Section 115BBE Applies When Source of Income Unexplained

ACIT Vs Uthangarai Sri Vidya Mandir Educational Trust (ITAT Chennai)

The case of ACIT Vs Uthangarai Sri Vidya Mandir Educational Trust, heard by the Income Tax Appellate Tribunal (ITAT) in Chennai, delves into the applicability of Section 115BBE of the Income Tax Act. This section pertains to the taxation of unexplained income at a higher rate. The trust contested the application of this section to cash and gold coins seized during a search, arguing that Section 115BBE applies only when no explanation is offered for the income.

In the assessment year 2017-18, the trust raised objections against the application of Section 115BBE on cash amounting to Rs. 2.75 crores and gold coins worth Rs. 7.35 lakhs seized during a search operation. The trust maintained that the cash found was recorded in its books of accounts and explained as part of regular expenses and withdrawals made over time. However, the source of the gold coins was not adequately explained.

Both the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] acknowledged that the cash in question was recorded in the trust’s books of accounts. However, they raised concerns about the trust’s failure to file income tax returns for certain assessment years and questioned the basis for declaring the opening cash balance. Despite the explanation provided by the trust regarding the origin of the cash, the authorities asserted that the entire amount found during the search should be assessed in the year of the search.

Regarding the gold coins, since the source could not be explained, the provisions of Section 115BBE were deemed applicable to this amount.

The ITAT, after considering the arguments and circumstances, partly allowed the trust’s appeal. It held that since the seized cash was explained and recorded in the books of accounts, Section 115BBE should not apply to it. However, the provision would apply to the unexplained gold coins.

FULL TEXT OF THE ORDER OF ITAT CHENNAI

These appeals by the Revenue in ITA Nos.370 to 372/CHNY/2020 and cross objections by the assessee in CO Nos. 3 to 5/CHNY/2021 are arising out of the common order of the Commissioner of Income Tax (Appeals), Salem in ITA No.374, 383 & 386/2018-19 dated 27.11.2019. The assessments were framed by the Asst. Commissioner of Income Tax, Circle-1, Hosur for the assessment years 2011-12 to 2013-14 u/s.143(3) r.w.s. 153A of the Income Tax Act (hereinafter the ‘Act’) vide orders of even date 26.12.2018.

2. First, we will deal with the appeals of Revenue in ITA Nos.370, 371 & 372/CHNY/2020 for the assessment years 2011­12, 2012-13 & 2013-14.

3. The Revenue has raised identical grounds in these three appeals and facts and circumstances are emanating from the search conducted by Election Commission on 25.04.2016 during the Tamil Nadu State Assembly elections of 2016. Hence, we will take the facts and grounds raised by Revenue from assessment year 2011-12 and will decide the issue.

4. The first issue in these appeals of Revenue is against the order of CIT(A) holding that the assessment framed without incriminating material and extrapolating the figures based on seized material found during future years cannot be used for the purpose of making assessment u/s.153A of the Act. For this, Revenue has raised the following grounds:-

1, The Order of the CIT (A) is opposed to law and facts of the case.

2. In this case the details of salary paid to employees during various Financial Years was seized vide ANN/SVMSWT/CD/B&D/S-06, ANN/SVMSWT/CD/B&D/S-01, ANN/SVMSWT/CD/B&D/S-02, ANN/SVMSWT/CD/B&D/S-3, ANN/SVMSWT/ CD /B&D/S-4, ANN/SVMSWT/CD/B&D/S-5. The additions were made based on the said seized materials, as the above seized materials had a bearing on income of the assessee for A.Y. 2011-12. Also in the case of Commissioner of Sales Tax vs H.M.Esufalli’s, H. M. Abdulali reported in 90 ITR 271(SC), the Hon’ble Apex Court has held that sales of 19 days was allowed to be the basis for estimate of sales for the entire year, The same analogy can also be extended to other assessment years in the case of the assessee. Hence, the contention that the seized materials of one year cannot be used for other years cannot be accepted, moreover the seized materials have a bearing on incomes of that year as well as other years.

3. The section 153A scope is to assess and reassess.

4. The Assessment u/s. 153A should be based on seized material is not accepted by the Department, and issue still before Apex Court.

5. Brief facts are that the assessee trust is running a school namely Sri Vidya Mandir Matriculation Higher Secondary School which was started in 1987. During the relevant period i.e., from assessment year 2011-12 relevant to financial year 2010-11, the students strength was around 2900 with 120 teaching staff and 150 non-teaching staff. During the elections of Tamil Nadu State Assembly, information was received from District Collector of Krishnagiri that the trust was having unaccounted cash to the tune of Rs.2.75 crores and gold coins of 245 grams. Accordingly, the investigation wing of the Income-tax Department issued warrant of authorization u/s.132 of the Act by Director of Income Tax (Inv.), Tamilnadu & Puducherry and accordingly, income-tax search was conducted on 25.04.2016. During the course of search operation on the premises of the assessee and its trustees, cash, gold coins and books of accounts and other incriminating material was found and seized. Consequent to search u/s.132 of the Act notices u/s.153A of the Act was issued for the six assessment years immediately preceding the assessment year relevant to previous year in which search is conducted. Accordingly, notices u/s.153A of the Act dated 28.03.2018 was issued for assessment years 2011-12 to 2013-14. The assessee in response to the notices issued u/s.153A of the Act filed its returns of income on 06.08.2008 u/s.153A of the Act. Accordingly, assessee’s returns for these three assessment years i.e., 2011-12 to 2013-14 were scrutinized by issuing notice u/s.143(2) of the Act asking the assessee to produce books of accounts, documents in connection with assessment proceedings. A detailed show-cause notice was issued to the assessee on 22.11.2018 requiring the assessee to explain with evidences unexplained bank deposits, expenses shown in seized note books, excess salary claimed in returns filed as compared to seized materials, evidences for annual day expenses, food expenses and other expenses and also to furnish details of F.D.s made in various bank accounts along with sources for such F.D.s. The AO accordingly on verification of depreciation claimed in accordance with W.D.V of various assets, income and expenditure account along with balance sheet filed with returns of income for these three assessment years comparing with seized materials and other documents, framed assessments and made additions of the following items:-

i.	Unexplained investment u/s.69	6,42,03,720
ii.	Unproved expenditure	1,07,51,993
iii.	Annual Day and food expenses	75,45,850
iv.	Other expenses disallowed	21,17,465
v.	Excess Depn. Claimed	49,61,859
	Total	8,95,80,887

Aggrieved assessee preferred appeal before the CIT(A).

6. Before CIT(A), the assessee raised the first ground in these three assessment years as regards to assessment completed by making additions in respect of absence of incriminating material found during the course of search and estimate made based on extrapolation from the truncated seized material comprising of rough daybook for 3 months for assessment year 2014-15, for 5 months for assessment year 2015-16, for 9 months for assessment year 2016-17 and for 23 days for assessment year 2017-18. For this, assessee raised the following grounds before CIT(A).

“i. The ACIT ought to have seen that there was clear absence of jurisdiction and so the notice and completion of assessment u/s.153A are abinitio void and untenable in law.

ii. The ACIT failed to appreciate that the regular return filed for the yea had reached finality and hence in the absence of incriminating material found in the search, the impugned proceedings are untenable in law.

iii. The ACIT further failed to appreciate that the additional made are not supported by any seized documents of incriminating nature and the additions are only based on surmises and conjectures and hence not sustainable on facts of the case.

iv. The ACIT further failed to appreciate that it is settled law that estimated additions and disallowances cannot be made in search assessments unless tangible material is seized and seen in this context, the very assessment made without search material is unjustified and untenable in law.

