Assistant Commissioner of Income-tax v. B. Srinivasa Rao

ORDER

Chandra Poojari, Accountant Member - In this bunch there are three appeals. The first two appeals in ITA Nos. 1767 and 1768/Hyd/2011 are by the Department and another appeal ITA No. 720/Hyd/2012 is by the assessee. First we will take up assessee's appeal in ITA No. 720/Hyd/2012.

Assessee's appeal; ITA No. 720/Hyd/2012

Assessee : Prathima Educational Society, Hyderabad

2. Effective grievance of the assessee in this appeal is against cancellation of the registration under s. 12AA(3) of the Act, by the CIT by the impugned order dt. 22nd March, 2012.

3. Facts of the case, in brief, are that the main objects for which the assessee-society was formed are as under :

4. The assessee is running a medical college at Karimnagar and has also established a 750 bedded hospital at Nanganur village of Karimnagar District.

5. The AO reported that the assessee-society has been collecting fees over and above the fees prescribed by Government from the students for granting admission under the management quota. He also referred to the various evidences relating to collection of donations /capitation fee that were found and seized during the course of search from the office premises of the assessee-society. It was also reported that the fees collected over and above the prescribed fee has not been duly accounted in the regular books of account of the society and the same has been utilised for the benefit of the interested persons of the society. The AO also reported about unexplained expenditure incurred by the society. In this view of the matter, the AO was of the view that due to the violations of the provisions of ss. 11 and 13 of the Act, the assessee-society is not entitled for registration under s. 12A/12AA of the Act, and has suggested that the same should be cancelled. Considering the proposal of the AO in that behalf, the CIT issued a show-cause notice to the assessee-society, proposing cancellation of the registration granted earlier, by exercising the power conferred under s. 12AA(3) of the Act. In response to the show-cause notice, the Authorised Representative of the assessee-society filed written submissions opposing the proposal of the CIT, on the ground that there has been no violation of s. 11, 12 or 13 of the Act. It was further submitted that before a conclusion is reached by the AO, it was necessary to examine whether the assessee did not exist as per its objects or the activities of the trust are not genuine. Reliance was placed on the decision of Orissa High Court in the case of Kalinga Institute of Industrial Technology v. CIT [2011] 336 ITR 389/[2012] 20 taxmann.com 829 . The CIT after examining the various material found and seized at the time of search and the statements recorded at the time of search, observed that the conduct of the society is not in accordance with the objects for which it was established. He noted that the assessee-society admitted students under management quota in consideration of amounts over and above the prescribed fees by the Government, which clearly established the intention of the assessee to earn profit. He noted various discrepancies in the accounts, the analysis of which the CIT noted clearly established that the assessee-society has directly or indirectly collected substantial amounts which have not been recorded in the books and there are expenses which have also not been accounted for in the books of account. All these things, according to the CIT clearly reveal that there is no transparency in the financial affairs of the society and to that extent, it can be said that the activities are not genuine and cannot be said for a charitable purpose. The CIT ultimately concluding that the assessee-society has violated the provisions of ss. 11 and 13 of the Act and has not conducted itself in accordance with the objects for which it was established and registration granted earlier under s. 12A/12AA of the Act, vide order dt. 4th Oct., 2000 w.e.f. 1st April, 2000, cancelled the registration so granted earlier, vide impugned order dt. 22nd March, 2012 passed under s. 12AA(3) of the Act.

6. Aggrieved by the above order of the CIT, assessee preferred the present appeal before us.

7. The learned counsel for the assessee, reiterating the contentions urged before the CIT submitted that the assessee has not collected any capitation fee or any other levy by whatever name called, and therefore, the CIT was not justified in cancelling the registration granted earlier under s. 12A of the Act. He further submitted that all the findings given in the impugned order were subject-matter of appellate/writ proceedings, and therefore, much reliance cannot be placed on the same. He further submitted in this behalf that the order rescinding the exemption granted under s. 10(23C)(vi) of the IT Act was stayed by the Hon'ble Andhra Pradesh High Court in WPMP No. 1026 of 2012 in Writ Petition No. 811 of 2012 and, therefore, ought not have passed an order under s. 12AA(3) cancelling the registration earlier granted under s. 12A of the Act.

8. As for the first reason put forth for cancellation of registration, viz., collection of capitation fee, it is submitted that in the course of search, excel sheets were found containing the names of students, names of parents and the amount. In the course of search and, thereafter, statements of chairman of the assessee trust were recorded on a number of occasions, with reference to the entries in these excel sheets. It was explained that circumstances in which the excel sheets were found were not ascertainable. It was contended that uncorroborated notings in the excel sheets should not be acted upon to derive any inference against the society. In support of this contention that the said excel sheets are not reliable, the learned counsel for the assessee put forth the following reasons :

9. The learned counsel for the assessee also pointed out that the procedure for admission is very strict, transparent and the same is supervised by NTR Health University and other regulatory authorities. The entire procedure was explained to the authorities in detail. This was done to bring home the fact that at no point of time any irregularity was found. The procedure is explained to the AO in the course of assessment proceedings, CIT and Director General of IT. It is submitted that there has never been any attempt by regulatory bodies including Government of Andhra Pradesh to raise any doubt about the functioning of the society and collection of capitation fees. The learned counsel also explained that collection of capitation fee cannot be presumed in the absence of cogent evidence particularly in matter of such vital importance which involves an educational institution and fate of students. It was also submitted that this being a serious allegation, the same deserved serious verification before reaching any conclusion. The entire assessment and the order of CIT is based on suspicion, surmises and conjectures. That no quasi-judicial order can be based on suspicion, is supported by the following decisions of Apex Court :

10. As pointed out above, assessments have been made substantively in two hands in the hands of the society and the chairman Sri Srinivasa Rao. This is because of uncertainties in the minds of authorities about collection of capitation fees and its beneficiary in the absence of evidence. Therefore, the inference derived by CIT from the assessment order of AO cannot sustain the cancellation.

11. It was pointed out that had the assessee earned a fortune by collection of capitation fees of such huge amount as alleged, the same would have been found in course of search either in the case of the society or its trustees. No such evidence was found regarding application. The cash found from the premises of the society is Rs. 8,09,526. This is as per books. This would show that the assessee-society has not collected any capitation fees as alleged for the purpose of cancellation of registration. Assessee-society relies on the following decisions :

12. With reference to the seized document from the premises of hospital at Karimnagar, being Annex AA/PES/01,03,06,08,13, it is submitted that they are loose slips containing irregular notings about a number of small expenditure incurred by the society in the course of running the hospital at Karimnagar. With regard to these notings, it is submitted that there are two types of such expenditure one relating to miscellaneous expenditure incurred by the hospital for the society and other relates to payment to doctors. As regards the miscellaneous payments, it is submitted by the learned counsel for the assessee that the same were duly recorded in the books, a fact brought to the notice of the AO by giving sheet-wise details. He further pleaded that there is no mention in the assessment order about any incriminating aspect pertaining to these payments. As regards the second type of payments, it is submitted, the same were paid by the accountant as a temporary accommodation to doctors in a moffussil town, whenever they required cash and the same were recovered mostly on the date of salary payments or at the earliest. It was explained that payments to doctors are IOU (I owe you) payments which were given within the available cash balance. It was also explained that this is a usual feature and has no impact on the overall cash balance and no diversion of funds could be inferred from these notings. The statement of Sri K. Prahlada Rao, accountant was recorded on the date of search and subsequently on 17th Oct., 2010 by the AO in course of cross-examination and re-examination. He confirmed the same fact as explained on the date of search. AO never extended any enquiry beyond what was stated by the assessee, did not make any independent enquiry from the doctors. Therefore utilisation of the notings for the purpose of cancellation of registration is not called for. There is no corroboration in this regard. Therefore, the same cannot be a ground of cancellation of registration under s. 12AA.

