1. This appeal by the assessee is against the order of the CIT(A) for block period consisting asst. yrs. 1990-91 to 2000-01 (till 29th June, 1999). In this appeal, the assessee has raised as many as 26 grounds of appeal. However, at the time of hearing before us, the assessee has prepared a chart showing the nature of additions in various years. This chart reads as under: Nature of additions Asst. yr. Asst. yr. Asst. yr. Asst. yr. Asst. yr.
1996-97 1997-98 1998-99 1999-2000 2000-01 Profit as per income and expenditure a/c - 3,31,250 - 12,80,411 15,61,616 Suppression of receipts - 25,000 2,06,000 62,700 5,85,400 Unexplained expenses - 91,354 29,400 15,750 40,000 Compulsory consideration for admission - 17,54,786 40,18,215 31,08,500 1,80,000 Undisclosed income (no return filed) 3,78,093 - - - Common grounds exemption under Section 11 exemption under Section 10(22)/10(23C) - - - - - Both the parties agreed that the above chart covers the entire additions disputed by the assessee by way of grounds Nos. 1 to 26 and, therefore, they propose to argue the various additions as per the above chart.
I. Regarding addition of Rs. 3,31,250 in asst. yr. 1997-98 3. At the time of hearing before us, it is submitted by the learned Counsel that the above income was as per P&L a/c enclosed along with the return of income for asst. yr. 1997-98 which was filed prior to the search.
Therefore, it cannot be treated as undisclosed income.
3.1 The learned Departmental Representative, on the other hand, stated that in the assessment for asst. yr. 1997-98, the above income was treated as exempt under Section 10(22). Since in the block assessment, the exemption under Section 10(22) is denied, therefore, the addition is made for the above income.
3.2 In the rejoinder, it is explained by the learned Counsel that the denial of exemption in the block assessment is unjustified and moreover, it is out of the purview of block assessment. He also submitted that for the denial of exemption under Section 10(22), the assessee has raised a separate ground.
4. We have heard both the parties and perused the material placed before us. We find that the adjudication of this ground depends upon the finding with regard to exemption under Section 10(22) and, therefore, this ground will be adjudicated after adjudication of the ground relating to exemption under Section 10(22).
II Regarding addition of Rs. 12,80,411 for asst. yr. 1999-2000 and Rs. 15,61,616 for asst. yr. 2000-01 5. At the time of hearing before us, it is submitted by the learned Counsel that the search took place at the residential premises of Shri Ashak Ali Narsinh and Smt. Hamidaben Narsinh on 29th June, 1999, who are the trustees of the assessee-trust. In the block assessment of the aforesaid persons it was found that certain documents seized from the above named assessees were pertaining to the assessee-trust and, therefore, action under Section 158BD was taken against the assessee.
That the due date for filing ,of the return for asst. yr. 1999-2000 was 31st Oct., 1999, while the search took place prior to the above date.
Moreover, the accounting year relevant to the asst. yr. 2000-01 was not expired at the time of search. Therefore, obviously, the due date was much after the date of the search. That the regular returns for both the years were filed by the assessee and they were accepted under Section 143(1)(a). That the income disclosed by the assessee as per P&L a/c in the regular return of asst. yrs. 1999-2000 and 2000-01 were considered as undisclosed income in the block assessment. That the assessee-trust is running a school known as Divine Child School. The assessee has maintained the regular books of account. The receipts from the students were verifiable from the receipt book as well as the bank account of the assessee-trust which was disclosed to the Revenue prior to the search. Similarly, the expenditure incurred by the trust was verifiable with reference to vouchers. That the cash book was complete upto July, 1998. However, the basic record, i.e., the receipt book, bank account and vouchers were available. With the help of these materials, the cash book was written and the P&L a/c was prepared and the return was filed in the regular course. Thus, the income as per P&L a/c is not undisclosed income. In support of this contention, he referred to the definition of "undisclosed income" under Section 158B(b) and Section 158BB(d).