The CIT(A) after going through the nature of disallowances made by the AO in regard to these three assessment years noted the details in the following chart:-

Assessment year	2011-12	2012-13	2013-14
Regular return filed on	28.6.13	28.6.13	28.6.13
Income returned (Rs.)	1,59,200	1,65,300	1,61,010
Last date for 143(2) notice	30.09.14	30.09.14	30.09.14
Return filed u/s.153A	06.08.18	06.08.18	06.08.18
Income returned	1,59,200	1,40,530	1,61,010
Income assessed	8,97,40,087	9,16,56,597	11,96,17,517

–

Sl.No.	Nature of Disallowances	A.Y. 2011-12	A.Y.2012-13	A.Y. 2013-14
1.	Unexplained investment u/s.69	6,42,03,720	6,79,14,306	7,14,78,787
2.	Unproved expenditure	1,07,51,993	1,39,20,798	2,84,44,952
3.	Annual Day and food expenses	75,45,850	69,41,510	1,41,34,489
4.	Other expense disallowed	21,17,465	20,88,282	21,61,685
5.	Excess Depreciation claimed	49,61,859	6,26,372	32,08,181
6.	Claim of deduction u/s.10 & 11		24,799	28,413

Thereafter, the CIT(A) after going through the seized material or incriminating material noted that none of the material relates to these three assessment years and relying on the decisions of Hon’ble Delhi High Court in the case of CIT vs. Meeta Gutgutia reported in 395 ITR 526, Hon’ble Gujarat High Court in the case of PCIT vs. Saumya Construction Pvt. Ltd., reported in (2016) 387 ITR 529, PCIT vs. Devangi Alia Rupa, reported in 2017-TIOL-319-HC-AHM-IT, Hon’ble Karnataka High Court in the case of CIT vs. IBC Knowledge Park Pvt. Ltd., reported in (2016) 385 ITR 346, Hon’ble Calcutta High Court in the case of PCIT vs. Salasar Stock Broking Ltd., reported in 2016-TIOL-2099-HC-Kol-IT, Hon’ble Bombay High Court in the case of CIT vs. Gurinder Singh Bawa reported in (2016) 386 ITR 483 and also going through the Remand Report of the AO dated 16.10.2019 held that there was no seized material pertaining to these three assessment years i.e., assessment years 2011-12, 2012-13 & 2013-14 and hence without seized material or incriminating material, assessment for these three assessment years cannot be made. For this, he observed in para 8 as under:-

8. I find merits in the arguments of the appellant. It is apparent from the remand report that there were no seized materials pertaining to the A.Yrs.20l1-12, 2012-13 and 2013 14. The seized materials pertain to the F.Y. 2013-14 and the A.O. has applied the same to the previous assessment years. In the remand report the A.0, relied on the decision of the Hon’ble Supreme Court in the case of Commissioner of Sales Tax vs H. M. Esutallis, H. M. Abdulali reported in 90 ITR 271 (SC) in support of the assessments for A.Y. 2011-12, 2012-13 and 2013- 14. The facts of the above case are distinguishable from the appellant’s case. In that case, some material in the nature of bill books were found by the Sales Tax Authorities for a period of 19 days in the year, which was not recorded in the regular books maintained. In this context, the Court observed that an estimate of turnover can be made for the remaining part of the year to arrive at the sales suppression. The appellant relied on many case laws in support of its claim and more specifically the judgment of the Hon’ble Apex Court in the of Pr. Commissioner of Income-tax, Central II, New Delhi Vs Meeta Gutgutia. The Hon’ble Apex court dismissed the SLP filed by the Department vide its order dated 02.07,2018 in Special Leave Petition (Civil) Diary No(s). 18121/2018, The Hon’ble Delhi High Court vide its judgment dated 25.5.17, considered the import of sec.153A and observed at Para 56 that (extract) : “Section 153A of the Act is titled “Assessment in case of search or requisition”. It is connected to Section 132 which deals with ‘search and seizure’. Both these provisions, therefore, have to be read together. Section 153A is indeed an extremely potent power which enables the Revenue to reopen at least six years of assessments earlier to the year of search. It is not to be exercised lightly, It is only if during the course of search under Section 132 incriminating material justifying the re-opening of the assessments for six previous years is found that the invocation of Section 153A qua each of the AYs would be justified.” At Para 60 of the judgment, referring to the earlier decisions held that : “In Kabul Chawla (supra), the Court also took note of the decision of the Bombay High Court in Commissioner of Income Tax vs. Continental Warehousing Corporation (Nhava Sheva) Ltd. (2015] 58 taxmann.com 78 (Bom) which accepted the plea that if no incriminating material was found during the course of search in respect of an issue, then no additions in respect of any issue be made to the assessment under Section 153A and 153C of the Act.” Respectfully following the case law cited (supra), as there are no seized material in respect of A. Yrs.2011-12, 2012-13 and 2013-14, I allow the appeal of the appellant for the A.Yrs. yiz 2011-12, 2012-13 and 2013-14. Hence, all the grounds of appeal related to this issue are allowed.

Accordingly, the CIT(A) allowed the appeals of assessee. Aggrieved, now Revenue is in appeal before the Tribunal.

7. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee trust was created vide trust deed dated 23.03.1987 and is running a school. During the course of Tamil Nadu State Assembly Elections, election officials conducted a search on the assessee from where they found cash of Rs.2.75 crores and gold coins of 245 grams. The information was passed on to the Income-tax Department and accordingly, a search warrant authorizing the Officer of the Department u/s.132 of the Act was issued by the Director of Income Tax (Inv.), Tamilnadu & Puducherry. Accordingly, income-tax search was also conducted on 25.04.2016. During the course of search apart from cash and gold coins, rough daybook for 3 months for assessment year 2014-15, for 5 months for assessment year 2015-16, for 9 months for assessment year 2016-17 and for 23 days for assessment year 2017-18 were found and seized. The assessee filed regular returns of income for these three assessment years i.e., assessment year 2011-12, 2012-12 & 2013-14 on 28.06.2013. Admittedly return for assessment year 2011-12 was beyond the prescribed time u/s.139(4) of the Act but return for assessment year 2012-13 was within the time allowed u/s.139(4) of the Act and return for assessment year 2013-14 was within the time allowed u/s.139(4) of the Act. We noted that the assessment order for these three assessment years were made and additions were made by extrapolating and back-working of the material found and seized i.e., incriminating material in relation to assessment years 2014-15 to 2017-18 as noted above. Admittedly, there is no seized material pertaining to these three years. We have gone through the remand report of the AO dated 16.10.2019, which is reproduced in the order of CIT(A) and the relevant reads as under:-

“As directed, the assessee was given an opportunity of being heard and was served with letter dt.27.08.2019 requesting the assessee to furnish evidences in support of his claim in respect of additional grounds raised. The assessee was requested to submit his response by 03.09.2019. The assessee sought additional time for submitting the details.

The assessee has filed a letter dt. 15.10.2019, which is enclosed herewith. The assessee vide the said letter in the penultimate para states that no fresh or additional material were furnished in the course of Appellate proceedings before your kind self. The assessee also asserts that the question of calling for a remand report does not arise.

Nevertheless, the report called for is submitted based on the facts of the case. During the course of Search proceedings, details of salary paid to employees during various Financial Years, were seized vide ANN/SVMSWT/CD/B&D/S-06, ANN/SVMSWT/ČD/B&D/S-01, ANN/SVMSWT/CD/B&D/S-02 ANN/SVMSWT/CD/B&D/S-03, ANN/SVMSWT/CD/B&D/D-4 and ANN/SVMSWT/CD/B&D/D-5. For A.Y. 2011-12, 2012-13 and 2013-14, the additions were made based on the above seized materials. Hence, the seized materials had a bearing on income for A.Y. 2011-12, 2012-13 and 2013-14. Further, the assessee has failed to substantiate the expenditures through evidences including details of TDS paid on Salaries which were definitely above the threshold limit for deducting tax at source, as per the provisions of the Income-tax Act, 1961, with regard to tax deducted at source.

The other additions are on account of failure on the part of the assessee to explain the credits in the Bank Accounts, and expenditures debited to Profit and Loss accounts, which the assessee has failed to substantiate. Further, reliance is also placed on the decision of the Hon’ble Supreme Court in the case of Commissioner of Sales Tax vs H. M. Esufalli’s, H. M. Abdulali reported in 90 ITR 271 (SC) in support the assessments for A.Y. 2011-12, 2012-13 and 2013- 14.

With regard to the above mentioned appeals before the CIT (A), the assessee-trust had filed a detailed written submissions and also argued the matter before the appellate authority. In fact, in this reply, we might have to reiterate many of the submissions already made before the CIT (A), This is due to the fact that the answers called in the letter are either embedded in the query itself or else it is for the assessing authority to explain as to the basis or incriminating documents based on which the additions were sought to made in the assessment for these three years.

In response to Para 2 of the letter, I submit that the Panchanama records only cash, gold coins and certain books of accounts as seized material in the search. The cash and value of gold coins seized were offered in the asst. year in the year of seizure. Apart from this, the books of accounts seized pertained to financial year 2(13-14 onwards and no books pertaining to the earlier three years were seized. Hence, it is submitted that either the addition/disallowances made in asst. years 2011-12 to 2013-14 were based on subsequent year’s books or were estimated or were merely based on the data available in the returns of income filed and accepted by the department.

With regard to Para 3 of the letter, there is a clear misconception in stating that “notices u/s.153A as also notices u/s 143(2) WCFC issued fo the respective assessment years as per the provisions of the of the Income-tax Act, 1961.” In this regard, it is submitted that there is no qualm on the issue of these notices issued post-search. What was stated before the CIT (A) was that no notice u/s.143(2) was issued within the time-limit for completion of regular assessment for the ROI filed u/s.139(1), due to which, the regular returns filed had culminated in law and they cannot be disturbed in vacuum, i.e., without any incriminating material found in the search and thus no addition can be made in the proceedings u/s.153A of the Act.

With regard to Para 4 of the letter, it is submitted that it is settled law now that no addition, whatsoever, either u/s 69 or any other section, can be made in the absence of any incriminating material seized during search. In the written submissions filed before the CIT(A), reference has been made to quite a few judgments of various High Courts and also the ITAT orders, which have reiterated this principle of law. The assessee invites your good attention to Paras 9 to 12 of the submissions mode in the appeal, which answers this issue.

