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The Asst. Commissioner of Income-tax, Central Circle 1, Hyderabad vs. Sri B. Srinivasa Rao Hyderabad
November, 13th 2013
        IN THE INCOME TAX APPELLATE TRIBUNAL
            HYDERABAD BENCH `A', HYDERABAD

BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER
 AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER

                   ITA No. 1767/Hyd/2011
                  Assessment year : 2003-04

The Asst. Commissioner of      vs.   Sri B. Srinivasa Rao
Income-tax, Central Circle           Hyderabad
1, Hyderabad                         PAN : ADAPB 5985C

        (Appellant)                         (Respondent)

                   ITA No. 1768/Hyd/2011
                  Assessment year : 2003-04

The Asst. Commissioner of      vs.   M/s. Prathima Educational
Income-tax, Central Circle           Society, Hyderabad
1, Hyderabad                         PAN : AAATP3833E
         (Appellant)                        (Respondent)

                    ITA No. 720/Hyd/2012
               Assessment year : Not applicable

M/s. Prathima Educational      vs.   The Commissioner of
Society, Hyderabad                   Income-tax (Central)
PAN : AAATP3833E                     Hyderabad
         (Appellant)                       (Respondent)

                Assessees by: Sri K.C. Devadas
                  Revenue by: Sri P. Somasekhar Reddy

              Date of hearing: 03.09.2013
      Date of pronouncement: 08.11.2013

                             ORDER

Per 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
                                    2           ITA No. 1768/Hyd/2011 & Ors.
                                            M/s. Prathima Educational Society,& Anr.
                                           ================================

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 : M/s. 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 dated 22.3.2012.


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


      (a)    Medical relief to the poor and general public

      (b)    Advancement of medical education, para medical
             education, education of health sciences and research
             and development relating thereto.


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
                                  3              ITA No. 1768/Hyd/2011 & Ors.
                                             M/s. Prathima Educational Society,& Anr.
                                            ================================

same have 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 S. 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 AR of the assessee-society filed written submissions
opposing the proposal of the CIT, on the ground that there has
been no violation of Ss. 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 was did not exist as
per its objects or the activities of the Trust are not genuine.
Reliance was placed on the decisions of Orissa High Court in the
case of Kalinga Institute of Industrial Technology vs.CIT (336
ITR 389).   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
                                  4             ITA No. 1768/Hyd/2011 & Ors.
                                            M/s. Prathima Educational Society,& Anr.
                                           ================================

or indirectly collected substantially 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,
accordingly   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 S. 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 u/s. 12A/12AA of the Act, vide order
dated 4.10.2000 with effect from 1.4.2000, cancelled the
registration so granted earlier, vide impugned order dated
22.3.2012 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 Commissioner of Income-tax
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
                                  5             ITA No. 1768/Hyd/2011 & Ors.
                                            M/s. Prathima Educational Society,& Anr.
                                           ================================

Court in WP MP No. 1026 of 2012 in WP 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, one 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 was 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-


       (a)   The notings in the Excel sheets lacked corroboration
             of the notings although the department attempted in
             that direction.

       (b)   In course of search and post search investigation, in
             the   statements   recorded    under        S.     132(4)/131,
             Chairman of the assessee trust, Sri Srinivasa Rao
             expressed his inability to explain the circumstances
             in which those sheets were found from the premises
             of the assessee society.
                           6             ITA No. 1768/Hyd/2011 & Ors.
                                     M/s. Prathima Educational Society,& Anr.
                                    ================================

(c)   Despite repeated questioning on various occasions,
      the said Srinivasa Rao denied that the assessee
      society has collected capitation fee from any student.

(d)   The computer printout was not recovered/retrieved
      from any of the computers maintained in the
      society's office at the time of search, although the
      same were verified and that too with the recovery
      tool which is a usual method adopted by the
      department at the time of search.

(e)   In the course of assessment proceedings, the seized
      hard disks were operated in the office of the AO with
      the help of IBM official but there was no impression
      in the hard disk that the same was typed and
      prepared in any of the computers belonging to the
      society.   No data confirming to the notings in the
      Excel   sheets   could   be   found      from       the     seized
      computer hard disks.      He submitted that the only
      purpose of scanning the seized hard disk was
      intended for recovery of the Excel sheets so as to
      corroborate the same, as the assessee has denied to
      have generated the same.         Since it resulted in a
      futile exercise, it was clearly established that the
      Excel sheets were not prepared by the assessee
      society. The assessment order passed by the AO
      makes no mention of any search recovery.

(f)   The author of the Excel sheets could not be
      identified. In terms of S. 60 of the Indian Evidence
      Act, computerized information is within the realm of
                           7               ITA No. 1768/Hyd/2011 & Ors.
                                      M/s. Prathima Educational Society,& Anr.
                                     ================================

      hearsay evidence and therefore, not relevant at all
      by itself. In such cases either authority who has fed
      the information must be identified or he must appear
      personally and testify before the Court about the
      source of information. Hence, in the absence of any
      such corroboration, the evidence remained a hearsay
      evidence, carrying no evidentiary value, in the
      absence of any corroboration.

(g)   At the time of seizure, the Excel sheets was not
      authenticated either by the assessee or by the
      witnesses or by an authorized officer. This is an
      unsigned    document     and    as     such       it    loses       its
      evidentiary value for want of authentication.                       In
      support of this proposition reliance is placed on the
      decision of Ahmedabad Bench of the Tribunal in the
      case of Sanskruti Township Surat vs. Department of
      income-tax(ITA    No. 1885/Ahd/2006 order                     dated
      23.9.2011) and Hyderabad Bench of the Tribunal in
      the case of DCIT vs. Krishna Yadav (2011) 12
      Taxman.com.4 (Hyd).

(h)   There is evidence in the seized record that the
      Department has typed some information by making
      use of assessee's computer and made part of the
      Panchnama.       This fact was pointed out by the
      Chairman of the assessee, Sri B. Srinivas Rao in the
      course of his statement recorded on 17.12.2009.
      This act on the part of the searched party raises an
      eye brow.
                             8               ITA No. 1768/Hyd/2011 & Ors.
                                         M/s. Prathima Educational Society,& Anr.
  


