DCIT, Central Circle 1(1), Chennai V. Vellore Institute of Technology, Vellore

ITA 2219/CHNY/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2111 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 11-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A MAHESH
• Keywords: Rejection of books of accounts; Unexplained investment; Capital asset; Gift; Charitable institution; Principle of natural justice; Maximum Marginal Rate; Diversion of income; Wrong claim; Deemed dividend; Benefit of exemption; Onus to prove; Retraction
• Section: 153A; 234B; 11; 15

Judgement Text

:- 1 -: ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 , , IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH : CHENNAI . , !' # $! # % . &' , ) + , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./I.T.A. NOS.2125, 2126, 2127 & 2128/CHNY/2017 / ASSESSMENT YEARS : 2005-06, 2006-07, 2007-08 AND 2008-2009 VELLORE INSTITUTE OF TECHNOLOGY, 54, THENNAMARAM STREET, VELLORE 632 014. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE IV (1) CHENNAI. ./I.T.A. NOS.2219, 2220, 2221 & 2222/CHNY/2017. / ASSESSMENT YEARS : 2005-06, 2006-07, 2007-08 AND 2008-2009 THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE IV (1) CHENNAI. VS. VELLORE INSTITUTE OF TECHNOLOGY, 54, THENNAMARAM STREET, VELLORE 632 014. [PAN AAATN 0569M] ( -. / APPELLANT) ( /0-. /RESPONDENT) ASSESSEE BY : SHRI. A. MAHESH, C.A. DEPARTMENT BY : SHRI. HOMI RAJ VANISH, CIT. /DATE OF HEARING : 10-10-2018 /DATE OF PRONOUNCEMENT : 14-11-2018 ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 2 -: 1 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS FILED BY THE ASSESSEE AN D REVENUE RESPECTIVELY DIRECTED AGAINST AN ORDER DATED 19.06. 2017 OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-18, CHENNAI, F OR THE IMPUGNED ASSESSMENT YEARS. 2. ISSUES RAISED IN ALL THESE APPEALS MAINLY INVOLVE EXEMPTION CLAIMED BY THE ASSESSEE U/S.11 OF THE INCOME TAX A CT, 1961 (IN SHORT THE ACT). BEFORE ADJUDICATING THE GROUNDS TAKEN BY BOTH PARTIES, IT IS IMPORTANT TO CAPTURE THE FACTS. 3. ASSESSEE A TRUST REGISTERED U/S.12A OF THE ACT ON 09.07.1984 WAS SUBJECTED TO A SEARCH U/S.132 OF THE ACT ON 06.06.2007. ASSESSEE IS RUNNING AN ENGINEERING COLL EGE NAMED M/S. VELLORE INSTITUTE OF TECHNOLOGY (VIT) AND IT BECAME A DEEMED UNIVERSITY ON 19.6.2001. BEING REGISTERED U/S.12A OF THE ACT, ASSESSEE WAS REGULARLY CLAIMING EXEMPTION U/S.11 OF THE ACT . IN THE RETURNS FILED IN RESPONSE TO NOTICES U/S.153A OF THE ACT AL SO, ASSESSEE ADMITTED NIL INCOME AFTER CLAIMING EXEMPTION U/ S.11 OF THE ACT. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 3 -: ASSESSING OFFICER, HOWEVER DENIED THE CLAIM CITING THE FOLLOWING REASONS:- (I) ASSESSEE WAS COLLECTING AMOUNTS IN EXCESS OF THE PR ESCRIBED FEES FROM STUDENTS, WHICH WAS NOTHING BUT CAPITATIO N FEE. SUCH DONATIONS WERE NOT VOLUNTARY BUT GIVEN BY PARE NTS OF THE STUDENTS ADMITTED TO THE INSTITUTION, AS A QU ID-PRO-QUO. (II) CAPITATION FEE ACCEPTED IN THE GARB OF DONATION WAS CLAIMED AS CORPUS DONATIONS. (III) DONATIONS WERE INCREASING ON AN YEAR TO YEAR BASIS AND CORRESPONDING INCREASE IN CORPUS FUND WERE AS UNDE R: ASST. YEAR AMOUNT INCREASE 2002-03 5,38,39,500 NOT APPLICABLE 2003-04 6,32,90,925 94,51,425 2004-05 8,71,65,250 2,38,74,325 2005-06 12,41,75,600 3,70,10,350 2006-07 14,04,38,300 1,62,62,700 2007-08 17,96,60,001 3,92,21,701 2008-09 29,22,25,001 11,25,65,000 ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 4 -: (IV) A LARGE NUMBER OF PARENTS HAD CONFIRMED THAT DONA TIONS PAID BY THEM WERE NOTHING BUT CAPITATION FEE. (V) SURPLUS GENERATED BY THE ASSESSEE FOR THE VARIOUS YEARS, REFLECTED ITS ACTIVITY TO BE MORE IN THE NATURE OF BUSINESS THAN ANY CHARITY. SUCH SURPLUS FOR VARIOUS YEARS WE RE AS UNDER:- ASSESSMENT YEAR SURPLUS CORPUS FUND DONATION TOTAL SURPLUS 2008-09 46,18,18,672 29,22,25,001 75,40,43,673 2007-08 53,99,91,718 17,96,60,001 71,96,51,719 2006-07 39,26,91,624 14,04,38,300 53,31,29,924 2005-06 34,94,44,857 12,41,75,600 47,36,20,457 2004-05 25,83,90,789 8,71,65,250 34,55,56,039 2003-04 17,82,68,087 6,32,90,925 24,15,59,012 2002-03 10,39,86,238 5,38,39,500 15,78,25,738 2001-02 6,80,23,195 12,65,00,000 19,45,23,195 2000-01 5,19,32,115 5,97,65,000 11,16,97,115 1999-00 2,71,55,378 5,50,06,760 8,21,62,138 1998-99 1,99,85,049 3,54,08,920 5,53,93,969 ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 5 -: (VI) HONBLE APEX COURT IN THE CASE OF MOHINI JAIN (MISS) VS. STATE OF KARNATAKA AND OTHERS (1992) 2 SCC 666 HAD HELD THAT CAPITATION FEE COLLECTED BY PRIVATE EDUCATION INST ITUTIONS WAS NOTHING BUT A PRICE FOR SELLING EDUCATION AND THIS WAS CONTRARY TO THE EDICTS IN CONSTITUTION OF INDIA (VII) THERE WERE LARGE NUMBER OF INSTANCES OF VIOLATIONS COMING WITHIN THE AMBIT OF SECTION 13(1) (C) OF THE ACT, WHERE INCOME AND PROPERTY OF THE TRUST WERE DIVERTED FOR THE BENEFIT OF THE TRUSTEES AND THEIR RELATIVES. (VIII) EXPENSES FOR LAND DEVELOPMENT WERE INFLATED AND SU CH AMOUNTS WERE DIVERTED FOR PERSONAL BENEFIT OF THE TRUSTEES AND THEIR RELATIVES, ATTRACTING SECTION 13(1) ( C) OF THE ACT. (IX) REPAYMENTS OF ADVANCE FEES AND TUITION FEES IN CASH , HAD NO RELIABLE CONFIRMATION FROM THE PARENTS OF THE STU DENTS, AND THIS WAS NOTHING BUT DIVERSION OF FUNDS OF THE TRUS T FOR PERSONAL BENEFIT OF THE TRUSTEES. REFUNDS CONSIDERE D BY THE LD. ASSESSING OFFICER AS DIVERSION OF FUNDS WERE AS UNDER:- ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 6 -: (A)STUDENT ADVANCE REFUNDS A.Y.2006-07 G8,00,31,224 A.Y. 2007-08 G20,67,49,998 A.Y. 2008-09 (B) TUITION G24,58,22,000 FEE REFUNDS A.Y.2006-07 G1,22,26,537 A.Y. 2007-08 G1,90,71,353 A.Y. 2008-09 G36,22,227 4. AS MENTIONED AT PARA 3 (VII) ABOVE, FOR DENYING THE EXEMPTION CLAIMED UNDER SECTION 11 OF THE ACT, LD. ASSESSING OFFICER HAD CITED CERTAIN SPECIFIC INSTANCES WHICH, ACCORDI NG TO HIM, ATTRACTED THE RIGOURS OF SECTION 13(1) (C) OF THE ACT. THES E ARE LISTED HEREUNDER:- (I) AN AGREEMENT FOR PURCHASE OF 22.34 ACRES OF LA ND AT BRAHMAPURAM, KATPADI EXECUTED BY THE TRUST WITH O NE SMT. B. RAMANI, DAUGHTER-IN-LAW OF THE MANAGING TRU STEE WAS SEIZED DURING THE SEARCH. AS PER THIS, THE AG REED CONSIDERATION WAS G1,00,00,000/-. HOWEVER IN THE D RAFT ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 7 -: SALE DEED THE AGREED CONSIDERATION WAS MENTIONED AS G55,84,600/-. IN THE CONVEYANCE DEED REGISTERED I N FAVOUR OF THE ASSESSEE ON 03.06.2004, CONSIDERATION MENTIONED WAS G33,51,000/-. ASSESSEE HAD PAID THE DIFFERENCE, WHICH WAS ON-MONEY, TO SMT.B. RAMANI AN D THIS WAS A VIOLATION OF THE NATURE MENTIONED IN SE CTION 13(1) (C) OF THE ACT. (II) A SUM OF G22,34,000/- WAS PAID AGAIN TO SMT. B . RAMANI FOR PURCHASING 6.32 ACRES OF LAND, BASED ON AN AGREEMENT FOR SALE DATED 04.06.2004. THE SALE DID N OT GO THROUGH BUT WAS CANCELLED, WITHOUT ANY SPECIFIC REASON. THOUGH THE AMOUNT OF G22,34,000/- WAS RETURNED BY SMT. B. RAMANI, THERE WAS DIVERSION OF FUNDS OF THE TRU ST FOR THE BENEFIT OF A SPECIFIED PERSON COMING WITHIN THE MEANING OF SECTION 13(3) OF THE ACT, RESULTING IN A VIOLATION OF THE NATURE MENTIONED IN SECTION 13(1) (C) OF THE ACT. (III) AN ADVANCE OF G1,00,00,000/- WAS PAID DURING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07 AND G50,00,000/- WAS PAID DURING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2007-08 TO ONE SHRI. ARJUNLAL SUNDE RDOSS, ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 8 -: BUT THESE WERE NOT SUPPORTED BY ANY AGREEMENT OR SECURITY NOR WERE THERE ANY STIPULATION FOR PAYME NT OF INTEREST, AGAIN CONSTITUTING VIOLATION OF A NATURE MENTIONED IN SECTION 13(1 ) (C) OF THE ACT. (IV) SMT. S. PREETHA, DAUGHTER IN LAW OF MANAGING T RUSTEE HAD PURCHASED A LAND AT NO.85, SECOND EAST MAIN ROAD, GANDHI NAGAR, KATPADI, VELLORE FOR AN APPARENT CONSIDERATION OF G40,00,000/- ON 09.04.2007. THE SA ID SUM WAS PAID BY SMT.S. PREETHA THROUGH CHEQUES DATE D 18.08.2006 AND 09.04.2007 FOR G10,00,000/- AND G30,00,000/- RESPECTIVELY. HOWEVER ONE OF THE SEI ZED DOCUMENTS REVEALED THAT SMT. S. PREETHA HAD APPLIED FOR A LOAN OF G85,00,000/- FROM M/S.INDIAN BANK FOR PURCH ASING THIS PROPERTY. IN THE APPLICATION FILED BY SMT. S . PREETHA TO INDIAN BANK, COST OF THE PROPERTY WAS SHOWN AS G1,25,00,000/-. ALMOST CONTEMPORANEOUSLY THERE WER E DRAWINGS OF IMPREST CASH BY SHRI. PRAKASH, FINANCE OFFICER OF THE ASSESSEE, ON 14.08.2006, 23.08.2006 AND 30.08.2006 AGGREGATING TO G80,14,250/- FROM THE TR UST ACCOUNT. THIS MONEY WAS OBVIOUSLY USED FOR PAYING THE DIFFERENCE BETWEEN ACTUAL PURCHASE AMOUNT OF ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 9 -: G1,25,00,000/- AND APPARENT CONSIDERATION OF G40,00 ,000/. THUS THERE WAS VIOLATION OF A NATURE SPECIFIED U/S .13(1) (C) OF THE ACT. (V) DURING THE PREVIOUS YEAR ENDED 31.03.2007, LOA NS WERE RAISED BY THE ASSESSEE ON THE SECURITY OF ITS FIXE D DEPOSITS AND IMMOVABLE PROPERTY, OUT OF WHICH A SUM OF G10,00,00,000/- WAS PAID TO FIVE TRUSTEES AND A SUM OF G17,87,27,500/- WAS PAID TO A FIRM CALLED M/S. G LOBAL INFRASTRUCTURE ENTERPRISES (IN SHORT GIE). MANA GING TRUSTEE OF THE ASSESSEE, WAS HAVING 40% INTEREST A ND HIS FOUR SONS WHO WERE TRUSTEES HAD 15% INTEREST EACH I N THIS FIRM. THOUGH THE CLAIM OF THE ASSESSEE WAS THAT THE SE PAYMENTS WERE MADE FOR ACQUIRING A LAND AND BUILDIN G AT 138, CHAMIERS ROAD, CHENNAI, THIS COULD NOT BE ACCEPTED SINCE THE LAND WAS FINALLY ACQUIRED BY GIE. THUS, THERE WAS A VIOLATION OF THE NATURE SPECIFIED U/S. 13(1) (C) OF THE ACT. (VI) LOANS AGGREGATING TO G1,00,00,000/- WAS RAISED ON THE SECURITY OF FIXED DEPOSITS, AND THIS WAS GIVEN TO SHRI. SAMPATH, ONE OF THE TRUSTEES. CLAIM OF THE ASSESSE E THAT THE AMOUNT WAS GIVEN TO SHRI. SAMPATH FOR ACQUIRING A ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 10 -: PROPERTY AT NO. 56 AND 56A, THIRUMALAI PILLAI ROAD, CHENNAI COULD NOT BE ACCEPTED. THIS PROPERTY WAS N EVER INTENDED TO BE PURCHASED BY THE TRUST AND THEREFO RE THERE WAS A VIOLATION OF THE NATURE SPECIFIED IN SE CTION 13(1) (C) OF THE ACT. (VII) DIVERSION OF FUNDS FOR THE BENEFIT OF THE TRU STEES AND THEIR RELATIVES, WAS SUBSTANTIATED BY THE ADDITIONAL INC OME DISCLOSED BY THE FOLLOWING PERSONS WHO WERE EITHER TRUSTEES OR THEIR CLOSE RELATIVES : NAME OF THE ASSESSEE S/SHRI. ADDITIONAL INCOME DISCLOSED (G) SANKAR/RAMANI 1,35,78,153 SAMPATH/ ANITHA 5,69,32,956 SELVAM/ PREETHA 82,10,279 TOTAL 7,87,21,388 5. LD. ASSESSING OFFICER, THEREAFTER COMPUTED THE INCO ME OF THE ASSESSEE STARTING FROM THE SURPLUS SHOWN BY IT IN ITS INCOME AND EXPENDITURE ACCOUNT FOR THE RESPECTIVE ASSESSMENT Y EARS, AFTER MAKING DISALLOWANCE FOR LOSS ON SALE OF ASSETS, WRITE- OF F OF ADVANCES, ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 11 -: PAYMENT OF INTEREST, PAYMENTS OF DONATIONS AND ADJ USTMENTS FOR CHANGE IN METHOD OF ACCOUNTING. 6. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS) FOR ALL THE IM PUGNED ASSESSMENT YEAR. ASSESSEE CHALLENGED THE DENIAL OF EXEMPTION U/S.11 OF THE ACT AND ALSO VARIOUS ADDITIONS MADE WHILE CO MPUTING TOTAL INCOME, APART FROM CHALLENGING THE LEGALITY OF NO TICE ISSUED U/S.153A OF THE ACT. 7. ON THE ASPECT OF TREATING THE DONATIONS AS CAPI TATION FEES AND ASSESSING THE SURPLUS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS, LD. COMMISSIONER OF INCOME TAX (APPEALS ) HELD IN FAVOUR OF THE ASSESSEE, RELYING ON AN ORDER OF A CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2001-02 IN ITA NO.165/ MDS/2008, DATED 28.05.2010 AND FOR ASSESSMENT YEARS 2002-03 TO 2004 -05 IN ITA NOS.294 TO 296/MDS/2014, DATED 22.06.2016. AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BY VIRTUE OF THE ABOVE ORDERS, IT WAS CLEAR THAT DONATIONS RECEIVED BY THE ASSESS EE FROM THE PARENTS OF THE STUDENTS COULD NOT BE CONSIDERED AS CAPITATI ON FEE AND THE SURPLUS INCOME COULD NOT BE ASSESSED UNDER THE HEA D INCOME FROM PROFITS AND GAINS OF BUSINESS. ACCORDING TO THE L D. COMMISSIONER OF ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 12 -: INCOME TAX (APPEALS) EXEMPTION UNDER SECTION 11 OF THE ACT COULD NOT BE DENIED FOR THIS REASON. 8. VIZ-A-VIZ, THE FINDING OF THE LD. ASSESSING OFFICE R THAT THERE WERE VIOLATION OF NATURE SPECIFIED U/S.13(1)(C) OF THE ACT ON ACCOUNT OF INFLATED LAND DEVELOPMENT EXPENDITURE, LD. COMMISSI ONER OF INCOME TAX (APPEALS) WAS OF THE OPINION THAT LD. ASSESSING OFFICER COULD NOT ESTABLISH ANY DIRECT NEXUS OF SUCH ALLEGED INFLATIO N WITH ANY BENEFIT WHICH ACCRUED TO THE TRUSTEES OR ANY SPECIFIED PERS ONS. ACCORDING TO THE LD. COMMISSIONER OF INCOME TAX (APPEALS), EXPE NDITURE FOR LAND DEVELOPMENT INCURRED BY THE ASSESSEE AT ITS PROPERT IES AT CHENNAI AND VELLORE AVERAGED TO G24.86 LAKHS PER ACRE AND 11 .60 LAKHS PER ACRE RESPECTIVELY, WHEREAS SUCH EXPENDITURE FOR BANGAL ORE, WHERE THERE WERE NO CASH PAYMENTS CAME TO G32.28 LAKHS PER ACR E. ACCORDING TO HIM, JUST FOR A REASON THAT LAND DEVELOPMENT EXPEND ITURE INCURRED OUT OF THE IMPREST MONEY TAKEN BY SHRI. PRAKASH, FINAN CE OFFICER OF THE ASSESSEE, WAS NOT EVIDENCED BY VOUCHERS COMPLETE IN ALL RESPECTS, THE CLAIM COULD NOT BE DISALLOWED IN FULL. FURTHER, AS PER LD. COMMISSIONER OF INCOME TAX (APPEALS), LD. ASSESSING OFFICER HAD NO EVIDENCE TO SHOW THAT ANY SUCH AMOUNT HAD REACHED THE TRUSTEES OR ANY SPECIFIED PERSON. NEVERTHELESS, THE LD. COMMISSIONER OF INCOM E TAX (APPEALS) HELD THAT A DISALLOWANCE OF 10% SUCH EXPENDITURE CO ULD BE SUSTAINED FOR THE FAILURE OF THE ASSESSEE TO PRODUCE COMPLETE EVIDENCE IN SUPPORT ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 13 -: OF THE CLAIM. LD. ASSESSING OFFICER WAS DIRECTED B Y THE LD. COMMISSIONER OF INCOME TAX (APPEALS) TO TAX SUCH DI SALLOWANCE AT MAXIMUM MARGINAL RATE. 9. IN SO FAR AS REFUND OF STUDENTS ADVANCE FEES AND TU ITION FEES WERE CONCERNED, LD. COMMISSIONER OF INCOME TAX (APP EALS) SOUGHT A REMAND REPORT FROM THE LD. ASSESSING OFFICER, SIN CE ASSESSEE PRODUCED AFFIDAVITS FROM THE PARENTS, WHO HAD EARLI ER STATED TO HAVE RECEIVED NO SUCH REFUNDS. IN SUCH AFFIDAVITS, IT S EEMS THEY AFFIRMED RECEIPT OF SUCH REFUNDS. LD. COMMISSIONER OF INCO ME TAX (APPEALS) TOOK THIS APPROACH SINCE STATEMENTS OF THE PARENTS OF THE STUDENTS, RELIED ON BY THE LD. ASSESSING OFFICER FOR DISBELIE VING THE CLAIM OF REFUND OF FEE, WERE NEVER PUT TO THE ASSESSEE DURIN G THE ASSESSMENT PROCEEDINGS. FROM THE REMAND REPORT SO OBTAINED FRO M THE LD. ASSESSING OFFICER, LD. COMMISSIONER OF INCOME TAX ( APPEALS) FOUND THAT LD. ASSESSING OFFICER HAD NOT SUMMONED THE CO NCERNED PARENTS FOR VERIFYING THE VERACITY OF THEIR CONFIRMATION BUT HAD DIRECTED THE ASSESSEE TO PRODUCE THEM. AS PER THE LD. COMMISSION ER OF INCOME TAX (APPEALS), LD. ASSESSING OFFICER DID NOT USE THE PO WERS VESTED ON HIM FOR ENSURING THE ATTENDANCE OF THE CONCERNED PARENT S, AND HAD IGNORED THE EVIDENCE FILED BY THE ASSESSEE. FURTHER, AS PE R THE LD. COMMISSIONER OF INCOME TAX (APPEALS), REFUND OF SUC H ADVANCES AND FEES WERE ONLY AGAINST DONATIONS RECEIVED FROM STUD ENTS ADMITTED IN ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 14 -: MANAGEMENT QUOTA AND SUCH REFUNDS STOOD REASONABLY CORROBORATED BY THE ASSESSEE. IN ANY CASE, AS PER THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) THERE WAS NO EVIDENCE ON RECORD TO SH OW THAT ANY OF THE ALLEGED REFUNDS WERE USED FOR THE BENEFIT OF AN Y TRUSTEES OR ANY SPECIFIED PERSON. ACCORDING TO HIM, LD. ASSESSING O FFICER HIMSELF HAD ADMITTED IN THE ASSESSMENT ORDER THAT FUNDS WITHDR AWN WERE USED FOR THE PURPOSE OF MEETING COLLEGE EXPENDITURE. 10. LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO ANALY ZED THE SPECIFIC VIOLATIONS ALLEGED BY THE LD ASSESSING OFF ICER FALLING WITHIN SECTION 13(1) ( C) OF THE ACT OF A NATURE MENTIONE D IN THE ACT. VIZ-A- VIZ PURCHASE OF 22.34 ACRES OF LAND AT BRAHMAPURAM, KATPADI FROM SMT. B. RAMANI ON 11.03.2004, LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT CONSIDERATION MENTIONED IN TH E REGISTERED DOCUMENT WAS G33,51,000/- ONLY. FURTHER, AS PER TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) IN THE INDIVID UAL ASSESSMENT OF SMT. B. RAMANI, MADE U/S.153C OF THE ACT, THE S ALE PRICE OF G33,51,000/- WAS ACCEPTED AND THE LD. ASSESSING OFF ICER HAD DROPPED A PROPOSED ADDITION OF G66,49,000/-. ACCORDING T O HIM, THERE WAS NOTHING ON RECORD TO SHOW THAT THERE WAS ANY DIVERS ION OF TRUST FUNDS TO SMT. B. RAMANI. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 15 -: 11. IN SO FAR AS ADVANCE OF G22,34,000/- PAID TO SMT. B . RAMANI FOR ACQUIRING 6.23 ACRES OF LAND AT KANGAEYANALLUR WAS CONCERNED, LD. COMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT BOT H THE ADVANCE AS WELL AS REFUND OF THE ADVANCE WERE THROUGH CHEQ UES AND SUPPORTED BY DULY STAMPED CANCELLATION AGREEMENT WH ICH WERE FOUND DURING THE COURSE OF SEARCH. ACCORDING TO HIM, THES E RECORDS OUGHT NOT HAVE BEEN DISBELIEVED. FURTHER, AS PER THE LD. COM MISSIONER OF INCOME TAX (APPEALS) THERE WAS NO BENEFIT ARISING T O SMT. B. RAMANI, SINCE THE SALE DID NOT EVENTUALLY COME THROUGH. 12. IN SO FAR AS PAYMENT OF ADVANCE TO SHRI. ARJUNLAL S UNDERDOSS WAS CONCERNED, LD. COMMISSIONER OF INCOME TAX (APPE ALS) NOTED THAT TRANSACTIONS CLEARLY INDICATED SQUARING OFF OF SUCH ADVANCE WITHIN A SHORT PERIOD OF TIME. LD. COMMISSIONER OF INCOME T AX (APPEALS) BROUGHT OUT THE TRANSACTIONS ASSESSEE HAD WITH SHRI . ARJUNLAL SUNDERDOSS AS UNDER:- DATE DEBIT CREDIT 24.10.2005 50,00,000 15.12.2005 50,00,000 19.01.2006 50,00,000 14.03.2006 50,00,000 11.05.2006 50,00,000 16.12.2006 50,00,000 FURTHER, AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) SHRI. ARJUNLAL SUNDERDOSS WAS NOT A TRUSTEE OR A SPECIFIE D PERSON AND ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 16 -: FINANCIAL STATEMENTS OF SHRI. V. SANKAR AND SHRI. V .SAMPATH SONS OF THE FOUNDER TRUSTEE OF THE ASSESSEE TRUST CLEARLY INDI CATED THAT THEY HAD NOT BORROWED ANY FUNDS FROM SHRI. ARJUNLAL SUNDERDO SS. 13. IN SO FAR AS ACQUISITION OF PROPERTY BY SMT. S. PRE ETHA, DAUGHTER-IN-LAW OF MANAGING TRUSTEE AT 85, SECOND E AST MAIN ROAD, GANDHI NAGAR, KATPADI, VELLORE WAS CONCERNED, LD. C OMMISSIONER OF INCOME TAX (APPEALS) NOTED THAT THE PROPERTY WAS AC QUIRED BY SMT. S. PREETHA AND NOT THE ASSESSEE. ACCORDING TO HIM, THE RE WAS NOTHING ON RECORD TO LINK THE PAYMENTS EFFECTED BY HER FOR PUR CHASE OF SUCH PROPERTY WITH THE IMPREST MONEY DRAWN BY SHRI. D. PRAKASH, FINANCE OFFICER FROM THE ASSESSEE TRUST. FURTHER, AS PER TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) ADDITION MADE IN THE HANDS OF SMT. S. PREETHA FOR ALLEGED ON-MONEY PAYMENT STOOD DELETED BY LD. COMMISSIONER OF INCOME TAX (APPEALS) IN HER APPEAL. 14. COMING TO THE PAYMENTS AGGREGATING TO G10,00,00,000 /- TO FIVE TRUSTEES OF THE ASSESSEE TRUST, AND G17,87,27, 500/- TO M/S.GIE, A FIRM IN WHICH SUCH TRUSTEES WERE PARTNERS, LD. COMM ISSIONER OF INCOME TAX (APPEALS) NOTED THAT SUCH PAYMENTS WERE RECORDE D IN THE BALANCE SHEET OF THE ASSESSEE AS AN ASSET. ACCORDING TO HI M, ASSESSEE WAS SAVED FROM A POTENTIAL LOSS OF G1,00,00,000/- WHICH WAS THE DAMAGE, IT WAS BOUND TO PAY, IF THE SALE WAS NOT REGISTERE D WITHIN STIPULATED ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 17 -: DATE. AS PER LD. COMMISSIONER OF INCOME TAX (APPEAL S) ASSESSEE BY GIVING THE AMOUNT HAD EFFECTIVELY AVOIDED THE LOSS BY FACILITATING ACQUISITION OF PROPERTY AT CHAMIERS ROAD, CHENNAI BY M/S. GIE, AND IT WAS THE ASSESSEE WHICH HAD BENEFITED FROM THE TRANS ACTION AND NOT OTHER WAY ROUND. LD. COMMISSIONER OF INCOME TAX (A PPEALS) ALSO VERIFIED THE FINANCIAL STATEMENTS OF GIE AND FOUND THAT THEY HAD INCURRED SUBSTANTIAL LOSS OF SALE OF THIS PROPERT Y. AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) M/S. GIE HAD A LSO GIFTED 15.79 ACRES OF LAND NEAR MADRAS TO THE ASSESSEE ON 07.10. 2008. THUS, AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) TH ERE WAS NO BENEFIT FOR THE TRUSTEES OR M/S. GIE ON ACCOUNT OF SUCH PAYMENTS. 15. AS FOR ALLEGED WITHDRAWAL OF G1,00,00,000/- MADE BY SHRI. SAMPATH, ONE OF THE TRUSTEES, FOR ACQUIRING PROPER TY AT 56 & 56A, THIRUMALAI PILLAI, CHENNAI, FINDING OF THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) WAS THAT SAID SHRI. SAMPATH WAS ENDEA VORING TO ACQUIRE THE SAID PROPERTY FOR THE TRUST. ACCORDING TO HIM, WHEN HE FAILED DUE TO ZONE CONVERSION RULES, THE PLAN WAS DROPPED AND HE PROMPTLY REFUNDED THE MONEY TO THE TRUST. THUS, AS PER THE L D. CIT(APPEALS) THERE WAS NO DIVERSION OF FUND FOR THE BENEFIT OF T HIS TRUSTEE. 16. LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO HELD THAT LOSS ON SALE OF ASSET, PAYMENT OF INTEREST AND PAYM ENT OF DONATIONS BY ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 18 -: THE ASSESSEE, WERE NOTHING BUT PART OF APPLICATION OF ITS INCOME. SIMILARLY, ACCORDING TO HIM, SURPLUS ON SALE OF F LATS AT BANGALORE AND CHENNAI COULD NOT BE ASSESSED UNDER THE HEAD PROF ITS AND GAINS OF BUSINESS AND WAS TO BE CONSIDERED AS PART OF INCO ME FROM THE PROPERTY OF THE TRUST. 17. IN SO FAR AS ADDITION OF G8,13,57,271/- MADE FOR CHANGE IN METHOD OF ACCOUNTING WAS CONCERNED, LD. COMMISSIONE R OF INCOME TAX (APPEALS) HELD THAT SUCH CHANGE WAS EFFECTED ONLY I N FINANCIAL YEAR ENDING 31.03.2008, BASED ON ACCOUNTING STANDARD OF CHARTERED ACCOUNTANT OF INDIA. ACCORDING TO HIM, IT WAS A LEG ITIMATE CHANGE, CONSISTENTLY FOLLOWED THEREAFTER. HE THUS HELD THA T SUCH ADDITION WAS NOT JUSTIFIED. 18. EFFECTIVELY LD. COMMISSIONER OF INCOME TAX (APPEAL S) SUSTAINED ONLY 10% OF THE DISALLOWANCES MADE FOR LA ND DEVELOPMENT COST INCURRED IN CASH, WHILE ALLOWING THE CLAIM OF EXEMPTION MADE BY THE ASSESSEE U/S.11 OF THE ACT, FOR THE IMPUGNED AS SESSMENT YEARS. 19. NOW DEPARTMENT IN ITS APPEAL HAS RAISED THE FOLLOWI NG ISSUES LISTED IN THE TABLE GIVEN HEREUNDER THROUGH ITS VAR IOUS GROUNDS. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 19 -: SL. NO. SUMMARY OF GRIEVANCE AGAINST CIT(A) ORDER RAISED THROUGH VARIOUS GROUNDS ITA NO.2219/ CHNY/2017, A.Y. 05-06 - GROUND NUMBER ITA NO.2220 /CHN/2017, A.Y. 06-07 - GROUND NUMBER ITA NO.2221/ CHN/2017, A.Y. 07-08 GROUND NUMBER ITA NO.2222/ CHN/2017, A.Y. 08-09 - GROUND NUMBER 1 GENERAL 1,10 & 10.1 1,11 & 11.1 1, 13.8 & 14 1, 14 2 ERRONEOUSLY HELD ASSESSEE HAD FOLLOWED CASH SYSTEM AGAINST MERCANTILE SYSTEM CONSIDERED BY AO, & DELETED ADDITION OF G8,13,57,271/- FOR A.Y. 2008-09. 2 & 2.1 2 & 2.1 2 & 2.1 13 TO 13.2 3 ERRONEOUSLY HELD ASSESSEE TO BE ELIGIBLE FOR EXEMPTION U/S. 11 AND ALLOWED THE CLAIM. 3 & 3.1 3 & 3.1 3 & 3.1 2 & 2.1 4 ERRONEOUSLY HELD THAT COLLECTION OF FEES ABOVE PRESCRIBED LIMITS FROM STUDENTS WAS NOT CAPITATION FEE & THESE WERE VOLUNTARY IN NATURE. 3.2 & 3.3 3.2 & 3.3 3.2 & 3.3 2.2 & 2.3 5 THOUGH REFUND OF ADVANCE FEES WERE DENIED BY PARENTS, PAYMENT OF CAPITATION FEE CONFIRMED AND QUID-PRO-QUO PROVED AND STILL CIT(A) ALLOWED EXEMPTION U/S.11 OF THE ACT. 3.4 3.4 3.4 2.4 6 H IGHER PROFIT S EARNED YEAR AFTER YEAR PROVED PROFITEERING AND BY VIRTUE HON'BLE SUPREME COURT JUDGMENT IN MODERN DENTAL COLLEGE RESEARCH CENTRE VS. STATE OF MP (LA NO.4060/09) EXEMPTION UNDER SECTION 11 CANNOT BE ALLOWED. HOWEVER CIT(A) ALLOWED THE CLAIM. 3.5 3.5 3.5 2.5 7 INSTANCES OF VIOLATION U/S.13(1) (C)BY DIVERSION OF INCOME/ PROPERTY OF TRUST IGNORED BY CIT(A) 3.6 3.6 3.6 2.6 ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 20 -: 8 PURCHASE OF 22.34 ACRES AT BRAHMAPURAM FROM SMT. B. RAMANI, A SPECIFIED PERSON FOR G33,51,000/-, THOUGH IT CORROBORATED DIVERSION OF TRUST FUNDS, CIT(A) HELD SECTION 13(1) ( C) CANNOT BE INVOKED, DESPITE SEIZED DOCUMENT REFLECTING PURCHASE CONSIDERATION OF G55,84,600/-. 4, 4.1 &4.2 --- --- --- 9 PURCHASE OF 6.23 ACRES OF LAND AGAIN FROM SMT. B. RAMANI AT KANKAYA NALLUR FOR WHICH 22.35 LAKHS WAS PAID, THOUGH A VIOLATION COMING U/S.13(1) (C), NOT CONSIDERED BY LD.CIT(A) DESPITE ADVANCE PAYMENT OF 42% OF TOTAL CONSIDERATION. 5 & 5.1 --- --- --- 10 INFERENCES DRAWN BY LD. A O ON INDIRECT D IVERSION OF FUNDS, LAND PURCHASES FROM B. RAMANI, CANCELLATION OF PURCHASE AGREEMENT DUE TO LEGAL HITCHES RESULTING IN REPAYMENT OF ADVANCES TO TRUSTEES, SALE DEED EXECUTED BY PREETA, DAUGHTER- IN-LAW OF MANAGING TRUSTEE FOR G40 LAKHS, ERRONEOUSLY OVERRULED BY CIT(A). LOAN APPLICATION FILED BY PREETA SHOWED THE VALUE AT G1.2 CR. AND THERE WAS PCONTEMPORANEOUS DRAWINGS OF G85 LAKHS BY PRAKASH, THE FINANCE MANAGER, BUT IGNORED BY LD.CIT(A) 6 TO 6.2 7 TO 7.2 (CONNECTED ISSUES REPEATED IN GROUNDS MENTIONED AGAINST SL. NOS.18, 19 & 20) 5 & 5.1 ( CONNECTED ISSUES REPEATED IN GROUNDS MENTIONED AGAINST IN SL. NO. 20) 7 TO 7.2 11 CIT(A) ERRONEOUSLY RULED THAT NO NEXUS WAS ESTABLISHED BY LD. AO TO PROVE PERCEIVED DIVERSION OF FUNDS TO BE BENEFICIAL FOR SPECIFIED PERSONS AND IGNORED THE ADDITIONAL INCOME OFFERED BY SUCH PERSONS IN THEIR INDIVIDUAL ASSESSMENTS AS WELL AS THEIR STATEMENTS UNDER SECTION 132(4A) OF THE ACT. CIT(A) ERRONEOUSLY HELD THAT DIVERSION SHOULD BRING DIRECT BENEFIT AND INDIRECT BENEFIT WAS NOT SUFFICIENT. 7 TO 7.2 8,9.1 & 9.2 11, 11.1, 13.1 & 14 8 TO 8.2 ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 21 -: 12 I NCORRECTLY DIRECTED APPLICATION OF MAXIMUM MARGINAL RATE OF TAX ON 10% OF LAND DEVELOPMENT EXPENSES SUSTAINED. 8 & 8.1 10 & 10.1 12 & 12.1 9 & 9.1 13 I NCORRECTLY HELD THAT ASSESSEE WAS ENTITLED TO EXEMPTION ON G2,13,186/- SURPLUS ARISING ON SALE OF A PLOT AT BANGALORE FOR A.Y. 05-06 AND G9,41,89,923/- ARISING ON SALE OF FLAT AT CHENNAI FOR A.Y. 2008-09 9 ---- ---- 12 14 ERRONEOUSLY DIRECTED TO TREAT LOSS ON SALE OF ASSETS, DONATIONS PAID, INTEREST PAYMENT AS APPLICATION OF INCOME. 10 11 13 10 & 10.1 15 ERRONEOUSLY HELD THAT G1 CR ADVANCED TO ARJUNLAL SUNDERDOSS DID NOT ATTRACT 13(1) ( C) SINCE HE WAS NOT A RELATED PARTY THOUGH THERE WAS NO SECURITY OR INTEREST AND SONS OF THE MANAGING TRUSTEE HAD TAKEN LOANS FROM ARJUNLAL SUNDERDOSS. --- 4 TO 4.2 4 TO 4.2 ----- 16 ERRONEOUSLY RESTRICTED TO 10% DISALLOWANCE OF LAND DEVELOPMENT EXPENSES IN CASH, THROUGH IMPREST ACCOUNT OF FINANCE MANAGER, PRAKASH. --- 5 & 5.1 8 & 8.1 5 & 5.1 17 ERRON EOUSLY HELD THAT THERE WAS NO DIVERSION OF FUNDS & VIOLATION OF 13(1) (C) THOUGH ASSESSING OFFICER PROVED THAT CASH REFUND OF ADVANCE FEES & TUITION FEES WERE NOT CONFIRMED BY PARENTS AND DESPITE FAILURE OF THE ASSESSEE TO PRODUCE THE PARENTS WHO AFFIRMED REFUNDS THROUGH AFFIDAVITS EVEN THOUGH RECEIPTS WERE SAID TO BE CORPUS DONATION FROM PARENTS. --- 6 TO 6.3 9 TO 9.3 6 TO 6.3 ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 22 -: 18 CIT(A) ERRONEOUSLY HELD THAT PAYMENTS MADE FOR ACQUIRING PROPERTY AT CHAMIERS ROAD, CHENNAI WAS NOT FOR THE BENEFIT OF THE TRUSTEES AND THE FIRM GIE IN WHICH THEY WERE PARTNERS, THOUGH THE PROPERTY WAS ACQUIRED BY GIE AND THIS CONSTITUTED VIOLATION OF A NATURE SPECIFIED IN SEC. 13(1) (C) OF THE ACT. --- 7 TO 7.2 6 TO 6.3 3 TO 3.3 19 CIT(A) ERRONEOUSLY HELD THAT PAYMENT MADE FOR PURCHASE OF PROPERTY AT 56 & 56A, THIRUMALAI PILLAI THOUGH SHRI.SAMPATH A TRUSTEE WAS NOT A VIOLATION FALLING UNDER SECTION 13(1) (C) OF THE ACT. --- 7 TO 7.2 7 TO 7.2 4 & 4.1 20 CIT(A) ERRONEOUSLY HELD THAT PURCHASE OF PROPERTY BY PREETHA, DAUGHTER-IN-LAW OF MANAGING TRUSTEE FOR 40 LAKHS, THOUGH A LOAN APPLICATION SHOWED THE VALUE AS 1.25 CRORE, AND THERE WERE WITHDRAWALS BY PRAKASH, FINANCE MANAGER FROM THE TRUST AS CASH IMPREST TALLYING WITH THE ALLEGED ONMONEY, DID NOT CONSTITUTE A VIOLATION FALLING IN SECTION 13(1) ( C) OF THE ACT. --- 7 TO 7.2 5 TO 5.2 10.2 :- 23 -: ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 20. AS AGAINST THIS ASSESSEE IN ITS APPEAL IS AGGRIEVED ON LD. COMMISSIONER OF INCOME TAX (APPEALS) HOLDING THE NO TICE ISSUED U/S.153A OF THE ACT AS VALID AND PARTIAL SUSTENANC E OF THE LAND DEVELOPMENT COST. 21. SUBMISSIONS MADE BY THE LD. DEPARTMENTAL REPRESENT ATIVE, IN SUPPORT OF THE REVENUE APPEALS ARE SUMMARIZED H ERE UNDER:- (I) THOUGH THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ITS ORDER FOR EARLIER YEARS HAD HELD THE FEES RECEIVED BY THE ASS ESSEE TO BE NOT IN THE NATURE OF CAPITATION FEES, FOR THE IMPU GNED ASSESSMENT YEARS THERE WERE NUMBER OF OTHERS REASON S ALSO FOR DENYING EXEMPTION CLAIMED BY THE ASSESSEE U/S.1 1A OF THE ACT. THESE WERE NOT CONSIDERED BY LD. COMMISSIONER OF INCOME TAX (APPEALS). (II) WITHDRAWAL OF CASH SHOWN BY THE ASSESSEE AS RE FUND OF ADVANCE FEES AND TUITION FEES WERE NOTHING BUT SIP HONING OF FUNDS, AND SUCH FUNDS INDIRECTLY WENT TO THE BENEFI T OF SPECIFIED PERSONS. THIS WAS TAKEN COGNIZANCE BY LD. COMMISSI ONER OF INCOME TAX (APPEALS), BUT NOT GIVEN DUE IMPORTANCE . (III) LD. ASSESSING OFFICER HAD RECORDED STATEMENTS FROM LARGE ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 24 -: NUMBER OF PARENTS, DENYING RECEIPT OF ANY REFUNDS, AND THESE WERE IGNORED BY LD. COMMISSIONER OF INCOME TAX (AP PEALS) (IV) SHRI. PRAKASH, FINANCE OFFICER, OF THE ASSESSE E HAD WITHDRAWN LARGE AMOUNTS IN CASH AS IMPREST AND CLAIMED SUC H AMOUNTS TO HAVE BEEN INCURRED FOR LAND DEVELOPMENT, WHICH W AS ERRONEOUSLY ACCEPTED BY LD. COMMISSIONER OF INCOME TAX (APPEALS). (V) LAND DEVELOPMENT EXPENDITURE DIRECTLY RECORDED IN THE BOOKS OF THE ASSESSEE HAD PERFECT AND CORRECT VOUCHERS, WHER EAS SUCH EXPENDITURE INCURRED OUT OF CASH DRAWINGS MADE BY S HRI. PRAKASH WAS NOT SUPPORTED BY ANY MEANINGFUL VOUCHER S. THIS DIFFERENCE WAS NOT APPRECIATED BY LD. COMMISSIONER OF INCOME TAX (APPEALS). (VI) THERE WERE NO LAND DEVELOPMENT EXPENDITURE IN CURRED IN CASH AT BANGALORE, BUT SUCH EXPENDITURE WAS INCURRED AT VELLORE AND CHENNAI AND THIS WAS HIGHLY IMPROPER. (VII) ALL FEES INCLUDING THE DONATIONS RECEIVED BY THE ASSESSEE WERE BY DEMAND DRAFTS, WHEREAS REFUND OF ADVANCE FEES W AS IN CASH AND SUCH REFUNDS WERE MADE ONLY TO STUDENTS ADMITTED UNDER MANAGEMENT QUOTA. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 25 -: (VIII) EVEN AFTER SUCH REFUNDS, CONCERNED STUDENT S WERE CONTINUING IN THE INSTITUTION. (IX) MONEY RECEIVED FROM THE STUDENTS AT THE TIME O F ADMISSION AS DONATION, THROUGH A SINGLE INSTRUMENT WAS BIFURCATE D BY THE ASSESSEE IN ITS ACCOUNTS AS CORPUS DONATIONS AND A DVANCE FEES WITHOUT ANY RHYME AND REASON. (X) REFUND OF ADVANCE FEES CLAIMED BY THE ASSESSEE WERE MADE WITHIN A SHORT PERIOD OF ADMISSION AND THIS WAS HIG HLY IMPROBABLE. (XI) FORMS FILLED BY THE PARENTS OF STUDENTS AT THE TIME OF ADMISSION, FOUND DURING THE COURSE OF SEARCH, CLEARLY INDICAT ED THE AMOUNTS GIVEN BY THEM WERE DONATIONS AND THERE WAS NO INDICATION AS TO ANY FUTURE REFUND DUE FROM THE ASS ESSEE. (XII) LD. ASSESSING OFFICER COULD ESTABLISH A PATTE RN IN THE CASH REFUND OF FEES TO A LARGE NUMBER OF STUDENTS, AS I NDICATED IN PAGE NO.40 OF THE ASSESSMENT ORDER, BUT THIS WAS IG NORED BY LD. COMMISSIONER OF INCOME TAX (APPEALS). (XIII) ASSESSEE COULD NOT PRODUCE ANY OF THE PAREN TS FROM WHOM IT FILED CONFIRMATION OF RECEIPT OF REFUND THROUGH AFF IDAVITS, EVEN ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 26 -: DURING THE REMAND PROCEEDINGS. (XIV) CASH DRAWINGS MADE BY SHRI. PRAKASH INDICATIN G SIPHONING OF FUNDS AND BOGUS CLAIM OF REFUND OF FEES, ALL CLEA RLY PROVED DIVERSION OF FUNDS TO SPECIFIED PERSONS AND SECTION 13(1) (C) OF THE ACT STOOD ATTRACTED. 22. VIZ-A-VIZ, ALLEGED SPECIFIC INSTANCES FALLING WITH IN SECTION 13(1) (C) OF THE ACT, ARGUMENTS TAKEN BY THE LD. DEPARTMENTAL REPRESENTATIVE ARE SUMMARIZED HERE UNDER:- (I) AS FOR THE PAYMENT OF ADVANCE TO SMT. B. RAMANI , ONE OF THE TRUSTEES, THERE WAS NO RECEIPT OF INTEREST AND SEC TION 13(1) (C) OF THE ACT STOOD ATTRACTED. (II) FOR THE ACQUISITION OF PROPERTY OF SMT. S. PR EETHA, DAUGHTER- IN-LAW OF THE MANAGING TRUSTEE, ON MONEY WAS PAID O UT OF CASH DRAWINGS MADE BY SHRI. PRAKASH, FINANCE OFFICER FRO M ASSESSEES TRUST. (III) THOUGH SHRI. ARJUNLAL SUNDERDOSS TO WHOM LOAN S/ADVANCES WERE GIVEN WAS NOT A RELATED PARTY, SONS OF THE MA NAGING ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 27 -: TRUSTEES HAD RECEIVED LOANS FROM HIM. (IV) PAYMENTS MADE TO M/S. GIE FOR PROPERTY AT CHAMIERS ROAD, WAS CLAIMED TO HAVE BEEN DONE BASED ON A MEMORANDU M OF UNDERSTANDING BETWEEN THE ASSESSEE AND ITS TRUSTEES BUT SUCH MOU, PRODUCED BY THE ASSESSEE BEFORE LD. ASSESSING OFFICER, WAS NEVER FOUND DURING THE SEARCH. SUCH DOCUMENTS WERE ALL MAKE BELIEVE IN NATURE AND MANUFACTURED FOR SUPPORT ING THE CONTENTION OF THE ASSESSEE THAT PAYMENT OF TRUST FU NDS TO GIE WAS NOT FOR THE BENEFIT OF THE TRUSTEES. (V) LD. COMMISSIONER OF INCOME TAX (APPEALS) WENT W RONG IN OBSERVING THAT PAYMENT MADE BY ASSESSEE TO GIE HAVI NG BEEN SHOWN AS AN ASSET IN THE BALANCE SHEET OF THE ASSES SEE, THERE WAS NO DIVERSION OF INCOME. (VI) WHAT IS REQUIRED TO BE PROVED BY THE REVENUE I S THAT THERE WAS DIVERSION OF FUNDS OR INCOME OF THE ASSESSEE TRUST TO THE SPECIFIED PERSONS AND THIS STOOD DEMONSTRATED. SECT ION 13(1) (C) OF THE ACT WAS THEREFORE AUTOMATICALLY TRIGGERE D. (VII) PAYMENT TO SHRI. SAMPATH FOR ACQUIRING PROP ERTY AT NO.56 AND 56A, THIRUMALAI PILLAI ROAD, CHENNAI NEVER REACHED THE LOGICAL END OF ACQUISITION IN ASSESSEES NAME AND REFUND OF THE AMOUNT ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 28 -: BY SHRI. SAMPATH, DID NOT TAKE THE TRANSACTION OUT OF IN PURVIEW OF SECTION 13(1) ( C) OF THE ACT. (VIII) LD. COMMISSIONER OF INCOME TAX (APPEALS) FE LL IN ERROR IN HOLDING THAT SPECIFIC PAYMENTS MADE FOR BENEFITIN G THE TRUSTEES DID NOT RESULT IN A VIOLATION OF THE NATU RE SPECIFIED U/S.13(1) (C) OF THE ACT. 23. IN SUPPORT OF HIS ARGUMENTS, LD. DEPARTMENTAL REPRESENTATIVE PLACED RELIANCE ON THE FOLLOWING JU DGMENTS/DECISIONS. (I) DEPUTY DIRECTOR OF INCOME TAX (EXEMPTIONS) I VS. INDIA CEMENTS EDUCATIONAL SOCIETY, (2016) 46 ITR (TRIB) 8 0. (II) DIT (EXEMPTION) VS CHARANJIV CHARITABLE TRUST, (201 4) 267 CIT 305 (DEL) (III) FREE TRADE UNION MULTIPURPOSE PROJECT TRUST VS. ITO , (2018) 95 TAXMANN.COM 297 24. PER CONTRA, LD. AUTHORISED REPRESENTATIVE STRONGLY SUPPORTING THE ORDER OF THE LD. COMMISSIONER OF INC OME TAX (APPEALS), IN SO FAR AS IT CONCERNED THE RELIEFS GIVEN BY HI M, SUBMITTED AT THE OUTSET THAT IT WAS NECESSARY FOR HIM TO CAPTURE T HE HISTORY OF THE ASSESSEE AND THE INSTITUTIONS RUN BY IT, FOR PROPER LY UNDERSTANDING THE ISSUES BEFORE THIS TRIBUNAL. ACCORDING TO HIM, AS SESSEE, COMMONLY KNOWN AS VELLORE INSTITUTE OF TECHNOLOGY OR VIT WAS STARTED IN 1984 BY SHRI. G. VISWANATHAN, FOUNDER TRUSTEE WHO WAS THE F IFTH SON OF A ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 29 -: FARMER IN VELLORE. FROM 1991, THE SAID SHRI. G. VIS WANATHAN, ACCORDING TO THE LD. AUTHORISED REPRESENTATIVE DEDICATED HIS LIFE FOR RUNNING THIS INSTITUTION. AS PER THE LD. AUTHORISED REPRESENTAT IVE, THE TRUSTEES OF THE ASSESSEE TRUST WERE SHRI. G. VISWANATHAN AND HI S SONS SHRI. SANKAR VISWANATHAN, SHRI. G.V. SAMPATH, SHRI. SEKAR VISWAN ATHAN, SHRI. G.V. SELVAM SMT.SANDHYA PENTAREDDY W/O. OF SHRI. V. SAN KAR AND M.A. REDDY FATHER OF SMT. SANDHYA PENTAREDDY. ACCORDING TO HIM, ALLEGATION MADE BY THE DEPARTMENT ALL THROUGH THESE ASSESSMENT WAS THAT SHRI. G. VISWANATHAN AND HIS SONS WERE SIPHONI NG MONEY OF THE TRUST. ACCORDING TO HIM, THIS WAS UNBELIEVABLE SIN CE DONATIONS WERE RECEIVED FROM STUDENTS OR THE PARENTS ONLY THROUGH DEMAND DRAFTS. ACCORDING TO HIM, IF THE INTENTION OF THE TRUSTEES WERE TO SIPHON OFF THE FUNDS OR GENERATE FUNDS BY ILLICIT MEANS USING THE EDUCATIONAL INSTITUTION AS A TOOL, THEY COULD VERY WELL HAVE C OLLECTED THE DONATIONS IN CASH AND NOT AS DEMAND DRAFTS. CONTEN TION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT ASSESSEE FROM TH E VERY START OF ITS OPERATIONS HAD ACCEPTED ONLY DEMAND DRAFTS FROM STU DENTS AND KEPT THE IDENTITY PROOF OF EACH OF THE PARENT AND STUDEN T ON RECORD FOR INSPECTION BY ANY AUTHORITY. 25. COMING TO THE SPECIFIC ALLEGATIONS RAISED BY THE RE VENUE, LD. COUNSEL SUBMITTED THAT THE QUESTION WHETHER DONATIO NS RECEIVED BY THE ASSESSEE FROM STUDENTS AND PARENTS CONSTITUTED CAPITATION FEE AND ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 30 -: WHETHER THE SURPLUS ARISING TO THE ASSESSEE DISENT ITLED IT FROM CLAIMING EXEMPTION UNDER SECTION 11 OF THE ACT, STOOD DECIDE D IN FAVOUR OF THE ASSESSEE THROUGH TRIBUNALS ORDER IN ITA 294 TO 296 /MDS/2014 IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2002-03 TO 2004-05. 26. COMING TO THE ISSUE OF LAND DEVELOPMENT EXPENDIT URE, CONTENTION OF LD. AUTHORISED REPRESENTATIVE, WAS TH AT IT HAD TO BE CONSIDERED IN LIGHT OF THE CIRCUMSTANCES UNDER WHIC H IT WAS INCURRED. ACCORDING TO HIM, VELLORE CAMPUS OF THE INSTITUTION CAME TO 300 ACRES, MADRAS CAMPUS CAME TO 100 ACRES AND BANGALORE CAMPU S CAME TO 60 ACRES. AS PER THE LD. AUTHORISED REPRESENTATIVE, A LL THESE LAND WERE AGRICULTURAL AND UNDER CULTIVATION, WHEN THESE WER E ACQUIRED FOR CONSTRUCTING THE COLLEGES. SUBMISSION OF THE LD. A UTHORISED REPRESENTATIVE WAS THAT ASSESSEE HAD TO PURCHASE MU RAMBU OR SOIL, FILL UP THE LAND AND ALLOW SUFFICIENT TIME FOR SETTLING, BEFORE STARTING CONSTRUCTION. ACCORDING TO THE LD. AUTHORISED REPR ESENTATIVE ALL THE DEVELOPMENT WORKS WERE CARRIED OUT BASED ON THE I NSTRUCTIONS OF A REPUTED ARCHITECT. AREA THAT COULD NOT BE USED FO R BUILDING STRUCTURES, EVEN AFTER FILLING AND LEVELING THE LAND WERE USED , AS PER LD. AUTHORISED REPRESENTATIVE, FOR PLAY GROUNDS, OPEN AIR AUDITORIUM ETC. CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT IT WAS NECESSARY TO ENGAGE LOCAL PEOPLE AND LOCAL JCB OWNE RS IN THE RESPECTIVE PLACES FOR DEVELOPMENT OF THE LAND SO AS TO ENABLE SMOOTH ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 31 -: TRANSITIONING AND COOPERATION. IN SO FAR AS BANGALO RE PREMISES WERE CONCERNED, AS PER THE LD. AUTHORISED REPRESENTATIVE , THE ACQUIRED LAND WAS STILL UNDER AGGREGATION. 27. CONTINUING HIS ARGUMENTS, LD. AUTHORISED REPRESEN TATIVE SUBMITTED THAT ALL THE VOUCHERS FOR LAND DEVELOPMEN T EXPENDITURE INCLUDING VOUCHERS FOR EXPENDITURE MET OUT OF CASH IMPREST, DRAWN BY THE FINANCE OFFICER SHRI. PRAKASH WERE AVAILABLE WH EN THE DEPARTMENT SEARCHED THE PREMISES ON 06.06.2007. ACCORDING TO H IM, BOOKS OF ACCOUNTS WERE ALSO AVAILABLE AT THE PREMISES. AS P ER THE LD. AUTHORISED REPRESENTATIVE, THE DEPARTMENT CHOSE NOT TO SEIZE SUCH MATERIALS, DESPITE ITS AVAILABILITY, CONSIDERING TH E VOLUMINOUS NATURE THEREOF. THIS AS PER THE LD. AUTHORISED REPRESENTA TIVE WAS POINTED OUT BY THE ASSESSEE THROUGH A LETTER DATED 06.01.2008, ADDRESSED TO THE MEMBER (INVESTIGATION) CBDT. CONTENTION OF THE LD . AUTHORISED REPRESENTATIVE WAS THAT LAND DEVELOPMENT EXPENDITUR E WERE DISBELIEVED ONLY FOR A REASON THAT THESE WERE INCUR RED IN CASH, IGNORING THE LEGITIMATE NATURE OF SUCH EXPENDITURE AND GROUN D REALITIES. VOUCHERS WERE REJECTED CITING FLIMSY REASONS WITHO UT UNDERSTANDING THE NATURE OF PAYMENTS EFFECTED. RELYING ON A JUD GMENT OF HONBLE HIGH COURT OF KERALA IN THE CASE OF CIT VS. DAMAC HOLDINGS (P) LTD, (2018) 401 ITR 495 , LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT TYPE OF EVIDENCE SUBMITTED BY THE ASSESSEE WAS SUFFICIE NT FOR PROVING LAND ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 32 -: DEVELOPMENT EXPENDITURE. RELIANCE WAS ALSO PLACED ON A JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. VGP HOUSING (P) LTD, (2014) 368 ITR 565 , FOR SUPPORTING HIS ARGUMENT THAT LAND DEVELOPMENT EXPENDITURE COULD BE PROVED THROUGH IN DIRECT EVIDENCE. IN ANY CASE AS PER LD. AUTHORISED REPRESENTATIVE, THERE WAS NOTHING ON RECORD WITH THE LOWER AUTHORITIES TO SHOW THAT A NY SUCH AMOUNT WAS DIVERTED OR USED BY THE TRUSTEES FOR THEIR BENE FIT. 28. ON THE CASH REFUNDS MADE AGAINST ADVANCE RECEIPTS FROM STUDENTS, LD. AUTHORISED REPRESENTATIVE SUBMITTED T HAT ASSESSEE HAD BECOME A DEEMED UNIVERSITY IN 2001. ACCORDING TO HIM, SEATS IN VIT WAS SOUGHT AFTER BY STUDENTS ALL OVER INDIA AN D FOR THE ENTRANCE TEST FOR ADMISSION TO 2100 SEATS AVAILABLE FOR THE ENGINEERING STREAM, MORE THAN ONE LAKH STUDENTS REGULARLY APPLIED. OUT OF THIS, AS PER LD. AUTHORISED REPRESENTATIVE, ABOUT 10000 TO 15000 STU DENTS WERE INVITED FOR COUNSELING, BASED ON THE MARKS OBTAINED IN THE EXAMINATION AND SUCH COUNSELING WAS COMPLETED OVER A PERIOD OF FOUR DAYS. ACCORDING TO HIM, THERE WAS UNIMAGINABLE RUSH OF PE OPLE DURING THIS PERIOD AND MULTIPLE FORMS WERE SIGNED BY THE PARENT S AND KEPT FOR FUTURE USE. FURTHER, ACCORDING TO HIM, LARGE NUMBER OF PARENTS USED TO SEND DONATIONS AS DEMAND DRAFT, WELL BEFORE THE ADM ISSION PROCESS WAS ON, UNDER A WRONG IMPRESSION THAT SUCH PRE-PAY MENTS WOULD HELP THEM GET ADMISSION EASILY. SINCE ASSESSEE WAS NOT INTERESTED IN ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 33 -: KEEPING ANY AMOUNT OTHER THAN THE NORMAL DONATIONS , AS PER THE LD. AUTHORISED REPRESENTATIVE, SUCH AMOUNTS WERE REFUND ED. ACCORDING TO HIM, THESE REFUNDS WERE GENUINE. CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT THE DEPARTMENT HAD OBTAINED STATEMENTS FROM PARENTS OF THE STUDENTS COERCING THEM TO SAY THAT NO REFUNDS WERE RECEIVED BY THEM. THESE STATEMENTS, AS PER T HE LD. AUTHORISED REPRESENTATIVE WERE NEVER PUT TO THE ASSESSEE ANY T IME. ACCORDING TO THE LD. AUTHORISED REPRESENTATIVE, AT THE TIME OF T HE REMAND PROCEEDINGS, ASSESSEE HAD PRODUCED AFFIDAVITS FROM SUBSTANTIAL NUMBER OF PARENTS AFFIRMING THAT THEY HAD INDEED RE CEIVED SUCH AMOUNT IN CASH, BUT DEPARTMENT CHOSE NOT TO SUMMON THEM FOR EXAMINATION. AS PER THE LD. AUTHORISED REPRESENTAT IVE, TO REQUIRE THE ASSESSEE TO PRODUCE EACH OF THE PARENT WHO WERE LOC ATED AT DISPARATE PLACES OF INDIA WAS A BURDEN NOT COMMENSURATE WITH THE REQUIREMENT TO SUBSTANTIATE THE REFUNDS. CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT AFFIDAVITS AFFIRMING RECEIP T OF THE REFUNDS WERE IGNORED FOR NO REASONS. THAT APART, ACCORDING TO H IM, THERE WAS NOTHING ON RECORD TO SHOW THAT ANY TRUSTEE OR ANY S PECIFIED PERSON HAD BENEFITTED OUT OF SUCH MONEY. 