On the issue of salary payments referred in Para 5 of the letter, the assessee submits that in the assessment, reference is made to books recording the salary paid details which were seized vide No.ANN/SVMSWT/CD/B&D/S-06, ÁNN/SVMSWT/CD/B &D/S-01 &02, ANN/SVMSWT/CD/B&D/S-03, D­4& D-5 pertaining to the FY.2013-14) relevant to A.Y 2014-15.! The officer transposes the figure available for FY.13-14 into the current year records, resulting in an estimated addition under this head. Hence, if is submitted that assessee had rightly stated that additions are not based on seized material and it is inappropriate to state in the letter that there was any contradiction by the assessee.

Regarding the last para of the letter asking the assessee to explain the claim of certain expenses, we invite the kind attention of your good selves to the submissions made before the CIT(A) in Paras 8(1) to 8(v) wherein each of the addition is also separately dealt with explaining the absence of any incriminating material in the search to support the additions made in the assessment.

Finally, the assessee submits that in the hearing before the CIT(A), no fresh or additional material were furnished in the course of appellate proceedings and which had not been given in the course of assessment. So, the question of calling for a remand report did not arise at all.

It is thus submitted that the Learned ACIT may be pleased to consider the above submissions and thus oblige.”

7.1 We have gone through the above remand report of the AO, which does not indicate that any incriminating material was found relating to assessment years 2011-12 to 2013-14 during the course of search and seizure action on the assessee. From the above remand report, it is clear that the AO has relied on the incriminating material pertaining to financial year 2013-14 relevant to assessment year 2014-15 onwards. This fact is noted by the AO in his remand report and for the sake of clarity, the relevant para is again reproduced as under:-

“In response to Para 2 of the letter, I submit that the Panchanama records only cash, gold coins and certain books of accounts as seized material in the search. The cash and value of gold coins seized were offered in the asst. year in the year of seizure. Apart from this, the books of accounts seized pertained to financial year 2(13-14 onwards and no books pertaining to the earlier three years were seized. Hence, it is submitted that either the addition/disallowances made in asst. years 2011-12 to 2013-14 were based on subsequent year’s books or were estimated or were merely based on the data available in the returns of income filed and accepted by the department.”

It means that there is no incriminating material or seized material pertaining to assessment years 2011-12 to 2013-14 and the estimated additions made by the AO on account of disallowances of unexplained investment u/s.69, unproved expenditure, annual day and food expenses, other expenses, disallowance of excess claim of depreciation and disallowance of claim of deduction u/s.10 & 11 of the Act on the basis of amounts extrapolated on the basis of incriminating material found relating to assessment year 2014-15 and onwards.

7.2 This issue, in view of the above facts is now squarely covered by the decision of Hon’ble Supreme Court in the case of Abhisar Buildwell reported in [2023] 454 ITR 212, wherein Hon’ble Supreme Court has finally held down how search assessments are to be framed in para 14 as under:-

14. In view of the above and for the reasons stated above, it is concluded as under:

i) that in case of search under Section 132 or requisition under Section 132A, the AO assumes the jurisdiction for block assessment under section 153A;

ii) all pending assessments/reassessments shall stand abated;

iii) in case any incriminating material is found/unearthed, even, in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns; and

iv) in case no incriminating material is unearthed during the search, the AO cannot assess or reassess taking into consideration the other material in respect of completed assessments/unabated assessments. Meaning thereby, in respect of completed/unabated assessments, no addition can be made by the AO in absence of any incriminating material found during the course of search under Section 132 or requisition under Section 132A of the Act, 1961. However, the completed/unabated assessments can be re-opened by the AO in exercise of powers under Sections 147/148 of the Act, subject to fulfilment of the conditions as envisaged/mentioned under sections 147/148 of the Act and those powers are saved.

The above clause (iv) of para 14 clears that in case, no incriminating material is found or seized during the course of search proceedings, the AO cannot assess or reassess taking into consideration other materials in respect of completed assessment or unabated assessment meaning thereby no addition can be made by the AO in absence of any incriminating material found during the course of search u/s.132 of the Act. Further, we notice that the Hon’ble Supreme Court has rejected the Revenue’s contention that in case of search even where no incriminating material is found during the course of search, whether the AO can assess or reassess the income taking into consideration the other material, the Hon’ble Supreme Court has explained in great detail the provisions of section 153A r.w.s. 132 of the Act vide paras 11 & 12 as under:-

11. As per the provisions of Section 153A, in case of a search under Section 132 or requisition under Section 132A, the AO gets the jurisdiction to assess or reassess the ‘total income’ in respect of each assessment year falling within six assessment years. However, it is required to be noted that as per the second proviso to Section 153A, the assessment or re-assessment, if any, relating to any assessment year falling within the period of six assessment years pending on the date of initiation of the search under Section 132 or making of requisition under Section 132A, as the case may be, shall abate. As per sub-section (2) of Section 153A, if any proceeding initiated or any order of assessment or reassessment made under sub-section (1) has been annulled in appeal or any other legal proceeding, then, notwithstanding anything contained in sub-section (1) or section 153, the assessment or reassessment relating to any assessment year which has abated under the second proviso to subsection (1), shall stand revived with effect from the date of receipt of the order of such annulment by the Commissioner. Therefore, the intention of the legislation seems to be that in case of search only the pending assessment/reassessment proceedings shall abate and the AO would assume the jurisdiction to assess or reassess the ‘total income’ for the entire six years period/block assessment period. The intention does not seem to be to re-open the completed/unabated assessments, unless any incriminating material is found with respect to concerned assessment year falling within last six years preceding the search. Therefore, on true interpretation of Section 153A of the Act, 1961, in case of a search under Section 132 or requisition under Section 132A and during the search any incriminating material is found, even in case of unabated/completed assessment, the AO would have the jurisdiction to assess or reassess the ‘total income’ taking into consideration the incriminating material collected during the search and other material which would include income declared in the returns, if any, furnished by the assessee as well as the undisclosed income. However, in case during the search no incriminating material is found, in case of completed/unabated assessment, the only remedy available to the Revenue would be to initiate the reassessment proceedings under sections 147/48 of the Act, subject to fulfilment of the conditions mentioned in sections 147/148, as in such a situation, the Revenue cannot be left with no remedy. Therefore, even in case of block assessment under section 153A and in case of unabated/completed assessment and in case no incriminating material is found during the search, the power of the Revenue to have the reassessment under sections 147/148 of the Act has to be saved, otherwise the Revenue would be left without remedy.

12. If the submission on behalf of the Revenue that in case of search even where no incriminating material is found during the course of search, even in case of unabated/completed assessment, the AO can assess or reassess the income/total income taking into consideration the other material is accepted, in that case, there will be two assessment orders, which shall not be permissible under the law. At the cost of repetition, it is observed that the assessment under Section 153A of the Act is linked with the search and requisition under Sections 132 and 132A of the Act. The object of Section 153A is to bring under tax the undisclosed income which is found during the course of search or pursuant to search or requisition. Therefore, only in a case where the undisclosed income is found on the basis of incriminating material, the AO would assume the jurisdiction to assess or reassess the total income for the entire six years block assessment period even in case of completed/unabated assessment. As per the second proviso to Section 153A, only pending assessment/reassessment shall stand abated and the AO would assume the jurisdiction with respect to such abated assessments. It does not provide that all completed/unabated assessments shall abate. If the submission on behalf of the Revenue is accepted, in that case, second proviso to section 153A and subsection (2) of Section 153A would be redundant and/or rewriting the said provisions, which is not permissible under the law.

7.3 In view of the above legal position brought out by Hon’ble Supreme Court, as in the present three assessment years in assessee’s cases, there is no incriminating material found during the course of search, we uphold the order of CIT(A) in regard to these three assessment years quashing the assessment framed by the AO u/s.153A of the Act. Hence, we uphold the orders of Revenue and dismiss this jurisdictional ground raised by Revenue.

7.4 Accordingly, the appeals filed by the Revenue for the assessment years 2011-12, 2012-13 & 2013-14 in ITA Nos.370, 371 & 372/CHNY/2020 are dismissed.

Assessee’s Cross Objections in CO Nos.3, 4 & 5/CHNY/2021

8. Coming to assessee’s Cross Objections in CO Nos.3 to 5/CHNY/2021, it is noticed that the cross objections filed by the assessee are barred by limitation by 10 days. The Form 36 filed by the AO was received by the assessee on 30.09.2021 and the cross objections have to be filed on or before 30.10.2021 but the cross objections were filed only on 09.11.2021 resulting in a delay of 10 days. The assessee has filed condonation petition stating the following reason:-

“The assessee submits that after the Form 36 was received, it was referred to the auditor in Salem immediately after the Pooja holidays and who in turn had sent the papers to the counsel in Chennai for preparing the cross objection. The cross objection was received from the counsel for signature in the last week of October. Thereafter, the authorized signatory was away from station and on his return on 06.11.2021. The cross objection was signed and sent to the counsel in Chennai. This resulted in delay of 10 days in filing the same.”

