Case Law Details
Brief of the Case
ITAT Chandigarh held In the case of DCIT vs. M/s Indo Soviet Friendship that the Assessing Officer has not brought any material on record as to how he has given his finding that the cars have been purchased for the benefit of the Chairman. The Assessing Officer was also not justified in holding that the assessee trust has no requirement to maintain luxury car. The expenses should be considered from the point of view of the assessee and not for the point of view of the Assessing Officer. In the absence of any material brought on record against the assessee, the order of the Assessing Officer could not be sustained. Further, it is not in dispute that Shri Anoop to visit various Government Departments in connection with the activities of the assessee trust. No incriminating material was found during the course of search if the Chairman has used the cars for personal purposes. Therefore, it appears that addition has been made wholly on adhoc basis which could not be sustained in law.
Facts of the Case
A search & seizure operation was conducted on 15.07.2008 at the residence and office premises at individual and group of concerns of M/s B.R. Institute of Medical Sciences. The assessee society is granted registration under section 12AA on 06.06.1997.
ITA 478/2013
Disallowance of expenses on Adhoc basis
The Assessing Officer noted that provisions of Section 13(2) (b) and (c) applies in the case of the assessee and that disallowance out of salary, allowances or otherwise paid to the trustees out of the resources of the institution for services rendered by such persons to such institution need to be disallowed if there is any excess amount of what may be considered as reasonable payment for such services. The assessee trust maintained luxury cars such as Skoda, Ford Icon and Sonata. However, above cars were being used by Shri Anoop Garg, Chairman of the trust. The Assessing Officer noted that trust has no requirement to maintain such luxury cars. Cars have been used by the Chairman, therefore, Assessing Officer noted that the vehicle running expenses and depreciation must have been used for the benefit of trust as well and accordingly disallowed 50% of the expenses and addition was made in a sum of Rs. 8,84,410/- .
Addition on account of mismatch of trial balances
The Assessing Officer noted that the CPU was seized from the premises of M/s BRS Institute of Medical Sciences. The computerized accounts from the computer of the assessee shows that there are two separate trial balances in the same period from 01.04.2003 to 31.03.2004. In one trial balance for the above period, the grand total of debits comes to Rs. 10,88,57,474.06. On the other hand, second trial balance for the same period shows the total debit balance of Rs. 9,01,70,093.78. The Assessing Officer noted that assessee failed to explain difference in the two trial balances and accordingly, made the addition of difference of Rs.1,86,87,381/- .
Addition on account of rough noting in diary
It is stated that two diaries marked as A-1 and A-2 were found and seized from the residence of the Chairman of the assessee society ShrI Anoop Garg. On comparing the contents of the diary with the books of account impounded during the course of search and in the absence of any reconciliation furnished, the Assessing Officer concluded that the assessee was receiving capitation fees from the students over and above the normal fees and in the bargain, the assessee had violated the provisions of Section 2(24) (ii) . The Assessing Officer by referring to copy of the seized paper and list of 59 students in the assessment order found that several receipts are not accounted for by the assessee and accordingly, made addition of Rs. 4 Crores on account of undisclosed receipts of the assessee.
Contention of the Assessee
ITA 478/2013
Disallowance of expenses on Adhoc basis
The ld counsel of the assessee submitted that accounts of the assessee are audited and addition is made purely on estimate basis without finding as to which of the expenses are not wholly and exclusively incur red for the objectives of the trust. He has submitted that Chairman is mainly looking after the working of the assessee trust and has to visit several official departments like Dental Council of India, Delhi, Kurukshetra University, Pandit B.D.Sharma University and High Court and Supreme Court for legal cases alongwith CBSE, Panchkula and other departments of the Punjab and Delhi . He has submitted that cars have been owned by the assessee trust and Chairman uses the same for the purpose of trust only. Only one car is used by the Chairman i.e. Mercedes.
