Appeal Details
Counselvise Citation
[2011] 134 COUNSELVISE.COM (IT) 4099 (ITAT-DELHI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
5 year(s) 4 month(s) 13 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-04-2011
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
E
Next Hearing Date
30-03-2011
Assessment Year
1999-2000
Appeal Filed On
16-12-2005
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI B.C. MEENA ITA NOS. 3420 & 4712/DEL/2005 ASSESSMENT YEARS: 1998-99 & 1999-00 ASSISTANT CIT, VS. M/S. MANAV SHIKSHA SAMITI, CIRCLE 13, C/O MANAV STHALI SCHOOL, NEW DELHI. BHERA ENCLAVE, PASHIM VR, NEW DELHI. (PAN: AAAAM1575B) (APPELLANT) (RESPONDENT) ITA NOS. 3277 & 4351/DEL/2005 ASSESSMENT YEARS: 1998-99 & 1999-00 M/S. MANAV SHIKSHA SAMITI, VS. ASSISTANT CIT, C/O MANAV STHALI SCHOOL, CIRCLE 13. BHERA ENCLAVE, PASHIM VR, NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PEEYUSH SONKAR, SR.DR RESPONDENT BY: SHRI PC PARWAL, CA ORDER PER RAJPAL YADAV: JUDICIAL MEMBER PER RAJPAL YADAV: JUDICIAL MEMBER PER RAJPAL YADAV: JUDICIAL MEMBER PER RAJPAL YADAV: JUDICIAL MEMBER THE ASSESSEE AND REVENUE ARE IN CROSS-APPEALS AGAI NST THE ORDERS OF LEARNED CIT(APPEALS) PASSED IN ASSESSMENT YEARS 199 8-99 AND 1999-00. THE ISSUES AGITATED IN ALL THESE APPEALS ARE INTER- LINKED WITH EACH OTHER AND 2 THE FACTS AND CIRCUMSTANCES ARE COMMON, THEREFORE, WE HEARD THESE APPEALS TOGETHER AND DEEM IT APPROPRIATE TO DISPOSE OF THEM BY THIS COMMON ORDER. ITA NO.3277/DEL/05: 2. IN THIS APPEAL OF ASSESSEE, IT HAS PLEADED IN TH E FIRST GROUND THAT LEARNED CIT(APPEALS) HAS ERRED IN LAW AND IN FACTS IN DENYING THE EXEMPTION UNDER SEC. 10(22) OF THE INCOME-TAX ACT, 1961. HE HAS FURTHER ERRED IN TREATING THE SURPLUS AS PER INCOME AND EXP ENDITURE ACCOUNT AS INCOME OF THE ASSESSEE. 3. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASS ESSEE BY THE ORDER OF THE ITAT PASSED IN IT(S.S) A. NO.31/DEL/05. HE POINTED OUT THAT THE ITAT HAS DECIDED THREE APPEALS I.E. IT(SS) A. NOS.31 AND 83/ DEL/05 I.E. THE CROSS- APPEALS OF ASSESSEE AND REVENUE FOR THE BLOCK PERIO D AND IT(SS)A. NO.2185/DEL/06, AN APPEAL OF THE ASSESSEE FOR ASSES SMENT YEAR 1997-98 VIDE ITS ORDER DATED 23.7.2010. HE POINTED OUT THAT IN T HE BLOCK APPEAL, ITAT HAS CONSIDERED ABOUT THE ADMISSIBILITY OF EXEMPTION UND ER SEC. 10(22) AND HAS ALSO CONSIDERED THE TREATMENT REQUIRED TO BE GIVEN TO THE SURPLUS AROSE TO THE ASSESSEE IN THE INCOME AND EXPENDITURE ACCOUNT. HE PLACED ON RECORD COPY 3 OF THE ITATS ORDER. HE FURTHER POINTED OUT THAT IN ASSESSMENT YEAR 1998-99 IS PART OF THE BLOCK PERIOD ALSO. ON THE OTHER HAND , LEARNED DR RELIED UPON THE ORDER OF THE LEARNED CIT(APPEALS). 4. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. WE FIND THAT THIS ISSUE HAS BEEN ELABORATELY CONSIDERED BY THE ITAT IN THE APPEAL OF ASSESSEE FOR THE BLOCK PE RIOD. THE ITAT HAS MADE A REFERENCE OF OTHER SOCIETIES WHO ARE MANAGED BY S HRI VK BHATNAGAR AND HIS FAMILY MEMBERS. THE EXEMPTION UNDER SEC. 10(22) WAS DENIED TO THOSE SOCIETIES ALSO. THE DISCUSSION AVAILABLE ON THIS IS SUE IN THE ORDER OF THE ITAT READS AS UNDER: 14. THUS, INCOME OF THE BLOCK ASSESSMENT HAS TO BE DETERMINED ON THE BASIS OF SEIZED MATERIAL. LEARNED AO HAS DENIED THE EXEMPTION TO THE ASSESSEE BY MAKING A REFERENCE TO A NUMBER OF C IRCUMSTANCES WHICH WE ARE NOTICING WHILE REPRODUCING THE FINDING OF THE ITAT IN THE CASE OF RAJINDER NAGAR SOCIETIES CASE AND NAV M ANAV SANSTHAN CASE IN SUBSEQUENT PARAS. THE MAIN EMPHASIS OF THE AO IS THAT SHRI VK BHATNAGAR IS THE MAIN PERSON AND HE HAS BEEN CON TROLLING THE AFFAIRS OF ALL THE SOCIETIES. HE WAS A SIMPLE TEACH ER PRIOR TO TAKING UP THE ACTIVITIES OF IMPARTING EDUCATION THROUGH THESE SOCIETIES. THE AO HAS AN APPREHENSION THAT SHRI VK BHAGTNAGAR HAS SIP HONED OF THE INCOME OF THE SOCIETIES FOR HIS PERSONAL GAIN. HE H AS FORCED THE PARENTS TO GIVE DONATION AND SUCH AMOUNTS WERE USED EITHER BY HIM OR BY HIS FAMILY MEMBERS. CONTRARY TO THESE FINDINGS, LEARNED 4 CIT(APPEALS) HAS OBSERVED THAT HE HAS GONE THROUGH THE CONSTITUTION OF THE BOARD OF GOVERNING COUNCIL AS WELL AS MEMBER S OF THE SOCIETIES IN THE PRESENT CASE. ON PERUSAL OF RULES, REGULATIO NS OF THE SOCIETIES AS WELL AS CONSTITUTION OF THE BOARD, LEARNED CIT(A) O PINED THAT SHRI VK BHATNAGAR IS NOT EVEN A MEMBER OF THE SOCIETY. IN T HE CONSTITUTION OF THE SOCIETY AS ALSO ITS MANAGING COMMITTEE, NOWHERE INDICATES THAT ANY MEMBERS OF THE COMMITTEE INCLUDING THE SON OF S HRI VK BHATNAGAR IS VESTED WITH ANY SPECIAL POWER GIVING T HEM RIGHT TO CONTROL AND DIRECT THE RUNNING OF THE SOCIETY. THE CONSTITUTION OF THE MEMBERSHIP OF THE SOCIETY IS VERY BROAD BASE, NORMA LLY CONSISTING OF 8 TO 10 DIFFERENT PEOPLE NOT EVEN ALLEGED TO BE ALL CONNECTED WITH SHRI VK BHATNAGAR. ACCORDING TO THE LEARNED CIT(A), AO H AS ONLY RAISED SUSPICION AND HIS REASONING ARE NOT SUPPORTED BY AN Y SPECIFIC MATERIAL. HE HAS DISCUSSED THE OVERALL IMPRESSION A LLEGED TO HAVE BEEN GATHERED BY THE SEARCH PARTY. THE IMPORTANT QUESTIO N POSED BEFORE US IS WHETHER EXEMPTION UNDER SEC. 10(22) CAN BE DENIE D TO THE ASSESSEE ON THE SURPLUS WORKED OUT BY THE A.O. AS DISCUSSED ABOVE, THE INCOME OF THE BLOCK ASSESSMENT, HAS TO BE DETERMINE D ON THE BASIS OF THE SEIZED MATERIAL. THE ASSESSEE HAS ALREADY FILED THE RETURNS FOR THE ASSESSMENT YEARS 1992-93 UP TO 1998-99. THE EXEMPT ION UNDER SECTION 10(22) HAS BEEN GRANTED TO THE ASSESSEE BY THE AO HIMSELF IN ALL THESE ASSESSMENT YEARS EXCEPT IN ASSESSMENT YEA R 1997-98. THE ASSESSMENTS WERE ALSO FRAMED UNDER SEC.143(3) READ WITH SECTION 147 MEANING THEREBY THAT SOME MATERIAL SHOULD HAVE BEEN FOUND DURING THE COURSE OF SEARCH INDICATING THE FACT THAT CLAIM MADE BY THE ASSESSEE FOR RUNNING EDUCATIONAL INSTITUTION WAS A BOGUS CLAIM. ONLY THEREAFTER, ITS SURPLUS CAN BE TREATED AS UNDISCLOS ED INCOME FOR THE 5 PURPOSE OF THE BLOCK ASSESSMENT. THERE IS NO SUCH M ATERIAL FOUND DURING THE COURSE OF SEARCH. LD. CIT(APPEALS) HAS O BSERVED THAT ONCE THESE FACTS WERE BROUGHT TO THE NOTICE OF THE DEPAR TMENT BY THE ASSESSEE IN ITS REGULAR RETURNS OF INCOME AND AO HA S GRANTED EXEMPTION TO THE ASSESSEE THEN SUCH EXEMPTION CANNO T BE WITHDRAWN UNLESS INCRIMINATING MATERIAL DEMONSTRATING SUCH CL AIM OF EXEMPTION AS FALSE WAS FOUND BY THE SEARCH PARTY. THE OTHER I MPORTANT FACTOR IS THAT LEARNED CIT(A) DID NOT GRANT EXEMPTION IN RESP ECT OF THE YEAR IN WHICH RETURN WAS NOT FILED BY THE ASSESSEE. HOWEVER , AFTER TAKING INTO CONSIDERATION THE LOSS FOR ASSESSMENT YEAR 1999-00 HE WAS OF THE OPINION THAT POSITIVE FIGURE OF SURPLUS OF ASSESSME NT YEARS 1990-91 AND 1991-92 IS OF RS.6,58,184. IF THIS AMOUNT IS AD JUSTED AGAINST THE LOSS IN THE EXPENDITURE ACCOUNT FOR ASSESSMENT YEAR 1999-00, WORKED OUT AT RS,8,53,437 THEN THERE IS A NET LOSS OF RS.1 ,95,253. IN THIS EXERCISE, NOTHING REMAINED IN THE ALLEGED SURPLUS O UT OF INCOME AND EXPENDITURE ACCOUNT WHICH IS TO BE TREATED AS UNDIS CLOSED INCOME OF THE BLOCK ASSESSMENT. 15. APART FROM THE ABOVE DISCUSSION, WE FIND THAT I N THE CASES OF OTHER SOCIETIES, ASSESSEE HAS NOT FILED THE RETURNS . THOSE ISSUES CAME UP BEFORE THE ITAT, THE ITAT HAS HELD THAT THE SURP LUS COMPUTED FROM INCOME AND EXPENDITURE ACCOUNT ON THE BASIS OF ESTIMATION OR ON THE BASIS OF BOOKS OF ACCOUNT PREPARED FROM THE SEI ZED MATERIAL, SUCH SURPLUS IS TO BE TREATED AS UNDISCLOSED INCOME OF T HE ASSESSEE FOR THE BLOCK PERIOD. THE ITAT, HOWEVER, HAS HELD THAT ASSE SSES ARE IMPARTING EDUCATION AND RUNNING EDUCATIONAL INSTITUTION, THER EFORE, EVEN THOUGH THEY HAVE NOT FILED HE REGULAR RETURN, THEY ARE ENT ITLED TO EXEMPTION 6 UNDER SECTION 10(22) OF THE ACT. THE FINDINGS OF TH E ITAT IN THE CASE OF SANT VASWANI EDUCATIONAL SOCIETY AND OTHER CASES READ AS UNDER: 9. FIRST WE TAKE THE APPEAL OF ASSESSEE, HOWEVER, ANY GROUND RAISED BY REVENUE IN ITS APPEAL, IF FOUND TO BE INT ER-CONNECTED TO THAT OF ASSESSEE THEN SUCH GROUND WILL BE TAKEN UP TOGETHER. THE GROUND NO.1 RAISED BY THE ASSESSEE IN ITS APPEAL RE ADS AS UNDER: THE LEARNED CIT(APPEALS) HAS ERRED IN FACTS AND IN LAW IN DENYING EXEMPTION U/S.10(22) AND THEREBY CONSIDERIN G THE SURPLUS AS PER INCOME AND EXPENDITURE AMOUNTING TO RS.1,17,08,798 FOR DIFFERENT YEARS FALLING IN THE B LOCK PERIOD AS UNDISCLOSED INCOME. (A.Y 1993-94 RS.1,98,305, 94-95 RS.5,94,432, 95-96 RS.11,77,875, 96-97 RS.20,44,160 , 97-98 RS.32,37,202, 98-99 RS.27,58,013, 99-00 RS.16,98,81 1). 10. AT THE TIME OF HEARING BOTH THE PARTIES HAVE CO NCEDED THAT VERBATIM SAME ISSUE AS WAS AGITATED BEFORE THE ITAT IN THE CASE OF M/S. NAV MANAV SANSTHAN WHICH IS ONE OF THE SOCIETY MEND BY SHRI V.K. BHATNAGAR EXCEPT VARIATIO N IN THE QUANTUM, THERE IS NO VARIATION IN OTHER FACTS AND CIRCUMSTANCES. THE DEFECTS POINTED OUT BY THE ASSES SING OFFICER WHILE DENYING THE EXEMPTION UNDER SEC. 10(22) ON PAGE NOS. 25 TO 30 IN THE IMPUGNED ORDER ARE ALMOST SIMI LAR IN THE CASE OF M/S. NAV MANAV SANSTHAN. APART FROM THIS ONE SOCIET Y, THE SIMILAR DISPUTE TRAVELED UP TO THE ITAT IN THE CASE OF M/S. V. BHATNAGAR 7 SANSTHAN IN THE CASE OF RAJINDER NAGAR SOCIETY. THE ITAT HAS DISCUSSED THIS ISSUE IN THE CASE OF NAV MANAV SANST HAN AS UNDER: 9. GROUND NO.1 RAISED IN THE ASSESSEES APPEAL REL ATES TO THE ISSUE OF ITS CLAIM FOR EXEMPTION U/S 10(22) WHICH STANDS DISALLOWED BY THE AO AS WELL AS BY THE LEARNED CIT(A). 