Appeal Details
Counselvise Citation
[2019] 117 COUNSELVISE.COM (IT) 4616 (ITAT-COCHIN)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
11 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-05-2019
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
DB
Next Hearing Date
13-03-2019
Assessment Year
2012-2013
Appeal Filed On
28-05-2018
Judgement Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFOR E S/ SHRI CHANDRA POOJARI , AM & GEORGE GEORGE K., J M I .T . A. NO S . 255 TO 261/COCH /2018 ASSESSMENT YEAR S : 2006 - 07 TO 2012 - 13 M/S. KUNHITHARUVAI MEMORIAL CHARITABLE TRUST, KMCT CORPORATE OFFICE, MALABAR CHRISTIAN COLLEGE CROSS ROAD, CALICUT - 673 011. [PAN :AAATK 4733C] VS. THE DEPUTY COMMISSIONER OF INCOME - TAX, CENTRAL CIRC LE - 2, CALICUT. (ASSESSEE - APPELLANT) (REVENUE - RESPONDENT) A SSESSEE BY SHRI NARAYANAMURTHY, CA REVENUE BY S HRI ALOK MITRA, CIT(DR) D ATE OF HEARING 13 / 0 3 / 201 9 DATE OF PRONOUNCEMENT 27 / 0 5 /201 9 O R D E R PER CHANDRA POOJARI, AM: TH E SE APPEAL S FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE COMMON ORDER OF THE CIT(A) - III, KOCHI DATED 14/03/2018 AND PERTAIN TO THE A SSESSMENT YEAR S 2006 - 07 TO 2012 - 13. 2. THE FIRST COMMON GROUND IN ALL THESE APPEALS READS AS FOLLOWS: 1. THE CIT(A) HAS TOTALLY ERRED IN UPHOLDING THE DENIAL OF EXEMPTION TO THE APPELLANT ON THE GROUND THAT BOOKS OF ACCOUNTS WERE NOT FINALIZED AND NO RETURNS WERE FILED TILL DATE OF SEARC H. IT IS TRUE THAT THE RETURNS FROM THE ASSESSMENT YEAR 2007 - 08 HAS BEEN FILED BELATEDLY IN RESPONSE TO NOTICE U/S. 153A/148. THE CIT(A) SHOULD HAVE NOTED THAT THERE IS NO SPECIFIC PROVISION IN SECTION 12A LIKE IN SECTION 10A/10B TILL AY 2018 - 19 WHERE IT HAS BEEN PROVIDED THAT EXEMPTION U/S. 11 WOULD BE ALLOWED ONLY IF RETURNS OF INCOME IS FILED WITHIN THE DUE DATE SPECIFIED U/S. 139(1). THE COMMISSIONER(APPEALS) I.T.A. NOS.255 - 261/COCH/2018 2 SHOULD HAVE KNOWN THAT IT IS ONLY FROM ASSESSMENT YEAR 2018 - 19 THAT THE SECTION 12A OF THE ACT HAS BEEN AMENDED TO PROVIDE THAT NO EXEMPTION WOULD BE ALLOWABLE IF THE RETURN OF INCOME IS NOT FILED WITHIN THE DUE DATE U/S. 139(1) AND HENCE BELATED FILING OF SUCH RETURN IS NOT FATAL TO THE CLAIM FOR EXEMPTION U/S. 12A TILL ASSESSMENT YEAR 2017 - 18. 3. THE FACTS OF THE CASE ARE THAT THERE WAS A SEARCH U/S. 132 OF THE IT ACT AT THE BUSINESS AND CONNECTED INSTITUTIONS ON 31/10/2011 ON THE STRENGTH OF WARRANT OF AUTHORIZATION DATED 27/10/2011 ISSUED BY DIRECTOR OF INCOME - TAX(INVESTIGATION), COCHIN. T HE SEARCH REVEALED THAT THERE WAS VIOLATION OF SECTION 13(1)(C) AND 11(4) OF THE ACT AND THE INCOME OF THE TRUST WAS CHARGEABLE TO TAX. M/S. KUNHITHARUVAI MEMORIAL CHARITABLE TRUST POPULARLY KNOWN AS KMCT IS A TRUST ESTABLISHED IN 1999. THE TRUST WAS GRA NTED REGISTRATION U/S. 12AA OF THE ACT BY THE CIT, CALICUT ON 21/01/2002. DR. K. MOIDU IS FOUNDER AND THE MANAGING TRUSTEE OF THE TRUST. THE OTHER TRUSTEES ARE MRS. AMINA MOIDU, W/O DR. K. MOIDU AND THEIR THREE SONS DR. K.M. MEHBOOB, DR. K.M. ASHIK AND D R. K.M. NAVAS. THE TRUST IS RUNNING VARIOUS MEDICAL, DENTAL, AYURVEDA AND ENGINEERING COLLEGES. ALL THE INSTITUTIONS UNDER THE TRUST ARE SELF - FINANCING BODIES AND THEY ARE RUN BY COLLECTING FEES FROM STUDENTS. THE SEARCH REVEALED THAT ASSESSEE IS : I) NO T MAINTAINING BOOKS OF ACCOUNTS PROPERLY. II) IRREGULAR IN FILING OF RETURN OF INCOME. III)THE ASSESSEE HAS DIVERTED THE FUND OF THE TRUST FOR THE BENEFIT OF TRUSTEES WHO ARE WIFE AND SONS OF THE MANAGING TRUSTEE I.E. FAMILY MEMBERS. IV) THE ASSESSEE TRUS T HAD DIVERTED FUNDS TO BUSINESS CONCERNS IN WHICH THE TRUSTEES HAVE SUBSTANTIAL INTEREST, AND V) THE ASSESSEE HAS COLLECTED ADDITIONAL AMOUNT, COMMONLY KNOWN AS CAPITATION FEE FROM THE STUDENTS FOR ADMISSION IN VARIOUS COURSES. I.T.A. NOS.255 - 261/COCH/2018 3 TH E ASSESSING OFFICER DENI ED THE BENEFIT OF SEC. 11 TO THE ASSESSEE FOR THE FOLLOWING REASONS: SECTION 13 OF THE IT ACT, 1961 SPECIFY THE CIRCUMSTANCES UNDER WHICH THE BENEFITS UNDER SECTION 11 WOULD BE AVAILABLE TO AN ORGANIZATION. 1. IF THE INCOME IS NOT APPLIED FOR THE BENEF IT OF THE PUBLIC. 2. IF THE INCOME IS APPLIED FOR THE BENEFIT OF ANY PARTICULAR RELIGIOUS COMMUNITY OR CASTE. 3. IF THE INCOME OR PROPERTY OF THE TRUST IS APPLIED IS USED FOR THE BENEFIT OF THE CHIEF FUNCTIONARY MAJOR LOANERS, AND RELATIVES OF TRUSTEES. 4. IF THE FUNDS ARE APPLIED IN MORE THAN SPECIFIED IN SECTION 11(5). 5. IF ANY PART OF THE INCOME OF PROPERTY OF THE TRUST OR INSTITUTION IS LENT TO ANY SPECIFIED PERSON WITHOUT ADEQUATE SECURITY OR ADEQUATE INTEREST BOTH. 6. MAKING AVAILABLE BUILDING OR PROP ERTY OF THE TRUST FOR THE USE OF SPECIFIED PERSONS WITHOUT CHANGING ADEQUATE RENT. 7. PAYMENT OF SALARY IN EXCESS OF WHAT MAY BE REASONABLY PAID FOR THE SERVICE RENDERED. 8. DIVERSION OF INCOME OF PROPERTY IN EXCESS OF RUPEES THOUSANDS TO ANY SPECIFIED PE RSONS. 9. INVESTMENTS OF FUNDS OF THE ORGANIZATION IN CONCERNS WHERE THE SPECIFIED PERSONS HAVE SUBSTANTIAL INTEREST. CATEGORIES OF BENEFITS TO SPECIFIED PERSONS ARE NOT EXHAUSTIVE. IT IS FOUND THAT CERTAIN OTHER BENEFITS ARE BEING EXTENDED TO EXCLUDED PE RSONS THEN THE EXEMPTION WILL BE LOST. 4. ON APPEAL, THE CIT(A) OBSERVED THAT THE ASSESSEE DID NOT FILE ANY RETURN OF INCOME IN NORMAL COURSE FOR MANY ASSESSMENT YEARS INCLUDING AY 2006 - 07. THE RETURN OF INCOME FOR AY 2006 - 07 WAS FILED ON 06/07/2012 , I.E., ALMOST 6 YEARS FROM THE DUE DATE OF FILING OF THE RETURN. IT WAS OBSERVED THAT SEARCH WAS CONDUCTED IN THIS CASE ON 31/10/2011, WHICH ONLY GOES TO PROVE THAT THE RETURN FOR AY 2006 - 07 WAS FILED 8 MONTHS AFTER THE DATE OF SEARCH. ACCORDING TO THE C IT(A), SUCH AN INORDINATE DELAY IN FILING THE RETURN OF INCOME PROVED THAT THE BOOKS OF ACCOUNTS WERE NOT PROPERLY MAINTAINED BY THE ASSESSEE AND THEY WERE ALSO NOT COMPLETE AND I.T.A. NOS.255 - 261/COCH/2018 4 CORRECT. IN THE LIGHT OF THE ABOVE FINDINGS, THE CIT(A) C ONFIRMED THE DENIAL OF EXEMPTION U/S. 11 OF THE ACT TO THE ASSESSEE. 5. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. A R SUBMITTED THAT U/S. 11 OF THE ACT, FILING OF RETURN OF INCOME BELATEDLY WOULD NOT LEAD TO DENIAL OF EXEMPTION U/S. 11 OF THE ACT EVEN AT THE STAGE OF APPELLATE PROCEEDINGS . THE LD. AR RELIED ON THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS . SHAHZADANAND CHARITY TRUST ( 228 ITR 292 ) WHEREIN IT WAS HELD THAT IT IS NOT MANDATORY TO FURNISH THE AUDIT REPORT ALONGWITH THE RETURN OF INCOME U/S. 12A(1) (B) OF THE ACT AND THE SAME COULD BE FURNISHED AT A LATER STAGE AND THE DELAY COULD BE CONDONED AFTER RECORDING THE REASONS . 5. 1 THE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE HAS APPLIED THE PROFIT OF THE ASSESSEE - TRUST FO R CHARITABLE ACTIVITIES WHICH IS SUFFICIENT FOR CLAIMING EXEMPTION U/S. 11 OF THE ACT. FOR THIS PROPOSITION, HE RELIED ON THE FOLLOWING SUPREME COURT JUDGMENTS: 1) AMERICAN HOTEL AND LODGING ASSOCIATION VS. CBDT (301 ITR 86) (SC) 2) QUEENS EDUCATIONAL SOCIETY VS. CIT (372 ITR 699) (SC) 3) CHIEF CIT VS. ST PETERS EDUCATIONAL SOCEITY (385 ITR 66) (SC) 4) VISVESVARAYA TECHNOLOGICAL UNIVERSITY VS. ACIT (385 ITR 37) (SC) 5. 