Ananda Social & Education Trust Vs ACIT (ITAT Bangalore)
The issue under consideration is whether Addition relating to suppression of fee receipts of Management/ NRI quota and Post graduate seats are justified in law?
The assessee is a charitable trust established for educational purposes in the year 1980. It has set up a medical college by name Dr B.R. Ambedkar Medical College and Hospital offering both under graduate and post graduate courses. It also runs a Dental college and nursing college. The issues under consideration are related to Medical college only. A search was conducted on the premises of the assessee, following which the assessing officer, however, completed the assessments rejecting the claim of exemption u/s 11 of the Act and also making additions towards suppression of fees.
ITAT states that, in the instant case, the AO’s case is that the assessee has suppressed the fees received by it for giving admission under management/NRI quota. The AO did not accept the explanations of the assessee in this regard. However, he did not bring any material on record to show that the assessee, indeed, collected fees over and above that were accounted for in the books of account. The assessing officer did not reveal/discuss the result of enquiry conducted by him by issuing notices u/s 133(6) of the Act. Hence the assessee has contended that the assessing officer did not receive any adverse reply from the students. Even though the AO has observed that huge cash was seized during the course of search, yet it was shown by the assessee that all those cash are accounted for in the books of accounts.
Hence ITAT are unable to sustain the view taken by Ld AO on this issue. Accordingly, they set aside the order and direct the AO to delete the addition made towards suppression of fee on MBBS Management Quota and Post graduate seats.
FULL TEXT OF THE ITAT JUDGEMENT
These cross appeals are directed against the orders passed by Ld CIT(A)-1 1, Bangalore and they relate to the assessment years 2008-09 to 2014-15. Since the issues urged in these appeals are identical in nature, these appeals were heard together and are being disposed of by this common order, for the sake of convenience.
ASSESSMENT YEAR 2009- 10
2. We shall first take up the appeals relating to AY 2009-10 as lead cases, since the decision taken in these appeals can be conveniently applied to other years also. The issues urged by the assessee in this year relate to the following additions:-
(a) Addition relating to suppression of fee receipts of Management/ NRI quota.
(b) Addition relating to suppression of fee receipts of Post graduate seats.
3. The revenue is aggrieved by the decision of Ld CIT(A) in granting relief in respect of addition relating to COMED-K seats.
4. The facts relating to the case are set out in brief. The assessee is a charitable trust established for educational purposes in the year 1980. It has set up a medical college by name Dr B.R. Ambedkar Medical College and Hospital offering both under graduate and post graduate courses. It also runs a Dental college and nursing college. The issues under consideration are related to Medical college only. The assessee trust is being managed by a body of trustees. The chairman of the trust keeps changing and during the year relevant to AY 2009-10 and 20 14-15, Sri. P L Nanjundaswamy was the Chairman.
5. The revenue carried out search and seizure operations on 18-07-20 13 in the hands of the assessee. At that point of time Shri P L Nanjundaswamy was the Chairman. The search operations also covered the residential premises of its Chairman and some of the trustees, certain other connected institutions also. The documents seized from the trust premises, medical college and the residence of Chairman Sri P L Nanjundaswamy were used by the assessing officer for making the additions in all the years under consideration.
6. Consequent to the search operations conducted on 18-07-20 13, the assessments of the assessment years 2008-09 to 20 13-14 were re-opened u/s 153A of the Act. The assessee filed returns of income for the above said years and also for AY 20 14-15 claiming exemption u/s 11 of the Act. The assessing officer, however, completed the assessments rejecting the claim of exemption u/s 11 of the Act and also making additions towards suppression of fees. The claim of exemption u/s 11 was rejected, since the application filed by the assessee seeking registration u/s 12A of the Act had been rejected and the matter was in appeal proceedings. The appeals filed by the assessee before ld CIT(A) were partly allowed and hence both the parties are in appeal before us challenging the decision taken by Ld CIT(A) against each of them.
7. In AY 2009-10, the assessing officer made following additions relating to suppression of fees:-
(a) Addition of Rs. 1.85 crores relating to fee charged for MBBS seats under Management/NRI quota
(b) Addition of Rs.5.22 crores relating to fee charged for MBBS seats under COMED-K cancellation seats.