It was also submitted that the Chairman Shri Anoop Garg is the keyman of the trust and has not been doing any other business activity. He has, therefore, submitted that adhoc addition was wholly unjustified. He has refer red to certain decisions of different Benches of the Tribunal relied upon before CIT (A).
Addition on account of mismatch of trial balances
The ld. counsel for the assessee reiterated the submissions made before authorities below. He has refer red to PB-629 to 634 which is the reconciliation of the above figure on the basis of the chart prepared for complete trial balance and incomplete trial balances and submitted that difference was reconciled due to missing of certain entries. The details of complete trial balances are filed at PB-635 to 640 and details of incomplete trial balances are filed at PB- 641 to 646 and all the annexures to this reconciliation are filed in the Paper Book. He has submitted that due to difference on account of missing entries, incomplete trial balance should not be accepted by the Assessing Officer and the ld. CIT (Appeals) on proper appreciation of facts and material on record, rightly deleted the addition.
Addition on account of rough noting in diary
The ld. counsel for the assessee reiterated the submissions made before authorities below. He has submitted that diary in quest ion was found from the residence of the Chairman of the assessee trust ShrI Anoop Garg and the same belongs to him only. It was written in the handwriting of Shri Anoop Garg. Shri Anoop Garg has made surrender amount of Rs. 75,70,684/- for assessment year 2008-09 under consideration in his individual return which has also been accepted by the department .
On the date of search, there were no admissions of the students. None of the students or their parents have been examined by Assessing Officer. Protective assessment was made in the case of Shri Anoop Garg of the same amount which clearly show that the diary only belong to the Chairman Shri Anoop Garg. He has submitted that CIT (A) correctly deleted the additions which pertain to duplicate entries or the amounts recorded in the books of account. He has submitted that when students have not been admitted in the institution of the assessee trust, there is no question of charging any fees. The amounts already recorded in the books of account should not be added in the hands of the assessee. He has submitted that out of amount of Rs. 1,66,40,072/- of column 6 of the chart prepared by CIT(A) , Rs. 1,27,73,280/- was recorded in the books of account till the time of the search which is evident from the seized record which is also clear from column No. 6 of the chart prepared on the basis of the seized material and Rs. 38,66,792/- is the amount which was recorded in the books of account after the date of search which is clear from column 10 of the chart prepared and filed on record. He has, therefore, submitted that the entire addition was wholly unjustified.
The entries in the seized diary are the estimated amount of the fees to be received from the students for whole of the course which runs for 4 years in case of BDS and three years in case of MDS. He has also submitted that the dates corresponding to the entries in the diaries are mostly for the month of July, 2007 and August,2007. Sample copies of the pages are filed on record but the Counseling of the students to be admitted for the course were actually till September, 2007. He has submitted that after completion of the Counseling Session and on receipt of the approved list, the students were admitted. He has, therefore, submitted that entire addition is unjustified in the hands of the assessee trust.
Contention of the Revenue
ITA 478/2013
Disallowance of expenses on Adhoc basis
The ld counsel of the revenue relied upon order of the Assessing Officer and submitted that since luxury cars have been used by the Chairman of the assessee trust, therefore, disallowance was correctly made by the Assessing Officer.
Addition on account of mismatch of trial balances
The ld. DR relied upon order of the Assessing Officer and submitted that difference was not reconciled at the assessment stage.
Addition on account of rough noting in diary
The ld counsel of the revenue relied upon orders of the authorities below
Held by CIT (A)
ITA 478/2013
Disallowance of expenses on Adhoc basis
CIT (A), following his order for assessment year 2008-09 deleted the addition.
Addition on account of mismatch of trial balances
The CIT (A) in his findings noted that Assessing Officer has not rebutted the submissions of the assessee. The assessee was asked to prepare a chart from the ledger account which was available with the department being part of the seizure to compare the two trial balances. On comparison of the same, it was seen that not recording of bank entries etc. was the reason for difference which is reconciled. The ld. CIT (A) accordingly, deleted the addition.