13. The learned counsel for the assessee submitted with reference to the letters addressed to the society by some parents, that two/three such documents have been seized by the Department. Dealing with three such letters, being one addressed by one Sri Tirupathi Reddy to the society, father of Swechha Reddy, student of MBBS; letter by one Sri Madhav Reddy to the society for his son, K. Surya Reddy and payment by Nikhila, a student, it is submitted that the Department was not justified in utilising the evidence in this behalf against the assessee. As for the letter of Sri Tirupathi Reddy, it is submitted that the said witness was a shifty witness, and hence, the assessee has requested the Department to provide an opportunity to the assessee to cross-examine the said witness. However, the same was not done by the Department. It is accordingly submitted that in the absence of cross-examination, the statement of the said witness cannot be utilised against the assessee. In support of this contention, reliance is placed on the decision of the Supreme Court in the case of Kishinchand Chellaram v. CIT [1980] 125 ITR 713/4 Taxman 29 and of the Calcutta High Court in the case of Commissioner Of Income-Tax v. Eastern Commercial Enterprises. [1994] 210 ITR 103 (Cal.) . As for the letter addressed by Sri Madhav Reddy, it is submitted that the said person has denied to have paid any fee over and above the prescribed fees. Although with regard to this witness, examination-in-chief, cross-examination and re-examination were complete and the evidence was closed in favour of the assessee, this was utilised against the assessee-society, which according to the learned counsel was not justified. As for payment by Nikhila, an MBBS student, it is pleaded that the assessee has made a request to provide corroborative evidence by way of testimony of her father, who was also examined by the Dy. Director of IT, but the same was not provided to the assessee. With reference to the admission of the assessee under s. 132(4) of the Act, it is stated that the CIT has made use of the declaration of Rs. 5 crore made by Srinivasa Rao. From this declaration, the Department presumes that this amount represents collection of capitation fees and faulted Srinivasa Rao having not included the said amount in the returns of the society or in his individual returns. Taking us through the relevant portion of the statement of Sri Srinivasa Rao, it is submitted that the said declaration was made in his individual hand, hands of his associate concerns, but not in the hands of the assessee-society, which is a public charitable institution. It is submitted that the assessee-society is for benefit of public and non-inclusion of Rs. 5 crore as declared at the time of search in the returns of the entities will in no way prejudice the case of the society in the matter of cancellation of the registration, as no income was admitted in the hands of the society. It is further submitted that the officer taking the evidence, confined himself to bald declaration, and did not seek further clarification to fix the matter to decide to whom such declared income relates, and therefore, undue emphasis is made on the disclosure.

14. With regard to violation of provisions of s. 13, which is one of the points for cancellation of registration, it is submitted that there has been allegation that Sri Srinivasa Rao, chairman of the assessee-society enjoyed the benefit of capitation fee collected by the society, thus violating the provisions of s. 13. Not an iota of evidence was found in the course of search for such violation and there is no mention of any instance of such violation in the assessment order. The only action of the Department in that direction is to treat the alleged capitation fees as income in both hands. Further, it is stated that the Department having framed the assessment substantively in the hands of the society and Srinivasa Rao, seems to be undecided as to who is the beneficiary of the alleged capitation fees, and consequently no violation of provisions of s. 13 be conclusively inferred.

15. Without prejudice, it is also submitted that minor violations/aberrations relating to the accounts of the trust by the trustees, if any could not be a ground to cancel the registration of the trust and therefore, the order passed under s. 12AA(3) of the Act is wholly unsustainable both in law and on facts.

16. He also distinguished the decision of the Tribunal in the case of Joginapally B.R. Educational Society v. Asstt. CIT [IT Appeal Nos. 81 to 86 (Hyd.) of 2013, dated 30-8-2013]

17. The learned Departmental Representative, strongly relying on the order of the CIT cancelling registration under s. 12AA of the Act, submitted that the activities of the assessee-trust are not being carried out in accordance with their objects. It was only after considering all the material/records available before him, including a proposal received from the AO before issue of show-cause notice to the assessee, giving opportunity to explain why the registration should not be cancelled, and after satisfying himself about the nature of the activities of the assessee, the CIT cancelled the registration by passing a speaking order. As is evident from the show-cause notice dt. 22nd March, 2012 issued to the assessee, the CIT mainly relied on the material seized during the course of search, which showed that the assessee-society has been collecting amounts over and above the prescribed fee, in cash from the students admitted under management quota and the amounts so collected are not being accounted for in the books of the assessee-society.

18. Referring to the argument of the assessee that the impugned order of the CIT is based on mere presumptions and assumptions and the decision to cancel the registration was based on a premature decision of the AO without concluding the assessment proceedings in progress, it is submitted by the learned Departmental Representative that there is no such requirement in the statute and the CIT's proceedings for cancellation of registration under s. 12A and the assessment proceedings can continue concurrently, and there is no bar as such on the powers of the CIT to arrive at an appropriate conclusion and pass appropriate order in accordance with law.

19. He also submitted that the seized material clearly established collection of money over and above the prescribed fee by the assessee for admission of students under management quota, though the same is not expressly admitted by the management. The evidence regarding the collection of donations/capitation fee are available in the material seized from the office of the assessee trust at Plot No. 213, Road No. 1, Film Nagar, Jubilee Hills, Hyderabad during the course of search on 10th Sept., 2009. It is further pointed out that during the course of search, when Sri B. Srinivasa Rao, chairman of assessee-society was confronted with the seized material, when he clearly stated that the concerned seized material related to the society and they are found in the premises. During the course of search on 10th Sept., 2009, when a statement was recorded, Sri Srinivasa Rao explained in detail with regard to many documents, but in the context of incriminating documents put to him, he only stated that he would explain the contents later, since at that point of time, he was not in a position to comprehend what it is.

20. The learned Departmental Representative also submitted that the statement of Sri Srinivasa Rao was again recorded on 5th Oct., 2009, and in the course of that statement also, when confronted with the said incriminating papers, he has not denied the ownership of the documents or any of the statements made earlier during the course of search, but stated on oath that he wanted to consult with his employees and explain within a week.

21. In a still subsequent statement recorded on 6th Nov., 2009, again, Sri Srinivasa Rao failed to explain the contents of the papers, and wanted the copies of the seized material to be given to him to explain the contents. It is stated at this juncture that though the assessee is entitled to copies of such documents, that point of time, it was premature to give copies of the seized material as that would have interfered in the course of investigation. In a further statement recorded on 17th Dec, 2009 also, the assessee did not explain the contents of the material, but only stated that they have not collected any capitation fee. He also evaded all along to explain the contents of the incriminating papers seized during the course of search.

22. The learned Departmental Representative submitted that the contention of the learned Authorised Representative that the assessee has never accepted the receipt or collection of donations is to be examined in the light of the sequence of events explained above. It is further submitted that contents of any paper are to be considered in the same manner as a prudent person would understand them in normal circumstances, and the incriminating material seized, being produced even before this Tribunal, clearly reflects that the assessee-society was collecting monies over and above the prescribed fee. In the face of such incriminating documents, the registration under s. 12A of the Act has been correctly cancelled by the CIT.

23. He also further submitted that the seized material, as for example pp. 53 to 56 of Annex. A/PES/13 contains details as to name of the student, father's name, total fee, cash/cheque, amount to be received, etc. All the details except the amount written in column 'cash' are recorded by the assessee's books and verifiable with reference to the entries in the books of account of the assessee. Hence, it cannot be said, when most of details in these materials related to the assessee and seized from their premises, one particular column alone does not relate to the business of the assessee. The overwhelming evidence brought on record clearly shows that the assessee has been clearly collecting amounts over and above the prescribed fee which has been credited in the books of account. In support of this contention, the learned Departmental Representative has placed reliance on the decision of the Delhi High Court in the case of Mahavir Woollen Mills v. CIT [2000] 245 ITR 297/111 Taxman 566 .

24. As for the post-search examination of parents of the students, it is submitted that the parents would not have given any statement against the interests of the assessee, as it would be the future of their children which would be at stake. This fact has also been brought out by the Director General of IT (Inv.) in the order cancelling the approval under s. 10(23C). In this view of the matter, it is submitted that much weightage cannot be given to the statements of the parents, considering the overwhelming and incriminating documents seized during the search, and the consistent evasive replies of the chairman of the assessee-trust. Further he submitted that in the matter of cancellation of registration, the onus is on the Department to prove that the activities carried on by the assessee are not genuine and the assessee has not function to advance its objects for which registration was granted to the assessee.