10. DURING THE COURSE OF BLOCK ASSESSMENT PROCEEDIN GS, ITS ENTIRE INCOME FOR THE PREVIOUS YEARS FORMING PART OF THE B LOCK PERIOD WAS CLAIMED TO BE EXEMPT BY THE ASSESSEE U/S 10(22) ON THE GROUND THAT IT EXISTED DURING THE SAID YEARS SOLELY FOR EDUCATIONA L PURPOSES AND NOT FOR THE PURPOSES OF PROFIT. ACCORDING TO THE AO, T HE CONCEPT OF PROFIT MAKING HAS BEEN JUDICIALLY REVIEWED IN VARIOUS JUDI CIAL PRONOUNCEMENTS AND THE POSITION WHICH EMERGES OUT O F THE SAME WAS THAT IF ANY PERSON OR INDIVIDUAL IS GETTING PERSONA L BENEFIT FROM THE EDUCATIONAL INSTITUTION, THEN THERE IS A PROFIT MOT IVE IN RUNNING THE SAID EDUCATIONAL INSTITUTION. IN THE LIGHT OF THIS LEGA L POSITION, HE EXAMINED THE FACTS OF THE CASE OF THE ASSESSEE AND RECORDED THE FOLLOWING OBSERVATIONS :- 1. AS MENTIONED EARLIER, PHOTOCOPY OF ALL THE SEIZ ED MATERIAL RELATING TO ALL THE TEN SCHOOLS AND DOCUMENTS FOUND FROM THE RESIDENCES, HAVE ALREADY BEEN GIVEN TO THE ASSESSEE BY THE DDIT, INV. ITSELF. PHOTOCOPY OF ALL THE INVESTIGATION MATERIA L, BANK ENQUIRY, COPY OF STATEMENT FROM PAGE NO.481 TO 561 ATTACHED WITH THE APPRAISAL REPORT HAVE ALREADY BEEN GIVEN TO THE ASSESSEE MUCH EARLIER. SIMILARLY, LIST OF PARTIES WHO HAVE BEEN EXAMINED B Y THE DDIT, INV., MENTIONED AT PAGE NO.19 AND 20 OF THE APPRAISAL REP ORT, HAVE ALSO BEEN 8 GIVEN TO THE ASSESSEE. ALL THE SEIZED DOCUMENTS HA VE BEEN DISCUSSED PAGE-WISE WITH THE ASSESSEE RELATING TO ALL THE SCH OOLS AND FOUND FROM THE RESIDENCES AND THE COMMENTS OF THE DDIT, INV., RUNNING INTO TWO VOLUMES HAVE ALSO BEEN DISCUSSED WITH THE ASSESSEE AND ALL THE POINTS MENTIONED IN THE APPRAISAL REPORT HAVE ALSO BEEN NO TED BY THE ASSESSEE. FROM THE SEIZED DOCUMENTS, THERE ARE INN UMERABLE INSTANCES WHICH REFLECTED DIVERSION OF FUNDS FOR PERSONAL BEN EFITS AND UNDERSTATEMENT OF INCOME BY WAY OF VARIOUS MODES AN D DRAWING OF INCOME FOR PERSONAL BENEFITS. 2. DONATIONS ARE TAKEN FROM THE PARENTS FOR THE ADM ISSION OF THEIR CHILDREN IN THE SCHOOL IN CASH/CHEQUE/KIND. NO REC EIPTS WERE GIVEN FOR THESE DONATIONS AND THESE ARE NOT ENTERED IN THE BO OKS OF ACCOUNTS. 3. THIS CASH WAS SENT TO THE BENEFICIARY, SHRI V.K. BHATNAGAR, FOUNDER/CHAIRMAN/ACTUAL CONTROLLER OF ALL THESE SOC IETIES. THUS, THIS CASH IS UTILIZED FOR THE INDIVIDUAL BENEFIT OF SHRI V.K.BHATNAGAR, HIS FAMILY MEMBERS AND HIS COMPANIES. 4. THIS UNACCOUNTED CASH WAS THEN INVESTED IN ACQUI RING PROPERTIES IN AND OUTSIDE DELHI AND IN MAKING INVES TMENTS IN CONSTRUCTION OF RESIDENTIAL BLOCK, COMMERCIAL PLAZA , ADMINISTRATIVE BLOCK, SPORTS COMPLEX AT GURGAON IN THE NAME OF VIR ENDRA GRAM. 5. DONATIONS IN KIND, I.E. STEEL WAS ALSO TAKEN FOR ADMITTING CHILDREN. THIS STEEL WAS USED FOR CONSTRUCTION OF RESIDENCE OF MR.BHATNAGAR AND VARIOUS COMMERCIAL PROJECTS, NAMEL Y, SHOPPING 9 PLAZA, MEDICINE CENTRE, BANQUET HALLS, LUXURY GROUP HOUSING SOCIETY, ETC. IN VIRENDER GRAM AT GURGAON. 6. CASH IS RECEIVED FROM THE SCHOOL CHILDREN IN VAR IOUS WAYS ON ACCOUNT OF LOCAL AND OUTSIDE DELHI TOURS AND TRIPS BUT THIS IS NOT ENTERED IN THE BOOKS RATHER EXPENDITURE UNDER THE H EAD STUDENT WELFARE IS PAID TO THE COMPANY BIIR LTD. 7. THE PRECIOUS LAND ABOUT 32.65 ACRES AT GURGAON O N THE MAIN HIGHWAY BELONGING TO DIFFERENT SOCIETIES AND SCHOOL WAS TRANSFERRED IN THE NAME OF SHRI V.K.BHATNAGAR AND HIS FAMILY MEMBE RS THROUGH LEASE AND ORAL AGREEMENTS (MS-1, ANNEXURE A-28). L ATER ON, THE LAND BELONGING TO SOCIETIES HAVE BEEN TRANSFERRED IN THE NAME OF SHRI V.K.BHATNAGAR AND FAMILY MEMBERS THROUGH DECLARATOR Y SUITS NAMELY, COMPROMISE SUITS. IN SUCH SUITS, SHRI V.K.BHATNAGA R AND FAMILY MEMBERS ARE FILING THE SUITS AND THEY ARE ALSO CONT ESTING THE SUITS AND BY WAY OF COMPROMISE, SINCE THEY ARE THE CONTROLLER S OF SOCIETIES, THE LANDS HAVE BEEN TRANSFERRED IN THEIR NAMES RESULTIN G INTO SUBSTANTIAL GAIN TO THE AFORESAID PERSONS. IN EXCHANGE, THE IN TERIOR QUALITY OF LANDS SITUATED AT INTERIOR VILLAGES AT RAISINA WAS GIVEN TO THE SOCIETIES. 8. INVESTMENT IN SHARES OF BARON AIR BY THE SCHOOLS /SOCIETIES CAN NOT BE TERMED AS AN EDUCATIONAL ACTIVITY (MS-1, ANN EXURE A-84). 9. VEHICLES OF THE SCHOOLS/SOCIETIES ARE USED BY SH RI V.K.BHATNAGAR AND FAMILY MEMBERS. 10 10. SALARY IS BEING PAID TO ANURAG BHATNAGAR WHILE HE WAS A STUDENT AND VIKRAM BHATNAGAR FROM VARIOUS SCHOOLS A ND SOCIETIES. SUBSTANTIAL SALARY OF RS.6.71 LACS IS BEING PAID TO SMT.MAMTA BHATNAGAR AS A PRINCIPAL WHEREAS OTHER PRINCIPALS A RE GETTING NOMINAL SALARIES OF RS.15,000/- P.M. 11. CASH ARE TAKEN FROM VARIOUS SCHOOLS AND SOCIETI ES FROM VARIOUS HEADS AND FROM CAUTION MONEY AND OTHER FUNDS AND TH ESE ARE DIVERTED FOR MAKING INVESTMENT AT RESIDENTIAL BLOCK AND COMM ERCIAL PROJECTS, NAMELY, HEALTH CARE, HEALTH RESORTS AND ALTERNATIVE MEDICINE AND TO RUN THE POULTRY FARM AT VIRENDRA GRAM AT GURGAON (M S-10, ANNEXURE A-5). 12. SOME OF THE PARTIES WHO ARE GENUINELY EXISTING DENIED IN THEIR STATEMENTS THAT THEY HAVE NOT RENDERED ANY SERVICES OR SUPPLIED THE GOODS. THEY WERE SURPRISED TO SEE THEIR BILLS. TH US, FINANCIAL FRAUDS HAVE BEEN DONE TO MIS-UTILIZE THE SOCIETY FOR THE P ERSONAL GAIN OF THE FOUNDER, CHAIRMAN AND HIS FAMILY MEMBERS. 13. SOME OF THE EXPENSES CLAIMED IN INCOME & EXPEND ITURE A/C OF THE SOCIETY FOR MATERIAL NEVER PURCHASED. THEY ARE PAPER BILL WITHOUT PHYSICAL DELIVERY OF GOODS. CASH HAS BEEN RECEIVED FROM THE PARTIES FROM WHERE BILLS WERE PROCURED AFTER DEDUCTING THEI R CHARGES. THESE PARTIES ARE BASICALLY GOODWILL STEEL SYNDICATE, SHU BHAM CEMENT, PUNEET TRADERS, ETC. THIS HAS BEEN CLEARLY ADMITTE D BY GOODWILL STEEL SYNDICATE. THIS CLEARLY SUBSTANTIATES THE EXTENT T HE SOCIETIES WERE USED FOR PERSONAL BENEFIT OF THE FOUNDER CHAIRMAN. 11 14. HUGE INVESTMENTS HAVE BEEN MADE FOR THE RESIDEN CE OF SHRI V.K.BHATNAGAR AND HIS FAMILY MEMBERS AT VIRENDRA GR AM BY DIVERTING THE FUNDS FROM SCHOOLS/SOCIETIES EITHER T HROUGH BHATNAGAR FOUNDATION OR DIRECTLY FROM SCHOOLS/SOCIETIES. 15. FUNDS OF THE SCHOOLS/SOCIETIES HAVE BEEN DIVERT ED TO HEALTH CARE, HEALTH RESORTS & ALTERNATIVE MEDICINE TO RUN THE POULTRY FARM AT VIRENDRA GRAM (MS-10, ANNEXURE A-5). 16. HUGE LOANS AND ADVANCES FROM VARIOUS SOCIETIES/ SCHOOLS WERE GIVEN TO BHR LTD., BCC(P) LTD. FROM CAUTION MONEY A CCOUNT AT THE TIME OF PURCHASE OF THESE UNITS. 17. CAUTION MONEY AMOUNTING TO SEVERAL LACS WAS WIT HDRAWN IN CASH THROUGH BEARER CHEQUES FOR THE PARENTS WHO DID NT TURN UP TO COLLECT THE AMOUNT. THE CASH WAS TAKEN BY THE STAF F AND SENT TO THE CENTRAL OFFICE, I.E. SHRI V.K.BHATNAGAR. LIST OF P ERSONS WITH ADDRESSES TO WHOM PAYMENTS HAVE BEEN MADE, HAS NOT BEEN FILED FOR VERIFICATION. 18. PAYMENTS WERE MADE FROM THE SCHOOLS/SOCIETIES T O THE CONSULTANT OF THE HOTEL AND RECEIPT WERE TAKEN FOR TEACHING CHARGES IN THE NAME OF HIS MOTHER AND WIFE. THIS WAS STATED B Y MR.ANIL SEHGAL IN HIS STATEMENT AND COPY OF THE SAME HAS ALREADY B EEN GIVEN TO THE ASSESSEE. 12 19. FROM THE CONSTITUTION OF THE SOCIETIES, IT IS A GAIN FOUND THAT THE SOCIETIES ARE BEING RUN BY THE SALARIES EMPLOYEES O F SHRI V.K.BHATNAGAR AND ENTIRE CONTROL OF ALL THE SCHOOLS AND SOCIETIES RESTS ONLY WITH HIM. NO SOCIETY IS INDEPENDENT FOR ITS W ORKING AND FOR EVERY WORK APPROVAL IS BEING TAKEN FROM SHRI V.K.BH ATNAGAR. ALL THESE FACTS ARE CLEAR FROM THE ANALYSIS OF SEIZE DO CUMENTS. NO MINUTE BOOK/RESOLUTION BOOK OF THE SOCIETIES ARE MAINTAINE D. AS MENTIONED EARLIER, NO PROPER BOOKS OF ACCOUNTS WERE MAINTAINE D AND ONLY AFTER A GAP OF ABOUT 2 YEARS FROM THE DATE OF SEARCH, COMPU TERIZED BOOKS WERE PREPARED AND PRODUCED. THE FACT THAT THE LAND S OWNED BY THE SOCIETIES WORTH RUPEES MORE THAN 100 CRORES (MS-1, ANNEXURE A-80) AT GURGAON HAVE BEEN TRANSFERRED TO SHRI V.K.BHATNA GAR AND HIS FAMILY MEMBERS IN EXCHANGE FOR THE LANDS WHICH HAVE NOMINAL VALUE. THIS ONLY CERTIFIES THAT THE SOCIETIES ARE ONLY A T OOL TO CLAIM EXEMPTIONS AND TO EVADE PROPER TAXATION. AS MENTIO NED EARLIER, ACQUISITION OF CRORES OF ASSETS WITHOUT ANY OTHER I NDEPENDENT SOURCE OF INCOME IS ONLY A CERTIFICATE TO THE FACT THAT THE S CHOOLS WERE THE SOURCE OF INCOME AND WERE RUN ONLY FOR PROFIT AND EARNING INCOME. 20. SHRI V.K.BHATNAGAR OWES LOANS OF RS.1.01 CRORES TO THE SCHOOLS BUT NO INTEREST WAS CHARGED. THIS SUBSTANTIAL AMOU NT WAS UTILIZED FOR MAKING VARIOUS INVESTMENTS AND IN PURCHASE OF PROPE RTIES. FROM THE ACCOUNTS OF VARIOUS SCHOOLS AND SOCIETIES, IT IS FO UND THAT ENTIRE ASSETS HAVE BEEN ACQUIRED BY SHRI BHATNAGAR AND FAMILY MEM BERS BY WITHDRAWING FUNDS FROM SCHOOLS AND SOCIETIES AS THE RE WAS NO OTHER INDEPENDENT SOURCE OF INCOME. HE HAS HIMSELF SURRE NDERED AN INCOME OF RS.1.01 CRORES UNDER THE VDIS97 WHICH REPRESENT ED UNACCOUNTED 13 CASH EARNED FROM THE SCHOOLS AND SERVICE CHARGES CL AIMED AS BOGUS EXPENSES IN THE SCHOOLS, INVESTMENT AT KULLU & MANA LI AND OTHER IMMOVABLE PROPERTIES. DURING THE SEARCH, SHRI V.K. BHATNAGAR HAS AGAIN SURRENDERED UNDISCLOSED INCOME OF RS.50 LACS WHICH WAS EARNED FROM THE SCHOOLS AND THE SOCIETIES HAVE ALSO DECLARED UNDISCLOSED INCOME. FROM THE CHART OF ASSETS OWNED BY SHRI V.K.BHATNAGAR AND HIS FAMILY MEMBERS AND ASSETS DEC LARED AND DONATIONS COLLECTED AT THE TIME OF ADMISSION, IT IS CRYSTAL CLEAR THAT THE SCHOOLS ARE RUN ONLY FOR PROFIT AND NOT FOR EDUCATI ONAL ACTIVITIES ONLY AND THE SCHOOLS ARE BEING SHOWN AS BEING RUN BY THE SOCIETIES ONLY TO CLAIM VARIOUS EXEMPTIONS. 11. KEEPING IN VIEW THE ABOVE ALLEGATION MADE BY HI M AS WELL AS THE FACT THAT THE ASSESSEE-SOCIETY HAD CLAIMED DEPR ECIATION IN ITS INCOME AND EXPENDITURE INCOME, THE AO HELD THAT THE EDUCATIONAL INSTITUTION WAS BEING RUN BY THE ASSESSEE-SOCIETY C LEARLY WITH A PROFIT MOTIVE AND IT WAS, THEREFORE, NOT ENTITLED FOR EXEM PTION U/S 10(22). 