(c) Addition of Rs. 1.75 crores relating to fee charged for PG Courses.
8. The back-ground of these additions are discussed in brief. The first two additions mentioned above related to admission for MBBS seats. The medical college of the assessee has been sanctioned 100 seats in MBBS course. The admission to these seats are made as under:-
(a) 40 seats are filled in through Common Entrance Test (CET) conducted by the Government of Karnataka. (Government Quota)
(b) 40 seats are filled in through Common test conducted by the Body or Association of Private Professional Colleges called “COMED-K”. (COMED-K quota)
(c) 20 seats are filled in by the Management themselves, which is called “Management/NRI quota”. (Management Quota).
The Government quota seats and filled on the basis of rank scored in the CET examination as per the process undertaken by the Government. The fee prescribed by the Government is charged for these seats. There is no controversy on the seats filled under CET quota.
9. The “COMED-K entrance test” is conducted by the body or association of Professional colleges on the basis of an agreement entered between the Government and the Association. The admission is based on the rank scored by the students in this entrance test and the fees under this category shall be higher than the Government quota seats and the said fees is also determined under the agreement entered between the Government and Association. Further, in terms of the agreement, if any of the seats falling under COMED-K quota remain unfilled after completion two rounds of COMED-K counselling process, those seats shall be handed over to the respective colleges and the management may fill them at their discretion, but the fees to be charged for these seats should not exceed the fees agreed upon through the Agreement entered between the Government and
10. The management/NRI quota seats are filled by the respective colleges and they exercise their own discretion in allotment and charging of fees. The fee charged under this quota shall be higher.
11. The first addition made by the assessing officer related to Management/NRI quota for MBBS seats. During the course of search operations conducted at the residence of the Chairman Shri P L Nanjundaswamy, certain incriminating documents identified as “A- 1/PLN/3” were seized. The pages numbered as 84-105 and 106-111 in the above said bundle were considered by the assessing officer. The former documents disclosed the details of amounts collected from the students for admission into MBBS management quota seats and the latter documents disclosed the actual amount accounted for. The assessing officer has scanned pages 84 to 86 in the assessment order for AY 2009-10 at pages 6 and 7. These documents disclosed the details of amount agreed to be paid by the students, amount received through Bank and amount received by way of cash. These documents contained one more column “Remarks”, wherein it was mentioned either as “Agreement” or “No dues”. The AO also called for the details of students admitted in the year relevant to AY 2009- 10 and fees collected from them. He noticed that the name of students matched with the names mentioned in the seized documents. In respect of some of the students, the manner of collection of fees, the amount collected also matched. Hence, the assessing officer came to the conclusion that the contents of seized documents are true and represent actual facts. He further noticed that, in some cases, the cash portion of fee has not been accounted for. The AO also noticed that the search officials have seized certain documents titled as “Visitors slips” pertaining to the FY 2013-14. In these slips also, agreed amount for admissions have been mentioned in a corner like “Rs.20.00 lakhs + fees”; “Rs.47.00 lakhs + fees” or “agreed for Rs. 15.00 lakhs” etc. Accordingly, the AO came to the conclusion that the assessee is collecting money over and above the regular fees from the students at the time of admission.
12. The AO also referred to the answers given by the Chairman Shri P L Nanjundaswamy to the questions posed to him in the statement taken from him. The AO has first referred to the following question and answer from the statement taken on 17-10-20 13 u/s 131 of the Act: –
“Q-7 :- I am showing you seized document A-1/PLN/3 page No.84 to 86 and 92. It is seen from these documents that whatever amount has been received in cash from the candidates has not been accounted for the year 2008-09 which was collected by you. Thus not only have you collected capitation fee but also appropriated the same for personal benefit. Please state whether you have accounted for it and where.
Ans.: Amounts have been partly remitted into the bank.”
Since, the chairman stated that the amounts have been partly remitted into the bank, the AO concluded that entire money collected by way of cash at the time of admission is not being account for in the books of account of the trust. The AO also referred to question no.9 and 12 and answers given thereto in the statement taken on 18-07-20 13 u/s 132(4) of the Act, which read as under:-
“Q.9 What is the amount that you are taking for medical seats under management quota and NRI quota?