In reply to Departmental Representative's arguments, the Authorised Representative submitted that there is no evidence to show that any interested person has enjoyed the benefit of the funds of the society. He relied on the following judgments :

25. Further he submitted that evidence collected by the Department is not enough to cancel the registration granted under s. 12AA of the Act. For this proposition, he relied on the judgment of Supreme Court in the case of Dhirajlal Girdharilal (supra), Shalini Soni v. Union of India AIR 1981 SC 431 Finally he submitted that the registration was cancelled on the basis of irrelevant material collected during the course of the search and it should be vacated.

Findings in respect of ITA No. 720/Hyd/2012

26. We have heard both the parties and perused the material on record. In this case registration granted to the assessee w.e.f. 1st April, 2000 under s. 12AA of the IT Act, 1961 was cancelled by the CIT vide order dt. 22nd March, 2012. The reasons for cancellation of registration are that the assessee has violated the provisions of ss. 11 and 12 of the Act and the assessee has not conducted itself in accordance with the object for which it was established and registered under s. 12A of the Act. The basis for such conclusion are the materials collected by the Department in the course of search action conducted under s. 132 of the Act on 10th Sept., 2009. The CIT considered the following information to cancel the registration granted to the assessee under s. 12A of the Act :

Seized material:

27. In this case, Sri E. Tirupathi Reddy was examined by the Department on 4th Nov., 2009. He stated in his answer to question Nos. 7, 8 and 10 that he has not paid any excess fees. However, finally he said that the contents in the letter are correct. The assessee asked for cross-examination of him. No cross-examination opportunity has been given to the assessee. Sri E. Tirupathi Reddy has changed his stand. As held by the Calcutta High Court in the case of Eastern Commercial Enterprises (supra), Sri E. Tirupathi Reddy cannot be considered as a reliable person. He has changed his version and proved to be shifty person as a witness. At one stage he has claimed that he has not paid the amount over and above the prescribed fees, as evidenced by his statement placed on record at page Nos. 147 to 149 of paper book Vol. I. Later he has changed his version, being so, little value can be attached to his statement and his conduct neutralised his value as a witness. A man indulging in double speaking cannot be said by any means a truthful man at any stage and we cannot decide on which occasion he was truthful. Further, the assessee was not given any opportunity to cross-examine him. Therefore, the Department cannot consider his statement as an evidence against the assessee. Further the judgment of Supreme Court in the case of Kishinchand Chellaram (supra.) also supports the assessee's case, wherein held that evidence collected from witness cannot be considered without giving opportunity of cross-examination to the assessee.

28. Further, in the case of K. Madhav Reddy, he was examined on 5th Dec, 2009. He was also cross-examined by the assessee. He had denied payment of excess fee more than what is prescribed fees and said that his son got admission in normal course.

29. Regarding payment by Ms. Nikita, the assessee asked corroborative evidence collected from them towards payment of excess fees for management quota seat which was not provided to the assessee. Father of Ms. Nikita who is a Government employee borrowed money from Union Bank of India ULC, Hyderabad branch to meet the payment of fees. The assessee explained that to meet the requirement of loan, the evidence found during the course of search was furnished to the assessee by them. It was submitted before us that if the narration in Excel sheets is correct, the total fee of Rs. 35 lakh was received by the assessee-society by cheque and cash at the time of admission. There was no need to obtain loan from the bank. Being so, the version of the Department that cash of Rs. 30 lakh and cheque of Rs. 5 lakh were received from Kumari Nikita for admission to MBBS course in the academic year 2007-08 does not hold merit.

30. Regarding the disclosure of Rs. 5 crore by the chairman of the trust towards undisclosed income on account of discrepancies found during the course of search in the case of the assessee, it was submitted that this disclosure does not disentitle the assessee for exemption under s. 11 of the Act so as to cancel registration granted to the assessee under s. 12A of the Act. The income was offered by B. Srinivasa Rao in his individual capacity in addition to his regular income which is one of the reasons given by the CIT for cancellation of registration granted to the assessee under s. 12AA of the IT Act. Even if it is admitted that Sri B. Srinivasa Rao has offered additional income in his individual capacity, then also the assessee cannot be liable for cancellation of registration under s. 12AA on the conclusion that the assessee has violated the provisions of ss. 11 and 13 of the Act.

31. Further, from the argument of the assessee's counsel it is observed as follows :

32. Coming to the provisions of s. 12AA of the IT Act, the Department can cancel registration granted to a society under s. 12AA in the following circumstances :

33. In the present case the CIT is not alleging that the assessee is not carrying on imparting of education. It is an admitted fact that the assessee has been carrying on educational institution imparting medical education and it fulfilled the requirement of imparting education and the question of imparting education by the assessee has not been doubted or challenged by the Department. Being so, on this reason, registration cannot be cancelled.

34. The next question is whether the trust activities are carried out in accordance with the object of the trust. The CIT has relied on the materials that were discussed in earlier paras to demonstrate that the activities of the trust are not being carried out in accordance with the object of the trust. He expressly referred to the seized material to hold that the assessee's activities cannot be said to be for charitable purpose. As we have discussed in earlier paras regarding the reliance placed on this material, these materials are independently not corroborated. Collection of capitation fee by the assessee was made out on the basis of Excel sheets found during the course of search. The Department is not conclusively sure whether the assessee has collected capitation fee or not so that it made assessment in the hands of the chairman, Sri B. Srinivasa Rao as well as the assessee. The cash found during the search action at Rs. 8,09,526 tallied with the books of account. The document relating to Sri E. Tirupathi Reddy cannot be relied as this was not subject-matter of cross-examination. Similarly, the evidence relating to Sri Madhav Reddy cannot be relied upon since he denied payment of any fees more than what was prescribed. He said that his son got admission in normal course. Similarly, in the case of Kumari Nikita, the evidence is demolished by the assessee, that the details cannot be used against the assessee as the papers submitted to the assessee by the parents of Kumari Nikita were for the purpose of facilitating the financial assistance from bank. Being so, the activities of the trust cannot be held as non-genuine or it can be said that the activities of the assessee are not being carried out in accordance with the object of the trust or institution. There cannot be any other legally sustainable reasons for cancelling or withdrawing the registration granted to the assessee on 4th Oct., 2000 w.e.f. 1st April, 2000.

35. To come to the above conclusion, we place reliance on the order of the Tribunal in the case of Maharashtra Academy of Engineering & Educational Research (MAEER) (supra) wherein the Tribunal held as under :

"Held : In the recent past sub-s. (3) was inserted in s. 12AA w.e.f. 1st Nov., 2004 which gives power of cancellation of registration to the CIT, if he finds that the activities are not genuine or not being carried out in accordance with the object of the trust. These powers are conferred with a view to ensure that if once a registration has been granted under s. 12AA, a trust or institution may not take any such liberty of misuse of the registration or the provisions by going haywire rather furthering the objects of the trust or genuinely not pursuing the activities for which it was established. The most important feature of s. 12AA is as also referred in this appeal for adjudication, that this section has only laid down the procedure of registration and this section nowhere speaks that while considering the application of registration, the CIT shall also look into the procedure of earning of income and sources from where receipts are derived. The power of enquiry, in respect of sources of receipts and the utilisation of income is entrusted in separate sections. The language thus used in this section only confines to enquire about the activities of the trust and its genuineness, which means, in consonance with the objects for which created and those objects as also activities should not be a camouflage but pure, sincere, charitable and for public utility at large. What is implicit is that the CIT has to sincerely examine that the objects as also the activities should not be prima facie against the basic structure for which beneficial law is made and also be not in conflict with the general public utility. Naturally an institution if established to carry out an illegal activity or activities are causing any type of nuisance not in the interest of the public at large should definitely lead to cancellation of registration. The scheme of the Act otherwise do not subscribe and allow a trust to take the benefit of the provisions of ss. 11 and 12 unless establish the prescribed utilisation of the income, even if, at all the trust holds the registration in its hands. Therefore at the stage of granting registration the CIT is not expected to bother himself about the other provisions of the Act and supposed to confine himself to the procedure of registration as laid down therein. (Paras 11.4 to 11.6)