2 FURTHER, IT WAS SUBMITTED THAT THE ASSESSEE IS SOLELY EXISTING FOR THE PURPOS E OF IMPARTING EDUCATION. HENCE, THE ASSESSEE CANNOT BE DENIED EXEMPTION U/S. 11 OF THE ACT. HE RELIED ON THE FOLLOWING JUDGMENTS: 1) PINEGROVE INTERNATIONAL CHARITABLE TRUST VS. UNION OF INDIA & OTHERS (327 ITR 63) (P&H) . I.T.A. NOS.255 - 261/COCH/2018 5 2) VANITHA VISHRAM TRUST VS. CHIEF CIT (327 ITR 121 (BOMBAY). 5. 3 THE LD. AR SUBMITTED THAT EVEN IF THERE IS THE VIOLATION OF SECTIONS 11(5) AND 13(1)(C) O F THE ACT, THE ASSESSEE IS ONLY LIABLE TO PAY TAX ON MAXIMUM MARGIN RATE AND NOT ON THE ENTIRE INCOME BUT ONLY TO TH E EXTENT OF VIOLATION OF THE ABOVE SECTION S . FOR THIS PROPOSITION, HE RELIED ON THE FOLLOWING JUDGMENTS: 1) CIT VS. FR. MULLERS CHARITABLE INSTITUTE (363 ITR 230) (KAR.) 5. 4 THE LD. AR SUBMITTED THAT EVEN IF THERE IS ANY VIOLATION OF SECTIONS 11(5) A ND 13(1)(C) OF THE ACT, IT IS TO BE PROVED BY THE REVENUE ONLY AND WITHOUT PROVING IT, EXEMPTION U/S. 11 OF THE ACT CANNOT BE DENIED. FOR THIS PROPOSITION , HE RELIED ON THE FOLLOWING JUDGMENTS: 1) SURAT CITY GYMKHANA VS. DCIT (254 ITR 733) (GUJ.) 2) CHI REC EDUCATION SOCIETY VS. ACIT (354 ITR 605) (AP) 3) CIT VS. KAMALA TOWN TRUST (279 ITR 89) (ALL.) 6. THE LD. DR SUBMITTED THAT AS PER SECTION 139(4A) OF THE ACT, IT IS MANDATORY FOR THE ASSESSEE TO FURNISH RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT SO AS TO AVAIL EXEMPTION U/S. 11 OF THE ACT. SINCE THE ASSESSEE HAS NOT COMPLIED WITH THIS REQUIREMENT, THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION U/S. 11 OF THE ACT. HE RELIED ON PARA 5.4 AT PAGE 9 OF THE CIT(A) ORDER. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. ADMITTEDLY, IN THIS CASE, THE ASSESSEE HAS NOT FILED THE REGULAR RETURN OF INCOME U/S. 139(4 A ) OF I.T.A. NOS.255 - 261/COCH/2018 6 THE ACT. THE ASSESSEE HAS FILED THE RETURN OF INCOME U/S. 153A(A) OF THE ACT CONSEQUENT TO SEARCH U/S. 132 OF THE ACT FOR ALL THE ASSESSMENT YEARS AS UNDER: ASSESSMENT YEAR DATE OF FILING OF ROI 2006 - 07 06/07/2012 2007 - 08 15.01.2013 200 8 - 09 15.01.2013 2009 - 10 15.01.2013 2010 - 11 22.05.2013 2011 - 12 21.0 8.2013 2012 - 13 09.12.2013 7. 1 ACCORDING TO THE REVENUE AUTHORITIES, EVEN IF THE ASSESSEE IS HAVING VALID REGISTRATION U/S. 12AA OF THE ACT, THE ASSESSEE IS REQUIRED TO FILE RETURN OF INCOME ACCO MPANIED BY FORM NO. 10 OF THE I.T. ACT SO AS TO CLAIM EXEMPTION U/S. 11 OF THE I.T. ACT. IT IS CLEAR FROM THE READING OF SUB - SECTION 2 OF SECTION 11 THAT IT IS MANDATORY FOR THE ASSESSEE - TRUST CLAIMING EXEMPTION U/S. 11 TO INTIMATE THE ASSESSING OFFICER P ARTICULARS REQUIRED UNDER RULE 7 IN FORM NO. 10. IF DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER DOES NOT HAVE NECESSARY INFORMATION, THE QUESTION OF EXCLUDING SUCH INCOME FROM ASSESSMENT DOES NOT ARISE AT ALL. AS A MATTER OF FACT, EXCLUDING T HE PARTICULARS OF INCOME FROM THE NET OF TAX ARISES FROM SEC. 11 AND IS SUBJECT TO THE CONDITIONS SPECIFIED THEREIN. THEREFORE, IT IS NECESSARY THAT THE ASSESSING OFFICER MUST HAVE THE INFORMATION AT THE TIME OF COMPLETING T HE AS S ESSME N T. IN THE ABSENCE OF SUCH INFORMATION, IT WILL NOT BE POSSIBLE FOR T HE ASSESSING OFFICER TO GIVE T HE ASSESSEE BENEF IT OF SUCH EXCLUSION AND ONCE THE ASSESSMENT IS SO COMPLETED, IT WOULD BE FUTILE TO FI N D FAULT WITH THE ASSESSING OFFICER FOR HAVING INCLUDED SUCH I N CO M E IN TH E ASSESSABLE I N CO M E OF THE ASSESSEE. THEREFORE, E V EN A S SUMI N G THAT THERE IS NO TIME LIMITATION PRESCRIBED I.T.A. NOS.255 - 261/COCH/2018 7 UNDER T H E ACT A N D RULES, EVEN THEN, IT IS REASONABLE TO PRESUME THAT INTIMATION REQUIRED U/S. 11 IS TO BE FUR N ISHED BEFORE THE A O COMPLETES SUCH ASSES SMENT BECAUSE SUCH ASSESSMENT IS MANDATORY AND WITHOUT FUR N ISHI N G THE PARTICULARS OF I N CO M E, THE A O CA N NOT ASCERT AIN THE CLAIM OF EXEMPTION U/S. 11 OF T H E ACT. TH E REFORE, COMPLIANCE OF RE Q UIREMENT O F THE ACT WILL HAVE TO BE AT ANY TI M E BEFORE THE COMPLETI ON OF ASSESSMENT PROCEEDINGS. HOWEVER, FOR CLA IMING TH E BENEFIT OF EXEMPTION U/S. 11 OF THE ACT O N THE BASIS OF INFORMATION SUPPLIED CONSEQ UE NT TO THE COMPLETION OF T H E ASSESSMENT PROCEEDINGS WOULD MEAN THAT THE ASSE SS MENT OR D ER WILL HAVE TO BE RE - OPE N ED. THE ACT DOES NOT CONTEMPLATE SUCH REOPENING OF T HE ASSESSMENT. HOWEVER, IN THE PRESENT CASE, IT WAS FILED CONSEQUENT TO THE NOTICE ISSUED U/S. 153A (A) OF THE A CT. FURTHER , IN THE PRESENT C A S E, EXE M PTION U/S. 11 WAS DE NIED BE CAUSE OF NON FILI N G OF R ETU R N OF INCO M E ON TIM E AND ALSO DUE TO THE DISCREPANCIES MENTIONED ABOVE . 7. 2 IN OUR OPINION, THE RETURNS OF INCOME WERE FILED CONSEQUENT TO THE NOTICE U/S. 153A OF THE IT ACT. THE SECTIONS 11 & 12 OF THE ACT NOWHERE PRESCRIBE FILING OF RETURN BY ANY DUE DATE FOR THE ASSESSMENT YEARS UNDER CONSIDERATION SO AS TO GRANT EXEMPTION U/S. 11 OF THE ACT. THEREFORE, THE FINDINGS OF THE CIT(A) THAT THE ASSESSEE HAVING NOT FILED ITS RETURNS OF INCOME WITHIN THE PRESCRIBED TIME HAD FAILED TO COMPLY WITH THE REQU IREMENT PRESCRIBED UNDER THE ACT, IS NOT TENABLE. 7. 3 IN THE CASE OF CI T VS. SHAHZADANAND CHARITY TRUST (1998) (96 TAXMAN 494/ (228 ITR 292) (PUN.& HAR.), THE COURT HAS CATEGORICALLY HELD AS UNDER: I.T.A. NOS.255 - 261/COCH/2018 8 '10. CALCUTTA HIGH COURT IN RAI BAHADUR BISSESSWARLAL' S CASE (SUPRA) WHILE INTERPRETING S. 12A(B) HELD THAT THE PROVISION WAS DIRECTORY IN NATURE AND THE AO COULD ALLOW THE ASSESSEE TO FILE THE AUDIT REPORT, AT ANY TIME BEFORE THE COMPLETION OF THE ASSESSMENT. IN THIS CASE THE ASSESSEE, A CHARITABLE TRUST REG ISTERED WITH THE CIT FILED ITS RETURN ON 17TH SEPT., 1984, DECLARING A DEFICIT OF RS. 1,61,452. THE RETURN SO FILED WAS NOT ACCOMPANIED BY AUDITED ACCOUNTS AND AUDIT REPORT IN FORM NO. 10B AS REQUIRED UNDER S. 12A OF THE ACT. THE AUDIT REPORT DT. 12TH NOV. , 1984 WAS, HOWEVER, FILED BY THE ASSESSEE IN THE PRESCRIBED FORM ON 6TH MARCH. 198 7 , BEFORE THE COMPLETION OF THE ASSESSMENT. THE ITO WHILE COMPLETING THE ASSESSMENT REFUSED TO ALLOW THE BENEFIT OF EXEMPTION UNDER S. 11 OF THE ACT TO THE ASSESSEE ON THE G ROUND THAT AUDIT REPORT IN FORM NO. 10B WAS NOT FILED ALONG WITH THE RETURN. INCOME OF THE ASSESSEE WAS PUT TO TAX. ORDER OF THE ITO WAS UPHELD BY THE CIT(A) AGAINST WHICH ASSESSEE FILED FURTHER APPEAL BEFORE THE TRIBUNAL WHICH WAS ACCEPTED. ON THESE FACTS , IT WAS HELD THAT THE IT AUTHORITY HAD TAKEN HYPER - TECHNICAL VIEW OF THE MATTER WHERE THE ASSESSEE HAS COMPLIED WITH THE PROVISIONS OF THE ACT IN THE COURSE OF ASSESSMENT BY CURING THE DEFECT IN THE RETURN BY FILING AN AUDIT REPORT. THE ITO CANNOT IGNORE SUCH AUDIT REPORT OR THE RETURN IN COMPLETING THE ASSESSMENT. THE DELAY IN GETTING THE ACCOUNT AUDITED AND IN FILING THE RETURN (SIC - REPORT) IN FORM NO. 10B DID NOT DEFEAT ANY OBJECT OF THE ACT AND, THEREFORE, THE PROVISION WAS DIRECTORY IN NATURE. IT ALSO REFERRED TO THE CIRCULAR OF THE BOARD DT. 9TH FEB., 1978. 