29. COMING TO THE ASPECT OF TUITION FEES, CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE WAS THAT AT THE TIME OF C OUNSELING EVERY ASPIRANT HAD TO PAY A SUM OF G10,000/- AS INITIAL F EES. ACCORDING TO ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 34 -: HIM, IT WAS NECESSARY FOR THE ASSESSEE TO REFUND SU CH FEES TO THE CANDIDATES WHO WERE ULTIMATELY NOT SELECTED. AS PE R THE LD. AUTHORISED REPRESENTATIVE, INTENTION OF THE ASSESSEE WAS TO KE EP THE STUDENTS AND PARENTS HAPPY ON THEIR VISIT TO ITS PREMISES AN D NEVER KEEP THEM WAITING FOR REFUND. THIS AS PER LD. AUTHORISED REP RESENTATIVE WAS THE MAIN REASON FOR REFUNDS BEING MADE IN CASH. ACCO RDING TO HIM, REVENUE WAS UNABLE TO SHOW ANY MONEY TO HAVE REACH ED ANY TRUSTEES OR ANY SPECIFIED PERSON AND SECTION 13(1) (C) OF THE ACT HAD NO APPLICABILITY. RELYING ON A JUDGMENT OF HONB LE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. KAMLA TOWN TRUST, 279 ITR 89 , LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT UNLESS DEP ARTMENT COULD SHOW THE ALLEGED SIPHONING OF FUNDS HAD REACHED T RUSTEES OR SPECIFIED PERSONS, SECTION 13(1) (C) OF THE ACT COU LD NOT BE APPLIED. RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF HONBL E DELHI HIGH COURT IN THE CASE OF COUNCIL FOR THE INDIAN SCHOOL CERTIFICATE EXAMINATIONS VS. DIRECTOR GENERAL OF INCOME TAX, (2014) 364 ITR 508 AND THAT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SURAT CITY GYMKHANA VS. DCIT, (2002) 254 ITR 733 . 30. VIZ-A-VIZ, THE ALLEGATIONS OF SPECIFIC VIOLATIONS COMING WITHIN THE AMBIT OF SECTION 13(1) (C) OF THE ACT, LD. AUTH ORISED REPRESENTATIVE SUBMITTED THAT THE FIRST ONE RELATED TO ACQUISITIO N OF A PROPERTY BY THE ASSESSEE FROM SMT. B. RAMANI, DAUGHTER-IN-LAW OF M ANAGING TRUSTEE. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 35 -: ACCORDING TO HIM, PAPER BOOK PAGE NOS.140 TO 142 WA S THE COPY OF THE AGREEMENT. AS PER THE LD. AUTHORISED REPRESENTA TIVE, THE VALUE FOR WHICH THIS PROPERTY THE MEASURING 22.34 ACRES OF LAND AT BRAHMAPURAM, KATPADI WAS ACQUIRED WAS G33,51,000/- . THIS, ALONE WAS PAID BY THE ASSESSEE AND SHOWN IN ITS BOOKS. A S PER THE LD. AUTHORISED REPRESENTATIVE, THE TRANSACTION WAS DONE AT THE GUIDELINE VALUE, AND HENCE DEPARTMENT COULD NOT SAY THAT ANY BENEFIT WAS DERIVED BY SMT. B. RAMANI FROM IT. WHAT WAS RECEIVE D BY HER, AS PER LD. AUTHORISED REPRESENTATIVE, WAS THE VALUE OF THE PROPERTY AND RECEIPT OF A FAIR PRICE CANNOT BE TERMED AS A BENEF IT. 31. VIZ-A-VIZ, ADVANCE OF G22,34,000/- PAID BY THE ASSE SSEE TO SMT. B. RAMANI FOR ACQUIRING 6.23 ACRES OF LAND AT KANGAEYANALLUR, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT BOTH THE S ALE AGREEMENT DATED 04.06.2004 AS WELL AS CANCELLATION AGREEMENT DATED 20.9.2004 WERE FOUND DURING THE SEARCH. ASSESSEE, AS PER TH E LD. AUTHORISED REPRESENTATIVE, HAD EVERY INTENTION OF ACQUIRING T HE SAID LAND BUT SINCE THE PURCHASE COULD NOT GO THROUGH, THE AGREEM ENTS WERE CANCELLED. AS PER THE LD. AUTHORISED REPRESENTATIV E, THE AMOUNTS WERE REFUNDED BY SMT. B. RAMANI. THUS, ACCORDING TO HIM , THERE WAS NO BENEFIT ARISING TO SMT. B. RAMANI. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 36 -: 32. ARGUING ON THE ADVANCE PAID TO SHRI. ARJUNLAL SUNDE RDOSS, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE SAID P ARTY WAS NOT ASSOCIATED WITH THE TRUSTEES NOR A SPECIFIED PER SON. ACCORDING TO HIM, SONS OF THE MANAGING TRUSTEE HAD NOT RECEIVED ANY AMOUNT, FROM THE SAID SHRI. ARJUNLAL SUNDERDOSS AND WHAT THE RE VENUE HAD RAISED WAS ONLY AN ALLEGATION WITHOUT EVIDENCE. AS PER T HE LD. AUTHORISED REPRESENTATIVE, ASSESSEE HAD FILED FINANCIAL STATEM ENT FOR EACH OF THE TWO SONS NAMELY SHRI. V. SAMPATH AND SHRI. V. SANKA R AND THESE REFLECTED NO LOAN FROM SHRI. ARJUNLAL SUNDERDOSS. T HUS, ACCORDING TO HIM, CONCLUSION DRAWN BY THE ASSESSING OFFICER THAT THERE WERE SOME BENEFITS ACCRUING TO THE TRUSTEES OR SPECIFIED PER SON WAS NOT CORRECT. 33. COMING TO THE PURCHASE OF PROPERTY AT NO.85, SECOND EAST MAIN ROAD, GANDHI NAGAR, KATPADI, VELLORE BY SMT. S. PREETHA WIFE OF ONE OF THE TRUSTEES, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THIS WAS A PERSONAL PURCHASE DONE BY SMT. S. PREETHA, OU T OF HER OWN FUNDS AND IT HAD NOTHING TO DO WITH THE ASSESSEE T RUST. AS PER THE LD. AUTHORISED REPRESENTATIVE, SHRI. PRAKASH, FINANCE O FFICER OF THE ASSESSEE TRUST HAD NEVER STATED ANYWHERE THAT ANY A MOUNT WAS GIVEN BY HIM TO SMT. S.PREETHA FOR PURCHASING THIS PROPE RTY. JUST BECAUSE SMT. S. PREETHA HAD FILED A LOAN APPLICATION WITH A BANK, WHEREIN THE VALUE OF THE PROPERTY WAS SHOWN AS G1,25,00,000/- W OULD NOT, AS PER ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 37 -: THE LD. AUTHORISED REPRESENTATIVE SHOW ANY DIVERSIO N OF FUNDS FROM THE ASSESSEE . 34. COMING TO THE PROPERTY AT 138, CHAMIERS ROAD, CHENN AI, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT ASSESSEE I NTENDED TO ACQUIRE THIS LAND MEASURING 10 GROUNDS FOR RUNNING MBA CO URSE. PLACING RELIANCE ON PAPER BOOK PAGE 238 WHICH WAS A RESOLUT ION PASSED BY BOARD OF THE TRUSTEES, LD. AUTHORISED REPRESENTATIV E SUBMITTED THAT TRUST HAD AUTHORIZED SHRI. G. VISWANATHAN, SHRI. SA NKAR VISWANATHAN, SHRI. G.V. SAMPATH, SHRI. SEKAR VISWANATHAN AND SHR I. G.V. SELVAM, ALL OF WHOM WERE TRUSTEES, TO NEGOTIATE ON BEHALF OF TH E ASSESSEE TRUST FOR ACQUIRING THE SAID PROPERTY. AS PER LD. AUTHORISED REPRESENTATIVE, AGREEMENT WITH THE VENDORS ENTERED ON 3 RD JANUARY, 2007 CLEARLY SHOWED THAT ADVANCE OF G10,00,00,000/-, OUT OF THE AGREED CONSIDERATION OF G34,77,50,000/-, WAS PAID THROUGH PAY ORDERS ISSUED FROM M/S. INDIAN BANK ACCOUNT OF THE ASSESSEE TRUST . ACCORDING TO HIM, ALL PAYMENTS HAD DIRECTLY GONE FROM THE ASSESSEES BANK ACCOUNT TO THE VENDORS. RELYING ON A MEMORANDUM OF UNDERSTAND ING ENTERED BETWEEN ASSESSEE AND ITS TRUSTEES ON 26 TH DECEMBER, 2006, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT PROPERTY W AS TO BE ACQUIRED BY THE TRUSTEES FOR THE ASSESSEE AND THE MECHANISM OF ACQUISITION THROUGH TRUSTEES, WAS ADOPTED TO AVOID ELEVATED PRI CES, IF THE VENDORS IDENTIFIED THE ASSESSEE AS THE BUYER. AS PER THE L D. AUTHORISED ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 38 -: REPRESENTATIVE, ON RECOGNIZING THAT THE PROPERTY HAD AN INCHOATE TITLE, ASSESSEE HAD DEEMED IT FIT NOT TO ACQUIRE IT . RELIANCE WAS PLACED ON THE LEGAL OPINION OF ADVOCATE SHRI. S. GIRITHAR AN PLACED AT PAPER BOOK PAGES 247 TO 250. ACCORDING TO HIM, SO AS TO A VOID THE LOSS THAT WOULD HAVE ARISEN, HAD THE ASSESSEE RESORTED TO A CANCELLATION OF THE AGREEMENT FOR PURCHASE, THE PROPERTY WAS ACQUIRED B Y THE TRUSTEES IN THEIR PERSONAL NAME. FURTHER, ACCORDING TO HIM, MO NEY GIVEN BY THE ASSESSEE FOR PURCHASE WAS SHOWN AS ASSET IN ITS BA LANCE SHEET AS ADVANCE FOR CHAMIERS ROAD PROPERTY. IN ANY CASE, A S PER LD. AUTHORISED REPRESENTATIVE, ASSESSEE HAD FILED DOCUM ENTS RELATING TO M/S.GIE, WHICH WAS THE PARTNERSHIP FIRM WHICH ULTI MATELY ACQUIRED PROPERTY AND IN WHICH THE TRUSTEES WERE PARTNERS, PROVING THAT THEY HAD SUFFERED A LOSS OUT OF THE SAID TRANSACTION A ND NEVER BENEFITED FROM IT. 35. ADVERTING TO THE PROPERTY AT NO.56 & 56A, THIRUMALA I PILLAI ROAD, CHENNAI FOR WHICH A SUM OF G1,00,00,000/- WAS PAID BY THE ASSESSEE TO ONE OF ITS TRUSTEES SHRI. V. SAMPATH, LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE SAID V. SAMPATH HAD ON 16.02.2007, WHEN THE MONEY WAS ADVANCED TO HIM, NO MINATED ASSESSEE AS THE EVENTUAL BUYER. RELIANCE WAS PLACE D ON AN AGREEMENT FOR NOMINATION PLACED AT PAPER BOOK PAGES 266 TO 27 1. HOWEVER, ACCORDING TO HIM, THE ACQUISITION COULD NOT COME TH ROUGH, DUE TO ZONE ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 39 -: CONVERSION PROBLEM. AS PER THE LD. AUTHORISED REPR ESENTATIVE, INTENTION OF THE ASSESSEE WAS TO START ITS MBA COUR SE IN THIS PROPERTY, SINCE CHAMIERS ROAD PROPERTY WAS NOT AVAILABLE. A CCORDING TO HIM SHRI. V. SAMPATH HAD REFUNDED THE MONEY ON 13.08.20 07 BY CHEQUE. AS PER LD. AUTHORISED REPRESENTATIVE, THERE WAS NO BENEFIT ACQUIRING TO SHRI. V. SAMPATH ON ACCOUNT OF THIS. 36. AS FOR THE DIRECTION OF THE LD. COMMISSIONER OF IN COME TAX (APPEALS) TO TREAT LOSS ON SALE OF ASSETS, DONATION S PAID AND INTEREST PAYMENTS AS APPLICATION OF INCOME, LD. AUTHORISED R EPRESENTATIVE SUBMITTED THAT THIS WAS RIGHT COURSE TO BE FOLLOWE D UNDER LAW. SIMILARLY ACCORDING TO HIM, SURPLUS OF G2,13,186/- ARISING OUT OF SALE OF PROPERTY AT BANGALORE DURING THE PREVIOUS YEAR RELE VANT TO ASSESSMENT YEAR 2005-06 AND G9,41,89,923/- ARISING OUT OF A FL AT AT CHENNAI DURING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 20 08-09 WERE ALSO RIGHTLY CONSIDERED AS INCOME ELIGIBLE FOR EXEMPTIO N U/S.11 OF THE ACT. 37. HOWEVER, AS PER LD. AUTHORISED REPRESENTATIVE, LD. COMMISSIONER OF INCOME TAX (APPEALS), AFTER FINDING THAT THE LAND DEVELOPMENT EXPENDITURE CLAIMED WAS REASONABLE, FEL L IN ERROR IN UPHOLDING A DISALLOWANCE TO THE EXTENT OF 10%. IN ANY CASE, ACCORDING TO HIM, MAXIMUM MARGINAL RATE OF TAX, IF APPLIED CO ULD ONLY BE ON SUCH AMOUNT WHICH CAME WITHIN PURVIEW OF VIOLATION OF SE CTION 13(1) ( C) OF ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 40 -: THE ACT AND THERE CANNOT BE A BLANKET DENIAL OF EX EMPTION UNDER SECTION 11 OF THE ACT. 38. AD LIBITUM REPLY OF THE LD. DEPARTMENTAL REPRESENTA TIVE WAS THAT BENEFIT WAS DERIVED BY THE TRUSTEES OF THE ASS ESSEE, OR THEIR CLOSE RELATIVES THROUGH THE VARIOUS LAND TRANSACTIONS. A CCORDING TO HIM, BENEFIT DID NOT MEAN THAT THERE SHOULD BE A PECUNIA RY SURPLUS. AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE QUESTIO N OF THE LEGITIMACY OF THE CLAIM FOR LAND DEVELOPMENT EXPENDITURE, ANS WERS GIVEN BY SHRI. PRAKASH, FINANCE OFFICER IN THE STATEMENTS RECORDED FROM HIM ON 16.11.2007 AND 29.11.2007, WERE VERY RELEVANT. ACCO RDING TO HIM, SHRI PRAKASH HAD CLEARLY ADMITTED THAT HE WAS NOT AWARE ABOUT THE PERSONS TO WHOM HE HAD PAID THE MONEY, THOUGH HE ADMITTED S UCH DISBURSEMENTS TO HAVE BEEN MADE BY HIM PERSONALLY T O VARIOUS LORRY OWNERS AND OTHER PARTIES. ACCORDING TO LD. DEPARTM ENTAL REPRESENTATIVE , ANSWERS TO VARIOUS QUESTIONS GIV EN BY SHRI. PRAKASH CLEARLY INDICATED THAT HE WAS NOT AWARE OF SOIL FI LLING EXPENDITURE BEING INCURRED WITH REGARD TO LAND DEVELOPMENT. FURTHER, ACCORDING TO HIM, THE CLAIM OF THE DEPARTMENT WAS THAT LAND DEVELOPME NT EXPENDITURE CLAIMED WAS ENTIRELY BOGUS AND THEREFORE THE QUEST ION OF LIMITING THE DISALLOWANCE TO SUCH AMOUNTS DID NOT ARISE. ACCOR DING TO HIM, ASSESSEE CLEARLY LOST THE BENEFIT OF SECTION 11 OF THE ACT. SUBMISSION OF THE LD. DEPARTMENTAL REPRESENTATIVE WAS THAT EV EN A SMALL BENEFIT ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 41 -: DERIVED BY THE TRUSTEES WAS ENOUGH TO DEPRIVE THE T RUST THE EXEMPTION CLAIMED U/S.11 OF THE ACT. FOR THIS PROP OSITION HE RELIED ON THE JUDGMENT OF HONBLE KERALA HIGH COURT IN THE CA SE OF AGAPPA CHILD CENTRE VS. CIT, (1997) 226 ITR 211, THAT OF ANDHRA PRADESH HIGH COURT IN THE CASE OF ACTION FOR WELFARE AND AWAKENI NG IN RURAL ENVIRONMENT (AWARE) VS. DICT (2003) 263 ITR 13 AND THAT OF HONBLE SUPREME COURT IN THE CASE OF DIRECTOR OF INCOME TAX VS. BHARAT DIAMOND BOURSE (2003) 259 ITR 280. RELIANCE WAS AL SO PLACED ON A JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. VS. CHARANJIV CHARITABLE TRUST (2014) 267 CTR 305 39. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUS ED THE ORDERS OF THE AUTHORITIES BELOW. THERE ARE NIN E CRUCIAL ISSUES COMING OUT OF THE GROUNDS RAISED BY THE REVENUE, AP ART FROM CERTAIN MINOR QUESTIONS REGARDING LOSS/ SURPLUS ON SALE OF CERTAIN ASSETS, INTEREST CHARGES AND CHANGE OF METHOD OF ACCOUNTING . THESE CRUCIAL ISSUES CAN BE SUMMARIZED AS UNDER:- (I) WHETHER DONATIONS RECEIVED BY THE ASSESSEE FROM THE STUDENTS/ PARENTS WERE CAPITATION FEE AND IF SO, DID THE RE SULTANT SURPLUS EVERY YEAR RENDER THE ASSESSEE INELIGIBLE FOR CLAIMING EXEMPTION U/S.11 AND 12 OF THE ACT. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 42 -: (II) WHETHER THE LAND DEVELOPMENT EXPENDITURE INCUR RED IN CASH AT CHENNAI AND VELLORE CENTERS OF THE ASSESSEE CAN BE CONSIDERED AS NOT PROPERLY VOUCHED AND IF SO, CAN IT BE CONSTR UED AS FUNDS DIVERTED FOR THE USE OF TRUSTEES OR SPECIFIED PER SONS, INDIRECTLY BENEFITING THEM, THEREBY ATTRACTING SEC TION 13(1) ( C) OF THE ACT. (III) ARE REFUND OF ADVANCE FEES / TUITION FEES TO STUDENTS/PARENTS PROPERLY EVIDENCED, IF NOT, COULD IT BE CONSTRU ED AS FUNDS DIVERTED FOR THE BENEFIT OF TRUSTEES/ SPECIFIED PER SONS, THEREBY ATTRACTING SECTION 13(1) ( C) OF THE ACT. (IV) WHETHER ACQUISITION OF 22.34 ACRES OF LAND AT BRAHMAPURAM, KATPADI FROM SMT. B. RAMANI FOR G33,51,000/-, FOR WHICH AGREED CONSIDERATION WAS RS.1,00,00,000/-, GAVE RI SE TO A PRESUMPTION THAT THE DIFFERENCE AMOUNT WAS COMING O UT OF TRUST FUNDS, RESULTING IN A BENEFIT TO SMT. B. RAMA NI WHO FELL WITHIN THE MEANING OF SPECIFIED PERSON, THEREBY ATTRACTING SECTION 13(1) ( C) OF THE ACT. (V) WHETHER ADVANCE PAYMENT OF RS. 22,34,000/- TO SMT. B. RAMANI FOR ACQUIRING 6.23 ACRES OF LAND AT KANGAEYA NALLUR, THOUGH LATER CANCELLED AND REFUNDED, RESULTED IN A BENEFIT TO SMT. B. RAMANI ATTRACTING SECTION 13(1) ( C) OF T HE ACT. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 43 -: (VI) WHETHER ADVANCE OF RS.1,00,00,000/- PAID TO SHRI. ARJUNLAL SUNDERDOSS DURING PREVIOUS YEAR RELEVANT TO ASSESSM ENT YEAR 2006-07 AND RS.50,00,000/- DURING PREVIOUS YEAR REL EVANT TO ASSESSMENT YEAR 2007-08, WERE DIVERSION OF INCOME/P ROPERTY OF THE TRUST ATTRACTING SECTION 13(1) ( C) OF THE ACT. (VII) WHETHER ACQUISITION OF PROPERTY AT NO.85, SE COND EAST MAIN ROAD, GANDHI NAGAR, KATPADI, VELLORE BY SMT. S. PRE ETHA, DAUGHTER-IN-LAW OF MANAGING TRUSTEE, FOR A SUM OF RS.40,00,000/-, IN WHICH THERE WAS AN APPLICATION F OR LOAN SHOWING ITS VALUE AS G1,25,00,000/-, INDICATE THAT TRUST HAD ADVANCED THE DIFFERENCE AMOUNT THROUGH SHRI. PRAKAS H, FINANCE OFFICER, FOR FACILITATING SUCH PURCHASE, ATTRACT ING SECTION 13(1) ( C) OF THE ACT. (VIII) WHETHER PAYMENT OF RS.34,77,50,000/- FOR ACQ UIRING PROPERTY AT CHAMIERS ROAD, CHENNAI, WHICH WAS FINALLY ACQUIR ED BY A FIRM CALLED M/S.GIE, IN WHICH THE PARTNERS WERE THE TRUSTEES , RESULT IN A BENEFIT COMING WITHIN THE PURVIEW OF S ECTION 13(1) ( C) OF THE ACT. (IX) WHETHER THE SUM OF RS.1,00,00,000/- PAID TO S HRI. SAMPATH FOR ACQUIRING A PROPERTY AT 56 & 56A. THIRUMALAI PILLAI ROAD, CHENNAI, WHICH WAS LATER RETURNED BY SHRI. SAMPATH WHEN THE ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 44 -: ACQUISITION DID NOT GO THROUGH, RESULT IN A BENEFIT TO SHRI. SAMPATH COMING WITHIN THE PURVIEW OF SECTION 13(1) ( C) OF THE ACT. 40. AS MENTIONED ABOVE, THE FIRST QUESTION TO BE ANSWER ED IS WHETHER THE DONATIONS RECEIVED BY THE ASSESSEE FROM THE STUDENTS/ PARENTS WERE CAPITATION FEE AND IF SO, WHETHER SUCH RECEIPTS, RESULTING IN ANNUAL SURPLUS, MADE THE ASSESSEE INELIGIBLE FO R CLAIMING EXEMPTION U/S.11 AND 12 OF THE ACT. WE FIND THAT THIS QUEST ION ALREADY STANDS ANSWERED IN FAVOUR OF THIS ASSESSEE BY THIS TRIBUNA L THROUGH AN ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03 TO 2004-05 IN ITA NOS.294 TO 296/MDS/2014. RELEVANT PORTIONS OF THE TRIBUNAL ORDER ARE REPRODUCED HEREUNDER:- 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE CAREFULLY CONSIDERED THE MATERIAL AVAILABLE ON RECO RD, INCLUDING THE PAPER BOOKS FILED BY THE ASSESSEE TRU ST. ON PERUSING THE AFORESAID DOCUMENTS AT LENGTH, WE FIND SUBSTANTIAL FORCE IN THE SUBMISSIONS BY THE ASSESSE E. APPARENTLY, THE MAIN SOURCE OF INCOME FOR THE INSTI TUTION IS FEES RECEIVED FROM STUDENTS AND DONATIONS COLLECTED . THE FEE RECEIPTS WOULD DEPEND UPON THE NUMBER OF STUDENTS A DMITTED AND THE FEES CHARGED. THE DOCUMENTS REFERRED TO ABO VE CLEARLY ESTABLISH THAT BOTH THE NUMBER OF STUDENTS AND THE FEES CHARGEABLE FROM THEM ARE REGULATED AND CONTROLLED B Y AICTE / DOTE THROUGH THE UNIVERSITY OF MADRAS. HENCE, THE A SSESSEE COULD NOT HAVE ENGAGED IN 'PROFITEERING' AS ALLEGED BY THE REVENUE BY INCREASING THE STUDENTS STRENGTH NOR COU LD IT HAVE CHARGED A HIGHER FEE. WE FIND FROM PAGE 36 OF STATEMENT OF FACTS THAT THE GOVERNMENT NOTIFICATION PRESCRIBING FEES FOR UNAIDED SELF FINANCING ENGINEERING COLLEGES PRESCRI BES 3 DIFFERENT SCALES OF FEES WITH THE NOMENCLATURES OF (A) FREE SEAT CATEGORY (B) PAYMENT SEAT CATEGORY (C) NON RES IDENT ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 45 -: INDIAN STUDENTS WE FIND THAT THERE IS A SIGNIFICANT DIFFERENCE IN THE SCALE OF FEES FOR EACH CATEGORY OF STUDENTS. OB VIOUSLY, THIS IS BECAUSE THE GOVERNMENT, IN ITS WISDOM, RECOGNIZE S THAT UNAIDED SELF FINANCING EDUCATIONAL INSTITUTIONS CAN NOT BE RUN BY CHARGING THE LOWER FEES CHARGED BY AIDED FINANCI AL INSTITUTIONS. THEREFORE, THE GOVERNMENT HAS PERMITT ED THEM TO CHARGE HIGHER FEES FOR THE DIFFERENT CATEGORIES. WE FIND FROM THE ADMISSION REGULATIONS AND OTHER DOCUMENTS SUBMI TTED THAT 5% OF THE SEATS SANCTIONED BY THE UNIVERSITY OF MADRAS CAN BE GIVEN TO NRI STUDENTS WHO ARE REQUIRED TO PAY TH E HIGHEST SCALE OF FEES OF ' 39200/- + 1000 DOLLARS. OUT OF THE REMAINING SEATS 50% IS UNDER THE 'FREE SEATS CATEGORY' FOR WH ICH THE FEE PRESCRIBED IS ONLY RS 12800/-, THE REMAINING 50% FA LLS UNDER 'PAYMENT SEAT CATEGORY' WHICH ATTRACTED A MUCH HIGHER FEE OF RS. 47200/-. THE REASON FOR NARRATING THE ABOVE FAC TS IS TO APPRECIATE THE BIGGER PICTURE IN THE FIELD OF EDUCA TION IN OUR COUNTRY. TREDLTIONELLV EDUCATION AND HEALTH WERE CO NSIDERED THE EXCLUSIVE OBLIGATIONS OF THE STATE AND WAS EXPE CTED TO BE PROVIDED FREE OF COST; SUBSIDIZED RATES OR, AT COST , TO THE DIFFERENT SEGMENTS OF THE SOCIETY, DEPENDING ON THE IR NEED FOR SUPPORT FROM THE STATE. HOWEVER, OVER A PERIOD OF DIFFICULT FINANCIAL TIMES, AND POPULATION EXPLOSION, WHEN THE STATE WAS UNABLE TO FIND THE NECESSARY RESOURCES TO DISCHARGE ITS TRADITIONAL OR CONSTITUTIONAL OBLIGATIONS, THE STAT E FOUND NEW WAYS OF CATERING TO ITS CITIZENS IN THE FIELDS OF EDUCATION AND HEALTH. ONE OF THE WAYS IS WHAT IS POPULARLY CALLED AS 'PUBLIC PRIVATE PARTNERSHIP' IN WHICH THE STATE'S FUNCTION IS OUTSOURCED TO THE PRIVATE SECTOR. WHILE DOING THIS, THE GOVERNMENT HAD TO TAKE INTO ACCOUNT THE FACT THAT, WHILE ITS ABILITY TO RAISE RESOURCES BY TAX AND BORROWINGS WA S UNLIMITED, AT LEAST IN THEORY, THE RESOURCES OF THE PRIVATE SECTOR WERE LIMITED. THE STATE HAD FACED ONE MORE DIFFEREN CE BETWEEN THE MOTIVATION FOR INVESTMENTS BY THE STATE AND THE PRIVATE SECTOR; IE. - WHILE THE STATE CAN LOOK AT T HE AFORESAID SERVICES SS A MERE 'COST CENTRE' THE 'PRIVATE SECTOR' NEITHER CAN, NOR BE EXPECTED, TO LOOK AT THESE FUNCTIONS AS A COST CENTRE. HENCE, THE GOVERNMENT DEVISED WAYS BY WHICH THE REVENUES OF SUCH PRIVATE SECTOR UNAIDED EDUCATIONAL INSTITUTIONS COULD BE AUGMENTED SO AS TO PROVIDE ADEQUATE REVENUES TO RECOUP THE INVESTMENT, PROVIDE REASONAB LE RETURN ON INVESTMENT AND TO PROVIDE ADEQUATE SURPLUSES TO FACILITATE EXPANSION AND MODERNIZATION. THE THREE TIER FEE STR UCTURE PRESCRIBED BY THE GOVERNMENT FOR DIFFERENT CATEGORI ES OF STUDENTS IS A MEANS TO ACHIEVE THE ABOVE OBJECTIVE. 