Ans.: The amount in NRI quota is $ 1,50,000 which includes the admission fee, tuition fee, additional college fee and the development fee. The amount under management quota is not fixed. It varies from 30 – 55 lacs. The discretionary power to decide the amount vests with the Chairman.”
“Q. 12 The loose sheets marked 33 to 38 found during the course of search today at the bedroom of Sri P L Nanjundaswamy and placed at folder marked A-ALN/3 dated 18-07-2013 are the visitors slips of Dr. B. R.Ambedkar Medical College, Kadugondanahalli, Bangalore. Please explain the contents of these loose sheets.
Ans.: This amount mentioned on the loose sheets is towards package for medical seats under NRI quota and are recorded for enquiry purposes. The amounts mentioned in the slips are discussed with prospective students and are not full and final.”
13. The AO also referred to a diary maintained by the P.A of the Chairman named Mr.Manjunatha, wherein fees pertaining to admissions pertaining to the financial year 20 13-14 was found noted. The said diary is marked as “A-1/BRAMC/2”. The amounts mentioned in the diary did not match with the amount accounted for in the books of accounts. Accordingly, the AO concluded that the assessee-trust is not accounting for the amounts collected by way of cash. When these aspects were confronted with the assessee, it disowned the documents seized from the residence of the Chairman Shri P L Nanjundaswamy and also the diary maintained by Mr. Manjunatha. It was submitted that the Chairman has the authority to determine the fees for management quota and the amount received from the candidates as determined by the Chairman have been fully accounted for. It also stated that the action shall be taken if the chairman has collected money outside the books. The AO, however, expressed as under:-
“…. the siphoning of funds does not mean that income has not accrued to the trust. If the trust finds any breach of trust by the Trustees, then it is for the trust to deal with the trustees as per the Trust Deed/Indian Trust Act, 1882. The role of the Department is only to tax the income accrued.”
During the course of assessment proceedings, the assessee also referred the issue to JCIT seeking a direction u/s 144A of the Act, but the same was rejected by the JCIT. Accordingly, the AO concluded that the amounts collected by way of cash, which is alleged to have been not accounted for in the books of accounts, is liable to taxed in the hands of the assessee-trust. The AO also referred to the decisions rendered by Hon’ble Supreme Court in the case of Miss Mohini Jain vs. State of Karnataka (1992)(2 SCC 666) and Islamic Academy of Education vs. State of Karnataka (2003)(6 SCC 697) and observed that the Hon’ble Supreme Court has taken strong exception to collection of Capitation fee.
14. The aggregate amount of fees shown as “agreed” in the seized document for the year relevant to AY 2009-10 was Rs.5,73,87,500/-. The average amount per student under the management/NRI quota worked out to Rs.28,69,375/- (Rs.5,73,87,500/- divided by 20). The amount accounted in the books of account was seen at Rs.3,53,08,650/-, which was later revised to Rs.3,88,58,650/-. The difference between the amount agreed and the amount accounted for in the books of accounts worked out to 1,85,28,850/-. The assessing officer added the same to the total income of the assessee in AY 2009-10.
15. The Ld CIT(A) confirmed this addition and the reasoning given by him in this regard are summarized below:-
(a) It is evident from document No.A/PLN/3 that the appellant has not accounted for entire agreed amount. In case, it was intended to take into account the entire amount, there was no need to collect any amount in cash.
(b) The appellant cannot disown the document as it was recovered from the Chairman of the relevant period. The presumption u/s 132(4A)/292C can be taken even when the documents are in control or possession of the person searched.
(c) The names found in the list are the names of students, who sought admission to the Medical college.
(d) The visitors’ slips A/PLN/2 also give indication of the amounts are being negotiated. Though it pertains to assessment year 2014-15, yet it indicates how the parents or students meet the chairman and in what way the price for a seat is quoted.
(e) When the documents speak for themselves, Sri P L Nanjundaswamy should have disproved what the apparent is not real.
(f) The documents seized, the statement recorded and huge cash seized combined together gives rise to a reasonable belief that the admission fee charged is not fully accounted in the books of account.
There is no transparency in the admission process. The assessee has failed to rebut the presumption.