11. GUJARAT HIGH COURT IN GUJARAT OIL & ALLIED INDUSTRIES' CASE (SUPRA) WAS CONSIDERING S. 80J(6A). GUJARAT HIGH COURT TOOK THE VIEW PUT BY THIS COURT IN JAIDEEP INDUSTRIES' CASE (SUPRA). IT WAS H ELD THAT THE PROVISION ABOUT FURNISHING OF THE AUDITOR'S REPORT ALONG WITH THE RETURN HAS TO BE TREATED AS PROCEDURAL PROVISION AND, THEREFORE, DIRECTORY IN NATURE. 12. PROVISIONS OF S. 8 0 J(6A) AND S. 12A OF THE ACT ARE PARA MATERIA. THE RATIO OF THE LAW LAID DOWN IN JAIDEEP INDUSTRIES' CASE ( 1989) (180 ITR 81) (P&H) WOULD HAVE BEEN APPLICABLE TO THE FACTS OF THE PRESENT CASE AS WELL HAD THE CBDT NOT ISSUED THE CIRCULAR DT. 9TH FEB., 1978, REPRODUCED IN THE EARLIER PART OF THE JUDGMENT. AS PER THIS CIRCULA R, IT IS NOT MANDATORY UNDER, S. 12A(B) TO FILE THE AUDIT REPORT ALONG WITH RETURN OF INCOME. NORMALLY, A CHARITABLE RELIGIOUS TRUST OR INSTITUTION IS EXPECTED TO FILE AUDITOR'S REPORT ALONG WITH THE RETURN BUT IN CASES WHERE FOR REASONS BEYOND THE CONTROL OF THE ASSESSEE SOME DELAY HAS OCCURRED IN FILING THE SAID REPORT, THE ITO, FOR REASONS TO BE RECORDED, HAS BEEN AUTHORISED TO CONDONE THE DELAY IN FURNISHING THE AUDITOR'S REPORT AND ACCEPTING THE SAME AT A BELATED STAGE. IT HAS BEEN CLARIFIED THAT THE E XEMPTION AVAILABLE TO THE TRUST UNDER S. 11 MAY NOT BE DENIED MERELY ON ACCOUNT OF DELAY IN FURNISHING THE AUDITOR'S REPORT. THE WORD 'SHALL' OCCURRING IN S. 12A CANNOT, UNDER THE CIRCUMSTANCES, BE READ AS A 'MUST' MAKING IT MANDATORY FOR THE TRUST TO FURN ISH THE AUDITOR'S REPORT ALONG WITH THE FILING OF THE RETURN. IF FOR CERTAIN UNAVOIDABLE CIRCUMSTANCES, THE ASSESSEE IS UNABLE TO FURNISH THE AUDITOR'S REPORT ALONG WITH THE RETURN THEN THE SAME CAN BE I.T.A. NOS.255 - 261/COCH/2018 9 FURNISHED AT A LATER DATE WITH THE PERMISSION OF THE A O WHO MAY PERMIT THE ASSESSEE TO DO SO AFTER RECORDING ITS REASONS FOR SO DOING.' 13. COUNSEL APPEARING FOR THE REVENUE THEN ARGUED THAT AS PER THIS CIRCULAR, THE AUDITOR'S REPORT COULD ONLY BE FURNISHED UPTO THE STAGE OF FRAMING OF ASSESSMENT AS THE POWE R TO CONDONE THE DELAY FOR ACCEPTING THE AUDITOR'S REPORT AT A LATER DATE HAS ONLY BEEN GIVEN TO THE ITO AND NOT THEREAFTER, I.E. AT THE APPELLATE STAGE. WE FIND NO MERIT IN THIS SUBMISSION. THE CBDT BY ISSUING THE CIRCULAR DT. 9TH FEB., 1978 HAS TREATED T HE PROVISION REGARDING FURNISHING OF AUDITOR'S REPORT ALONG WITH THE RETURN TO BE PROCEDURAL AND, THEREFORE, DIRECTORY IN NATURE. BY SHOWING SUFFICIENT CAUSE, THE AUDITOR'S REPORT COULD BE PRODUCED AT ANY LATER STAGE EITHER BEFORE THE ITO OR BEFORE THE APP ELLATE AUTHORITY. 14. IN VIEW OF THE BOARD'S CIRCULAR DT. 9TH FEB., 1978, THE REQUIREMENT OF FILING AUDITOR'S REPOR T IN FORM 10B AS PROVIDED IN S. 12A(B) R.W.R. 17B OF THE RULES, THE RATIO OF THE LAW LAID DOWN BY THIS COURT IN JAIDEEP INDUSTRIES CASE (SUP RA) WOULD NOT APPLY TO THE PRESENT CASE. 15. IN VIEW OF THE ABOVE, THEREFORE, WE FIND NO MERIT IN THE ARGUMENT OF THE REVENUE THAT THE ASSESSEE WAS NOT ELIGIBLE FOR EXEMPTION U/S. 11&12 ON ACCOUNT OF NOT HAVING COMPLIED WITH THE REQUIREMENTS OF SECTION 1 2A(1)(B) OF THE ACT. SINCE THIS WAS THE SOLE BASIS FOR UPHOLDING THE VALIDITY OF THE REASSESSMENT PROCEEDINGS RESORTED TO, WE HOLD THAT THE REASSESSMENT RESORTED TO IN THE PRESENT CASE WAS INVALID, ON ACCOUNT OF THE SECOND PROVISO TO SECTION 12A(2) OF THE ACT, WHICH SPECIFICALLY DEBARRED RESORT TO THE SAME IN VIEW OF REGISTRATION HAVING BEEN GRANTED FROM THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR. THE REASSESSMENT FRAMED IS THEREFORE SET ASIDE. AS A CONSEQUENCE THE ADDITION MADE IS DELETED. 7 .4 IN THE CA SE OF DIRECTOR OF IT(EXEMPTION) VS. DIVYAJYOT FOUNDATION (2010) (321 ITR 53), THE GUJARAT HIGH COURT RELYING ON THE DECISION IN CIT VS. GUJARAT OIL & ALLIED INDUSTRIES (1993)109 CTR (GUJ.) 272: (1993) 201 ITR 325 (GUJ.) HELD THAT THOUGH THE ASSESSEE TRUST HAS NOT SUBMITTED ITS ACCOUNTS IN FORM NO.10AA BEFORE THE PRESCRIBED AUTHORITY IN GIVEN TIME, THE SAME DOES NOT JUSTIFY THE ADDITION AND DISALLOWANCE OF THE CLAIM OF THE ASSESSEE. THE ENTIRE DONATION RECEIVED HAVING BEEN SPENT WITHIN THE TIME ALLOWED UNDE R THE ACT, FAILURE TO SUBMIT ACCOUNTS IN FORM NO. 10AA WITHIN PRESCRIBED TIME DOES NOT WARRANT ADDITION. I.T.A. NOS.255 - 261/COCH/2018 10 7. 5 IN THE CASE OF GENIUS EDUCATION SOCIETY VS. ACIT(EXEMPTIONS) IN ITA NO. 238/CHD/2018 DATED 20 TH AUGUST, 2018, THE ITAT, CHANDIGARH BENCH FOLL OWED THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SHAHZADANAND CHARITY TRUST (1998) (96 TAXMAN 494/ (228 ITR 292) AND OBSERVED AS UNDER: 10. UNDOUBTEDLY, THE RE QUIREMENT OF FILING OF RETURN O F INCOME AND THE REPORT OF AUDIT HAV E BEEN SPECIFIED FOR BEING ELIGIBLE FOR CLAIMING EXEMPTION U/S. 11&12 OF THE ACT, ALONGWITH THE GRANT OF REGISTRATION U/S. 12AA OF THE ACT. IN THE CASE OF THE ASSESSEE, WE FIND THAT THE RETURN OF INCOME HAS BEEN FILED IN RESPONSE TO NOTICE U/S. 148 OF THE ACT. THEREFORE, THE CONDITION OF FILING OF RETURN OF INCOME STANDS FULFILLED. THE SECTION, WE FIND, NOWHERE PRESCRIBES THE FILING OF RETURN BY ANY DUE DATE, THEREFORE THE FINDINGS OF THE CIT(A) THAT THE ASSESSEE HAVING NOT FILED ITS RETURN WITHIN THE PR ESCRIBED TIME IT HAD FAILED TO COMPLY WITH THE REQUIREMENT PRESCRIBED, IS NOT TENABLE. AS FOR THE REQUIREMENT OF FILING REPORT OF AUDIT IN THE PRESCRIBED FORM, THE SAID CONDITION HAS BE EN HELD BY COURTS TO BE MERELY PROCEDURAL AND THEREFORE DIRECTORY IN N ATURE AND NOT MANDATORY FOR THE PURPOSE OF CLAIMING EXEMPTION U/S. 11 AND 12 OF THE ACT . 7.6 FURTHER, A NEW SECTION S. 12A(1)(BA) WAS INSERTED BY FINANCE ACT, 2017 WITH EFFECT FROM 01/04/2018 WHICH STATES AS FOLLOWS: THE PERSON IN RECEIPT OF THE INCO ME HAS FURNISHED THE RETURN OF INCOME FOR THE PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF SUB - SECTION (4A) OF SECTION 139 WITHIN THE TIME ALLOWED UNDER THAT SECTION. 7.7 IN THE MATTER, THE MEMORANDUM EXPLAINING THE RELEVANT PROVISIONS OF THE FI NANCE BILL, 2017 READS AS UNDER: ' A S PER THE EXISTING PROVISIONS OF SAID SECTION, THE ENTITIES REGISTERED UNDER SECTION 12AA ARE REQUIRED TO FILE RETURN OF INCOME UNDER SUB - SECTION (4A) OF SECTION 139, IF THE TOTA L INCOME WITHOUT GIVING EFFECT TO THE PRO VISIONS OF SECTIONS 11 AND 12 EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME - TAX. HOWEVER , THERE IS NO CLARITY AS TO WHETHER THE SAID RETURN OF INCOME IS TO BE FILED WITHIN TIME ALLOWED U/ S 139 OF THE ACT OR OTHERWISE. IN ORDER TO PROVID E CLA RITY IN THIS REGARD , IT IS PROPOSED TO FURTHER AME ND SECTION 12A SO AS TO PROVIDE FOR FURTHER CONDITION THAT THE PERSON IN RECEIPT OF THE INCOME CHARGEABLE TO INCOME - TAX SHALL FURNISH THE RETURN OF INCOME WITHIN THE TIME ALLOWED UNDER SECTION 139 OF THE AC T. I.T.A. NOS.255 - 261/COCH/2018 11 THESE AMENDMENTS ARE CLARIFICATORY IN NATURE. THESE AMENDMENTS WILL TAKE EFFECT FROM 1ST APRIL, 2018 AND WILL, ACCORDINGLY, APPLY IN RELATION TO ASSESSMENT YEAR 2018 - 19 AND SUBSEQUENT YEARS.' 7.7 FURTHER , AN EXCERPT OF CIRCULAR NO..02/2018 DATED 15. 