As the delay is small delay of just 10 days and the cause seems reasonable, which was not contested by Revenue, we condone the delay and admit the cross objections.

9. Since we have adjudicated the Revenue’s appeals and dismissed Revenue’s appeals on the issue of jurisdiction upholding the order of CIT(A) that there is no incriminating material found during the course of search in these three assessment years, we need not to go into the merits of these three assessment years raised by assessee in its cross objections. Hence, these cross objections have been dismissed as academic.

ITA Nos.644 to 647/CHNY/2020 & 714 to 717/CHNY/2020

10. These cross appeals by the assessee in ITA Nos.644 to 647/CHNY/2020 and Revenue in ITA Nos.714 to 717/CHNY/2020 are arising out of different orders of the Commissioner of Income Tax (Appeals), Salem in ITA Nos.389, 390, 395, 398/2018-19 of even date 28.02.2020. The assessments were framed by the Asst. Commissioner of Income Tax, Circle-1, Hosur for the assessment years 2014-15 to 2017-18 u/s.143(3) r.w.s. 153A of the Act vide orders of even date 26.12.2018.

11. At the outset, it is noticed that these cross appeals filed by the assessee in ITA Nos.644 to 647/CHNY/2020 and Revenue in ITA Nos.714 to 717/CHNY/2020 are barred by limitation by 52 days and 80 days respectively. The impugned appellate orders dated 28.02.2020 were received by the assessee on 05.03.2020 and appeals were to be filed on or before 03.05.2020 but actually it was filed by the assessee on 25.06.2020 thereby there was a delay of 52 days. The impugned appellate orders dated 28.02.2020 were received by the Revenue on 17.03.2020 and appeals were to be filed on or before 16.05.2020 but actually it was filed by the Revenue on 04.08.2020 thereby there was a delay of 80 days. The assessee and Revenue have filed petition for condonation of delay stating that this 717/CHNY/2020 & CO Nos.3 to 5/CHNY/2021 delay is due to pandemic period of Covid 19 and subsequent events and the Hon’ble Supreme Court in Miscellaneous Application No.665 of 2021 vide order dated 23.03.2020 has given directions that the delay are to be condoned during this period 15.03.2020 to 14.03.2021 and they have condoned the delay up to 28.02.2022 in Miscellaneous Application No.21 of 2022 vide order dated 10.01.2022. Since the Hon’ble Supreme Court has condoned the delay during the said period, respectfully following the same we condone the delay in filing of appeals both by the assessee and by the Revenue and admit the appeals for adjudication.

12. The first common issue in these four assessment years 2014­15 to 2017-18, four appeals by Revenue and four appeals by assessee is as regards to the order of CIT(A) restricting the addition in regard to salary payments to teaching and non-teaching staff of the school as against claimed by assessee and thus, partly confirmed the addition as unproved expenditure to that extent. The relevant salary claimed, allowed by AO and restricted by CIT(A) is as under:-

Assessment year	Salary expenditure (in Rs.)			Addition Restricted (in Rs.)
	Claimed by assessee	Allowed by the AO	Allowed by the CIT(A)
2014-15	11,65,49,570	5,16,00,000	8,98,99,152	2,66,50,418
2015-16	11,94,33,394	6,00,00,000	9,21,19,656	2,73,13,738
2016-17	12,94,21,526	7,56,00,000	9,98,20,860	2,96,00,666
2017-18	13,47,75,480	7,56,00,000	10,39,53,444	3,08,22,036

13. The facts and circumstances in all the four years are exactly identical except the quantum and seized material or incriminating material pertaining to 3 months for assessment year 2014-15, 5 months for assessment year 2015-16, 9 months for assessment year 2016-17 and 23 days for assessment year 2017-18. Since, the facts and circumstances are identical, we will take the facts from assessment year 2014-15 in assessee’s appeal in ITA No.644/CHNY/2020 and will decide the issue. The relevant ground raised by assessee reads as under:-

5. The CIT(A) erred in confirming the salary payments to teaching and non-teaching staff of the school to the extent of Rs.2,66,50,418 as against the total debit under the head salary of Rs.11,65,49,570 and thus confirming the addition as unproved expenditure to this extent.

6. The CIT(A) was not justified in estimating the salary expenditure on an ad hoc basis by taking the monthly estimated figure for AY.15-16 as the basis, applying a reduction of 2.47% over that figure in order to arrive at the allowable salary expenses for current year and hence the estimation of the salary expenses was wholly unjustified and unsustainable in law.

7. The CIT(A) failed to appreciate that the salary register of the non-teaching staff was not seized in the search, that the amount debited in the books contains both the teaching and non-teaching salary and hence confirming any part of the salary expenses as unproven expenditure is unjustified and uncalled for and therefore the entire claim of salary paid is to be allowed.

13.1 The relevant ground raised by the Revenue in ITA Nos.714/CHNY/2020 for the assessment year 2014-15 reads as under:-

4. Payment of Salaries:

For the A.Y. 2014-15, the total salary payment as per the seized material is Rs.5.16 crores. The Assessing Officer has accordingly allowed Rs.5.16 crores as salary payment during the A.Y. 2014-15, based on the seized material vide No.ANN/SVMSWT/CD/B&D/S-06, ANN/SVMSWT/CD/B&D/S-01 & 02, ANN/SVMSWT/CD/B&D/S-03, S-4 & S-5. In the appellate order, the CIT(A) has held that the computation of disallowance under the head salary is unreasonable and has given a working based on the highest monthly salary payment for A.Y. 2016-17 and working backwards based on percentage of increase in the claim over the previous year by the assessee, has allowed a sum of Rs.8,98,99,152/- as salary paid for A.Y. 2014-15. The computation of the salary by the CIT(A) is on the basis of unproved claim of the assessee that the amounts mentioned in the seized material do not include the payments made to the non- teaching staff.

During the course of assessment proceedings, the assessee furnished details of payments made to non teaching staff for the A.Y. 2014-15. In the assessment order of the A.Y. 2014-15, the Assessing Officer has brought out the comparison between the salary payments made to teaching staff and to the non teaching staff such as Ayas, cleaners, cook etc. The Assessing officer has pointed out that the average salary paid to teaching staff is in the range of Rs.2.00 lakhs to Rs.2.84 lakhs, whereas, the salary shown to be paid to non teaching staff such as Ayas, cleaners, cook etc. is in range of RS.1.70 lakhs to Rs.1.80 lakhs, which is not believable. This shows that the salary claimed to be paid is patently high. However, the appellate order of the CIT(A) is silent on this issue.

In the assessment order for the A.Y. 2014-15, the Assessing Officer has clearly stated that the assessee has not furnished the details of the TDS deducted while making salary payments to the non- teaching staff, as claimed by the assessee. The assessee ought to have deducted tax at source, if the claim of the assessee were true. The very fact that the assessee has not furnished the details of TDS shows that the assessee has not made the salary payments to the extent as claimed by it during the course of assessment proceedings.

Moreover, the calculation on the basis of the seized material shows that the total salary payment for the A.Y. 2014-15 works out to Rs.5.16 crores, whereas the assessee has not furnished any substantial evidence in support of its claim. The assessee has furnished only an excel sheet showing names of employees and consolidated salary for the entire financial year. Such an excel sheet can be prepared by anybody to the extent of any amount.

Considering that the payments claimed by the assessee are not made through banking channel. Also during the course of the search proceedings-no seized material was found supporting the claim of the assessee, and further considering the fact that no TDS was deducted by the assessee while making the payments claimed; the order of the CIT(A) is not acceptable on this ground and further appeal is hereby submitted before the Hon’ble ITAT.

14. Brief facts are that the assessee trust was searched by Income-tax Department on 25.04.2016 in consequent to information received from District Collector of Krishnagiri that the trust was having unaccounted cash. Accordingly, warrant of authorization u/s.132 of the Act was obtained from the Director of Income Tax (Inv.), Tamilnadu & Puducherry. During the course of search, cash of Rs.2.75 crores and gold coins of 245 grams was found and seized by the Income-tax Department. In the relevant assessment year 2014-15, notice u/s.153A of the Act was initiated consequent to search proceedings and assessee filed its return of income on 27.07.2018. The assessee’s case was selected for scrutiny and accordingly, show-cause notice was issued to the assessee on 22.11.2018 requiring the assessee to explain with evidences expenses shown in seized note books i.e., excess salary claimed in returns filed as compared to seized materials. The AO noted that the salary paid to employees during various financial years relevant to assessment years under consideration, particularly this assessment year 2014-15, details of salary was also entered in books of accounts which were seized vide No.ANN/SVMSWT/CD/B&D/S-06, ANN/SVMSWT/CD/B&D/S-01&02, ANN/SVMSWT/CD/B&D/S-03,D-4&D-5. According to AO, the total salary paid to the employees for financial year 2013-14 relevant to assessment year 2014-15 was to the extent of Rs.5.16 crores as against the claim of Rs.11,65,49,570/-. Hence, opportunity was given to assessee vide letter dated 22.11.2018 to substantiate the claim of salary paid along with tax deducted at Source on payment of salary and the details of tax remitted to Central Government account with salary register showing payments made to employees. The assessee explained to the show-cause notice by filing a reply stating that

“The staff of school are classified in two categories i.e. teaching staff and non teaching staff. The seized material contains only salary paid to teaching staff since salary paid to teachers is in personal care of Correspondent. For non teaching staff, the salary is paid by 5^th of subsequent month same is paid by office in charge responsible for disbursement of salaries. Copies of salary registers reflecting total salary paid for different years are enclosed and this exactly matches with amount of net salary shown in seized materials.”