6. The learned Departmental Representative, on the other hand, relied upon the orders of authorities below and she stated that the assessee has not maintained any regular book of account. During the course of search, the cash book found was written upto July, 1998, only while the search took place in the month of June, 1999. Thus, it is evident that the assessee has not maintained any books of account and, therefore, the assessee cannot claim that the income of the accounting year relevant to the asst. yrs. 1999-2000 and 2000-01 was recorded in the book of account prior to the search. These books of account were prepared after the date of search and, therefore, the AO rightly treated this income to be undisclosed income.
7. We have carefully considered the arguments of both the parties and perused the material placed before us. Sec. 158BB(1) provides the method for computation of undisclosed income of the block period.
First, the aggregate of the total income of all the previous years falling within the block period is computed and therefrom various income as provided in Sub-clauses, (a) to (f) are deducted. Sub-clause (d) which is relevant to examine the present controversy reads as under: "(d) where the previous year has not ended or the date of filing the return of income under Sub-section (1) of Section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years." Let us examine the facts of the assessee's case in the light of the above provision. It is undisputed that the due date for filing of the return under Section 139(1) has not expired for asst. yr. 1999-2000 as well as 2000-01. Thus, the only dispute is whether the income of the assessee was recorded in the books of account or other documents maintained in the normal course. In the normal course, the assessee has maintained cash book, ledger, receipt book for the fees received, salary register, vouchers for expenditure, etc. The cash book was written only upto July, 1998, while the search took place in June, 1999. However, admittedly, the receipt of the assessee was fees from the students which was duly recorded in the receipt book. Major expenses were on account of salary which was recorded in the salary register and other expenses by way of vouchers. At pp. 162 to 169, the assessee has given the xerox copy of inventory of the books of account, etc. found and seized. From the perusal of the seized documents, it is evident that the receipt book, salary register, fees account register and a large number of loose papers were found and seized. It was claimed by the learned Counsel that after the date of search, the regular books were prepared on the basis of documents found and seized at the time of search. This statement made by the learned Counsel has not been controverted. In view of above, we agree with the submission of the learned Counsel that the receipt was duly recorded in the receipt book as well as fees register found and seized at the time of search. Therefore, the income which was by way of receipt of fees was found recorded in the other documents maintained in the normal course before the date of search and, therefore, as per Section 158BB(1)(d) the above income cannot be treated as undisclosed income. However, the Revenue is at liberty to consider the same in the regular assessment.
Subject to the above remark, the additions of Rs. 12,80,411 and Rs. 15,61,616 for asst. yrs. 1999-2000 and 2000-01 are deleted.
III. Regarding inflation of expenses of Rs. 5,22,350 for asst yr.
1997-98 8. At the time of hearing before us, it is submitted by the learned Counsel that the AO has concluded that as per p. 26 found at the time of search, the expenses were recorded at Rs. 7,11,400 while as per the audited income and expenses account, the expenses shown are at Rs. 12,33,750. It is explained by the learned Counsel that at the time of search, two loose papers were found. As per one loose paper, only part of the expenses was recorded. He has referred to the xerox copy of the paper enclosed at p. 5 of the paper book and pointed out that in that paper neither the receipt was recorded nor the expenses were totalled.
That in the other loose paper which was also found and seized at the time of search the receipt was recorded and all the expenses were recorded which tallied with the audited P&L a/c. He also pointed out that in the loose paper No. 26 considered by the AO, salary was only Rs. 3,99,450 while the actual salary is Rs. 6,99,450. The payment of salary is verifiable from the salary register maintained by the assessee and which was also found and seized at the time of search. He, therefore, submitted that the addition is not called for. The same may be deleted.
9. The learned Departmental Representative, on the other hand, relied upon the orders of authorities below on this point. However, she alternatively submitted that the matter may be sent back to the file of the AO to verify both the loose papers with reference to salary register as well as the other vouchers for expenses.
10. After considering the facts of the case and the arguments of both the sides, we set aside the orders of authorities below and restore the matter back to the file of AO. We direct him to re-examine the whole issue with reference to salary register and other evidences namely, vouchers for expenses, etc. He will also consider the assessee's claim that when the two loose papers were found simultaneously, why only one loose paper should be considered ignoring the other loose paper specifically when the other loose paper which is being relied upon by the learned Counsel records the receipt as well as expenses both as against loose paper No. 26 relied upon by the learned AO which records only expenses.