0,2013 'EXPLANATORY NOTES TO THE PROVISIONS OF THE FINANCE ACT, 2017 ON INSERTION OF CLAUSE (BA) IN SUB SECTION (1) OF SECTION 12A IS QUOTED AS UNDER: 'THE ENTITIES REGI STERED UNDER SECTION 12AA ARE REQUIRED TO FILE RETURN OF INCOME UNDER SUB - SECTION (4 A ) OF SECTION 139 OF THE INCOME - TAX ACT, IF THE TOTAL INCOME WITHOUT GIVING EFFECT TO THE PROVISIONS OF SECTIONS 11 AND 12 EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME - TAX. AMENDMENT TO SECTION 12A OF THE INCOME - TAX HAS BEEN MADE SO AS TO PR OVIDE FOR ADDITIONAL CONDITION THAT THE PERSON IN RECEIPT OF THE INCOME CHARGEABLE TO INCOME - TAX SHALL FURNISH THE RETURN OF INCOME WITHIN THE TIME ALLOWED UNDER SECTION 139 OF THE INCOME - TAX ACT. THUS, FOR A TRUST REGISTERED U / S 12AA OF THE ACT TO AVAI L THE BENEFIT OF EXEMPTION U/S 11 SHALL INTER - ALIA FILE ITS RETURN OF INCOME WITHIN THE TIME ALLOWED U/S 139 OF THE ACT. ACCORDINGLY, ORDERS U/S 143(1 ) (A) IN THOSE CASES IN WHICH DEMAND HAS BEEN RAISED ON THIS ISSUE MAY PLEASE BE RECTIFIED. HENCE, THE A SSESSING OFFICER CAN DENY THE GRANT OF EXEMPTION U/S. 11 OF THE ACT FOR BELATEDLY FILING OF RETURN FROM THE ASSESSMENT YEAR 2018 - 19 ONWARDS. 7. 8 IN VIEW OF THE ABOVE D ISCUSSIONS, THIS GROUND OF APPEAL S OF THE ASSESSEE IS ALLOWED IN ALL THE APPEALS . ITA NOS. 25 8 TO 2 61/ COCH/2018 8 . THE NEXT GROUND IN THE ABOVE APPEALS IS WITH REGARD TO ADDITION ON ACCOUNT OF COLLECTION OF CAPITATION FEE FO R THE ASSESSMENT YEARS 2009 - 10 TO 2012 - 13. I.T.A. NOS.255 - 261/COCH/2018 12 8 .1 THE FACTS OF THE CASE ARE THAT DU RING THE COURSE OF SEARCH, IT WAS FOUND THAT THE ASSESSEE WAS COLLECTING CAPITATION FEES IN ADDITION TO REGULAR FEES FROM ITS STUDENTS. THE DETAILS OF STUDENTS ADMITTED TO MBBS, BDS. BAMS AND THE MONEY COLLECTED FROM EACH STUDENT WAS RECORDED IN THE LAPTOP OF THE ADMINISTRATIVE OFFI CER , SHRI S H IBU AND PRINTOUTS OF THE SAME FOR FINANCIAL YEAR 2011 - 12 WERE TAKEN AND SEIZED (CHN/21/VJ/A - 1). DURING THE COURSE OF SEARCH, STATEMENT OF SHRI SHIBU WAS RECORDED AND HE CONFIRMED THE RECEIPT OF ADDITIONAL FEE. THE RELEVANT QUESTION AND ANSWER I S REPRODUCED AS UNDE R: 'AS PER THE DETAILS FOUND DURING THE COURSE OF SEARCH THE ACTUAL COLLECTION OF FEES AND OTHER AMOUNTS FROM VARIOUS STUDENTS HAVE BEEN UNEARTHED AS PER THE SEIZED ITEM NO.CHN/21/VJ - 1 - A. HOWEVER ON VERIFICATION OF ACCOUNT, IT IS SEE N THAT ONLY A PORTION OF THE RECEIPT HAVE BEEN ACCOUNTED IN THE ACCOUNTS MAINTAINED IN THE COMPUTER. FOR EXAMPLE, IN THE CASE OF AKHIL MURALI, THE ACCOUNTED AMOUNT IS RS.10,75,000/ - AND IN THE CASE OF RINU RAHEED THE ACCOUNTED PORTIO N IS RS.8,29.100/ - AS AGAINST TH E ACTUAL RECEIPTS OF RS. 2 5 LAKHS AND 28 LAKHS RESPECTIVELY. WHY SUCH DISCREPANCIES HAPPENED IN THE ACCOUNT I N NOT ONLY THE ABOVE CASES BUT IN ALMOST ALL OF THE 50 MBBS ADMISSION CASES FOR T HE ACADEMIC YEAR 2011 - 12 ? ANS. A PORTION OF THE FEES/AMOUN T COLLECTED FROM MANAGEMENT AND NRI SEATS OF MBBS ARE NOT ACCOUNTED IN THE ACCOUNTS DUE TO VARIOUS STIPULATION OF LAW. I AM NOT ABLE TO EXPLAIN THE ABOVE DISCREPANCIES. 8 .2 IN VIEW OF THE UNEARTHING OF THE CHART EV IDENCING COLLECTION OF CAPITALIZATION FEES FROM MANAGEMENT AND NRI QUOTA SEATS AND T HE STATEMENT OF SHRI. SHIBU, THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD BEEN COLLECTING CAPITATION CHARG ES FROM THE ASPIRING STUDENTS. ACCORDING TO THE ASSESSING OFF ICER, CO LLECTION OF CAPITATION FEES IS A COMMON KNOWLEDGE AND IN THE INSTANT CASE , IT WAS SUPPORTED BY I.T.A. NOS.255 - 261/COCH/2018 13 DOCUMENTARY EVIDENCE, FOUND AND SEIZED FROM THE PREMISES OF THE ASSESSEE AND FURTHER SUPPORTED BY THE STATEMENT OF ADMINISTRATIVE OFFICER OF THE ASSESSEE CONCERN. 8 . 3 ON APPEAL, BEFORE THE CIT(A), DR. K.M. NAVAS, TRUSTEE OF THE ASSESSEE CONCERN WROTE A LETTER DATED 14.02.2018, CONTENTS OF WHICH ARE REPRODUCED A S UNDER : 'SIR, SUB: NOTE ON CAPITATION FEE - REG. REF : APPEALS FOR THE AY 2006 - 07 TO 2012 - 13 DURING THE INCOME TAX SEARCH DATED 31/10/2011 THE INCOME TAX OFFICERS FOUND THE COLLECTION OF ADDITIONAL FEES FROM MBBS 2011 BATCH MANAGEMENT STUDENTS TO THE TUNE OF RS.2.40 CRORES. WE HAVE ADMITTED THE SAME AND ACC OUNTED FOR IN OUR BOOKS OF ACCOUNTS IN THAT YEAR ITSELF. APART FROM THAT THERE IS NEITHER ANY COLLECTION OF ADDITIONAL FEES NOR ANY FINDINGS BY THE INCOME TAX OFFICERS/ASSESSING OFFICER. INSTEAD IN THE ASSESSMENT ORDER THE ASSESSING OFFICER ADDED SOME IMAG INARY FIGURES AS ADDITIONAL FEES ON A YEAR TO YEAR BASIS FOR EACH COURSE LIKE MEDICAL, DENTAL AND AYURVEDA AND FINALIZED THE ASSESSMENT ACCORDINGLY. SO WE REQUEST YOUR GOODSELF TO CONSIDER OUR SUBMISSION AND ALLOW OUR CLAIM.' 8 . 4 THE CIT(A) FOUND THAT DOCUMENT EVIDENCING RECEIPT OF ON - MONEY FROM ASPIRING STUDENTS HA D BEEN FOUND FOR FY 2011 - 12 RELEVANT TO AY 2011 - 12 ONLY WHICH PROVED THAT THE ASSESSEE HAD BEEN TAKING CAPITATION FEES FOR ADMISSIONS IN MBBS COURSES FROM MANAGEMENT AND NRI QUOTA SEATS. THE CIT(A) ALSO NOTED FROM THE SEIZED DOCUMENT THAT THE ASSESSEE CHARGED VARYING AMOUNT FROM STUDENTS AND IN SOME CASES, NO AMOUNT HA D BEEN CHARGED. THEREFORE , ACCORDING TO THE CIT(A), SINCE THERE IS NO CHANGE IN CIRCUMSTANCES BETWEEN AY 2011 - 12 AND EARLIER AND I.T.A. NOS.255 - 261/COCH/2018 14 SUBSEQUENT YEARS, IT CANNOT BE SAID THAT THE ASSESSEE TOOK CAPITATION FEES IN ONE YEAR ONLY AND OTHER YEARS IT WAS NOT CHARGING ANYTHING AND I T IS ALSO NOT NECESSARY THAT THE ASSESSEE WOULD MAINTAIN THE ACCOUNT OF CAPITATION FEES DILIGENTLY FOR ALL YEA RS FOR ALL STUDENTS. ACCORDING TO THE CIT(A), T HE ASSESSEE WOULD DESTROY DETAILS OF SUCH UNACCOUNTED CAPITATION FEES COLLECTED . THE CIT(A) WAS OF THE OPINION THAT THE EVIDENCE FOUND WAS SUFFICIENT TO PROVE THAT THE ASSESSEE HAD BEEN COLLECTING UNACCOUNTED CAPITATION FEES. FROM THE SEIZED DOCUMENT , THE CIT(A) FOUND THAT RS. 2.40 CRORES HA D BEEN COLLECTED FROM A TOTAL NUMBER OF 50 MBBS STUDENTS, THOUGH VARYING AMOUNT S HA D BEEN COLLECTED ON THIS ACCOUNT WHICH MAKES AN AVERAGE OF ABOUT RS. 5 L AKHS PER STUDENT. ACCORDING TO THE CIT(A), THE CHARGES FOR EARLIER YEARS WOULD BE LESS AND SUBSEQUENT YEARS WOULD BE HIGHER . SINCE THERE WAS NO MBBS SEAT IN AY 2008 - 09, THERE WAS NO REASON TO MAKE AN ESTIMATED ADDITION IN THAT YEAR. THEREFORE, THE CIT(A) DELETED THE ADDITI ON MADE IN AY 2008 - 09 FOR RS.6,25,000/ - . HOWEVER, THE CIT(A) CONFIRMED THE ADDITIONS F OR AYS 2009 - 10 ONWARDS . 8 . 5 AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. AR SUBMITTED THAT DURING SEARCH, THERE WAS NO INCRIMINATING MATERIAL FOUND REGAR DING COLLECTION OF ADDITIONAL FEES FOR THE ASSESSMENT YEARS AND THE ADDITIONS WERE MADE BY EXTRAPOLATING BACKWARDS THE FIGURES RELATING TO THE SUBSEQUENT YEARS. 8 .6. THE LD. D R SUBMITTED THAT THERE WAS S EIZED MATERIAL REPRESENTING THE UNACCOUNTED COLLE CTION OF FEES FOR THESE ASSESSMENT YEARS UNDER CONSIDERATION . HE I.T.A. NOS.255 - 261/COCH/2018 15 SUBMITTED THAT JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. HOTEL MERIYA (332 ITR 537) IS APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. 