The AO after considering the reply of the assessee noted that as per seized material referred aforesaid, assessee is maintaining daily account of all the receipts and expenses incurred which is very low as against claim made of paying salary to teaching and non-teaching staff and hence, the salary claimed by the assessee cannot be allowed. He also noted that in the search proceedings, the Department has seized the note books, registers found and no material was left in the premises and hence, the claim made by the office staff that they were maintaining register for non-teaching staff is definitely after thought. The AO further noted that the explanation furnished by assessee regarding detailed salary register for all the years but according to him, the assessee furnished only an excel sheet showing name of employees and consolidated salary for the entire financial year. According to him, the assessee is not maintaining accounts at all but maintaining only rough cash book and excel sheet but could not authenticate the documents in support of salary made for such huge salary payment. He also pointed out that the average salary paid to teaching staff is in the range of Rs.2 lakhs to Rs.2.84 lakhs whereas salary shown to be paid to ayas, cleaners, cook etc., is to the extent of Rs.1.70 lakhs to Rs.1.80 lakhs which is not believable. According to AO, even assessee has not furnished details of TDS made on salaries paid. Hence, he restricted the salary as per seized material at Rs.5.16 crores as against claim made by assessee of Rs.11,65,49,570/-. Aggrieved, assessee preferred appeal before CIT(A).

15. The CIT(A) after going through the submissions of the assessee, seized material and evidences of TDS, copies of returns filed by the teachers i.e., teaching and non-teaching staff partly treated the assessee’s claim of assessee as explained and restricted the salary disallowance at Rs.2,66,50,418/- as against claimed by assessee at Rs.11,65,49,570/-. For this, the CIT(A) observed in paras 7.7 to 7.9.1 as under:-

7.7 I have carefully perused the submissions of the appellant and the relevant discussion by the AO in the Assessment Order. It is significant that the appellant is not able to demonstrate with any reliable and verifiable evidence that the details of salary payments found in the material seized during the search relate to only the teaching staff but not to others. There is no instance of any indication or inscription, in the material seized, to that effect. In the absence of any such evidence, it is natural and necessary for the AO to conclude that the payments in question relate to all categories of employees of the appellant. Secondly, in the given circumstances, the appellant’s claim of the authorities not seizing certain documents related to payments made to the non-teaching staff is simply unverifiable, and as per the provisions of the Act, is untenable and liable to be reasonably held as an afterthought, as rightly opined by the AO. Therefore, I find no valid reason to interfere with the conclusion of the AO in this regard.

7.8 However, I find the computation of disallowance under this head by the AO unreasonable. For the AYs 2014-15 and 2017-18, except the consolidated amount, no details of month-wise payments are available. In this context, it is important to note that in the Assessment Order for the AY 2016-17, the AO tabulated the details of salary payments, as culled from the material seized in the search, for nine months in the relevant financial year. For the AY year 2015-16, he tabulated similar data for five months in that relevant year. As far as the AY 2014-15 is concerned, the AO merely stated that the total salary paid was Rs.5.16 crores (para 2 on page 5 of the Assessment Order for the AY 2014-15), without any working or basis for the same. Accordingly, he allowed Rs.5.16 crores as salary expenditure for this year. For the AY 2015-16, he stated that since the salary expenditure for the earlier year (AY 2014-15) was Rs.5.16 crores, it could be at best Rs.6 crores, considering inflation (para 2 on page 8 of the Assessment Order for the AY 2015-16). For the AY 2016-17, he assumed an arbitrary figure of Rs.63 lacs (in the para on page 6 of the Assessment Order) as the average monthly salary payment and for the AY 2017-18, he adopted the same arbitrary sum of Rs.63 lacs (without any consideration for inflation) as the average monthly salary payment (para 2 on page 3 of the Assessment Order for the AY 2017-18). Thus, the whole computation of the allowable expenditure under this head, as made in the Assessment Orders, is devoid of factual basis and any rhyme or reason.

7.9 Therefore, the allowable expenditure need to be computed rationally. For this purpose, the percentage of increase in the salary expenditure claimed by the appellant is applied to the monthly average determined (Rs.83,18,405) in the Appellate Order for the AY 2016-17. That is, taking the said average of Rs.83,18,405 as basis, 4.14% (the percentage of growth in the salary) of the same is added to it to arrive at the average for the AY 2017-18. Then, the average for the AY 2015-16 is worked out in the reverse such that the sum of Rs.83,18,405 is 8.36% (the growth percentage) more than the average of the AY 2015-16.

Similarly, the average for the AY 2014-15 is worked out in the reverse such that the average of AY 2015-16 is 2.47% (the growth percentage) more than the average of the AY 2014-15. The details are as tabulated below:

Assessment Year	2014-15	2015-16	2016-17	2017-18
Salary Claimed by the Appellant (A)	11,65,49,570	11,94,33,394	12,94,21,526	13,47,75,480
Percentage of increase in the claim over the previous year’s (B)		2.47	8.36	4.14
Monthly Average Expenditure (*based on that of AY 2016-17) (C)	74,91,596	76,76,638	83,18,405	86,62,787
Allowable Expenditure [D=(C X 12)]	8,98,99,152	9,21,19,656	9,98,20,860	10,39,53,444
Disallowance (A-D)	2,66,50,418	2,73,13,738	2,96,00,666	3,08,22,036

7.9.1 Accordingly, the allowable expenditure under the head of salary, for this assessment year (2014-15) is to be determined as Rs.8,98,99,152 against the appellant’s claim of Rs. 11,65,49,570 leading to a disallowance of Rs.2,66,50,418. The AO is directed accordingly. Thus, the appeal of the appellant on this issue is partly allowed.

Aggrieved, both assessee and Revenue came in appeal before the Tribunal.

16. We have heard rival contentions and gone through facts and circumstances of the case. Before us, the assessee filed Excel sheet wherein details of salary paid to teaching and non-teaching staff and also Permanent Account Number of teaching and non-teaching staff. The ld.counsel for the assessee before us stated that the assessee in its paper-book has filed copies of returns of income filed by the above said employees and TDS wherever applicable or deducted and details are filed. The ld.counsel for the assessee assailed the order of CIT(A) that he has made estimate on average basis by taking growth of salary each year and taking the base year 2014-15. We noted that the CIT(A) observed that the assessee is not able to demonstrate with any reliable and verifiable evidence that the details of salary payment found in the seized material relates to teaching staff only but not to others. But, assessee before us as well as before CIT(A) made claim that the Department has not seized complete documents and some documents relates to payment made to non-teaching staff is not aware by the Department during search. We noted from the details filed by the Revenue wherein base work out by the AO for determining expenditure of salary at Rs.5.16 crores in assessment year 2014-15, Rs.6 crores in assessment year 2015-16, Rs.7.56 crores in assessment year 2016­17 and again Rs.7.56 crores in assessment year 2017-18 had just based on seized material and taking average salary data of Rs.43 lakhs per month to Rs.63 lakhs per month.