12. BEFORE THE LEARNED CIT(A), IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE-SOCIETY THAT IT WAS RUNNING AN EDUCATIONAL INSTITUTE VIZ. ST.VIVEKANAND SCHOOL AND AS ITS RECEIPTS WERE ENTIR ELY DERIVED FROM THE SAID SCHOOL WHICH WAS BEING RUN SOLELY FOR EDUC ATION PURPOSES AND NOT FOR THE PURPOSES OF PROFIT, THE ENTIRE INCOME E ARNED FROM THE SAID SCHOOL WAS EXEMPT U/S 10(22). IT WAS CONTENDED THA T EVEN IF SOME INDIVIDUAL WAS FOUND TO HAVE SIPHONED OFF CERTAIN F UNDS FROM THE SCHOOL, THE SOCIETY COULD NOT BE DENIED BENEFIT OF EXEMPTION U/S 10(22). IN SUPPORT OF THIS CONTENTION, RELIANCE WA S PLACED BY THE 14 ASSESSEE ON THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF CIT VS. COSMOPOLITAN EDUCATIONAL SOCIETY 240 I TR 494. IT WAS ALSO POINTED OUT THAT THE SLP FILED BY THE REVENUE AGAINST THE SAID DECISION OF HON'BLE RAJASTHAN HIGH COURT HAS BEEN D ISMISSED BY THE HON'BLE SUPREME COURT. THIS SUBMISSION OF THE ASSE SSEE WAS NOT FOUND ACCEPTABLE BY THE LEARNED CIT(A). ACCORDING TO HIM, THE ASSESSEE WAS OBLIGED TO FILE ITS RETURN OF INCOME F OR CLAIMING EXEMPTION U/S 10(22) AS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF ADITANAR EDUCATIONAL INSTITUTION VS. ADDL.C IT 224 ITR 310 AND IN THE ABSENCE OF ANY RETURN OF INCOME FILED BY IT REGULARLY FOR ANY OF THE YEARS COMPRISING OF THE BLOCK PERIOD, HE HEL D THAT THE ASSESSEE WAS NOT ENTITLED FOR EXEMPTION U/S 10(22). HE HELD THAT THE ENTIRE INCOME OF THE ASSESSEE FOR THE SAID YEARS, ON THE O THER HAND, WAS LIABLE TO BE TREATED AS UNDISCLOSED INCOME IN THE ABSENCE OF ANY REGULAR RETURN OF INCOME FILED BY IT AS RIGHTLY DONE BY THE AO. HE ALSO HELD THAT THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 10 (22) IN ANY CASE COULD HAVE BEEN CONSIDERED ONLY IN THE REGULAR ASSE SSMENTS AND IT WAS BEYOND THE SCOPE OF BLOCK ASSESSMENT UNDER CHAPTER XIV-B WHICH REQUIRES THE AO ONLY TO COMPUTE THE UNDISCLOSED INC OME AS PER THE PROVISIONS CONTAINED IN THE SAID CHAPTER. HE, THER EFORE, UPHELD THE ACTION OF THE AO IN DISALLOWING THE CLAIM OF THE AS SESSEE FOR EXEMPTION U/S 10(22). 13. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THERE IS NO DISPUTE AS TO THE FACT THAT THE ASSESSE E-SOCIETY IS RUNNING AN EDUCATIONAL INSTITUTION. HE SUBMITTED THAT THE SAI D EDUCATIONAL INSTITUTION WAS EXISTING SOLELY FOR EDUCATIONAL PUR POSE AND NOT FOR THE 15 PURPOSE OF PROFIT DURING THE ENTIRE BLOCK PERIOD AN D THEREFORE, THE INCOME OF THE ASSESSEE-SOCIETY FROM THE EDUCATIONAL INSTITUTION WAS FULLY EXEMPT U/S 10(22). HE ALSO SUBMITTED THAT AS THE INCOME OF THE ASSESSEE-SOCIETY FROM EDUCATIONAL INSTITUTION WAS E NTIRELY EXEMPT U/S 10(22), IT WAS NOT REQUIRED TO FILE THE RETURNS OF INCOME FOR THE RELEVANT YEARS FALLING WITHIN THE BLOCK PERIOD AND THIS POSITION GETS FORTIFIED WITH THE AMENDMENTS MADE IN SECTION 10(22 )/10(23C) WHEREBY THE FILING OF RETURN FOR CLAIMING SUCH EXEM PTION HAS BEEN MADE OBLIGATORY W.E.F. 1.4.2003. HE ALSO SUBMITTED THAT THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 10(22) WAS LIABLE TO BE CONSIDERED BY THE AUTHORITIES BELOW IN RESPECT OF EACH ASSESSMENT YEAR SEPARATELY. HE CONTENDED THAT THE ORDERS PASSED BY THEM IN THE CASE OF THE ASSESSEE, HOWEVER, SHOW THAT THERE IS NO DISCUSSION AS TO FOR WHICH PARTICULAR ASSESSMENT YEAR THE SOCIETY ALLEGEDLY EX ISTED FOR PROFIT. HE SUBMITTED THAT EVEN THE ALLEGATIONS/OBSERVATIONS MA DE BY THE AO WHILE DENYING THE CLAIM OF THE ASSESSEE FOR EXEMPTI ON U/S 10(22) ARE GENERAL IN NATURE AND THEY DO NOT RELATE TO ANY SPE CIFIC YEAR TO ARRIVE AT A CONCLUSION THAT THE ASSESSEE-SOCIETY WAS EXISTING FOR PROFIT IN THAT PARTICULAR YEAR. IN ORDER TO MEET THE SAID ALLEGAT IONS/OBSERVATIONS MADE BY THE AO, HE MADE THE FOLLOWING SUBMISSIONS I N RESPECT OF EACH AND EVERY ALLEGATION/OBSERVATION MADE BY THE A O IN THIS CONTEXT:- 1. THE DCIT HAS SIMPLY RELIED UPON THE REPORT OF D DIT(INV.) WITHOUT MAKING ANY INDEPENDENT ENQUIRY. THIS ACT I S DISREGARDING THE DECISION OF ITAT MADRAS BENCH IN CASE OF KIRTILAL K ALIDAS & CO. VS. DCIT 67 ITD 573. 16 2. THE DONATIONS ARE RECEIVED FOR EDUCATION PURPOSE . THIS IS NOT A BASE TO CONSIDER THAT THE ASSESSEE SOCIETY IS RUNNI NG THE SCHOOLS FOR PROFIT. USE OF THE FUNDS AT VIRENDRA GRAM IS FOR D EVELOPMENT OF THE COMMON FACILITIES USED BY THE VARIOUS SCHOOLS FOR T HE EDUCATIONAL PURPOSE. THE FUNDS WERE NEVER USED FOR CONSTRUCTIO N OF THE RESIDENTIAL HOUSE. 3. THE ALLEGATION IS WITHOUT ANY BASIS. AO HAS NOT POINTED OUT ANY RECEIPT, WHICH IS NO ACCOUNTED FOR RATHER HE HAS RE LIED ON THE RECEIPT SHOWN IN THE BOOKS OF ACCOUNTS FOR TAKING THE SURPL US. 4. THE LAND HAS BEEN EXCHANGE IN EXECUTION OF THE D ECREE OF THE COURT. THE LAND SO EXCHANGED IS USED BY THE SOCIET Y FOR EDUCATIONAL ACTIVITIES WITHOUT ANY CHARGE. 5. NO SHARE OF BARON AIR LTD. IS PURCHASED BY THE A SSESSEE SOCIETY/SCHOOL. 6. THIS OBSERVATION IS WITHOUT ANY BASIS. EVEN OTH ERWISE, THE VEHICLES ARE USED BY THEM ONLY FOR EDUCATIONAL PURP OSE. THIS HAS NO RELEVANCE WITH THE EXEMPTION U/S 10(22). 7. THE PAYMENT OF SALARY HAS BEEN MADE ACCORDING TO THE SCALES RECOMMENDED BY THE PAY COMMISSION AND NO DISALLOWAN CE OF SUCH SALARY WAS MADE IN THE ASSESSMENT AND ALL THESE PER SONS ARE ACTIVELY ENGAGED IN THE ADMINISTRATION OF SCHOOL/SOCIETY. 17 8. THESE ARE SHEER ALLEGATIONS WITHOUT ANY BASIS. EVEN THE AO HAS NOT MADE ANY ADDITION TO INCOME FOR SUCH ALLEGED DI VERSION OF FUNDS. 9. THE AO HAS NOT CONFRONTED TO THE ASSESSEE SOCIET Y ANY PERSON WHO HAS DENIED THE PAYMENT MADE TO THEM. PAYMENTS ARE MOSTLY BY CHEQUES. BILLS & VOUCHERS OF PAYMENT IS AVAILABLE. NO INSTANCE IS GIVEN WHERE MATERIAL IS SHOWN PURCHASED WITHOUT DEL IVERY OF GOODS. 10. FROM THE BALANCE SHEET IT CAN BE NOTED THAT NO SUCH ADVANCE ARE GIVEN. 11. COMPLETE DETAILS OF STUDENT WISE CAUTION MONEY RECEIPT AND PAYMENT WERE FILED IN ASSESSMENT PROCEEDING. NOT A SINGLE INSTANCE OF CAUTION MONEY WITHDRAWN THROUGH BEARER CHEQUE WA S FILED. 12. THE ALLEGATION IS WITHOUT ANY BASIS. THE ASSES SEE HAS FILED THE DETAILS OF THE PERSONS MANAGING THE SOCIETY. THERE IS NO PROHIBITION THAT PERSON MANAGING THE SOCIETY AND SCHOOL CANT D RAW SALARY SO LONG AS IT IS REASONABLE. THE AO HAS NOT DISPUTED REASO NABLENESS OF SALARY. 13. THESE ARE ONLY MEMORANDUM RECORDS. THIS DOES N OT AFFECT THE CLAIM OF EXEMPTION U/S 10(22). 14. IN COURSE OF SEARCH ALSO THE BOOKS OF THE ACCOU NTS OF THE SOCIETY WERE FOUND. 18 15. THE OBSERVATIONS OF THE AO ARE WITHOUT ANY BASI S. NO SUCH INSTANCES WERE CONFRONTED TO THE ASSESSEE. 16. NO LOAN HAS BEEN GIVEN BY THE SOCIETY TO SHRI V .K.BHATNAGAR AND HIS FAMILY MEMBERS. ACTUAL POSITION IS THAT SH RI V.K.BHATNAGAR HAS GIVEN LOAN TO V B SANSTHAN AND OUTSTANDING AS O N 31.03.1998 IS AS RS.52.84 LACS. 14. RELYING ON THE DECISION OF HON'BLE SUPREME COUR T IN THE CASE OF ADITANAR EDUCATIONAL INSTITUTION (SUPRA), THE LE ARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE CLAIM OF THE ASSESSEE F OR EXEMPTION U/S 10(22) IS REQUIRED TO BE EVALUATED EVERY YEAR SEPAR ATELY AND MERELY BECAUSE SURPLUS HAS RESULTED INCIDENTALLY FROM THE ACTIVITY LAWFULLY CARRIED OUT BY THE EDUCATIONAL INSTITUTION, IT WOUL D NOT CEASE TO BE ONE EXISTING SOLELY FOR THE EDUCATIONAL PURPOSES AS THE OBJECT IS NOT ONE TO MAKE PROFIT. THE DECISIVE OR ACID TEST IS WHETHER ON AN OVERALL VIEW OF THE MATTER THE OBJECT IS TO MAKE PROFIT. HE ALSO P LACED RELIANCE ON THE DECISION OF HON'BLE RAJASTHAN HIGH COURT IN THE CAS E OF COSMOPOLITAN EDUCATION SOCIETY (SUPRA) WHEREIN IT WAS HELD THAT EXEMPTION U/S 10(22) COULD NOT BE DENIED TO THE EDUCATIONAL SOCIE TY ON THE GROUND OF MISUTILIZATION OF FUNDS OF THE SOCIETY BY ITS MEMBE RS. 15. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SU BMITTED THAT A SIMILAR ISSUE WAS INVOLVED IN THE CASE OF RAJENDER NAGAR EDUCATION SOCIETY BELONGING TO THE SAME GROUP WHEREIN THE CLA IM FOR EXEMPTION U/S 10(22) WAS DISALLOWED BY THE AO ON THE BASIS OF SIMILAR ALLEGATIONS AS MADE IN THE PRESENT CASE. IN THIS R EGARD, HE INVITED OUR 19 ATTENTION TO THE COPY OF ORDER PASSED BY THE TRIBUN AL IN THE SAID CASE DATED 29.2.2008 IN IT(SS)A.NO.34 & 84/DEL/2005 PLAC ED AT PAGE NO.335 OF HIS PAPER BOOK WHEREIN IT WAS HELD THAT T HE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 10(22) CAN BE CONSIDERED IN THE BLOCK ASSESSMENT PROCEEDINGS AS THE UNDISCLOSED INCOME OF THE BLOCK PERIOD IS REQUIRED TO BE COMPUTED IN ACCORDANCE WITH THE P ROVISIONS OF THE INCOME-TAX ACT, 1961. HE POINTED OUT THAT EVEN THE SIMILAR ALLEGATIONS MADE BY THE AO IN THAT CASE WHILE DENYI NG THE EXEMPTION U/S 10(22) WERE ELABORATELY CONSIDERED BY THE TRIBU NAL AND IT WAS HELD THAT THE SAME WERE NOT SUFFICIENT TO DENY THE CLAIM OF THE ASSESSEE FOR EXEMPTION U/S 10(22). HE SUBMITTED THAT IT WAS, HO WEVER, HELD BY THE TRIBUNAL THAT IF SOME INSTANCES ARE FOUND WHILE DEA LING WITH OTHER GROUNDS TO SHOW THAT THE ASSESSEE DID NOT EXIST SOL ELY FOR THE PURPOSE OF EDUCATION, THEN IT WOULD NOT BE ENTITLED TO EXEM PTION U/S 10(22) FOR THE RELEVANT YEAR(S). HE CONTENDED THAT THE TRIBUN AL THUS HAS HELD IN THAT CASE THAT EXEMPTION U/S 10(22) HAS TO BE CONSI DERED IN THE BLOCK ASSESSMENT AND ONLY IF SOME INSTANCES ARE FOUND IN A PARTICULAR YEAR TO SHOW THAT THE ASSESSEE-SOCIETY DID NOT EXIST SOLELY FOR THE PURPOSE OF EDUCATION BUT EXISTED FOR THE PURPOSE OF PROFIT, TH E CLAIM OF EXEMPTION U/S 10(22) COULD BE DENIED ONLY IN THAT YEAR(S). 16. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED TH AT THE ADVERSE FINDINGS OF THE SEARCH OPERATION CONDUCTED IN THE C ASE OF THE ASSESSEE AND THE ADDITION MADE TO ITS UNDISCLOSED INCOME ON THE BASIS OF DOCUMENTS FOUND DURING THE COURSE OF THE SAID OPERA TION CLEARLY REVEALED THAT THE ASSESSEE-SOCIETY WAS RUNNING THE SCHOOL NOT ONLY FOR EDUCATIONAL PURPOSE BUT THE REAL MOTIVE WAS TO EARN PROFIT. HE 20 SUBMITTED THAT FOR INSTANCE DONATIONS WERE COLLECTE D BY THE ASSESSEE- SOCIETY FROM THE PARENTS OF THE STUDENTS SEEKING AD MISSION IN THEIR SCHOOL AND THE DONATIONS SO COLLECTED WERE NOT ACCO UNTED FOR BUT WERE USED FOR THE BENEFIT OF SHRI V.K.BHATNAGAR, THE KEY PERSON CONTROLLING THE ENTIRE AFFAIRS OF THE ASSESSEE-SOCIETY. HE SUB MITTED THAT THE SAID DONATIONS THUS WERE NOT VOLUNTARY CONTRIBUTIONS BUT THE SAME WERE COLLECTED FORCIBLY FROM THE PARENTS FOR GIVING ADMI SSIONS TO THEIR CHILDREN. HE CONTENDED THAT THIS VERY FACT THAT TH E SAID DONATIONS WERE OBTAINED FORCIBLY OUTSIDE THE BOOKS OF ACCOUNT CLEA RLY SHOW THAT THE MOTIVE OF THE ASSESSEE-SOCIETY BEHIND RUNNING THE E DUCATIONAL INSTITUTION WAS TO EARN PROFIT AND AS THE SAID AMOU NT OF DONATIONS REMAINED UNACCOUNTED FOR WAS USED FOR THE BENEFIT O F AN INDIVIDUAL, THE ASSESSEE-SOCIETY CANNOT BE SAID TO BE ENTITLED FOR EXEMPTION U/S 10(22) AS RIGHTLY HELD BY THE AUTHORITIES BELOW. H E ALSO CONTENDED THAT SIMILARLY, THE OTHER FINDINGS OF THE SEARCH OP ERATION AS WELL AS THE POST-SEARCH ENQUIRIES MADE BY THE AO CLEARLY REVEAL ED THAT THE ASSESSEE-SOCIETY DID NOT EXIST DURING THE ENTIRE BL OCK PERIOD SOLELY FOR THE EDUCATION PURPOSE AND IT EXISTED ALSO FOR THE P URPOSE OF PROFIT. IN THIS REGARD, HE INVITED OUR ATTENTION TO THE SPECIF IC FINDINGS/OBSERVATIONS RECORDED BY THE AO AT PAGES 2 6 TO 30 OF THE ASSESSMENT ORDER AND STRONGLY RELIED ON THE SAME IN SUPPORT OF THE REVENUES CASE THAT THE ASSESSEE-SOCIETY WAS NOT EN TITLED FOR EXEMPTION U/S 10(22) AS CLAIMED BY IT. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. EXEMPTION U/S 10(22) WAS AVAILABLE UPTO AY 1998-99 FOR INCOME OF UNIVERSITY OR OTHER EDUCAT IONAL INSTITUTION 21 EXISTING SOLELY FOR EDUCATIONAL PURPOSES AND NOT FO R PURPOSES OF PROFIT. THE CLAIM OF THE ASSESSEE FOR EXEMPTION UNDER THE S AID PROVISIONS IN RESPECT OF ITS INCOME EARNED FROM RUNNING OF THE SC HOOL MADE IN THE BLOCK ASSESSMENT PROCEEDINGS WAS DISALLOWED BY THE AO AS, ACCORDING TO HIM, THE SCHOOL WAS BEING RUN BY THE A SSESSEE-SOCIETY NOT SOLELY FOR EDUCATIONAL PURPOSES AND THERE WAS A PRO FIT MOTIVE IN UNDERTAKING THE SAID ACTIVITY AS NOTICED FROM THE F INDINGS OF THE SEARCH OPERATION AS WELL AS THE POST-SEARCH ENQUIRIES MADE BY HIM. HE HAS ENUMERATED SUCH FINDINGS/OBSERVATIONS IN THE ASSESS MENT ORDER PASSED FOR THE BLOCK PERIOD TO SUPPORT AND SUBSTANTIATE HI S DECISION DISALLOWING THE EXEMPTION CLAIMED BY THE ASSESSEE U /S 10(22) AND WE SHALL DEAL WITH THE SAME SEPARATELY AT THE APPROPRI ATE STAGE. THE LEARNED CIT(A) UPHELD THE SAID DECISION OF THE AO D ENYING THE CLAIM OF THE ASSESSEE-SOCIETY FOR EXEMPTION U/S 10(22) AL THOUGH ON A DIFFERENT GROUND THAT THE SAID CLAIM COULD HAVE BEE N CONSIDERED AND ALLOWED IN THE REGULAR ASSESSMENTS IF IT WAS CLAIME D BY THE ASSESSEE- SOCIETY BY FILING THE RETURNS OF INCOME FOR THE REL EVANT YEARS MAKING SUCH CLAIM. HE HELD THAT THE SAID CLAIM, HOWEVER, WAS BEYOND THE SCOPE OF BLOCK ASSESSMENT PROCEEDINGS AND EVEN IF T HE SAID EXEMPTION WAS CLAIMED BY THE ASSESSEE IN THE BLOCK ASSESSMENT PROCEEDINGS, THE SAME COULD NOT BE CONSIDERED AND ALLOWED IN THE SAI D PROCEEDINGS. AS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US, A SIMILAR ISSUE HAD ARISEN BEFOR E THE TRIBUNAL IN THE CASE OF RAJINDER NAGAR EDUCATION SOCIETY, A SOCIETY BELONGING TO THE SAME GROUP AND VIDE ITS ORDER DATED 29.2.2008 PASSE D IN IT(SS) A.NO.34 & 84/DEL/2005, IT WAS HELD BY THE TRIBUNAL THAT THE INCOME OF THE ASSESSEE-SOCIETY FROM RUNNING THE SCHOOL HAV ING BEEN TREATED AS 22 UNDISCLOSED INCOME IN THE BLOCK ASSESSMENT, IT WAS ENTITLED TO CLAIM EXEMPTION U/S 10(22) IN RESPECT OF THE SAID INCOME AS THE PROVISIONS OF SECTION 158BB(1) CLEARLY LAY DOWN THAT UNDISCLOS ED INCOME FOR THE BLOCK PERIOD IS THE AGGREGATE OF THE TOTAL INCOME O F THE PREVIOUS YEARS FALLING WITHIN THE BLOCK PERIOD COMPUTED IN ACCORDA NCE WITH THE PROVISIONS OF THE INCOME-TAX ACT, 1961. RESPECTFUL LY FOLLOWING THE SAID DECISION OF THE TRIBUNAL, WE HOLD THAT THE CLA IM OF THE ASSESSEE- SOCIETY FOR EXEMPTION U/S 10(22) IN RESPECT OF INCO ME FROM RUNNING THE SCHOOL IS LIABLE TO BE CONSIDERED ON MERITS IN THE BLOCK ASSESSMENT PROCEEDINGS. ACCORDINGLY, WE NOW PROCEED TO CONSID ER AND DECIDE THE SAME ON MERITS. 18. REVERTING BACK TO THE ORDER OF THE AO DISALLOWI NG THE CLAIM OF THE ASSESSEE-SOCIETY FOR EXEMPTION U/S 10(22) HOLDI NG THAT THE SCHOOL WAS NOT BEING RUN BY IT SOLELY FOR EDUCATIONAL PURP OSE BUT FOR THE PURPOSE OF PROFIT, IT IS OBSERVED THAT VARIOUS ALLE GATIONS WERE MADE BY THE AO TO SUPPORT AND SUBSTANTIATE HIS DECISION ON THIS ISSUE WHICH HAVE ALREADY BEEN REPRODUCED BY US IN PARAGRAPH NO. 10 OF THIS ORDER. AT THE TIME OF HEARING BEFORE US, THE LEARNED COUNS EL FOR THE ASSESSEE HAS MADE POINT-WISE SUBMISSIONS IN ORDER TO MEET AL L THESE OBJECTIONS RAISED BY THE AO WHICH HAVE ALREADY BEEN REPRODUCED BY US IN PARAGRAPH NO.13 OF THIS ORDER. A PERUSAL OF THE SA ID SUBMISSIONS VIS- -VIS THE OBJECTIONS RAISED BY THE AO AS REGARDS TH E ISSUE RELATING TO THE ASSESSEES CLAIM FOR EXEMPTION U/S 10(22) SHOWS THAT SIMILAR TYPE OF ALLEGATIONS WERE MADE BY THE AO EVEN IN THE CASE OF RAJINDER NAGAR EDUCATION SOCIETY WHILE DISALLOWING THE ASSES SEES CLAIM IN THAT CASE FOR EXEMPTION U/S 10(22) AND AFTER CONSID ERING THE SIMILAR 23 SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE TO MEET THE SAID OBJECTIONS, THE TRIBUNAL CONSIDERED AND DISCUSSED T HE SAME POINT-WISE IN ITS ORDER DATED 29.2.2008 (SUPRA) AS FOLLOWS:- (I) ACCORDING TO THE AO THE DY.DIT(INV.) REPORT P AGE NO.481 TO 561 AND ALSO PAGE NO.19 AND PAGE 20 WAS SHOWN TO TH E ASSESSEE AND THE ASSESSEE WAS CALLED UPON TO REBUT IMMUNERABLE T RANSACTION WHICH REFLECTS A DIVERSION OF FUNDS FOR PERSONAL BENEFIT AND UNDER STATEMENT OF INCOME BY VARIOUS MODES OF DRAWING OF FUNDS FOR PERSONAL BENEFITS. THE ASSESSEE'S CONTENTION ON THE ABOVE WAS THAT THE AO HAS FAILED TO APPRECIATE THE FACT THAT THE ONUS OF PROOF SHOULD N OT BE SHIFTED ON THE ASSESSEE MERELY BY RELYING UPON THE SAID REPORT WIT HOUT MAKING FRESH AND INDEPENDENT ENQUIRIES. IN OUR VIEW THERE ARE NO SPECIFIC INSTANCES WITH REFERENCE TO THE ASSESSEE POINTED OUT BY THE A O IN THE ORDER OF ASSESSMENT. SUCH GENERAL STATEMENTS CANNOT FORM THE BASIS FOR DRAWING ANY ADVERSE INFERENCE AGAINST THE ASSESSEE. (II) ACCORDING TO A.O. DONATIONS ARE TAKEN FROM TH E PARENTS FOR ADMISSION OF THEIR CHILDREN AND NO RECEIPTS ARE GIV EN FOR THEIR DONATIONS AND THESE ARE NOT ENTERED IN THE BOOKS OF ACCOUNTS. THE REPLY OF THE ASSESSEE ON THE ABOVE WAS THAT THE CON CLUSION IS COMPLETELY BASELESS, ERRONEOUS AND UNJUSTIFIED IN V IEW OF THE FACT THAT NO DONATION HAS BEEN RECEIVED BY THE ASSESSEE AS IS EVIDENT FROM THE VERY FACT THAT NO ADDITION WHATSOEVER HAS BEEN MADE ON THIS GROUND IN THE CASE OF THE ASSESSEE. WE ARE OF THE VIEW THAT N O SPECIAL INSTANCE HAS BEEN POINTED OUT BY THE AO VIS--VIS THE ASSESS EE. THE GENERAL 24 OBSERVATIONS IN THE CASE OF SCHOOLS CONTROLLED BY B HATNAGAR WOULD NOT BE SUFFICIENT TO COME TO ANY SUCH CONCLUSION. (III) IN PARAS 1, 2 AND 3 AT PAGE 28 OF AO'S ORDER THERE WAS ALLEGATION BY THE AO THAT CASH WAS SENT FROM VARIOU S SCHOOLS TO MR.BHATNAGAR WHO USED THEM FOR HIS INDIVIDUAL BENEF IT. ALL THESE ALLEGATIONS RELATED TO RECEIPT OF HAVE NO APPLICATI ON WHATSOEVER IN THE CASE OF ASSESSEE IN VIEW OF THE FACT THAT NO ADDITI ON WHATSOEVER HAS BEEN MADE ON THIS GROUND IN THE CASE OF THE ASSESSE E. THE AO HAS TO FIRST CONSIDER SUCH DONATIONS AS INCOME OF THE ASSE SSEE AND THEN COME TO CONCLUSION THAT INCOME WAS DIVERTED FOR PERSONAL GAINS OF PERSONS OTHER THAN THE EDUCATIONAL INSTITUTIONS. NO SPECIFI C INSTANCE RELATING TO THE ASSESSEE HAS BEEN POINTED OUT BY THE A.O. (IV) IN PARA 4 AT PAGE 28 OF THE ORDER OF ASSESSME NT, THE AO HAS ALLEGED COSTLY THE CASH RECEIVED FOR MAKING LOCAL A ND OUT SIDE DELHI TOURS AND TRIPS HAS NOT BEEN ENTERED IN THE BOOKS O F ACCOUNT WHEREAS EXPENDITURE HAVE BEEN DEBITED IN A STUDENT WELFARE FOR AMOUNT PAID TO BHATNAGAR HOTEL & RESORTS LTD. THIS OBSERVATION OF THE AO IS TOTALLY BASELESS AS THE AO HAS FAILED TO CITE ANY S UCH INCIDENCE WHERE ANY RECEIPT AS ALLEGED BY THE AO HAS NOT BEEN RECOR DED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS. SUCH GENERAL OBS ERVATIONS NOT SUPPORTED BY ANY EVIDENCE IN OUR VIEW IS NOT SUFFIC IENT TO DRAW ANY ADVERSE INFERENCE. (V) IN PARA 5 AT PAGE 28 OF ASSESSMENT ORDER THE A O HAS ALLEGED THAT COST LAND OF SOCIETIES HAVE BEEN TRANSFERRED TO SHR I VK BHATNAGAR AND 25 HIS FAMILY MEMBERS. NO LAND HAS BEEN EXCHANGED BY T HE ASSESSEE WITH BHATNAGAR AS IS CLEAR FROM THE OBSERVATIONS OF THE AO AT PAGE 12 OF HIS ORDER OF ASSESSMENT GIVING DETAILS OF LAND EXCH ANGED BY VARIOUS SOCIETIES WITH BHATNAGAR. THE PROPERTY OF MANAV STH ALI SCHOOL, PUSA ROAD, WAS EXCHANGED AND NOT THAT OF THE ASSESSEE. (VI) IN PARA 6 AT PAGE 28 OF HIS ORDER, THE AO HAS ALLEGED THAT THE SHARE IN BARON AIR LTD., PURCHASED BY SOCIETIES/SCH OOL CANNOT BE CONSIDERED AS EDUCATIONAL ACTIVITIES. THESE OBSERVA TIONS ARE NOT CORRECT BECAUSE THERE WAS NO SUCH INVESTMENT BY THE ASSESSEE. THE SEIZED DOCUMENT REFERRED TO BY THE AO IN THIS REGAR D DOES NOT PERTAIN TO THE ASSESSEE. (VII) IN PARA 7 AT PAGE 28 OF HIS ORDER THE AO HAS ALLEGED THAT THE VEHICLE OF THE SCHOOL/SOCIETIES ARE USED BY SHRI VK BHATNAGAR & FAMILY. THE LD DY.CIT HAS MADE THIS OBSERVATION IN TOTAL DISREGARD OF THE FACT THAT HOW THE USE OF THE VEHICLE CAN AFFECT THE GENUINENESS OF THE CLAIM OF EXEMPTION U/S 10(22). EVEN OTHERWISE, THIS OBSERVATION IS NOT BASED ON ANY EVIDENCE AND IS A MERE SURMISE OF THE AO. (VIII) IN PARA 8 AT PAGE 28 OF HIS ORDER, THE AO HA S ALLEGED THAT THE SALARIES ARE PAID TO SHRI VIKRAM BHATNAGAR & ANURAG BHATNAGAR WHILE THEY WERE STUDENTS AND ALSO HUGE SALARY OF RS. 6.71 LACS P.A. IS PAID TO SMT.MAMTA V.BHATNAGAR AS AGAINST NORMAL SALARY OF R S. 1.90 LACS P.A. (RS. 15,000/= P.M.) TO OTHER EMPLOYEES. ACCORDING T O ASSESSEE SHRI VIKRAM BHATNAGAR AND SH.ANURAG BHATNAGAR WERE NOT G ETTING SALARIES FROM THE ASSESSEE. SMT. MAMTA BHATNAGAR, WHO IS THE PRINCIPAL OF 26 MANAV STHALI SCHOOL, RAJINDER NAGAR, AN EDUCATIONAL INSTITUTION BEING RUN BY THE ASSESSEE SOCIETY, AND WHICH IS UPTO 12 TH STANDARD. THE SALARIES ARE BEING PAID TO HER AS PER THE SCALES AS RECOMMENDED BY THE PAY COMMISSION AND ARE AT PARITY TO OTHER INSTITUTI ONS AND ARE NOT DISALLOWED IN THE RESPECTIVE SOCIETY. IN VIEW OF TH E ABOVE, WE ARE OF THE VIEW THAT NO ADVERSE INFERENCE CAN BE DRAWN IN THIS REGARD AGAINST THE ASSESSEE. (IX) IN PARA 1 AT PAGE 29 OF HIS ORDER, THE AO HAS ALLEGED THAT THE FUNDS ARE WITHDRAWN FROM CAUTION MONEY FOR PAYMENT IN COMMERCIAL PROJECT LIKE HEALTH CARE, HEALTH RESORTS & ALTERNAT IVE MEDICINE AND VIRENDRA POULTRY FARM. THE CONTENTION OF THE ASSES SEE ON THIS ISSUE WAS THAT THE CONTRIBUTIONS TOWARDS COMMON BUILDING AT VIRENDRA GRAM HAVE BEEN MADE BY DIFFERENT SOCIETIES AND THAT TOO THROUGH ACCOUNT PAYEE CHEQUES AND THE PAYMENTS SO MADE ARE BEING DULY REFLECTED IN THE REGULAR BOOKS OF ACCOUNTS OF RESPE CTIVE SOCIETIES. THE FURTHER PLEA OF THE ASSESSEE WAS THAT VG IS A COMPL EX FOR EDUCATION PURPOSE AND THE COMPLETE UNIVERSITY LIKE COMPLEX AN D THIS IS TO BE BUILT