9 . WE H AVE HEARD THE RIVAL S UBMISSIONS AND PERUSED THE RECORD. IN THE PRESENT CASE, THERE WAS A SEIZED MATERIAL FOUND DURING THE COURSE OF SEARCH MARKED AS CHN/21 / VJ - 1 - A WHICH CO NTAI N ED THE DETAILS OF STUDENTS ADMITTED FOR BBS, BDS AND BMS COURSES AND MONEY COLLECTED FROM EACH STUDE NT WAS RECORDED IN THE LAPT O P OF THE ADMINISTRATIVE OFFICER, NAMELY, SHRI SHIBU AND PRINT OUT WAS TAKEN RELATING TO FINANCIAL YEAR 2011 - 12 AND CORRESPONDING YEAR 2012 - 13. DURING THE COURSE OF SEARCH, STATEMENT OF SHRI. SHIBU WAS RECORDED AND HE CONFIRMED THE RECEIPT OF ADDITIONAL FEE. THE RELEVANT QUESTION AND ANSWER IS REPRODUCED AS UNDE R: 'AS PER THE DETAILS FOUND DURING THE COURSE OF SEARCH THE ACTUAL COLLECTION OF FEES AND OTHER AMOUNTS FROM VARIOUS STUDENTS HAVE BEEN UNEARTHED AS PER THE SEIZED ITEM NO.CHN/21/VJ - 1 - A. HOWEVER ON VERIFICATION OF ACCOUNT, IT IS SEEN THAT ONLY A PORTION OF THE RECEIPT HAVE BEEN ACCOUNTED IN THE ACCOUNTS MAINTAINED IN THE COMPUTER. FOR EXAMPLE, IN THE CASE OF AKHIL MURALI, THE ACCOUNTED AMOUNT IS RS.10,75,000/ - AND IN THE CASE OF RINU RAHEED THE ACCOUNTED PORTION IS RS.8,29.100/ - AS AGAINST THE ACTUAL RECEIPTS OF RS.25 LAKHS AND 28 LAKHS RESPECTIVELY. WHY SUCH DISCREPANCIES HAPPENED IN THE ACCOUNT IN NOT ONLY THE ABOVE CASES BUT IN ALM OST ALL OF THE 50 MBBS ADMISSION CASES FOR THE ACADEMIC YEAR 2011 - 12? ANS. A PORTION OF THE FEES/AMOUNT COLLECTED FROM MANAGEMENT AND NRI SEATS OF MBBS ARE NOT ACCOUNTED IN THE ACCOUNTS DUE TO VARIOUS STIPULATION OF LAW. I AM NOT ABLE TO EXPLAIN THE ABOVE DISCREPANCIES. 9.1 IN VIEW OF THE UNEARTHING OF THE CHART EVIDENCING COLLECTION OF CAPITALIZATION FEES FROM MANAGEMENT AND NRI QUOTA SEATS AND T HE STATEMENT OF SHRI. SHIBU, THE ASSESSING OFFICER HELD THAT THE ASSESSEE HAD BEEN COLLECTING CAPITATION FEE S FROM THE I.T.A. NOS.255 - 261/COCH/2018 16 ASPIRING STUDENTS. ACCORDING TO THE ASSESSING OFFICER, CO LLECTION OF CAPITATION FEES IS A COMMON KNOWLEDGE AND IN THE INSTANT CASE , IT WAS SUPPORTED BY DOCUMENTARY EVIDENCE, FOUND AND SEIZED FROM THE PREMISES OF THE ASSESSEE AND FURTHER SUPPORT ED BY THE STATEMENT OF ADMINISTRATIVE OFFICER OF THE ASSESSEE . IN THE POST SEARCH, THE ASSESSEE HAD GIVEN DETAILS OF COLLECTION OF ADDITIONAL FEE FOR THE B ATCH 2010 AND 2011 ON THE BASIS OF WHICH THE ASSESSEE REMITTED THE COLLECTION OF ADDITIONAL FEES FOR THE ASSESSMENT YEAR 2012 - 13 AS FOLLOWS: I) THE ADDITIONAL FEES COLLECTED FROM 25 STUDENTS ADMITTED TO BAMS COURSE UNDER MA NAGEMENT QUOTA FOR 25 STUDENTS IS RS.50 LAKHS ( 25 X RS. 2 LAKHS ) II) THE A DDITIONAL FEES COLLECTED FOR THE MBBS FROM 50 STUDENTS & BDS COURSE FROM 25 STUDENTS UNDER MAN A GEMENT QUOTA IS RS.3,75,00,000/ - (75 X RS.5,00,000) = RS.3.75 CRORES GRAND TOTAL RS.4.25 CRORES 9.2 FOR MAKING THE ABOVE ADDITION, THE ASSESSING OFFICER RELIED ON THE J UDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. HOTEL MERIYA (332 ITR 537) AND ALSO THE JUDGMENT OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF RAJNIK & CO.VS. ACIT (251 ITR 561). 9.3 IN THE CASE OF MERIYA HOTEL CITED SUPRA WHICH IS A BAR CUM RESTAURANT, THERE WAS A SEARCH CONDUCTED U/S. 132 OF THE ACT ON 28 TH JUNE, 2001. DURING THE SEARCH, A SEIZED MATERIAL WAS FOUND SHOWING UNDISCLOSED SALES TURNOVER. THE CASH BOOK WAS SEEN RECORDED UPTO 25 TH JUNE, 2001. THE CASH BOOK SHOWED CASH B ALANCE OF RS.21,31,523/ - BUT THE PHYSICAL CASH BALANCE WAS RS.34,552/ - . ON ENQUIRY OF THE MANAGING PARTNER AND THE EMPLOYEE, IT WAS REVEALED THAT ONLY 80% ACTUAL SALES I.T.A. NOS.255 - 261/COCH/2018 17 TURNOVER IN RESPECT OF LIQUOR WAS RECORDED IN THE CASH BOOK. IN THIS CASE, THE PARTNER OF THE HOTEL H AD IN AMBIGUOUS TERMS STATED THAT 20% OF THE SALES TURNOVER WAS SUPPRESSED AND ONLY 80% WAS RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND IT WAS A PRACTICE FROM THE BEGINNING. SO, THE HIGH COURT WAS OF THE OPINION THAT IT IS JUST AN D APPROPRIATE TO PRESUME THAT THERE WAS UNIFORM CONCEALMENT OF INCOME IN ALL THE ASSESSMENT YEARS DURING THE BLOCK PERIOD. THERE IS NO MATERIAL TO SHOW THAT CONCEALMENT OF THE SALES DURING ANY OF THE ASSESSMENT YEARS IN THE BLOCK PERIOD IS LESS THAN CONCE ALMENT DETECTED U/S. 132 OF THE I.T. ACT. THER E WA S NO WHISPER IN THE STATEMENT GIVEN BY THE STAFF OF THE ASSESSEE FIRM OR ANY OF THE EMPLOYEES THAT THERE WAS ANY CONCEALMENT IN ANY ASSESSMENT YEAR DURING THE BLOCK PERIOD. NO GOOD REASON WAS GIVEN TO REJ ECT THE ABOVE MENTIONED STATEMENTS OF T HE PARTNER AND THE EMPLOYEES RECORDED DURING T HE SEARCH. ORAL EVIDENCE WAS CORROBORATED BY DOCUMENTARY EVIDENCE. SO, IT IS JUST AND APPROPRIATE T O CONCLUDE THAT THE CONCEALMENT WAS SAME IN ALL THE ASSESSMENT YEARS D URING THE BLOCK PERIOD. THE ASSESSEE ADOPTED THE MERCANTILE METHOD TO CONCEAL INCOME. THE RATIO OF THIS JUDGMENT CANNOT BE APPLIED TO THE PRESENT ASSESSEES CASE AS THERE WAS NO STATEMENT RECORDED U/S. 132(4) OF THE ACT FROM THE MANAGING TRUSTEE TO SHOW T HAT THERE WAS UNIFORM COLLECTION OF ADDITIONAL FEES BY THE ASSESSEE FROM YEAR TO YEAR COVERING THE BLOCK PERIOD WHICH WAS UNACCOUNTED. MORE SO, WHAT IS APPLICABLE TO B AR & R ESTAURANT TO ESTIMATE THE SUPPRESSED INCOME CANNOT BE APPLIED TO THE PRESENT ASSES SEE WHICH IS AN EDUCATIONAL INSTITUTION. IT IS IMPARTING MEDICAL EDUCATION. THE TURNOVER OF B AR CUM R ESTAURANT CANNOT BE EQUATED TO THE COLLECTION OF FEES FROM STUDENTS. COLLECTION OF FEES BY AN EDUCATIONAL INSTITUTION IS DEPENDENT I.T.A. NOS.255 - 261/COCH/2018 18 UPON DIFFERENT FACTORS L IKE PAYMENT OF FEES, QUALITY OF EDUCATION IMPARTED BY THE INSTITUTION , GOVERNMENT RULES AND REGULATIONS AND REPUTATION OF THE INSTITUTION , ETC. 9 .4 FURTHER, AT THE TIME OF HEARING BEFORE THE ASSESSING OFFICER ON 13/11/2013, THE ASSESSEE WAS ASKED TO EXP LAIN THE ADDITIONAL FEES COLLECTED FROM THE STUDENTS ADMITTED IN MBBS, BDS & BAMS AND THE METHOD OF ACCOUNTING THE SAME. THE ASSESSEE VIDE LETTER DATED 10/12/2013 STATED THAT WE HAVE NOT COLLECTED ANY ADDITIONAL FEES DURING THE ABOVE YEARS. WE HAVE COLL ECTED SOME AMOUNT OF ADVANCE AND ACCOUNTED THE SAME. THE ASSESSEE WAS AGAIN ASKED TO EXPLAIN ABOUT ADDITIONAL FEES, CAPITATION FEES, EXPLANATION ON SETTLEMENT OF VARIOUS ASSETS AMONG THE FAMILY MEMBERS OF DR. K. MOIDU DURING THE COURSE OF HEARING. THE AUTHORIZED REPRESENTATIVE STATED THAT HE WAS NOT AWARE OF THE DETAILS OF SETTLEMENT AND THE DIFFERENCE IN VARIATION OF RECEIPTS AS PER ASSESSEES STATEMENT AND AS PER SEARCH MATERIAL. THEREFORE, A DETAILED LETTER NARRATING: 1. THE AMOUNT OF DR. K.M. NAVAS OF RS.1,70,00,000/ - WHICH WAS SHOWN IN THE FORM 10B ATTACHED WITH THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2012 - 13. 2. DETAILS OF LEASE HOLD LAND OBTAINED AND INVESTMENT MADE BY THE TRUST ON THIS LEASE HOLD LAND. 3. THE AMOUNT PAID FOR PROPERTY PURC HASE AT VALANCHERY AND THE METHOD OF ACCOUNTING TO ACCOMMODATE THEM ON MONEY PAYMENT AND CASH SETTLEMENT MADE BETWEEN THE TRUSTEES AS ON 01/11/2011. 