Nowhere the CIT has taken any objection to the charitable and educational nature of the institution. In fact, the objects of the institution as declared in the trust deed does reflect that all are philanthropic or benevolent in nature, precisely for the purpose of imparting education. Strange enough there is no finding recorded by the CIT contrary to this fact. Be that as it may, the real and the only substantial objection for refusal of registration was that the institution has collected donations thus adopted some wrong means of collection of fees. But whether at this preliminary stage he had the right to draw an adverse inference so as to refuse registration or alternatively confine himself to the enquiry about the objects and the activities of the trust as per the limits of the jurisdiction of s. 12AA. Rather this is also not the case of the CIT that the institution is doing some other activity of earning profit other than the activity of running educational institutions. The established factual position is that the institution is not doing in any other activity except running educational institutions. In such circumstances, the action of cancellation of registration cannot be upheld. As far as the objective of the appellant is concerned this is not the case of the Revenue that the assessee was not imparting education. Since the question about the imparting of education has not been doubted or challenged by the Revenue therefore, the impugned order passed by the respondent is unsustainable in law. Strange enough there is nothing on record to prove sightlessly that the purpose of imparting of education was not fulfilled by this institute thus the Revenue Department has hopelessly failed to establish that there was any illegal activity or infringement of any law so that to doubt the genuineness of the activities. If it was so then it can be held that the allegations of the Revenue remained unsupported thus deserves dismissal. The CIT's approach for deciding the eligibility of registration of a trust should be different from the angle by which an assessment of an income is made by the AO. What purpose does it serve to Revenue by cancelling a registration if the activities are in public interest because in case of any breach of the laws the same is subject to tax under ss. 11 and 12. These two provisions and few other provisions are competent enough to tackle firmly a defaulter of philanthropic application of income or funds of the trust. The other adverse side of cancellation is that on refusal of registration the entire receipts shall be subject to assessment without granting benefit of s. 11 and s. 12 to assess income which does not form part of total income though the factual position could be that major part might have been devoted towards achieving the objects i.e., imparting education, as in this case, but the AO shall be automatically forbidden to grant advantage of exemption consequent upon the cancellation as is mandatory in statute. The outcome of the deliberation made in detail hereinabove is that percurian opinion is to debar the CIT to enter into the area of investigation of source of income and also application of income, so that the amount of correct exempt income be not prejudged. If the CIT had an information of some wrongful means of earning fees in the form of a donation or the information tells about excessive charging of fees; then the CIT in his rights can pass on the information to the concerned office bearers working under the Maharashtra Capitation Fees (Prohibition) Act. These authorities have enough power to deal with such nature of default, side by side the CIT is to limit his jurisdiction within the ambits of provisions of the Act and expected to give a finding on facts that either the objects are not for general public utility or not achieved as prescribed under law. However presently the situation is that the Revenue has not said about any immoral activity of the appellant or the collection of fees was by wrongful means. Prima facie no case was made out by the CIT so as to even vaguely demonstrate that the activities of the appellant were not genuine or activity of imparting of education, for which the trust was created, were not carried out. Even the CIT has failed to establish that any part of the income/receipt of the trust was in any manner misutilised by the trustees for their personal benefit i.e., not in fulfilment of the object of the trust. Otherwise also there are three ways to look at this problem. One is, that the donations are raised but not utilised for achieving the objects i.e., towards imparting education; then such an institution must bear the consequence of cancellation of registration since ipso facto infringed s. 12AA(3) condition. Second aspect is, that though the donations received are meant to fulfil the objects but together with fees have infringed Anti Capitation Prohibition Act; that comes within the clutches of that Act but definitely not under s. 12AA(3) provisions. The third aspect is, that the donation plus fees do not exceed the prescribed limit of Anti Capitation Fee Act i.e., five times the normal fees; further that no evidence of misutilisation other than the prescribed activity then no action can be suggested under s. 12AA(3). The assessee's case falls under the third category. With the result, totality of the circumstances thus warrants, in the light of the foregoing discussion, not to endorse the view of the CIT. The order of cancellation of registration is hereby revoked.-Aggarwal Mitra Mandal Trust v. DIT (Exemption) [2007] 109 TTJ (Delhi) 128, Kalinga Institute of Industrial Technology v. CIT [2008] 113 TTJ (Ctk) 906 : [2008] 1 DTR (Ctk)(Trib) 273 and Himachal Pradesh Environment Protection & Pollution Control Board v. CIT [2009] 125 TTJ (Chd) 98 ; [2009] 28 DTR (Chd)(Trib) 289 relied on. (Paras 11.7 & 11.11 to 11.13)"

36. The Karnataka High Court considered similar issue in the case of Sri Belimatha Mahasamthana Socio Cultural & Education Trust (supra). In this case the assessee, a social, cultural and educational trust, running educational institutions and running various professional courses, filed its return for the asst. yr. 2001-02. The AO denied the exemption under s. 11 of the IT Act, 1961, holding that the sums collected towards donations from students were contrary to the provisions of the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984. The AO also disallowed a sum showed as corpus donations as the source of such donations had not been proved by the assessee and the amount was not allowed as deduction under s. 11(l)(d). The CIT(A) confirmed the order of the AO. The Tribunal allowed the benefits under s. 11. On appeal :

36.1 It was held that merely because the assessee is an institution which is running professional courses, the AO could not have presumed that the amounts which were received as donations were attributable to the allotment of seats in the relevant assessment years. In the absence of there being any foundation for such a contention, the donations received during the period was not in violation of the Karnataka Educational Institutions (Prohibition of Capitation Fee) Act, 1984, and the assessee had not acted opposed to public policy.

37. We also place reliance on the orders of the Tribunal, Bangalore Bench in the case of Venkatesh Education Society in [IT Appeal Nos. 100 to 106 of 2012 and M.J. Balachander v. Dy. CIT [IT Appeal Nos. 90 to 94 of 2012, dated 21-12-2012] where in similar circumstances it was held that M.J. Balachander was collecting extra tuition fees on his own without any authority or consent of the society and conclusion of the CIT was that extra tuition fees was collected by M.J. Balachandran on his own and the society has nothing to do with the extra tuition fees collection. Being so, the assessee cannot be faulted and the registration granted to the assessee should not be withdrawn so as to deny the benefit of s. 11 of the Act.

38. Similarly the Co-ordinate Bench, consisting of the same Members, in the case of Sree Educational Society v. CIT [IT Appeal No. 564 of 2012] for asst. yr. 2011-12 vide order dt. 31st July, 2013 held as under :

"16. In the present case no material has been brought on record to show that the assessee solely exists for profit motive. The Department has not been able to discharge its onus of showing as to how the conditions for grant of registration have been breached by the assessee. The registration has been granted to the society for many years in the past under the same facts and there is no change in the facts or in the activities of the society in the present year. It has also not been demonstrated by the Department as to how the object of the assessee has turned into a commercial one. The predominant object of the assessee is and remains to carry out charitable purpose of advancement of education and not to earn profit. In fact no profit has been established to have been earned by the assessee. The Director of IT has failed to specify as to how profit earning is the predominant activity of the assessee and the society has been pursuing its object of imparting education to students. Therefore, the assessee-society cannot be deprived of the benefit of registration granted by the Director of IT (Exemptions) under s. 11 of the Act. Being so, in our opinion, registration granted under s. 12AA of the Act cannot be cancelled. However, the aforesaid findings given by us are nothing to do with the allowability of exemption under s. 11 of the Act. In case any discrepancy or irregularity with regard to the allowability of exemption under s. 11 is noticed by the AO, he can make an independent enquiry/examination at the time of assessment for each assessment year and decide in accordance with law."