16.1 The Revenue’s contention before us that there was no evidence during the course of search which relates to expenditure of salary and all documents seized demonstrate the salary allowed by AO to the extent of Rs.5.16 core in assessment year 2014-15. The Revenue in its written submission has stated that there is no basis for CIT(A) for estimating the expenditure of salary by average increase or growth in the salary. The Department contended that there is no basis for the same. It was contended that even the alleged deduction of TDS was not furnished before the AO and it was furnished for the first time before the CIT(A). The ld.CIT-DR filed details of seized material which does not contain the details whether the same belongs to teaching staff or non-teaching staff or both. The assessee before us filed income and expenditure account supported by Excel sheets of salary payment actually claimed on account of payment made to teaching and non-teaching staff of the school. As argued by ld.counsel that this actual salary registers for each month were signed by the staff receiving the salary and these teaching and non-teaching staff wherever applicable has filed returns of income and their PAN are also given. We noted that the CIT(A) has given his own mathematical formula to estimate the total allowable salary payment to teaching and non-teaching staff. The CIT(A) after taking monthly average from the assessment year 2014-15 and taking the reverse working estimated growth in term of percentage at 2.47% and then tabulated the disallowance as under:-

Assessment Year	2014-15	2015-16	2016-17	2017-18
Salary Claimed by the Appellant (A)	11,65,49,570	11,94,33,394	12,94,21,526	13,47,75,480
Percentage of increase in the claim over the previous year’s (B)		2.47	8.36	4.14
Monthly Average Expenditure (*based on that of AY 2016-17) (C)	74,91,596	76,76,638	83,18,405	86,62,787
Allowable Expenditure [D=(C X 12)]	8,98,99,152	9,21,19,656	9,98,20,860	10,39,53,444
Disallowance (A-D)	2,66,50,418	2,73,13,738	2,96,00,666	3,08,22,036

16.2 We noted that the CIT(A)’s formula of percentage growth on account of expenditure of salary is having no basis because he has started the percentage growth from assessment year 2015-16 and not 2014-15 because he has taken the base year as 2014-15. Hence, this cannot be relied on. Admittedly, there are flaws in the evidences produced by the assessee also but it cannot be denied that there is salary expenditure as per the list given and these employees filed their respective return of income, the assessee has deducted TDS on the payment to these employees being salary payment and which is much more than the salary payment collated from the seized material by the AO. Hence, we have no alternative except to make an estimate disallowance and in our view, for any leakage we can estimate the disallowance to the extent of 10% of the total salary claimed. Hence, we partly sustain the addition by directing the AO to recomputed the disallowance at 10% of the salary claimed in each of the years, like in assessment year 2014­-15, the assessee has claimed salary at Rs.11,65,49,570/- and AO will disallow 10% of the same. Consequently another years also, the AO will disallow 10% of the total claimed salary. In term of the above, this issue of Revenue’s appeal is dismissed and that of the assessee’s appeal is partly-allowed. This finding will apply in all the four assessment years i.e., 2015-16 to 2017-18.

17. The second common issue in these four assessment years 2014-15 to 2017-18, four appeals by Revenue and four appeals by assessee is as regards to the order of CIT(A) restricting the addition in regard to Annual Day expenses as against claimed by assessee and thus, partly confirmed the addition and confirming the estimated disallowance on food expenses. The relevant Annual Day Expenses and Food Expenses claimed as expenditure by assessee, disallowed by AO and restricted/confirmed by CIT(A) are as under:-

A.Y	Annual day expenses			Food Expenses
	Claimed by assessee	Allowed by AO	Allowed by CIT(A)	Claimed by assessee	Adhoc disallowance made by AO and confirmed by CIT(A)
2014-15	1,59,00,676	20,00,000	50,00,000	2,68,48,666	5,00,000
2015-16	1,88,27,030	20,00,000	50,00,000	2,49,38,392	5,00,000
2016-17	1,69,02,002	20,00,000	50,00,000	2,76,91,201	10,00,000
2017-18	1,36,84,730	20,00,000	50,00,000	2,35,36,961	10,00,000

18. The facts and circumstances in all the four years are exactly identical except the quantum. Since, the facts and circumstances are identical, we will take the facts from assessment year 2014-15 in assessee’s appeal in ITA No.644/CHNY/2020 and will decide the issue. The relevant ground raised by assessee reads as under:-

8. The CIT(A) erred in the estimating the Annual Day Expenses of the School at Rs.50,00,000 as against the expenses debited and claimed of Rs.1,59,00,676 by the assessee and was also not justified in confirming the estimated disallowance of Rs.5 lacs on food expenses of the hostel students.

9. The CIT(A) failed to appreciate that there being no tangible incriminating material found in the search, the estimation of the expenses incurred on the Annual Day function is untenable in law and ought to have allowed the entire claim of expenses.

10. The CIT(A) considering the importance of the annual day event for the institution where the meritorious students and teachers in the academic year are awarded with cash and gold coins and that expenses are incurred over a three day period on stay and food of the parents of the students, the amount expended and claimed is reasonable and hence allowed entirely.

18.1 The relevant ground raised by the Revenue in ITA Nos.714/CHNY/2020 for the assessment year 2014-15 reads as under:-

“The Assessing Officer has allowed a sum of Rs.20 lakhs as Annual Day expense of the assessee for the A.Y. 2014-15. The CIT(A) has pointed out that the total number of students in the institution is 2800 and not 800 as noted in the Assessment Order. And on the basis of the same the CIT(A) has allowed an expenditure of Rs.50 lakhs under the head. However, the fact remains that the assessee has not produced any evidence to the extent of Rs.1,59,00,676/- claimed as expenditure under this head for A.Y.2014-15. The assessing office has noted in the assessment order that for claim of expenses u/s 37(1) of the Income-tax Act, 1961, unless the assessee furnishes contemporary evidences, such expenses claimed is not allowable.

It is also to be noted that, the magnitude of celebration can be very high or very low, irrespective of the number of the students. As far as the Income-tax proceedings are concerned, the acceptability of the expenditure depends on the documentary evidence filed. In the absence of any evidence of the expenditure in form of vouchers and bills the claim of the assessee cannot be accepted, hence the order of the CIT(A) is not acceptable on this ground and further appeal is hereby submitted before the Hon’ble ITAT.

The appellant craves for leave to add further grounds or amend for these and such other grounds that may be urged at the time of hearing the order of the CIT(A) is set aside and that of the Assessing Officer be restored.

19. Brief facts are that the AO on verification of income and expenditure account noted that the assessee has claimed expenses under the head ‘Annual Day Expenses’ at Rs.1,59,00,676/- and under the head ‘Food Expenses’ at Rs.2,68,48,666/-. For all the four years, the expenses under these two heads are as under:-

Assessment Year	Annual Day Expenses	Food Expenses
2014-15	1,59,00,676	2,68,48,666
2015-16	1,88,27,030	2,49,38,392
2016-17	1,69,02,002	2,76,91,201
2017-18	1,36,84,730	2,35,36,961

The assessee was given opportunity to furnish material evidences in support of the above expenses vide letter dated 22.11.2018 and assessee produced only ledger copies of such expenses but could not produce vouchers in support of these expenses. Therefore, the AO in regard to Annual Day Expenses estimated expenses at Rs.20,00,000/- and disallowed the balance expenditure of Rs.1,39,00,676 as unproved expenditure by observing as under:-

“As per details submitted, the assessee is claiming that the Trust has incurred huge expenses on account of cash award & gold coins given to meritorious students but, vouchers for such purchase of gold coins and evidences for cash awards claimed to be paid to students and teachers have not been furnished. Further, as could be seen from details of depreciation schedule, assessee has claimed depreciation of Rs.3,10,766/- which is stated to be expenses incurred towards temporary shed put up during Annual Day which is in addition to other revenue expenditure claimed. In these circumstances, considering the fact that there are 800 students, a sum of Rs.20 lakhs is estimated as reasonable expenses under the head Annual Day expenses and the same is allowed as deduction. Consequently, balance amount of Rs.1,39,00,676/- is disallowed as unproved expenditure.”

Similarly, the AO disallowed an estimate of Rs.5,00,000/- on account of food expenses out of the total claim of Rs.2,68,48,666/-. Aggrieved, assessee preferred appeal before CIT(A).

20. The CIT(A) partly confirmed the action of AO in regard to Annual Day Expenses and restricted at Rs.50,00,000/- and sustained the addition of Rs.5,00,000/- under the head ‘Food Expenses’ by observing in para 8.4 & 8.5 as under:-

“8.4 I have considered the reasoning of the AO and the arguments of the appellant. The argument of the appellant that the AO cannot resort to an estimated addition or disallowance in the absence of any incriminating material, is not acceptable for the simple reason that the appellant has not filed its Return of income till the date of search but only much later after issue of notice. Similarly, the observation of the AO that when the income of the Trust is being taxed like income of a business organization, the expenses claimed under the head Annual Day Expenses cannot be allowed as incurred in relation to carrying on the activities of the Trust, is untenable. Even if the income of the Trust is assessed as business income, the expenditure incurred in carrying out the activities of the organisation for earning the said income has to be allowed. In the instant case, the expenditure is incurred in connection with activities required to be performed by an educational institution for encouraging the students and teachers to excel in their subjects/work. Similarly, annual day celebrations may be necessary for any educational institution for publicity and better relations with the students and their parents as well, It is noted that though the that such expenses cannot be allowed, he resorted to disallowing part of it for the reason that the claim was not supported with vouchers. However, in determining the quantum of allowance, the AO has taken the number of students as only 800 where as the appellant stated that the actual number of students is 3000 as vouched by the quantum of fee collections made. Therefore, taking into consideration the duration and quality of the event and the number of participants, it is opined that allowance of an amount of Rs.50,00,000 is reasonable under the head Annual Day Expenses. The AO is directed to allow same. The appellant’s ground is thus, partly allowed.