                                      ================================

(i)   The DDlT in course of post search investigation made
      extensive enquiries to corroborate the notings in the
      Excel sheets.     One of the steps taken by him was
      that he summoned all the parents of the students
      under section 131 to take evidence. In course of
      assessment      proceedings,          the      assessee           made
      requests to supply the copies of these statements.
      Repeated requests made by the assessee fell in deaf
      ears and so far these statements have not been
      provided. On being directed by the AO in course of
      assessment proceeding, the assessee contacted the
      office of DGlT and reminded on a number of
      occasions but no information was supplied, despite
      the fact that this fact was also brought to the notice
      of DGIT. As a principle, neither the assessee can
      suppress the best evidence in his possession nor the
      department. It is settled principle that whenever the
      assessee    desires,    he      can    have       access        to     all
      information, whether favourable or adverse to him as
      laid down in Suraj Mall Mohta and Co. v. A.V.
      Visvanathu Sastri [1954] 26 ITR 1, SMC Share
      Brokers Ltd v CIT 109 TTJ 700 Delhi, CIT v. Simon
      Carves Ltd. [1976] 105 ITR 212 (SC). In this case
      the assessee has every reason to believe that the
      evidences    tendered      by    the    parents,         who       were
      departmental      witnesses,     were       all    favourable          to
      assessee    and     therefore,        the    department              was
      apprehensive of providing these statements as the
      same would go against the department. The conduct
                              9             ITA No. 1768/Hyd/2011 & Ors.
                                        M/s. Prathima Educational Society,& Anr.
                                       ================================

      of the department is not fair as the notings in the
      Excel sheets formed the basis of addition and
      subsequent       cancellation.   Assessee           is    enclosing
      herewith some of the summons issued to the parents
      who appeared to give testimony.

(j)   Even the AO failed to summon these witnesses in
      course of assessment proceedings for corroboration
      when    the      assessee   was       consistently           denying
      collection of capitation fees and based his entire
      conclusion on the report of the DDIT which was
      based on suspicion. This shows total non application
      of   mind   by    the   adjudicating       officer       when       the
      information supplied to him were disputed and not·
      corroborated by the DDlT. His attempt to verify the
      facts from two witnesses namely Sri Tirupathi Reddy
      and Madhav Reddy could not yield any further
      evidence.

(k)   It was brought to the notice of authorities that
      notings in the loose sheet remained uncorroborated
      till end as the same was not a speaking document
      and no supporting evidence by way of money receipt
      and other evidences were found. It was pointed out
      that the same was a dumb document and therefore
      not to form the basis of cancellation of registration
      under section 12AA. With regard to evidentiary value
      of notings the loose sheet, the appellant relies on the
      following decisions:
                          10           ITA No. 1768/Hyd/2011 & Ors.
                                   M/s. Prathima Educational Society,& Anr.
                                  ================================

      a) DCIT Central V C        Krishna       Yadav         2011,12
         Taxman.com 4 Hyd
      b) Asst. CIT v. Satyapal Wassan [2007] 295 ITR
         (AT) 352 (Jabalpur),
      c) ACIT V Dr Kamla Prasad Singh 3 ITR Trib 533
         Patna,
      d) CIT Vs. Khazan Singh & Brothers 2007,304 ITR
         243 (P & H,)
      e) CIT v. Girish Chaudhary [2007] 163 Taxman
         608, Delhi
      f) Bansal Strips (P.) Ltd. v. Asstt. CIT [2006],99
         ITD 177 Delhi
      g) CIT v Mauli Kumar K. Shah [2008] 307 ITR 137
         (Guj.)


(l)   As regards the presumption under section 132( 4A),
      it was submitted that a loose sheet is not a
      book/document so as to raise the presumption. For
      this proposition, reliance was placed in the decision
      of apex Court in the case of CBI vs. V.C. Shukla
      [1998] 3 SCC 410. Further the presumption in this
      section is not mandatory. This can supplement but
      cannot supplant evidence. Nothing was found by the
      department to support their suspicion.

(m)   Therefore, the Excel sheets which are not speaking
      either by itself or in the company of others, or
      corroborated by enquiry, cannot be the basis of any
      inference that capitation fees were collected and not
      entered in the accounts to cancel registration.
                                   11             ITA No. 1768/Hyd/2011 & Ors.
                                              M/s. Prathima Educational Society,& Anr.
                                             ================================

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 Income tax. 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.
 ( i ) Dhirajpal Girdhari Lal v. CIT [1954] 26 ITR 726 (SC);
 ( ii ) Dhakeshwari Cotton Mills Ltd. v. CIT [1954] 26 ITR 775 (SC);
 ( iii ) Lalchand Bhagat Ambica Ram v. CIT [1959] 37 ITR 288 (SC);
 ( iv ) Umacharan Shaw & Bros. v. CIT [1959] 37 ITR 271 (SC);


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
                                   12         ITA No. 1768/Hyd/2011 & Ors.
                                          M/s. Prathima Educational Society,& Anr.
                                         ================================

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 cancellation of registration.
Assessee society relies on the following decisions:
      i) DCIT V Pramukh Builders 2008 112 ITD 179 Ahd TM.
      ii) ACIT v Jorawar Singh M Rathod 2005 94 TTJ 867
      iii) Sri Ganesh Trading Company vs. CIT(241 Taxman 264)-
           Jharkhand
      iv) Jyotichand Bhaichand Saraf & Co. P.Ltd. vs.DCIT(139 ITD
          10)Pune


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 misc expenditure
incurred by the hospital for the society and other relates to
payment to doctors. As regards the misc 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
                               13           ITA No. 1768/Hyd/2011 & Ors.
                                        M/s. Prathima Educational Society,& Anr.
                                       ================================

