made the claim or not. Explanation 5 to section 32 reads as under:- “Explanation 5.—For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income;”. 302. The ld. DR submitted that the assessee claimed the cost of assets as capital expenditure in its Income & Expenditure statement. Being so, there cannot be any allowance of depreciation. 303. We have heard both the parties and perused the material on record on this issue. The assessee is entitled for depreciation u/s. 32 on assets where it has been laid out as application of income for charitable purposes u/s. 11(1)(a) of the Act. The amendment brought to section 11(6) of the Act by the Finance (No.2) Act, 2014 which became effective from AY 2015-16 and depreciation in such case being precipitation in nature. Accordingly, by placing reliance on the decision of the Hon’ble Supreme Court in the case of CIT v. Rajasthan & Gujarati Charitable Foundation Poona, 402 ITR 441 (SC), the AO is directed to grant depreciation for AY 2010-11. 304. In AYs 2011-12 to 2016-17, the ground relating to depreciation is not pressed. Accordingly, the same is dismissed as not pressed. 305. Ground No.10 with regard to computation of income under the heads of income applying the provisions of sections 28 to 43C of the Act is not pressed at the time of hearing and hence the same is dismissed as not pressed. 306. Ground No.11 is with regard to extrapolation of income in all years. The AO has added Rs. 27,42,00,000 towards undisclosed cash receipts in AY 2010-11. Similar is the position in other assessment years. The break-up of the same for AY 2010-11 is as under:- Description of course Alleged unaccounted cash generated during FY 2009-10 (Amount in Rs.) UG-MBBS course 12,34,00,000 PG course 15,08,00,000 Total 27,42,00,000 ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 49 of 61 307. The AO has computed the alleged undisclosed cash receipts from UG-MBBS course and PG course for the impugned assessment year AY 2010-11. The relevant computation for AY 2010-11 is given at page 149 [UG-MBBS course] and page 151 [PG course]. He has computed the capitation fee and unaccounted cash generated in respect of UG-MBBS course for AY 2010-11 as under:- Column heading as per the table given at page 149 of the assessment order Column reference Total Seats D 150 No. of seats where capitation fee is collected E 63 (*) Package price (Rs. In lakh) F 35 Regular fee per seat for the course (Rs. In lakh) G 15.41 Unaccounted cash component generated per seat per course (Rs. In lakh) F – G = H 19.59 Total unaccounted cash generated as per seized material (Rs. In lakh) I - Estimation of total unaccounted cash generated (Rs. In lakh) E * H = J 1234 308. It is pertinent to note that the column I which deals with “Total unaccounted cash generated as per seized material” is blank so far as AY 2010-11 is concerned. It means that the learned Assessing Officer has acknowledged that there is no incriminating material to prove that the appellant has received unaccounted fee in cash during the financial year 2009-10. 309. Without prejudice to the above, the AO has estimated the total number of seats at 63 in respect of which capitation fee is received. The quota of total seats for assessment year 2010-11 is 150, out of which 85% seats are reserved under merit quota. The management quota is only 15% which works out to 22. One fails to understand as to how one can estimate that cash was collected from 63 students. It is axiomatic that the merit students will not pay any cash. The appellant has vide its letter dated 23.12.2017 [filed on 26.12.2017] has enclosed the year-wise details of number of students permitted and actual number of seats admitted to the college in respect of UG and PG courses. It is not known as to how the number of seats in respect of which the capitation fee is collected is arrived at. An asterisk mark has ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 50 of 61 been put next to the number of seats i.e., 63. But there is no note below the table explaining the asterisk mark. The seized material does not contain any such data so far as AY 2010-11 is concerned. In the remarks column (k) of the table, it is stated as “On page 151 of the Seized Material No. A/DUU/06”. A perusal of this page would show that it contains only the list of the names, addresses and contact details of some persons. It is not known as to how from the entries contained in this page, one can arrive at a conclusion that 63 students have paid unaccounted cash. Even the package fee of Rs.35 lakh mentioned in column F of the table appears to have been taken based on the scribbling. The figure of 35 scribbled therein is assumed to be 35 lakh by the department. It is difficult to comprehend as to how assessing officer can come to a conclusion that the figure of 35 refers to 35 lakh and it is package fee. The appellant relies on the decision of the Tribunal in ACIT v. Shri Viren Ahuja, 2017 (8) TMI 528 - ITAT MUMBAI wherein it is held as under:- “10. The AO also could not bring any material on record to understand the meaning and nature of entries. Hence, in the absence of any other corroborative material, we are of the view that the said document should only be construed as dumb document. We also find no reason for extrapolating the figures into lakhs. Hence the addition made by the AO has to be taken as an addition made on surmises and conjectures, which is liable to be deleted. We notice that the co- ordinate bench of Tribunal has also taken an identical view in the assessee’s own case in the order dated 29-04-2015 passed in ITA No.3890/Mum/2013 and others relating to AY 2006-07 to 2008-09. We notice that the assessee has given detailed explanations before the Ld CIT(A) and hence the Ld CIT(A) has deleted the addition by placing reliance on the decisions referred supra. Under these set of facts, we do not find any reason to interfere with the order passed by Ld CIT(A) on this issue. Accordingly we uphold the order passed by him on this issue.” 