Addition on account of rough noting in diary
The CIT (A) considering the evidence and material on record along with remand report prepared a chart of all 59 students and reproduced the same in his findings and gave benefit to the assessee in respect of items mentioned in column No. 4 of his chart with regard to benefits given by the Assessing Officer after remand report and deleted the addition of Rs. 1,31,86,080/- and rest of the addition was confirmed.
Held by ITAT
ITA 478/2013
Disallowance of expenses on Adhoc basis
The CIT (A) noted that there is no dispute that ShrI Anoop Garg, Chairman is solely engaged in running the institution. The accounts of the assessee trust have been audited and nothing incriminating as regards the personal use of vehicles nor details regarding payment of salary was found in the course of search. The case made out by the Assessing Officer was that there is no requirement to maintain luxury cars. The CIT (A), considering these facts found that the Chairman did not have his own vehicle.
The CIT (A) relied upon decision of the Delhi High Court in the case of Moti Bagh Mutual Aid Education 298 ITR 190 in which it was held that, “Even if there are minor contradictions or deviations in the accounts of assessee, that by itself cannot substantiate the allegation that assessee does not exist solely for educational purposes or that it exist partly for profit motive ” The CIT(A) noted that providing of car , whatever be the model , to the Chairman, who devoted full time to the trust , cannot be said to be unreasonable. It was also noted that depreciation is a statutory allowance; therefore, disallowance should not be made.
The Assessing Officer has not brought any material on record as to how he has given his finding that the cars have been purchased for the benefit of the Chairman. The Assessing Officer was also not justified in holding that the assessee trust has no requirement to maintain luxury car. The expenses should be considered from the point of view of the assessee and not for the point of view of the Assessing Officer. In the absence of any material brought on record against the assessee, the order of the Assessing Officer could not be sustained. Further, it is not in dispute that Shri Anoop to visit various Government Departments in connection with the activities of the assessee trust. No incriminating material was found during the course of search if the Chairman has used the cars for personal purposes. Therefore, it appears that addition has been made wholly on adhoc basis which could not be sustained in law. The findings of the Assessing Officer have no basis what -so-ever, therefore, CIT (A) was justified in deleting the addition.
Further, for proving the allegations under section 13(2) (c), assessing Officer should bring some evidence on record as to what should be the reasonable amount which should be paid for the services rendered by the Chairman. However, Assessing Officer has not brought anything on record as to how he has calculated the reasonable amount to be paid on the aforesaid issues. Therefore, we do not find any error in the order of the CIT (A).
Addition on account of mismatch of trial balances
The assessee has given the reasons for difference in the trial balance and reconciled the same with the help of reconciliation statement, copies of which are filed at pages 629 to 634 of the Paper Book. The assessee has given complete details of complete trial balances and incomplete trial balances and the remarks and the reasons for difference in the figure. These figures have been reconciled and is supported by all the entries made in the books of account. The difference in both the trial balances was thus, due to certain missing entries which have been even reconciled before us during the course of arguments. When all these reconciliations were submitted to the Assessing Officer for his comments, the explanation of the assessee was not rebutted by the Assessing Officer in any manner. Thus, the CIT (A) on the basis of material on record, was rightly satisfied with reconciliation done between incomplete trial balance and complete trial balance.
Further, when assessee prepared the balance sheet on the basis of complete data available in the trial balances, the figure came to more as compared to the lesser figure taken by the Assessing Officer from the incomplete trial balance. Therefore, this itself would show that there were no basis what -so-ever for making addition against the assessee. It was merely a mistake in not making certain entries in incomplete trial balance, thus could not be termed as undisclosed income of the assessee. The CIT (A) on proper appreciation of facts and reconciliation statement filed before him, was justified in deleting the addition.