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 payment 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 17.10.2010 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 utilization
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 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
                                 14             ITA No. 1768/Hyd/2011 & Ors.
                                            M/s. Prathima Educational Society,& Anr.
                                           ================================

by Nikhila, a student, it is submitted that the Department was
not justified in utilizing 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 utilized against the
assessee. In support of this contention, reliance is placed on the
decision of the Supreme Court in the case of Kishan Chand
Chellaram vs. CIT(125 ITR 713)-SC; and of the Calcutta High
Court in the case of CIT vs. Eastern Commercial Enterprises(210
ITR 103). 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 utilized 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 of the assessee to provide
corroborative evidence by way of testimony of her father, who
was also examined by the DDIT, 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 crores made by Srinivasa
Rao. From this declaration, the department presumes that this
amount represents      collection of capitation fees and faulted
                                15            ITA No. 1768/Hyd/2011 & Ors.
                                          M/s. Prathima Educational Society,& Anr.
                                         ================================

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 Srinivas 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 crores as declared at the time of search in
the returns of the entities will in no way the 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
                                 16            ITA No. 1768/Hyd/2011 & Ors.
                                           M/s. Prathima Educational Society,& Anr.
                                          ================================

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 Joginpalli BR Educational Society


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 dated 22.3.2012 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.
                                  17              ITA No. 1768/Hyd/2011 & Ors.
                                              M/s. Prathima Educational Society,& Anr.
                                             ================================

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 the 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 that 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 Nos. 213, Road No. 1,
Film Nagar, Jubilee Hills, Hyderabad during the course of search
on 10.9.2009. 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
10.9.2009, 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
                               18            ITA No. 1768/Hyd/2011 & Ors.
                                         M/s. Prathima Educational Society,& Anr.
                                        ================================

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
5.10.2009, 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 consultant with his employees and explain within a
week.


21.     In a still subsequent statement recorded on 6.11.2009,
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 interfere in the course of
investigation.   In a further statement recorded on 17.12.2009
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 by is to be examined in the light of the sequence of
                                           19              ITA No. 1768/Hyd/2011 & Ors.
                                                     M/s. Prathima Educational Society,& Anr.
                                                    ================================

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 reflect that the assessee-society was
collecting monies over and above the prescribed fee. In the face
of such incriminating documents, the registration under S. 12 of
the Act has been correctly cancelled by the CIT.


23.     He also further submitted that the seized material, as for
example pages 53 to 56 of Annexure A/PES/13) contain 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 Mahaveer Woollen Mills Ltd. (245 ITR
297).


24.     As for the post search examination of parents of the
students, it is submitted that the parents would not have given
                                   20           ITA No. 1768/Hyd/2011 & Ors.
                                            M/s. Prathima Educational Society,& Anr.
                                           ================================

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 DGIT(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 DR's arguments, the AR submitted that there is
no evidence to show that any interested person have enjoyed
the benefit of the funds of the society. He relied on the following
judgements:


   (i)         Guru Govind Singh Educational Society vs. CIT
               (2009) (118 ITD (ASR) 207).

   (ii)        Director of Income-tax (Exemptions) vs. Sri
               Belimatha Mahasamsthana Socio, Cultural and
               Educational Trust (2011) (336 ITR 694) (Karn.)

   (iii)       Maharashtra Academy of Engineering & Educational
               Research vs. CIT (133 TTJ 706).

25.       Further he submitted that evidence collected by the
Department is not enough to cancel the registration granted u/s.
12AA of the Act.           For this proposition, he relied on the
judgement of Supreme Court in the case of Dhirajlal Giridharlal
                                     21            ITA No. 1768/Hyd/2011 & Ors.
                                               M/s. Prathima Educational Society,& Anr.
                                              ================================

vs. CIT (26 ITR 736) (SC), Shalini Soni vs. UOI (AIR 1981) 431,
434 (SC).        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. 1.4.2000 u/s. 12AA of the Income-tax Act, 1961 was
cancelled by the CIT vide order dated 22.3.2012. The reasons
for cancellation of registration are that the assessee has violated
the provisions of sections 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 u/s. 12A of the Act. The basis
for   such   conclusion     are     the   materials     collected         by     the
Department in the course of search action conducted u/s. 132 of
the Act on 10.9.2009.              The CIT considered the following
information to cancel the registration granted to the assessee
u/s. 12A of the Act:


         Seized material:

      (1)    Annexure A/PES/17: This annexure contains two
         loose sheets ­ page Nos. 3 and 4 which said to have
         contained details of fees collected from 45 MBBS
         students       admitted    in    management         quota       for     the
         academic year 2007-08.            These pages contain details
         like name of the student, father's name, total fees per
         seat,    fee    received    in   cash, fee received              through
                         22             ITA No. 1768/Hyd/2011 & Ors.
                                    M/s. Prathima Educational Society,& Anr.
                                   ================================

  cheque/DD, balance fee to be collected during the
  relevant 5 years. For example, Sl. No. 1 at page No. 4
  shows the details of student by name M. Nikhila,
  father's name M. Ramgopal Reddy. She was admitted
  under management quota for a total consideration of
  Rs. 35 lakhs, out of which she paid Rs. 31 lakhs at the
  time of admission in cash and Rs. 4 lakhs in the form of
  cheques/DDs.