IV. Regarding addition of Rs. 7,80,000 for inflation of expenses for asst. yr. 1998-99 11. It is submitted by the learned Counsel that the AO has recorded that as per page No. 34, salary expenses for July, 1997, were Rs. 68,685. He, accordingly, calculated the salary for whole year and disallowed the salary which was in excess of the salary as worked out by him. The learned Counsel stated that the loose paper No. 34 was in respect of the payment being made to Rikshawwalas by the parents. This paper No. 34 does not pertain to payment of salary to the teachers and staff. Payment of salary to the teachers and the staff is verifiable from salary register which was found and seized at the time of search.
The learned Departmental Representative stated that let this contention of the assessee be verified at the end of the AO.12. After considering the arguments of both the sides, wee set aside the orders of authorities below and restore the matter back to the file of AO and direct him to readjudicate this matter after proper verification.
V. Regarding addition for inflation of expenses of Rs. 48,000 for asst.
yr. 1997-98 13. At the time of hearing before us, it is submitted by the learned Counsel that this addition is double addition because the AO has already made the addition of Rs. 5,22,000 for inflation of expenses for asst. yr. 1997-98. The above addition made by the AO included this addition of Rs. 48,000 which was for snacks of Rs. 36,000 and cleaning expenses of Rs. 12,000. The learned Departmental Representative stated that this contention of the assessee also needs verification by the AO.In view of above, we set aside this matter back to the file of AO to be adjudicated as per our direction in para 12 above.
14. We have heard both the parties and perused the material placed before us. We find that the AO has recorded the finding that 25 receipts in receipt book No. B-21 were originally issued for Rs. 2,000.
The receipts were later on changed to Rs. 1,000. When the assessee was asked to explain the above overwriting, it was explained that some of the students did not pay activity fee which is Rs. 1,000 per student, hence on verification of record, the receipts were changed to Rs. 1,000 from Rs. 2,000. At the time of hearing before us, it was asked to the learned Counsel that a receipt is normally issued when the amount is received. If the amount was not received how the receipt was originally issued for Rs. 2,000. The learned Counsel could not give any satisfactory explanation to the query raised by the Bench. The overwriting correction of the receipt is admitted by the assessee. No plausible explanation has been given for the correction in the receipt.
Therefore, we sustain the order of AO on this point.
VII. Regarding addition of Rs. 2,06,000 for suppression of receipt for asst. yr. 1998-99 15. The AO has recorded the finding that from the receipt book found at the time of search, the total collection of the fees for financial year 1997-98 was Rs. 24,11,500. In para 5.3 of the assessment order, the AO has given the complete details of receipt book number, date of receipt and the amount. However, the total fees shown by the assessee for financial year 1997-98 was only Rs. 22,05,500. Therefore, the AO made the addition of Rs. 2,06,000 for suppression of receipts. At the time of hearing before us, it was explained by the learned Counsel that for the fee received once the receipt has been issued twice. He has given the reconciliation of the same at p. 24 of the assessees paper book.
However, the learned Counsel could not satisfactorily explain how receipt can be issued twice if the fee was received only once.
Therefore, we are unable to accept the assessee's explanation that the receipt was issued twice for the fees received once. Accordingly, we uphold the finding of the AO on this point.
VIII. Regarding suppression of receipts of Rs. 62,700 for asst. yr.
1999-2000 16. The AO in para 5.4 of the assessment order has recorded the finding that the collection of fees on the basis of receipt book found and seized was Rs. 22,09,300 for the financial year 1998-99, i.e., asst.
yr. 1999-2000. The collection of fees shown by the assessee was only Rs. 21,46,600. Therefore, the AO made the addition of Rs. 62,700. At the time of hearing before us, it is submitted by the learned Counsel that the collection OF Rs. 62,700 was towards building fund and the same is duly recorded in the building account. Thus, he stated that the receipt is duly disclosed in building fund account. However, this contention of the assessee needs verification at the end of the AO. We direct him to examine this contention of the assessee and thereafter readjudicate on this point.