39. In the case of Oxford Academy for Career Development v. Chief CIT [2009] 315 ITR 382 (All.) , the issue relating to cancellation of registration granted under s. 12A of the Act came for adjudication before the Hon'ble High Court. In that case, the assessee was granted registration under s. 12A on 1st April, 1999. A search [sic—survey) under s. 133A was conducted. The petitioner, a registered society, was granted registration under s. 12A on 1st April, 1999. A survey under s. 133A was conducted at the business premises on 20th Sept., 2002, from where documents were impounded. The registration was cancelled for the asst. yrs. 2000-01 and 2001-02 on the ground that the surplus was quite heavy. In the order, the CIT mentioned that the petitioner was engaged in commercial activities rather than charitable. As per the balance sheet, huge amounts were charged from the students. The profit margin embodied in the charges taken from the students was huge and it proved the profit motive of the petitioner.

39.1 The expression "charitable purpose" is defined in s. 2(15) of the IT Act, 1961. It is of inclusive nature as revealed in the language. Earlier the words "the advancement of any other object of general public utility" in the definition were succeeded by the words "not involving the carrying on of any activity for profit". These words were omitted by the Finance Act, 1983, w.e.f. 1st April, 1984.

39.2 The order cancelling the registration granted to a trust or institution under s. 12AA being a quasi-judicial order does not fall within the category of orders mentioned under s. 21 of the General Clauses Act, 1897, which provides that the power conferred on an authority to issue orders includes the power to rescind such orders, and the CIT would not have power to rescind the order passed by the CIT earlier granting the registration to a trust or institution. Sec. 12AA(3) was incorporated w.e.f. 1st Oct., 2004, to empower the CIT to cancel the registration granted to a trust or institution. The object of this provision is not clarificatory or explanatory. So prior to that date, the authorities granting registration had no inherent power to withdraw or revoke the registration already granted.

39.3 Once an institution came within the phrase "exists solely for educational purpose and not for profit" no other condition like application of income was required to be complied with. The mere existence of profit/surplus did not disqualify the institution. Breach of the conditions of the trust deed would not disentitle the institution from getting the benefit which the institution had been granted earlier being a charitable trust. After registration, further probe into the objects is not permissible.

39.4 On a writ petition : Held, allowing the petition, (i) that even assuming that the CIT has power to rescind the order of registration on the ground that the registration had been obtained by practising fraud or forgery, there was nothing in the show-cause notice or in the order cancelling registration alleging that the petitioner had obtained the registration by practising fraud or forgery.

40. In the case of Kalinga Institute of Industrial Technology (supra) it was held that the power under s. 12AA(3) of the IT Act, 1961, is exercisable by the CIT only on recording his satisfaction of the circumstances that may warrant the exercise of such power. The CIT has to record in the notice the basis, if at all for the initiation of such proceeding. A search and seizure had been conducted against the petitioner-institute on 9th Aug., 2005. Without waiting for the conclusion of the assessment proceeding based on documents seized and information recovered in the course of such search and seizure, an order dt. 15th Dec. 2006 was passed by the CIT under s. 12AA(3) of the Act directing cancellation of the registration of the petitioner-institution. This order was quashed by the Tribunal. Notice was again issued for cancellation of registration. On a writ petition contending that while there had been a search and seizure operation carried out against the petitioner-institute on 9th Aug., 2005, assessment proceedings followed and were completed but no adverse finding had been recorded against the petitioner-institution to form any fresh ground for issue of notice. Held that the notice was liable to be quashed.

41. In the case of Commissioner Of Income-Tax v. Sarvodaya Ilakkiya Pannai [2012] 343 ITR 300/20 taxmann.com 546/206 Taxman 115 (Mad.)(Mag.) the assessee was granted registration under s. 12A(l)(a) of the IT Act, 1961. When the returns filed for the asst. yrs. 2008-09 to 2010-11 were scrutinised, it was found that the assessee was engaged in purchase and sale of books. On the ground that the activities of the assessee could not be considered to be charitable activities, a show-cause notice was issued by the CIT under s. 12AA(3) and thereafter, the CIT revoked the registration on the ground that the assessee did not deserve exemption under s. 11(1)(a). The Tribunal found that the order of the CIT was not justified as the power to cancel could be only traced to s. 12AA(3) and in the absence of any activity carried on by the assessee contrary to the objects, the registration could not be revoked.

41.1 On appeal: Held, that under s. 12AA, the CIT is empowered to grant or refuse the registration and after granting registration, would be empowered to cancel it, but only on the two conditions laid down under s. 12AA(3). Whether the income derived from such transaction would be assessed to tax and whether the trust would be entitled to exemption under s. 11 are entirely the matters left to the AO to decide. The Tribunal had allowed the case of the assessee with the finding that none of the conditions under s. 12AA(3) was violated and, therefore, the satisfaction which was arrived at by the CIT was not justified. Therefore, there was no reason to interfere with the order of the Tribunal.

42. In the case of DIT(Exemptions) v. Mool Chand Khairati Ram Trust [2011] 339 ITR 622/199 Taxman 1/11 taxmann.com 42 (Delhi) , in sub-s. (1) cl. (b) and sub-s. (3) of s. 12AA of the IT Act, 1961, cancellation of registration was provided where the registration was granted under cl. (b) of sub-s. (1). Further, cancellation under sub-s. (3) was also provided where the registration was obtained at any time under s. 12A [whether under cl. (a) or cl. (aa) of sub-s. (1) of s. 12A]. But this power of cancellation of registration under s. 12A came to be incorporated by way of amendment introduced by the Finance Act, 2010, w.e.f. 1st June, 2010. Now, w.e.f. 1st June, 2010, the power vests to the CIT to cancel the registration granted under any of the clauses of sub-s. (1) of s. 12A.

42.1 The assessee-trust obtained registration in December, 1974. Based on this, the assessee got exemption of income-tax in the assessments under s. 143(3) for the asst. yrs. 1996-97 to 2005-06. The Director of IT cancelled the registration under s. 12AA(3) w.e.f. asst. yr. 2002-03 by his order dt. 30th June, 2009. The Tribunal set aside the order of cancellation. On appeal to the High Court held, while dismissing the appeal, that the cancellation of registration was not valid.

43. Considering the above argument of the assessee's counsel, in our opinion, the seized material in the form of Excel sheets said to be recovered from the assessee's office cannot be considered as sufficient evidence so as to decide collection of capitation fees by the assessee as it lacked independent corroboration. The Department failed to collect sufficient evidence to show that the assessee has actually collected the amount mentioned in the Excel sheets and the statement of Sri B. Srinivasa Rao is also not supporting the collection of capitation fees by the assessee. Moreover, no data confirming the contents of Excel sheets was recovered from the seized computer hard disk. In the absence of corroborative material, the Excel sheets recovered from the computer cannot be considered as a sufficient evidence so as to confirm collection of capitation fee. The seized material being Excel sheets which is an unsigned document and not being identified by the Department regarding author of these Excel sheets and it cannot be considered as an independent evidence. Being so, it has no evidentiary value as held by the Co-ordinate Bench in the case of Smt. K.V. Lakshmi Savitri Devi v. Asstt. CIT [2013] 30 taxmann.com 117 (Hyd.) and in the case of C. Krishna Yadav (supra) Further, various judgments relied on by the assessee's counsel also support the assessee's case to hold that Excel sheets are dumb documents and therefore, do not form the reason to cancel registration granted to the assessee under s. 12AA of the IT Act.

44. Further, in the case of Sri Chaitanya Educational Committee v. CIT [2007] 106 ITD 256 (Hyd.) it was held that prior to amendment of sub-s. (3) in s. 12AA by the Finance (No. 2) Act, 2004, w.e.f. 1st Oct., 2004, the CIT had no power to cancel registration under s. 12A earlier granted and the order of the CIT dt. 26th July, 2004 cancelling registration granted under s. 12A on 14th Aug., 1992 was, therefore, invalid.

45. The learned Departmental Representative placed much reliance on the order of the Co-ordinate Bench in the case of Joginpally BR Educational Society (supra) which is not applicable to the facts of the case on the following reasons :

46. Being so, even if it is presumed that there is collection of capitation fees by the assessee in relevant asst. yr. 2010-11, it cannot be said by any stretch of imagination that the assessee has collected capitation fees in earlier assessment years commencing from 2000-01 so as to cancel the registration granted to the assessee under s. 12AA w.e.f. 1st April, 2000.

47. Considering entire facts and circumstances of the case, we are of the opinion that the evidence collected by the Revenue authorities is not sufficient to establish the stand that the assessee has collected the capitation fee/excess fee for admission under management quota seats in assessee-society. We are aware that the entire evidence has to be appreciated in a wholesome manner and even where there is documentary evidence the same can be overlooked if there are surrounding circumstances to show that the claim of the assessee is opposed to the normal course of human thinking and conduct and human probability. Even applying this principle to the present case, we have difficulty in rejecting the assessee's plea as opposed to the normal course of human conduct. The circumstances surrounding the case also are not strong enough to reject the assessee's plea. We have considered all the material available on record and also statements of the parties concerned as discussed in earlier paras and we are of the opinion that the Department cannot rely on those statements, more so, when it was not confronted to the assessee for cross-examination, the same cannot be relied upon. Being so, considering the above precedents in our opinion the assessee-society cannot be deprived of the registration granted to the assessee under s. 12AA of the Act. Accordingly, we vacate the order of the CIT dt. 22nd March, 2012. However, the aforesaid findings given by us have nothing to do with the allowability of exemption under s. 11 of the Act. In case of discrepancy or irregularity with regard to allowability of exemption under s. 11 is noticed by the AO, he can make independent enquiry or examination at the time of assessment for each assessment year in accordance with law. Accordingly, the registration granted to the assessee under s. 12AA of IT Act, 1961 is hereby restored back. In the result, ITA No. 720/Hyd/2012 is allowed.

ITA No. 1768/Hyd/2011 (asst. yr. 2003-04)—By Revenue

Assessee : Prathima Educational Society

ITA No. 1767/Hyd/2011 (asst. yr. 2003-04)—By Revenue

Assessee : Sri B. Srinivasa Rao, Hyderabad

48. The two appeals filed by the Revenue, concerning related assessees, are directed against separate orders of the CIT(A)-I, Hyderabad, dt. 5th Aug., 2011 for the asst. yr. 2003-04. The lone appeal by the assessee, Prathima Educational Society, Hyderabad, is directed against the order of the CIT (Central), Hyderabad dt. 22nd March, 2012, passed under s. 12AA(3) of the Act cancelling the registration granted in favour of the assessee under s. 12A by the CIT, under proceedings dt. 4th Oct., 2011 w.e.f. 1st April, 2000. Since factual background leading to the filing of the present appeals is common, and the issues involved in these appeals are also interrelated, these appeals are being disposed of with this common order for the sake of convenience.

ITA No. 1768/Hyd/2011 (asst. yr. 2003-04)—By Revenue

Assessee : Prathima Educational Society

49. Facts of the case in brief, in relation to the Revenue's appeal relating to Prathima Educational Society are that the assessee-society, which has been running a medical college under the name Prathima Institute of Medical Sciences at Karimnagar, Andhra Pradesh, having started the same in the academic year 2002-03, filed return of income for the assessment year under consideration on 31st Oct., 2003, admitting nil income after claiming exemption under s. 11 of Rs. 16,74,068. A search and seizure operation under s. 132 was conducted in the premises of the assessee, during which apparently, evidence relating to collection of amounts over and above those prescribed fee from students seeking admission for medical courses, were found, particularly in respect of students admitted in the academic years 2006-07, 2007-08 and partly for 2009-10. Consequent upon search action, assessment was reopened by the AO under s. 147 of the Act for the year under appeal, and in response to the notice issued for reopening the assessment, the assessee filed a letter stating that the return filed on 31st Oct., 2003 may be treated as the one filed in compliance to the notice under s. 148 of the Act. Notwithstanding the fact that the evidences found at the time of search were in relation to the amounts collected over and above prescribed fee from students especially for academic years 2006-07, 2007-08 and partly for 2009-10, based on such evidence, the AO extrapolated the same to the asst. yr. 2003-04 also, applying the ratio of the decision of the Andhra Pradesh High Court in the case of Rajnik & Co. v. Asstt. CIT [2001] 251 ITR 561/117 Taxman 675 (AP.) . The AO further observed that in the case of an educational society collecting capitation fee, society would not be eligible for exemption under s. 11 and/or under s. 10(23C)(vi) of the Act. Accordingly, the AO treated the excess of income over expenditure admitted in the return as income of the assessee, and also quantified the unaccounted receipts for the financial year 2002-03, based on the extrapolation of the evidence found during the academic years 2006-07, 2007-08 and 2009-10 at Rs. 38,28,000. He accordingly, determined the total income of the assessee at Rs. 7,51,10,275, raising a tax demand of Rs. 5,36,87,886, vide order of assessment dt. 30th Nov., 2010 passed under s. 143(3) r/w s. 147 of the Act.

50. Aggrieved by the order of reassessment, assessee preferred appeal before the CIT(A), contesting not only the merits of the addition of Rs. 38,28,000 made on account of amounts collected over and above the prescribed fee and denial of exemption to the assessee under s. 11 and/or s. 10(23C) of the Act, but also the very legality and validity of the reopening of assessment by the AO. The CIT(A) after elaborate discussion of the various arguments of the assessee before him, in the light of the ratio of the decision of the Ahmedabad Bench of the Tribunal in Dy. CIT v. Royal Marwar Tobacco Products (P.) Ltd. [2009] 29 SOT 53 (Ahd.)(URO) and Pune Bench of the Tribunal in Asstt. CIT v. SRJ Peety Steels (P.) Ltd. [2012] 20 taxmann.com 101 and Hyderabad Bench 'B' of the Tribunal in the case of Vishnu Agarwal v. Asstt. CIT [2010] 45 DTR (Hyd.)(Trib.) 222, observed that in the absence of any incriminating material in relation to the asst. yr. 2003-04, i.e., the year under appeal, the AO is not justified in extrapolation of the material found in the course of search action which is relating to the subsequent years, and estimating the unaccounted receipts for the year under consideration without any seized material and also without correlating the same to any undisclosed investments specifically made by the assessee in the assessment year under consideration, the addition of Rs. 38,28,000 made by the AO by reopening the assessment under s. 147 was not justified.

51. The CIT(A) also held further that since the very receipt of capitation fee/amount over and above the prescribed fee, is not proved, the question of utilisation for the benefit of any of the members of the society or any other interested person enumerated in s. 13(l)(c) is consequently ruled out. Therefore, he held that the AO's stand that the assessee has violated the provisions of s. 13(l)(c) does not stand on a sound footing. He noted that there was no specific material for the year under consideration relating to collection of capitation fee or any amount over and above the prescribed fee, and the AO has simply extrapolated the evidence available for academic years 2006-07, 2007-08 and 2009-10, that too to arrive at the estimated undisclosed capitation fee for asst. yr. 2003-04, which according to him cannot be considered as cogent evidence or information warranting reopening of assessment.

52. The CIT(A), dealing with the objections of the assessee with regard to legality and validity of the reopening of the assessment under s. 147 of the Act, while in the first place noting that in view of his decision in favour of the assessee on the merits of the addition and denial of assessee's claim for exemption by the AO, the decision on the legality of reopening has become academic, decided the issue also in favour of the assessee observing in para 06.0 of his impugned order as follows :

"06.0.... However, I may add that even on the ground of legality of reopening the case there is force in the contention raised by the appellant. Especially the appellant's contention that any information for reopening must be concrete not speculative and it must relate to the assessment year in question for which assessment is sought to be reopened is not without any basis. Admittedly there was no specific material for the year under consideration relating to collection of capitation fee or any amount over and above the prescribed fee. The AO has simply extrapolated the evidence available for academic years 2006-07, 2007-08 and 2009-10 that too to arrive at the estimated capitation fee for asst. yr. 2003-04. The same cannot be considered as cogent evidence or information warranting reopening of the assessment."