Addition on account of rough noting in diary
The ld. CIT(Appeals) deleted the entire addition of Rs. 1.31 Cr , however , revenue has accepted deletion of substantial addition but preferred to challenge the deletion of addition of Rs. 38,80,000/- only, on the same reasons on which substantial addition has been deleted. There is, therefore, no propriety in filing Department appeal on same issue in parts. The reasons for deletion of addition is same for which huge addition was deleted by ld. CIT(Appeals) and that too on the basis of comments received from the Assessing Officer during remand proceedings. The ld. DR during the course of arguments, have not been able to point out any infirmity in the order of ld. CIT(Appeals) in deleting the addition of Rs. 38,80,000/- . On going through the material on record, we find that ld. CIT(Appeals) was justified in deleting the addition in respect of duplicate entries/double additions made by the Assessing Officer and part of the amount which was not recorded.
As far as the appeal of the assessee is concerned, the assessee challenged the addition of Rs. 2,68,13,920/- on the same issue based on rough notings in the seized diaries. It is not in dispute that diary in quest ion was recovered from the residence of Shri Anoop Garg which contained entries in his own writing. The statement of Shri Anoop Garg was recorded on 15.07.2008 i .e. the date of search. Copy of the same is placed on record. Several quest ions were asked to him during his examination seeking explanation with regard to entries contained in the diary. He has, however, did not make any statement against the assessee trust with regard to receipt of any capitat ion fees/extra fees received on behalf of the assessee trust . According to the statement of the assessee, the entries found in the seized diary are the estimated amount of fees to be received from the students during the whole course because the course runs for three to four years. The assessee in the Paper Book has filed the Admission Counseling held by the University for admission in the Institution of the assessee trust and also filed approved list of the students to be admitted. The Counseling has been held from 13.07.2007 to 27.09.2007. Thus, the fees would have been received by the assessee trust after approval of the list by the university. There is no quest ion of receipt of any fees by the assessment trust later on i .e. date of search 15.07.2008. The date of search is 15.07.2008 and as such revenue should have proved the nexus of the entries contained in the seized diary with the amount received by the assessee trust.
The submissions of the assessee have also been corroborated by the fact that the CIT(Appeals) after calling for the remand report from the Assessing Officer also found that in the seized diary, there were large number of duplicate entries of the names and double additions made in the diary itself . The seized diary also pertained to the amounts recorded in the books of account or where part of the sum are not recorded. Therefore, CIT (A) found that addition of Rs. 1.31 Cr is wholly unjustified. Thus, the reliability of the seized diary itself is in doubt that the same pertain to the activities of the assessee trust or have given actual picture of the alleged amount received by the assessee trust . The finding of fact recorded by the ld. CIT (A) in deleting substantial addition itself casts doubt on the authenticity and reliability of the recovery of the diary in quest ion.
Further, the authorities below have not examined any student or their parent, either during the course of search or at the assessment stage to corroborate the entries stated to be mentioned in seized diary. Thus, the entries contained in the diary itself are not corroborated by any material or evidence on record. The findings of the authorities below are wholly unjustified because when the students whose names have been mentioned in column No. 5 as per the seized diary have admittedly not taken admission in the institution of the assessee trust , where is the question of those students in paying any amount by way of capitation fees or fee to the assessee trust . Therefore, there was no justification to make addition of such students who have not taken admission in the Institution of the assessee trust merely because their names were mentioned in the seized diary. The addition of Rs. 28,25,000/- is liable to be deleted.
Therefore, the amounts, even if do not match with the seized diary, when have been recorded in the regular books of account even prior to the search, there was no justification for the authorities below to make the addition of Rs. 1,66,40,072/- . Similarly, the students who have not admitted to the assessee trust , there is no question of receipt of fees of Rs. 28,25,000/- from them, therefore, addition of Rs. 28,25,000/- was wholly unjustified. Considering the totality of the facts and circumstances and above discussion, we do not find any justification for ld. CIT(Appeals) to sustain the addition of Rs. 2,68,13,920/- out of the total addition of Rs. 4 Cr . We, accordingly, set aside the orders of authorities below and delete the entire addition.
Accordingly appeals disposed of.