IX. Regarding addition of Rs. 5,85,400 for suppression of receipts for asst. yr. 2000-01 17. In para 5.5 of the assessment order, the AO has pointed out that the collection of fees as per the receipt book for the financial year 1999-2000 (i.e., asst. yr. 2000-01) was Rs. 19,45,000. However, as per the printout produced before the DDIT during the course of Section 131(1A) proceedings the collection of fees was shown at Rs. 13,59,600.
Thus, there was suppression of fees to the extent of Rs. 5,85,400. At the time of hearing before us, it is submitted by the learned Counsel that in the books of account the fees received at Rs. 19,45,000 is correctly recorded. However, at the time of search there might be some mistake in taking the printout from the computer or may be by that time in the computer all the receipt of fees might not have been feeded, but in the books of account as well as in the regular return for asst. yr.
2000-01, the correct fees have already been recorded. Therefore, there is no question of any suppression of receipt. The learned Departmental Representative relied upon the orders of authorities below.
18. After considering the facts of the case and the arguments of both the sides, we set aside this matter to the file of AO. We direct him to verify with reference to books of account as well as the regular return for asst. yr. 2000-01. If the receipt of fees has been correctly recorded in the books and has been disclosed in the regular return of income, merely because there is some mistake in the printout taken at the time of search, no addition can be made for suppression of receipts. The AO will readjudicate this matter in accordance with law.
X. Regarding addition for unexplained expenses of Rs. 91,354, Rs. 29,400 and Rs. 15,750 relevant to asst. yrs. 1997-98, 1998-99 and 1999-2000 19. At the time of hearing before us, it is submitted by the learned Counsel that the payment for the expenditure of Rs. 91,354 is made by the trustee, Shri Ashak Ali Narsinh. The above amount is already added in the block assessment of Shri Ashak Ali Narsinh and he has accepted the said addition. Similarly, the payment for the expenses of Rs. 29,400 and Rs. 15,750 is made by Smt. Hamidaben, trustee of the assessee-trust. The above amount has been considered in the assessment of Smt. Hamidaben. The learned Departmental Representative fairly admitted that if the above amounts have already been added in the hands of the trustees the same cannot be added in the hands of the assessee-trust. However, she stated that whether the amount has in fact been added in the case of the trustees and whether the trustees have accepted the above additions needs verification. The learned Counsel for the assessee has no objection for sending the matter back to the file of the AO for verification. In view of above, we set aside the orders of authorities below on this point and restore the matter back to the file of AO. We direct him to verify whether the above amounts have been considered as' income in the hands of the trustees and whether they have owned up the above payments. If so, the addition will not be made in the case of the assessee.
20. The AO has made the above addition on the ground that the assessee has purchased 5 air-conditioners for a sum of Rs. 1,02,500 out of which only Rs. 62,500 were paid by cheque and balance amount of Rs. 40,000 was paid by cash. He, therefore, treated the above sum of Rs. 40,000 as unexplained expenses. It is contended by the learned Counsel that the air-conditioners were purchased for the school and whatever was the cost of the air-conditioners was duly debited to the books of account and the same is paid by cheque. The learned Departmental Representative, on the other hand, relied upon the orders of authorities below on this point.
21. After considering the facts of the case and the arguments of both the sides, in our opinion, this matter also needs verification at the end of the AO. The AO will verify the details including the bill issued by the seller of the above air-conditioners and he will also verify from the sellers whether any cash payment was made by the assessee.
Then he will cross-verify the same with reference to the assessee's books of account and will readjudicate the matter in accordance with law.
XII. Regarding compulsory consideration for admission of Rs. 17,54,786 for asst. yr. 1997-98, Rs. 40,18,215 for asst. yr. 1998-99, Rs. 31,08,500 for asst. yr. 1999-2000 and Rs. 1,80,000 for asst. yr.
2000-01.
22. The above additions have been made by the Revenue on the ground that the compulsory consideration was taken by the assessee at the time of admission of the children in the school. The AO has given several examples to prove his point that it was compulsory to give donation at the time of admission and the donation is not voluntary. The learned Counsel for the assessee contended that donation was voluntary and it was taken for the building funds. Therefore, the donation was towards the corpus of the trust fund and hence not the income of the assessee.