UP WITH THE OBJECT STATED ABOVE. ACCORDING TO THE ASSESSEE, THE EVIDENCE IN SUPPORT OF THIS SUBMISSION CAN ALSO BE VERIFIED FROM THE SEIZED ANNEXURE INVENTORISED AS R-1, ANNEXURE A-27. THAT THE ASSESSEE HAS NOT USED FACILITY AT VIRENDRA GRAM FOR COMMERCIAL PURPOSE. IN OUR VIEW OBSERVATION REGARDING THE INVE STMENT IN COMMON BUILDING AT VIRENDRA GRAM FROM CAUTION MONEY IS BASELESS AND NO EVIDENCE AS SUCH HAS BEEN CONFRONTED TO THE ASSESSEE FOR ITS REBUTTAL AND IN ANY WAY IT COULD NOT BE A GROUND FO R THE REJECTION OF 27 CLAIM OF EXEMPTION U/S 10(22) WITHOUT PROOF OF PROF IT MOTIVE OF THE ASSESSEE. (X) IN PARA 2 AT PAGE 22 OF HIS ORDER, THE AO HAS A LLEGED THAT THE PARTIES FOR WHICH EXPENSES ARE CLAIMED HAS DENIED T HE PAYMENT. THE BASIS FOR THE ABOVE ALLEGATION AND THE VALIDITY OF CONCLUSIONS ARRIVED AT BY THE AO WILL BE DEALT WITH WHILE DEALING WITH GROUND NO.3 AND 4 OF REVENUE'S APPEAL. (XI) IN PARA 3 AT PAGE 29 OF HIS ORDER, THE AO HAS ALLEGED THAT SOME OF THE EXPENSES CLAIMED IN THE INCOME & EXPENDITURE ACCOUNT OF THE SOCIETY WERE FOR MATERIAL NEVER PURCHASED AND THESE PARTIES ARE GOODWILL STEEL SYNDICATE, SHUBHAM CEMENT AND PUNEET TRADERS ETC. THE BASIS OF THIS ALLEGATION WILL BE DISCUSSED WHIL E DEALING WITH GROUND NO.2 RAISED BY THE REVENUE. (XII) IN PARA 4 AT PAGE 29 OF HIS ORDER, THE AO HA S ALLEGED THAT THE HUGE INVESTMENTS HAVE BEEN MADE FOR THE RESIDENCE O F SHRI V.K.BHATNAGAR AND HIS FAMILY MEMBERS AT V /G BY DI VERTING THE FUNDS FROM SCHOOLS / SOCIETIES. THIS ALLEGATION IS MERELY THE REPRODUCTION OF THE ALLEGATION WHICH THE LD.A.O. HA VE ALREADY MADE. THE A.O. HAS NOT PLACED ANY EVIDENCE ON RECORD IN S UPPORT OF SUCH AN ALLEGATION. (XIII) IN PARA 6 AT PAGE NO.29 OF HIS ORDER, THE A .O. HAS ALLEGED THAT HUGE LOANS AND ADVANCES FROM VARIOUS SCHOOLS/SOCIET IES WERE GIVEN TO BHR LTD. AND BCC{P) LTD. FROM THE CAUTION MONEY ACC OUNT. 28 SOCIETY HAS NOT GIVEN EITHER TO BHR LTD. OR BCC(P) LTD. ANY LOAN. THE ALLEGATION IS NOT SUPPORTED BY ANY EVIDENCE WHA TSOEVER. (XIV) IN PARA 7 AT PAGE 29 OF HIS ORDER, THE AO HA S ALLEGED THAT CAUTION MONEY WAS WITHDRAWN IN CASH THROUGH BEARER CHEQUES FOR THE PARENTS WHO DID NOT TURN UP TO COLLECT THE AMOUNT. THE ALLEGATION IS COMPLETELY BASELESS AND UNSUSTAINABLE FOR THE WANT OF ANY RELIABLE MATERIAL/ EVIDENCE ON RECORD IN SUPPORT THEREOF IN THE CASE OF THE ASSESSEE. (XV) IN PARA 8 OF HIS ORDER AT PAGE 29, THE AO HAS ALLEGED THAT THE PAYMENTS DRAWN BY SHRI ANIL SEHGAL CONSULTANT IN TH E NAME OF MOTHER AND WIFE ALSO. THE A.O. WHILE DRAWING THIS INFERENC E HAS FAILED TO PLACE ON RECORD ANY EVIDENCE IN SUPPORT OF THIS CON TENTION. FURTHER MORE, NO SUCH EVIDENCE HAS BEEN CONFRONTED TO THE A SSESSEE FOR ITS REBUTTAL AND AS SUCH, THIS OBSERVATION IS BAD IN LA W. (XVI) IN PAGE NO.29 LAST PARA AND PAGE NO.30 FIRST PARA, THERE ARE ALLEGATIONS OF MISAPPROPRIATION OF FUNDS. SO FAR AS THE ALLEGATIONS REGARDING THE ALLEGED MISAPPROPRIATION OF THE FUNDS OF THE SCHOOLS/SOCIETIES BY SHRI V.K.BHATNAGAR AND HIS FAM ILY MEMBERS AS CONTAINED IN THESE PARAS ARE CONCERNED, IT IS SEEN THAT THESE ALLEGATIONS ARE MERELY A REPRODUCTION OF THE ALLEGATIONS ALREAD Y MADE BY THE LD.A.O. IN PAGE NOS. 1-19 OF THE ORDER. THE SAME HA VE ALREADY BEEN DEALT WITH HEREINBEFORE. THE SAME IS NOT BEING REPR ODUCED HERE AGAIN. IT IS PERTINENT TO MENTION HERE THAT THE LD.A.O. HA S MERELY REPEATED THE 29 SAME ALLEGATIONS WITHOUT PLACING ON RECORD ANY RELI ABLE MATERIAL/ EVIDENCE IN SUPPORT THEREOF. (XVII) IN PAGE NO.31, PARA NO. 1 OF HIS ORDER, THE LD.A.O. HAS OBSERVED THAT THE EXEMPTION U/ S 11 OF THE INCOME TAX ACT, 1 961 IS NOT PERMISSIBLE IN CASE THERE IS INFRINGEMENT OF S. 13 OF THE ACT. THERE IS NO RELEVANCE OF REFERRING TO S.LL WHILE COMMENTING UPON THE EXEMPTION U/ S 10(22) OF THE ACT, AS BOTH THE SECTI ONS ARE SEPARATE AND DISTINCT. (XVIII) IN PAGE NO.31, PARA NO.4, THE, A.O. HAS ALL EGED THAT BY CLAIMING THE DEPRECIATION, THE ASSESSEE HAVE ADMITTED THAT I T IS RUNNING SCHOOLS FOR EARNING BUSINESS INCOME. THAT THE CASE LAW CITE D BY ASSESSEE IN RESPECT OF CLAIM OF DEPRECIATION ARE NOT APPLICABLE AND THERE IS NO SUPREME COURT OR ANY, HIGH COURT DECISION WHICH DIR ECTED TO ALLOW EXEMPTION U/S 10(22). REGARDING THIS OBSERVATION OF THE LD.A.O. HE HAS COMPLETELY FAILED TO APPRECIATE THE FACT THAT N O INVESTMENT HAS BEEN MADE BY THE ASSESSEE IN THE VIRENDRA GRAM AND AS SUCH NO QUESTION OF CLAIMING ANY DEPRECIATION, AT VIRENDRA GRAM AS REFERRED BY THE LD.A.O. ARISES AT ALL. EVEN OTHERWISE, CLAI MING OF DEPRECIATION BY AN EDUCATIONAL INSTITUTION CAN NOT ADVERSELY AFF ECT ITS CLAIM FOR EXEMPTION U/S 10(22) WHEN THE DEPRECIATION IS VERY MUCH PERMISSIBLE UNDER THE INCOME TAX ACT AS THERE IS NO PROHIBITION IN LAW. 19. THE TRIBUNAL THUS EXAMINED THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE IN RESPECT OF EACH OBJECTION RAISED BY THE REVENUE AND FOUND ON MERITS THAT THERE WAS NO MUCH SUBSTANCE IN THE OBJECTIONS 30 RAISED BY THE AO. THE TRIBUNAL, HOWEVER, HASTENED TO ADD THAT IF THERE ARE SOME INSTANCES WHICH ARE FOUND WHILE DEAL ING WITH THE ISSUES RAISED IN OTHER GROUNDS TO SHOW THAT THE EDU CATION INSTITUTION OF THE ASSESSEE-SOCIETY DID NOT EXIST SOLELY FOR THE P URPOSE OF EDUCATION BUT ALSO FOR THE PURPOSE OF PROFIT IN A PARTICULAR YEAR/YEARS, THEN IT WOULD NOT BE ENTITLED TO CLAIM EXEMPTION U/S 10(22) IN THAT YEAR(S). THE TRIBUNAL ALSO DISCUSSED THE LEGAL POSITION IN T HIS CONTEXT AS LAID DOWN IN THE VARIOUS JUDICIAL PRONOUNCEMENTS AND IT WOULD BE RELEVANT TO TOUCH UPON THESE ASPECTS WHICH ARE RELEVANT TO A PPRECIATE THE CONCEPT OF EDUCATIONAL INSTITUTION WHICH IS EXISTIN G SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR THE PURPOSES OF PR OFIT. 20. IN THE CASE OF ADITANAR EDUCATIONAL INSTITUTION VS. ADDL.CIT 224 ITR 310, IT WAS HELD BY THE HON'BLE SUPREME COU RT THAT WHERE THE OBJECT OF THE ASSESSEE-SOCIETY IS TO ESTABLISH, RUN , MANAGE OR ASSIST COLLEGES OR SCHOOLS OR OTHER EDUCATIONAL INSTITUTIO NS SOLELY FOR EDUCATIONAL PURPOSES AND IN THAT REGARD TO RAISE OR COLLECT FUNDS, DONATIONS, GIFTS ETC., COLLEGES AND SCHOOLS ARE THE MEDIA THROUGH WHICH THE ASSESSEE IMPARTS EDUCATION AND EFFECTUATES ITS OBJECTS. EXPLAINING FURTHER, IT WAS OBSERVED BY THE HONBLE APEX COURT THAT IF THE SOLE PURPOSE FOR WHICH THE ASSESSEE HAD COME INTO EXISTE NCE IS TO IMPART EDUCATION AT THE LEVELS OF COLLEGES AND SCHOOLS, SU CH AN EDUCATION SOCIETY SHOULD BE REGARDED AS AN EDUCATIONAL INSTIT UTION COMING WITHIN SECTION 10(22). IT WAS FURTHER HELD BY THE HON'BLE SUPREME COURT THAT IT WOULD NOT BE POSSIBLE OR PROPER TO LAY DOWN IN A NY PRECISE TERMS AS TO WHAT WOULD BE THE INCOME OF THE EDUCATIONAL INST ITUTION WHICH WOULD QUALIFY FOR EXEMPTION U/S 10(22) AND WHAT WOU LD BE OUTSIDE THE 31 EXEMPTION. THE ANSWER WOULD DEPEND UPON THE FACTS OF EACH CASE. IT WAS ALSO HELD THAT THE LANGUAGE OF SECTION 10(22) I S PLAIN AND CLEAR AND THE AVAILABILITY OF SUCH EXEMPTION SHOULD BE EV ALUATED EACH YEAR TO FIND OUT WHETHER THE INSTITUTION EXISTED DURING THE RELEVANT YEAR SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSE S OF PROFIT. AFTER MEETING THE EXPENDITURE, IF ANY SURPLUS RESULTS INC IDENTALLY FROM THE ACTIVITY LAWFULLY CARRIED ON BY THE EDUCATIONAL INS TITUTION, IT WILL NOT CEASE TO BE ONE EXISTING ONLY FOR EDUCATIONAL PURPO SES SINCE THE OBJECT IS NOT THE ONE TO MAKE PROFIT. 21. A SIMILAR ISSUE HAD ALSO ARISEN FOR CONSIDERATI ON IN THE CASE OF SECONDARY BOARD OF EDUCATION VS. ITO 86 ITR 408 W HEREIN IT WAS HELD THAT THE SOURCES OF INCOME OF AN EDUCATIONAL I NSTITUTION GENERALLY ARE COLLECTION OF FEES FROM STUDENTS, GRANTS GIVEN BY THE GOVERNMENT AND DONATIONS. SUCH INCOME MAY, HOWEVER, BE INSUFF ICIENT TO COPE UP WITH THE GROWING NEEDS WHEN DYNAMIC PROGRESS IS INT ENDED TO BE MADE IN EDUCATIONAL SPHERE. TO SUPPLEMENT SUCH INC OME, THE INSTITUTIONS MAY TAKE RECOURSE TO SOME PROFIT EARNI NG BUSINESS. SUCH PROFIT WOULD GO TO THE GENERAL FUND AND WOULD BE AP PROPRIATED TOWARDS EXPANSION AND DEVELOPMENT OF EDUCATIONAL SC HEMES TAKEN UP BY THOSE INSTITUTIONS. IN SUCH A CASE, THOUGH INCI DENTALLY PROFIT IS EARNED TO MEET THE GROWING NEEDS, ALL THE SAME THE INSTITUTION EXISTS SOLELY FOR EDUCATIONAL PURPOSES AND NOT FOR PURPOSE S OF PROFIT. TO THE SIMILAR EFFECT IS THE DECISION OF HONBLE ANDHRA PR ADESH HIGH COURT IN THE CASE OF GOVERNING BODY OF RANGARAYA MEDICAL COLLEGE VS. ITO 117 ITR 284 WHEREIN IT WAS HELD THAT MERELY BECAU SE CERTAIN SURPLUS ARISES FROM ITS OPERATIONS, IT CANNOT BE HELD THAT THE INSTITUTION IS BEING 32 RUN FOR THE PURPOSE OF PROFIT SO LONG AS NO PERSON OR INDIVIDUAL IS ENTITLED TO ANY PORTION OF THE SAID PROFIT AND THE SAID PROFIT IS USED FOR THE PURPOSES AND FOR THE PROMOTION OF THE OBJECTS O F THE INSTITUTION. IN THE CASE OF EDUCATIONAL INSTITUTE OF AMERICAN HOTEL & MOTEL ASSOCIATION 219 ITR 183, AUTHORITY FOR ADVANCE RU LING HAS HELD THAT THERE CAN BE NO DOUBT THAT THE PURPOSE OF MAKI NG PROFITS IS NOT THE REAL PURPOSE WHERE THE ARTICLES OF ASSOCIATION OF T HE INSTITUTION CLEARLY PROVIDE THAT ITS NET EARNINGS SHALL NOT ENURE TO TH E BENEFIT OF ANY MEMBER OR DIRECTOR OR TO ANY OTHER INDIVIDUAL. 22. THE PROPOSITION PROPOUNDED IN THE JUDICIAL PRON OUNCEMENTS AS DISCUSSED ABOVE MAKES IT ABUNDANTLY CLEAR THAT ONE HAS TO APPRECIATE IN THE FACTS OF THE CASE OF THE ASSESSEE AS TO WHET HER IN A PARTICULAR YEAR OR YEARS, IT EXISTED SOLELY FOR THE EDUCATIONA L PURPOSE AND NOT FOR THE PURPOSES OF PROFIT. THIS CAN APPROPRIATELY BE DONE AS RIGHTLY HELD BY THE TRIBUNAL IN THE CASE OF RAJINDER NAGAR EDUCA TION SOCIETY (SUPRA) ON THE BASIS OF OUR DECISION TO BE RENDERED ON THE VARIOUS ISSUES INVOLVED IN THE PRESENT APPEALS ON MERITS. ACCORDINGLY, WE WILL REVERT BACK TO THIS ISSUE AFTER DECIDING THE OTHER GROUNDS RAISED IN THESE CROSS-APPEALS ON MERITS SO THAT THE ISSUE REL ATING TO THE ASSESSEES CLAIM FOR EXEMPTION U/S 10(22) CAN BE CO NSIDERED IN RESPECT OF EACH YEAR FORMING PART OF THE BLOCK PERIOD IN TH E LIGHT OF THE FINDINGS RECORDED ON MERITS OF THE SAID ISSUES. RESPECTFULLY FOLLOWING THE DECISIONS OF THE CO-ORDI NATE BENCH WHEREIN ONE OF US (JM) IS PARTY, WE ALLOW THIS GROU ND OF APPEAL RAISED BY THE ASSESSEE FOR STATISTICAL PURPOSES. IN PRINCI PLE, WE HOLD THAT 33 ASSESSEE IS ENTITLED FOR EXEMPTION UNDER SEC. 10(22 ) OF THE ACT IN RESPECT OF INCOME FROM RUNNING THE SCHOOLS. THE ASS ESSING OFFICER IN ANY PARTICULAR YEAR IS ABLE TO FIND THAT THE ASSESS EE DID NOT EXIST SOLELY FOR THE PURPOSE OF EDUCATION, ONLY FOR THAT YEAR TH E CLAIM OF EXEMPTION UNDER SEC.10(22) CAN BE DENIED. 