(g) The corroborative evidences, wherever possible, have been gathered. There cannot be conclusive proof in respect of such cases, as all the actions will be covered up and the evidences will be destroyed after the event. The circumstantial evidences gathered by the Investigation wing and the facts marshalled by the Assessing Officer are enough to draw a reasonable conclusion that there is suppression of receipts.
16. The assessee is aggrieved by the decision rendered by Ld CIT(A) on this issue. The Ld A.R submitted that the assessing officer has placed his reliance on the documents seized from the residence of the then Chairman Shri P L Nanjundaswamy. Those documents do not bear signature of anyone and they are dumb documents, which could not have relied upon by the AO. She submitted that the assessee is also not aware of the existence of such kind of documents. She submitted that the dumb documents have held to be not a valid piece of evidence in the following cases: –
(a) ACIT vs. Layer Exports (P) Ltd (88 com620)(Mum)
(b) CIT vs. S.M. Aggarwal (162 Taxman 3) (Delhi)
(c) CIT vs. Girish Chaudhary (163 Taxman 608)(Delhi)
She further submitted that the Chairman P L Nanjundaswamy has only stated that the fees for the seats allotted under management quota/NRI quota are negotiated. Hence whatever amount finally agreed upon has been duly accounted for by the assessee. The AO has also placed his reliance on the visitors’ slips pertaining to AY 2014-15 for making addition in other years. She submitted that the AO has only drawn adverse inferences without bringing any material to support his inferences. Further the impugned seized documents have been recovered from the residence of the Chairman and from an employee. She contended that the assessee cannot be presumed to be the owner of those documents, when they have not been taken from the control of the assessee. In any case, the AO could not have made impugned additions without bringing corroborative evidences. In support of this proposition, she relied upon the decision rendered by Mumbai bench of ITAT in the case of ACIT vs. Ms. Katrina Rosemary Turcotte (87 taxmann.com 116) (Mum).
17. The Ld A.R further submitted that the AO has not conducted any enquiry from any of the students or their parents to support his inferences or to prove that the amounts mentioned in the seized documents were received by the assessee. The Chairman has categorically stated in his statement that the assessee has not collected any capitation fee. No complaint has been received from any of the student to the effect that the assessee was collecting fee over and above that accounted in the books of Hence the AO could not have drawn adverse inferences and the Ld CIT(A) was not justified in confirming the addition. In support of these contentions, the Ld A.R placed her reliance on the decision rendered by Hon’ble Madras High Court in the case of CIT vs. Balaji Educational & Charitable Public Trust (2015) (56 taxmann.com182) (Mad.). Accordingly the Ld A.R contended that the above said addition should be deleted.
18. The Ld D.R, on the contrary, placed strong reliance on the decision rendered by Ld CIT(A) on this issue. The Ld D.R submitted that the documents recovered during the course of search reveal that the assessee has been collecting money over and above that recorded in the books of The documents recovered from the residence of Chairman disclosed the actual collections made by the assessee for giving seats under Management quota for MBBS seats. The fact that the assessee is collecting amount outside the books is further corroborated by the visitors’ slips and diary maintained by the P.A to the Chairman. Hence the Ld CIT(A), on noticing that the AO has reached logical conclusion, has confirmed the addition made by the AO.
19. We heard rival contentions and perused the record. We notice that the very foundation for making this addition in AY 2009-10 is the document seized from the residence of the Chairman Shri P L Nanjundaswamy. The contention of the assessee is that it is not aware of existence of any such document and accordingly it has disowned the same. It was also contended that the said document is a dumb document. We notice that the said document was not made available to the assessee by the assessing officer, but its contents were made known to it. According to the assessee, the Chairman of the Medical college of a particular year would determine the fees payable for management/NRI quota by each candidate and the final amount fixed after negotiation would be reported by him to the assessee. The fees finally agreed upon will be collected by the assessee and the same was duly accounted for. Accordingly, it was submitted that it is not aware of any collections beyond what was accounted for. It was further submitted that the fee determined would not be uniform and it will differ from student to student. It was also submitted that the Chairman might have mentioned particular amount initially, but would have agreed for lower amount for various reasons, i.e., the amount noted in the documents may at the enquiry stage. The explanations given by the assessee before Ld CIT(A) in this regard are extracted below, for the sake of convenience: –
“Without prejudice, the Appellant submits that the fee structure for management quota seats is fixed at the discretion of the management and differs each year and from candidate to candidate, depending on the availability and demand for the seats. There are various other factors also that are taken into account in admitting a candidate under the management quota like affordability, recommendations from VIPs etc. The appellant submits that during the year under question, the medical college was de-recognised by the Medical Council of India, which had a huge impact on the admission process and the demand for seats in the college. Consequently, even assuming that the document at A1/PLN/3 indicated the fee payable to the Appellant the same cannot be taken as final since many candidates would not have paid the amounts reflected therein due to the above circumstances.”