14. THE REASON FOR PRESENTING AND ANALYZING THE MACRO VIEW ON THE SUBJECT IS TO APPRECIATE THE POINT THAT THE GOVERNM ENT, IN ITS WISDOM, HAS . CONSCIOUSLY PERMITTED CHARGING HIGHER FEES FROM SOME STUDENTS IN THE CASE OF UNAIDED COLLEGES TO ACHIEVE ITS AFORESAID OBJECTIVES. THIS POLICY IS NOTHING BU T A 'CROSS SUBSIDY' BY THE AFFLUENT STUDENTS TO THE NEEDY STUD ENTS, AS THE STATE, WHICH WAS TRADITIONALLY /CONSTITUTIONALLY BO UND TO ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 46 -: PROVIDE THESE SERVICES, COULD NOT DO SO. HENCE, THE CHARGING OF HIGHER FEES FROM A CERTAIN PERCENTAGE OF STUDENTS WILL NOT BE DETRIMENTAL TO THE 'CHARITABLE' NATURE OF THE INSTITUTIONS AS THIS CHARGING OF HIGHER FEES FROM THE AFFLUENT STUDENTS IS DONE ONLY TO SUBSIDISE THE COST OF EDUCATION OF THE NEEDY STUDENTS ESPECIALLY WHEN THIS SCHEME OF 'PUBLIC PRIVATE PARTNERSHIP' IS AN INSTRUMENT OF STATE POLICY. WE FIND SUPPORT FOR OUR ABOVE VIEW FROM CIT VS PULIKKAL MEDICAL FOUNDATION PRIVAT E LIMITED, 210 ITR 299 (KER) AND BREACH CANDY HOSPITAL TRUST VS CHIEF CIT 322 ITR 246 (BOM). A CAREFUL APPRECIATION OF THE AFORESAID MACRO VIEW CAN ONLY LEAD TO THE IRRESISTI BLE CONCLUSION THAT CHARGING OF HIGHER FEES FROM AFFLUENT STUDENTS OR RAISING FUNDS FOR THE LAUDABLE OBJECT OF EDUCATION, WHICH IS TRADITIONALLY A STATE FUNCTION, THROUGH DONATIONS, BY AN UNAIDED SELF TINENCINQ EDUCATIONAL INSTITUTIONS CANNOT DETER THE 'CHARITABLE' NATURE OF THE ACTIVITY AND IN ANY VIEW MAKE SUCH ACTIVITY 'COMMERCIAL' IN NATURE. 15. THERE IS ONE MORE ANGLE FROM WHICH THE PRESENT CASE CAN BE APPROACHED. ALTH OUGH, CHARITABLE INSTITUTIONS EARN SURPLUS, IF THE PROMOT ERS OR THE TRUSTEES OR MEMBERS OF SUCH A CHARITABLE INSTITUTIONS ARE PRECLUDED FROM AND DID NOT IN FACT PARTICIPATE OR G AIN DISTRIBUTION OF THE SURPLUS AND THE ENTIRE SURPLUS IS ONLY APPLIED OR ACCUMULATED FOR CHARITABLE PURPOSES, THEN OCCURR ENCE OF THE SURPLUS WILL NOT IN ANY WAY MILITATE AGAINST THE CL AIM OF 'CHARITABLE' NATURE OF THE INSTITUTIONS OR MAKE IT A COMMERCIAL VENTURE - CIT VS PULIKKAL MEDICAL FOUNDATION PRIVAT E LIMITED 210 ITR 301 (KER). 16. WE FIND FROM CLAUSES 19 AND 20 OF THE TRUST DEED PLACED AT PAGES NO.6 TO 17 OF THE STATEMENT OF FACTS THAT, . THERE IS AN ABSOLUTE EMBARGO ON ANY BENEFIT S OR REMUNERATION TO THE TRUSTEES OR THEIR RELATIVES. IT IS NOT A/SO THE CASE OF THE REVENUE THAT ANY SUCH BENEFITS HAVE BEEN CONFERRED BY THE ASSESSEE DURING THE YEAR. HENCE, F OR THIS REASON TOO, THE OCCURRENCE OR RECURRENCE OF SURPLUS OF THE ASSESSEE THROUGH ITS EDUCATIONAL ACTIVITY WILL NOT AFFECT ITS ELIGIBILITY FOR BEING CONSIDERED AS A CHARITABLE TR UST ENTITLED TO EXEMPTION U/S 11. SIMILARLY, THE ASSESSEE'S SUBMISSION THAT IT COULD NOT HAVE OBTAINED DONATIONS THROUGH COERCION AS ALLEGED BY THE REVENUE ALSO DESERVES TO BE ACCEP TED, AS WE FIND FROM THE ADMISSION REGULATIONS OF AICTE THA T THERE WERE ONLY TWO DEFINED AREAS OF DISCRETION IN THE MA TTER OF ADMISSION VIZ. 5% OF THE SANCTIONED SEATS FOR NRLS AND FILLING UP OF 'LAPSED SEATS'. WE FIND FROM THE BREAKUP OF ADMISSIONS GIVEN THAT, OUT OF THE 5%, ONLY 3% OF SEATS WERE ALLOTTED TO NRIS AND FURTHER THAT OUT OF THE TOTAL CORPUS FUND DONATION OF '1,26,50,000/- THERE WAS NO DONATION RECEIVED FROM OUTSIDE INDIA. HENCE, THE DISCRETION AVAILABLE IN THIS REGA RD COULD NOT HAVE LED TO COLLECTION OF THE AFORESAID DONATIONS. THE LETTER ALONG WITH LIST OF STUDENTS ADMITTED WITH THE DATE OF ADMISSION OF STUDENTS REVEAL THAT THE LAST STUDENT ADMITTED WAS ON 25.10.2000 AS PER THE DIRECTION OF THE UNIVERSITY OF MADRAS, COPY OF WHICH HAS ALSO BEEN FILED. AS THERE WAS NO 'LAPSED ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 47 -: SEAT' WHICH COULD BE FILLED AT THE DISCRETION OF TH E ASSESSEE NO DONATIONS COULD HAVE BEEN COLLECTED IN THIS AREA AL SO. FINALLY, WE FIND FROM THE AFORESAID DOCUMENTS THAT WHILE THE SE ATS SANCTIONED BY THE UNIVERSITY OF MADRAS WAS 535, ONLY 500 STUDENTS WERE ACTUALLY ADMITTED LEAVING 35 OF THE SANCTIONED SEATS VACANT. WHEN THE ASSESSEE US UNABLE TO GET STUDENTS TO FILL UP EVEN THE SANCTIONED STRENGTH, WE FAIL TO UNDERSTAND AS TO HOW IT WOULD BE IN A POSITION TO DEMAND AND GET DON ATIONS AT THE TIME OF ADMISSION.' 17. FOR THE REASONS AFORESAID, WE HAVE NO RESERVATIONS IN HOLDING THAT THE ASSESSEE HAD VE RY LITTLE DISCRETION IN THE MATTER OF ADMISSION OR CHARGING OF' FEES DURING THE YEAR AND THEREFORE, HAVE NO HESITATION I N HOLDING THAT THE CORPUS DONATIONS RECEIVED CANNOT BE TREATE D AS CAPITATION FEES AND THAT THE SURPLUS EARNED BY THE ASSESSEE CANNOT BE ON ACCOUNT OF 'PROFITEERING' WARRANTING T HE ASSESSMENT OF ASSESSEE'S SURPLUS AS 'INCOME FROM BU SINESS' AND THEREFORE, WE DISMISS GROUND NOS. 1.D AND LE RAISED BY THE REVENUE. ' BY EARNING SURPLUS, IT CANNOT BE SAID THAT THE ASSESSE E IS CARRYING ON BUSINESS ACTIVITY. '23. NOT BEING CONTE NT WITH DEFENDING THE ORDER OF THE ID. CIT(A) RESTORING THE EXEMPTION U/S 11 AND ASSAILING THE REVENUE'S GROUNDS OF APPEAL, THE ID.AR ADVANCED ERUDITE ARGUMENTS ON LAW TO JUSTIFY THE GRANT OF EXEMPTION U/S 11 WHICH ARE DEALT WITH HEREUNDER: I. EXEMPTION NOT ANATHEMA TO 'SURPLUS' ARISING OUT OF CHARITABLE ACTIVITY - IF 'SURPLUS' IS APPLIED FOR 'CHARITABLE' PURPOSES. A. THAT THE REVENUE IS IMPORTING THE LANGUAGE OF SEC. 10(22) (DELETED ON 1.4.1999) THAT THE EDUCATIONAL INSTITUT ION SHOULD 'EXIST SOLELY FOR EDUCATION PURPOSES AND NOT FOR PU RPOSES OF PROFIT' INTO SEC.11 WHICH HAS NO SUCH CONDITIONS AN D THEREFORE, THE GENERATION OF 'SURPLUS' WITHIN THE FRAME WORK OF REGULATIONS OF THE COMPETENT AUTHORITIES CANNOT BE CONSTRUED AS A 'BUSINESS' ACTIVITY OR 'PROFITEERING' SO AS TO DENY EXEMPTION U/S 11. B. WHEN THE CIT, HIGHEST FUNCTIONARY OF THE REVENUE HAD HIMSELF EXAMINED THE VERY SAME ASPECT ON 18.9.1998 (COPY OF THIS LETTER IS FILED IN PAGE 35 OF VOLUME I OF PAPER BOOK) AND CONCLUDED IN FAVOUR OF THE ASSESSEE, NO NEW FACTS O R CIRCUMSTANCES HAVE BEEN BROUGHT Q!H RECORD FOR THE YEAR RELATING TO 2001-02 A/Y TO CHANGE THE COMMISSIONER OF INCOME TAX'S VIEW IN 1998. C. ELEEMOSYNARY AND ALTRUISM ARE IRRELEVANT FOR CLAIMI NG EXEMPTION U/S 11 - RELYING ON THE COMMENTARY IN THE LAW AND PRACTICE OF INCOME TAX IN KANGA AND PALKHIWALA AND THE CASES CITED THEREIN (PAGE 392). D. CBDT CIRCULAR F.NO.194116-17-IT{AI) REPRODUCED I N 212 ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 48 -: ITR 462 (KER) - 'THE QUESTION FOR CONSIDERATION IS WHETHER AN EDUCATIONAL INSTITUTION EXISTING SOLELY FOR EDUCATI ONAL PURPOSE BUT WHICH SHOWS SOME SURPLUS AT THE END OF THE YEAR IS ELIGIBLE FOR THIS EXEMPTION. IF THE PROFIT OF THE E DUCATIONAL INSTITUTION CAN BE DIVERTED FOR THE PERSONAL USE OF THE PROPRIETOR THEREOF, THEN THE INCOME OF THE EDUCATIO NAL INSTITUTION WILL BE SUBJECT TO TAX. HOWEVER, THERE MAY BE CASES WHERE THE EDUCATIONAL INSTITUTIONS MAY BE OWNED BY THE TRUSTS OF SOCIETIES TO WHOM THE PROVISIONS OF SECTION 11 MAY BE APPLICABLE. WHERE ALL THE OBJECTS OF THESE TRUSTS A RE EDUCATIONAL, AND THE SURPLUS, IF ANY, FROM RUNNING THE EDUCATIONAL INSTITUTION IS USED FOR EDUCATIONAL PUR POSES ONLY, IT CAN BE HELD THAT THE INSTITUTION IS EXISTING FOR ED UCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT. ' 24. THE AFORESAID PROPOSITIONS WERE AGAIN BUTTRESSE D BY THE ID.AR BY A LINE OF CASES AS UNDER: ADITANAR EDUCATI ONAL INSTITUTION VS. ACIT - 224 ITR 310 (SC) ' .. .RUNNING, MANAGING OR ASSISTING SCHOOLS AND COLLEGES - IS AN EDUCATION AL INSTITUTION ENTITLED TO EXEMPTION AVAILABLE EACH YE AR ON SURPLUS OVER EXPENDITURE, IF THE INSTITUTION EXISTED SOLELY FOR EDUCATIONAL PURPOSES - OVERALL VIEW TO BE TAKEN - I NCOME TAX ACT. .. ' ' ... AVAILABILITY OF THE EXEMPTION SHOUL D BE EVALUATED EACH YEAR TO FIND OUT WHETHER THE INSTITUTION EXIST ED DURING THE RELEVANT YEAR SOLELY FOR EDUCATIONAL PURPOSES AND N OT FOR PURPOSES OF PROFIT. AFTER MEETING THE EXPENDITURE, JF ANY SURPLUS RESULTS INCIDENTALLY ... ' ' ... IT WILL NO T CEASE TO BE ONE EXISTING SOLELY FOR EDUCATIONAL PURPOSES, SINCE THE OBJECT IS NOT ONE TO MAKE PROFIT. THE DECISIVE OR ACID TEST I S WHETHER, ON AN OVERALL VIEW OF THE MATTER, THE OBJECT IS TO MAK E PROFIT. IN EVALUATING OR APPRAISING THE ABOVE, ONE SHOULD ALSO BEAR IN MIND THE DISTINCTION DIFFERENCE BETWEEN THE CORPUS, THE OBJECTS AND THE POWERS OF THE CONCERNED ... ' ' ... 10(22) SHOULD BE EVALUATED OR INVESTIGATED EVERY YEAR AND ONLY IF IT WAS FOUND THAT THE 'INSTITUTION' EXISTED FOR EDUCAT IONAL PURPOSES IN THE RELEVANT YEAR AND EVEN IF ANY PROFI T RESULTED WHICH WAS ONLY INCIDENTAL TO THE PURPOSE OF EDUCATI ON, THE INCOME WOULD BE ... '. AMERICAN HOTEL & LODGING ASSOCIATION EDUCATIONAL INSTITUTES VS. CBDT - 301 ITR 86 (SC) ' ... THE MERE EXISTENCE OF PROFIT I SURPLUS DID NOT DISQUALIFY THE INSTITUTION ... '. ACIT VS. SURAT ART SILK CLOTH MA NUFACTURERS ASSOCIATION - 121 ITR 1 (SC) - 5 MEMBER BENCH ' ... NOT INVOLVING ANY ACTIVITY FOR PROFIT -MEANING AND SCOP E ... ' ' ... SO LONG AS THE PURPOSE DOES NOT INVOLVE THE CARRYING O N OF ANY ACTIVITY FOR PROFIT, THE REQUIREMENT OF THE DEFINIT ION WOULD BE - IT IS IMMATERIAL HOW THE MONIES FOR ACHIEVING OR IMPLE MENTING SUCH PURPOSE ARE FOUND, WHETHER BY CARRYING ON AN A CTIVITY FOR PROFIT OR NOT ... ' CIT VS. INDIAN INSTITUTE OF COM PUTER TECHNOLOGY - 244 ITR 371 (KER) BIRLA VIDYA VIHAR TRUST VS. CIT - 136 ITR 445 (CAL) ' ... EDUCATIONAL INSTITUTION CONDITION PRECEDENT - MUST EXIST SOLELY FOR EDUCATIONAL PURPO SES AND NOT FOR PURPOSES OF PROFIT - POSITION TO BE DETERMINED WITH ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 49 -: REFERENCE TO CUMULATIVE EFFECT OF ALL RELEVANT FACT S ... ' ' ... NEITHER THE FORTUITOUS FACTOR OF HAVING A LARGE SUR PLUS IN ANY PARTICULAR YEAR NOR THE SOLITARY FACT OF DIVERTING SOME OF THE INCOME TO OBJECTS CHARITABLE BUT NOT EDUCATIONAL WO ULD .BE DECISIVE OF THE MATTER ... ' A SOLITARY INSTANCE OF APPLICATION OF INCOME FROM THE SCHOOLS FOR NON-EDUCATIONAL PURP OSES IN A PRIOR YEAR WAS NOT VERY MATERIAL. THE FACT THAT THE ASSESSEE TRUST HAD OBJECTS OTHER THAN EDUCATIONAL OBJECTS WA S ALSO NOT MATERIAL ... N PINEGROVE INTERNATIONAL CHARITABLE TRUST VS. UNION OF INDIA AND OTHERS - 327 ITR 73 (P&H) ' ... MERELY BECAUSE PROFITS HAVE RESULTED FROM THE ACTIVITY OF IMPARTING EDUCATION THAT WOULD NOT CHANGE THE CHARACTER OF THE INSTITUTION EXISTING SOLELY FOR EDUCATIONAL PURPOSE ... ' ' ... MERELY B ECAUSE THERE ARE SURPLUSES IN THE HANDS OF THE EDUCATIONAL INSTI TUTION THAT WOULD NOT IPSO FACTO LEAD TO AN INEVITABLE CONCLUSI ON THAT SUCH AN EDUCATIONAL INSTITUTION EXISTS FOR MAKING PROFIT S AND NOT SOLELY FOR EDUCATIONAL PURPOSES ... N ' ACCORDINGLY, IT HAD TO BE ASCERTAINED WHETHER THE EDUCATIONAL INSTITUTION HAD BEEN APPLYING ITS PROFIT WHOLLY AND EXCLUSIVELY TO THE O BJECT FOR WHICH THE INSTITUTION WAS ESTABLISHED. MERELY BECAUSE AN INSTITUTION HAD EARNED PROFIT THAT WOULD NOT BE THE DECIDING FA CTOR TO CONCLUDE THAT THE EDUCATIONAL INSTITUTION EXISTED F OR PROFIT ... ' VANITA VISHRAM TRUST VS. CHIEF COMMISSIONER OF INCOME - TAX AND ANOTHER - 327 ITR 121 (BOM) ' ... THE FACT THAT A SURPLUS MAY INCIDENTALLY ARISE FROM THE ACTI VITIES OF THE TRUST, AFTER MEETING THE EXPENDITURE INCURRED FOR C ONDUCTING EDUCATIONAL ACTIVITIES WOULD NOT DISENTITLE THE TRU ST OF THE BENEFIT OF THE PROVISIONS OF SECTION 10(23C) ... ' MAA SARASWARI EDUCATIONAL TRUST VS. UOI (HP) - ' ... THEREFORE, I T IS NOT AS IF THE EDUCATIONAL INSTITUTION CANNOT GENERATE ANY SUR PLUS. GENERATING SURPLUS AND ACCUMULATION OF INCOME WILL NOT DISQUALIFY AN INSTITUTION FOR THE BENEFITS OF SECTION 10(23). SURPLUS IS TO BE UNDERSTOOD IN CONTRADISTINCTION TO GENERATION OF INCOME WITH THE SOLE MOTIVE OF PROFIT IF ONE HAS TO PROPERLY UNDERSTAND THE LEGISLATIVE INTENT OF SECTION 10(23C )(VI) ... '... THOUGH CHARITY IS A LAUDABLE OBJECT, THAT CONSIDERA TION IS IRRELEVANT UNDER THE SAID PROVISION. WHAT IS RELEVA NT IS PURPOSE AND ADMINISTRATION OF THE INSTITUTION ONLY FOR EDUCATION AND NOTHING MORE OR NOTHING LESS OR ANYTHING ELSE ... ' BREACH CANDY HOSPITAL TRUST VS. CHIEF COMMISSIONER (BOM) - 322 ITR 246 (BOM) 25. ON A THOROUGH READING OF THE JUDGMENTS RELIED ON, EXTRACTS FROM WHICH ARE GIVEN ABOVE, WE FIND THAT THEY APPLY IN GREATER FORCE TO THE ASSESSEE, WHOSE CLAIM FOR EXEMPTION IS U/S 11, ALTHOUGH MOST OF THE JUDGMENTS HAVE BEEN RENDERED UNDER SEC. 10(22). WE NOTICE THAT, WHILE SEC 10(22) HAD AN EXPRESS CONDIT ION THAT THE INSTITUTION SHOULD EXIST 'NOT FOR PURPOSES OF PROFIT' SEC.11 DOES NOT IMPOSE ANY SUCH CONDITION. IF THE INCIDENC E OF PROFIT IS NOT AN IMPEDIMENT FOR ALLOWING EXEMPTION U/S 10(22), AS ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 50 -: DECIDED BY THE ABOVE LINE OF CASES AND CBDT CIRCULAR, WE FAIL TO SEE THE REVENUE'S CLAIM THAT THE SURPLUS WOULD M ILITATE THE ASSESSEE'S CLAIM FOR EXEMPTION U/S 11 . WE THEREFORE, HOLD THAT THE INCIDENCE OF SURPLUS DURING THE COURSE OF ACTIVITY OF RUNNING THE EDUCATIONAL INSTI TUTION WOULD NOT BE A GROUND TO STATE THAT THE ASSESSEE IS CARRY ING ON A BUSINESS ACTIVITY SO AS TO FORFEIT EXEMPTION U/S 11. '. .... THEREFORE, FOR THE RELEVANT ASSESSMENT YEARS 2002-0 3, 2003-04 AND 2004-05 WHERE THE ASSESSMENTS ARE BASED ON THE SAME SEARCH MATERIALS, IN THE SAME SEARCH PROCEEDINGS AN D BASED ON THE SAME FACTS, WE ARE BOUND TO FOLLOW THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL MENTIONED SUPRA.' THE HONOURABLE ITAT HAD GIVEN THE FOLLOWING DECISIO N FOR 2002-03 TO 2004- 05 A/S ON THE ISSUE OF CONSIDERING DONATIO NS RECEIVED AS CAPITATION FESS AND ASSESSING THE INCOME AS 'PROFIT S AND GAINS OF BUSINESS AND THEREBY DENYING EXEMPTION U/S 11, AFTE R CONSIDERING ALL THE FACTUAL MATERIALS FOUND DURING THE SEARCH AND STATEMENTS RECORDED, WHICH WERE RELIED ON IN THE ASSESSMENT OR DER, IN THE FOLLOWING WORDS: '16. FURTHER, WE FIND IN THE PAPER BOOK FILED BY THE LEA RNED DEPARTMENTAL REPRESENTATIVE CONTAINING 1 TO 270 PAGES THAT:- A) IN PAGE NO.124 SWORN STATEMENTS OF THE PARENTS / OTTTCIELS OF THE TRUST ARE ENCLOSED AND THEY WERE TAKEN INTO CON SIDERATION WHILE DECIDING THE ISSUE BY THE TRIBUNAL FOR THE AS SESSMENT YEAR 2001-02. MOREOVER THE REVENUE ITSELF HAS ADMIT TED THAT MOST OF THE PARENTS HAVE RETRACTED THEIR STATEMENTS . THE GRIEVANCE OF THE REVENUE IS THAT THE ASSESSEE HAS NOT PRODUCE D THOSE PARENTS BEFORE THEM BUT THE FACT REMAINS THAT THE R EVENUE HAS FAILED TO INVOKE THEIR POWERS TO SUMMON THEM TO FIN D OUT THE TRUTH. PAGE NO.85 TO 89 REFERS TO SEIZED MATERIALS SHOWING PAYMENT OF RS.8,00,000/- FOR GRANTING ADMISSION ON AGREED B ASIS. FROM THESE LETTERS IT CANNOT BE CONCLUSIVELY SAID THAT T HEY ARE CAPITATION FEES OR FORCED PAYMENTS FOR ADMISSIONS, THOUGH AN AIR OF SUSPICION MAY ARISE. PAGE NO.90 REFERS TO LIST OF DONATIONS PAID AS CASH BY PARENTS. DONATIONS 'ARE NOT PROHIBITED TO BE COLLECTED BY TH E CHARITABLE INSTITUTIONS. IN FACT, SUSTENANCE OF THE INSTITUTIO NS DEPENDS ON THE DONATIONS RECEIVED AS CHARITY. PAGE NO.91 TO 98 REFERS ABOUT THE NAME OF CANDIDATES AND THE NAME OF THE PERSONS WHO HAVE REFERRED THE CANDIDATE S. IN THE REMARKS COLUMN, IT IS MENTIONED 'TO PAY, NRI QUOTA, NIL ETC. THIS ALSO DOES NOT CONCLUSIVELY PROVE THAT THE ASSE SSEE IS RECEIVING DONATION BY FORCE OR CAPITATION FEE. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 51 -: PAGE NO.99 TOL01 CONTAINS DETAILS OF ADMISSION SUCH AS MERIT CANDIDATES, NRI CANDIDATES, MANAGEMENT QUOTA ADMISS IONS ETC., THIS ALSO DOES NOT SUGGEST ANY VIOLATION OF L AW. PAGE 102 TO 109 CONTAINS XEROX COPY OF THE MANAGEME NT ADMISSION REGISTER OF POST-GRADUATION COURSES. IN O NE COLUMN WE FIND REFERENCE OF FIGURES SUCH AS 1.5, 0.5, 6, 4 ETC., WHICH MAY SUQQEST THAT 1,50,000/-1,00,000/- ETC., ARE AMO UNT RECEIVABLES BUT THAT IS ALSO NOT A CONCLUSIVE PROOF FOR RECEIPT OF CAPITATION FEE. SIMILAR XEROX COPY OF REGISTERS PERTAINING TO MANAG EMENT ADMISSION FOR PG COURSES ARE FOUND IN THE PAGES, 11 0 TO 139, 140 TO 169 OF THE PAPER BOOK FROM WHICH NO CONCLUSIVE ADVERSE INFERENCE CAN BE MADE OUT. PAGE NO.170 TO 175 ALSO REFERS TO PAYMENT SUCH AS RS.8,00,000/- 2,00,000/- 1,00,000/- AND 4,00,000/-, HOWEVER NO CONCLUSIVE INFERENCE CAN BE MADE THAT THEY ARE C APITATION FEES. PAGE NO.176 TO 193 CONTAIN SHEETS WHEREIN THE REMARK COLUMN IT IS MENTIONED AS 'TO PAY 2' TO PAY 3 'TO PAY 4' NIL PAYMENT ETC., HOWEVER NO CONCLUSIVE INFERENCE CAN. BE MADE THAT THEY ARE CAPITATION FEES. PAGE 194 TO 199 CONTAINS LETTERS FOR REFUND OF DONATIONS BUT THERE IS NOTHING TO SUGGEST THAT THEY ARE FORCED PAYMENTS THOUGH AN AIR OF SUSPICION MAY ARISE. PAGE NO.200 TO 238 ALSO CONTAINS CERTAIN REQUESTS FOR REFUNDS FROM CANDIDATES AND LETTERS FROM COMPANIES SUCH AS SUNDARAM FINANCE, BRAKES INDIA LTD., ETC.,REQUESTIN G FOR THEIR CANDIDATES TO BE ACCOMMODATED ON SPONSORSHIPS. WE DO NOT FIND THIS PRACTICE TO BE IN VIOLATION OF ANY LAW. IN PAGE NO.239 & 240 THERE ARE REFERENCE ABOUT SOME PAYMENTS, ADMISSIONS ETC., BUT THEY CANNOT BE CONCL USIVELY SAID THAT IT IS CAPITATION FEE THOUGH IT MAY RAISE AN AIR OF SUSPICION. PAGE NO.241 SHOWS COURSE-WISE SUMMARY OF DONATION W HICH CANNOT BE CONCLUDED THAT THEY ARE CAPITATION FEES. PAGE NO.242 TO 244 SHOWS THAT THE INSTITUTION HAS COLLECTED SOME SPECIAL FEE AND MADE CERTAIN REFUND. NO SPECIF IC INFERENCE OF VIOLATIONS CAN BE MADE OUT FROM THESE OFFICIAL NOTES. PAGE NOS.245 TO 255 CONTAINS XEROX COPY OF LETTERS FROM ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 52 -: PARENTS REGARDING PAYMENT MADE FOR TUITION FEE, HOS TEL FEE, ADVANCE AND DONATIONS. AGAIN THESE DO NOT SUGGEST T HAT THE ASSESSEE IS RECEIVING CAPITATION FEES. THE ABOVE PAPER BOOK FILED BY THE REVENUE HAS ALSO BEEN TAKEN INTO CONSIDERATION BY THE TRIBUNAL WHILE DECI DING THE APPEAL FOR THE ASSESSMENT YEAR 2001-02. FURTHER, ON PERUSING THE ABOVE MENTIONED PAPER BOOK FILED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, WE ARE OF THE CONSIDER ED VIEW THAT BASED ON SURMISES AND CONJECTURES, IT CANNOT BE PRESUMED THA T THE DONATIONS RECEIVED BY THE ASSESSEE ARE CAPITATION F EES OR FORCED EXTORTION OF MONEY FROM THE STUDENTS FOR GRA NTING ADMISSION. THEREFORE, EVEN THOUGH THE LEARNED DEPAR TMENTAL REPRESENTATIVE HAS CITED CERTAIN SEARCH MATERIALS B ELONGING TO RELEVANT ASSESSMENT YEARS IN PARA NO.13 HEREINABOVE TO ESTABLISH THAT THE ASSESSEE WAS COLLECTING CAPITATI ON FEE, WE DO NOT FIND ANY MERIT IN THE SAME. FURTHER, WE FIND THE DECISION OF THE HON'BLE JURISD ICTIONAL HIGH COURT AND THE HON'BLE APEX COURT CITED BY THE LEARN ED ASSESSEE'S REPRESENTATIVE TO BE VERY MUCH RELEVANT AND THEY ARE REPRODUCED HEREIN BELOW FOR R EFERENCE. I) IN CIT VS. BALAJI EDUCATIONAL & CHARITABLE PUBLIC TRUST (MAD) REPORTED IN 374 ITR 274, THE HON'BLE MADRAS HIGH COURT HELD AS FOLLOWS:- 'HELD, DISMISSING THE APPEAL, (I) THAT THE COMMISSI ONER (APPEALS) AND THE TRIBUNAL HAD COME TO THE CONCLUSI ON THAT THE DONATIONS RECEIVED DID NOT PARTAKE OF THE CHARACTER OF CAPITATION FEE. THERE WAS NO ELEMENT OF INVOLUNTARY NATURE IN THE DONATIONS. A SPECIFIC FINDING WAS GIVEN THAT NO INVESTIGATION HAD BEEN DONE TO SHOW THAT ANY PARENT OR STUDENT HAD COMPLAINED ABOUT THE NATURE OF THE DONATION. THE DEPARTMENT HAD FAILED TO DISPEL T HE FINDING OF FACT. FOR THE ASSESSMENT YEARS 2002- 03 AND 2003 -04 AS THE CHIEF COMMISSIONER HAVING JURISDICTION OVER THE CASE HAD NOTIFIED UNDER SECTION 10(23C)(VI) THERE WAS NO APP LICABILITY OF SECTION 11 OR SECTION J3 IN THOSE TWO YEARS. THE DEPARTMENT HAD NOT PRODUCED ANY EVIDENCE OF BREACH OF SECTION 10(23C)(VI) OF THE ACT AND, THEREFORE, THE ASSESSEE -TRUST WOULD BE ENTITLED TO THE BENEFIT OF EXEMPTION CONTAINED THEREIN. THE DEP ARTMENT HAD PROCEEDED ON A WRONG PREMISE WITHOUT ANY BASIC MATERIALS T O ESTABLISH A CASE OF VIOLATION OF SECTION 13 OF THE ACT. THEREFORE, THE TRIBUNAL WAS RIGHT IN DELET ING THE ADDITION OF CAPITATION FEES. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 53 -: (II) THAT THE ASSESSING OFFICER HAD ACCEPTED THE DI SCLOSURE OF THE SEIZED CASH AS THE INCOME OF THE INDIVIDUAL AND, THEREFORE IT COULD NOT BE SAID THAT ASSESSEE-TRUST HAD VIOLATED THE PROVISIONS OF SECTION 13(L)(D).' II) IN QUEEN'S EDUCATIONAL SOCIETY VS. CIT REPORTED IN 372 ITR 699(SC) THE HON'BLE SUPREME COURT HELD AS FOLLOWS:- 'THE LAW COMMON TO SUB-CLAUSES (IIIAD) AND (VI) OF SECTION 10(23C) OF THE INCOME-TAX ACT, 1961, MAY BE SUMMED UP AS FOLLOWS: (1) WHERE AN EDUCATIONAL INSTITUTION CARRIES ON THE ACTIVITY OF EDUCATION PRIMARILY FOR EDUCATING PERSONS, THE FACT THAT IT MAKES A SURPLUS DOES NOT LEAD TO THE C ONCLUSION THAT IT CEASES TO EXIST SOLELY FOR EDUCATIONAL PURP OSES AND BECOMES AN INSTITUTION FOR THE PURPOSE OF MAKING PROFIT. (2) THE PREDOMINANT OBJECT TEST MUST BE APPLIED-THE PURPOSE OF EDUCATION SHOULD NOT BE SUBMERGED BY A PROFIT-MAKIN G MOTIVE. (3) A DISTINCTION MUST BE DRAWN BETWEEN THE MAKING OF A SURPLUS AND AN INSTITUTION BEING CARRIED ON 'FOR PROFIT'. NO INFER ENCE ARISES THAT MERELY BECAUSE IMPARTING EDUCATION RESULTS IN MAKIN G A PROFIT, IT BECOMES AN ACTIVITY FOR PROFIT. (4) IF AFTER MEETING EXPENDITURE, A SURPLUS ARISES INCIDENTALLY FROM THE ACTIVITY CARRI ED ON BY THE EDUCATIONAL INSTITUTION, IT WILL NOT CEASE TO BE ON E EXISTING SOLELY FOR EDUCATIONAL PURPOSES. (5) THE ULTIMATE TEST IS WHETHER ON AN OVERALL VIEW OF THE MATTER IN THE ASSESSMENT YEAR IN QUESTION THE OBJECT IS TO MAKE PROFIT AS OPPOSED TO EDUCATIN G PERSONS. THESE TESTS WOULD ALL APPLY TO DETERMINE WHETHER AN EDUCATIONAL INSTITUTION EXISTS SOLELY FOR EDUCATION AL PURPOSES AND NOT FOR PURPOSES OF PROFIT.ADDL. CIT V. SURA T ART SILK CLOTH MANUFACTURERS ASSOCIATION [1980] 121 ITR 1 (SC),ADITANAR EDUCATIONAL INSTITUTION V. ADDL. CIT [1997] 224 ITR 310 (SC) AND AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE V. CBDT [2008] 301 ITR 86 (SC) APPLIED. IT IS CLEAR THAT WHEN A SURPLUS IS PLOUGHED BACK FO R EDUCATIONAL PURPOSES, THE EDUCATIONAL INSTITUTION EXISTS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSES OF PROFIT. S. RM. M. CT. M. TIRUPPANI TRUST V. CIT [1998] 230 ITR 636 (SC) RELIED ON THE TESTS LAID DOWN IN SURA T ART SI LK CLOTH MANUFACTURERS ASSOCIATION [1980] 121 ITR 1 (SC), ADITANAR EDUCATIONAL INSTITUTION [1997] 224 ITR 310 (SC) AND AMERICAN HOTEL AND LODGING ASSOCIATION EDUCATIONAL INSTITUTE [2008] 301 ITR 86 (SC) WOULD APPLY TO DETERMINE WHETHER AN EDUCATIONA L INSTITUTION EXISTS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 54 -: PURPOSES OF PROFIT. THE THIRTEENTH PROVISO TO SECTION 10(23C) I S OF GREAT IMPORTANCE IN THAT ASSESSING AUTHORITIES MUST CONTI NUOUSLY MONITOR FROM ASSESSMENT YEAR TO ASSESSMENT YEAR WHE THER SUCH INSTITUTIONS CONTINUE TO APPLY THEIR INCOME AN D INVEST OR DEPOSIT THEIR FUNDS IN ACCORDANCE WITH THE LAW LAID DOWN. FURTHER, IT IS OF GREAT IMPORTANCE THAT THE ACTIVITIES OF SUCH INSTITUTIONS BE LOOKED AT CAREFULLY. IF THEY ARE NOT GENUINE, OR AR E NOT BEING CARRIED OUT IN ACCORDANCE WITH ALL OR ANY OF THE CONDITIONS SUBJECT TO WHICH APPROVAL HAS BEEN GIVEN, SUCH APPR OVAL AND EXEMPTION MUST FORTHWITH BE WITHDRAWN.' 19. BASED ON OUR ABOVE DISCUSSIONS, THE FACTS OF THE CASE AND THE DECISIONS CITED BY THE LEARNED ASSESSEE'S REPRESENTATIVE, WE HEREBY HOLD THAT THE SAME DECISION OF THE EARLIER ORDER OF THE TRIBUNAL IN ITANO.1332/MDS/2010 AND C.O.NO.94/MDS/2010 FOR THE ASSESSMENT YEAR 2001-2 WILL PREVAIL FOR THE ASSESSM ENT YEARS 2002-03, 2003-04 AND 2004-05 ALSO, WHICH IS AS FOLLOWS:- 'CORPUS DONATIONS' RECEIVED BY THE ASSESSEE CANNOT BE TREATED AS 'CAPITATION FEES' AND THE SURPLUS EARNED CANNOT BE TREATED AS 'INCOME FROM BUSINESS'. THE EMPLOYEES OF THE ASSESSEE COULD NOT HAVE KNOWLE DGE ON THE ASSESSEE'S AFFAIRS. BY EARNING SURPLUS, IT CANNOT BE SAID THAT THE ASSE SSEE IS CARRYING ON BUSINESS ACTIVITY. THE ASSESSEE IS ENTITLED TO THE BENEFIT OF SECTION 11 (4A) OF THE ACT. CORPUS DONATION RECEIVED CANNOT BE TREATED AS CAPIT ATION FEE AND THEREFORE ASSESSEE CANNOT BE DENIED BENEFIT UND ER SECTION 11. ACCORDINGLY, WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO GRANT THE BENEFIT OF SECTION 11 TO THE ASSESSEE AND DELETE THE ADDITION MADE BY DENYING SUCH BENEFITS FOR ALL THE RELEVANT ASSESSMENT YEARS 2002-03, 2003-04 & 2004-05. THUS, THE GROUND NOS. 2 & 4 IS DECIDED IN FAVOUR OF THE ASSESSE E.'. WE ALSO FIND THAT THE QUESTION WAS ANSWERED BY THE TRIBUNAL, IN FAVOUR OF THE ASSESSEE, FOR ASSESSMENT YEARS 2002-0 3 TO 2004-05, ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 55 -: BASED ON RECORDS, FOUND DURING THE SEARCH HELD ON 0 6.06.2007 AND THE STATEMENTS OF VARIOUS PARTIES, WHICH WERE THE SAME DOCUMENTS RELIED ON BY THE LD. ASSESSING OFFICER FOR IMPUGNED ASSES SMENT YEARS ALSO. JUDICIAL DISCIPLINE REQUIRES US TO FOLLOW THE ORDER S OF THE CO-ORDINATE BENCHES UNLESS THERE ARE VERY STRONG REASONS TO EXP RESS A DISSENT. NO SUCH STRONG REASONS WERE BROUGHT TO OUR ATTENTION B Y THE LD. DEPARTMENTAL REPRESENTATIVE. WE THEREFORE HOLD THAT DONATIONS RECEIVED BY THE ASSESSEE COULD NOT BE CONSIDERED AS CAPITATION FEE AND GENERATION OF SURPLUS DID NOT RENDER IT INELIGIBLE FOR CLAIMING EXEMPTION U/S.11 AND 12 OF THE ACT. 41. NEXT QUESTION IS WHETHER THE LAND DEVELOPMENT EXPE NDITURE INCURRED IN CASH AT CHENNAI AND VELLORE CENTERS OF THE ASSESSEE CAN BE CONSIDERED AS NOT PROPERLY VOUCHED AND IF SO, WHETH ER IT CAN BE CONSTRUED AS FUNDS DIVERTED FOR USE OF TRUSTEES O R SPECIFIED PERSONS INDIRECTLY BENEFITING THEM, THEREBY ATTRACTING SEC TION 11(1) ( C) OF THE ACT. THE FINDINGS OF THE LD. COMMISSIONER OF INCOM E TAX (APPEALS) ON THE LAND DEVELOPMENT EXPENDITURE AS AP PEARING AT PARA 13.1.2 OF HIS ORDER IS REPRODUCED HEREUNDER:- 13.1.2 I HAVE GONE THROUGH THE ELABORATE DISCUSSION S BY THE ASSESSING OFFICER TO ARRIVE AT HIS CONCLUSIO NS EXTRACTED ABOVE AND ALSO THE EXPLANATIONS AND ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 56 -: SUBMISSIONS OF THE APPELLANT EXTRACTED ABOVE. WHILE THE AA HIMSELF ADMITS AND ACCEPTS THAT IN RESPECT O F CERTAIN EXPENDITURE, VOUCHERS RELATING TO CASH PAYMENTS WERE PROPERLY MAINTAINED AND FILED. IN RESPECT OF CERTAIN EXPENDITURE, FOR EXAMPLE, PAYMEN T TO JCB OPERATORS LIKE M/S. RADHAMANI TRANSPORTS, GV R TRANSPORTS, SS BM TRANSPORTS, KVM TRANSPORTS AND MANI TRANSPORTS, THE VOUCHERS DO NOT CONTAIN THE ADDRESS OF THE PERSONS TO WHOM SUCH CHARGES WERE PAID. ON GOING THROUGH THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT, I AM OF THE CONSIDERE D VIEW THAT THE ACTION OF THE AO IN THIS REGARD CANNOT BE ENTIRELY UPHELD AS CORRECT FOR THE FOLLOWING REASONS: I. THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNTS OR THE RESULTS THERE FROM, WHICH WERE THE SUBJECT MATT ER OF AN AUDIT AND REPORT U/S 12A(B) OF THE ACT. THE A R WAS AT PAINS TO POINT OUT THAT THE INCOME RETURNED AS PER THE BOOKS OF ACCOUNT HAS BEEN ACCEPTED AND ADOPTED IN THE ASSESSMENT MAKING ADJUSTMENTS ONLY ON LEGAL ISSUES. NO ADDITION WHATSOEVER HAS BEEN MADE FOR ANY CONCEALED INCOME OR DISALLOWANCE OF ANY FALSE CLAIM OF EXPENDITURE I N THE ASSESSMENT ORDER. II. THE AO HAS NOT TOTALLY BRUSHED ASIDE THE DOCUMENTARY EVIDENCES PRODUCED BY THE APPELLANT IN REGARD TO THE CLAIM OF LAND DEVELOPMENT EXPENDITURE . ALTHOUGH HE HAS EXPRESSED RESERVATIONS ON THE GENUINENESS OF THE CASH EXPENDITURE, HE HAS ALSO STATED ELSEWHERE IN THE ASSESSMENT ORDER THAT VOUCHERS IN RESPECT OF CERTAIN ITEMS OF EXPENDITURE SUCH AS WAGES PAID TO COOLIES, JCB OPERATIONS ETC., WERE PROPERLY MAINTAINED. HIS MAIN CONTENTION IS THAT THE TOTAL EXPENDITURE CLAIMED UNDER THIS HEAD IS DISPROPORTIONATE COMPARED TO THE CORRESPONDING EXTENT OF LAND VALUE. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 57 -: III. THE ONLY BASIS TO COME TO THIS CONCLUSION IS THE FACT THAT THE EXPENDITURES HAVE BEEN INCURRED IN CA SH, WITH THE AO'S RESERVATIONS ON THE VOUCHERS SUPPORTING THE CASH EXPENDITURE. IT IS NOTED THAT T HE AO HAS NOT ALLEGED THAT THE LAND DEVELOPMENT EXPENDITURE IS NOT SUPPORTED BY ANY VOUCHERS AT ALL - HE WAS ONLY UNCONVINCED ABOUT THE GENUINENESS OF THE VOUCHERS PRODUCED. EVEN ACCEPTING THAT THE EXPENDITURE CLAIMED UNDER THIS HEAD IS EXCESSIVE AS HELD BY THE AO, IT IS UNREASONABLE ON HIS PART TO DISALLOW THE EXPENDITURE IN ENTIRETY WHICH MEANS THERE WAS NO LAND DEVELOPMENT WORK AT ALL UNDERTAKEN BY THE APPELLANT. THE APPELLANT'S SUBMISSIONS IN PARAS 1.3 TO 1.6 EXTRACTED ABOVE DEFINITELY HAVE TO BE ACCEPTED THAT AGRICULTURAL LA NDS DO IN FACT NEED SUBSTANTIAL DEVELOPMENT EXPENDITURE TO ENABLE CONSTRUCTION OF MULTISTOREY CONCRETE STRUCTURES. THE AR PRODUCED COPIES OF ALL LAND PURCHASE DOCUMENTS TO PROVE THAT ALL THE LANDS BOUGHT BY THE APPELLANT WERE IN FACT ONLY AGRICULTU RAL LANDS AND WERE DESCRIBED AS SUCH IN THE SALE DEEDS WITH S.NO., KISTH ETC. IV. AS FOR THE REASONS FOR INCURRING THE SAID EXPENDITURE IN CASH, IT IS AN ACCEPTED PRINCIPLE TH AT JUDICIAL NOTICE NEEDS TO BE TAKEN OF THE REALITIES OF LIFE POINTED OUT IN PARA 1.7 OF APPELLANT'S SUBMISSIONS AND CANNOT BE IGNORED IN ITS ENTIRETY. V. THE APPELLANT'S SUBMISSIONS IN PARAS 1.8 TO 1.10 EXTRACTED ABOVE ARE ALSO ACCEPTABLE AS THE APPELLAN T HAD CARRIED OUT THE LAND DEVELOPMENT IN A PRUDENT AND RATIONAL WAY BY OBTAINING ESTIMATES THEREFOR FROM. A FIRM OF REPUTED ARCHITECTS IN CHENNAI (COPI ES OF WHICH, ALONGWITH THE RELEVANT SITE PLANS FOR THE AREAS TO BE DEVELOPED WERE FILED AND EXAMINED) AND THEN CONTROLLING ITS COSTS INCURRED IN CASH WITH TH E ABOVE ESTIMATE FROM A REPUTED PROFESSIONAL. VI. IT REQUIRES SPECIAL MENTION THAT WHILE THE APPE LLANT HAD CARRIED OUT THE LAND DEVELOPMENT WORK AT VELLOR E ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 58 -: & MADRAS ON ITS OWN BY EMPLOYING LABOUR DIRECTLY TO CONTROL THE COSTS, THE LAND DEVELOPMENT WORK AT BANGALORE WAS GIVEN ON CONTRACT, BECAUSE OF THE DISTANCE, LANGUAGE PROBLEM AND ABSENCE OF RELIABLE RESOURCES TO DEPLOY AND MANAGE FROM THE DISTANCE. SPECIAL EMPHASIS IS ALSO TO BE MADE TO THE FACT THA T ALL PAYMENTS TO THE CONTRACTORS AT BANGALORE FOR AL L 3 YEARS AND SOME GIVEN ON CONTRACT AT CHENNAI (FALLIN G IN 20013-09 A/Y) WERE MADE ONLY BY CHEQUES AFTER TDS U/S 194C. VII. WHEREAS CONTRARY TO THIS, IN CHENNAI AND VELLORE THESE WORKS WERE DIRECTLY SUPERVISED BY THE APPELLA NT ITSELF, THE REASON BEING THE LANDS ARE SITUATED NEA RBY AND COULD BE EASILY ACCESSIBLE. THUS WHEN THE PAYMENTS WERE TO BE MADE TO COOLIES, JCB OPERATORS AND LORRY DRIVERS THEY WOULD NOT ACCEPT CHEQUE PAYMENTS AND NECESSARILY PAYMENTS WERE TO BE MADE BY CASH ONLY. HAD THE INTENTION OF THE APPELLANT WAS TO AVOID CHEQUE PAYMENT, THEN THI S MODUS OPERANDI WOULD HAVE BEEN ADOPTED IN THE LAND DEVELOPMENT WORK AT BANGALORE ALSO. IT IS NOT THE INTENTION OF THE APPELLANT TO AVOID CHEQUE PAYMENT. FURTHER, EVEN IF FOR ARGUMENT SAKE, IT IS PRESUMED THAT THE APPELLANT WANTONLY MADE CASH PAYMENT TO THWART THE DEPARTMENT'S ATTEMPT TO VERIF Y THE VERACITY OF THE CLAIM, IT IS UNREASONABLE TO RE JECT THE ENTIRE EXPENDITURE IN TOTO. WITHOUT INCURRING A NY EXPENDITURE, SUCH A MASSIVE WORK COULD NOT HAVE BEEN CARRIED OUT. TO HAVE CLARITY ON SUCH EXPENDITURE INCURRED IN CASH AND CHEQUE AT EAC H OF THE 3 PLACES AR HAS PRODUCED A TABLE OF THE LAND DEVELOPMENT EXPENDITURE AT THE 3 PLACES, WHICH IS REPRODUCED HEREUNDER TO BRING CLARITY TO DECIDE THI S ISSUE: ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 59 -: VELLORE INSTITUTE OF TECHNOLOGY DETAILS OF LAND DEVELOPMENT EXPENSES VELLORE CHENNAI BANGA. TOTAL VE LLORE & CHENNAI EXPENSES CONSIDERED AS DIVERSION BY AO 1 2 3 4 (1+2+3) 5 (1+ 2) 05 - 06 A/C. CHEQUE 28987 0 0 28987 28987 CASH 10095824 27945196 0 38041020 38041020 TOTAL 10124811 27945196 0 38070007 38070007 06 - 07 A/C. CHEQUE 0 0 0 0 0 CASH 82711544 75039600 0 157751144 157751144 TOTAL 82711544 75039600 0 157751144 157751144 07 - 08 A/C. CHEQUE 1793685 15340500 68674575 85808760 17134185 CASH 47314562 98474942 12522000 1474041704 145789504 TOTAL 49108247 113815442 69926775 232850464 162923689 GRAND TOTAL 141944602 216800238 69926775 428671615 358744840 ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 60 -: VIII. I AM ALSO INCLINED TO AGREE WITH SUBMISSION OF THE APPELLANT THAT, TO ASSESS THE GENUINENESS OF THE LA ND DEVELOPMENT EXPENDITURE, THE AO ERRED IN COMPARING IT WITH THE COST OF THE LANDS. THE MORE RATIONAL APPRO ACH WOULD BE TO COMPARE THE EXPENDITURE INCURRED WITH COST PER ACRE AT THE 3 DIF1FERENT LOCATIONS IN VELLORE, CHENNAI AND BANGALORE TO ASSESS POSSIBLE EXCESS CLAIMS, WHEN THE GENUINEN ESS OF THE CASH VOUCHERS ARE BEING QUESTIONED BY THE AO . I FIND THAT THE LAND DEVELOPMENT COST PER ACRE AT BANGALORE (WHICH WERE PAID BY CHEQUE AFTER TDS) WAS RS.32.28 LAKHS IN 2007-08, WHILE THE AVERAGE COST P ER ACRE AT MADRAS WAS RS.24.86 LAKHS (FOR 2005-06; 2006-07 & 2007-08) AND THAT AT VELLORE WAS RS.11.60 LAKHS (FOR 2005-06; 2006-07 & 2007-08). COMPARING THE AVERAGE COSTS ABOVE, I FINDP THAT: TH E COST INCURRED IN CASH AT MADRAS & VEL.ERE ARE MUCH LOWER THAN THE COST: INCURRED BY CHEQUE AT BANGALOR E. IX. ANOTHER WAY OF COMPARING THE REASONABLENESS OF THE EXPENDITURE WOULD BE TO COMPARE THE COST PER ACRE A T MADRAS FOR WHICH PAYMENT WAS MADE BY CHEQUE AFTER TDS AND THAT INCURRED IN CASH. THE COST PER ACRE OF EXPENSE PAID BY CHEQUE AT MADRAS COMES TO RS.34.94/ACRE [RS.15340500 FOR 4.39 ACRES) AND THAT IN CASH RS.35.43/ACRE [RS.98474942 FOR 27.80 ACRES]. HENCE, THE COST PER ACRE INCURRED IN CASH AT MADRAS IN THE SAME YEAR IS HIGHER BY 2.9% THAN THE COST INCURRED BY CHEQUE. X. AS RIGHTLY POINTED OUT BY THE APPELLANT THE AO H AS ERRONEOUSLY CONSIDERED EVEN THE EXPENDITURE OF ABOU T RS.18 LAKHS AT VELLORE & RS.153.41 LAKHS DURING 2008-09 A/Y, PAID BY CHEQUES AFTER TDS, AT VELLORE AND CHEN NAI HAVE BEEN TREATED AS NOT GENUINE AND AS DIVERSION T O THE TRUSTEES! XI. CONSIDERING ALL THE ABOVE FACTS AND THAT WHEREV ER IT WAS POSSIBLE THE APPELLANT HAD MADE CHEQUE PAYMENT ALSO AND WHEREVER IT WAS NOT POSSIBLE IT MADE CASH PAYMENT AND FURTHER CONSIDERING THE FACT THAT THE C ASH EXPENDITURE IS HIGHER THAN THAT INCURRED BY CHEQUE IS ONLY 2.9% (AS IN PARA IX ABOVE) HIGHER THAN THAT ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 61 -: INCURRED BY CHEQUE, I AM OF THE VIEW THAT IT WOULD BE FAIR TO ESTIMATE THE LAND DEVELOPMENT EXPENDITUR E NOT SUPPORTED BY EVIDENCE OR AS EXCESSIVE AT 10% OF THE SAID EXPENDITURE INCURRED IN CASH IN THE RESPEC TIVE YEARS TO MEET THE ENDS OF JUSTICE. ACCORDINGLY THIS GROUND OF APPEAL IS PARTLY ALLOWED. 42. REASON WHY LD. ASSESSING OFFICER DISBELIEVED THE CL AIM OF THE ABOVE EXPENDITURE, APART FROM POINTING OUT THAT TH ESE WERE INCURRED IN CASH, WAS THAT VOUCHERS IN SUPPORT DID NOT CARRY THE ADDRESS OF THE RECIPIENT, FOR SUPPLY OF MORMBU SOIL DURING THE PE RIOD 15.08.2005 TO 20.08.2005. AS PER THE LD. ASSESSING OFFICER, THE RATE PER LOAD WAS UNIFORM AT RS.1,500/-. HOWEVER, IN OUR OPINION, T HESE COULD HAVE BEEN HARDLY A REASON FOR REJECTING THE CLAIM OF EX PENDITURE. IT MAY BE TRUE THAT EXPENDITURE DIRECTLY ACCOUNTED IN THE BOOKS OTHER THAN THROUGH THE CASH IMPREST DRAWN BY SHRI. PRAKSH HAD BETTER VOUCHERS. BUT THIS, IS IN OUR OPINION COULD NOT BE A REASON T O REJECT THE VOUCHERS WHICH WERE OTHERWISE AVAILABLE. WE HAVE TO LOOK A T THIS, IN CONJUNCTION WITH THE CONTENTION OF THE ASSESSEE THA T ALL THESE VOUCHERS WERE AVAILABLE AT THE TIME OF SEARCH BUT REVENUE H AD NOT SEIZED IT, CONSIDERING ITS VOLUMINOUS IN NATURE. COMING TO THE NATURE OF EVIDENCE REQUIRED TO SUPPORT LAND DEVELOPMENT EXPENDITURE, T HE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF DAMAC HOLDINGS (P) LTD (SUPRA) HAD HELD THAT GENERAL EVIDENCE WAS SUFFICIENT TO PROVE SUCH EXPENDITURE. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 62 -: THIS VIEW GETS ROBORANTED BY HONBLE JURISDICTION AL HIGH COURT THROUGH ITS JUDGMENT IN THE CASE OF VGP HOUSING (P) LTD (SUPRA ). IN ANY CASE, THERE IS NOTHING ON RECORD NOR ANYTHING C OMING OUT OF THE STATEMENTS GIVEN BY SHRI.PRAKASH WHO HAD DRAWN THE CASH IMPREST, WHICH CAN CORROBORATE THE FINDING OF THE LD. ASSESS ING OFFICER THAT LAND DEVELOPMENT EXPENDITURE CLAIMED TO HAVE BEEN INCUR RED IN CASH, HAD GONE TO THE HANDS OF ANY OF THE TRUSTEES OR ANY SPE CIFIED PERSON COMING UNDER SECTION 13(1) (C) OF THE ACT. IN OUR OPINION, LD. COMMISSIONER OF INCOME TAX (APPEALS) CORRECTLY U NDERSTOOD THE NATURE OF EXPENSES AND ITS QUANTUM AFTER COMPARING THE PER ACRE RATE AT DIFFERENT PLACES. NEVERTHELESS, HE FELL IN ER ROR IN SUSTAINING A DISALLOWANCE TO THE EXTENT OF 10%. LD. CIT(A) DID NOT GIVE ANY SPECIFIC REASON FOR SUSTAINING A DISALLOWANCE TO TH E EXTENT OF 10% OF THE CLAIM. MORE SO SINCE LD. COMMISSIONER OF INCOM E TAX (APPEALS) HIMSELF HAD GIVEN A FINDING THAT PER ACRE LAND DEVE LOPMENT EXPENDITURE INCURRED IN CHENNAI AND VELLORE WERE LO WER THAN WHAT WAS INCURRED IN BANGALORE, WHERE ADMITTEDLY THE PAYMENT S WERE EFFECTED THROUGH BANK. THERE IS ALSO NO CASE FOR THE REVENU E THAT THE LAND IN QUESTION WAS NOT DEVELOPED AND WAS NOT AN AGRICULTU RAL IN NATURE WHEN THE ASSESSEE ACQUIRED IT. IN SUCH CIRCUMSTANC ES, WE ARE OF THE OPINION THAT THE DISALLOWANCE OF ANY LAND DEVELOPM ENT EXPENDITURE WAS NOT WARRANTED. EX-CONSEQUENTI THERE CAN BE NO QUESTION OF ANY ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 63 -: BENEFIT ACCRUING TO THE TRUSTEES OR SPECIFIED PERS ONS FOR APPLYING SECTION 13(1) (C) OF THE ACT. 43. NEXT QUESTION BEFORE US IS WHETHER REFUND OF ADVANC E FEES / TUITION FEES TO STUDENTS/PARENTS WERE PROPERLY EVID ENCED, AND IF NOT, COULD IT BE CONSTRUED AS FUNDS DIVERTED FOR THE BEN EFIT OF TRUSTEES/ SPECIFIED PERSONS, THEREBY ATTRACTING SECTION 13(1 ) (C) OF THE ACT. THE FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APP EALS) ON REFUNDS AS IT APPEAR AT PARAS 13.2.4 TO 13.2.11 OF HIS ORD ER ARE REPRODUCED HEREUNDER:- 13.2.3 THE FACTS PRESENTED AND THE OBSERVATIONS & INFERENCES OF THE AO IN CONCLUDING THAT THE REFUNDS OF STUDENT ADVANCE FEES AND ADVANCE TUITION FEE CLAIME D TO HAVE BEEN MADE TO THE STUDENTS WERE NOT GENUINE WER E EXAMINED IN DETAIL. THE SUBMISSIONS OF THE AR CONTESTING THE CONCLUSION OF THE AO WERE ALSO GONE THROUGH. 13.2.4 IT IS SEEN THAT WHEN THE AO RAISED THIS ISSU E AND EXEMPLIFIED HIS INCLINATION TO REJECT THE CLAIM OF THE APPELLANT DURING ASSESSMENT PROCEEDINGS, AS PER THE APPELLANT IT TOOK UP THE MATTER WITH THE RESPECTIVE PARENTS, OBTAINED AFFIDAVITS FROM THE PARENTS CONFI RMING THE RECEIPT OF REFUNDS FROM THE APPELLANT COLLEGE. THE APPELLANT PLEADED THAT UNFORTUNATELY THE AO REJECTE D THE SAME, ON THE PLEA THAT SINCE THE STUDENTS WERE STUD YING DURING THE RELEVANT TIME WHEN THEIR PARENTS WERE GI VING SUCH AFFIDAVITS, THEY WERE UNDER PRESSURE NOT TO SA Y ANYTHING CONTRARY TO THE APPELLANT'S CLAIM. 13.2.5 I ALSO FIND THAT THE DEPARTMENT HAD RECORDED STATEMENTS FROM SOME PARENTS, REGARDING THE ALLEGED ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 64 -: REPAYMENT OF STUDENT ADVANCE FEES AS PER THE ANNEXU RE TO THE ASSESSMENT ORDERS, ALL OF WHOM HAVE PURPORTE D TO HAVE STATED IN THE NEGATIVE. IT IS THE ALLEGATION O F THE APPELLANT THAT NONE OF THESE STATEMENTS WERE EVER P UT FORTH DURING THE COURSE OF ASSESSMENT AND THAT IT BECAME AWARE OF THE PURPORTED STATEMENTS ON LY ON RECEIPT OF THE ASSESSMENT ORDER AND BEING IN VIO LATION OF THE PRINCIPLES OF NATURAL JUSTICE CANNOT BE ACTE D UPON OR TAKEN COGNIZANCE OF IN DECIDING THE ISSUE. 13.2.6 ON COMING TO KNOW OF SUCH PURPORTED STATEMEN TS DENYING THE REFUNDS ON RECEIPT OF THE ASSESSMENT OR DER, THE APPELLANT HAD APPROACHED THE PARENTS, WHO HAD FURNISHED FRESH AFFIDAVITS THAT THE STATEMENTS R:EC ORDED BY THE DEPARTMENT WERE UNDER DURESS AND THAT IN RETRACTION OF SUCH STATEMENTS THEY AFFIRMED HAVING RECEIVED THE REFUND OF STUDENT ADVANCE FEES. THE APPELLANT WANTED TO PRODUCE THE FRESH AFFIDAVITS OBTAINED BY IT DURING THE APPELLATE PROCEEDINGS. 13.2.7 AS THESE WERE FRESH EVIDENCE, AS THE APPELLA NT WAS OBJECTING TO THE ADDITION MADE BY THE AO BY ON THE BASIS OF STATEMENTS RECORDED BY THE DEPARTMENT '(WH ICH WERE NOT FURNISHED TO THE APPELLANT DURING THE COUR SE OF ASSESSMENT), IT WAS FELT NECESSARY TO OBTAIN A REMA ND REPORT FROM THE AO AND THE AO WAS ACCORDINGLY DIREC TED TO SUBMIT HIS REMAND REPORT AFTER VERIFYING THE VER ACITY OF THE FRESH AFFIDAVITS CLAIMED TO HAVE BEEN OBTAINED BY THE APPELLANT AFTER RECEIPT OF THE ASSESSMENT ORDER. 13.2.8 THE APPELLANT'S AR SUBMITS THAT THE AO, INST EAD OF SUMMONING THE DEPONENTS TO VERIFY THE VERACITY O F THE RETRACTING AFFIDAVITS, SUMMONED THE APPELLANT AND DIRECTED IT TO PRODUCE THE DEPONENTS BEFORE THE AO FOR CROSS-EXAMINATION, WHICH IS AGAIN CONTRARY TO THE PRINCIPLE OF NATURAL JUSTICE AND LAW ON EVIDENCES 13.2.9 AS THE APPELLANT DID NOT HAVE THE POWER TO ENFORCE ATTENDANCE, UNLIKE THE AO, THE DEPONENTS FR OM ALL ACROSS INDIA REFUSED TO TAKE THE TROUBLE OF SPE NDING TIME AND MONEY TO TRAVEL ALL THE WAY TO CHENNAI FOR THIS PURPOSE, ESPECIALLY SINCE BY THIS TIME, THE RESPECT IVE ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 65 -: STUDENTS HAD COMPLETED THE COURSE AND LEFT THE INSTITUTION AND EMPLOYED ELSEWHERE. HOWEVER, APPELL ANT COMPLIED WITH THE DIRECTION OF THE AO IN THE BEST W AY POSSIBLE IN THE CIRCUMSTANCES, BY OBTAINING CONFIRM ATORY LETTERS FROM MOST OF THE DEPONENTS AND FILING THEM WITH THE AO. THE AR SUBMITTED THAT IN SPITE OF ACCOMPLIS HING THIS HERCULEAN TASK, THE AO DID NOT GIVE ANY WEIGHT AGE TO THE CONFIRMATIONS AND GAVE A REMAND REPORT AGAINST THE APPELLANT, BRUSHING ASIDE THE SAME WITHOUT ASSIGNIN G ANY REASON. 