The learned CIT--Departmental Representative, on the other hand, relied upon the orders of authorities below and that the donation was, in fact, the admission fee which is being collected by assessee-trust for admission of any child in the school and, therefore, it was in the nature of income.
23. We have heard both the parties and perused the material placed before us. The assessment under consideration is the assessment of block period and Chapter XIV-B of the IT Act provides special procedure for assessment of search cases. As per Chapter XIV-B, the AO has to determine the undisclosed income of the block period. "Undisclosed income" has been defined under Section 158B(b) which reads as under: "(b) 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false." Thus, any money, bullion, jewellery or valuable article or thing or income which has not been or would not have been disclosed for the purpose of IT Act is undisclosed income. It is undisputed that the receipt from the children or their parents by way of donation is duly disclosed by the assessee and recorded in the books of account/receipt books and credited in the bank account of the assessee. The only dispute is whether the donation is voluntary donation or it is a donation towards the corpus of the trust. However, this issue is relevant for working out the exemption under Section 11, if any, claimed by the assessee and allowed to it. So far as the block assessment is concerned, the limited issue before us whether it is undisclosed income or not. In our opinion, when the receipt of donation is duly recorded in the assessee's books of account it cannot be said to be undisclosed income. It is not the case of the Revenue either that the receipt is undisclosed. The dispute of the Revenue is with regard to the nature of the receipt. That the Hon'ble jurisdictional High Court has considered the identical issue in the case of N.R. Paper and Board Ltd. and Ors. v. Dy. CIT . In that case, their lordships have clearly pointed out that block assessment under Chapter XIV-B and normal regular assessment under Section 143(3) are two separate proceedings and both are having different purpose. The AO has to make both the assessments separately. Their Lordships held as under at pp. 742, 743 and 744 of the report : "There is yet another important indication to show that the assessment of undisclosed income is altogether a different matter from the regular assessments. Under Section 158BB of the Act, for computing the undisclosed income of the block period, the AO has to compute the total income of the relevant previous years on the basis of the evidence found as a result of search or requisition of books, of account or documents and such other materials or information as are available with the AO.... Thus, computation of the aggregate of total income of the previous year falling in the block period is not the same thing as the assessment of the total income of the previous year made under Section 143(3) of the Act. Under Section 158BB(1) r/w Section 158BC of the Act, what is assessed is the undisclosed income of the block period and not the total income or loss of the previous year required to be assessed in the normal regular assessment under Section 143(3). Where the AO makes an enquiry to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner and on the basis of the evidence produced by the assessee, the evidence obtained on the specific points and all relevant material which he has gathered assessee's the total income or loss and determines the sum payable thereon as per that assessment. This exercise under Section 143(2) and Section 143(3) for regular assessment stands in contrast to the exercise of the AO under Section 158BB r/w Section 158BC(b), where he has to assess only the undisclosed income of the block period on the basis of the evidence found and material available as a result of the search conducted by the authorised officer under Section 132 of the Act." From the above, it is evident that under Chapter XIV-B, the assessment of undisclosed income is to be made and not of total income. We have also extracted in para No. 7 the definition of undisclosed income under Chapter XIV-B. The receipt which is already disclosed by the assessee in its books of account cannot be said to be undisclosed income. The above decision was applied by the Hon'ble jurisdictional High Court in the case of CIT v. Shambhulal C. Bachkaniwala . At p.
491 of the reports their lordships referred to the decision of N.R.Paper and Boards Ltd. (supra) and observed as under : "...that while framing the block assessment under Section 158BC of the Act, undisclosed income detected as a result of search can be taxed only on the basis of the material found during the course of search and the AO was not justified in recomputing the total income of the assessee for the various assessment years in the block assessment for which regular assessment is required to be made under Section 143(3) of the Act." Thus, under the block assessment, the AO is not permitted to determine the total income of the assessee but he has to determine only the undisclosed income. The learned Departmental Representative could not establish how the donation received by the assessee which is duly recorded in the books of account can be considered as undisclosed income. Therefore, respectfully following the above decision of Hon'ble jurisdictional High Court, we hold that the donations received by the assessee for the admission to the students which are recorded in the assessee's books of account are out of the purview of the block assessment. However, before we part with, we make it clear that as held by the Hon'ble jurisdictional High Court in the case of N.R. Paper and Boards Ltd. (supra), the AO is at liberty to make the regular assessment of the respective assessment year and determine the total income of the respective assessment year in accordance with law.