16. IN VIEW OF THE ABOVE DISCUSSION, THE ASSESSEE W ILL BE ENTITLED TO CLAIM EXEMPTION UNDER SECTION 10(22) OF THE ACT. SI NCE IN THE PRESENT CASE, ON FACTS, WE FIND THAT IN NONE OF THE YEARS, ANY EVIDENCE WAS FOUND INDICATING THE RECEIPT OF MONEY OUT OF BOOKS WHICH WAS NOT USED FOR THE PURPOSE OF THE EDUCATION. WE HAVE DISC USSED THE FACTS IN DETAIL IN THE PRESENT APPEALS. WE DO NOT FIND ANY M ERIT IN GROUND NO.1 RAISED BY THE REVENUE. 5. IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW GROUND OF APPEAL RAISED BY THE ASSESSEE AND DIRECT THE ASSESSING OFFICER TO GI VE SAME TREATMENT IN THIS ASSESSMENT YEAR AS WAS GIVEN IN THE BLOCK ASSESSMEN T. 6. THE NEXT GROUND IN THE ASSESSEES APPEAL FOR AS SESSMENT YEAR 1998-99 IS THAT LEARNED CIT(APPEALS) HAS ERRED IN TREATING THE SUM OF RS.16,395 INCURRED BY THE ASSESSEE FOR REPLACEMENT OF A PUMP SET AS A CAPITAL EXPENSES. 34 7. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT ASSESSEE HAS REPLACED AN OLD WATER PUMP SET. IT HAS NOT CREATED ANY NEW ASSETS. THE EXPENSES ARE IN THE NATURE OF REVENUE. HE ALSO POINTED OUT THAT SURPLUS OVER THE EXPENDITURE ARE TO BE EXEMPTED UND ER SEC. 10(22) EVEN IF THIS EXPENSE IS DISALLOWED TO THE ASSESSEE, IT WILL NOT MAKE ANY TAX IMPACT UPON THE ASSESSEE. ON THE OTHER HAND, LEARNED DR RE LIED UPON THE ORDER OF THE LEARNED CIT(APPEALS). 8. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. THE ASSESSEE HAS NOT REPAIRED THE EXISTING PUMP RATHER IT HAS REPLACED THE WHOLE PUMP SET. ASSESSING OFFICER HAS RIGHTLY TREATED THE EXPENSES AS IN THE NATURE OF CAPITAL EXPENSE. WE DO NOT FIND ANY MERIT IN THE CONTENTIONS RAISED BY THE LEARNED COUNSEL FOR THE A SSESSEE. THIS GROUND OF APPEAL IS REJECTED. 9. IN THE NEXT GROUND, GRIEVANCE OF THE ASSESSEE RE LATES TO CHARGING OF INTEREST UNDER SEC. 234B AND 234C OF THE ACT. THE C HARGING OF INTEREST OF INTEREST IS CONSEQUENTIAL IN NATURE, HENCE, THIS GR OUND OF APPEAL IS REJECTED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ITA NO. 4351/DEL/05: 35 11. IN GROUND NO.2, ASSESSEE HAS PLEADED THAT LEARN ED CIT(APPEALS) HAS ERRED IN FACTS AND IN LAW IN DENYING THE EXEMPTION UNDER SEC. 10(23C)(VI) OF THE INCOME-TAX ACT, 1961 TO THE ASSESSEE. 12. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VER Y OUTSET SUBMITTED THAT THERE IS A DEFICIT IN THE INCOME AND THE EXPENDITUR E ACCOUNT. THE DEFICIT HAS ALREADY BEEN CONSIDERED IN THE BLOCK ASSESSMENT, HE NCE, THIS GROUND IS ACADEMIC IN NATURE. HE DID NOT PRESS THE GROUND RAI SED BY THE ASSESSEE. ACCORDINGLY, THIS GROUND IS REJECTED. 13. IN GROUND NO.2, THE ASSESSEE HAS SUBMITTED THAT LEARNED CIT(APPEALS) HAS ERRED IN FACTS AND IN LAW IN CONFI RMING THE DISALLOWANCE OF R.13,96.373, WHICH HAS BEEN WORKED OUT BY THE ASSES SING OFFICER AS DEPRECIATION ADMISSIBLE ON VIRENDRA GRAM BUILDING. THIS AMOUNT HAS NOT BEEN SEPARATELY ADDED IN THE REGULAR ASSESSMENT BEC AUSE IT WAS CONSIDERED IN THE BLOCK ASSESSMENT. THE LEARNED COUNSEL FOR THE A SSESSEE POINTED OUT THAT THIS ISSUE HAS BEEN DECIDED IN THE APPEAL FOR THE B LOCK PERIOD, HENCE IT IS ACADEMIC IN NATURE IN THE REGULAR ASSESSMENT. HE DI D NOT PRESS THIS GROUND ALSO. IT IS REJECTED. 36 14. IN GROUND NO.5, ASSESSEE HAS PLEADED THAT ASSES SING OFFICER WORKED OUT A SUM OF RS.7,01,017 ON ACCOUNT OF CONTRIBUTION MADE BY THE ASSESSEE FOR VASANT KUNJ BUILDING. THIS AMOUNT WAS CONSIDERE D IN THE BLOCK PERIOD AND NOT SEPARATELY ADDED IN THE REGULAR ASSESSMENT. THE ASSESSEE HAS CHALLENGED THE WORKING OF THIS AMOUNT IN THE REGULA R ASSESSMENT BUT SINCE IT HAS BEEN DEALT IN THE BLOCK ASSESSMENT, IT IS NOT P RESSING THIS GROUND OF APPEAL. IN VIEW OF THE STAND OF LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING, THIS GROUND OF APPEAL IS ALSO REJECTED. 15. IN GROUND NO.7, ASSESSEE CHALLENGED CHARGING OF INTEREST UNDER SEC. 234A AND 234B OF THE ACT. HOWEVER, LEARNED COUNSEL FOR THE ASSESSEE ADMITTED THAT CHARGING OF INTEREST IS CONSEQUENTIAL IN NATURE. IN VIEW OF THE ABOVE, THIS GROUND OF APPEAL IS REJECTED. 16. GROUND NOS. 8 & 9 ARE GENERAL IN NATURE, HENCE DO NOT CALL FOR ANY SPECIFIC ADJUDICATION. HENCE, THEY ARE REJECTED. 17. IN GROUND NO.6, GRIEVANCE OF ASSESSEE IS THAT L EARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.3,18 ,858 BY TREATING THE 37 EXPENSES CLAIMED BY THE ASSESSEE ON REPAIR AND MAIN TENANCE AS CAPITAL EXPENSES. 18. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE HAS CLAIMED EXPENSES OF RS.16,97,706 UNDER THE HEAD REPAIR AND MAINTENA NCE OF THE BUILDING. ASSESSING OFFICER HAS DISALLOWED A SUM OF RS.10 LAC S BY TREATING IT AS A CAPITAL IN NATURE. HE RECORDED THE FOLLOWING FINDIN GS: REPAIR & MAINTENANCE OF BUILDING: ASSESSEE HAS CLA IMED EXPENSES OF RS.16,97,706 (2,61,671 + 14,36,035) UNDER THE AFORE SAID HEAD AS UNDER: MSS, DS 1436035 MSS, BEHRA 261671 THE DETAILS OF WORK DONE, WORK ORDER/WORK CONTRACT FILE HAVE NOT BEEN PRODUCED. THERE IS NO ORDER FOR PAYMENT OF EXPENSES BY THE PRINCIPAL. IN THE CASE OF DOUBLE STOREY BUILDING EXTENSIVE REN OVATION WORK WAS CLAIMED. ASSESSEE DID NOT FILE THE EVIDENCE THAT TH E EXPENSES ARE OF REVENUE NATURE. IN VIEW OF THE ABOVE EXPENSES OF RS . 10 LACS ARE CAPITALIZED. 19. ON APPEAL, IT WAS CONTENDED BY THE ASSESSEE THA T IT HAS BEEN MAINTAINING ALL THE DETAILS. THE EXPENSES WERE INCU RRED FOR REPAIRING A 35 YEARS OLD SCHOOL BUILDING. IT HAS CARRIED OUT CERTA IN CIVIL WORKS FOR INSTALLATION OF AIR-CONDITIONER. THE EXPENSES WERE MEANT FOR CONSTRUCTION OF 38 NEW BATH ROOMS, PAINTING OF SCHOOL BUILDING ETC. AC CORDING TO THE ASSESSEE, NO NEW ASSETS HAS COME INTO EXISTENCE BY INCURRING THESE EXPENSES. LEARNED CIT(APPEALS) HAS CONSIDERED THIS ASPECT ON PAGE 16 OF THE ORDER. HE HAS REPRODUCED THE DETAILS OF CERTAIN BILLS IN PARAGRAP H 8.4 AND WORKED OUT A SUM OF RS.3,18,818. ACCORDING TO LEARNED CIT(APPEALS), THIS MUCH OF EXPENSES ARE TO BE TREATED AS CAPITAL EXPENSES. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON HIS SUBMISSIONS MADE BEFORE THE LEARNED CIT(APPEALS) WHEREAS LEARNED DR RELIED UPON THE ORDER OF ASSESSING OFFIC ER. 20. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. ASSESSING OFFICER HAS RECORDED A VERY BRIEF FINDING. WE HAVE EXTRACTED HIS FINDINGS IN THE FOREGOING PARAGR APH. WE DO NOT FIND ANY BASIS FOR MAKING THE DISALLOWANCE OF RS.10 LACS. LE ARNED CIT(APPEALS) HAS REPRODUCED THE DETAILS OF CERTAIN BILLS. BUT IT IS NOT DISCERNIBLE AS TO HOW ON THE BASIS OF THESE BILLS, ONE CAN MAKE OUT THAT EXP ENSES TO THIS EXTENT WHICH IN THE FIELD OF CAPITAL EXPENDITURE. THE EXPENSES W ERE INCURRED FOR REPAIR AND MAINTENANCE OF AN OLD BUILDING. THESE EXPENSES WERE TOWARDS WHITE WASH, PAINTING, UP-GRADATION OF TOILETS AND CERTAIN CIVIL WORKS FOR INSTALLATION OF AIR-CONDITIONER. THE BILLS REPRODUCED BY THE LEARNE D CIT(APPEALS), IT CANNOT BE SAID THAT ASSESSEE HAD PURCHASED ANY NEW CAPITAL ASSETS. THESE ARE FOR CEMENT DECORATOR SERVICES ETC. IN OUR OPINION, LEAR NED CIT(APPEALS) IS NOT 39 JUSTIFIED IN TREATING THE SUM OF RS.3,18,858 AS CAP ITAL EXPENDITURE. WE ALLOW THIS GROUND OF APPEAL AND DELETE THE DISALLOWANCE. 21. GROUND NOS. 3 AND 4, THESE READ AS UNDER: 3. THE LEARNED CIT(APPEALS) HAS ERRED IN FACTS AN D IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.1,60,000 OUT OF T RANSPORT & REFRESHMENT EXPENSES. 4. THE LEARNED CIT(APPEALS) HAS ERRED IN FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.51,500 OUT OF VAR IOUS EXPENSES AS MENTIONED AT PAGE NO. 12 & 13 OF APPELLATE ORDER. 22. THEE GROUNDS ARE COMMON WITH SOLITARY GROUNDS O F APPEAL TAKEN BY THE REVENUE IN ASSESSMENT YEAR 1999-00 AS WELL AS I N ASSESSMENT YEAR 1998- 99. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE IN B OTH THESE YEARS READS AS UNDER: ASSESSMENT YEAR 1998-99: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT(APPEALS) ERRED IN DELETING THE ADDITION OF RS.2 0,85,000 MADE ON ACCOUNT OF BOGUS EXPENSES UNDER VARIOUS HEADS OF EX PENSES WHEN THE A.O. HAD SPECIFICALLY MENTIONED IN THE ASSESSMENT O RDER THAT THE DISALLOWANCES ARE MADE ONLY AFTER CONSIDERING DISAL LOWANCES MADE IN THE BLOCK ASSESSMENT AND THE ASSESSEE WILL NOT BE E NTITLED TO ANY 40 ADJUSTMENT FOR DISALLOWANCES MADE IN BLOCK ASSESSME NT ON ACCOUNT OF BOGUS EXPENSES. ASSESSMENT YEAR 1999-00 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN RESTRICTING THE ADDITION OF R S.23,40,000 TO RS.2,11,500 MADE ON ACCOUNT OF BOGUS EXPENSES UNDER VARIOUS HEADS OF EXPENSES WHEN THE A.O. HAD SPECIFICALLY MENTIONE D IN THE ASSESSMENT ORDER THAT THE DISALLOWANCES ARE MADE ON LY AFTER CONSIDERING DISALLOWANCES MADE IN THE BLOCK ASSESSM ENT AND THE ASSESSEE WILL NOT BE ENTITLED TO ANY ADJUSTMENT FOR DISALLOWANCES MADE IN BLOCK ASSESSMENT ON ACCOUNT OF BOGUS EXPENSES. 