9.5. THE ASSESSEE VIDE LETTER DATED 17/01/2014 STATED THAT IN THE ASSESSMENT YEAR 2011 - 12 THEY HAD NOT COLLECTED ANY ADDITIONAL FEES WE HAVE ONLY COLLECTED SOME ADVANCE FEES WHICH WAS ACCOUNTED IN THE BOOKS. IN THE ASSESSMENT YEAR 2012 - 13, I.T.A. NOS.255 - 261/COCH/2018 19 IT WAS STATED THAT THEY HAD COLLECTED ADDITIONAL FEES FROM MBBS AND BAMS STUDENTS WHICH HAVE BEEN ACCOUNTED AS ADDITIO NAL FEES. NOW THE ASSESSEE HAS ADMITTED THE RECEIPT OF ADDITIONAL FEES DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2012 - 13. 9. 6 C OMING TO THE JUDGMENT OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF RAJNIK & CO MPANY CITED SUPRA, THE HIGH COURT HELD THAT ASSESSMENT OF UNDISCLOSED INCOME IS BASED ON RELEVANT MATERIAL AND THERE IS ABSOLUTELY NO MERIT IN THE CONTENTION OF THE ASSESSEE THAT THE ESTIMATIONS MADE BY THE ASSESSING OFFICER AS WELL AS BY THE TRIBUNAL ARE NOT BASED ON ANY MATERIAL B UT MERELY BASED ON CONJUNCTURES AND HYPOTHESES. THOUGH THERE IS NO MATERIAL FOUND FOR THE ASSESSMENT YEAR 1986 - 87 TO 1995 - 96 BUT IT IS FACT CONFIRMED BY THE PARTNER OF THE ASSESSEE FIRM THAT THE ASSESSEE HAD ORGANIZED SUPPRESSION OF SALES TURNOVER AND TAKI NG THE QUANTUM OF BUSINESS THAT WAS CARRIED OUT BY THE ASSESSEE - FIRM, THE ASSESSING OFFICER ESTIMATED THE SUPPRESSION OF 20% SALES AND DETERMINED THE GROSS PROFIT RATE THAT WAS RETURNED BY THE ASSESSEE. THE ADMISSION BY THE PARTNER O F THE ASSESSEE - FIR M CL EARLY SHOWS THAT THE FIRM HAD SUPPRESSED THE SALES TURNOVER EVEN IN THOSE YEAR S ALSO. BEING SO, THERE WAS NO CASE TO THE ASSESSEE TO CONTEND THAT THE ASSESSMENT IS NOT BASE D ON ANY SEIZED MATERIAL . 9.7 I N THE PRESENT CASE, THERE IS NO EVIDENCE COLLE CTED BY THE DEPARTMENT FOR THE ASSESSMENT YEAR 2006 - 07 TO 2011 - 12 AND THERE WAS EVIDENCE ONLY IN THE ASSESSMENT YEAR 2012 - 13. AS SAID IN EARLIER PARAS OF THIS ORDER , THERE WAS NO I.T.A. NOS.255 - 261/COCH/2018 20 ADMISSION BY ANY OF THE TRUSTEES OF THE ASSESSEE - TRUST. BEING SO, THE RATIO LAID DOWN BY THE ANDHRA PRADESH HIGH COURT IN THE CASE OF RAJNIK & CO. CITED SUPRA CANNOT BE APPLIED TO THE PRESENT ASSESSEES CASE. SIMILARLY , I N THE CASE OF TRAVANCORE DIAGNOSTICS P. LTD. VS. ACIT (390 ITR 167) THE JURISDICTIONAL HIGH COURT HELD THAT WHEN SUPPRESSION HAD BEEN FOUND FROM THE DOCUMENTS AND THE STATEMENT ON RECORD, THE ASSESSING OFFICER WAS COMPLETELY JUSTIFIED IN ADOPTING THOSE FIGURES FOR THE WHOLE YEAR AND FOR THE NEXT YEAR WHICH WAS BASED ON SOUND RATIONALE, SINCE FROM THE STATEMENT ON BEHALF OF THE ASSESSEE, THE SUPPRESSION WAS FOUND TO BE CONTINUED. IN VIEW OF THE UNCONTROVERTED AND ADMITTED STATEMENT GIVEN ON BEHALF OF THE ASSESSEE U/S. 133A AND THE DOCUMENTS IMPOUNDED DURING THE SURVEY, WHICH WERE ALSO VIRTUALLY ADMITTED BY THE A SSESSEE, THERE WAS NO ERROR IN THE ORDER OF THE TRIBUNAL IN ACCEPTING THE MATERIALS ON RECORD IN ORDER TO ARRIVE AT AN ASSESSMENT. HOWEVER, IN THE CASE OF PRESENT ASSESSEE, THERE WAS NO ADMISSION BY THE TRUSTEES OF THE TRUST. HENCE, THIS JUDGMENT OF THE JURISDICTIONAL HIGH COURT CITED SUPRA CANNOT BE APPLIED TO THE ASSESSEE - TRUST. 9. 8 IN THE PRESENT CASE, ADDITION TOWARDS ADDITIONAL FEES COLLECTED BY THE ASSESSEE WAS SOLELY BASED ON THE STATEMENT OF ONE OF THE EMPLOYEES OF THE TRUST, SHRI SHIBU AND LATER DETAILS WERE FURNISHED BY THE ASSESSEE AT THE TIME OF ASSESSMENT. HENCE, THERE WAS NO INCRIMINATING EVIDENCE REGARDING THE RECEIPT OF ADDITIONAL FEES EITHER FOUND OR SEIZED DURING THE SEARCH . WHAT WAS FOUND WAS THE SEIZED MATERIAL C HN/21/VJ - 1 - A SHOW ING THE DETAILS OF STUDENTS ADMITTED TO MBBS, BDS. BAMS AND THE MONEY COLLECTED FROM EACH STUDENT R ECORDED IN THE LAPTOP OF THE ADMINISTRATIVE I.T.A. NOS.255 - 261/COCH/2018 21 OFFICER , SHRI S H IBU AND PRINTOUTS OF THE SAME FOR FINANCIAL YEAR 2011 - 12 RELEVANT TO ASSESSMENT YEAR 2012 - 13 . LAT ER, THE ASSESSEE FURNISHED DETAILS OF FEES COLLECTED IN THE YEAR 2010 - 11 IN THE TABULAR FORM. FRO M THIS, THE ASSESSING OFFICER ARRIVED AT THE ADDITIONAL FEES COLLECTED BY THE ASSESSEE. HOWEVER, THE ASSESSEE VIDE LETTER DATED 10/12/2013 STATED THAT THE ASS ESSEE HAD NOT COLLECTED ANY ADDITIONAL FEES AND ONLY COLLECTED ADVANCE FEES. BEING SO, WHATEVER WAS FOUND WAS THE BREAK UP OF NUMBER OF STUDENTS WHO WERE ADMITTED UNDER DIFFERENT QUOTAS IN VARIOUS COURSES. THEREFORE, THERE CANNOT BE ANY ADDITION IN THE H ANDS OF THE ASSESSEE TOWARDS ADDITIONAL FEES COLLECTED IN THE ABSENCE OF ANY MATERIAL SEIZED OR FOUND DURING THE SEARCH FOR THE ASSESSMENT YEARS 2006 - 07 TO 2011 - 12. HOWEVER, WE DIRECT THE ASSESSING OFFICER TO CONFINE THE ADDITION TO THE EXTENT OF SEIZED M ATERIAL FOUND DURING THE SEARCH FOR THE ASSESSMENT YEAR 2012 - 13 /. IN OTHER WORDS, FOR THE ASSESSMENT YEARS 2006 - 07 TO 2011 - 12, THERE WAS NO SEIZED MATERIAL FOUND DURING THE SEARCH AND HENCE, THERE CANNOT BE ANY ADDITION TOWARDS ADDITIONAL FEES COLLECTED BY THE ASSESSEE. 9. 8 FURTHER, T HE CENTRAL BOARD OF DIRECT TAXES HAD ISSUED INSTRUCTIONS BY CIRCULAR NO. 286/2/2003 - IT, WHEREIN IT HAD BEEN DIRECTED THAT THE SEARCH PARTY SHOULD NOT OBTAIN CONFESSIONS. SO THE ADMISSION MADE UNDER SECTION 132(4) BY THE ADMINISTRATIVE OFFICER CANNOT BE TREATED AS A VALID PIECE OF EVIDENCE. MOREOVER, THERE WAS NO PROOF THAT THE ASSESSEE HAD COLLECTED ADDITIONAL FEES IN THE GUISE OF DONATION AND THERE WAS NO VIOLATION OF PROHIBITION OF COLLECTION OF CAPITATION FEES ACT, 1 992. THE DONATION VOLUNTARY GIVEN BY ANYBODY TO A TRUST TOWARDS ITS CORPUS I.T.A. NOS.255 - 261/COCH/2018 22 WAS A PERMISSIBLE AND LEGAL ACTIVITY, AND NOT AN ILLEGAL ACTIVITY RESULTING IN DENIAL OF EXEMPTION U/S. 11 OF THE ACT. THERE WAS NO EVIDENCE ON RECORD TO SHOW ANY LINK BETWEEN TH E INVESTMENT MADE IN THE HANDS OF VARIOUS TRUSTEES WITH THE TRUST S ACTIVITIES UNDER THE PROVISIONS OF SECTION 164(1) R.W.S. 13(1)(C) AND 13(1)(D) OF THE ACT. THEREFORE, THE ADDITION COULD NOT BE SUSTAINED IN THE EYE OF LAW. IT IS ALSO ADMITTED BY THE ASS ESSEE VIDE LETTER DATED 17/01/2014 THAT FOR THE ASSESSMENT YEAR 2011 - 12, THE ASSESSEE HAS NOT COLLECTED ANY ADDITIONAL FEES AND COLLECTED ONLY ADVANCE FEES WHICH WAS ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS. IN OUR OPINION, FOR THE ASSESSMENT YEAR 2011 - 12, THE ADDITIONAL FEES OR ADVANCE FEES WHICH WAS OFFERED FOR TAXATION BY THE ASSESSEE BY ACCOUNTING THE SAME, CANNOT BE BROUGHT TO TAX ONCE AGAIN WHICH AMOUNTS TO DOUBLE TAXATION. SIMILARLY FOR THE ASSESSMENT YEAR 2012 - 13, IT WAS ADMITTED BY THE ASSESSEE THA T IT HAD COLLECTED ADDITIONAL FEES FROM MBBS AND BAMS STUDENTS WHICH HAVE BEEN ACCOUNTED BY TH E ASSESSEE , HENCE, FOR THIS ASSESSMENT YEAR ALSO, THE ASSESSING OFFICER CANNOT BRING TO TAX ONCE AGAIN. FOR THIS ASSESSMENT YEAR, THE ASSESSING OFFICER HAS TO VE RIFY WHETHER IT IS DULY ACCOUNTED FOR THE ASSESSMENT YEAR 2012 - 13 ONLY. HENCE, WE ARE NOT IN A POSITION TO UPHOLD THE ORDER OF THE CIT(A) ON THE ISSUE OF COLLECTION OF ADDITIONAL FEES FOR THE ASSESSMENT YEARS 200 9 - 10 TO 20 11 - 12. 