Subject to the above remark, the addition made for the donations received by the assessee treating the same as income of the block period is deleted.
XIII. Regarding unexplained cash credit of Rs. 22,96,385 for asst. yr.
1999-2000 and Rs. 9,17,500 for asst. yr. 2000-01 24. The facts of the case are that the AO found that the donation received towards building fund shown in the books of account was Rs. 54,04,885 and Rs. 10,97,500 for the accounting year relevant to the asst. yrs. 1999-2000 and 2000-01, respectively, while as per the donation receipts found during the course of search the donation received by the assessee was Rs. 31,08,500 and Rs. 1,80,000, respectively, in the accounting years relevant to the asst. yrs.
1999-2000 and 2000-01. The difference between the receipt of donation as per cash book and as per receipts is treated as unexplained cash credit. It is contended by the learned Counsel that when the donation is already recorded in the cash book, it does not remain undisclosed income. While explaining the reasons for the difference he stated that sometimes the parents do not take the receipt immediately and some of the receipt books might have been lost, but the fact remains that the receipt is duly recorded in the book of account and merely because the receipt book is lost/misplaced, it cannot be said that it is undisclosed income. We have already considered this issue at length and after the detailed discussion in para 23 of this order, we have come to the conclusion that in the block assessment, the AO has to assess the undisclosed income. The receipt of donation is already recorded in the cash book under the head "donation towards building fund". Thus, it does not remain the undisclosed income for the purpose of block assessment. Therefore, respectfully following the decisions of the Hon'ble jurisdictional High Court in the cases of N.R. Paper and Board Ltd. (supra) and Shambhulal C. Bachkaniwala (supra), we delete the additions of Rs. 22,96,385 and Rs. 9,17,500 for asst. yrs. 1999-2000 and 2000-01, respectively.
25. We have heard both the parties and perused the material placed before us. That as per the books of account found from the assessee's premises the income of the assessee-trust for the financial year 1995-96, i.e., relevant to the asst. yr. 1996-97 was Rs. 3,78,093. It is fairly admitted by the learned Counsel that no return for asst. yr.
1996-97 was filed by the assessee. Since the assessee had taxable income in asst. yr. 1996-97 and it did not file any return of income, therefore, in our opinion, the above income was rightly considered as undisclosed income by the AO for the purpose of block assessment.
Accordingly, the addition of Rs. 3,78,093 for asst. yr. 1996-97 is upheld.26. The AO has denied the exemption to the assessee-trust under Section 10(22) and 10(23C) on the following grounds : (i) That from the objects of the trust it is clear that the trust does not exist solely for the purpose of education.
(ii) That the income of the trust is not exclusively from educational activity because during the course of search, the assessee-trust was found to have had income from undisclosed sources which has been taxed under Sections. 68 and 69C of the IT Act.
(iii) That the assessee has collected compulsory donation for the admission of the students which is against the norms fixed by the Education Department for the running of educational institutions.
27. The learned Counsel for the assessee argued at length. At the outset, he contended that in the block assessment, the AO cannot deny exemption under Section 10(22)710(230) which is already allowed in the regular assessment. On merits, he contended that the assessee-trust is an educational institution. It is existing solely for the purpose of education and not for the purpose of profit. He stated that the object of the trust is only educational object and the other objects as pointed out by the AO in para 10.3.iii of the assessment order are also incidental to education. In any case, the assessee is only running the educational institution during the entire block period and the other objects, if any, other than education are not being pursued by the assessee and, therefore, the denial of exemption under Section 10(22) on the ground that the object clause includes other objects is not justified. He further contended that the assessee-trust is running the educational institution as per the norms laid down by the Education Department and it has not violated any norms fixed by the State Government for running of the educational institutions. He pointed out that the education officer has conducted enquiry with regard to the allegation of compulsory donation being collected by the assessee. Copy of the letter of the education officer is placed at p. 195 of the assessee's paper book. The assessee gave reply on 29th July, 1998, copy of which is placed at pp. 192 and 193 of the assessee's paper book.