23. ALL THESE GROUNDS OF APPEALS ARE INTER-CONNECTE D TO EACH OTHER. BEFORE TAKING INTO CONSIDERATION THE FACTS AND CIRCUMSTANC ES DISCUSSED BY THE ASSESSING OFFICER IN THESE TWO REGULAR ASSESSMENT Y EARS, WE DEEM IT FIT TO TAKE A BRIEF BACKGROUND OF THE ASSESSEE SOCIETY AS DISCERNIBLE FROM THE ITATS ORDERS PASSED FOR THE BLOCK PERIOD. THE A SSESSEE IS A SOCIETY REGISTERED ON 4.2.1976 WITH THE REGISTRAR OF SOCIET IES UNDER THE SOCIETIES REGISTRATION ACT, 1960. ITS MAIN OBJECT IS TO RUN E DUCATIONAL INSTITUTIONS. IT WAS REGISTERED UNDER SEC. 12A OF THE INCOME-TAX ACT , 1961. ACCORDING TO THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESS MENT ORDER THE DATE OF REGISTRATION ORDER IS NOT CLEAR. THE SOCIETY IS RUN NING TWO UNRECOGNIZED 41 SCHOOLS, NAMELY, MANAV STHALI SCHOOL, DOUBLE STOREY , REJINDER NAGAR, NEW DELHI FOR CLASSES FOURTH TO SEVENTH, MANAV STHALI S CHOOL, BEHRA ENCLAVE, PASCHIM VIHAR, NEW DELHI FROM NURSERY TO SEVENTH. M S.VEENA RAMITRI IS THE HEAD MISTRESS OF RAJINDER NAGAR SCHOOL AND MRS. LAT A SETH IS THE HEAD MISTRESS OF PASCHIM VIHAR SCHOOL. ACCORDING TO THE ASSESSING OFFICER, SHRI VK BHATNAGAR, MA(HONS), LLB IS THE MAIN PERSON AND THE BRAIN BEHIND THE GROUP. HE USED TO DERIVE INCOME AS A TEACHER AND ST ARTED ACTIVITIES OF RUNNING THE SCHOOL. INITIALLY, PRIOR TO 1.1.1995, S OME OF THE SCHOOLS WERE RUN UNDER HIS PROPRIETARYSHIP CONCERN. ASSESSING OFFICE R HAS NOTICED THE DETAILS OF SUCH SCHOOLS ON PAGE 3 OF THE ASSESSMENT ORDER. ON 1.4.1994, BHATNAGAR INTERNATIONAL SCHOOL, PASCHIM VIHAR WAS UNDERTOOK B Y THE SOCIETY, NAMELY, SANT VASWANI EDUCATIONAL SOCIETY. EARLIER THIS SCHO OL WITH 491 STUDENTS WAS BEING RUN BY SHRI V.K. BHATNAGAR IN HIS PROPRIETARY SHIP CONCERN. SIMILARLY, ON 01.01.1995, THREE MORE SCHOOLS WERE TOOK OVER BY DIFFERENT SOCIETIES. IN THIS WAY, SEVEN SOCIETIES WERE RUNNING DIFFERENT SC HOOLS IN AND AROUND DELHI. A SEARCH AND SEIZURE OPERATION WAS CONDUCTED UNDER SEC.132 AT THE PREMISES OF THE ASSESSEE ALONG WITH THE PREMISES OF OTHER SI X SOCIETIES, EDUCATIONAL INSTITUTIONS AND INDIVIDUALS WHO WERE MANAGING THE AFFAIRS OF THE SOCIETIES. IN THE CASE OF ASSESSEE, AT MANAV STHALI SCHOOL, DO UBLE STOREY, A CASH OF RS.93,130 FOUND BUT NOT SEIZED AT THE MANAV STHALI SCHOOL, BEHRA ENCLAVE, 42 NO CASH WAS FOUND BUT DOCUMENTS AND A CPU WAS FOUND AND SEIZED. DOCUMENTS WERE INVENTORIZED AS A1 AND A20. 24. IN ASSESSMENT YEAR 1998-99, ASSESSING OFFICER W HILE REFERRING TO THE DOCUMENTS FOUND DURING THE COURSE OF SEARCH AND SEI ZURE HAS OBSERVED THAT SOCIETY WAS UNABLE TO PRODUCE REGULAR BOOKS OF ACCO UNT DURING THE BLOCK PERIOD. IT HAS PRODUCED COMPUTERIZED LEDGER RUNNING INTO 34 PAGES BUT FAILED TO GIVE REGULAR CASH BOOK, BILLS, RECEIPTS AND AGRE EMENT ETC. ACCORDING TO THE ASSESSING OFFICER, IN RESPECT OF MANAV STHALI SCHOO L, BEHRA ENCLAVE & DOUBLE STOREY, IT HAS PRODUCED ONLY DAY BOOK, LEDGE R CASH MEMO AND BILLS. NO CASH BOOK HAS BEEN PRODUCED. ACCORDING TO THE AS SESSING OFFICER, IN THE ABSENCE OF CASH BOOK, DAY TO DAY AVAILABILITY OF CA SH CANNOT BE ASCERTAINED. HE FOUND THAT ASSESSEE HAD MADE THE PAYMENT OF LACS OF RUPEES UNDER THE HEAD TRANSPORT, REFRESHMENT AND OTHER EXPENSES BU T NO WORK CONTRACT, WORK ORDER OR ANY AGREEMENT FOR TRANSPORT OR REFRESHMENT OR FOR ANY OTHER EXPENSES HAVE BEEN PRODUCED. ASSESSING OFFICER THER EAFTER DISCUSSED DOCUMENT MS-5 ANNEXURE A-2 PAGE NOS. 4 TO 267. ACCO RDING TO THE ASSESSING OFFICER, THESE ARE BILLS IN THE NAME OF D IFFERENT PERSONS FOR TRANSPORT, MISCELLANEOUS EXPENSES, REFRESHMENT, BUI LDING MATERIAL, BUILDING CONTRACTOR WITH INCOMPLETE PROFORMA, SIGNED VOUCHER S ON EACH REVENUE 43 STAMPS BUT NO BILLS, BLANK PAGES SIGNED ON STAMP WI TH AMOUNT BUT NATURE OF THE WORK IS NOT MENTIONED. THUS, BLANK SIGNED PAPER ON REVENUE STAMPS ARE FOUND WHICH INDICATED THE MAINTENANCE OF BOGUS VOUC HERS. HE MADE A REFERENCE TO THE INQUIRY MADE BY THE DDI(INV.) IN R ESPECT OF VOUCHERS PERTAINING TO M/S. BENGALI SWEET CORNER. ACCORDING TO THE ASSESSING OFFICER, M/S. BENGALI SWEET CORNER DENIED ANY RECEI PT. SIMILARLY, CERTAIN PARTIES WERE NOT FOUND AT THE GIVEN ADDRESS. HE MAD E A REFERENCE TO NINE PARTIES TO WHOM TRANSPORT CHARGES ALLEGED TO HAVE B EEN PAID. ASSESSING OFFICER THEREAFTER REFERRED TO SIX INDIVIDUALS WHO HAVE DENIED THE RECEIPT OF ANY MONEY FROM THE ASSESSEE. ASSESSING OFFICER, THE REAFTER REFERRED TO THE LETTERS WRITTEN BY MRS. VEENA SHARMA FROM PUSA ROAD . AS PER THESE LETTERS, CASH IN PACKET, AFTER WITHDRAWAL FROM THE BANK A/C. ARE SENT TO CENTRAL OFFICES. ASSESSING OFFICER, THEREAFTER MADE A REFER ENCE TO MS-8 AND OBSERVED THAT SMT. MONTE MALHOTRA, HEAD MISTRESS OF BHATNAGAR INTERNATIONAL SCHOOL HAS ACCEPTED IN HER STATEMENT THAT 910 STUDENTS ARE STUDYING IN THE SCHOOL AND DONATION IN CASH OR KIND WAS ACCEPTED BY THE SCHOOL WHILE ADMITTING THE STUDENTS. ASSESSING OFFI CER, THEREAFTER MADE A REFERENCE TO TWO CHEQUES BEARING NOS. 942311 AND 94 2312 DATED 27.10.1997. THESE CHEQUES WERE SHOWN TO BE ISSUED T O BHARAT FURNITURE COMPANY BUT IT WAS REPORTED BY THE BANKS THAT THESE WERE THE BEARER CHEQUES 44 ISSUED IN THE NAME OF INDRA MOHAN AND SECOND IN THE NAME OF JAGDISH PANDEY. THE CASH WAS WITHDRAWN THROUGH THE CHEQUES. ON THE BASIS OF THESE SHORTCOMINGS, THE ASSESSING OFFICER HAD ARRIVED AT A CONCLUSION THAT IN ASSESSMENT YEAR 1998-99, ASSESSEE HAS CLAIMED 48.64 LACS TOWARDS TRANSPORT AND REFRESHMENT EXPENSES, OUT OF THIS AMOUNT A SUM OF RS.16 LACS WAS TREATED AS NON-GENUINE AND IT WAS ADDED IN THE TOTA L INCOME OF THE ASSESSEE. APART FROM THESE RS. 15 LACS, ASSESSING OFFICER WOR KED OUT ESTIMATED DISALLOWANCE UNDER DIFFERENT HEADS. TOTAL DISALLOWA NCE MADE BY THE ASSESSING OFFICER IN 1998-99 IS RS.20,50,000. THE D ETAILS OF THESE EXPENSES HAVE BEEN NOTICED BY THE LEARNED CIT(APPEALS) AT PA GE 13 IN PARAGRAPH NO.5.1 WHICH READS AS UNDER: EDUCATION IMPROVEMENT EXPENSES 60000.00 LEGAL EXPENSES 10000.00 TRANSPORT AND REFRESHMENT 1500000.00 RIDING EXPENSES 50000.00 PROFESSIONAL EXPENSES 65000.00 REPAIR & MAINTENANCE (BUILDING) 150000.00 REPAIR & MAINTENANCE (VEHICLE) 50000.00 DIESEL & PETROL EXPENSES 50000.00 GARDENING AND PLANTATION 50000.00 LABOUR CHARGES 50000.00 STUDENT WELFARE EXPENSES 50000.00 45 MUSIC AND DANCE EXPENSES 5000.00 2085000.00 25. IN ASSESSMENT YEAR 1999-00, AN IDENTICAL OBSERV ATIONS WERE MADE. HE HAS OBSERVED THAT ASSESSEE HAS CLAIMED RS.54.03 LAC S OF RUPEES UNDER THE HEAD TRANSPORTATION AND REFRESHMENT EXPENSES. ACC ORDING TO THE ASSESSING OFFICER, A SUM OF RS.22.69 LACS IS COMPLETELY BOGU S. A SUM OF RS.9 LACS HAS BEEN DISALLOWED AND ADDED IN THE BLOCK ASSESSMENT. THEREFORE, ONLY A SUM OF RS. 16 LACS HAS ADDED IN THE PRESENT REGULAR ASS ESSMENT. UNDER THE OTHER HEADS, I.E. EDUCATIONAL IMPROVEMENT, LEGAL AND CONS ULTANCY, PROFESSIONAL CHARGES ETC. AN ADDITION OF RS.5,15,000 WAS MADE. I N THE COMPUTATION, AT THE END OF THE ASSESSMENT ORDER, AN AMOUNT OF RS.7,40,0 00 HAS BEEN SHOWN BUT LEARNED CIT(APPEALS) HAS CONSIDERED THE ISSUE WITH REGARD TO RS.5,15,000. 26. DISSATISFIED WITH THE ADDITION, ASSESSEE CARRIE D THE MATTER IN APPEAL BEFORE THE LEARNED CIT(APPEALS). IT IS CONTENDED TH AT THE DDIT(INV.) HAS MADE INQUIRIES WITH REGARD TO THE PARTIES WHO HAS G IVEN TRANSPORT FACILITIES TO THE SCHOOL FROM THE BACK OF THE ASSESSEE AND NEVER REVEALED THE NATURE OF INQUIRY. THUS, ASSESSING OFFICER IS NOT JUSTIFIED T O MAKE A REFERENCE TO THE INQUIRY MADE BY THE LEARNED DDIT FOR MAKING THE DIS ALLOWANCE. THE COGNIZANCE OF SUCH INQUIRY CANNOT BE TAKEN FOR MAKI NG THE ADDITION. 46 ASSESSING OFFICER HAD MADE A REFERENCE TO THE SEIZE D MATERIAL. HE HAD MADE GENERAL OBSERVATIONS ABOUT ALL THE SOCIETIES AND TH E SCHOOL MANAGED BY THEM. HE HAS NOT PIN POINTED THE NATURE OF EXPENSE WHERE ASSESSEE HAS DEBITED IT AND HOW IT IS DISALLOWABLE. ASSESSING OFFICER HAS M ADE A REFERENCE TO THE LIST OF PARTIES BUT ASSESSEE HAS NO TRANSACTIONS WITH TH ESE PARTIES DURING THE YEAR. NO DOUBT, TRANSACTIONS WERE WITH CERTAIN PARTIES WH OSE ANTECEDENTS HAVE BEEN ENQUIRED BY THE ASSESSING OFFICER AND WHO HAVE FAILED TO APPEAR BEFORE HIM. BUT THERE MAY BE MANY REASONS FOR SUCH FAILURE . THESE PARTIES MIGHT NOT BE PAYING ANY TAX. THEY MIGHT NOT BE INTERESTED TO EXPOSE THEMSELVES TO THE INCOME-TAX AUTHORITIES. THE INQUIRY HAS BEEN M ADE AFTER A LAPSE OF MANY YEARS, IT MAY BE DIFFICULT TO LAY HANDS ON THE RELE VANT MATERIAL FOR THOSE PARTIES. IT WAS ALSO CONTENDED THAT ASSESSING OFFIC ER HAD MADE A REFERENCE TO THE DOCUMENTS MS-5 AND MS-8 ETC. BUT THESE DOCUMENT S HAVE NO RELEVANCY WITH THE REGULAR ASSESSMENT. 27. LEARNED FIRST APPELLATE AUTHORITY HAS GONE INTO THE SUBMISSIONS MADE BY THE ASSESSING OFFICER. HE OBSERVED THAT IN THE B LOCK ASSESSMENT, A SUM OF RS.77,50,000 HAS BEEN DISALLOWED UNDER THESE HEADS. OUT OF THE TOTAL DISALLOWANCE, HE HAS CONFIRMED RS.33,43,522. CONSID ERING THE CONFIRMATION OF THIS AMOUNT, HE DID NOT WISH TO SUSTAIN FURTHER DISALLOWANCE IN THE REGULAR 47 ASSESSMENT ON AN ESTIMATE BASIS. HOWEVER, IN ASSESS MENT YEAR 1999-00, HE CONFIRMED THE DISALLOWANCE OF RS.1,60,000 BEING 10% OF THE TOTAL TRANSPORT AND REFRESHMENT EXPENSES DISALLOWED BY THE ASSESSIN G OFFICER. SIMILARLY, HE CONFIRMED THE DISALLOWANCE OF RS.51,500 OUT OF THE TOTAL OTHER EXPENSES DISALLOWED BY THE ASSESSING OFFICER. IN OTHER WORDS , LEARNED CIT(APPEALS) HAS CONFIRMED THE DISALLOWANCE TO THE EXTENT OF 10% OF THE TOTAL DISALLOWANCE MADE BAY THE ASSESSING OFFICER. HE HAS CONFIRMED THE DISALLOWANCE TO RS.2,11,500 AS AGAINST RS.23,40,000 IN ASSESSMENT YEAR 1999-00 WHEREAS IN ASSESSMENT YEAR 1998-99, HE HAS DELETED THE DISALLOWANCE. 28. THE ASSESSEE IN ITS APPEAL IS IMPUGNING THE CON FIRMATION OF DISALLOWANCE AT RS.2,11,500 IN ASSESSMENT YEAR 1999 -00 WHEREAS REVENUE IS IMPUGNING THE DELETION OF DISALLOWANCE IN BOTH THE ASSESSMENT YEARS. 29. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORD CAREFULLY. AN IDENTICAL ISSUE AROSE IN THE BLOCK ASSESSMENT AND WE MADE THE FOLLOWING OBSERVATIONS. 17. GROUND NO.1(I): THIS GROUND OF REVENUES APPEA L IS INTER- CONNECTED WITH GROUND NO.2 OF ASSESSEES APPEAL. TH E AO HAS MADE 48 AN ADDITION OF RS.50.50 LACS BY MAKING A DISALLOWAN CE OUT OF TRANSPORT AND REFRESHMENT EXPENSES. LEARNED CIT(A) HAS RESTRI CTED THIS DISALLOWANCE TO RS.33,43,522. THE ASSESSEE IS IMPUG NING THIS RETENTION OF THE ADDITION WHEREAS THE REVENUE IS IM PUGNING THE PART DELETION OF THE ADDITION. THE LEARNED COUNSEL FOR T HE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT SIMILAR ADDITION WAS MAD E IN THE CASE OF OTHER SOCIETIES, NAMELY, RAJINDER NAGAR EDUCATION, NAV MANAV SANSTHAN, VIREJNDER BHATNAGAR AND SANT VASWANI EDUC ATION SOCIETY. THESE ADDITIONS HAVE BEEN DELETED IN THOSE CASES. T HE FACTS IN THE PRESENT CASE AS WELL AS IN ALL THOSE CASES ARE COMM ON. HE FURTHER CONTENDED THAT THE FACTS IN THE PRESENT CASE ARE ON A BETTER FOOTING BECAUSE IN THIS CASE ASSESSEE HAS FILED THE RETURN FOR ASSESSMENT YEARS 1992-93 TO 1998-99. THESE EXPENSES ARE FORMING PART OF THE REGULAR BOOKS. THESE HAVE BEEN ACCEPTED BY THE AO IN THE RE GULAR RETURNS. IN THE BLOCK RETURN, AO HAS MADE ESTIMATED DISALLOWANC E OUT OF THE TOTAL EXPENSES. HE FURTHER CONTENDED THAT THE ASSESSEE HA D INCURRED A SUM OF RS.1.82 CRORES UNDER THIS HEAD. THE DETAILS HAVE DULY BEEN NOTICED BY THE AO ON PAGE NO.13 OF THE ASSESSMENT ORDER. TH E BASIC GRIEVANCE OF THE AO IS THAT THE PAYMENTS WERE MADE TO FIFTY PARTIES OUT OF THOSE FIFTY, TWENTY FOUR PARTIES WERE FOUND TO BE BOGUS. 