13.2.9 AFTER GOING THROUGH THE ENTIRE MATERIALS, I AM OF THE VIEW THAT THERE IS SOME SENSE AND REASONING IN THE SUBMISSIONS OF THE APPELLANT. SINCE THE ONUS TO DIS PROVE THE AFFIDAVITS WAS ON THE PART OF THE AO, HE HIMSEL F OUGHT TO HAVE SUMMONED THE DEPONENTS INSTEAD OF ENTRUSTIN G THE TASK TO THE APPELLANT. WITH THE POWERS VESTED O N HIM UNDER THE PROVISIONS OF THE ACT, HE WAS OBLIGED TO AND IT WOULD HAVE BEEN EASIE R FOR HIM TO ENFORCE ATTENDANCE TO VERIFY THE VERACITY OF THE AFFIDAVITS AS PER THE DIRECTIONS OF THIS OFFICE IN THE REMAND ORDER. HAVING NOT DONE SO, THE ACTION OF THE AO IN BRUSHING THE AFFIDAVITS AND THE SUBSEQUENT CONFIRMATIONS ASIDE DOES NOT APPEAR TO BE REASONABL E. 13.2.10 HENCE, WITHOUT GETTING INTO UNNECESSARY FA CTS AND LEGAL QUIBBLINGS THE ENTIRE ISSUE CAN RESOLVED IN A FAIR MANNER AS UNDER: I. IN ITS WRITTEN SUBMISSIONS, APPELLANT HAS FURNI SHED THE TABLE BELOW AS ANNEXURE 16 & 17, RESPECTIVELY. STATISTICS OF STUDENT FEE ADVANCES RECEIVD, AJUSTED AND REPAID YEAR ENDED 31.03.2006 31.03.2007 31.03.2008 NO. OF STUDENTS WHO QUALIFIED IN VITEE 43732 82980 88446 NO. OF STUDENTS WHO ATTENDED COUNSELLING 1965 2159 2220 NO. OF STUDENT FEE ADVANCES RECEIVED. 514 902 1285 NO. OF STUDENT FEE ADVANCES ADJUSTED TOWARDS 88 165 745 ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 66 -: FEE 17% 18% 58% NO. OF STUDENT FEE ADVANCES REPAID BY CH/DD 157 31% 222 25% 132 10% NO. OF STUDENT FEE ADVANCES REPAID BY CASH 269 52% 516 57% 408 32% SUMMARY OF TUITON FEE ADVANCES RECEIVED, AJUSTED AN D REPAID YEAR ENDED 31.03.2006 31.03.2007 31.03.2008 NO. OF STUDENTS WHO QUALIFIED IN VITEE 43732 82980 88446 NO. OF STUDENTS WHO ATTENDED COUNSELLING 1965 2159 2220 NO. OF TUITION FEE ADVANCE RECEIVED. 854 1115 211 NO. OF TUITION FEE ADVANCES REPAID BY CH/DD 210 25% 234 21% 81 38% NO. OF STUDENT FEE ADVANCES REPAID BY CH/DD 644 75% 881 79% 130 62% II. APPELLANTS SUBMISSION IN PARAS 2.1 TO 2.13 EXTR ACTED ABOVE/ EXPLAINING THE NEED FOR REPAYMENT OF STUDENT ADVANCES & ADVANCE TUITION FEES IN CASH CAN BE APPRECIATED IN THE LIGHT OF THE ABOVE STATISTICS FO R THE 3 YEARS IN QUESTION. THERE IS NO DOUBT THAT ANY INSTI TUTION WORTH ITS SALT WOULD STRIVE TO UPLIFT AND MAINTAIN ITS CREDIBILITY IN HONOURING ITS COMMITMENTS. WHEN TENS OF THOUSANDS OF STUDENTS QUALIFY IN ITS ENTRANCE EXAMI NATIONS AND WHEN THOUSANDS OF SUCH QUALIFIED STUDENTS PAY ADVANCE FEES IN ANTICIPATION OF ADMISSION OR AFTER ADMISSION/ WHEN THE STUDENT/PARENT REQUEST FOR THE REFUND OF SUCH ADVANCES/ ANY PERSON AND ALL THE MOR E REPUTED INSTITUTIONS WOULD STRIVE TO REPAY THE ADVA NCE AT THE TIME AND THE MODE IN WHICH THE PAYER DEMANDS BA CK THE MONEY. SO/ APPELLANT'S SUBMISSION THAT IS REFUN DED STUDENTS ADVANCES AND FEES IN CASH IS QUITE ACCEPTA BLE, ESPECIALLY WHEN THE NUMBER & % OF STUDENTS WHO HAVE ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 67 -: BEEN REPAID IN CHEQUE AND CASH ARE COMPARED WITH TH E TOTAL ASPIRING STUDENTS AND APPLICANTS WHO PAID FOR ADMISSION AND WITHDREW LATER. THE REASON FOR HIGHER REPAYMENT % OF TUITION FEE IS ALSO ADEQUATELY AND SATISFACTORILY EXPLAINED IN PARA 2.15 ABOVE. ILL. REGARDING THE ISSUE OF STATEMENTS FROM PARENTS RECORDED BY THE DEPARTMENT; AFFIDAVITS PRODUCED FRO M PARENTS BY THE APPELLANT DURING ASSESSMENT PROCEEDI NGS; RETRACTION AFFIDAVITS PRODUCED BY THE APPELLANT DURING REMAND PROCEEDINGS BEFORE THE AO & THE REMAND REPORT, I AM CONVINCED BY THE FACTS RELATING TO THESE ISSUE S SET FORTH IN PARA 2.16 TO 2.21 OF THE APPELLANT'S WRITT EN SUBMISSIONS, REPRODUCED ABOVE TO ACCEPT THEREFUNDS OF STUDENT ADVANCES & TUITION FEES IN CASH AS GENUINE, NOTWITHSTANDING THE VIEWS OF THE AO THROUGH COLOURE D GLASSES. IN THE VIEW THAT I HAVE TAKEN ON BEING CONVINCED ABOUT THE GENUINENESS OF REPAYMENTS IN CA SH THERE IS NO MATERIAL PREJUDICE TO THE APPELLANT ON ACCOUNT OF THE VIOLATION OF PRINCIPLES OF NATURAL J USTICE IN THE AO NOT PROVIDING COPIES OF THE ALLEGED STATEMEN TS AGAINST THE APPELLANT PRIOR TO THE ASSESSMENT. THE SUMMARY OF STATISTICS OF STATEMENTS REFERRED TO IN THE ABOVE PARAS, FURNISHED AS ANNEXURE 18 TO APPELLANT' S WRITTEN SUBMISSIONS REPRODUCED BELOW WILL SPEAK LOU DLY IN SUPPORT OF MY DECISION ON THIS MATTER. SUMMARY ACIT ADIT TOTAL ASST. YEAR SUMM ONED RESP ONED BALA NCE SUMM ONED RESP ONED BALA NCE SUMM ONED RESP ONED BALA NCE 02-03 0 0 0 0 0 0 0 0 0 03-04 0 0 0 0 0 0 0 0 0 04-05 0 0 0 39 16 23 39 16 23 05-06 22 13 9 0 0 0 22 13 9 06-07 65 37 28 0 0 0 65 37 28 ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 68 -: 07-08 0 0 0 2 2 0 2 2 0 08-09 0 0 0 45 30 15 45 30 15 REPEA T A.Y 02-03 TO 08-09 15 9 6 0 0 0 0 0 0 TOTAL 102 59 43 86 48 38 173 98 75 58% 42% 56% 44% 57% 43% IV. THERE IS ANOTHER ANGLE FROM WHICH THE REFUND MA TTER CAN BE VIEWED. THE REFUNDS THAT ARE DISBELIEVED BY THE AO ARE 'ADVANCES' RECEIVED AND NOT THE 'INCOME' OF THE APPELLANT. NO SANE PARENT IS GOING TO REST IF THE A DVANCE MONEY WAS NOT REPAID TO HIM, AS ALLEGED BY THE AO, ESPECIALLY WHEN THE DEPARTMENT HAD RECORDED STATEMENTS FROM HUNDREDS OF PARENTS. AT LEAST THEREAFTER THE DEPARTMENT'S ACTION SHOULD HAVE CREATED AN ONSLAUGH T OF REQUESTS FROM PARENTS AGAINST THE APPELLANT AND COMPLAINTS TO THE DEPARTMENT, STATE AND CENTRAL GOVERNMENT AUTHORITIES AND CONCERNED REGULATORY BOD IES FOR THE ENFORCEMENT OF REFUND OF THE ADVANCES, WHIC H ACCORDING TO THE AO WERE NEVER MADE AND SIPHONED AW AY BY THE TRUSTEES! THERE IS NO EVIDENCE OF SUCH COMPL AINTS THAT IS ON RECORD INSPITE OF LAPSE OF NEARLY A DECADE FROM THE DATE OF THE SEARCH. THIS I S FURTHER TESTIMONY TO MY CONCLUSION THAT THE GENUINE NESS OF THE REFUND OF STUDENT ADVANCES & TUITION FEES CANNO T BE FAULTED MERELY BECAUSE THEY WERE MADE- IN CASH. V. ON ACCOUNT OF MY FINDINGS AND CONCLUSIONS ABOVE; THE APPELLANT'S AFORESAID SUBMISSIONS ACCEPTED BY ME; CIRCUMSTANTIAL EVIDENCE; THE CONFIRMATIONS BY PAREN TS INDEPENDENTLY OBTAINED, WHICH WERE BRUSHED ASIDE BY THE AO AND THE AFFIDAVITS FROM PARENTS WHOSE STATEMENTS RECORDED BY THE DEPARTMENT WERE PURPORTEDLY AGAINST , ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 69 -: CONFIRMING THAT THEY HAD .IN FACT RECEIVED THE REFUNDS, WHICH AGAIN WAS BRUSHED ASIDE BY THE AD IN HIS REMAND REPORT, I AM CONVINCED THAT TH E CONCLUSION OF THE AD TO TREAT THE REFUND OF STUDENT S ADVANCE FEES & TUITION FEE ADVANCES REFUNDS IN CASH AS NOT GENUINE CANNOT BE ENDORSED OR COUNTENANCED. VI. FINALLY IN PARAS 77 & 83 OF THE ASSESSMENT ORDER REPRODUCED ABOVE THE AD'S CONCLUSION ON DISBELIEVIN G THE CASH REFUNDS OF STUDENT ADVANCES & TUITION FEES IS THAT IT: 'HAS TO BE TREATED AS FUNDS WITHDRAWN BY THE TRUSTEES FOR THE PURPOSE OF COLLEGE EXPENSES AND SAID EXPENSES WERE NOT PROVED AND THE PROOF ADDUCED IS TREATED AS NOT GENUINE AND THEREFORE IT HAS TO BE INFERRED THAT SUCH CASH REFUNDS UNDER THE GARB OF REFUND OF ADVANCE FEES RECEIVED HAS TO BE TREATED AS FUNDS DIVERTED FOR THE BENEFIT OF SPECIFIED PERSONS WHICH CONSTITUTES VIOLATION UNDER SECTION 13(1) (C) OF THE ACT' WHEN THE AD HAS CONCLUDED THAT HE HAS TO TREAT THE CASH REFUNDS AS WITHDRAWALS FOR THE PURPOSE OF COLLEGE EXPENSES, MERELY BECAUSE PROOF ADDUCED FOR SUCH EXPENSES IS 'TREATED AS NOT GENUINE' BY THE AO, CAN NOT AUTOMATICALLY LEAD TO THE CONCLUSION OF VIOLATION O F SEC.13(1)(C), UNLESS THE AO BY A POSITIVE ACT AND W ITH EVIDENCE TRACES THE MONEY TO THE 'SPECIFIED PERSONS ' LISTED IN SEC.13( 1)( C). 13.2.11 FOR ALL THE REASONS AFORESAID, I HOLD THAT THAT THERE WAS NO DIVERSION OR 'APPLICATION' OF THE TRUST FUND S FOR THE BENEFIT OF THE PROHIBITED PERSONS U/S 13(3) AS FAR AS THE REPAYMENT OF STUDENT ADVANCES AND TUITION FEES IN C ASH FOR 2006-07 TO 2008-09 AYS AND HOLD THAT SEC.13(1)( C) CANNOT BE INVOKED AGAINST THE APPELLANT TO DENY EXEMPTION U/S 11 ON THIS SCORE. HENCE THIS GROUND OF APPEAL RELATING TO AYS 2006-07, 2007-08 & 2008-09 IS ALLOWED. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 70 -: 44. LD. ASSESSING OFFICER HAD DISALLOWED THE ABOVE CLAI M FINDING THAT A LARGE NUMBER OF PARENTS HAD DENIED RECEIPT O F ANY REFUND, AND NOTING CERTAIN IRREGULARITIES IN THE FORMS SIGNED BY THE STUDENTS/PARENTS. AS PER THE LD. ASSESSING OFFICER , THE REFUNDS WERE ALL MADE WITHIN A SHORT PERIOD OF ADMISSIONS AND COULD NOT BE BELIEVED. LD. ASSESSING OFFICER HAD CITED INSTANCE OF ONE SH RI. T. V. KARTHIK, , SHRI. S. ARUN, SHRI. SUNIL SHARMA, SHRI. J. VINOTH, SHRI. GAURAV BHATTACHARJA, SHRI. PRANEETH RAO, SHRI. PRADEK SING LA, SHRI. ENA NEGI, SHRI. HARSH RAGHAVA, SHRI. PUNKIT JAIN, MS. RADHIKA , SHRI. R. JEGANNATHAN, MS. MEERA GEORGE PALACKAN, SHRI.ABISHK EK GUPTA, SHRI. AMITESH ANAND, SHRI. HAIDER CHANDU, SHRI. G.V. DINE SH, SHRI. S. KARTHICK, SHRI. K. BALAGANAPATHY, SHRI. ROHIT SETH, SHTI. KOSHY MATHEW, SHRI. V. VISHAL, SHRI. K.S. DINESH, SHRI. VISHESH K ALRA, MS. A. SRIMATHI, SHRI. DEEPAN THANGARAJ AND SHRI. YESWANTH KUMAR IN THIS REGARD . NUMEROUS INSTANCES WHERE PARENTS HAD GIVEN STATEMEN TS DENYING RECEIPT OF ANY REFUND HAD PERSUADED THE LD. ASSES SING OFFICER TO TAKE A VIEW THAT CLAIM OF REFUND OF ADVANCE OF RS.8,00, 31,224/- AND TUITION FEES OF RS.1,22,26,537/- FOR ASSESSMENT YEA R 2006-2007 AND SIMILAR CLAIMS FOR OTHER YEARS WERE INCORRECT. AS AGAINST THIS, CONTENTION OF THE LD. AUTHORISED REPRESENTATIVE IS THAT SEATS IN THE ASSESSEE INSTITUTION WAS MUCH SOUGHT AFTER AND PARE NTS USED TO SEND ADVANCE DEMAND DRAFT EVEN BEFORE THEADMISSION PROCE SS STARTED, ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 71 -: COMPELLING THE ASSESSEE TO EFFECT REFUNDS WHEY THEY VISITED THE COLLEGE PREMISES. FURTHER, AS PER THE LD. AUTHORISED REPRE SENTATIVE RECEIPTS WERE NOT ISSUED FOR SUCH AMOUNTS, WHICH WERE ALL RE CEIVED IN DEMAND DRAFTS EXCEPT FOR THAT PART CONSIDERED AS CORPUS DO NATION. IN ANY CASE, IT IS NOT DISPUTED BY THE REVENUE THAT DURING THE R EMAND PROCEEDINGS, ASSESSEE HAD PRODUCED AFFIDAVITS FROM A SUBSTANTIAL NUMBER OF PARENTS ACKNOWLEDGING THE REFUNDS AND HAD FILED TH EM BEFORE THE LD. ASSESSING OFFICER. IN OUR OPINION, LD. ASSESSING OFFICER, IF HE CHOSE NOT TO BELIEVE THESE AFFIDAVITS OUGHT HAVE SUMMONE D SUCH PERSONS AND EXAMINED THEM. IT WAS UNFAIR ON HIS PART TO R EQUIRE THE ASSESSEE TO ACCOMPLISH AN ALMOST IMPOSSIBLE TASK OF PRODUCI NG ALL SUCH PARENTS. ESPECIALLY SO, WHEN THE LD. ASSESSING OFFICER HAD POWERS VESTED ON HIM UNDER THE ACT, TO ENSURE THEIR ATTENDANCE OR TO GET STATEMENTS THROUGH COMMISSIONS. HAVING NOT DONE IT, IN OUR OP INION, LD. ASSESSING OFFICER FELL IN ERROR IN DISBELIEVING THE AFFIDAVIT S FILED BY THE ASSESSEE. 45. VIZ-A-VIZ, TUITION FEES, EXPLANATION OF THE ASSESSE E IS THAT AT THE TIME OF COUNSELING, A SUM OF RS.10,000/- WAS CO LLECTED FROM EACH ASPIRANT FOR ENSURING THEIR EARNESTNESS BUT LATER R EFUNDED WHEN SEATS WERE NOT ALLOTTED TO THEM. THIS EXPLANATION WAS NE VER FOUND TO BE INCORRECT BY THE LD. ASSESSING OFFICER. IT IS NOT A CASE WHERE NO EVIDENCE WAS THERE TO PROVE THE REFUNDS. LD. ASSES SING OFFICER HAD SIMPLY REFUSED TO BELIEVE THE EVIDENCE FILED BY THE ASSESSEE, ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 72 -: CONSIDERING THE REFUNDS TO BEEN EFFECTED IN CASH. WE FIND MUCH STRENGTH IN THE ARGUMENT OF LD. AUTHORISED REPRESEN TATIVE, THAT IF THE ASSESSEE WANTED TO SIPHON OFF THE FUNDS, IT NEED NOT HAVE RECEIVED THE DONATIONS THROUGH DEMAND DRAFTS BUT COULD HAVE OPTED TO RECEIVE IT IN CASH AND DIVERTED AT SOURCE. CONSIDERING ALL THESE, IN OUR OPINION, THE PREPONDERANCE OF PROBABILITY, IS IN FAVOUR OF THE ASSESSEE THAT THE REFUNDS WERE ACTUALLY EFFECTED. IN OUR OPINION THE QUESTION OF ANY BENEFIT ARISING TO THE TRUSTEES OR SPECIFIED PERSO NS WILL NOT ARISE, ONCE THE PAYMENTS ARE ACCEPTED AS ACCOUNTED CORRECTLY. 46. NOW COMING TO THE QUESTION, WHETHER ACQUISITION OF 22.34 ACRES OF LAND AT BRAHMAPURAM, KATPADI FROM SMT. B. RAMANI FOR G33,51,000/-, FOR WHICH AGREED CONSIDERATION WAS RS .1,00,00,000/- GAVE RISE TO A PRESUMPTION THAT THE DIFFERENCE AMOU NT WAS COMING OUT OF TRUST FUNDS, RESULTING IN A BENEFIT TO SMT. B. RAMANI WHICH FELL WITHIN THE MEANING OF SPECIFIED PERSON THEREBY ATTR ACTING SECTION 13(1) ( C) OF THE ACT. THE FINDINGS OF THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) WITH REGARD TO THE ABOVE, AS IT APPEA R AT PARA 9.13 TO 9.17 OF HIS ORDER ARE REPRODUCED HEREUNDER:- 9.1.3 AFTER GOING THROUGH THE DISCUSSIONS MADE BY THE AO IN THE ASSESSMENT ORDER AS TO HOW HE CAME TO THE CONCLUSION THAT FUNDS OF THE APPELLANT WERE DIVERTE D FOR THE BENEFIT OF SPECIFIED PERSONS AS CONTEMPLATED IN SEC TION 13(1)(C) AND THE SUBMISSIONS MADE BY THE APPELLANT, EXTRACTED ABOVE, AS TO HOW THE AO WENT WRONG IN COM ING TO ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 73 -: THIS ERRONEOUS CONCLUSION, I AM OF THE CONSIDERED V IEW THAT THERE IS CONSIDERABLE FORCE IN THE ARGUMENT OF THE APPELLANT IN THAT IF AT ALL THERE WAS ANY ADVANCE PAYMENT IN THE LAND OF RS.L0 LAKHS BY THE APPELLANT AND IT WAS NOT REFLECT ED IN ITS BOOKS, IT SHOULD HAVE BEEN ASSESSED IN THE RELEVANT AY I.E., 2004-05, WHICH HAS NOT BEEN DONE. LIKEWISE, IF AT A LL ANY ON- MONEY WAS INVOLVED IN THE TRANSACTION IT SHOULD HAV E BEEN ASSESSED AS THE INCOME OF THE APPELLANT U/S 69B IN THE RELEVANT AY I.E. 2005-06. ON THE CONTRARY, I FOUND FROM THE NOTICES AND REPLIES SUBMITTED DURING ASSESSMENTS TH AT THE AO HIMSELF HAD DROPPED THE PROPOSAL OF ASSESSING TH E ALLEGED ON-MONEY, AFTER PROPOSING THE SAME. 9.1.4 MOREOVER, THE SEIZED SO-CALLED AGREEMENT FOR SALE OF LAND, CONTAINS ONLY THE SIGNATURE OF MS. RAMANI AND NONE ON BEHALF OF THE APPELLANT, WHICH WAS OBSERVED BY T HE AO ALSO AS SUCH IN THE ASSESSMENT ORDER. HENCE, NO CRE DENCE OUGHT TO HAVE BEEN PLACED BY THE AO ON THIS DOCUMEN T, WHEREIN THERE WERE NO SIGNATURES OF THE TWO PARTIES FOR THE AGREEMENT [BUT ONLY ONE I.E. OF MS. RAMANI] FOR CON CLUDING THAT THE LAND WAS SOLD AT RS.1 CRORE. IF AT ALL THE TRANSACTION INVOLVED PAYMENT OF ON-MONEY, CERTAINLY THE APPELLA NT WOULD HAVE DESTROYED IT AND WOULD NOT HAVE KEPT THE SAME, TO BE UNEARTHED BY THE SEARCH PARTY. 9.1.5 FURTHER AS PER APPELLANT, THE SUBJECT MATTER OF LAND IS AGRICULTURAL LAND. IT IS ALSO TO BE MENTIONED HERE THAT A LAND WHICH COST RS.17.58 LAKHS WILL FETCH RS.1 CRORE IN JUST A PERIOD OF THREE YEARS IS ALSO UNIMAGINABLE AND UNBELIEVABLE. 9.1.6 FINALLY, AS HAS BEEN HELD REPEATEDLY BY NUMBE R OF CASES OF THE HONOURABLE MADRAS ITAT CITED IN DETAIL ELSEWHERE IN THIS ORDER, TO INVOKE SEC. 13(1)(C), T HE DEPARTMENT MUST PROVE THAT THE DIVERTED FUNDS OF TH E TRUST HAS REACHED THE PERSONS PROHIBITED BY SEC.13(3). TH E AO HAS NOT PROVED THAT ANY AMOUNTS IN EXCESS OF THE AM OUNT STATED IN THE REGISTERED SALE DEED HAS EITHER BEEN PAID BY THE APPELLANT OR REACHED THE PROHIBITED PERSON - B. RAMANI, NOR EVEN ASSESSED THE ALLEGED DIVERSION EITHER IN T HE HANDS OF THE ALLEGED RECIPIENT NOR IN THE HANDS OF THE AL LEGED PAYER. ACCORDINGLY IT IS HELD THAT THE ACTION OF TH E AO IN TREATING THE TRANSACTION AS DIVERSION OF FUNDS IN F AVOUR OF THE TRUSTEE IS UNWARRANTED AND LEGALLY UNTENABLE. 9.1. 7 FOR ALL THE REASONS ABOVE, I HAVE NO HESITAT ION TO ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 74 -: AGREE WITH THE FACTUAL AND LEGAL SUBMISSIONS MADE B Y THE APPELLANT AS EXTRACTED-ABOVE TO HOLD THAT THERE HAS BEEN NO DIVERSION U/S 13(1)(C) BY THE APPELLANT TO THE SAID B.RAMANI, AS THE AO HAS NOT MADE ANY ADDITIONS IN R ESPECT OF THE SAME U/S 69B ON THE APPELLANT IN RESPECT OF THE ALLEGED PAYMENT OF EXCESS CONSIDERATION, NOR HAS HE ASSESSED SUCH EXCESS IN THE HANDS OF THE ALLEGED RE CIPIENT B.RAMANI. HENCE, SEC.13(1)(C) CANNOT BE INVOKED AGA INST THE APPELLANT TO DENY EXEMPTION U/S LION THIS SCORE AND THIS GROUND OF APPEAL RELATING TO 2005-06 IS ALLOWED. 47. IT IS AN UNDISPUTED FACT THAT THE PROPERTY WAS ACQU IRED BY THE ASSESSEE FROM SMT. B. RAMANI, WHO WAS THE DAUGH TER-IN-LAW OF THE MANAGING TRUSTEE AND THE PRICE STATED IN THE RE GISTERED SALE DEED WAS RS.33,51,000/-. IT MAY BE TRUE THAT SEIZED RE CORDS REVEALED AN AGREEMENT MENTIONING THE CONSIDERATION AS RS.1,00,0 0,000/-. HOWEVER, IT IS NOT DISPUTED THAT WHAT WAS ACCOUNTED BY THE ASSESSEE IN ITS BOOKS WAS RS.33,51,000/- ONLY. NOTHING MORE WAS PAID BY THE ASSESSEE FOR THIS ACQUISITION IN ITS BOOKS. IT IS ALSO MENTIONED BY THE LD. ASSESSING OFFICER THAT THE AMOUNT OF RS.33,51,0 00/- WAS THE GUIDELINE VALUE OF THE PROPERTY. IN OTHER WORDS, NOTHING MORE THAN THE GUIDELINE VALUE WAS PAID BY THE ASSESSEE TO SMT . B RAMANI. AT THIS JUNCTURE, IT IS NECESSARY TO HAVE A LOOK AT S ECTION 13 (1) ( C) OF THE ACT AND SECTION 13 (3) OF THE ACT, WHICH HAVE B EEN APPLIED BY THE LD. ASSESSING OFFICER ON VARIOUS TRANSACTIONS. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 75 -: SECTION 13(1) (C) : 1) NOTHING CONTAINED IN SECTION 11 OR SECTION 12 SH ALL OPERATE SO AS TO EXCLUDE FROM THE TOTAL INCOME OF THE PREVIOUS YE AR OF THE PERSON IN RECEIPT THEREOF- A................. B................. C) IN THE CASE OF A TRUST FOR CHARITABLE OR RELIGIO US PURPOSES OR A CHARITABLE OR RELIGIOUS INSTITU?TION, ANY INCOME TH EREOF- (I) IF SUCH TRUST OR INSTITUTION HAS BEEN CREATED O R ESTABLISHED AFTER THE COMMENCEMENT OF THIS ACT AND UNDER THE TE RMS OF THE TRUST OR THE RULES GOVERNING THE INSTITUTION, ANY P ART OF SUCH INCOME ENURES, OR (II) IF ANY PART OF SUCH INCOME OR ANY PROPERTY OF THE TRUST OR INSTITUTION (WHENEVER CREATED OR ESTABLISHED) IS DU RING THE PREVIOUS YEAR USED OR APPLIED, DIRECTLY OR INDIRECT LY FOR THE BENEFIT OF ANY PERSON REFERRED TO IN SUB-SECTION (3 ) : SECTION 13(3): (3) THE PERSONS REFERRED TO IN CLAUSE (C) OF SUB-SE CTION (1) AND SUB-SECTION (2) ARE THE FOLLOWING, NAMELY :- (A) THE AUTHOR OF THE TRUST OR THE FOUNDER OF THE I NSTITUTION ; (B) ANY PERSON WHO HAS MADE A SUBSTANTIAL CONTRIBUT ION TO THE TRUST OR INSTITUTION, THAT IS TO SAY, ANY PERSON WH OSE TOTAL CONTRIBUTION UP TO THE END OF THE RELEVANT PREVIOUS YEAR EXCEEDS FIFTY THOUSAND RUPEES ; (C) WHERE SUCH AUTHOR, FOUNDER OR PERSON IS A HINDU UNDIVIDED FAMILY, A MEMBER OF THE FAMILY ; (CC) ANY TRUSTEE OF THE TRUST OR MANAGER (BY WHATEV ER NAME CALLED) OF THE INSTITUTION ; (D) ANY RELATIVE OF ANY SUCH AUTHOR, FOUNDER, PERSO N, MEMBER, TRUSTEE OR MANAGER AS AFORESAID ; (E) ANY CONCERN IN WHICH ANY OF THE PERSONS REFERRE D TO IN CLAUSES (A), (B), (C), (CC) AND (D) HAS A SUBSTANTI AL INTEREST. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 76 -: SMT. B.RAMANI BEING THE DAUGHTER-IN-LAW OF THE MANA GING TRUSTEE WAS WITHOUT DOUBT A SPECIFIED PERSON. HOWEVER BY SELL ING A PROPERTY AT GUIDELINE VALUE, WE CANNOT SAY THAT ANY BENEFIT HAD ACCRUED TO THE SELLER. WORD BENEFIT INDICATES GAINING OF AN AD VANTAGE NOT COMMENSURATE WITH THE VALUE OF THE PROPERTY. IN OT HER WORDS, THERE CAN BE AN ADVANTAGE TO THE SELLER ONLY IF HE GAINS SOMETHING MORE THAN ITS VALUE. SUCH A BENEFIT CAN ARISE TO A TRUS TEE ONLY IF THE TRANSACTIONS BY HIM/HER ENTERED WITH THE TRUST, WA S WITH THE INTENTION TO GET AN ADVANTAGE AND SUCH ADVANTAGE WAS NOT COM MENSURATE WITH THE VALUE OF THE PROPERTY TRANSFERRED. JUST BEC AUSE A TRANSACTION IS ENTERED BETWEEN A TRUST AND TRUSTEE, WE CANNOT SAY THAT IT RESULTED IN A BENEFIT TO THE TRUSTEE. WE ARE THEREFORE OF THE OPINION THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN TAKING A VIEW THAT THERE WAS NO VIOLATION OF SECTION 13(1) (C) O F THE ACT ON THE ABOVE TRANSACTION. 