(2)   Annexure A/PES/13: This annexure contains page
  Nos. 53 to 56. In this Annexure details of fee collected
  from 14 MBBS students under management quota for
  the academic year 2007-08.       It contains details of 14
  students name, father's name, total amount. At Sl. No.
  6 in page No. 53, shows the details of student by name
  Abhiteja, s/o. Ashok Kumar.       He was admitted under
  management quota for an amount of Rs. 30 lakhs and
  he has paid Rs. 20 lakhs at the time of admission and
  Rs. 10 lakhs is due.        Page No. 54 of this annexure
  shows details of seven students such as name, father's
  name, amount paid and amount due.               Sl. No. 3 in this
  page shows details of Ms. Reshma, d/o. Srinivas who
  has paid Rs. 20 lakhs previously and subsequently paid
  due amount of Rs. 15 lakhs. Total fee is Rs. 35 lakhs
  under management quota for MBBS course.                    Page No.
  55 of this annexure shows details of 24 MBBS students
  admitted in academic year 2007-08. Same details like
  name, father's name, total fee, fee received in cash and
  fees received by cheque/DD and amount due to be
                            23              ITA No. 1768/Hyd/2011 & Ors.
                                        M/s. Prathima Educational Society,& Anr.
                                       ================================

  received in relevant years. Sl. No. 3 in this page shows
  name    of   the    student,    V.   Shethya          Rao,       s/o.     V.
  Madanmohan Rao who was given management quota
  seat for Rs. 37 lakhs and he has paid Rs. 33 lakhs in
  cash and Rs. 4 lakhs by way of cheque/DD. Page No.
  56 in this annexure contains details of 21 MBBS
  students admitted under management quota and details
  of them relevant to the academic year 2007-11.                          For
  example Sl. No. 8 in this page shows the details of
  student by name Satla Rajkumar s/o. S. Chinna
  Mallaiah.    He was admitted under management quota
  for a consideration of Rs. 30 lakhs and paid Rs. 15 lakhs
  in cash at the time of admission and balance Rs. 15
  lakhs paid in the year 2008.


(3)   Annexure A/PES/16: This annexure contains page
  Nos. 31 to 35, details of fee collected from 34 MBBS
  students under management quota for academic year
  2009-10 and shows details of student name, total fee
  for management quota seat, total consideration (TC),
  dates on which these amounts paid, mobile phone
  numbers.     As    per   this   annexure,        the     lowest         fees
  collected for MBBS course under management quota is
  Rs. 2,00,006 and the highest is Rs. 35 lakhs.


(4)   Annexure A/PES/15: It contains page Nos. 56 to 82.
  Having post dated cheques and small slips with the
  details of total fee, payment thereof by cash and
  cheque with cheque Nos. and date issued by the
                           24            ITA No. 1768/Hyd/2011 & Ors.
                                     M/s. Prathima Educational Society,& Anr.
                                    ================================

  parents of the students who are admitted into MBBS
  course under management quota for academic year
  2007-08.


(5)   Annexure A/PES/15 (page No. 49): This is a letter
  written in Telugu in the hand writing of Sri E. Tirupathi
  Reddy, father of E. Swetha Reddy who was admitted for
  MBBS    course   under        management        quota        for     the
  academic year 2007-08 addressed to Managing Director
  of assessee trust.   As per this letter Sri E. Tirupathi
  Reddy already paid Rs. 12 lakhs and he would pay
  another Rs. 8 lakhs on 29.9.2007 and balance amount
  of Rs. 10 lakhs would be paid within 6 months.


(6)   Annexure A/PES/15 (Page No. 43): This is a letter
  dated 30.9.2006 written by Sri K. Madhav Reddy in his
  own handwriting and addressed to the Director of
  assessee society.    As per this letter Sri K. Madhav
  Reddy, father of K. Surya admitted to MBBS course
  under management quota for academic year 2006-07
  and agreed for payment of Rs. 26.75 lakhs, out of
  which he has paid Rs. 20 lakhs on 30.9.2009. Balance
  Rs. 1.5 lakhs is to be paid yearly after payment of Rs.
  6.75 lakhs by cheque on 30.9.2009.


(7)   Further, statement of the Managing Director of the
  assessee society was recorded on 10.9.2009 who has
  failed to explain the above seized material and stated
  that he will explain the same later.                In respect of
  A/PES/16, page Nos. 1 to 35, A/PES/15 (page Nos. 50
                                25            ITA No. 1768/Hyd/2011 & Ors.
                                          M/s. Prathima Educational Society,& Anr.
                                         ================================

         to 82), he said that he will clarify the same later.                 In
         respect of A/PES/17 (page Nos. 23 to 24) he said that
         the handwriting does not belong to him and he said that
         he will explain it later.   In respect of page No. 24 of
         A/PES/17 which is a copy of cheque received from Smt.
         A. Anuradha for repayment of loan advanced by Sri B.
         Srinivasa Rao.    According to the Department, Sri B.
         Srinivasa Rao had given evasive reply.             However, he
         admitted to disclose income of Rs. 5 crores in his hands
         to cover up the discrepancies found during the course of
         search.


27.   In this case, Sri E. Tirupathi Reddy was examined by the
Department on 4.11.2009. 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 CIT vs. Eastern Commercial
Enterprises (207 ITR 103) (Cal), 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
                                 26             ITA No. 1768/Hyd/2011 & Ors.
                                            M/s. Prathima Educational Society,& Anr.
                                           ================================

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 judgement of Supreme Court
in the case of Kishan Chand Chellaram vs. CIT (125 ITR 713)
also supports the assessee 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 5.12.2009. 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 lakhs 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
lakhs and cheque of Rs. 5 lakhs was received from Kum. Nikita
                                 27              ITA No. 1768/Hyd/2011 & Ors.
                                            M/s. Prathima Educational Society,& Anr.
                                           ================================

for admission to MBBS course in the academic year 2007-08
does not hold merit.


30.    Regarding the disclosure of Rs. 5 crores 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 u/s. 11 of the Act so as to
cancel registration granted to the assessee us. 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 u/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 u/s. 12AA on the conclusion that the
assessee has violated the provisions of sections 11 and 13 of the
Act.