Thus, it is the contention of the assessee that the contents of the above said document cannot be considered to be true and correct.
20. We notice that the AO has placed his reliance on the statement given by Shri P L Nanjundaswamy on different occasions. The AO has first referred to the answer given by him to question no.7 posed to him in the statement taken on 17-10-20 13 u/s 131 of the Act.
“Q-7 :- I am showing you seized document A-1/PLN/3 page No.84 to 86 and 92. It is seen from these documents that whatever amount has been received in cash from the candidates has not been accounted for the year 2008-09 which was collected by you. Thus not only have you collected capitation fee but also appropriated the same for personal benefit. Please state whether you have accounted for it and where.
Ans.: Amounts have been partly remitted into the bank.”
The AO has interpreted from the answer given that the entire amount collected by way of cash has not been accounted for. The assessee, while disputing the interpretation given by the AO, has given following explanations before Ld CIT(A):-
“ Further, at para 14.17 of the assessment order, the AO relies on the sworn statement of Mr. P L Nanjundaswamy recorded under Section 131 of the Act where, to a question posed as to whether the amounts reflected in seized material A1/PLN/3 were accounted for, he states that the amount were partly remitted to the bank. The AO in the very next sentence concludes that the entire money which was received at the time of admission was not accounted for in the books of account of the Appellant. The Appellant submits that such a conclusion is wholly misplaced. The appellant submits that the AO has not taken note of the fact that Mr. P L Nanjundaswamy states that some amount has in fact been remitted to the bank and has been duly accounted for. In any event, the AO has not made available copies of the sworn statement of Mr P L Nanjundaswamy dated 17.10.2013 as requested vide its letter dated 15.03.2016 and the Appellant has not been afforded an opportunity to cross-examine the said Mr P L Nanundaswamy.”
We notice that the Chairman has not given any categorical statement that any amount was appropriated by him for personal benefit or part of collections have not been accounted for. He has only stated that amounts have been partly remitted into bank. Accordingly, we are of the view, the answer given by the Chairman, Shri P L Nanjundaswamy cannot be considered to convey the meaning, as interpreted by the AO.
21. The AO has also referred to question no. 9 & 12 posed to Shri P L Nanjundaswamy in the statement taken u/s 132(4) of the Act. In the answer to question no.9, Shri P L Nanjundaswamy has mentioned about the fees quoted for NRI seats and question no.12, he has stated that the amount mentioned in the loose sheets is towards package for medical seats and is not full and final. Since there was difference between the amount mentioned in the seized document and that accounted for in the books of accounts, the AO has presumed that the difference might have been siphoned of by the Chairman. Hence the AO has observed that the income has accrued to the assessee-trust and hence the siphoning of the funds would not affect the accrual. It is pertinent to note that it is nobody’s case that the difference amount, if any, has been defalcated by anyone. On the contrary, it is the explanation of the assessee that the amount actually collected has been accounted for in the books of accounts. At this stage, it is pertinent to refer to question no.11 and answer given thereto in the statement taken u/s 132(4) of the Act.
“Q.No. 11:- Please state whether you are collecting capitation fees for admission to medical seats in your college?
Ans. : – We are not collecting any capitation fee for admission to medical seats in the college.
We notice that the assessing officer did not consider the above said question and answer. Before the Ld CIT(A), the assessee has also referred to the letter dated 29-01-2016 written by Mr. P.L. Nanjundaswamy to the assessee clarifying his answers given to the revenue. In the said letter, he has stated as under:
“II Question No.2 in page no. 2 & 3:
The accounted amount in the books of account is the final amount received at the end of the negotiations with the candidates opting for admission under our institution. Normally, the payments towards admission of the candidates are received in installments over a period of time. The agreed amount was finally brought down for various reasons.