49 THEREFORE, AO HAS MADE AN ESTIMATED ADDITION BY DIS ALLOWING 25% OF THE TOTAL CLAIM RESULTING INTO AN ADDITION OF RS.50 .50 LACS. LEARNED CIT(A) HAS RESTRICTED THIS DISALLOWANCE TO RS.33,53 ,522 WHICH RELATES TO THE PAYMENTS MADE TO ALLEGED TWENTY FOUR PARTIES . 18. LEARNED DR ON THE OTHER HAND RELIED UPON THE OR DER OF THE AO AND POINTED OUT THAT DURING THE BLOCK ASSESSMENT PR OCEEDINGS, AO DIRECTED THE ASSESSEE TO PROVE THE INCURRENCE OF EX PENSES. ASSESSEE COULD NOT PRODUCE TWENTY FOUR PARTIES AND THEY WERE FOUND TO BE BOGUS ONE, THEREFORE, AO HAS RIGHTLY MADE THE ADDIT ION OF 25% OF TOTAL EXPENSES. 19. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS A ND GONE THROUGH THE RECORD CAREFULLY. IF THIS ISSUE IS EXAM INED WITHIN THE MEANING OF SCOPE OF BLOCK ASSESSMENT AS DISCUSSED S UPRA, THEN IT WOULD REVEAL THAT ALL THESE CLAIMS WERE MADE BY THE ASSESSEE IN THE REGULAR RETURN AND THESE EXPENSES WERE ALLOWED TO T HE ASSESSEE. THEIR GENUINENESS CANNOT BE EXAMINED IN THE BLOCK ASSESSM ENT PROCEEDINGS. THESE WERE BROUGHT TO THE NOTICE OF THE DEPARTMENT IN THE REGULAR ASSESSMENT. DURING THE COURSE OF SEARCH, NO SPECIFI C MATERIAL WAS FOUND RELATING TO THE ASSESSEE SOCIETY WHICH INDICA TES THAT THE CLAIM MADE BY THE ASSESSEE IN THE REGULAR RETURNS OF INCO ME WAS FALSE. IF THE 50 EXPENSES WERE NOT GENUINE THESE COULD HAVE BEEN DIS ALLOWED IN THE REGULAR RETURNS OF INCOME. APART FROM THE ABOVE, WE FIND THAT SIMILAR ISSUE WAS CONSIDERED IN THE CASES WHERE EVEN NO RET URN WAS FILED BY THE ASSESSEE SOCIETIES, THE ADDITIONS HAVE BEEN DEL ETED. THE FINDING IN THE CASE OF MANAV STHALI, RAJINDER NAGAR SOCIETY HA VE BEEN REPRODUCED IN THE CASE OF SANT VASMANI EDUCATION SO CIETY IN ITA NO.30/DEL/2007 WHICH READ AS UNDER: THIS ADDITION IS BASED ON THE FACT THAT THE ASSESS EE HAD MADE PAYMENT OF TRANSPORT CHARGES TO 3 PERSONS WHO WERE IDENTIFIED BY THE DY.DIT AS NON-EXISTING PERSONS. THEY ARE JEET SINGH, JAGDISH BUS SERVICE AND SURENDRA TRAVELS. T HE LD.A.O. HAVE NOT EVEN APPRECIATED THE FACT THAT OUT OF THES E 50 PARTIES, NO TRANSACTION WHATSOEVER HAS BEEN CARRIED OUT BY THE ASSESSEE SOCIETY WITH 32 PARTIES AND SO FAR AS THE REMAINING 18 PART IES ARE CONCERNED, THE TRANSACTIONS WITH THESE PARTIES ARE DULY SUPPORTED BY THE RELEVANT DOCUMENTARY EVIDENCES. THE TRANSPO RT AND MISC. EXPENSES TO THE TUNE OF RS.4,98,307/- WERE ALLEGED TO BE FOUND TO BE UNVOUCHED AND EVEN IN RESPECT OF THESE EXPENSES, THE COPIES OF THE RELEVANT DOCUMENTARY EVIDENCES WERE DULY FURNIS HED VIDE LETTER DATED 22.01.2001 BY THE ASSESSEE TO THE AO. UNDER THESE CIRCUMSTANCES, IT IS CLEARLY EVIDENCE THAT THE LD.A .O. HAVE ERRED IN DRAWING AN ADVERSE INFERENCE REGARDING THE GENUINEN ESS OF THE TRANSPORT AND MISC. EXPENDITURE INCURRED BY THE ASS ESSEE WITHOUT APPRECIATING THE ACTUAL FACTS AND CIRCUMSTANCES AND ALSO WITHOUT CONSIDERING WHATEVER JUSTIFICATION WAS FURNISHED BY THE ASSESSEE IN SUPPORT OF GENUINENESS OF THESE EXPENSES. BESIDES THE ABOVE NO ENQUIRY WAS MADE BY THE AO REGARDING THE EXISTENCE OF THESE 3 51 PARTIES AND RELIANCE HAS BEEN PLACED BY HIM ONLY ON THE INVESTIGATION MADE BY DY.DIT. IN OUR VIEW SUCH AN APPROACH IS NOT PERMISSIBLE IN LAW. THEREFORE, THE ADDITION SU STAINED BY THE LD.CIT(A) IS DIRECTED TO BE DELETED. GROUND NO.3 O F THE REVENUE IS DISMISSED, WHILE GROUND NO.2 OF THE ASSESSEE IS ALL OWED. 36. THE ISSUE INVOLVED IN THE PRESENT CASE AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THE CASE OF R AJINDER NAGAR EDUCATION SOCIETY INASMUCH AS THE DETAILS OF THE EXPENSES IN QUESTION AS WELL AS COPIES OF THE RELEVANT DOCUMENTARY EVIDENCE WERE FU RNISHED BY THE ASSESSEE BEFORE THE AO VIDE LETTER DATED 29.8.2000. DESPITE THESE DETAILS FURNISHED BY THE ASSESSEE, AN ADVERSE INFERENCE REG ARDING GENUINENESS OF THE TRANSPORT AND REFRESHMENT EXPENSES WAS DRAWN BY THE AO AS WELL AS BY THE LEARNED CIT(A) WHICH, AS HELD BY THE TRIBUNAL I N THE CASE OF RAJINDER NAGAR EDUCATION SOCIETY, WAS NOT JUSTIFIED. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE WAS DIRECTED TO FURNISH THE DETAILS OF EXPENSES INCURRED BY THE ASS ESSEE-SOCIETY ON TRANSPORT AND REFRESHMENT IN THE SUBSEQUENT YEARS A LONGWITH THE CORRESPONDING RECEIPTS. A PERUSAL OF THE SAID DETA ILS FURNISHED BY HIM SHOWS THAT HARDLY ANY PROFIT WAS EARNED BY THE ASSE SSEE-SOCIETY FROM THE ACTIVITIES OF PROVIDING TRANSPORT AND REFRESHMENT F ACILITY TO THE STUDENTS OF ITS SCHOOL AND AS THE SAID RESULTS HAVE BEEN ACCEPT ED BY THE AO IN THE REGULAR ASSESSMENTS FOR THE RELEVANT YEARS, IT SUPP ORTS THE CASE OF THE ASSESSEE THAT THE SAID ACTIVITY WAS BEING CARRIED O N ON NO-PROFIT NO-LOSS BASIS. KEEPING IN VIEW ALL THESE FACTS OF THE CASE AND RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF RAJINDER NAGAR EDUCATION SOCIETY ON A SIMILAR ISSUE, WE HOLD THAT THE ADDITION MADE BY THE AO AND SUSTAINED BY THE LEARNED CIT(A) BY WAY O F DISALLOWANCE OF TRANSPORT AND REFRESHMENT EXPENSES WAS NOT JUSTIFIE D AND DELETING THE SAME, WE ALLOW FIRST PART OF GROUND NO.3 OF THE ASS ESSEES APPEAL AND DISMISS GROUND NO.3 OF THE REVENUES APPEAL. 52 20. TAKING INTO CONSIDERATION THE ABOVE FACTS AND C IRCUMSTANCES OF THE CASE, NO ADDITION OUT OF TRANSPORT AND REFRESHMENT EXPENS ES DESERVES TO BE MADE IN THE CASE OF ASSESSEE. THEREFORE, GROUND NO.1(II) RAISED BY THE REVENUE IS REJECTED WHEREAS GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOW ED. 30. WE HAVE DELETED THE DISALLOWANCE IN THE BLOCK A SSESSMENT FOR TWO REASONS, FIRSTLY ASSESSEE HAS SHOWN THESE EXPENSES IN THE REGULAR ASSESSMENT, THEREFORE, THEY CANNOT BE EXAMINED IN THE BLOCK ASS ESSMENT. THEIR GENUINENESS COULD BE EXAMINED IN THE REGULAR ASSESS MENT. THE SECOND REASON WHICH WE HAVE GIVEN IS THAT IN THE CASE OF R AJENDER NAGAR SOCIETY AND SMT. VASWANI EDUCATION SOCIETY, THE NATURE OF T HESE VERY EXPENSES HAVE BEEN EXAMINED. THE ITAT HAS OBSERVED THAT ASSESSING OFFICER FAILED TO APPRECIATE THE FACTS AND CIRCUMSTANCES IN RIGHT PER SPECTIVE. ASSESSING OFFICER HAS MADE A REFERENCE TO 50 PARTIES IN THE B LOCK ASSESSMENT FOR THESE TWO SOCIETIES WHEREAS THERE WAS NO TRANSACTION WITH 32 PARTIES. WITH REGARD TO THE REMAINING 18 PARTIES, PAYMENTS WERE MADE THR OUGH CHEQUES AND DETAILS OF EXPENDITURE WERE DULY VOUCHED. IN THESE REGULAR ASSESSMENTS, WE FIND THAT REFERENCE TO THE DOCUMENTS AND TUNER OF T HE ASSESSING OFFICER IS SIMILAR TO THAT OF THE BLOCK ASSESSMENT BUT ONE THI NG IS CLEAR THAT IN REGULAR ASSESSMENT, IT IS FOR THE ASSESSEE TO PROVE THE CLA IM OF ITS EXPENSES. IT IS THE 53 ASSESSEE WHO HAS BRING DEMONSTRATIVE EVIDENCE ON TH E RECORD IN SUPPORT OF ITS CLAIM FOR EXPENSES. ASSESSING OFFICER HAD MADE A DISCUSSION ABOUT THE NATURE OF THE ACCOUNTS MAINTAINED BY THE ASSESSEE. ACCORDING TO THE ASSESSING OFFICER, ASSESSEE FAILED TO PRODUCE AGREE MENT, IF ANY, BETWEEN IT AND THE TRANSPORTER. IT ALSO FAILED TO PRODUCE AGRE EMENT BETWEEN THE INDIVIDUALS WHO HAVE SUPPLIED REFRESHMENT TO THE SC HOOL. HOWEVER, WHILE WORKING OUT THE DISALLOWANCE, ASSESSING OFFICER HAS IGNORED THAT IN PROVIDING REFRESHMENT TO THE STUDENTS AND TRANSPORT FACILITY, ASSESSEE HAS NOT BEEN EARNING ANY PROFIT. NOT ONLY IN THESE TWO ASSE SSMENT YEARS, BUT IN ALL OTHER ASSESSMENT YEARS, IT WAS THE CASE OF THE ASSE SSEE THAT THESE FACILITIES WERE PROVIDED TO THE STUDENTS ON NO PROFIT BASIS. S TUDENTS WERE FREE TO MAKE THEIR OWN TRANSPORT ARRANGEMENTS IF TRANSPORT FACIL ITY PROVIDED BY THE SCHOOL WAS NOT VIABLE TO THE STUDENTS. TAKING INTO CONSI DERATION THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT NE ITHER THE ASSESSING OFFICER NOR THE ASSESSEE ESTABLISHED THEIR CASES. A SSESSING OFFICER HAS MADE REFERENCE TO IRRELEVANT DOCUMENTARY EVIDENCE FOR BR INGING THE POINT AT WHOM THAT EXPENSES CLAIMED BY THE ASSESSEE WERE BOGUS WH EREAS ON THE OTHER HAND, ASSESSEE FAILED TO MAINTAIN ITS AFFAIRS WITH COMPLETE DOCUMENTS. IT ONLY PRODUCED A COMPUTERIZED LEDGER WHERE EXPENSES HAVE BEEN DEBITED. IT IS QUITE DIFFICULT TO VERIFY THE CORRECTNESS OF THE EX PENSES CLAIMED BY THE 54 ASSESSEE ON THE BASIS OF THE DOCUMENTARY EVIDENCE M AINTAINED BY IT. IT MAY BE TRUE THAT ASSESSEE MIGHT NOT BE EARNING ANY PROF IT FROM THESE FACILITIES BUT ITS ACCOUNTS ARE UNABLE TO SUBSTANTIATE ITS CLAIM C LEARLY, ELIMINATING EVERY ROOM OF DOUBT. THUS, ON DUE CONSIDERATION OF ALL TH E FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT 20% OF THE EXPENSES DISALLO WED BY THE ASSESSING OFFICER DESERVES TO BE CONFIRMED IN BOTH THE ASSESS MENT YEARS. WE MAKE IT CLEAR THAT IN ASSESSMENT YEAR 1998-99, WE CONFIRM T HE DISALLOWANCE AT RS.4,20,000 IN ASSESSMENT YEAR 1998-99 AND RS.4,30, 000 IN ASSESSMENT YEAR 1999-00. CONFIRMATION OF THIS ADDITION WILL MEET TH E ENDS OF JUSTICE. CONSEQUENTLY, GROUND NOS.3 AND 4 RAISED BY THE ASSE SSEE IN ASSESSMENT YEAR 1999-00 ARE REJECTED WHEREAS THE SOLITARY GROUND RA ISED BY THE REVENUE IN BOTH THE ASSESSMENT YEARS IS PARTLY ALLOWED. 31. IN THE RESULT, ALL THE APPEALS ARE PARTLY ALLOW ED. DECISION PRONOUNCED IN THE OPEN COURT ON 29.04.2011 -SD- -SD- ( B.C. MEENA ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 29/04/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 55 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR
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