310. Moreover in all the other pages of seized material A/DUU/06, there is nothing even remotely suggesting that some cash has been collected. Hence, the reliance on page 151 to estimate the total unaccounted cash generation is uncalled for and it is respectfully submitted that no person reasonably instructed in law can arrive at the conclusion as has been arrived at by the department. 311. At pages 152 and 153 of the assessment order, at para 10.9.2, the AO has discussed the evidences in support of quantification of unaccounted cash receipts for AY 2010-11. The evidences relied upon are as under:- • The AO has extracted three tables under the heading “Evidences relating to AY 2009-10 i.e., FY 2008-09” The first table has the caption “STATEMENT OF NRI STUDENTS 2008-09”. Below the table, the source is stated. Source is stated to be “Digital seized material: file name: Seats 2008-09.xls;Sheet:1” • The second table has the caption “STATEMENT OF INSTITUTIONAL QUOTA STUDENTS 2008-09”. Below the ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 51 of 61 table, the source is stated. Source is stated to be “Digital seized material: file name: Seats 2008-09 1.xls;Sheet:2” • The third table has the caption “STATEMENT OF ADMISSION AGAINST DROPS (sic) OUT 2008-09”. Below the table, the source is stated. Source is stated to be “digital seized material: file name: Seats 2008-09 1.xls;Sheet:2” 312. The AO at page 153, has stated that from the above 3 extracts of digital data seized during the course of search proceedings, it is seen that at least 44 students had been admitted by collecting capitation fee in cash for admissions in FY 2008- 09. Being beyond limitation period, these evidences were not discussed in earlier sections of this order. However, it is a significant evidence that capitation fee in large scale was been collected in FY 2008-09 also, which happens to be the year preceding FY 2009-10 (i.e., AY 2010-11). Therefore, according to the AO, it is safely concluded that the practice of collecting capitation fee in cash predates the limitation period and exists at least from FY 2008-09. 313. The ld. AR submitted that the evidences extracted and the conclusion of the AO would show that he has relied upon the material pertaining to FY 2008-09 for quantifying the cash generated during the FY 2009-10. It is submitted that addition can be made only on the basis of incriminating material found in respect of the impugned assessment year during the course of search. If no incriminating material is found for the impugned assessment year, the addition cannot be made based on earlier year’s data. The AO has merely presumed that the appellant has received capitation fee during the FY 2009-10 just because he found certain material pertaining to AY 2009-10 which, according to him purportedly represented proof for alleged capitation fee received during FY 2008-09. Assuming but without admitting that the material pertaining to FY 2008-09 represents evidence for alleged capitation fee received during that year, it is submitted that a presumption cannot be drawn that there must have been similar receipt even during FY 2009-10 in the absence of incriminating material pertaining to FY 2009-10. The appellant relies on the following decisions:- • In Anjaneya Brick Works. v. ACIT (INV.). 2002 (1) TMI 256 – ITAT Bangalore / 74 TTJ 921, the Tribunal held as under: “(iii). The first limb of arguments of the learned authorised representative is that so far as the asst. yr. 1991-92 in the case of M/s. Anjaneya Brick Works is concerned, there is no evidence of suppression of income. We are convinced by the arguments of learned authorised representative to that effect. This is almost settled principle of law that mere existence of evidence to support concealment of income for the next assessment year (i.e. 1992-93 in this case) cannot be made a basis judiciously to estimate the income for the current year or any other assessment year for that matter. On the basis of materials related to asst. yr. 1992-93, we cannot conclude that there existed unaccounted sales and income for the previous year relevant to asst. yr. 1991-92 which is the subject-matter of this appeal. The order of the CIT(A) based on this ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 52 of 61 presumption alone cannot be sustained in the eyes of law. Moreover, there is not a whit of evidence regarding the unaccounted investment for the years 1991-92 and 1992-93. And also