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

       a) Department despite its attempt failed to collect any
          information from any source corroborating payment of
          capitation   fees   except   relying     on     uncorroborated
          entries in an Excel sheet, the discovery of which was
          seriously disputed.

       b) All attempts for corroboration failed. Although all the
          parents were summoned, and their statements were
          recorded, the department has so far declined to give
                         28           ITA No. 1768/Hyd/2011 & Ors.
                                  M/s. Prathima Educational Society,& Anr.
                                 ================================


   copies of these statements Possible reason could be
   that these statements were favourable to society.

c) The letter supposed to have been addressed from two
   parents remained uncorroborated because of their
   denial, non-production of one of them (Tirupathi
   Reddy) for cross examination and admission by the
   department before High Court that statement of
   Madhav Reddy is not incriminating.

d) The society explained the rough notings in loose
   papers and the same were accounted for in the books.
   It also explained payments and recovery of the
   amounts from doctors through IOU payments. The
   department failed to demolish society's contention
   through cross examination of Sri Parahlada Rao,
   accountant, who made these payments, although he
   was examined, cross examined and re-examined. No
   enquiry has been made for corroboration.

e) The admission of Rs. 5 cores supposed to have been
   made by Srinivas Rao, chairman never pertained to
   society. Further it was a non specific and bald
   declaration.

f) There is nothing in the order that the society has
   deviated from the objects for which the registration
   was granted and not applied its funds towards its
   objects.

g) No evidence was brought out to show that the amount
   of capitation fees alleged to have been collected were
                                   29              ITA No. 1768/Hyd/2011 & Ors.
                                               M/s. Prathima Educational Society,& Anr.
                                              ================================


            applied either by the society or by any interested
            persons. There is no instance of violation of the
            provisions of section 13.

      h) No asset commensurate with the alleged estimated
            income by the AO was found.


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


      (1)     The activities of the trust are not genuine.

      (2)     The activities of the trust are not carried on in
              accordance with the object of the trust.

33.   In the present case the CIT is not alleging that the
assessee is not carrying on imparting of education.                            It is
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 paragraphs
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.
                                 30           ITA No. 1768/Hyd/2011 & Ors.
                                          M/s. Prathima Educational Society,& Anr.
                                         ================================




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 was 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 Kum. 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 Kum. 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 4.10.2000 w.e.f. 1.4.2000.


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 vs. CIT (133 TTJ 706)
wherein held the Tribunal held as under:
                           31            ITA No. 1768/Hyd/2011 & Ors.
                                     M/s. Prathima Educational Society,& Anr.
                                    ================================




"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 utilization 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
utilization of the income, even if, at all the trust
holds the registration in its hands. Therefore at the
                          32            ITA No. 1768/Hyd/2011 & Ors.
                                    M/s. Prathima Educational Society,& Anr.
                                   ================================

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
                           33            ITA No. 1768/Hyd/2011 & Ors.
                                     M/s. Prathima Educational Society,& Anr.
                                    ================================

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
                                 34            ITA No. 1768/Hyd/2011 & Ors.
                                           M/s. Prathima Educational Society,& Anr.
                                          ================================

      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 mis-utilized 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 utilized 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 mis-utilization 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 vs. Director of IT (Exemption) (2007)
      109 TTJ (Del) 128, Kalinga Institute of Industrial
      Technology vs. CIT (2008) 113 TTJ (Ctk) 906 :
      (2008) 1 DTR (Ctk) 273 and Himachal Pradesh
      Environment Protection & Pollution Control Board vs.
      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 Director of Income-tax (Exemptions) & Anr. vs. Sri
Belimatha Mahasamsthana Socio Cultural and Educational Trust
                                    35          ITA No. 1768/Hyd/2011 & Ors.
                                            M/s. Prathima Educational Society,& Anr.
                                           ================================

(336 ITR 694).       In this case assessee the assessee, a social,
cultural and educational trust, running educational institutions
and running various professional courses, filed its return for the
assessment year 2001-02. The AO denied the exemption under
section 11 of the Income-tax 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 section 11(1)(d).                  The        CIT(A)
confirmed the order of the AO. The Tribunal allowed the benefits
under section 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 amount 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
ITA Nos. 100 to 106 of 2012 and M.J. Balachander in ITA Nos.
90    to   94   of   2012   dated    21.12.2012      where        in     similar
circumstances it was held that M.J. Balachander was collecting
                                36            ITA No. 1768/Hyd/2011 & Ors.
                                          M/s. Prathima Educational Society,& Anr.
                                         ================================

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 section 11 of the Act.


38.   Similarly the co-ordinate Bench, consisting of the same
members, in the case of Sree Educational Society in ITA No. 564
of 2012 for A.Y. 2011-12 vide order dated 31.7.2013 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 DIT 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 off of the benefit of
      registration granted by the DIT(E) u/s 11 of the Act.
      Being so, in our opinion, registration granted u/s
      12AA of the Act cannot be cancelled. However, the
                                   37           ITA No. 1768/Hyd/2011 & Ors.
                                            M/s. Prathima Educational Society,& Anr.
                                           ================================

      aforesaid findings given by us are nothing to do with
      the allowability of exemption u/s 11 of the Act. In
      case any discrepancy or irregularity with regard to
      the allowability of exemption u/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 and Others (315 ITR 382) (All), the issue relating to
cancellation of registration granted u/s. 12A of the Act came for
adjudication before the Hon'ble High Court.            In that case, the
assessee was granted registration u/s. 12A on 1st April, 1999. A
search u/s. 133A was conducted.         The petitioner, a registered
society, was granted registration under section 12A on April I,
1999. A survey under section 133A was conducted at the
business   premises   on   September      20,     2002,        from       where
documents were impounded. The registration was cancelled for
the assessment years 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 amount 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 section
2(15) of the Income-tax 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
                                38            ITA No. 1768/Hyd/2011 & Ors.
                                          M/s. Prathima Educational Society,& Anr.
                                         ================================

activity for profit". These words were omitted by the Finance Act,
1983, with effect from April 1, 1984.


39.2 The order cancelling the registration granted to a trust or
institution under section 12AA being a quasi-judicial order does
not fall within the category of orders mentioned under section 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. Section 12AA(3) was
incorporated with effect from October I, 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
                                  39            ITA No. 1768/Hyd/2011 & Ors.
                                            M/s. Prathima Educational Society,& Anr.
                                           ================================

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 vs.
CIT and Another (336 ITR 389) (Orissa) it was held that the
power under section 12AA(3) of the Income-tax 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 Oil August 9, 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 dated December 15, 2006 was
passed by the CIT under section 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 August 9, 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.
                                  40         ITA No. 1768/Hyd/2011 & Ors.
                                         M/s. Prathima Educational Society,& Anr.
                                        ================================

41.   In the case of CIT vs. Sarvodaya Ilakkiya Pannai (343 ITR
300) (Mad) the assessee was granted registration under section
12A(1)(a) of the Income-tax Act, 1961. When the returns filed
for the assessment years 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 section 12AA(3) and thereafter, the
CIT revoked the registration on the ground that the assessee did
not deserve exemption under section 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 section 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 section 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 section 12AA(3). Whether the
income derived from such transaction would be assessed to tax
and whether the trust would be entitled to exemption under
section 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 section 12AA(3) were 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.
                                    41             ITA No. 1768/Hyd/2011 & Ors.
                                               M/s. Prathima Educational Society,& Anr.
                                              ================================

42.    In the case of Director of Income-tax (Exemptions) v. Mool
Chand Khairati Ram Trust (339 ITR 622) (Delhi). In sub-section
(1) clause (b) and sub-section (3) of section 12AA of the
Income-tax Act, 1961, cancellation of registration was provided
where the registration was granted under clause (b) of sub-
section (1). Further, cancellation under sub-section (3) was also
provided where the registration was obtained at any time under
section 12A (whether under clause (a) or clause (aa) of sub-
section (1) of section 12A). But this power of cancellation of
registration under section 12A came to be incorporated by way
of amendment introduced by the Finance Act, 2010, with effect
from June 1, 2010. Now, with effect from June I, 2010, the
power vests to the CIT to cancel the registration granted under
any of the clauses of sub-section (1) of section 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 section 143(3) for the assessment
years 1996-97 to 2005-06. The Director of Income-tax cancelled
the    registration   under     section   12AA(3)       with      effect       from
assessment year 2002-03 by his order dated June 30, 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
                                        42                 ITA No. 1768/Hyd/2011 & Ors.
                                                      M/s. Prathima Educational Society,& Anr.
                                                     ================================

capital     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 were 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 vs. ACIT (148 TTJ 517) (Hyd.)
and    in   the    case    of   CIT    vs.   Krishna          Yadav        (2011)        12
taxmann.com 4 (Hyd). Further, various judgements 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
u/s. 12AA of the IT Act.


44.    Further,     in    the   case    of     Sri     Chaitanya           Educational
Committee vs. CIT (106 ITD 256) (Hyd) it was held that
amendment sub-section (3) in section 12AA by the Finance (No.
2) Act, 2004, w.e.f. 1st October, 2004, the CIT had no power to
cancel registration u/s. 12A earlier granted and the order of the
                                  43           ITA No. 1768/Hyd/2011 & Ors.
                                           M/s. Prathima Educational Society,& Anr.
                                          ================================

CIT dated 26th July, 2004 cancelling registration granted u/s.
12A on 14th August, 1992 was, therefore, invalid.


45.   The learned DR placed much reliance on the order of the
co-ordinate Bench in the case of Joginpally BR Educational
Society in ITA No. 585/Hyd/2012 and Ors. dated 31.8.2012
which is not applicable to the facts of the case on the following
reasons:


      (1)   In the case decided by the Tribunal, the employees
            have deposed that capitation fees were collected and
            handed over to the management on the basis of
            evidences    found.        This   statement            was       not
            controverted. In the case of the assessee there is no
            such admission by any one.


      (2)   It was admitted in the statement recorded u/s.
            132(4) that the additional fees were collected and
            applied towards education by the assessee before
            the Tribunal. This influenced the decision. There is
            no such admission by the present assessee.


      (3)   An application was moved by JBIT before the
            Settlement    Commission      admitting         collection         of
            capitation fees which was not accepted by the
            Commission.    There is no such admission by the
            assessee.


      (4)   The evidences were speaking in the case of the
            society regarding collection of capital fees which
                                    44            ITA No. 1768/Hyd/2011 & Ors.
                                             M/s. Prathima Educational Society,& Anr.
                                            ================================

            prompted the society to admit the fact in the
            statement u/s. 132(4) as also in the application
            moved before the Settlement Commission.                            The
            evidence available in the case of the assessee were
            not of such nature to derive any adverse inference
            against the society. The observation of the CIT and
            AO are unilateral without any corroboration.


      (5)   The above evidences were clinching to show that
            capitation fees were collected and, therefore, the
            Tribunal sustained cancellation under section 12AA of
            the Act. There is no such evidence except suspicion
            in the present case before the Tribunal.


46.   Being so, even if it is presumed that there is collection of
capital fees by the assessee in relevant assessment year 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 u/s. 12AA with effect from 1.4.2000.


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
                                 45          ITA No. 1768/Hyd/2011 & Ors.
                                         M/s. Prathima Educational Society,& Anr.
                                        ================================

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 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 us. 12AA of
the Act.    Accordingly, we vacate the order of the CIT dated
22.3.2012.    However, the aforesaid findings given by us are
nothing to do with the allowability of exemption u/s. 11 of the
Act.     In case of discrepancy or irregularity with regard to
allowability of exemption u/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 u/s. 12AA
of Income-tax Act, 1961 is hereby restored back. In the result,
ITA No. 720/Hyd/2012 is allowed.


ITA No. 1768/Hyd/2011 (A.Y. 2003-04) ­ By Revenue
Assessee : M/s. Prathima Educational Society
ITA No. 1767/Hyd/2011 (A.Y. 2003-04) ­ By Revenue
Assessee : Sri B. Srinivasa Rao, Hyderabad.
                                  46            ITA No. 1768/Hyd/2011 & Ors.
                                            M/s. Prathima Educational Society,& Anr.
                                           ================================



48.   The two appeals filed by the Revenue, concerning related
assessees, are directed against separate orders of the CIT(A)-I,
Hyderabad, dated 5.8.2011 for the assessment year 2003-04.
The lone appeal by the assessee, M/s. Prathima Educational
Society, Hyderabad, is directed against the order of the CIT
(Central), Hyderabad dated 22.3.2012, 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 dated
4.10.2011 with effect from 1.4.2000.       Since factual back ground
leading to the filing of the present appeals is common, and the
issues involved in these appeals are also inter-related, these
appeals are being disposed of, with this common order for the
sake of convenience.


ITA No. 1768/Hyd/2011 (A.Y. 2003-04) ­ By Revenue
Assessee : M/s. Prathima Educational Society


49.   Facts of the case in brief, in relation to the Revenue's
appeal   relating   to   M/s.   Prathima   Educational         Society        are
concerned, 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 31.10.2003,
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 these prescribed fee from students seeking admission for
                                    47               ITA No. 1768/Hyd/2011 & Ors.
                                                M/s. Prathima Educational Society,& Anr.
                                               ================================

medical courses, were found, particularly in respect of students
admitted in the academic years 2006-07, 2007-08 and partly for
2009-2010.      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 31.10.2003 may be treated as the one filed in
compliance     to    the   notice    under      S.      18      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 assessment year
2003-04 also, applying the ratio of the decision of the A.P. High
Court in the case of Rajnik & Co. vs. ACIT(251 ITR 561). 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 u/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                    dated 30.11.2010
passed under S. 14(3) read with S. 147 of the Act.
                                          48             ITA No. 1768/Hyd/2011 & Ors.
                                                     M/s. Prathima Educational Society,& Anr.
                                                    ================================

50.    Aggrieved         by   the   order      of   re-assessment,            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 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 DCIT vs. Royal Marwar Tobacco Products (120 TTJ 387); and
Pune Bench of the Tribunal in ACIT vs. S.R.J. Peety Steels (137
TTJ 627); and Hyderabad Bench `B' of the Tribunal in the case of
Vishnu Agarwal vs. ACIT (45 DTR 223), and he observed that in
the absence of any incriminating material in relation to the
assessment year 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 utilization for the benefit of any of the
member       of    the    Society    or     any     other     interested          person
enumerated in S. 13(1)(c) is consequently ruled out. Therefore,
                               49            ITA No. 1768/Hyd/2011 & Ors.
                                         M/s. Prathima Educational Society,& Anr.
                                        ================================

he held that the AO's stand that the assessee has violated the
provisions of S. 13(1)(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 assessment year 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.        ....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 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
                                50            ITA No. 1768/Hyd/2011 & Ors.
                                          M/s. Prathima Educational Society,& Anr.
                                         ================================

      available for academic years 2006-07, 2007-08 and
      2009-10 that too to arrive at the estimated
      capitation fee for A.Y. 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 A.P. High Court in the case of Rajnik & Co. vs. ACIT (251
ITR 561).   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(23)(c). 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(1)(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.
                                51             ITA No. 1768/Hyd/2011 & Ors.
                                           M/s. Prathima Educational Society,& Anr.
                                          ================================

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   re-assessment     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 re-
assessment     made, and consequently, the same is liable to
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-
                          52            ITA No. 1768/Hyd/2011 & Ors.
                                    M/s. Prathima Educational Society,& Anr.
                                   ================================

"147. If the Assessing Officer has reason to believe that
any income chargeable to tax has escaped assessment for
any assessment year, he may, subject to the provisions of
sections 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 sections 148 to 153 referred to as the relevant
assessment year) :

Provided that where an assessment under sub-section (3)
of section 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 section 139 or in
response to a notice issued under sub-section (1) of
section 142 or section 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 Assessing Officer 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 Assessing Officer of
account books or other evidence from which material
evidence could with due diligence have been discovered by
the Assessing Officer will not necessarily amount to
disclosure within the meaning of the foregoing proviso.
                            53            ITA No. 1768/Hyd/2011 & Ors.
                                      M/s. Prathima Educational Society,& Anr.
                                     ================================



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 :--

(a)     where no return of income has been furnished by the
        assessee although his total income or the total
        income of any other person in respect of which he is
        assessable under this Act during the previous year
        exceeded the maximum amount which is not
        chargeable to income-tax ;

(b)     where a return of income has been furnished by the
        assessee but no assessment has been made and it is
        noticed by the Assessing Officer that the assessee
        has understated the income or has claimed excessive
        loss, deduction, allowance or relief in the return ;

(ba) where the assessee has failed to furnish a report in
     respect of any international transaction which he was
     so required under section 92E;

(c)     where an assessment has been made, but--

(i)     income chargeable to tax has been under assessed ;
        or
(ii)    such income has been assessed at too low a rate ; or
(iii)   such income has been made the subject of excessive
        relief under this Act ; or
(iv)    excessive loss or depreciation allowance or any other
        allowance under this Act has been computed;

(d)      where a person is found to have any asset (including
        financial interest in any entity) located outside India.

        Explanation 3.--For the purpose of assessment or
        reassessment under this section, the Assessing
        Officer 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
                                54            ITA No. 1768/Hyd/2011 & Ors.
                                          M/s. Prathima Educational Society,& Anr.
                                         ================================

            not been included in the reasons recorded under
            sub-section (2) of section 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 pre-requisite
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 found at the time of search action under S. 132
of the Act on the premises of the assessee on 10.9.2009, which
prompted the AO in the instant case to reopen the assessment
proceedings for the assessment year 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 2009-2010. The said material found at
the time of search did not reveal anything specifically relating to
assessment year 2003-04, which is the year under appeal.                      In
that circumstances, based on that material alone, the AO cannot
reasonably believe that the assessee collected amounts over and
                                55            ITA No. 1768/Hyd/2011 & Ors.
                                          M/s. Prathima Educational Society,& Anr.
                                         ================================

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 re-assessment
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 relate 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 and Company (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
                                 56            ITA No. 1768/Hyd/2011 & Ors.
                                           M/s. Prathima Educational Society,& Anr.
                                          ================================

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 judgement of Hon'ble A.P. 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 u/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 receipt collected from
students towards management quota fees.                 The learned AR
submitted that there is no evidence in the form of seized
material for the AY 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 year. He
relied on the judgement of jurisdictional High Court in the case
of Rajnik & Co. (cited supra). The Supreme Court in the case of
                                  57             ITA No. 1768/Hyd/2011 & Ors.
                                             M/s. Prathima Educational Society,& Anr.
                                            ================================

Commissioner of Sales Tax, Madhya Pradesh v. H.M. Esuf Ali
H.M. Abdul Ali (90 ITR 271) (SC) 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 guess-work. 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 judgement, there was 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
                                  58              ITA No. 1768/Hyd/2011 & Ors.
                                             M/s. Prathima Educational Society,& Anr.
                                            ================================

the basis of estimation which involves some amount of guess
work. 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 assesment year
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 judgement 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 improbable 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 conclucive evidence to rely thereon.             Being so, the
ratio of Supreme Court judgement in the case of Commissioner
of Sales Tax, Madhya Pradesh v. H.M. Esuf Ali H.M. Abdul Ali (90
ITR 271) (SC) cannot be applied to the facts of the present case.


62.   Coming to the judgement 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 A.Ys. 1986-87 to 1995-96, but it is an admitted
fact by the partner of the assessee firm that the assessee had
                                 59           ITA No. 1768/Hyd/2011 & Ors.
                                          M/s. Prathima Educational Society,& Anr.
                                         ================================

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% and adopted the gross profit
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 AY 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 judgement of jurisdictional High
Court in the case of Gopal Lal Bhadruka & Ors. vs. DCIT (346
ITR 106) wherein their Lordships held as under:


      "By virtue of section 158BI of the Act, the various
      provisions of Chapter XIV-B of the Act are made
      inapplicable to proceedings under section 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 Assessing Officer to those materials
      found during the search and seizure operation, no
      such limitation is found in so far as section
      153A/153C of the Act are concerned. Therefore, it
      follows that for the purposes of section 153A/153C of
      the Act the Assessing Officer 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."
                                       60              ITA No. 1768/Hyd/2011 & Ors.
                                                   M/s. Prathima Educational Society,& Anr.
                                                  ================================

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., M/s. 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
assessment year 2003-04. Further, unless there is evidence or
material indicating any suppression of collection of fees towards
management quota seats for the assessment year 2003-2004
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 case of DCIT vs. Royal Marwar Tobacco Product
                                  61               ITA No. 1768/Hyd/2011 & Ors.
                                               M/s. Prathima Educational Society,& Anr.
                                              ================================

(P) Ltd. (2009) 120 TTJ (Ahd.) 387, CIT vs. Anil Bhalla (322 ITR
191) (Del). 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 section 69C of
the Income-tax 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 vs. ACIT (1999) 68 ITD 288
(All.) which has been affirmed by Allahabad High Court in 320
ITR 403 with detailed reference to Supreme Court Ruling in H.M.
Esufali H.M. Abdulali's case 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 A.O. During search, firstly, no
      other diary or other record comparable to the
      notebook marked as 'B-1/23' 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
                                 62           ITA No. 1768/Hyd/2011 & Ors.
                                          M/s. Prathima Educational Society,& Anr.
                                         ================================

       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 A.O. 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 u/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 u/s. 10(23C),
the withdrawal of the approval granted u/s. 10(23C)(vi) of the IT
Act in the case of the assessee was with effect from AY 2007-08
only   vide cancellation   order dated    19.12.2011            in F. No.
DGIT(Inv)/Hyd/App & Renewal u/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 (A.Y. 2003-04) :
Assessee : Sri B. Srinivasa Rao, Hyderabad

68.    Effective grounds of the Revenue in this appeal read as
follows-
                                 63            ITA No. 1768/Hyd/2011 & Ors.
                                           M/s. Prathima Educational Society,& Anr.
                                          ================================

         1.   Whether the CIT(A) was justified is not appreciating
              the fact that extrapolation can be made for others
              years based on material found in some other years,
              as has been held by the Hon'ble AP High Court in
              the case of Rajnik & Co. Vs. ACIT(251 ITR 561).

         2.   Whether the CIT(A) failed to appreciate the fact that
              reopening the assessment u/s., 147 is based on the
              evidence seized and not on estimation as held by
              him.


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 M.D. of M/s. Prathima Educational Society,
respondent-assessee in ITA Nos. 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, ITA
No. 1768/Hyd/2011 in the case of M/s. Prathima Educational
Society, 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.
                               64            ITA No. 1768/Hyd/2011 & Ors.
                                         M/s. Prathima Educational Society,& Anr.
                                        ================================

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
judgement of Hon'ble A.P. High Court in the case of Rajnik & Co.
vs. ACIT (251 ITR 561).


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 appeals in ITA Nos. 1767 and
1768/Hyd/2011 are dismissed and assessee's appeal in ITA No.
720/Hyd/2012 is allowed.


       Order pronounced in the court on 8th November, 2013


              Sd/-                           Sd/-
     (Asha Vijayaraghavan)             (Chandra Poojari)
        Judicial Member               Accountant Member

Hyderabad, the 8th November, 2013

Copy forwarded to:

1.     Asst. Commissioner of Income-tax, Central Circle 1, 7th
       Floor, Aayakar Bhavan, Basheerbagh, Hyderabad-500 004.
2.     Sri B. Srinivasa Rao, 172/A MLA Colony, Road No. 12,
       Banjara Hills, Hyderabad.
3.     M/s. Prathima Educational Society, Plot No. 213, Road No.
                             65          ITA No. 1768/Hyd/2011 & Ors.
                                     M/s. Prathima Educational Society,& Anr.
                                    ================================

     1, Film Nagar, Hyderabad.
4.   The Commissioner of Income-tax (Appeals)-I, Hyderabad
5.   The Commissioner of Income-tax (Central), Hyderabad
6.   The DR-A Bench, ITAT, Hyderabad.

BVS/tprao

 
 
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