48. NEXT QUESTION BEFORE US IS WHETHER THE ADVANCE PAYM ENT OF RS. 22,34,000/- TO SMT. B. RAMANI FOR ACQUIRING 6 .23 ACRES OF LAND AT KANGAEYANALLUR, WHICH WAS LATER CANCELLED AND REF UNDED RESULTED IN ANY BENEFIT TO SMT. B. RAMANI ATTRACTING SECTION 13(1) ( C) OF THE ACT. THE FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WITH ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 77 -: REGARD TO THE THIS ISSUE AS IT APPEAR AT PARA 9.23 OF HIS ORDER IS REPRODUCED HEREUNDER:- 9.2.3 IT IS FOUND THAT THE ADVANCE FOR THE PURCHA SE OF LAND WAS PAID BY A CHEQUE; THE ADVANCE PAID IS EVIDENCED BY A DULY STAMPED INSTRUMENT OF SALE AGREEMENT; THE ADVA NCE WAS REPAID BY THE SAID B.RAMANI BY A CHEQUE, PURSUA NT TO A DULY STAMPED CANCELLATION AGREEMENT AND MOST IMPORTANTLY THE AFORESAID AGREEMENTS WERE FOUND AT THE TIME OF SEARCH AND SEIZED WHICH IS A CLEAR CONTEMPO RANEOUS EVIDENCE FOR THE SAID TRANSACTION. IN ADDITION BOTH BEFORE THE DDI(INV) AND THE AO, BOTH PARTIES H AVE AFFIRMED THE AFORESAID TRANSACTION AS TOWARDS THE P URCHASE OF THE ABOVE LAND. ALL THESE THINGS AS DISCUSSED AB OVE, TOGETHER WITH THE EXISTENCE OF DULY STAMPED AND EXE CUTED AGREEMENTS EVEN AT THE TIME OF SEARCH, WHICH HAVE B EEN SEIZED, CLEARLY DEMONSTRATE THE GENUINENESS OF THE TRANSACTION FOR PURCHASE AND SUBSEQUENT CANCELLATIO N THEREOF AND DISPROVES THE SUSPICION OF THE AG. HENCE, SEC.1 3(1)(C) CANNOT BE INVOKED AGAINST THE APPELLANT TO DENY EXE MPTION U/S 11 ON THIS SCORE. HENCE THIS GROUND OF APPEAL R ELATING TO 2005-06 IS ALLOWED. 49. WHAT WE FIND IS THAT BOTH AGREEMENT FOR SALE AND CANCELLATION AGREEMENT WERE REGISTERED AND BOTH THE SE DOCUMENTS WERE FOUND AT THE TIME OF SEARCH. ASSESSEE TRUST H AD PAID A SUM OF RS.22,34,000/- TO SMT. B.RAMANI THROUGH CHEQUE DATE D 03.06.2004 AND THE AMOUNT WAS RETURNED BY SMT. B. RAMANI ON 20 .9.2004, ON CANCELLATION OF THE PROPOSAL. HENCE THE PERIOD FOR WHICH SMT. B.RAMANI HAD THE MONEY WITH HER WAS 3.6.2004 TO 20. 09.2004. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 78 -: INTENTION OF THE TRUST TO ACQUIRE THE PROPERTY FRO M SMT. B.RAMANI IS CLEAR IN THAT THE AGREEMENT WAS REGISTERED. THE RE IS NO CASE FOR THE REVENUE THAT AGREED PRICE OF RS.52,46,570/- WAS MOR E THAN THE FAIR MARKET PRICE. JUST BECAUSE THE SALE DID NOT GO THRO UGH AND THE AMOUNT WAS RETURNED BY SMT.B. RAMANI WOULD NOT BE S UFFICIENT TO HOLD THAT SHE BENEFITED FROM SUCH TRANSACTION. THE INT ENTION IN ENTERING THE TRANSACTION WAS NOT TO BENEFIT SMT. B. RAMANI, BUT FOR ACQUIRING THE PROPERTY FOR THE ASSESSEE TRUST. WE CANNOT SAY THAT SECTION 13(1) (C) OF THE ACT STOOD ATTRACTED. WE ARE OF THE OPIN ION THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN TAKING A VIEW THAT THERE WAS NO VIOLATION OF SECTION 13(1) ( C) OF THE ACT ON THIS TRANSACTION AS WELL. 50. NEXT QUESTION IS WHETHER THE ADVANCE OF RS.1,00,00 ,000/- PAID TO SHRI. ARJUNLAL SUNDERDOSS DURING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006-07 AND RS.50,00,000/- PAID DUR ING PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2007-08, WERE DIV ERSION OF INCOME/PROPERTY OF THE TRUST ATTRACTING SECTION 13( 1) ( C) OF THE ACT. THE FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THE ABOVE PAYMENTS AS IT APPEAR AT PARA 10.4 OF HIS ORD ER IS REPRODUCED HEREUNDER:- ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 79 -: 10.A AFTER GOING THROUGH THE SAID TRANSACTION, ACCOUNT COPIES OF STATEMENTS AND COPY OF THE ABOVE AGREEMEN T I AM CONVINCED THAT THE TRANSACTIONS SEEM TO BE GENUI NE. IT IS NOT THE CASE OF THE DEPARTMENT THAT ARJUNLAL SUNDERDOSS IS A 'PROHIBITED PERSON' U/S 13(3) NOT E NTITLED TO BE PAID ANY AMOUNT FROM THE TRUST. HE ISA SINDHI AND THE TRUSTEES ARE MUDALIARS ET ID THEY ARE NOT 'RELATED'. THE ALLEGATION OF THE AO THAT SONS OF TH E FOUNDER TRUSTEE, V.SANKAR & V.SAMPATH HAVE OBTAINED LOANS FROM THE SAID ARJUNLAL SUNDERDOSS IS DISPROVE D FROM COPIES OF THE FINANCIAL STATEMENTS OF V.SANKAR & V.SAMPATH, A PERUSAL OF WHICH IS OBVIOUS THAT THEY HAVE NOT BORROWED ANY LOANS FROM ARJUNLAL SUNDERDOSS DUR ING THE RELEVANT PERIOD. THE AO'S CONCLUSION THAT THE MONETARY TRANSACTION OF THE TRU STEES WITH THE ABOVE FINANCIER, HAVE NEXUS WITH THE ABOVE CONTRACT INVOLVING RS.50,OO,OOO/- IS CONTRARY TO TH E FACTS AND NOT ACCEPTABLE JUST ON THE FACE OF IT. HE NCE, SEC.13(1)(C) CANNOT BE INVOKED AGAINST THE APPELLAN T TO DENY EXEMPTION U/S 11 ON THIS SCORE. HENCE THIS GRO UND OF APPEAL RELATING TO AYS 2006-07 & 2007-08 IS ALLOWED . 51. IT IS NOT DISPUTED THAT THE MONEY GIVEN TO SHRI. A RJUNLAL SUNDERDOSS WAS RETURNED BY HIM WITHIN A PERIOD OF TWO TO EIGHT MONTHS. THERE WERE THREE TRANSACTIONS OF RS.50,00, 000/- EACH AND ALL OF THESE WERE RETURNED BY THE SAID PERSON. CASE OF THE LD. ASSESSING OFFICER IS THAT NO SECURITY WAS GIVEN FOR SUCH ADVA NCES NOR ANY INTEREST RECEIVED FROM SHRI. ARJUNLAL SUNDERDOSS. AS AGAIN ST THIS, CASE OF THE ASSESSEE IS THAT MONEY WAS INTENDED FOR DEVELOPING A PROPERTY OWNED BY SHRI. ARJUNLAL SUNDERDOSS, WHICH WAS TO BE USED BY THE ASSESSEE FOR ITS ACTIVITIES. THUS, WE CANNOT SAY THAT THE ADVANCES WERE GIVEN ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 80 -: FOR NO REASON. IN ANY CASE, SHRI. ARJUNLAL SUNDER DOSS IS NEITHER A TRUSTEES NOR A SPECIFIED PERSON COMING WITHIN THE M EANING OF SECTION 13(3) OF THE ACT. WE ARE THEREFORE OF THE OPINION THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN TAKING A VIEW THAT SECTION 13(1) ( C) OF THE ACT COULD NOT BE INV OKED HERE. 52. NEXT WE HAVE TO ANSWER WHETHER THE ACQUISITION OF A PROPERTY AT NO.85, SECOND EAST MAIN ROAD, GANDHI N AGAR, KATPADI, VELLORE BY SMT. S. PREETHA, DAUGHTER-IN-LAW OF MANA GING TRUSTEE, FOR A SUM OF RS.40,00,000/- IN WHICH THERE WAS AN APPLICA TION FOR LOAN INDICATING THE VALUE OF THE PROPERTY AS G1,25,00,00 0/- MEANT THAT ASSESSEE HAD ADVANCED THE DIFFERENCE SUM THROUGH S HRI. PRAKASH, FINANCE OFFICER TO SMT. S. PREETHA, ATTRACTING SE CTION 13(1) ( C) OF THE ACT. FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THE ABOVE MENTIONED PROPERTY OF SMT.PREETHA, AS IT APP EAR AT PARA 11.3 OF HIS ORDER IS REPRODUCED HEREUNDER:- 11.3 THE AO'S CONCLUSION THAT APPELLANT'S MONEY W AS DIVERTED AND PAID AS ON-MONEY BY MRS.S.PREETHA, DAU GHTER IN LAW OF THE MANAGING TRUSTEE, STANDS DISPROVED BY THE CIT(A)'S ORDER (WHICH WAS LATER CONFIRMED BY ITAT WITHOUT ANY FURTHER APPEAL BY THE DEPARTMENT, AS EX TRACTED ABOVE) WHICH HAS NOT ONLY DELETED THE ADDITION U/S 69B IN THE FILE OF S.PREETHA ON ACCOUNT OF ALLEGED PAYMENT OF ON MONEY, BUT ALSO GIVING A FINDING THAT THERE IS NO E VIDENCE WHATSOEVER THAT ANY SUCH ON MONEY WAS PAID OR THAT THE APPELLANT'S FUNDS WERE USED BY HER FOR THE PAYMENT OF THE ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 81 -: SAID SUM OF RS.85 LAKHS. HENCE, I HAVE NO HESITATIO N TO HOLD THAT SEC.13(1)(C) CANNOT BE INVOKED AGAINST THE APP ELLANT TO DENY EXEMPTION U/S LION THIS SCORE. HENCE THIS GROU ND OF APPEAL RELATING TO AY 2007-08 IS ALLOWED. APART FROM THE REASONS CITED BY THE LD. COMMISSIONE R OF INCOME TAX (APPEALS), FOR HOLDING IN FAVOUR OF THE ASSESSEE, W E ALSO FIND THAT THERE IS NOTHING ON RECORD TO LINK THE ACQUISITION MADE B Y SMT. PREETHA WITH THE ASSESSEE. JUST BECAUSE FINANCE OFFICE, OF THE ASSESSEE SHRI. PRAKASH HAD DRAWN IMPREST MONEY FROM THE TRUST WOUL D NOT MEAN THAT SUCH MONEY REACHED THE HANDS OF SMT. PREETHA. ESPEC IALLY SO, WHEN NO SUCH ADMISSION WAS MADE BY SHR. PRAKASH IN ANY O F THE STATEMENTS RECORDED FROM HIM. WE THEREFORE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) IN THIS REGARD. 53. NOW WE HAVE TO ADDRESS THE QUESTION, WHETHER PAYMEN T OF RS.34,77,50,000/- FOR A PROPERTY AT CHAMIERS ROAD, CHENNAI, WHICH WAS ACQUIRED BY GIE IN WHICH PARTNERS WERE TRUSTEES OF THE ASSESSEE TRUST, RESULTED IN A BENEFIT TO A SPECIFIED PERSON COMING WITHIN THE PURVIEW OF SECTION 13(1) ( C) OF THE ACT. FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE, AS IT APPEAR AT PARAS 12.1.5 TO 12.1.9 OF HIS ORDER ARE REPRODUCED HEREUNDER:- ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 82 -: 12.1.5 AS FAR AS PURCHASE OF THE PROPERTY AT CHAM IERS ROAD IS CONCERNED, THE APPELLANT STATED THAT THE SAID PROPE RTY WAS PLANNED TO BE PURCHASED FOR THE USE OF THE TRUST TO CONSTRUCT A TRAINING CENTRE. AS PER THE PRACTICE IN VOGUE, THE TRUST PASSED A RESOL UTION AND AUTHORI SED ONE OF THE TRUSTEES TO NEGOTIATE THE TRANSACTION AND ENTER INTO AN AGREEMENT FOR PURCHASE OF THE SAID PROPERTY . AFTER PAYING ADVANCE, THE COPY OF THE DOCUMENTS WERE RECEIVED FR OM THE PROSPECTIVE SELLER AND IN TURN GIVEN TO THE APPELLA NT'S ADVOCATE FOR LEGAL OPINION. IT CAME TO LIGHT THAT THERE WAS A LE GAL HITCH AND PURSUING THE MATTER BY THE TRUST WOULD BE DETRIMENT AL. GETTING BACK THE ADVANCE WAS ALSO A PROBLEM SINCE T HERE WERE SEVERAL OWNERS IN RESPECT OF THE PROPERTY AND THEY WOULD RETURN THE ADVANCE ONLY AFTER FINDING A SUITABLE BUYER, APART FROM THE POSSIBLE LIQUIDATED DAMAGES OF RS.1 CRORE IN THE ABSENCE OF SPECIFIC PERFORMANCE. AT THIS JUNCTURE THE TRUSTEES DECIDED TO FORM A PARTNERSHIP IN THE NAME OF GLOBAL INFRASTRUCTURE ENTERPRISES AND BOUGHT THE PROPERTY. THE SAID FIRM LATER RETURNED THE ADVANCE WHICH WAS PAID BY THE APPELLANT TO THE SELL ER, THUS SAVING THE TRUST FROM INCURRING LOSS. 12.1.6 NOW WHAT REQUIRES TO BE EXAMINED IS AS TO WH ETHER THE ADVANCE PAID BY THE APPELLANT TO THE SELLERS OF THE PROPERTY CAN BE CONSIDERED AS A LOAN TO THE TRUSTEES IN WHOSE NAME S THE AGREEMENT WAS ENTERED INTO. THE ANSWER TO THIS QUESTION IS AN EMPHATIC NO, BECAUSE THE MONEY WAS PAID BY THE APPELLANT TRUST A ND RECORDED IN ITS BOOKS OF ACCOUNTS AS AN ASSET AND DUELY REFLECTED I N ITS BALANCE SHEET AS AN ASSET. WHEN THE MONEY PAID BY THE TRUST TO AN OTHER PERSON FOR THE PURCHASE OF A PROPERTY FOR THE TRUST, ALBEIT IN THE NAME OF THE TRUSTEES, IS ENTERED IN ITS BOOKS OF ACCOUNTS AND S HOWN AS AN ASSET IN ITS BALANCE SHEET, BY NO STRETCH OF FIC TION OR IMAGINATION CAN THE SAID AMOUNT BE TREATED AS A DIVERSION' OR A MOUNT 'APPLIED' FOR THE BENEFIT OF THE PERSONS SPECIFIED U/S 13(3). REL IANCE IS PLACED ON THE FOLLOWING LEGAL SUBMISSION BY THE APPELLANT: '1.3 IT HAS BEEN HELD IN BTM EDUCATION TRUST VS ACIT 6 SOT 716 (BANG) - COPY ENCLOSED [ANNEXURE 37J - THAT WHEN A TRUST PURCHASED A PROPERTY IN THE NAME OF THE TRUSTEE AND BOOKS OF ACCOUNT REFLECTED THE PROPERTY AS THAT OF TRUST, IT COULD NOT BE TREATED AS A LOAN OR ADVANCE BY THE TRUST TO A TRUSTEE. SIMILARLY HELD IN DIT VS N.H.KAPADIA EDUCATION TRUST 136 ITD 111 (AHD).' ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 83 -: 12.1. 7 IN FACT A TRUST IS NOT A 'LIVING PERSON' LE GAL ENTITY SO AS TO PURCHASE PROPERTY IN ITS OWN NAME AS MAY BE EVIDENT FROM THE DEFINITION OF 'TRUST' BELOW UNDER THE INDIAN TRUSTS ACT, 1882 '3. INTERPRETATION CLAUSE- 'TRUST' A 'TRUST' IS AN OBLIGATION ANNEXED TO THE OWNERSHIP OF PROPERTY, AND ARISING OUT OF A CONFIDENCE REPOSED IN AND ACCEPTED BY THE OWNER, OR DECLARED AND ACCEPTED BY HIM, FOR THE BENEFIT OF ANOTHER, OR OF ANOTHER AND THE OWNER: IN THIS SECTION 'LIVING PERSON INCLUDES A COMPANY O R ASSOCIATION OR BODY OF INDIVIDUALS, WHETHER INCORPORATED OR NOT, BUT NOTHI NG HEREIN CONTAINED SHALL AFFECT ANY LAW FOR THE TIME BEING IN FORCE RELATING TO TRANSFER OF PROPERTY TO OR BY COMPANIES, ASSOCIATIONS OR BODIES OF INDIVIDUALS .' AND THE FOLLOWING DEFINITION OF 'TRANSFER OF PROPER TY' UNDER THE TRANSFER OF PROPERTY ACT, 1882, REPRODUCED BELOW '5. TRANSFER OF PROPERTY DEFINED IN THE FOLLOWING SECTIONS 'TRANSFER OF PROPERTY' ME ANS AN ACT BY WHICH A LIVING PERSON CONVEYS PROPERTY, IN PRESENT OR IN FU TURE, TO ONE OR MORE OTHER LIVING PERSONS, OR TO HIMSELF AND ONE OR MORE OTHER LIVING PERSONS; AND 'TO TRANSFER PROPERTY' IS TO PERFORM SUCH ACT. IN THIS SECTION 'LIVING PERSON INCLUDES A COMPANY OR ASSOCIATION OR BODY OF INDIVI DUALS, WHETHER INCORPORATED OR NOT, BUT NOTHING HEREIN CONTAINED S HALL AFFECT ANY LAW FOR THE TIME BEING IN FORCE RELATING TO TRANSFER OF PROPERT Y TO OR BY COMPANIES, ASSOCIATIONS OR BODIES OF INDIVIDUALS.' A TRUST BEING NEITHER A COMPANY OR ASSOCIATION OR B ODY OF INDIVIDUALS CAN NOT BE A 'LIVING PERSON' AS DEFINED ABOVE BY TH E TOP ACT AND THEREFORE PROPERTIES FOR A TRUST HAVE TO BE NECESSA RILY BE PURCHASED IN THE NAMES OF THE TRUSTEE, ALBEIT TO BE HELD BY THE TRUSTEES IN OBLIGATION, FOR AND ON BEHALF OF THE TRUST. HENCE, IT IS CLEAR THAT IN THE EYES OF LAW THE ADVANCE PAID FOR PURCHASE OF PROPER TY IN THE NAME OF THE TRUSTEES WHICH IS REFLECTED IN THE ACCOUNTS AND THE BALANCE SHEET OF THE TRUST, IS LEGAL AND ONLY A TRUST PROPERTY AN D CAN LEAD TO NO 'DIVERSION' U/S 13(1)(C) SOLELY FOR THAT REASON. 12.1.8 THE NEXT ISSUE THAT REQUIRES EXAMINATION IS, AS TO WHETHER THE FINAL REGISTRATION OF THE PROPERTY IN THE NAME OF A FIRM, IN WHICH ONLY THE TRUSTEES ARE PARTNERS CAN LEAD TO THE SAME LEGA L CONCLUSION AS ABOVE. TO MAKE A FAIR ASSESSMENT OF THE SITUATION, AN OVER ALL VIEW OF THE FACTS AND CIRCUMSTANCE OF THE FACTS NARRATED AB OVE, THE DETRIMENT IF ANY TO THE TRUST AS A CONSEQUENCE OF SUCH REGIST RATION AND THE POSSIBLE BENEFITS OR PREVENTION OF OPPORTUNITY COST S AND LIABILITIES TO THE TRUST HAVE TO BE EVALUATED. ON A FAIR VIEW OF T HE EVENTS AND CIRCUMSTANCES LEADING TO THE REGISTRATION OF THE PR OPERTY IN THE NAME OF THE FIRM GLOBAL INFRASTRUCTURE ENTERPRISES {GIE} , IN WHICH ONLY THE 5 TRUSTEES WERE PARTNERS, I AM CONVINCED THAT THERE I S NO 'DIVERSION' OR ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 84 -: APPLICATION' OF THE INCOME OR PROPERTIES OF THE TRU ST FOR THE BENEFIT OF THE PROHIBITED PERSONS U/S 13(3) FOR THE FOLLOWING REASONS: . I. THE OVERALL' FACTS AND CIRCUMSTANCE NARRATED BY' THE APPELLANT, EXTRACTED ABOVE, WHICH APPEAR TO BE PRACTICAL AND A CCEPTABLE ON THE BASIS OF PREPONDERANCE OF HUMAN PROBABILITIES AND N OT MERELY VIEWED IN A HYPER TECHNICAL ANGLE; II. THE APPELLANT WAS SAVED FROM THE OWNERSHIP OF A PROPERTY WITH A DEFECTIVE TITLE; III. THE APPELLANT WAS SAVED FROM A POTENTIAL LOSS OF RS.L C RORE IN PAYMENT OF LIQUIDATED DAMAGES AS PER THE REGISTERED SALE AGREEMENT; IV. THE APPELLANT WAS SAVED FROM A POTENTIAL LOSS OR POSSIBLE EXTRAORDINARY DELAY IN THE RECOVERY OF THE BALANCE RS.9 CRORE ADVANCE PAID TO THE 8 EO-OWNERS OF THE PROPERTY, AS THEY ARE PRACTICALLY LIKELY TO HAVE REPAID THE AMOUNT ONLY A FTER ANOTHER BUYER WAS LOCATED.; V. THE APPELLANT HAD, AS NARRATED ABOVE, ATTEMPTED TO FIND ANOTHER BUYER TO WHOM THE SAID PROPERTY COULD BE TRANSFERRE D AS ITS NOMINEE UNDER THE PURCHASE AGREEMENT AND IT WAS ONLY AFTER FAILING TO FIND SUCH A BUYER THAT THE TRUSTEES DECIDED ON 9.2.2007, TO RELIEVE THE APPELLANT FROM THE PURCHASE OF A ONEROUS PROPERTY, BY ENTERING INTO MOU. VI. APPELLANT HAD AGREED TO PAY THE BALANCE PURCHAS E PRICE AND OTHER COSTS FOR THE PROPERTY ON THE CONDITION, AS PER THE MOU DT.9.2.2007 ON THE CONDITION THAT ALL THE SAID ADVANCES WOULD B E REPAID BY GIE ON ARRANGING THE FUNDS AT THE EARLIEST, AS THE 5 TRUST EES DID NOT INTEND TO PURCHASE THE PROPERTY NOR COULD THEY ARRANGE FOR TH E FINANCES WITHIN THE 3 REMAINING WEEKS TO GO THROUGH THE TRANSACTION AND TO SAVE ITSELF FROM THE FINANCIAL LOSS TO THE TUNE OF RS.L0 CRORE. VII. THE DEFECT IN THE TITLE TO THE PROPERTY WAS REAL AS EVEN GIE WHO PURC HASED THE PROPERTY WAS NOT ABLE TO RENT IT OR DEVELOP IT AND ULTIMATEL Y SOLD IT AT A HUGE LOSS AFTER A NUMBER OF YEARS; VIII. APPELLANT, CONTRARY TO WHAT THE AO HAS STATED IN PARA 71 OF HI S ORDER, DID NOT INCUR ANY OF THE EXPENDITURE, (INCLUDING IN TERESTS ON THE LOAN TAKEN FOR PAYMENT OF THE ADVANCES UPTO THE DATE OF REPAYMENT OF THE LOAN) RELATED TO THE PURCHASE OF T HE PROPERTY, ALL OF WHICH WERE DEBITED ONLY TO THE ACCOUNT OF GIE AN D RECOVERED IN FULL AS PER THE LEDGER ACCOUNT COPIES FURNISHED AND EXAM INED. IX. THE DELAY IN THE PURCHASE OF THE PROPERTY BY GI E WAS BECAUSE THE TRUSTEES COULD NOT HAVE THE NEED OR THE RESOURC ES TO RAISE THE ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 85 -: FUNDS TO COMPLETE THE PURCHASE AND ULTIMATELY COULD DO SO FROM INDIAN BANK AND REPAID THE ADVANCE GIVEN BY THE APP ELLANT IMMEDIATELY ON OBTAINING THE LOAN. X. APPELLANT HAS FILED THE FINANCIAL STATEMENT OF GIE (WHICH DID NOT HAVE ANY OTHER BUSINESS, INCOME, ASSET OR LIABILITI ES OTHER THAN RELATING TO THE PROPERTY AT CHAMIERS ROAD) FROM ITS INCEPTION IN A.Y.2008-09 UPTO A.Y.2016-17 TO PROVE THAT THE SAID FIRM, INSTEAD OF GAINING ANY BENEFIT AS CONCLUDED BY THE AO HAD IN FACT BEEN SADDLED WITH A LOSSES AND A DEBT OF RS.S.2S CR ORES AS AT 31.3.2016, AFTER HAVLNQSOLD THE CHAMIERS ROAD PROPERTY AT A LOSS. THUS THE APPELLANT WAS SAVED FROM THE ABOVE DEBT BURDEN OF 8.25 CRORES AS A RESULT OF THE PURCHASE OF THE PROPERTY BY THE GIE. AS THE RELATED PERSON DID NOT EARN A SINGLE PIE FROM THE ALLEGED DIVERSION, BUT WAS ONLY SADDLED WI TH A HUGE LOSS AS ABOVE, SEC.13(1)(C) CANNOT BE INVOKED. RELIANCE IS PLACE O N APPELLANT'S LEGAL SUBMISSIONS BELOW: '1.4 RELIANCE IS PLACED ON THE DECISION OF THE MADRAS TRIBUNAL IN SOORYA EDUCATIONAL TRUST VS ITO IN ITA NO.579/MDS/2012 - COPY ENCLOSED [ANNEXURE 38J, WHERE, IN PARA 13.2, THE ITAT HAS NETD THAT IF THE SPECIFIED PERSON HAS NOT EARNED ANY INCOME FROM OUT OF THE FUNDS ALLEGED TO HAVE BEEN DIVERTED FROM THE TRUST, THEN SEC. 13( L)(C) IS NOT APPLICABLE. 1.5RELIANCE IS ALSO PLACED ON THE DECISION OF THE MADRAS TRIBUNAL IN MERIT INTERNATIONAL EDUCATION VS DCIT - ITA NO.35/MDS/2012 - COPY ENCLOSED [ANNEXURE 39 J - HOLDING THAT IN CASE OF LEASE ADVANCE BY A TRUST TO A TRUSTEE WITHOUT PAYMENT OF RENT, THERE IS NO CASE OF DIVERSION AND IN FACT THE TRUST GAINED BY NONPAYMENT OF RENT AND THEREFOR E SEC.13(1)(C) COULD NOT BE INVOKED. SIMILARLY IN VIT'S CASE, VIT WAS SAVED FROM HUGE LOSSES ON ACCOUNT OF THE ONEROUS PURCHASE OF PROPERTIES AND THEREFORE THERE IS NO CASE FOR INVOKING SEC. 13(L)(C). 1.6RELIANCE IS FURTHER PLACED ON THE MADRAS TRIBUNA L'S DECISION IN ACIT VS HARSHAD DOSHI 130 ITD 137 (CHENNAI) - COPY ENCLOSED [ ANNEXURE 40J - SIMILARLY HOLDING IN THE CONTEXT OF DEEMED DIVIDEND U/S 2(22)(E).' XI. THE GIFT OF OF 15.791/4 ACRES VALUED AT RS.1.26 CRORES NEAR MADRAS BY GIE TO THE APPELLANT ON 7.10.2008, (APART FROM REIMBURSEMENT OF ALL EXPENSES INCLUDING INTEREST ON LOAN TAKEN TO PAY THE ADVANCES) IS MORE THAN ADEQUATE CONSIDERATION FOR THE PAYMENT OF THE AFORESAID ADVA NCES FOR THE PURCHASE OF THE PROPERTY BY THE APPELLANT UNDER BONA FIDE AND GENUINE CIRCUMSTANCES. 12.1.9 FOR ALL THE REASONS AFORESAID, I HOLD THAT T HAT THERE WAS NO DIVERSION OR 'APPLICATION' OF THE TRUST FUNDS FOR T HE BENEFIT OF THE PROHIBITED PERSONS U/S 13(3) AS FAR AS THE DEALING IN IMMOVABLE PROPERTY AT CHAMIERS ROAD IS CONCERNED AND HOLD THA T SEC.13(1)(C) CANNOT BE INVOKED AGAINST THE APPELLANT TO DENY EXE MPTION U/S LION ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 86 -: THIS SCORE. HENCE THIS GROUND OF APPEAL RELATING TO A.YS.2007-08 & 2008-09 IS ALLOWED. 54. SUBMISSION OF THE LD. AUTHORISED REPRESENTATIVE BEF ORE US IS THAT COPY OF THE BOARD RESOLUTION AND MEMORANDUM OF UNDERSTANDING BETWEEN THE TRUSTEES AND THE ASSESSEE WERE ALL AVA ILABLE AT THE TIME OF SEARCH, BUT WERE NOT EXAMINED NOR SEIZED BY THE DEPARTMENT. THIS SUBMISSION WAS NOT EFFECTIVELY REBUTTED BY THE REV ENUE. MEMORANDUM OF UNDERSTANDING DATED 26.12.2006 PLACE D AT PAPER BOOK PAGES 231 TO 233 CLEARLY SHOW THAT SHRI. G.VIS WANTHAN, SHRI. V. SANKAR, SHRI. V.SAMPATH, V. SEKAR AND SHRI. V.SELVA M, TRUSTEES WERE TO ACT UNDER THE DIRECTIONS OF ASSESSEE AND ACQUIRE THE SAID PROPERTY. IN OUR OPINION, ARGUMENT OF THE LD. AUTHORISED REP RESENTATIVE THAT IF THE ACQUISITION WAS ATTEMPTED DIRECTLY, THE PRICES WOULD HAVE BEEN JACKED UP CANNOT BE BRUSHED ASIDE. WE ALSO FIND TH AT AGREEMENT FOR SALE DATED 03.01.2007 PLACED AT PAPER BOOK PAGES 238 TO 246 SHOW THE ADVANCE PAYMENT OF RS.10,00,00,000/- AS TO HAVE BEEN MADE FROM THE BANK ACCOUNT OF THE ASSESSEE TRUST DIRECTLY TO THE VENDORS. THUS IT IS NOT A CASE WHERE ANY MONEY OF THE ASSESSEE T RUST HAD FLOWED INTO ACCOUNTS OF THE TRUSTEES. LEGAL OPINION OF SH RI S. GIRITHARAN, ADVOCATE, PLACED AT PAGE BOOK 247 TO 250 DOES SHOW THAT THERE WERE SOME DEFECTS IN THE TITLE. LD. ASSESSING OFFICER H AD DISBELIEVED THIS ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 87 -: LEGAL OPINION CITING THAT THE MOBILE NUMBER OF SHRI . S. GIRITHARAN MENTIONED IN THE CERTIFICATE ISSUED WAS INCORRECT. HOWEVER, WE FIND THAT THE DOCUMENT GAVE THE ADDRESS OF THE ADVOCATE , FOR HIS OFFICE, FOR HIS RESIDENCE AND FOR HIS CHAMBER. NO DOUBT THE PROPERTY WAS EVENTUALLY PURCHASED BY THE FIRM M/S.GIE IN WHICH TRUSTEES OF THE ASSESSEE TRUST WERE THE PARTNERS. NEVERTHELESS, CO NTENTION OF THE ASSESSEE THAT SUCH A STEP HAD TO BE TAKEN, FOR AVOI DING THE LOSS THAT WOULD HAVE BEEN ARISEN, IF IT HAD CANCELLED THE AG REEMENT, CANNOT IN OUR OPINION BE IGNORED. INTENTION OF THE ASSESSEE W AS TO ACQUIRE THE PROPERTY AND THIS IS CLEAR FROM THE NARRATION IN IT S BALANCE SHEET WHICH INDICATED THE ADVANCE TO HAVE BEEN GIVEN FOR CHAMIE RS ROAD PROPERTY. THAT APART, IT IS CLEAR FROM THE ORDER OF THE LD. C OMMISSIONER OF INCOME TAX (APPEALS) THAT GIE HAD GIFTED 15.79 ACRES OF LA ND AT CHENNAI ON 7.10.2008. FURTHER, SECTION 13(1) (C) OF THE ACT IS ATTRACTED ONLY WHERE ANY INCOME OR PROPERTY OF THE TRUST IS DIREC TLY OR INDIRECTLY USED FOR THE BENEFIT OF A SPECIFIED PERSON. ASSESSEE HAS ALSO MENTIONED BEFORE THE LD. CIT(A) THAT ATLEAST G22 CRORES GIVE N BY THE ASSESSEE WERE OUT OF LOANS RAISED ON THE SECURITY OF FIXED DEPOSITS AND MORTGAGES AND THIS HAD NOT BEEN REBUTTED BY THE LD. DR. LOAN IS A LIABILITY AND CANNOT BE CONSIDERED AS A PROPERTY O R INCOME OF THE ASSESSEE. IT IS ALSO NOT DISPUTED THAT INTEREST ON THE LOANS TAKEN BY THE ASSESSEE FOR PROVIDING THE FUNDS WERE PAID BY GIE . LD. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 88 -: COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO GIVEN A FINDING THAT GIE HAD SUFFERED A LOSS ON SALE OF CHAMBIERS ROAD PROPERTY AND THEY HAD DERIVED NO BENEFIT. THIS FINDING WAS NOT REBUTTED BY THE LD. DEPARTMENT AL REPRESENTATIVE. THUS WE CANNOT SAY THAT THE PAYMENTS WERE MADE BY T HE ASSESSEE WITH ANY INTENTION OF BENEFITTING ITS TRUSTEES OR T HE FIRM M/S. GIE, NOR CAN WE SAY THAT THEY BENEFITTED FROM IT. WE THUS DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. 55. NEXT QUESTION WE HAVE TO ANSWER IS WHETHER THE SUM OF RS.1,00,00,000/- PAID TO SHRI. SAMPATH, ONE OF THE TRUSTEES FOR ACQUIRING A PROPERTY AT 56 & 56A, THIRUMALAI PILLAI ROAD, CHENNAI WHICH WAS LATER RETURNED BY THE SAID SHRI. SAMPAT H, WHEN THE ACQUISITION DID NOT GO THROUGH, RESULTED IN ANY BE NEFIT TO SHRI. SAMPATH, COMING WITHIN THE PURVIEW OF SECTION 13( 1) ( C) OF THE ACT. FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APP EALS) ON THE ABOVE ISSUE, AS IT APPEAR AT PARAS 12.2.3 AND 12.2. 4 OF HIS ORDER ARE REPRODUCED HEREUNDER:- 12.2.3 HERE AGAIN, TO MAKE A FAIR ASSESSMENT OF THE SITUATION, AN OVER ALL VIEW OF THE FACTS AND CIRCUMSTANCE OF THE FACTS NARRATED ABOVE, THE DETRIMENT IF ANY TO THE TRUST AS A CONSEQUENCE OF ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 89 -: SUCH PAYMENT OF ADVANCE AND THE POSSIBLE BENEFITS OR PREVENTION OF OPPORTUNITY COSTS AND LIABILITIES TO THE TRUST HAVE TO BE EVALUATED. ON A FAIR VIEW OF THE EVENTS AND CIRCUMSTANCES LEADING TO THE PAYMENT OF RS.L CRORE AS FURTHER ADVANCE FOR THE PROPERTY AT THIRUMALAI PILLAI ROAD, CHENNAI, I AM CONVINCED THAT THERE IS NO 'DIVERSION' OR APPLICATION' OF THE INCOME OR PROPERTIES OF THE TRUST FOR THE BENEFIT OF THE PROHIBITED PERSONS U/S 13(3) FOR THE FOLLOWING REASONS: I. SHRI SAMPATH, TRUSTEE, HAD ENTERED INTO A REGISTERED AGREEMENT FOR THE PURCHASE OF THE PROPERTY AT THIRUMALAI PILLAI ROAD, CHENNAI BY PAYING AN ADVANCE OF 10,00,000/- II. AS THE TRANSACTION IN RESPECT OF CHAMIERS ROAD PROPERTY WAS NOT FRUCTIFIED, AS NARRATED ABOVE, .... THE APPELLANT WAS IN SEARCH OF ANOTHER PROPERTY TO START THE TRAINING CENTRE AND AS THS THIRUMALAI PILLAI ROAD PROPERTY CONSTRUCTION WAS SUBSTANTIALLY COMPLETED AND APPELLANT COULD QUICKLY COMMENCE ITS TRAINING CENTRE, APPELLANT HAD REQUESTED SHRI SAMPATH TO ALLOW IT TO PURCHASE THE PROPERTY FOR ITS TRAINING CENTRE, PURSUANT TO WHICH AN AGREEMENT WAS ENTERED INTO BY WHICH SHRI SAMPATH NOMINATED THE APPELLANT AS THE ULTIMATE PURCHASED, AFTER WHICH APPELLANT PAID THE SUM OF .1 CRORE AS FURTHER ADVANCE. ILL. HAVING PAID A SUBSTANTIAL PORTION OF THE AGREED PRICE, WHEN THE APPELLANT COMMENCED THE TASK OF APPLYING FOR APPROVALS TO THE CORPORATION IT CAME TO LIGHT: THAT THE OWNER HAD DEVIATED FROM THE ORIGINAL PLAN WHICH WAS PERMITTED BY THE APPROPRIATE AUTHORITY AND THIS DEVIATION WAS LATER REGULARIZED BY PAYING THE NECESSARY REGULARISATION FEE AND OBTAINING CONSENT FOR ZONE CONVERSION TO COMMERCIAL ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 90 -: SPACE IN THE GROUND FLOOR AND RESIDENTIAL ONLY IN THE FLOORS ABOVE. COPIES OF THE FEES PAID FOR REGULARISATION OF THE DEVIATION ETC. WHICH WERE FILED HAVE BEEN EXAMINED. IV. WHEN THE APPELLANT SOUGHT PERMISSION FOR CONSTRUCTION OF THE TRAINING CENTER AFTER THE NOMINATION AGREEMENT AND THE PAYMENT OF ADVANCE, IT WAS INFORMED BY THE AUTHORITY CONCERNED THAT ZONE CONVERSION WILL NOT BE ALLOWED FOR THE 2 ND TIME AFTER PAYMENT OF THE 'REGULARISATION FEE' FOR REGULARISATION OF THE FIRS T DEVIATION. IT WAS ONLY THEN THAT THE APPELLANT REALISED THAT IT COULD NEVER CONVERT THE SEMI FINISHED STRUCTURE INTO A TRAINING CENTRE. V. HAVING NO OTHER GO, THE APPELLANT DROPPED THE IDEA OF BUYING THIS PROPERTY AND THE ADVANCE WAS RETURNED TO THE APPELLANT BY THE SHRI SAMPATH, TRUSTEE. VI. THUS FROM THE ABOVE DISCUSSION IT MAY BE NOTED THAT THERE WAS NO DIVERSION OR 'APPLICATION' OF THE TRUST FUNDS AS SUCH, TO INTERESTED PARTIES AS THE AMOUNT WAS PAID FOR PURCHASING A PROPERTY FOR THE TRUST AND NOT TO FINANCIALLY BENEFIT THE TRUSTEE. THE TRANSACTION IS THROUGH BANKING CHANNELS AND IS BACKED BY RESOLUTION PASSED BY THE BOARD OF TRUSTEES. THE PAYMENT TO THE TRUSTEES AND THE REPAYMENT BY THE TRUSTEES TO THE APPELLANT ARE ALL BY CHEQUES ONLY AND ARE REFLECTED IN THE ACCOUNTS AND THE BALANCE SHEET OF THE APPELLANT AS ADVANCE FOR PURCHASE OF THIRUMALAI PILLAI ROAD PROPERTY AND NOT AS AN LOAN TO A TRUSTEE. 12.2.4 BASED ON THE ABOVE DISCUSSION AND EVIDENCES PRODUCED, I AM OF THE CONSIDERED VIEW THAT THERE IS NO ELEMENT OF ANY DIVERSION OF TRUST FUNDS TO THE INTERESTED PERSONS IN RESPECT OF ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 91 -: THE ADVANCE OF RS.1 CRORE PAID FOR THE NOMINATION AND PURCHASE OF THE THIRUMALAI PILLAI ROAD PROPERTY AND HOLD THAT SEC.13(1)(C) CANNOT BE INVOKED AGAINST THE APPELLANT TO DENY EXEMPTION U/S 11 ON THIS SCORE. HENCE THIS GROUND OF APPEAL RELATING TO A.YS. 2007-08 & 2008-09 IS ALLOWED. 56. WHAT WE FIND IS THAT ASSESSEE TRUST HAD PAID A SU M OF G1,00,00,000/- TO SHRI. V. SAMPATH WHO WAS A TRUSTE E. HOWEVER, THERE WAS A NOMINATION OF THE ASSESSEE TRUST, AS THE BENE FICIARY THROUGH A NOMINATION DEED DATED 16.02.2007 PLACED AT PAPER B OOK PAGES 266 TO 271. THUS, THE INTENTION OF THE ASSESSEE AS WELL A S SHRI. SAMPATH, WHEN HE ENTERED INTO THE AGREEMENT FOR ACQUIRING T HE PROPERTY FROM M/S. BOMMIDALA REALTY, WAS TO ACQUIRE THE PROPERTY FOR THE ASSESSEE. ARGUMENT OF THE LD. AUTHORISED REPRESENTATIVE T HAT THIS ACQUISITION WAS PLANNED AS AN ALTERNATIVE TO THE PROPOSAL FOR ACQUIRING THE CHAMIERS ROAD PROPERTY WHICH FELL THROUGH DUE TO DE FECTS IN TITLE, CARRIES MUCH STRENGTH. THE QUESTION OF BENEFIT ARISING TO A TRUSTEE OR SPECIFIED PERSON WOULD ARISE ONLY IF THE TRANSACTI ONS WERE ENTERED WITH THE INTENTION OF BENEFITING SUCH PERSON. FLOW OF E VENTS CLEARLY INDICATE THAT SHRI. SAMPATH HAD NOT BENEFITED HIMSELF, BY US ING THE MONEY OF THE TRUST. HIS INTENTION WAS ONLY TO ACQUIRE THE P ROPERTY FOR THE TRUST. JUST BECAUSE THE TRANSACTION DID NOT GO THROUGH, WO ULD NOT MEAN THAT ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 92 -: SHRI. SAMPATH, HAD DIRECTLY OR INDIRECTLY BENEFITED FROM IT. WE ARE THEREFORE OF THE OPINION THAT LD. COMMISSIONER OF I NCOME TAX (APPEALS) WAS JUSTIFIED IN HOLDING THAT THERE WAS N O VIOLATION OF THE NATURE MENTIONED IN SECTION 13(1) (C) OF THE ACT. 57. BEFORE PARTING, WE WILL BE FAILING IN OUR DUTY IF WE DO NOT ADDRESS CERTAIN GENERAL ARGUMENTS TAKEN BY THE LD. DEPARTMENTAL REPRESENTATIVE. FIRST ONE IS THAT THE MOMENT FUNDS WERE PLACED AT THE DISPOSAL OF THE TRUSTEES OR ANY SPECIFIED PERSON, S ECTION 13(1) (C) OF THE ACT STOOD ATTRACTED. SECOND ONE IS THAT ONCE TH ERE WAS A VIOLATION U/S.13(1) (C) OF THE ACT ENTIRE EXEMPTION AVAILABLE UNDER SECTION 11 STOOD OUSTED. FOR THESE PROPOSITIONS, LD. DEPARTMEN TAL REPRESENTATIVE HAS PLACED RELIANCE ON A JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF CHARANJIV CHARITABLE TRUST (SUPRA) , THAT OF HONBLE KERALA HIGH COURT IN THE CASE OF AGAPPA CHILD CENTRE (SUPRA), THAT OF HONBLE ANDHRA PRADESH HIGH COURT IN THE CASE OF ACTION FOR WELFARE AND AWAKENING IN RURAL ENVIRONMENT (SUPRA) AND THAT OF HONBLE APEX COURT IN THE CASE OF BHARAT DIAMOND BOURSE (SUPRA) . IN OUR OPINION THERE CAN BE NO QUARREL ON THE PROPOSITIONS OF LAW SOUGHT TO BE CANVASSED BY THE LD. DEPARTMENTAL REPRESENTATIVE BA SED ON THE ABOVE JUDGMENTS. HOWEVER, IN THE CASE BEFORE US, W HAT WE FIND IS THAT THERE WERE NO BENEFITS TO THE TRUSTEES OR ANY SPECIFIED PERSON COMING WITHIN THE MEANING OF SECTION 13(1) (C) OF T HE ACT, ON ACCOUNT ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 93 -: OF ANY OF THE ALLEGED TRANSACTIONS ON LAND/PURCHASE OR ON ACCOUNT OF LAND DEVELOPMENT EXPENDITURE CLAIMED BY THE ASSESSE E OR ON ACCOUNT OF REFUND OF FEES. AS ALREADY MENTIONED BY US MERE RECEIPT OF FUNDS BY A TRUSTEE IS NOT SUFFICIENT TO ATTRACT SECTION 13(1 ) (C) OF THE ACT. THERE HAS TO BE AN INTENTION TO BENEFIT THE TRUSTEE AND S OME REAL BENEFIT ARISING TO THE TRUSTEE. THESE SHOULD MANIFESTED IN ACTIONS OF THE TRUST AND THE TRUSTEE. SINCE, THERE HAS BEEN NO SUCH BENE FIT ARISING TO THE TRUSTEES OR ANY SPECIFIED PERSON HERE, THESE JUDGM ENTS IN OUR OPINION HAVE NO APPLICATION ON FACTS. AS AGAINST THIS, THE RE IS CONSIDERABLE FORCE IN THE ARGUMENT OF THE LD. AUTHORISED REPRESE NTATIVE THAT BURDEN OF PROOF WAS ON THE REVENUE TO PROVE ANY BE NEFIT TO HAVE BEEN ACCRUED TO THE TRUSTEES, AT THE EXPENSE OF THE TRUST, AND THIS WAS NEVER DISCHARGED. WE ARE ALIVE TO THE FACT THAT I N THE STATEMENTS RECORDED DURING THE SEARCH, TRUSTEE /RELATED PARTIE S HAD ADMITTED PERSONAL INCOME AGGREGATING TO 7.87 CRORES. HOWEVE R, AT NO POINT DID THEY SAY THAT THIS WAS PART OF TRUST FUNDS. SHRI. S AMPATH AND HIS WIFE WHO HAD ADMITTED G5.69 CRORE OUT OF 17.87 CRORES, W ERE ADMITTEDLY HAVING THEIR OWN BUSINESS AND INDEPENDENT SOURCE OF INCOME. THAT APART AGGREGATE OF FUNDS ALLEGED TO HAVE BEEN DIVE RTED CAME TO 98.66 CRORES AND WHAT WERE ADMITTED AS PERSONAL INCOME BY TRUSTEES/RELATIVES WERE ONLY G7.87 CRORES. REVENUE WAS UNABLE TO BRING ON RECORD ANY UNEXPLAINED INVESTMENTS OR ASSE T HELD BY THE ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 94 -: TRUSTEES AND THEIR RELATIVES, WHICH COULD REFLECT S UCH DIVERSION OF INCOME. THUS THE ONUS WHICH WAS ON THE REVENUE TO SHOW DIVERSION OF INCOME OR PROPERTY OF THE TRUST FOR THE BENEFIT OF TRUSTEES OR SPECIFIED PERSONS WAS NOT DISCHARGED. 58. APART FROM THE GROUNDS RELATING TO DENIAL OF EXEMPT ION U/S.11 OF THE ACT, THERE ARE CERTAIN OTHERS GROUNDS RAISED BY THE REVENUE IN ITS APPEALS FOR VARIOUS YEARS. THESE GR OUNDS ARE DEALT WITH HEREUNDER:- 59. THROUGH ITS GROUND NO. 8 FOR ASSESSMENT YEAR 2005-0 6, GROUND NO.10 FOR ASSESSMENT YEAR 2006-07, GROUND N O.12 & 12.1 FOR ASSESSMENT YEAR 07-08 AND GROUND NO.9 AND 9.1 FOR ASSESSMENT YEAR 08-09, REVENUE ASSAILS THE DIRECTION OF THE LD. C OMMISSIONER OF INCOME TAX (APPEALS) TO TAX THE ASSESSEE AT MAXIMU M MARGINAL RATE ON THE DISALLOWED PART OF LAND DEVELOPMENT EXPENDIT URE ALONE. WE HAVE ALREADY HELD AT PARAS 41 & 42 ABOVE, THERE WER E NO REASONS TO MAKE ANY DISALLOWANCE FOR LAND DEVELOPMENT EXPENDIT URE CLAIMED BY THE ASSESSEE. HENCE THESE GROUNDS HAVE BECOME INFRU CTUOUS. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 95 -: 60. THROUGH ITS GROUND NO.9 FOR ASSESSMENT YEAR 2005-06 AND GROUND NO.12 FOR ASSESSMENT YEAR 2008-09, DEPARTME NT HAS RAISED A GRIEVANCE WITH REGARD TO THE DIRECTIONS OF THE CO MMISSIONER OF INCOME TAX (APPEALS) TO GIVE THE ASSESSEE BENEFIT O F EXEMPTION U/S.11 OF THE ACT ON SURPLUS OF G2,13,186/- ARISING OUT OF SALE OF BANGALORE FLAT AND G9,41,89,923/- FOR SALE OF PLOT AT CHENNA I. RELEVANT FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ARE REPRODUCED HEREUNDER:- ASSESSMENT YEAR 2005-2006 : APPELLANT HAD SOLD A FLAT PURCHASED ON 16.2.2000 FOR RS.2786814 DURING THE YEAR (17.4.2004) FOR RS.30000 0, RESULTING IN CAPITAL GAIN OF RS.213186, WHICH WAS C REDITED TO THE CORPUS FUND ACCOUNT. THE AO HAS ASSESSED THIS GAIN AS 'PROFITS AND GAINS OF BUSINESS' WITHOUT ANY DISC USSION IN HIS ORDER, PROBABLY BECAUSE EXEMPTION U/S 11 WAS DE NIED BY HIM. APPELLANT IS NOT IN THE BUSINESS OF REAL ES TATE AND THE DEPARTMENT CANNOT CONVERT THE AFORESAID GAIN AS 'PROFITS AND GAIN OF BUSINESS'. IT IS ASSESSABLE UNDER THE H EAD CAPITAL GAIN ONLY, IN WHICH CASE THE SALE RESULTS I N LONG TERM CAPITAL LOSS OF RS.438742 AS PER APPELLANT'S COMPUTATION SUBMITTED. FURTHER, AS I HAVE HELD THAT THE APPELLANT IS ENTITLED TO EXEMPTION U/S 11, THE CAPI TAL GAIN OF RS.213186 IS EXEMPT U/S 11(LA) AS IT IS FOUND THAT THE APPELLANT HAS ACQUIRED ANOTHER CAPITAL ASSET DURING THE YEAR. HENCE, THIS GROUND FOR 2005- 06 A.Y IS ALLOWED . ASSESSMENT YEAR 2008-2009 : APPELLANT HAD SOLD A PLOT PURCHASED ON 13.3.2006 FO R RS.90810067 DURING THE YEAR (20.3.2008) FOR RS.185000000, RESULTING IN CAPITAL GAIN OF RS.94189 933, ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 96 -: WHICH WAS CREDITED TO THE CORPUS FUND ACCOUNT. THE AO HAS ASSESSED THIS GAIN AS 'PROFITS AND GAINS OF BUS INESS' WITHOUT ANY DISCUSSION IN HIS ORDER, PROBABLY BECAUSE EXEMPTION U/S 11 WAS DE NIED BY HIM. APPELLANT IS NOT IN THE BUSINESS OF REAL ES TATE AND THE DEPARTMENT CANNOT CONVERT THE AFORESAID GAIN AS 'PROFITS AND GAIN OF BUSINESS'. IT IS ASSESSABLE UN DER THE HEAD CAPITAL GAIN ONLY, IN WHICH CASE THE SALE RESU LTS IN SHORT TERM CAPITAL GAIN OF RS.94189933 AS PER APPELLANT'S COMPUTATION SUBMITTED. FURTHER, AS I HAVE HELD THAT THE APPELLA NT IS ENTITLED TO EXEMPTION U/S 11, THE CAPITAL GAIN OF RS.94189933 IS EXEMPT U/S 11(LA) AS IT IS FOUND THAT THE APPELLANT HAS ACQUIRED OTHER CAPITAL ASSETS DURING THE YEAR. HENCE, THIS GROUND FOR A.Y.2008-09 IS ALLOWED . LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD ALLOWE D THE ABOVE CLAIMS SINCE ASSESSEE WAS ENTITLED FOR EXEMPTION U/ S. 11 OF THE ACT. LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THERE WAS NO REASON FOR THE REVENUE TO TAKE A VIEW THAT THE SALE OF THE FLAT/PLOT WAS PART OF ANY BUSINESS IN REAL ESTATE, DONE BY THE AS SESSEE. NOTHING HAS BEEN BROUGHT BEFORE US BY THE LD. DEPARTMENTAL REPR ESENTATIVE TO TAKE A DIFFERENT VIEW. 61. IN ITS GROUND NO.13 TO 13.2 FOR ASSESSMENT YEAR 200 8-09, REVENUE ASSAILS THE DELETION OF AN ADDITION OF G8,1 3,57,271/- MADE BY THE LD. ASSESSING OFFICER FOR CHANGE IN METHOD OF A CCOUNTING FROM CASH ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 97 -: TO MERCANTILE. FINDINGS OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE IS REPRODUCED HEREUNDER:- 21.1 IN HIS COMPUTATION OF INCOME FOR A.Y.2008-09 , THE AO HAS ADDED RS.81357271 AS: '''ADJUSTMENT BY WAY OF CHANGE IN METHOD OF ACCOUNTING:' BY CONCLUDING THAT THE ACCOUNTS OF EARLIER YEARS WE RE ALSO MAINTAINED ON ACCRUAL BASIS AND THEREFORE THER E IS NO CHANGE IN THE METHOD OF ACCOUNTING TO ACCRUAL BA SIS DURING A.Y.2008-09. 21.2 THE AR HAS FURNISHED COPIES OF THE 'NOTES TO THE ACCOUNTS - SIGNIFICANT ACCOUNTING POLICIES' ATTACHED TO THE BALANCE SHEET AS AT 31.3.2008 AND COPIES OF THE AUDIT REPORT U/S L2.A(B ) FILED ALONG WITH THE RETURN. IT IS SEEN FROM PARA 1 OF THE 'NOTES TO THE ACCOUNTS - SIGNIFICANT ACCOUNTING POLICIES' AND PARA (IV)(E) OF THE AUDIT REPORT U/S 12A(B) FOR THE YEAR ENDED 31.3.2008 (A.Y. 2008-09) THAT THE APPELLANT TRUST HAS CHANGED ITS METHOD OF ACCOUNTING ONLY DURING THIS YEAR FROM' CASH' TO 'MERCANTILE' AND THAT AS REQUIRED BY THE STANDARDS OF AUDITING ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, THE AUDITOR HAS REPORTED IN P ARA (IV)(E) OF THE REPORT U/S 12(A)(B) AFORESAID, THE A BOVE CHANGE AND HAS FURTHER QUANTIFIED THE EFFECT OF THE ABOVE CHANGE ON THE INCOME OF THE YEAR AT RS.81357271 - WHICH IS THE FIGURE ADDED BY THE AO T O THE INCOME OF THE YEAR. 21.3 THE ITAT HAS ALREADY HELD THAT THE ONLY THE 'C ASH' ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 98 -: SYSTEM OF ACCOUNTING IS BEING FOLLOWED BY THE APPEL LANT FOR A.YS. 2002-03 TO 2004-05. RESPECTFULLY FOLLOWIN G ITAT'S ORDER IN THE APPELLANT'S CASE FOR A.YRS.2002 -03 TO 2004-05, I HAVE HELD THAT THE APPELLANT WAS ONLY FOLLOWING THE 'CASH SYSTEM OF ACCOUNTING DURING A .Y.S. 2005-06 TO 2007-08 IN PARA 6 ABOVE. 21.4 THE APPELLANT HAS CHANGED ITS METHOD TO THE' MERCANTILE' SYSTEM OF ACCOUNTING ONLY FROM THE YEAR ENDED 31.3.2008 (A.Y.2008-09) WHICH I FIND HAS BEEN CONSISTENTLY FOLLOWED TILL DATE, FROM THE FINANCIAL STATEMENTS FOR THE SUBSEQUENT YEARS PRODUCED BEFORE ME. AS THIS IS A BONAFIDE CHANGE IN THE METHOD OF ACCOUNTING FOR A.Y. 2008-09, WHICH HAS BE EN CONSISTENTLY FOLLOWED TILL DATE, THE INCOME OF THE APPELLANT HAS TO BE COMPUTED ONLY ,ACCORDING TO THE BOOKS OF ACCOUNT MAINTAINED AND AUDITED BY THE APPELLANT. ACCORDINGLY I DIRECT THE AO TO DELETE THE ADDITION OF RS.81357271 MADE ON THIS SCORE. HENCE, THIS GROUND IS TREATED AS ALLOWED. WHAT WE FIND IS THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD FOLLOWED THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03 AND 2004-05 IN ITA NO.294 TO 296/MDS/ 2014, DATED 20.06.2016. THERE IS NOTHING ON RECORD TO SHOW THA T ASSESSEE HAD CHANGED ITS METHOD OF ACCOUNTING WITH ANY SINISTER MOTIVE OR HAD NOT CONSISTENTLY FOLLOWED THE CHANGED METHOD. LD. DEPAR TMENTAL REPRESENTATIVE COULD NOT PLACE ANYTHING TO TAKE A DIFFERENT VIEW FROM THAT OF LD. COMMISSIONER OF INCOME TAX (APPEAL S). 62. GROUNDS 1, 10, 10.1 FOR ASSESSMENT YEAR 2005-06, GR OUNDS 1, 11 AND 11.1 FOR ASSESSMENT YEAR 2006-07, GROUNDS 1, 13.1, 14 FOR ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 99 -: ASSESSMENT YEAR 2007-08 AND GROUNDS 1 & 14 FOR ASSE SSMENT YEAR 2008-09 RAISED BY THE REVENUE ARE GENERAL IN NATURE NEEDING NO SPECIFIC ADJUDICATION. 63. NOW WE TAKE UP APPEALS OF THE ASSESSEE. 64. THERE ARE TWO COMMON GROUNDS TAKEN BY THE ASSESSEE FOR ALL THE ASSESSMENT YEARS. THESE ASSAIL THE ORDER O F THE LD. COMMISSIONER OF INCOME TAX (APPEALS) UPHOLDING THE VALIDITY OF NOTICE ISSUED U/S.153A OF THE ACT, AND SUSTENANCE OF DISALLOWANCE TO THE EXTENT OF 10% OF LAND DEVELOPMENT EXPENDITURE. 65. VIZ-A-VIZ, VALIDITY OF NOTICE ISSUED U/S.153A OF TH E ACT, WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD FOLLOWED THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AS SESSMENT YEARS 2002-03 TO 2004-05 IN ITA NOS.294 TO 296/MDS/2014, DATED 22 ND JUNE, 2016. WHAT WAS HELD BY THIS TRIBUNAL IN THE SAID DE CISION IS REPRODUCED HEREUNDER:- ' AFTER HEARING BOTH SIDES, WE ARE OF THE CONSIDERED VIEW THAT INITIATION OF PROCEEDINGS UNDER SECTION 1 53A OF THE ACT BY THE LEARNED ASSESSING OFFICER IS IN ACCORDANCE WITH LAW BECAUSE FROM THE SEARCH PROCEEDINGS VARIOUS MATERIALS REVEALED THAT THERE I S A POSSIBILITY OF THE ASSESSEE HAVING UNDISCLOSED / ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 100 -: CONCEALED INCOME DUE TO FURNISHING OF INCORRECT PARTICULARS. THEREFORE, AS POINTED OUT BY THE LEARN ED DEPARTMENTAL REPRESENTATIVE AND THE DECISIONS RELIE D UPON BY HIM, WE FIND THAT ISSUANCE OF NOTICE UNDER SECTION 153A IN THE CASE OF THE ASSESSEE IS VALID I N LAW FOR ALL THE THREE ASSESSMENT YEARS. ACCORDINGLY , THIS GROUND RAISED BY THE ASSESSEE IS DEVOID OF MER ITS AND ACCORDINGLY DISMISSED FOR ALL THE THREE ASSESSMENT YEARS. WE ARE THEREFORE OF THE OPINION THAT CHALLENGE TO T HE NOTICE ISSUED U/S.153A OF THE ACT WAS RIGHTLY REJECTED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 66. VIZ-A-VIZ, ESTIMATION OF LAND DEVELOPMENT EXPENDITU RE, WE HAD ALREADY HELD AT PARAS 41 AND 42 ABOVE, IN RELAT ION TO REVENUES APPEAL THAT THERE WAS NO REASON FOR DISALLOWING AN Y PART OF SUCH EXPENDITURE. FOR THE REASONS STATED THEREIN, WE DEL ETE THE DISALLOWANCE OF LAND DEVELOPMENT EXPENDITURE. 67. FOR ASSESSMENT YEARS 2007-08 AND 2008-09, ASSESSEE IS ALSO AGGRIEVED ON CREDIT BEING NOT GIVEN FOR THE TAX DE DUCTED AT SOURCE. WE DIRECT THE LD. ASSESSING OFFICER TO VERIFY THE C LAIM OF THE ASSESSEE AND GIVE CREDIT, IF DUE. 68. OTHER GROUNDS RAISED BY THE ASSESSEE ARE ON LEVY O F INTEREST U/S.234A AND 234B OF THE ACT. THESE ARE CONSEQUENT IAL IN NATURE NEEDING NO SPECIFIC ADJUDICATION. ITA NOS2125 TO 2128 & 2219 TO 2222 /2017 :- 101 -: 69. TO SUMMARIZE THE RESULTS, APPEALS OF THE REVENUE AR E DISMISSED WHEREAS THAT OF ASSESSEE ARE PARTLY ALLO WED. ORDER PRONOUNCED ON WEDNESDAY, THE 14TH DAY O F NOVEMBER, 2018, AT CHENNAI. SD/- SD/- ( # $! # % . &' ) ( DUVVURU RL REDDY ) ) / JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER / CHENNAI / DATED:14 TH NOVEMBER, 2018. KV ! ' #$ %$ / COPY TO: 1 . &' / APPELLANT 3. ( () / CIT(A) 5. $+, ' - / DR 2. '.&' / RESPONDENT 4. ( / CIT 6. ,/ 0 / GF