the other circumstance that the appellants are also managing the activities of the other firm, which is a sister concern, can also be concluded to be in favour of the appellants, because when both the businesses are related to one family, it is immaterial in which of the kiln, irrespective of the fact whether it is having more or less chambers, the work was got done. When two views are possible, the one which is in favour of the assessee/appellant is to be given effect to. We accept this plea of the appellant.” • The Tribunal in the case of Raviraj Kothari Associates v. DCIT 2016 (10) TMI 553 - ITAT PUNE held as under: “14. In the facts and circumstances of the case and documents on record we hold that the addition in respect of on-money received in respect of Shop No. 129 i.e. the shop in respect of which the document was seized during survey is upheld. Whereas, in the absence of any material to show that on-money was received in respect of other shops sold or booked during the financial year 2006-07, the addition on account of on-money is not sustainable. The principle of extrapolation of ‘on- money’ on the other shops sold/booked during the period relevant to assessment year under appeal is rejected in the absence of any material on record.” • In Commissioner of Income-tax v. Anand Kumar Deepak Kumar [2007] 160 Taxman 206 (Delhi) / [2007] 294 ITR 497 (Del.), the Hon’ble Court held as under:- “7. The Commissioner as well as the Tribunal found that in fact there was no discrepancy noted in the books of account in the post search period. The assumption of the Assessing Officer may have perhaps been valid if the Assessing Officer had found some discrepancy in the books of account or if the search had been conducted after the accounting year and the books of account had brought out some discrepancies. But in the present case, the books of account were examined by the Assessing Officer in the middle of the accounting year. Merely because there were some discrepancies in the pre-search period, it cannot lead to any presumption that the discrepancies would have continued in the post- search period particularly when there was factually no evidence at all as found by both the authorities below to support such a view.” • In CIT v. M/S Thakkar Popatlal Velji Sales Ltd. 2016 (4) TMI 336 - Bombay High Court’s case the registers evidencing sales were found for the period August 2005 to September 2005. The Revenue sought to extrapolate the sales recorded therein for the entire assessment year. The Tribunal rejected the contention of the Revenue and held as under:- ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 53 of 61 “9. So far as the next submission on behalf of the Revenue viz. of extrapolation of evidence found during search is concerned, this Court in All Cargo Global Logistics Ltd. (supra) had negatived the revenue's submission before it that the assessment under section 153A of the Act is not to be restricted only to the incriminating material found during the course of search but would extend to other material also. Therefore in the facts of present case this issue is covered by the decision of this Court in All Cargo Global Logistics Ltd. (supra) in favour of the respondent- assessee inasmuch as it restricts the assessment to be made only to the incriminating material found during the course of search. The reliance upon the decision of the Supreme Court in H.M. Esufali H.M. Abdulali (supra) is inappropriate. This is so as it was passed under the sales tax law and it proceeded on the basis of best judgment assessment i.e. disregarding the assessee's books of account. It is not so.” • In Ashoka Infrastructure Ltd. v. ACIT 2017 (6) TMI 1167 - ITAT Pune, the Tribunal held as under:- “Similarly, in the year of search i.e. assessment year 2010-11, evidence has been found for part of the month and the addition is to be restricted to the said evidence found. The evidence cannot be used for extrapolating the receipts for balance period, which is after the date of search; since, no evidence has been brought on record to establish that the same practice has been followed by the assessee in the period pursuant to the date of search. Accordingly, the Assessing Officer is directed to compute the income in the respective years in the hands of assessee.” • In M/s. J.B. Educational Society And Joginapally Br. Educational Society v. ACIT 2013 (12) TMI 777 - ITAT Hyderabad: [2013] 28 ITR (Trib) 284 (ITAT [Hyd]) “Further, unless there is evidence or material indicating any suppression of collection of fees towards management quota seats for the academic year 2003-2004 to 2007-2008 having been found during search, and no admission from the assessee, Assessing Officer was not justified, to estimate the same on the materials seized relating to academic year 2008-2009 and 2009-2010 indicating suppression of collection of fees for management seats, in assuming suppressed/unaccounted receipts of fees for earlier assessment years. The calculation of unaccounted income from collection of fees from management seats should be based on materials and it should be on scientific basis and cannot be merely on assumptions. Considering the facts of the present case, we are inclined to direct the AO to