53. Aggrieved by the order of the CIT(A), the Revenue is in appeal before us.

54. The learned Departmental Representative, strongly supporting the order of the AO, submitted that the extrapolation of the material found at the time of search action under s. 132, can be made even for the years not covered by the period of search. In support of this proposition, he relied on the decision of the Andhra Pradesh High Court in the case of Rajnik & Co. (supra). He further submitted that the assessee-society has collected capitation fees/donation and as such it exists for profit and not solely for charitable purpose, and that being so, it is not eligible for exemption under s. 10(23C). Similarly, activity of the assessee trust cannot thus remain a charitable activity under s. 2(15) and as such it is not eligible for exemption under s. 11 of the Act. He further submitted that since the monies collected over and above the prescribed fees are handed over to the trustees, it is a clear-cut case where the monies of the assessee-society are used directly or indirectly for the benefit of a person as prescribed in s. 13(l)(c) of the Act. He also submitted that reopening of assessment under s. 147 is simply based on the evidence seized and not on any estimation, and the CIT(A) was not justified in holding to the contrary, without proper reasoning.

55. The learned counsel for the assessee, reiterating the contentions urged before the lower authorities submitted that the satisfaction expected of the AO for reopening of the assessment for a particular year is with regard to escapement of income from tax for such specific year, and as such, the material which enables him to arrive at such a satisfaction should be specifically in relation to such specific year. Based on the material found at the time of search, which relates to a particular year, in the absence of any corroborative evidence, one cannot venture into any area of speculation with regard to other years. That being so, the AO was not justified in extrapolating the material found at the time of search for other years, and arriving at the satisfaction with regard to income escaping from tax, and consequently reopening the assessment, and completing the reassessment making additions, denying exemption under s. 11 of the Act. He strongly supported the order of the CIT(A) and submitted that the appeal of the Revenue is devoid of merits not only on the issue of legality and validity of the reopening, but also on the merits of reassessment made, and consequently, the same is liable to be dismissed.

56. We have considered the rival submissions and perused the impugned orders of the lower authorities and other material available on record. Let us first consider the issue relating to legality and validity of the reopening of assessment by the AO. It is pertinent to note at this stage, the relevant provisions of s. 147, which read as follows :

"147. If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter In this section and in ss. 148 to 153 referred to as the relevant assessment year) :

Provided that where an assessment under sub-s. (3) of s. 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year :

Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year :

Provided also that the AO may assess or reassess such income, other than the income involving matters which are the subject-matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.

Explanation 1.-Production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso.

Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :

Explanation 3.-For the purpose of assessment or reassessment under this section, the AO may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-s. (2) of s. 148.

Explanation 4.-For the removal of doubts, it is hereby clarified that the provisions of this section, as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012."

57. It is, no doubt, evident from a close reading of the above provisions of s. 147 that it is only satisfaction of the AO with regard to escapement of income from assessment to tax in a particular year which is an essential element and prerequisite for reopening of the assessment, and the basis/material which prompted the AO to arrive at such a satisfaction is of no relevance. However, the action of the AO to derive at such a satisfaction from the specified material/basis, has to be logical and should stand to the test of scrutiny. It is an undisputed fact that the material was found at the time of search action under s. 132 of the Act on the premises of the assessee on 10th Sept., 2009, which prompted the AO in the instant case to reopen the assessment proceedings for the asst. yr. 2003-04. The said search has unearthed material which revealed collection of amounts by the assessee over and above the fee prescribed by the Government for admission into medical courses particularly in respect of students admitted in the academic years 2006-07, 2007-08 and partly for 2009-10. The said material found at the time of search did not reveal anything specifically relating to asst. yr. 2003-04, which is the year under appeal. In that (those) circumstances, based on that material alone, the AO cannot reasonably believe that the assessee collected amounts over and above the fee prescribed by the Government even during the year under appeal. It is pertinent to note at this juncture that the assessee started its college in the academic year 2002-03. So, the AO based on the material found at the time of search in 2009 in relation to the academic years 2006-07, 2007-08 and partly for 2009-10, proceeded to make imputations almost right from the beginning of the commencement of activities by the assessee. The ultimate fact that the AO in the reassessment proceedings made addition, estimating, based on the material found at the time of search for other years, the amounts that the assessee must have collected by way of capitation for year under appeal, over and above the prescribed fee. In the absence of any specific and concrete material possessed by the assessee to suggest collection of amounts over and above the prescribed fee, at the time of initiating proceedings under s. 147, the reopening of assessment cannot be held to be legal or valid, and it has to be held to be just based on the suspicion that the assessee might have collected such amounts even in the year under appeal. The ultimate action of estimation of such capitation fee collected during the year under appeal, based on the material found at the time of search, which relates to other years, clearly establishes the absence of any concrete material to indicate the actual collection of capitation fee by the assessee. In these facts and circumstances of the case, the decision of the jurisdictional High Court in the case of Rajnik & Co. (supra) relied upon by the learned counsel for the AO, cannot come to the rescue of the Department, in the absence of any clinching evidence to suggest collection of capitation fee in the year under appeal. In this view of the matter, the CIT(A), in our considered opinion is justified in holding the issue relating to the legality and validity of the reopening of assessment under s. 147 in favour of the assessee. We accordingly uphold the order of the CIT(A) on this issue and reject the grounds of the Revenue in this behalf.

58. The Revenue raised the ground with regard to merit that the CIT(A) failed to appreciate the fact that extrapolation can be made for other years on the basis of material found during the course of search relating to some other year as it is supported by the judgment of Hon'ble Andhra Pradesh High Court in the case of Rajnik & Co. (supra). The Revenue also raised the ground that the CIT(A) erred in holding that the assessee is entitled for exemption under s. 10(23C)/11 of the IT Act, though the assessee collected capitation fees.

59. We have heard both the parties and perused the material on record. The first objection of the assessee's counsel is with regard to estimation of unaccounted receipts collected from students towards management quota fees. The learned Authorised Representative submitted that there is no evidence in the form of seized material for the asst. yr. 2003-04.

60. It is an admitted fact that while estimating the above excess fees collection, the AO based his conclusion on the basis of seized material available for subsequent assessment years. He relied on the judgment of jurisdictional High Court in the case of Rajnik & Co. (cited supra). The Supreme Court in the case of Commissioner of Sales Tax v. H.M. Esufali H.M. Abdulali [1973] 90 ITR 271 held as under :

"Held, that the reassessments were valid. From the circumstance that the assessee had dealings outside the accounts of the value of Rs. 31,171.28 for 19 days, it was open to the officer to infer that the assessee had large-scale dealings outside the accounts. In such a situation, it was not possible for the officer to find out precisely the turnover suppressed and he could only make an estimate of the suppressed turnover on the basis of the material before him. So long as the estimate made by him was not arbitrary and had a reasonable nexus with the facts discovered, it could not be questioned. It was wrong to hold that the officer must have material before him to prove the exact turnover suppressed.

In estimating any escaped turnover, it is inevitable that there is some guesswork. The assessing authority while making the best judgment assessment, no doubt, should arrive at his conclusion without any bias and on a rational basis. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not anyone else's. The High Court cannot substitute its best judgment for that of the assessing authority."

61. As seen from the above judgment, there were unreported sales detected for a period of 19 days in a year. The AO estimated the turnover for the entire period of one year on the basis of unreported sales for the period of 19 days in a year. The question that arose before the Apex Court is as to whether the AO was right in doing so. It was held by the Apex Court that in a matter involving unreported sales, the AO has to proceed on the basis of estimation which involves some amount of guesswork. The Apex Court, accordingly, upheld the order of the AO in estimating the turnover on the basis of the unreported sales for a short period. However, in the present case, we are concerned with the estimation of income for asst. yr. 2003-04, where there is no seized material for this assessment year and material is available only for subsequent assessment years other than the year under consideration. Ultimately, the said judgment of Supreme Court must be seen in the context of the facts of each case. In the present case, the assessee is a medical college. It is highly improper to estimate collection of fees for management quota seats in the assessment year under consideration on the basis of seized material available for subsequent assessment years. The estimation of income of the assessee is not proper as it is not based on any seized material recovered during the search action relevant to the assessment year under consideration, more so, the seized material which itself is not conclusive evidence to rely thereon. Being so, the ratio of Supreme Court judgment in the case of H.M. Esufali H.M. Abdulali (supra) cannot be applied to the facts of the present case.