8.5 With regard to the disallowance of Rs.5 lacs in the claim of Food Expenses, as stated in the preceding paragraph, the appellant’s argument that no disallowance can be made without any incriminating material seized during the search, is unacceptable. Keeping in view the huge claim of expenditure (Rs.2,68,48,666) and the fact that it is not supported with any verifiable material evidence, a meagre disallowance of Rs.5 lacs is held to be justified and the grounds of appeal on this aspect are not allowed.

Aggrieved, both assessee and Revenue came in appeal before us.

21. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the AO in absence of bills and vouchers has made disallowance and the CIT(A) restricted the addition on account of Annual Day Expenses at Rs.50,00,000/- and on account of ‘Food Expenses’ at Rs.5,00,000/- which we feel that the estimation made by the CIT(A) is quite reasonable and we do not want to interfere in the same. Hence, the appeal of assessee as well as Revenue on this issue is dismissed. This finding will apply in all the four assessment years i.e., 2014-15 to 2017-18.

22. The next common issue in the four appeals of assessee in ITA Nos.644 to 647/CHNY/2020 is as regards to the order of CIT(A) confirming the other expenses disallowed by AO in regard to ‘pooja expenses’ at Rs.1,92,627/-, book expenses of Rs.20,00,000/-. For this assessee has raised following ground Nos.11 & 12 in assessment year 2014-15:-

11. The CIT(A) erred in confirming the disallowance of pooja expenses of Rs.1,92,627 and book expenses of Rs.20,00,000 on adhoc basis without appreciating that these are actually incurred on the books distribution for the students.

12. The CIT(A) failed to appreciate that the assessee collects amounts for books from the students along with the annual fees (shown in the receipt issued), which is claimed in the I & E a/c and the amount of Rs.2,05,457 shown separately towards books is the additional books supplied to few students who require them and hence the estimated disallowance made referring to the collection of this amount from students for the extra books is wholly unjustified and unsustainable.

23. Brief facts are that the AO while going through the income and expenditure account noted that the assessee has claimed ‘pooja expenses’ at Rs.1,92,627/- and expenditure under ‘school book expenses’ at Rs.36,95,218/-. The AO disallowed the entire pooja expenses of Rs.1,92,627/- and estimated sum of Rs.20 lakhs under the head ‘school head expenses’ as the assessee is unable to produce any bills and vouchers in support of the claim and therefore, invoking the provisions of section 37(1) of the Act, he made disallowance. For making disallowance of school book expenses, it was contended that the assessee might have claimed depreciation at the rate of 60% of the cost but the claim was negated by the assessee by stating that assessee distributes these books to the students. However, the AO made disallowance of pooja expenses at Rs.1,92,627/- and estimated disallowance of school book expenses at Rs.20,00,000/- Aggrieved, assessee preferred appeal before the CIT(A).

24. The CIT(A) confirmed the action of the AO and dismissed the ground raised by assessee in regard to pooja expenses as well as purchase of school books for students, as the assessee could not produce any bills and vouchers. In regard to pooja expenses, CIT(A) has not considered the argument of assessee. As regards to ‘student book expenses’, the CIT(A) noted the arguments of counsel for the assessee that the depreciation is separately claimed at 60% of the cost but the assessee distributes these books to the students. The CIT(A) was not convinced with the argument of assessee and he confirmed the action of the AO. Aggrieved, assessee is in appeal before the Tribunal.

25. Since assessee before us now produced only that cheque payment is to tune of Rs.17,87,543/- for procuring books and for student note books at Rs.18 lakhs out of total claim of Rs.19,07,675/-, we are of the view that simpliciter payment by cheque will not allow the expenditure as it has to be correlated with the bills and vouchers and assessee could not produce the books of accounts before the AO nor before CIT(A) but even now before us. In the absence of the same, we are of the view that the CIT(A) has rightly confirmed the action of the AO and we confirm the same.

25.1 Similar expenditure are made by AO and restricted by CIT(A) for assessment years 2015-16, 2016-17 & 2017-18 as under:-

A.Y.	Student Book Expenses		Pooja Expenses
	Claimed by assessee	Disallowed by AO and confirmed by CIT(A)	Claimed by assessee	Disallowed by AO and confirmed by CIT(A)
2015-16	2,42,744	2,42,744	47,45,432	20,00,000
2016-17	3,96,670	3,96,670	49,64,905	25,00,000
2017-18	79,359	79,359	–	–

Since facts and circumstances are exactly identical in these three years also, what was in assessment year 2014-15, hence taking a consistent view, we dismiss this ground of assessee’s appeals.

26. The next common issue in these four appeals of assessee in ITA Nos.644 to 647/CHNY/2020 is as regards to the order of CIT(A) confirming the disallowance of Rs.50,86,800/- given as advance to teachers and school staff treating the same as unexplained expenditure u/s.69C of the Act. For this, assessee has raised following grounds in assessment year 2014-15:-

14. The CIT(A) erred in confirming the disallowance of Rs.50,86,800 given as advances to teachers and school staff as unexplained expenditure under sec.69C of the Act.

15. The CIT(A) having not disputed the fact that the advances given to teaching and non-teaching staff were recovered back by way of deductions from their salaries, was not justified in confirming the disallowance by merely stating that the term ‘tem’ has not be explained by the assessee, although the details were furnished and was also narrated that it stands for ‘temporary advances’.

16. The CIT(A) ought to have seen that the expenses also include amounts spent on purchase of provisions for hostel and also books, which are supported by regular entries in cash book, which were placed on record and therefore confirming the disallowance without due regard to these facts is wholly unjustified.

27. Brief facts are that the AO itself noted in the assessment order that the expenses of Rs.50,86,800/- pertains to assessment year 2014-15 relevant to financial year 2013-14 and these are as per seized books of accounts. He recorded this fact in assessment order as under:-

“On verification of the seized materials seized on 25/04/2016 Vide No.ANN/SVMSWT/CD/B & D/S-06 of note book of Sri. Vidya Mandir (receipt and payment details) for the period 02/01/2014 to 31/03/2014 it is seen that assessee has claimed various expenses. The details are as under:-Seized note book No.6:

Sl.No.	Date	Particulars of expenses	Amount
01	17/01/2014	Donation	2,00,000
02	01/02/2014	Tem	20,00,000
03	24/02/2014	Tem	1,00,000
04	26/02/2014	Baskar	2,36,800
05	27/02/2014	Tem	1,50,000
06	10/03/2014	R. Hemalatha	4,00,000
07	19/03/2014	DD	18,00,000
08	24/03/2014	Tem	2,00,000
	Total		50,86,800

The expenses claimed in the seized materials relates to the period 2013-14 (A.Y.2014-15). In connection with the above, vide show cause notice dt.22.11.2018, assessee was asked to furnish the details of expenses/payments and also reasons for the above expenses/payments along with material evidences for verification. Further, assessee was asked to furnish under which head the above expenses/payments are shown in the income and expenditure filed by it. It was also specified that failure to substantiate the claim with material evidences as called above will result in holding that such expenditure shown in the seized books will not be allowed while computing the income for A.Y.2014-15.”

As the assessee could not provide any evidence, but only stated that these represent advances given to teachers and for item purchased for hostel etc., the AO was not convinced and added the entire expenses of Rs.50,86,800/-. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) confirmed the action of the AO by observing in para 12.3 as under:-

“12.3 I have perused the submissions of the appellant and the Assessment Order. The AO has elaborately discussed this issue in the assessment order with reference to the seized material. In the assessment order, the A.O. has tabulated the entries found in the seized material and it is seen that most of the entries are with the narration ‘Tem’. It is also noted that huge sums have been given the same narration ‘Tem’. It is important to take note of the appellant’s silence on stating what the term ‘Tem’ stands for. Neither during the assessment proceedings, nor during the appellate proceedings, the appellant made any mention of the term while claiming that the entries are not related to unexplained or unaccounted expenditure. The reason for the silence is simple that there exists no explanation with the appellant and it is clearly expenditure that has not been accounted in the books. Further, as observed by the AO, the appellant has not proved with verifiable evidence its claim of advances given to teachers, refunds made to students, etc. Thus, the appellant’s arguments on this issue are devoid of any merit. Therefore, the addition made by the AO is sustained and all the grounds of the appellant on this issue are dismissed.”

Aggrieved, now assessee is in appeal before the Tribunal.

28. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the main argument of ld.counsel for the assessee before us is that these expenses are emanating out of seized material and once the Department admits that assessee has incurred this expenditure as per seized material, there is no need for any further evidence. We have also gone through the seized material noted by AO in his order and there is categorical finding by the AO that these expenses are part of seized material, as reproduced above in the order of AO, we are of the view that this is clearly allowance expenses and hence, we delete the addition and reverse the findings of AO and that of the CIT(A) on this issue. This issue of assessee’s appeal is allowed.