quantify the receipt of fees for management quota seats if any, on the basis of available seized material as well as other material if any, relating to academic year 2003-2004 to 2007-2008 and not on the basis of seized materials relating to academic years 2008-2009 and 2009-2010. In other words, instead of estimating the unaccounted receipt for the academic years 2003-2004 to 2007- 2008 (A.Ys. 2004- 2005 to 2008-2009) on the basis of seized material relating to academic ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 54 of 61 year 2008-2009 and 2009-2010 (A.Ys. 2009-2010 and 2010-2011 respectively), the AO shall take into consideration the seized material as well as other material what was available during the course of assessment relating to very same assessment years for determining the unaccounted income. For this purpose, we place reliance upon the Orders of the Tribunal in the case of DCIT vs. Royal Marwar Tobacco Product (P) Ltd. (2009) 120 TTJ (Ahd.) 387, CIT vs. Anil Bhalla (322 ITR 191) (Del). In this case search and seizure was carried out in the premises of the assessee and the premises of a company of which the assessee was a director. The Assessing Officer made additions under the head of unexplained expenditure under section 69C of the Income-tax Act, 1961.” 314. The AO regarding the Evidence of opening balance on 1/4/2010 observed upon examination of seized material relating to payments, that there is an opening cash balance of Rs. 81 lakhs as on 1/4/2010. According to the AO, this means that Rs. 81 lakhs was the closing balance of AY 2010-11 i.e., as on 31/3/2010. If no capitation fee was collected during AY 2010-11, then the closing balance of cash (unaccounted) would be zero instead of Rs. 81 lakhs as is seen from the seized material. The same opening balance is also seen from the submissions of the assessee vide its submissions dated 20/12/2017. 315. The ld. AR submitted that just because the opening cash balance is Rs. 81 lakh as on 01.04.2010, it cannot be presumed that the same is out of capitation fee. Without prejudice to the above, it is submitted that the AO erred in law and on facts in presuming that capitation fee is collected during FY 2009-10 relevant to AY 2010- 11 just because the opening cash balance is Rs. 81 lakh. This cannot be considered as evidence for receipt of capitation fee during the FY 2009-10. 316. Without prejudice to the above, it is submitted that the findings of the AO are contradictory. At page 149, AO seeks to rely upon page 151 of the seized material no. A/DUU/06 to support his computation of the alleged unaccounted cash generated during FY 2009-10. In para 10.9.2, where he has attempted to explain the evidences in support of his quantification for AY 2010-11, there is no reference to the aforementioned page 151 of the seized material no. A/DUU/06. At para 10.9.2, he extracts certain evidences which purportedly belong to FY 2008-09. As stated in earlier paragraph, even this evidence for FY 2008-09 is not reliable and acceptable and cannot form basis for drawing any conclusion for FY 2009-10. Moreover, the alleged evidences have neither been confronted to Sri Goli V Srinivas / Sri G H Nagaraj nor copy of the same is given to the appellant. It is submitted that all the above would go to prove that there is no material found during the course of search which supports the allegations that the appellant received capitation fee during the FY 2009-10. 317. Without prejudice to the above, the AO issued notice no 142(1)/ACIT/CC- 1(4)/2017-18 dated 21.12.2017 u/s.142(1) requiring the appellant to show cause as ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 55 of 61 to why the unaccounted cash generated be not estimated as per the annexure attached to the said notice. A perusal of the annexure would show that so far as AY 2010-11 is concerned, the AO sought to rely only on page 151 of the seized material no. A/DUU/06. There is no mention at all of the evidences which the assessing officer sought to rely upon in the assessment order. The reliance upon material to which the appellant is not put to notice is against the principles of natural justice. The appellant, in its reply dated 23.12.2017 to the said notice had objected to reliance on the said page 151 of the seized material no A/DUU/06 for proposing addition for AY 2010-11. In order to counter this objection, the AO sought to rely upon material pertaining to FY 2008-09. This shows that the AO has done the assessment with a prejudiced mind. He has decided to make the addition sans any material which warranted the same. 318. Without prejudice to the above, it is also pertinent to note that the AO relied upon data pertaining to AY 2009-10 though it doesn’t fall within the block of 6 years contemplated under section 153A(1). It is submitted that the authorized officer is not permitted to seize the material belonging to a period which doesn’t fall or is unlikely to fall within the period of 6 assessment years contemplated by section 153A. As stated earlier, the search can be initiated if the authorizing officer has reason to believe that in consequence of information in his possession any of the eventualities stated in clauses (a) to (c) of section 132(1) exist. Section 153A(1) states that notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall issue notice to such person requiring him to furnish return of income. Section 132 and sec 153A need to be read harmoniously. The assessment under section 153A is permitted only in respect of assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted. On a harmonious reading of section 132 and section 153A, it is trite to state that section 132 doesn’t confer power on the authorizing officer to authorize search whose consequence would result in seizure of material pertaining to a period falling or likely to fall outside the period stipulated under section 153A. The seizure of material made in respect of such period is invalid. Such invalidly seized material cannot be validly handed over to the assessing officer under section 132(9A). Even if the same is handed over, such material cannot be relied upon by the assessing officer for making assessment under section 153A. In the present case, the search is conducted on 06.08.2015. The six assessment years referred in section 153A would be AY 2010-11 to 2015-16. Therefore, material pertaining to period prior to FY 2009-10 cannot be considered. Therefore, even upon this ground, such materials cannot be relied upon. This is without prejudice to the main contention that no addition can be made in any assessment year in the absence of incriminating material for that year. 319. It was submitted that the addition of Rs. 12,34,00,000 made in the assessment u/s.153A for AY 2010-11 in respect of UG-MBBS course is based on no material at ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 56 of 61 all and in the absence of incriminating material, it is not sustainable and hence, is liable to be quashed. 320. The ld. AR submitted that the AO has computed the capitation fee and the unaccounted cash generated in respect of PG course for AY 2010-11 as under:- Column heading as per the table given at page 151 of the assessment order Column reference Total Seats D 68 No. of seats for which capitation fee is collected E 42 Unaccounted cash component generated per seat per course (Rs. In lakh) F - Total unaccounted cash generated as per seized material (Rs. In lakh) G - Estimation of total unaccounted cash generated (Rs. In lakh) H 1508 321. The ld. AR submitted that column F which deals with “Unaccounted cash component generated per seat per course” and the column G which deals with “Total unaccounted cash generated as per seized material” are blank so far as AY 2010-11 is concerned. It means that the AO has acknowledged that there is no incriminating material to prove that the appellant has received unaccounted fee in cash during the financial year 2009-10. 322. Without prejudice to the above, it is not known as to how the AO has adopted the no. of seats in respect of which capitation fee is received at 42. The quota of total seats for assessment year 2010-11 is 55, out of which 80% seats are reserved under merit quota. The management quota is only 20% which works out to 11. One fails to understand as to how one can estimate that cash was collected from 42 students. It is axiomatic that the merit students will not pay any cash. The appellant has vide its letter dated 23.12.2017 filed on 26.12.2017 has enclosed the year-wise details of number of students permitted and actual number of seats admitted to the college in respect of UG and PG courses. 323. It is also not known as to how the number of seats in respect of which the capitation fee is collected is arrived at. An asterisk mark has been put next to the number of seats i.e., 42. But there is no note below the table explaining the asterisk mark. The seized material does not contain any such data so far as AY 2010-11 is ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 57 of 61 concerned. In the remarks column (I) of the table, at page 151, it is as “The rate of growth from FY: 2010-11 to 2011-12 is arrived at 21.46%. The same rate of growth is adopted for 2009-10 to 2010-11 to arrive at figures for FY: 2009-10”. 324. A perusal of the basis of computation as given in the remarks column would show that the addition is made towards alleged unaccounted cash generated during FY 2009-10 in respect of PG course is merely based on estimation. The estimation is made based on growth rate of 21.46% which percentage is arrived at by considering the data for FY 2010-11 and FY 2011-12. It is pertinent to note that the value for FY 2011-12 is estimated based on data for FY 2010-11 and 2012-13. To make an estimation again based on such data which itself is derived by way of estimation is an unscientific manner of computation. In fact, in the evidences discussed at pages 152 and 153 of the assessment order, none of the materials pertain to PG course. Therefore, it means that the AO had absolutely nothing on hand to make any addition towards unaccounted cash generated during FY 2009-10 in respect of PG course. It is submitted that the addition made based on growth of some other years is irrational. Merely because there is growth there cannot be presumption that capitation fee is received. 325. It was submitted that the addition made towards unaccounted cash generated during FY 2009-10 in respect of PG course based on such unscientific method is not sustainable. The submissions made supra regarding invalidity of additions made in absence of incriminating material would apply mutatis mutandis. 326. The addition of Rs. 15,08,00,000 made in the assessment u/s.153A for AY 11- 12 in respect of PG course based on no material at all and in the absence of incriminating material, it is not sustainable and hence, is liable to be quashed. 327. Though the AO has considered various materials, at various places in the assessment order, when it came to computation of unaccounted cash for AY 2010- 11, he has sought to make an estimation purely based on data for some other year or years. This means that he has implicitly acknowledged that no incriminating material is found for AY 2010-11 in respect of both UG-MBBS course as well as PG course. The analysis of the documents and the conclusions arrived at based on such analysis made in the assessment order is not relevant for AY 2010-11 at all. Assessment under section 143(3) of the Act was completed in the case of AY 2010- 11 on 12.03.2013. Hence, the assessment for AY 10-11 is unabated. No addition can be made in the absence of incriminating material. Therefore, the entire assessment under section 153A for AY 2010-11 is liable to be quashed in the absence of incriminating material found and seized in respect of the said assessment year. 328. Without prejudice to the above, the appellant has analysed the seized material and arrived at the alleged unaccounted cash generated for AY 2010-11 from UG-MBBS course and PG course. The unaccounted cash generated as per the said analysis is nil. The learned assessing officer has extrapolated that a sum of Rs. 2,742 lakh would have been received which has not been accounted even in the ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 58 of 61 seized material. These submissions are made without prejudice to the main contention that the appellant has not received any capitation fee. 329. The ld. DR relied on the orders of lower authorities. 330. We have heard both the parties and perused the material on record on this issue. In all these years, the undisclosed cash receipts on the basis of incriminating material in the form of notings, jottings in the loose sheets are unsubstantiated material. We have already held in earlier para of this order that unsubstantiated material cannot be full-proof material evidence to sustain the addition. We also hold that mere existence of concealment even in one year is not sufficient to estimate the income of other years on that basis. It is pertinent to place reliance on the order of this Tribunal in the case of Anjaneya Brick Works. v. ACIT, 74 TTJ 921 (Bang) wherein it was held that estimation of income could not be made relying on the seized documents which related to another accounting period and not the accounting year under consideration and, therefore, addition could not be made on the basis of incriminating documents relating to subsequent year. So the rule of uniformity cannot be and should not be applied on the estimate basis. There can be time and times when the uniformity can be maintained but for that case there should be some direct evidence available in a given case. Further, in the case of CIT v. Anand Kumar Deepak Kumar, 294 ITR 497 (Del.) it was held that merely because some discrepancies were found in assessee’s books in the pre-search period of unaccounted sales, it could not be presumed that such a discrepancy continued even in the post-search period, when there is no evidence to support such a view, and, therefore, addition could not be made on the basis that the assessee had made unaccounted sales throughout the accounting year. Being so, there is no question of extrapolation of income in all these assessment years. This ground of the appeals of the assessee is allowed in all assessment years. 331. Ground No.12 for AY 2010-11 is regarding disallowance of donation for the AY 2010-11 only. The AO has disallowed donation of Rs. 10,00,000 under section 37 of the Act. At page 192 he held that “The donations if any made by the assessee as not being for the purpose of business are disallowed u/s 37.” He has not demonstrated as to how the donation made has no nexus to activities of the appellant. It was submitted that the appellant donated Rs. 10,00,000 to Vijayalakshmi (R L Jalappa Education Foundation) through cheque. 332. Without prejudice to the main contention that the appellant is not engaged in any commercial activities and that the appellant is entitled to exemption under section 11, it is submitted that the donation of Rs. 10,00,000 is allowable as deduction under section 37 of the Act. Section 37 of the Act as it stood during the relevant period is as under: “37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 59 of 61 allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation.—For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. (2B) Notwithstanding anything contained in sub-section (1), no allowance shall be made in respect of expenditure incurred by an assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party.” 333. In order to claim deduction u/s.37, the expenditure under consideration, should satisfy the following conditions:- a. It should not be of the nature described in sections 30 to 36 b. It should not be capital expenditure c. It should not personal in nature d. It should be laid out wholly and exclusively for the purpose of business or profession e. It should not be incurred for any purpose which is an offence or which is prohibited by any law f. It should not have been incurred on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party 334. It is nobody’s case that the conditions stated in (a) to (c), (e) and (f) are not satisfied in case of donations made by the appellant. The only point of debate is satisfaction of condition stipulated in (d) supra. The expression “wholly and exclusively for the purpose of business” has been judicially interpreted. 335. In CIT v. Chandulal Keshavlal & Co.[1960] 38 ITR 601 (SC), the Hon’ble Supreme Court held that in deciding whether a payment of money is a deductible expenditure one has to take into consideration question of commercial expediency and principles of ordinary commercial trading. If the payment or expenditure is incurred for the purpose of the trade of the assessee, it does not matter that the payment may inure to the benefit of a third party. Another test is whether the transaction is properly entered into as a party of the assessee's legitimate commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a third party also benefits thereby. But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee. The Hon’ble Supreme Court in the case of CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140 (SC) held that “The expression "for the purpose of the business" is wider in scope than the expression "for the purpose of earning profits". Its range is wide : it may take in not only the day to day running of a business but also the rationalization of its administration and modernization of its machinery; it may include measures for the preservation of the business and for the protection of its assets and property from expropriation, ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 60 of 61 coercive process or assertion of hostile title ; it may also comprehend payment of statutory dues and taxes imposed as a pre-condition to commence or for carrying on of a business ; it may comprehend many other acts incidental to the carrying on of a business. However wide the meaning of the expression may be, its limits are implicit in it. The purpose shall be for the purpose of the business, that is to say, the expenditure incurred shall be for the carrying on of the business and the assessee shall incur it in his capacity as a person carrying on the business. 336. Alternatively, it is submitted that the appellant is entitled to deduction u/s. 80G in respect of the donations given to the above entities. The donee Vijayalakshmi (R L Jalappa Education Foundation) is recognized under section 80G. 337. The ld. DR relied on the orders of lower authorities. 338. We have heard both the parties and perused the material on this issue. The donations have been given to the registered and approved institution i.e., R.L. Jalappa Foundation which is duly registered u/s. 12A of the Act by way of account payee cheque and the same is to be allowed as an application of income. This ground of the appeal of the assessee is allowed.” 6. On the findings of the Tribunal, Ld. Principal CIT observed that though the appeals were allowed by Tribunal, the order of ITAT is not accepted by the Income Tax Department and the appeals against the same is filed before Hon’ble High Court of Karnataka which is admitted by the Hon’ble High Court vide ITA No.24/2022, 25/2022 & 26/2022. These findings of the Ld. Principal CIT is unwarranted. The pending of the appeal before Hon’ble High Court cannot be reason to cancel the registration u/s 12A of the Act. The Tribunal is the higher forum, which has considered the entire issue and deleted various additions and decided issue in favour of assessee. The Ld. Principal CIT is bound to follow the order of the Tribunal being lower in hierarchy and he is not expected to pass such comments unless the order of the Tribunal is reversed by due process of law. The Ld. Principal CIT cannot sit in judgement over the order of Tribunal. 7. Further, Ld. Principal CIT considered the seized material collected by search conducted on 10.10.2019 and assessment completed on 30.9.2021. In our opinion, second search is a different ITA No.155/Bang/2022 M/s. Devaraj Urs Educational Trust For Backward Classes (Regd), Kolar Page 61 of 61 proceeding that materials cannot be imported for cancellation of the registration granted u/s 12A of the Act, when the issue was restored to him by order of the Tribunal in ITA No.1463/Bang/2018 dated 20.10.2021. Being so, the Principal CIT is not expected to place reliance on material gathered in second search and he cannot be considered it so as to cancel registration at this point of time. Accordingly, we restore the registration granted to the assessee w.e.f. 20.1.1992. 8. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 8 th Jun, 2022 Sd/- (Beena Pillai) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 8 th Jun, 2022. VG/SPS 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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