62. Coming to the judgment of jurisdictional High Court in the case of Rajnik & Co. (cited supra) wherein the High Court held that estimation of undisclosed income is based on relevant material and there is absolutely no reasonableness or arbitrariness while making such estimation. Though there is no material for the asst. yrs. 1986-87 to 1995-96, but it is an admitted fact by the partner of the assessee firm that the assessee had practiced suppression of sales turnover. Taking the quantum of business that was carried on by the assessee firm, the AO estimated the suppression at 20 per cent and adopted the GP rate that was returned by the assessee. The evidence of the partner clearly showed that the firm has suppressed the turnover even in those years also. Being so, there was no case to the assessee to contend that the estimation is not based on any material. However, in the present case, admittedly, there is no evidence for collection of excess fees in the asst. yr. 2003-04. There is no admission by the assessee. Being so, the ratio laid down by the jurisdictional High Court in the case of Rajnik & Co. (cited supra) also cannot be applied.

63. Now coming to the latest judgment of jurisdictional High Court in the case of 1. Gopal Lal Bhadruka v. 2. Avadesh Bhadruka [2012] 346 ITR 106/27 taxmann.com 167 (AP.) wherein their Lordships held as under :

"By virtue of s. 158BI of the Act, the various provisions of Chapter XIV-B of the Act are made inapplicable to proceedings under s. 153A/153C of the Act. The effect of this is that while the provisions of Chapter XIV-B of the Act limit the inquiry by the AO to those materials found during the search and seizure operation, no such limitation is found insofar as s. 153A/153C of the Act are concerned. Therefore, it follows that for the purposes of s. 153A/153C of the Act the AO can take into consideration material other than what was available during the search and seizure operation for making an assessment of the undisclosed income of the assessee."

64. In the above case, there was collection of on-money with reference to the real estate dealt by the assessee firm. The partners had admitted the on-money in their hands in the return of income. The AO rejected their plea and assessed the on-money receipts for all the plots in the firm hand i.e., Ahura Holdings. On the basis of evidence collected during the course of search it shows 3 persons admitted payment of on-money, 5 persons denied the payment of on-money and no evidence with regard to payments of on-money for remaining 24 plots. However, the partners Gopal Lal Bhadruka and Avadesh Bhadruka confirmed the receipt of on-money. However, in the present case, there is no admission by the assessee for collection of excess fees for management quota seats for the asst. yr. 2003-04. Further, unless there is evidence or material indicating any suppression of collection of fees towards management quota seats for the asst. yr. 2003-04 having been found during search, and no admission from the assessee, AO was not justified in estimating the same on the materials seized relating to subsequent assessment years indicating suppression of collection of fees for management seats, in assuming suppressed/unaccounted receipts of fees for the year under consideration. The calculation of unaccounted income from collection of fees from management seats should be based on materials relevant to the assessment year under consideration and it should be on scientific basis and cannot be merely on assumptions. Considering the facts of the present case, we are inclined to uphold the order of the CIT(A) on this issue. For this purpose, we place reliance upon the orders of the Tribunal in the cases of Royal Marwar Tobacco Product (P.) Ltd. (supra), Commissioner Of Income-Tax v. Anil Bhalla [2010] 322 ITR 191 (Delhi) . In this case search and seizure was carried out in the premises of the assessee and the premises of a company of which the assessee was a director. The AO made additions under the head of unexplained expenditure under s. 69C of the IT Act, 1961. The CIT(A) and the Tribunal examined the entire evidence on record including the statements made by the assessee in the proceedings as well as before the AO and then came to the conclusion that the additions could not be sustained in the absence of any other corroborative evidence. The CIT(A) deleted the additions and this was confirmed by the Tribunal. On appeal, it was held that there should be independent corroborative material to support the additions. In the case of Dr. R.M.L. Mehrotra v. Asstt. CIT [1999] 68 ITD 288 (All.) which has been affirmed by Allahabad High Court in Commissioner Of Income-Tax v. R.M.L Mehrotra [2010] 320 ITR 403/186 Taxman 137 (All.) with detailed reference to Supreme Court ruling in H.M. Esufali H.M. Abdulali's case (supra) and observed as follows :

"One should not forget that it is a search case in which a search party is supposed and expected to find out all the incriminating documents, material as also undisclosed assets. A search assessment, much less a block assessment, therefore, stands on a footing different than a normal assessment much less an assessment based on the best judgment of an AO. During search, firstly, no other diary or other record comparable to the notebook marked as 'B-l/23' were found by the search party for the remaining period, which normally could have been, were it being maintained and kept. Though such a record could have been destroyed also from time to time, but in such a situation also, if the assessees had actually made a fortune of similar receipts in respect of the remaining part of the year, they must be reflected by certain assets, movable or immovable ought to have been found during the course of search. No such assets, despite the extreme step of search which amounts to a serious invasion on the rights of subjects and which is perhaps the last weapon in the arsenal of the Department, were found, which could be attributed to any such patently hypothetical receipts. In view of this the multiplication formula adopted by the AO was not valid."

65. Being so, extrapolation of income cannot be made for the assessment year in question on the basis of seized material relating to some other assessment years.

66. Relating to exemption under s. 11, this issue stands decided in favour of the assessee in view of our findings in ITA No. 720/Hyd/2012 in this order. Regarding exemption under s. 10(23C), the withdrawal of the approval granted under s. 10(23C)(vi) of the IT Act in the case of the assessee was w.e.f. asst. yr. 2007-08 only vide cancellation order dt. 19th Dec. 2011 in F. No. DGIT (Inv.)/Hyd/App and renewal under s. 10(23C)(vi)/PES/2011-12. Being so, we do not find any infirmity in the order of the CIT(A) on this issue.

67. In the result, Revenue's appeal ITA No. 1768/Hyd/2011 is dismissed.

ITA No. 1767/Hyd/'2011 (asst yr. 2003-04)

Assessee : Sri B. Srinivasa Rao, Hyderabad

68. Effective grounds of the Revenue in this appeal read as follows :

69. Facts of the case and the material background leading to the filing of the appeal by the Department in the case of this assessee, who is managing director of Prathima Educational Society, respondent-assessee in ITA No. 1768/Hyd/2011, are almost identical. It is the reopening of the assessment in the case of the assessee, based on the material found at the time of search action under s. 132 of the Act, which has taken place in his premises also in 2009, and the protective addition of Rs. 38,28,000 made in the hands of this assessee, consistent with the substantive addition made in the assessment of the said society, which have been decided by the CIT(A) in favour of the assessee, which prompted the Revenue to file the present appeal before this Tribunal. For the detailed reasons discussed in para 9 of this order, in the context of Revenue's appeal, [IT Appeal No. 1768/Hyd/2011 in the case of Asstt. CIT v. Prathima Educational Society, dated 3-9-2013], we find no. justification for the reopening of the assessment in this case as well. We accordingly uphold the impugned order of the CIT(A) on this aspect, in the case of this assessee as well, rejecting the grounds of the Revenue on this issue.

70. The Revenue raised one more ground that the CIT(A) failed to appreciate the fact that extrapolation can be made for other years on the basis of material found during the course of search relating to some other year as it is supported by the judgment of Hon'ble Andhra Pradesh High Court in the case of Rajnik & Co. (supra).

71. In view of our decision on the same issue in ITA No. 1768/Hyd/2011 in the earlier portion of this order, this ground is decided against the Revenue and confirm the order of the CIT(A).

72. In the result, Revenue's appeal ITA No. 1767/Hyd/2011 is dismissed.

73. To sum up, Revenue's appeals in ITA Nos. 1767 and 1768/Hyd/2011 are dismissed and assessee's appeal in ITA No. 720/Hyd/2012 is allowed.

SUNIL