9.9 HOWEVER, THE AS SESSING OFFICER IS TO RESTRICT THE ADDITION TOWARDS COLLECTION OF ADDITIONAL FEES FOR THE ASSESSMENT YEAR 2012 - 13 TO THE EXTENT OF THE SEIZED MATERIAL FOUND DURING THE COURSE OF SEARCH. THIS GROUND OF APPEAL IN ITA NO. I.T.A. NOS.255 - 261/COCH/2018 23 261/COCH/2018 RELATING TO THE ADDITI ON TOWARDS COLLECTION OF ADDITIONAL FEES IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 9.9 .1 FURTHER , THE PROVISIONS OF SECTION 11 OF THE ACT WAS CONSIDERED BY THE TRIBUNAL WHILE RESTORING THE REGISTRATION GRANTED TO THE ASSESSEE U/S. 12AA OF THE I.T. A CT IN ASSESSEES OWN CASE IN ITA NO.246/COCH/2014 DATED 16/01/2017 WHEREIN IT WAS HELD AS UNDER: 19. COMING TO OTHER OBSERVATIONS OF THE CIT FOR CANCELLATION OF REGISTRATION OF TRUST U/S 12AA(3). THE CIT OBSERVED THAT THE TRUST JS NOT MAINTAINING PR OPER B OOKS OF ACCOUNT AND NOT FILED REGULAR RETURNS OF INCOME AS PRESCRIBED UNDER LAW. AS REGARDS OBSERVATIONS OF THE CIT WITH REGARD TO NON MAINTENANCE OF B OOKS OF ACCOUNT AND NON FILING OF REGULAR RETURNS OF INCOME IT WAS SUBMITTED THAT IT IS TRUE RETURN S OF INCOME FROM THE A.Y. 2007 - 08 HAVE NOT BEEN FILED REGULARLY AND SUCH RETURNS HAVE BEEN FILED AFTER SEARCH BUT BEFORE THE COMMISSIONER ISSUED HER SHOW CAUSE NOTICE ON 6 - 9 - 2013 WHICH IS EVIDENT FROM THE FACT THAT RETURNS OF INCOME UP TO A.Y. 2011 - 12 HAV E BEEN FILED BEFORE 21 - 8 - 2013, THE TRUST HAS FILED REGULAR RETURNS FOR A.Y, 2012 - 13 AND SUBSEQUENT YEARS. THE AR FURTHER SUBMITTED THAT EVEN ASSUMING THAT THERE IS DELAY IN FILING RETURNS OF INCOME, IT CANNOT BE SAID THAT IT IS FATAL SO AS TO WITHDRAW REGI STRATION U/S 12AA(3). NON FILING OF RETURNS IS PURELY A PROCEDURAL LAPS WHICH CAN BE CURED BY FILING RETURN OF INCOME OR SOME OTHER PENAL PROVISION IS PROVIDED TO DEAL WITH NON FILING RETURN OF INCOME, BUT IT CANNOT BE A GROUND FOR CANCELLATION OF REGISTRA TION AS LONG AS THE TRUST OBJECTS ARE CHARITABLE IN NATURE AND ITS ACTIVITIES ARE CARRIED OUT IN ACCORDANCE WITH ITS OBJECTS. THEREFORE, WE ARE OF THE VIEW THAT NON MAINTENANCE OF REGULAR BOOKS OF ACCOUNTS, BELATED FILING OF RETURNS OF INCOME, ARE ALL BY W AY OF PASSING REFERENCE HAVING NO RELEVANCE TO WHETHER OR NOT THE ASSESSEE WAS PURSUING EDUCATION, AS ITS MAIN OBJECT. THERE ARE NO FACTS BROUGHT OUT IN THE IMPUGNED ORDER REGARDING THE GENUINENESS OF THE ACTIVITIES OF THE TRUST OR AS TO WHETHER THE OBJECT OF EDUCATION WAS NOT PURSUED BY THE ASSESSEE AS ITS MAIN AND PREDOMINANT ACTIVITY. IN FACT, THE ORDER OF THE CIT DOES NOT ANYWHERE SHOW THAT THE ASSESSEE I S NOT IMPARTING EDUCATION. THE COMPLAINT OF THE REVENUE SEEMS TO BE THAT EDUCATION IS BEING IMPARTED ON COMMERCIAL LINES. THE DEFINITION OF 'CHARITABLE PURPOSE IS GIVEN IN SEC.2(15) OF THE ACT. THE SAME REFERS TO 'RELIEF TO POOR, MEDICAL RELIEF, EDUCATION AND THE ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY'. THE PROVISO I.T.A. NOS.255 - 261/COCH/2018 24 TO SEC.2(15) OF THE ACT INTRODUCED BY THE FINANCE ACT, 2008 W.E.F. 1.4.2008 REGARDING EXCLUDING ORGANIZATIONS WHERE THERE IS PROFIT MOTIVE FROM THE DEFINITION OF CHARITABLE PURPOSE APPLIES ONLY TO THE CATEGORY OF TRUSTS WHICH HAS AS ITS OBJECT, THE OBJECT OF 'ADVANCEMENT OF ANY OTHER OBJECT OF GENERAL PUBLIC UTILITY'. IT DOES NOT APPLY TO THE OTHER CATEGORIES OF CHARITABLE PURPOSE VIZ., 'RELIEF TO POOR, EDUCATION AND MEDICAL RELIEF. IT IS ALSO NOT A NECESSARY ELEMENT IN A CHARITABLE PURPOSE THAT IT SHOULD PROVIDE SOMETHING FO R NOTHING OR FOR LESS THAN IT COSTS OR FOR LESS THAN THE ORDINARY PRICE. THE SURPLUS GENERATED, IF IT IS HELD FOR CHARITABLE PURPOSE AND APPLIED FOR CHARITABLE PURPOSE OF THE ASSESSEE, AND THEN THE ASSESSEE HAS TO BE CONSIDERED AS EXISTING FOR CHARITABLE P URPOSE. THERE ARE ENOUGH SAFEGUARDS PROVIDED IN SEES.12 AND 13 OF THE ACT TO ENSURE THAT PERSONAL BENEFITS OF THE PERSONS IN CONTROL OF THE TRUSTS ARE NOT TREATED AS HAVING APPLIED FOR CHARITABLE PURPOSE AND FOR BEING BROUGHT TO TAX LIKE PROVISIONS OF SEC. 13(1)(C) OF THE ACT WHICH RESTRICTS UNREASONABLE AND EXCESSIVE PAYMENTS TO CERTAIN CATEGORY OF PERSONS CONNECTED WITH A TRUST OR OTHER INSTITUTION. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW, THAT THE ORDER U/S 12AA(3) OF THE ACT, CANNOT BE SUSTAINED.' 20. THE ALLEGATIONS OF THE REVENUE THAT THE TR US T WAS COLLECTING ADDITIONAL FEES, DONATIONS AND SIPHONING OFF OF INCOME OF THE TRUST FOR THE BENEFIT OF THE T RUSTEES. AS REGARDS COLLECTION OF ADDITIONAL FEES FROM CERTAIN STUDENTS AND DIVERSION OF FUNDS TO TR USTEES, THESE ARE PASSING REMARKS BY THE CIT WHICH CANNOT BE CONSIDERED AS NON GENUINE ACTIVITIES. THE TRUST HAS COLLECTED FEE FROM STUDENTS AS PRESCRIBED BY THE AUTHORITIES. IN SOME CASES, ADDITIONAL FEES COLLECTED FROM STUDENTS ADMITTED UNDER MANAGEMENT QUOTA AND SUCH ADDITIONAL FEES HAS BEEN ACCOUNTED FOR IN THE BOOKS OF ACCOUNTS AND ALSO APPLIED FOR OBJECTS OF THE TRUST. THE TRUST HAS COLLECTED ADDITIONAL FEES IN TWO YEARS FROM STUDENTS ADMITTED UNDER MANAGEMENT QUOTA AND SUCH ADDITIONAL FEE HAS NOT EXC EEDED THE LIMIT PRESCRIBED BY THE AUTHORITIES. THE PRIVATE UNAIDED MANAGEMENT COLLEGES ARE PERMITTED TO FIX THEIR OWN FEES IN RESPECT OF MANAGEMENT QUOTA SEATS CONSIDERING THEIR FEASIBILITY AND COLLECT SUCH FEES FROM STUDENTS. THE ADDITIONAL FEES AND ADVAN CE FEES COLLECTED FROM STUDENTS IS HARDLY 4.46% OF TOTAL FEES COLLECTED FROM STUDENTS. THE ADDITIONAL FEES COLLECTED HAVE BEEN ACCOUNTED FOR IN THE BOOKS, THEREFORE IT IS INCORRECT ON THE PART OF THE CIT TO MAKE BASELESS ALLEGATIONS THAT ADDITIONAL FEES CO LLECTED WAS NOT ACCOUNTED FOR IN THE BOOKS OF ACCOUNT AND SUCH ADDITIONAL FEES HAS BEEN USED FOR PAYMENT OF ON - MONEY FOR PURCHASE OF PROPERTY IN THE NAME OF TRUSTEES. THE CIT MADE SAID COMMENTS ON THE BASIS OF SWORN STATEMENT OF SHRI. K.M. NAVAS, MANAGING TRUSTEE. BUT, IF YOU REFER THE STATEMENT, NO WHERE T HE MANAGING TRUSTEES ADMITTED THAT ADDITIONAL FEES HAS BEEN USED FOR PAYMENT OF ON - MONEY FOR PURCHASE OF PROPERTY. IN THE SAID STATEMENT, HE ADMITTED THAT THE TRUST HAS COLLECTED ADDITIONAL FEES A ND THE SAME I.T.A. NOS.255 - 261/COCH/2018 25 HAS BEEN USED FOR OBJECTS OF THE TRUST. AS REGARDS ALLEGATION OF DIVERSION OF FUNDS, IT WAS SUBMITTED THAT THE TRUST HAS GIVEN TEMPORARY ADVANCE TO DR. K.M. NAVAS, MANAGING TRUSTEE OF THE TRUST WITH INTEREST @16% PER ANNUM AND SUCH LOAN HAS BEE N REPAID WITHIN A SHORT PERIOD. THE CIT COMPLETELY ERRED IN CANCELLING REGISTRATION ON THE GROUND THAT TRUST FUNDS ARE DIVERTED FOR THE BENEFIT OF TRUSTEES WITHOUT APPRECIATING THE FACT THAT ADVANCES TO TRUSTEES IS WITH ADEQUATE INTEREST AND SECURITY AND SUCH INTEREST HAS BEEN CHARGED AT DOUBLE THE BANK RATE. EVEN ASSUMING THAT THERE IS DIVERSION OF FUNDS IN CONTRAVENTION OF SECTIONS 11(5) AND 13(1)(C) FOR THESE REASONS REGISTRATION CANNOT BE CANCELLED AS THE NEWLY INSERTED SUB SECTION 4 WITH EFFECT FROM 01/10/2014 IS APPLICABLE FROM AY 2015 - 16 ONWARDS. IF THERE IS VIOLATIONS OF SECTION 11(5) AND 13(1)(C), FOR THESE REASONS REGISTRATION CANNOT BE CANCELLED AS THE NEWLY INSERTED SUB SECTION 4 WITH EFFECT FROM 01/10/2014 IS APPLICABLE FROM AY 2015 - 16 ONWARD S. IF THERE IS VIOLATIONS OF SECTION 