In the year 2008-09, our college was derecognized by the Medical Council of India (MCI), when the students became aware of it, they were apprehensive and some wanted to cancel the admission or reduction in the agreed amount. They were assured of getting the recognition issue solved, but unfortunately, we failed to get the recognition. Subsequently, they declined to make the balance of the agreed amount in view of the college de-recognition by MCI. There were also other reason like recommendations from important persons, inability on the part of the candidates to comply and to settle on the agreed amount decided in the initial part of the negotiation, and hence the amount of Rs.3,53,08,650/- has been accounted.”
We notice that Shri P L Nanjundaswamy has clarified as to why there is difference in the amounts mentioned in the seized documents and the amount actually accounted for. We notice that the assessing officer has ignored this letter also.
22. The assessing officer has also referred to a diary maintained by the P.A to the Chairman and certain Visitors slips, wherein also the total amount of fee for a particular course has been mentioned. Though both the above said documents pertained to the year relevant to AY 2014-15, the AO took support of them to buttress his view that the assessee has been suppressing the fee receipts by accounting for lower amount than that was actually collected. The assessee gave following explanations in this regard before Ld CIT(A):-
“Without prejudice and in any event, it cannot be said conclusively that the amounts mentioned in visitors slips were in fact received, much less by the Appellant. As stated above, these visitors slips are only indicative of people making enquiries on admissions and the amounts mentioned therein are if at all, only on the basis of enquiries and are not final. Therefore, the AO could not have relied upon these visitors slips to make any additions since they do not show that any income, over and above the amounts accounted for in the books of account, was in fact, received by the Appellant. In answer to question 12 in the sworn statement of Mr. P L Nanjundaswamy (extracted at page 21 of the Assessment order), he has stated that “this amount mentioned in loose sheets is towards package for medical seats under NRI quota and are recorded for enquiry purposes. The amounts mentioned in the slips are discussed with prospective students and are not full and final.” This shows that even assuming that the figures mentioned in the visitors slips indicate the fee payable, the same were only at the negotiation stage and not final. In the absence of any corroborative evidence to show that the alleged fee referred to in the slips were, in fact, received by the Appellant, the addition made by the AO is without any legs to stand and thus ought to be set aside. What is more, the said visitors slips pertain to FY 20 13-14 and the reliance placed by the AO on such material is only on the basis of assumptions and presumptions which ought to be set aside.
The observation of the AO that huge cash was found and seized from the various search premises and therefore hefty amounts have been charged for admission to MBBS courses is also without any basis since the cash seized had also been duly accounted for as stated in the paragraphs below. In any event, mere seizure of cash cannot lead to a conclusion that amounts over and above the accounted income was received by the Appellant.”
The assessee has clarified that the amounts mentioned in the visitors slips are only indicative figures and do not refer to actual amounts collected. During the course of arguments, the Ld A.R also pointed out that not all, but only some students whose name was found in the Visitors slips have taken admission. This fact would support the submission of the assessee that the Visitors slips are filled in at the time of enquiry and do not represent actual amount collected.
23. Another important point brought out by the assessee in the explanations submitted before Ld CIT(A) relate to the Cash seized during the course of search. In the assessment order, the AO has mentioned that substantial cash and jewellery was found and seized from the residence of trustees during the course of search. It is pertinent to note that the assessing officer has not made any addition towards unaccounted cash in any of the years. In the explanations furnished before ld CIT(A), which are extracted above, the assessee has also made it clear that the cash found during the course of search represented book balance only, i.e., they are accounted item and not in the nature of unaccounted cash. This important aspect, in fact, support the submissions of the assessee. Had the assessee collected cash outside the books of account or suppressed actual receipts, then the search officials should have stumbled upon unaccounted cash, which is not the case here.
24. The assessing officer has also observed that the assessee has accounted only fees received through banking channels and has suppressed all cash receipts. The following observations made by Ld CIT(A) shows that the above said view of the AO was not correct:-
“18 The AR drew my attention to the statement at page 13 & 14 and pointed out that there are receipts by way of DD, cash receipts also in respect of candidates (except two candidates) and it is incorrect to state that cash portion has not been accounted for. He further stated that there are only cash receipts in respect of following candidates, but the entire amount has been accounted for:
