Case: Commissioner of Income Tax-III, Pune Vs. Sinhgad Technical Education Society

4. It so happened that a search and seizure operation was carried out under Section 132 of the Act on one Mr. M.N. Navale, President of the assessee Society, and his wife on July 20, 2005 from where certain documents were seized. On the basis of these documents, which according to the Revenue contained notings of cash entries pertaining to capitation fees received by various institutions run by the assessee, a notice under Section 153C of the Act was issued on April 18, 2007. It is that notice which is quashed by the Income Tax Appellate Tribunal (ITAT) and the order of the ITAT has been upheld by the High Court by the impugned judgment.5. With the glimpse of the issue involved and the background in which the same has arisen, we now proceed to state the facts in little detail so as to get the clarity of the matter.6. As mentioned above, a search was conducted on Mr. M.N. Navale and his wife on July 20, 2005. It is not in dispute that he is one of the trustees of the assessee Society. This search was conducted under Section 132 of the Act. As per the Revenue, certain incriminating documents were recovered which showed that the assessee was taking capitation fee from the students. These documents also allegedly reveal that the activities of the trust were not genuine and were not being carried out in accordance with the trust deed. For these reasons, the assessee was treated as an Association of Person (AOP). Having regard to the complexity involved in the accounts and the changes to be effected on account of the change in the status of the assessee to that of AOP, a special audit under Section 142(2A) of the Act was conducted. On the basis of special audit report, taxable incomes for the Assessment Years07 had been worked out.7. Since the documents were recovered from Mr. Navale and sought to be used against the assessee, for undertaking this exercise it is imperative that a Satisfaction Note is recorded by the AO of the person searched for use of those documents against the third person (assessee herein), which is afor initiation of proceeding under Section 153C of the Act. This Satisfaction Note was recorded on April 18, 2007. In this Note, after discussing the documents which were recovered and seized in the search carried out on Mr. Navale, the AO recorded his satisfaction to the effect that the assessee trust cannot be considered as a genuine trust; it was receiving extra money over and above the fee fixed by the competent authority; it was not adhering to the object of providing education to the masses and managing trustees were using the assessees trust for their own benefits. Thus, the notice under Section 153C of the Act was issued for the Assessment YearsOn receipt of the said notice, the assessee filed its revised return for the Assessment Yearand in respect of other Assessment Years, it stuck to its original returns. Thereafter, registration of the trust was cancelled under Section 12AA(3) of the Act on October 09, 2007 and the assessee was treated as AOP. Special audit was ordered, as mentioned above, and after the receipt of the Special Audit Report, assessment order was passed by the AO on August 07, 2008 for Assessment Years7. Assessment Yearwas covered under Section 147 of the Act, Assessment Yearwas covered under Section 143(3) of the Act and Assessment Years06 were covered under Section 153C read with Section 143(3) of the Act. AO assessed the income of the assessee in the sum of Rs.The concluding portion of the assessment order reads asIn view of the totality of facts and circumstances, discussed as above, under Part A and Part B of the order, following conclusions are reached.(i) The assessee STES charged donations while granting admissions.(ii) As the registration of the Trust is cancelled on the grounds that activities of the Trust are not genuine and also are not being carried out in accordance with the Trust Deed, the assessee STES will have to be assessed as an AOP.(iii) Regardless of cancellation of registration, the benefits of sections 11 & 12 are denied in view of applicability of section 13(1)(c) on account of cash and jewellery seized, siphoning/diversion of money, creation of assets much more in value than the nominal incomes returned and known sources of income, payment of rent in excess of reasonable rent and other benefits.(iv) In view of complexity involved in the accounts and the changes to be effected on account of change in the status of the assessee to that of "AOP", special audit u/s. 142(2A) has been conducted and the net taxable incomes, for A.Yrs.7, have been worked out on the basis of recast accounts and taxed in this order.(v) There is total failure on the part of the assessee to explain the seized material, evidencing collection of donations/capitation fee.(vi) The relevance and correctness of the seized material is clearly established.(vii) The undisclosed income, on account of donations collected, for A.Y.has been worked out and taxed in this order.(viii) Seized material clearly shows collection of donations/capitation fee on one hand and expenditure/outgoings on the other hand.(ix) Instances of siphoning and diversion of amounts, out of receipts on account of donations/capitation fee, are evident from the seized material.(x) Number of assets of the Principal trustee/related persons have been found/seized as against nominal incomes returned and known sources of income. The assets/benefits derived are possible only because of receipts on account of donations/capitation fee.(xi) The theory of bigger HUF and obtaining of decree from the Court is an effort only to escape the rigours of laws relating to taxation. The said decree of the Hon. Court has been obtained by misrepresentation and suppression of facts. The same is not accepted by the department and appropriate course of action is contemplated.(xii) Siphoning of money, diversion of amounts, creation of assets, all out of the receipts on account of donations, and payment of rent which is not reasonable attract the provisions of Section 13(1)(c). These are the benefits derived by persons referred to in Sectionto the above, the total income and tax for A.Y. under consideration is computed, ased as

Reasoning: 15. At the outset, it needs to be highlighted that the assessment order passed by the AO on August 7, 2008 covered eight Assessment Years i.e. Assessment Yearto Assessment YearAs noted above, insofar as Assessment Yearis concerned, same was covered under Section 147 of the Act which means in respect of that year, there wereproceedings. Insofar as Assessment Yearis concerned, it was fresh assessment under Section 143(3) of the Act. Thus, insofar as assessment under Section 153C read with Section 143(3) of the Act is concerned, it was in respect of Assessment Years6. Out of that, present appeals relate to four Assessment Years, namely,04 covered by notice under Section 153C of the Act. There is a specific purpose in taking note of this aspect which would be stated by us in the concluding paragraphs of thethis requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongsto Assessment Yearor thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years02 was even time barred.19. We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy.20. Insofar as the judgment of the Gujarat High Court relied upon by the learned Solicitor General is concerned, we find that the High Court in that case has categorically held that it is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of accounts or documents seized or requisitioned should belong to a person other than the person referred to in Section 153A of the Act. This proposition of law laid down by the High Court is correct, which is stated by the Bombay High Court in the impugned judgment as well. The judgment of the Gujarat High Court in the said case went in favour of the Revenue when it was found on facts that the documents seized, in fact, pertain to third party, i.e. the assessee, and, therefore, the said condition precedent for taking action under Section 153C of the Act had been satisfied.We now advert to the implication of the fact which has been emphasised in para 15. As pointed out in the said para, the assessment order passed by the AO covers eight Assessment Years. Assessment done in six Assessment Years is under Section 153C of the Act. Assessment order is set aside only in respect of four such Assessment Years that too on the technical ground, noted above. This objection pertaining to the four Assessment Years in question does not relate to the other two Assessment Years, namely,6. Likewise, this decision has no bearing in respect of assessment done qua Assessment Yearas well as Assessment YearThe necessary consequence would be that insofar as the conclusions of the AO in his assessment order regarding the activities of the trust not being genuine and not carried out in accordance with the trust deed or cancellation of registration, denial of benefits of Sections 11 and 12 etc. are concerned, the same would not be affected by this judgment. It is, thus, clarified that this Court has not dealt with the matter on merits insofar as incriminating material found against the assessee or Mr. Navale is concerned. Pithily put, this Court has not given any clean chit to the assessee insofar as the finding of the AO to the effect that the assessee had been indulging in profiteering and collecting capitation fee is concerned. Whatever other repercussions are there, based on these findings, they can follow. This Court was not informed and, therefore, unaware of any challenge to the assessment order in respect of other four Assessment Years and outcome thereof. Wherever any such proceedings are pending, same would be considered without being affected by the outcome of these proceedings.