11(5) AND 13(1)(C), AT THE MOST, THE SAME BE TAXED IN THE HANDS OF THE TRUST OR THE TRUSTEES AS THE CASE MAY BE AND MAY EVEN TRIGGER PENAL ACTION AGAINST THE TRUSTEES IN ACCORDANCE WITH LAW. MOREOVER, NO CONCLUSIVE FI NDINGS SUPPORTED BY COGENT EVIDENCE ARE ESTABLISHED BY THE REVENUE TO PROVE THAT THE TRUSTEES HAVE SIPHONED OFF THE INCOME OF THE TRUST. IT IS ALSO NOT ESTABLISHED BEFORE US BY THE REVENUE THAT THE TRUSTEES WHO HAVE RECEIVED FUNDS BY SIPHONING OFF THE UND ISCLOSED INCOME OF THE TRUST ARE BROUGHT TO TAX. ON THE OTHER HAND, THE ASSESSEE PROVES THAT ALLEGATIONS MADE BY THE CIT ARE BASELESS AND WITHOUT ANY COGENT MATERIALS. THE ACTIVITIES CONDUCTED BY THE ASSESSEE TRUST ARE ONLY PROMOTING EDUCATION WITHIN THE AMBIT OF SECTION 2(15) OF THE ACT AND IT WAS NOT ENGAGED IN ANY OTHER ACTIVITY OTHER THAN IMPARTING EDUCATION. THEREFORE, WE ARE OF THE VIEW THAT THE OTHER REASONS GIVEN BY THE CIT IN THE ORDER U/S. 12AA(3) OF THE ACT, DO NOT MAKE OUT A CASE, WHICH CAN S HOW THE ACTIVITIES OF THE ASSESSEE ARE GENUINE OR THAT THE ACTIVITIES OF THE ASSESSEE ARE NOT BEING CARRIED OUT IN ACCORDANCE WITH THE OBJECTS OF THE TRUST OR INSTITUTION. 21. UNQUESTIONABLY, THE ONUS FOR PROVING THE EXISTENCE OF FACTORS CAL LING FOR CANCELLATION OF REGISTRATION GRANTED TO AN INSTITUTION IS ON THE DEPARTMENT RATHER THAN ON THE INSTITUTION. IN THE PRESENT CASE, THE CIT HAS MISERABLY FAILED TO DISCHARGE SUCH ONUS. NO MATERIAL HAS BEEN BROUGHT BY THE CIT THAT THE ASSESSEE SOCIETY EXISTS FOR PROFIT MOTIVE. THE DEPARTMENT HAS NOT BEEN ABLE TO DISCHARGE ITS ONUS OF SHOWING AS TO HOW THE CONDITIONS FOR GRANT OF REGISTRATION HAVE BEEN BREACHED BY THE ASSESSEE. THE ASSESSEE REMAINED ENJOYING THE REGISTRATION GRANTED TO IT FOR THE LAST N UMBER OF YEARS UNDER THE SAME UNCHANGED FACTS AND CIRCUMSTANCES. IT HAS ALSO NOT BEEN DEMONSTRATED BY THE DEPARTMENT AS TO HOW THE APPROACH OF THE ASSESSEE HAS TURNED TO A COMMERCIAL ONE. THE PREDOMINANT OBJECT OF THE ASSESSEE IS AND REMAINS TO CARRY OUT I.T.A. NOS.255 - 261/COCH/2018 26 C HARITABLE PURPOSE OF ADVANCEMENT OF EDUCATION, AND NOT TO EARN PROFIT. IN FACT, NO PROFIT HAS BEEN ESTABLISHED TO HAVE BEEN EARNED BY THE ASSESSEE. THE CIT HAS FAILED TO SPECIFY AS TO HOW PROFIT EARNING IS THE PREDOMINANT ACTIVITY OF THE ASSESSEE INSTEAD O F CARRYING OUT ITS SAID CHARITABLE PURPOSE. ON THE OTHER HAND, THE ASSESSEE HAS FILED VARIOUS DETAILS OF INCOME FROM PROPERTY HELD UNDER TRUST AND APPLICATION OF INCOME FOR CHARITABLE PURPOSE AS PER WHICH ITS APPLICATION OF INCOME FOR ITS OBJECT IS MORE TH AN ITS INCOME GENERATED FROM PROPERTY HELD UNDER TRUST FOR ALL THESE YEARS. IN FACT, ITS APPLICATION OF INCOME IS MORE THAN 100% WHICH IS EVIDENT FROM THE FACT THAT THE ASSESSES HAS FILED CHART SHOWING INCOME AND EXPENDITURE AS PER WHICH ITS EXPENDITURE IS 118% TO 140% FOR THE A.Y. 2007 - 08 TO A.Y. 2011 - 12.(REFER PAGE NO . 157 OF PB). IN ANY OF THE YEAR, THE TRUST IS HAVING SURPLUS. INSOFAR AS THE OBSERVATIONS OF THE CIT WITH REGARD TO EXPENDITURE INCURRED FOR CHARITABLE PURPOSE, WE FIND THAT THE CIT'S OBSERV ATIONS ARE BASELESS AS THE ADMINISTRATIVE EXPENDITURE SHOWN BY THE ASSESSEE IN ITS FINANCIAL STATEMENTS PREDOMINANTLY CONSISTS OF AMOUNT SPENT FOR OBJECTS OF THE TRUST WHICH IS EVIDENT FROM THE FACT THAT THE ASSESSEE HAS FILED A STATEMENT OF EXPENDITURE SH OWING DETAILS OF ADMINISTRATIVE EXPENSES WHICH IS ENCLOSED IN PAPER BOOK PAGE NO. 159. THEREFORE, THE ALLEGATION OF THE CIT THAT THE TRUST IS RUNNING EDUCATION ON PROFIT MOTIVE IN BASELESS AND WITHOUT ANY APPLICATION OF MIND. THEREFORE, THE ASSESSEE TRUST CANNOT BE DEPRIVED OF THE BENEFIT OF PROMISSORY ESTOPPEL AGAINST THE DEPARTMENT TO ALLOW THE ASSESSEE TO KEEP ON ENJOYING THE REGISTRATION GRANTED TO IT LONG AGO. NO FINDING HAS BEEN RECORDED BY THE IT THAT ANY PART OF THE INCOME OF THE ASSESSEE SOCIETY HA S BEEN MISUTILISED. THUS, THE CANCELLATION OF THE REGISTRATION GRANTED TO THE ASSESSEE TRUST HAS BEEN ERRONEOUSLY ORDERED. 9.9. 2 IN VIEW OF THE ABOVE DISCUSSIONS, WE ARE INCLINED TO ALLOW THIS GROUND OF APPEALS OF THE ASSESSEE IN ITA NOS. 258 - 26 0 /COCH/2 018 FOR THE ASSESSMENT YEARS 2009 - 10 TO 2011 - 12 . ON THE OTHER HAND, T HE APPEAL OF THE ASSESSEE IN ITA NO.261/COCH/2018 FOR ASSESSMENT YEAR 2012 - 13 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 10. THE NEXT COMMON GROUND, GROUND NO. 4 IN ITA NOS. 258 - 261/ COCH/2018 READS AS FOLLOWS: I.T.A. NOS.255 - 261/COCH/2018 27 WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THAT THE CIT(A) SHOULD HAVE NOTED THAT SINCE THE ASSESSEE IS A CHARITABLE TRUST REGISTERED U/S. 12A, THE ONLY PRECONDITION IN GRANTING EXEMPTION U/S. 11 WAS MANDATORY APPLICATION O F 85% O THE INCOME RECEIVED, TOWARDS THE OBJECTS OF THE TRUST. THE CIT(A) SHOULD HAVE NOTED THAT FOR AN INSTITUTION WHICH IS CHARITABLE IN NATURE, ONCE IT HAS COMPLIED WITH THE CONDITION THAT IT SHOULD COMPULSORILY SPEND 85% OF THE INCOME RECEIVED DURING THE SAME YEAR, THEN THERE IS NO SCOPE FOR DENIAL OF EXEMPTION IN TOTAL. AS LONG AS THIS AMOUNT HAS BEEN APPLIED FOR THE PURPOSES OF THE OBJECTS OF THE TRUST, THE SAME CANNOT BE HELD TO BE TAXABLE. THE CIT(A) HAS ERRED IN IGNORING THE FACT THAT THE RECEIP TS MAY BE VOLUNTARY OR INVOLUNTARY BUT AS LONG AS IT IS APPLIED FOR THE PURPOSE OF CHARITY IN FURTHERANCE OF THE OBJECTS OF THE TRUST, EXEMPTION CANNOT BE DENIED TO THE INSTITUTION AND NO INCOME COULD BE ASSESSED AS TAXABLE INCOME. SECTION 11 AND 11(4A) M AKES IT ABUNDANTLY CLEAR THAT, THE PROPERTY HELD UNDER THE TRUST CAN EVEN BE A BUSINESS AS LONG AS IT IS IN FURTHERANCE OF THE OBJECTS OF THE TRUST AND THE SURPLUS IS USED FOR THE PURPOSE OF OBJECTS OF CHARITY AS PER THE OBJECTS OF THE TRUST, THEN THERE IS NO QUESTION OF TAXING ANY PART OF THE INCOME OF THE ASSESSEE. 1 0 .1 IN OUR OPINION, THIS GROUND DOES NOT REQUIRE ANY ADJUDICATION AS WE HAVE ALREADY HELD THAT THE ASSESSEE IS ENTITLED FOR EXEMPTION U/S. 11 OF THE I.T. ACT. HENCE, THIS GROUND OF APPE ALS OF THE ASSESSEE IS DISMISSED AS INFRUCTUOUS IN ITA NOS. 258 - 261/COCH/2018 FOR THE ASSESSMENT YEARS 2009 - 10 TO 2011 - 12. 1 1 . IN THE RESULT, THE APPEAL S FILED BY THE ASSESSE E ARE DISPOSED OF AS FOLLOWS: I) ITA NOS. 255 TO 2 57 /COCH/2018 - A LLOWED II) ITA NOS. 258 TO 260/COCH/2018 PARTLY ALLOWED III) ITA NOS. 261/COCH/2018 PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 27 TH MAY , 2019 SD/ - SD/ - (GEORGE GEORGE K.) (CHANDRA POOJARI) JUDICIAL MEMBER ACCOUNTANT MEMBER PLAC E: KOCHI DATED: 27 TH MAY , 2019 GJ I.T.A. NOS.255 - 261/COCH/2018 28 COPY TO: 1 . M/S. KUNHITHARUVAI MEMORIAL CHARITABLE TRUST, KMCT CORPORATE OFFICE, MALABAR CHRISTIAN COLLEGE CROSS ROAD, CALICUT - 673 011. 2. THE DEPUTY COMMISSIONER OF INCOME - TAX, CENTRAL CIRCLE - 2, KOZHIKODE. 3 . THE COM MISSIONER OF INCOME - TAX (AP P EALS) - III , KO CHI. 4. THE COMMISSIONER OF INCOME - TAX, (CENTRAL), KOCHI. 5 . D. R., I.T.A.T., COCHIN BENCH, COCHIN. 6 . GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T., COCHIN I.T.A. NOS.255 - 261/COCH/2018 29