29. Coming to other assessment years, similar expense is disallowed by AO and confirmed by CIT(A) for assessment years 2015-16, 2016-17 & 2017-18 as under:-

A.Y	Disallowed by AO and confirmed by CIT(A) (in Rs.)
2015-16	2,21,17,105
2016-17	3,09,71,481
2017-18	83,00,000

Since facts and circumstances are exactly identical in these three years also, what was in assessment year 2014-15, hence taking a consistent view, we delete the addition and reverse the findings of AO and that of the CIT(A) on this issue. This issue of assessee’s appeal in all these assessment years 2014-15 to 2017-18 is allowed.

30. The next issue raised by the assessee in the assessment year 2017-18 in ITA No.647/CHNY/2020 is as regards to applicability of provisions of section 115BBE of the Act on the amount seized of Rs.2.75 crores as cash and gold coin equivalent to an amount of Rs.7.35 lakhs. For this, assessee has raised the following ground Nos.14 & 15:-

14. The CiT(A) erred in confirming the application of sec.1 15BBE on the amount of Rs.2.75 crores of cash and Rs.7,35,000 of gold coins seized in the search totaling to Rs.2,82,35,000 and taxing the amount at the higher rate as against the assessee having offered the amount in the returns for AYs.2016-17 and 2017-18 at the normal rate of tax.

15. The CIT(A) failed to appreciate that sec.115BBE applies only where no explanation is offered by assessee for the addition and the assessee having explained that the cash seized was part of the regular cash book and part of withdrawals made over a period of time for expenses and that the gold coins of 245 gms was for giving medals to meritorious students, the rejection of explanation would not lead to taxing the amounts at the higher rate under sec.11BBE.

31. We have heard rival contentions on this issue and gone through facts and circumstances of the case. We noted that the AO as well as CIT(A) has admitted in their order that this cash of Rs.2.7 crores found during the course of search was recorded in the books of accounts. This fact is admitted by assessee in its submissions made before AO & CIT(A) and the CIT(A) categorically recorded this fact in para 12.9 (c) & (d) as under:-

12.9

(c) It is a fact that the assessee has not filed Returns of income for the AYs 2014-15 to 2017-18 till issue of notice after the search and seizure operation. In such a situation, assuming certain amount as opening cash balance in the first year to arrive at a balance in the current year so as to explain the cash seized during the search is unconvincing and unacceptable. As observed by the AO in his order, the assessee has filed Returns of income only from AY 2010-11 by taking cash balance of around Rs.7,92,95,835 and the basis for arriving such amount and showing opening capital of Rs.27,32,24,479 has not been explained. The AO rightly stated that the cash balance declared in Return of income filed subsequently cannot be accepted as correct, since the assessee failed to explain the very basis on which the opening cash of Rs.7.92 crores was adopted.

(d) With regard to the claim of the appellant that the entire cash of Rs.2.75 crores found during the search could not have been generated in a short period of 24 days from 1-4-2016 to the date of search on 25-4-2016 and therefore part of it (Rs.1.25 crores) admitted in the Return of income for the AY 2016-17 should not have been reduced from the income of that year and assessed in the current AY 2017-18, though the plea sounds logical, as stated by the AO in the Assessment Order, the entire amount found during the search has to be assessed in the year of the search, as per the provisions of section 69A and therefore, it cannot be acceded to.

Once it is an admitted fact that the entire cash found and seized of Rs.2.75 crores was generated from 01.04.2016 to the date of search on 25.04.2016 and the same has been recorded in the books of accounts i.e., the source is explained. Once this is accounted cash, it cannot be subject matter of addition but in any case the assessee surrendered this amount just to buy peace and admitted this income in the return of income filed in response to notice u/s.153A of the Act, the same should not have been assessed as unexplained money u/s.69A of the Act. Once this is explained money the provisions of section 115BBE of the Act will not apply to this seized cash because the source is explained. As regards to unaccounted gold coin of 245 grams of equivalent value of Rs.7.35 lakhs, the assessee could not explain the source of this unaccounted gold coins and hence, to the effect of this amount of Rs.7.35 lakhs, the provisions of section 115BBE of the Act will apply. In term of the above, this issue of the assessee’s appeal is partly-allowed.

32. The next common issue in these four appeals of assessee in ITA Nos.644 to 647/CHNY/2020 is as regards to assumption of jurisdiction by the AO and confirmed by CIT(A) that there is no incriminating material unearthed during the course of search and hence, assessment framed u/s.153A of the Act is bad in law. For this, assessee has raised identical ground in all the years and facts are also identical and hence, will take the ground raised in ay 2014­15 and will decide the issue. For this, assessee has raised following ground Nos.2 & 3 :-

2) The CIT(A) has erred in holding that the AO had rightly exercised the jurisdiction in so far as there was no material unearthed in the search that was incriminating in nature and the additions and disallowances were made on estimate basis and hence the notice and completion of assessment u/s.153A is untenable in law.

3) The CIT(A) ought to have appreciated that considering Rule 112F and CBDT Circular No.10 of 2012 dated 31.12.2012, there was no mandate under the statute to invoke the provisions of sec.153A for the assessment year other than the searched assessment year, i.e., 2017-18 and hence the notice and the assessment framed under sec.153A of the impugned asst.year are void in law.

33. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee in its submissions before us dated 13.03.2024 categorically admitted that there is seized material pertaining to rough daybook for 3 months for AY 2014-15, for 5 months for AY 2015-16, for 9 months for AY 2016-17 and for 23 days for AY 2017-18, wherein unverifiable expenditure relating to salary to teaching and non-teaching staff, annual day and food expenses, other expenses are noted and these documents are categorically incriminating. This fact is narrated by assessee in its statement as under:-

“There was an Election related search by the Election Officials on 25.4.2016, during the 2016 State Assembly election. The election officials came to the premises at around 7 am and found cash of Rs.2.75 crores and gold coins of 245 gms. The information was passed on to the Income Tax Department and the ACIT, Hosur, who was the Officer on Special Duty (OSD) came to the premises and seized the cash and gold coins. The OSD recorded a sworn statement from the Correspondent of the school. The IT authorities took a sample of the records kept in the premises. This comprised of the rough day book for 3 months in AY.2014-15, for 5 months in AY.2015-16, for 9 months in AY.2016-17 and for 23 days in AY.2017-18. Based on this seized material, the notices under sec.153A were issued for the A.Y.s 2011-12 to 2017-18. In response to the notices, the assessee filed the returns of incomes for all the years disclosing the same income as in the regular returns of income filed. The cash seized was offered for tax in the A.Y.s 2016-17 of Rs.1.25 crores and in AY.2017-18 of Rs.1.50 crores and tax was paid at the normal rates.”

In view of this admission, we have no hesitation in affirming the orders of the lower authorities confirming the assumption of jurisdiction by the AO for framing assessments u/s.153A of the Act because search happened u/s.132 of the Act on the residential and business premises of the assessee on 25.04.2016. Hence, we affirm the orders of lower authorities in all these four assessment years and accordingly, the ground raised by the assessee is dismissed.

34. The next ground raised in these four appeals of assessee in ITA Nos.644 to 647/CHNY/2020 is as is as regards to allowance of claim u/s.10 & 11. For this assessee has raised ground Nos. 4 & 13 as under:-

4) The CIT(A) ought to have seen that the assessee trust had been granted registration under sec.12AA on 06.9.2019 and in accordance with the 2nd Proviso to sec.12A(2), the registration granted applies to all pending proceedings and that the reason stated to deny the exemption that amendments have been made to the trust deed does not impinge on the charitable activity carried on by the trust and hence the assessee ought to be granted exemption under sec.11 of the Act for the assessment years 2014-15 to 2017-18.

13) The CIT(A) erred in confirming the disallowance of Rs.1,25,598 claimed u/s.10 & 11 of the Act by holding that the registration under section 12AA granted to the assessee cannot be applied in view of amendments made to the trust deed and in any event, ought to have seen that the disallowance is not based on any search material and hence deleted the same in assessment year 2014-15 to 2016-17.

35. We have heard rival contentions and gone through facts and circumstances of the case. We noted that assessee was granted registration u/s.12AA of the Act w.e.f. 06.09.2019 as admitted by assessee and once this is a fact, assessee is not entitled to claim of exemption u/s.11 of the Act. Hence on this issue, we confirm the orders of the lower authorities and this common issue of assessee in all these years is dismissed.

36. In the result, the appeals filed by the Revenue for the assessment years 2011-12 to 2017-18 in ITA Nos.370, 371 & 372/CHNY/2020 and ITA Nos.714, 715, 716 & 717/CHNY/2020 are dismissed, the cross objections filed by the assessee for the assessment years 2011-12 to 2013-14 in C.O. Nos.3, 4 & 5/CHNY/2021 are dismissed and the appeals filed by the assessee for the assessment years 2014-15 to 2017-18 in ITA Nos.644, 645, 646 & 647/CHNY/2020 are partly-allowed.

Order pronounced in the open court on 10^th April, 2024 at Chennai.