After considering the above reply and the enquires conducted by the education officer, he was satisfied that the assessee has not violated the norms fixed by the Education Department for running of educational institutions and, therefore, no action was taken against the assessee.
The assessee is still continuing to have the licence to run the educational institution from the Education Department of the State Government. Moreover, the Surat Municipal Corporation (SMC) has allotted land to the assessee-trust for constructing the building for the school. The above land was earmarked by the SMC for the educational use. The allotment of land to the assessee-trust by the SMC clearly proves that the assessee-trust is running the educational institution as per the norms fixed by the Education Department. The assessee has constructed the building on the above land allotted by the SMC. That the donation was accepted by the assessee towards the building fund because it needed huge funds for the purchase of land from the SMC and for the construction of building thereon. However, such donation was wholly voluntary and not compulsory donation. That the education officer had informed the assessee that some of the parents have complained about the compulsory donation collected from them. However, the assessee has furnished the confirmation from all the parents before the education officer stating that the donation given by them was voluntary. He further submitted that the money received by way of donation was duly recorded and utilised for the purpose of purchase of land from SMC and construction of building thereon. The above building is utilised for running of the school. Thus, the donation is utilised for educational purposes and the allegation of the AO that the assessee has undisclosed income and, therefore, it is not existing for educational purposes is contrary to the facts on record. In fact, the AO has treated the donation towards building fund as undisclosed income while the entire donation was duly recorded in the books of account utilised for the purpose of purchase of land/construction of building and thus, utilised for educational purpose. That there is no unexplained expenditure by the assessee. Unexplained expenditure, if any, is done by the trustees and addition for the same has already been made in the case of trustees. There is not a single instance of utilisation of the trust money for other than educational purposes. In view of above, he submitted that the assessee-trust be allowed exemption under Section 10(22)/10(23C). In support of his contention, he relied upon the following decisions : (i) Aditanar Educational Institution, Etc. v. Addl. CIT (ii) Governing Body of Rangaraya Medical College v. ITO Lancer Army School Society v. Asstt. CIT, IT(SS)A No. 39/Ahd/2004 [reported at (2004) 90 TTJ (Ahd) 1024--Ed.].
28. The learned Departmental Representative, on the other hand, relied upon the orders of authorities below. She stated that the trust does not keep true and faithful record of its receipts and the expenditure.
The trust has collected huge money while no regular records for such money collected by the assessee are kept. The settlor himself is a trustee and other trustees are also related to the settlor. In the building constructed by the assessee-trust on the ground, first and second floors, the school is being run while the trustees reside at the third floor of the school. Before the creation of this trust, the trustees were doing the tuition. The learned Departmental Representative contended that from the totality of the above facts, it is clear that the object of the trust is not the education but to make profit.
29. In the rejoinder, it is submitted by the learned Counsel that the trustees had been interest in the educational activities. The trustee is the principal of the school and he is residing on the third floor of the school to properly lookafter and maintain the school. The learned Counsel reiterated that the assessee-trust is existing solely for educational purposes and not for the purpose of profit. Some surplus which arose was incidental to the educational activities and such amount was also utilised for the educational purposes.
30. We have carefully considered the arguments of both the parties and perused the material placed before us. In para 23 above, we have referred to the decision of the Hon'ble jurisdictional High Court in the case of N.R. Paper and Board Ltd. (supra), wherein their lordships have held that under Chapter XIV-B, the AO has to determine the undisclosed income of the block period and not the total .income of the previous year which is required to be assessed in the regular assessment under Section 143(3). In para 23 above, we have also extracted the definition of undisclosed income under Section 158B(b).
The definition of undisclosed income was enlarged by the Finance Act, 2002, with retrospective effect from 1st July, 1995. By the above amendment the following words were included in the definition of undisclosed income : "or any expense, deduction or allowance claimed under this Act which is found to be false".
Thus, after the amendment by the Finance Act, 2002, while making the assessment of undisclosed income, the AO may disallow any expense, deduction or allowance claimed by the assessee which is found to be false on the basis of material found during the course of search.
Therefore, the precise question is whether during the course of search, the Revenue has found any material to hold that the exemption claimed under Section 10(22) was false. Sec. 10(22) as it stood at the relevant time, provides "any income of a university or other educational institutions, existing solely for the educational purposes and not for the purpose of profit". In the case under consideration before us, the assessee is educational institution because it is running a school.
Now, the only dispute is whether it is existing solely for educational purposes and not for the purpose of profit. Since the assessee is not doing any other activity, it is also not in dispute that it is existing solely for educational purposes. But whether the pre-dominant object of running an educational institution is profit or not is the main controversy for allowing or disallowing the exemption under Section 10(22). That the assessment under consideration is for a block period consisting of 1st April, 1989 to 29th June, 1999. The Hon'ble apex Court in the case of Aditanar Educational Institution (supra) has held as under: "The language of Section 10(22) is plain and clear and the availability of the exemption should be evaluated each year to find out whether the institution existed during the relevant year solely for educational purposes and not for the purposes of profit. After meeting the expenditure, if any surplus results incidentally from the activity lawfully carried on by the educational institution, it will not cease to be one existing solely for educational purposes since the object is not one to make profit. The decisive or acid test is whether on an overall view of the matter, the object is to make profit. In evaluating or appraising the above, one should also bear in mind the distinction/difference between the corpus, the objects and the powers of the concerned entity." Thus, whether the assessee is entitled to exemption under Section 10(22) or not should be evaluated each year and a decision for the whole block period of 10 years cannot be taken: Moreover, it has been pointed out by the learned Counsel that the assessee has already filed the returns upto asst. yr. 1998-99 prior to the search and in those years exemption under Section 10(22) was allowed by the Revenue. In the block assessment, exemption can be denied only if it is found on the basis of material found at the time of search that the claim of the assessee for exemption under Section 10(22) is false. In the case under consideration before us, the Revenue has not been able to prove that the claim of exemption under Section 10(22) by the assessee was false.
It is running an educational institution is not in dispute. In the regular assessment for which return was filed prior to the search, the Revenue has accepted that it is existing solely for educational purposes and not for the purpose of profit. In the block assessment, the AO is taking a different view than what was taken in the regular assessment and has come to the conclusion that it is existing for the purpose of profit. However, in our opinion, mere change of opinion will not bring the assessee's case within the ambit of "false" claim by the assessee. The Revenue has alleged that the assessee has charged compulsory donation. However, on the enquiry conducted by the Education Department this allegation is not found to be correct. It was also pointed out by the learned Counsel that the assessee-trust is also registered as a charitable institution under Section 12A with the CIT.The donation to the assessee-trust is exempt under Section 80G. The registration under Section 12A and exemption under Section 80G have not been revoked by the CIT after the search and even after the block assessment. We find that the Tribunal, Ahmedabad Bench, has considered the similar issue in the case of Lancer Army School Surat v. Asstt. CIT vide IT(SS)A No. 39/Ahd/2004 (supra). One of us (JM) is party to that order. In that case, the Tribunal held as under : "33. After careful consideration of the rival submissions, we are inclined to reverse the finding of the learned CIT(A) and hold that there is no ground for the AO to deny exemption under Section 10(22) of the Act while making the block assessment. Section 10(22) is an exemption provision and has been enacted by the legislature so as to advance the cause of education. It is well-settled that liberal and strict construction of an exemption provision are to be invoked at different stages of interpreting it. When the question is whether a subject falls in the ambit of the exemption clause, then it being in the nature of exemption, is to be construed strictly. But once ambiguity about the applicability is visited, full play should be given to the exemption clause and it calls for a wider and liberal construction keeping in view the purpose underlying. Exemption from tax granted by the statute should be given full scope and amplitude and should not be whittled down by importing limitation not inserted by the legislature. Viewed in the backdrop of the aforesaid legal position, Section 10(22) clearly confers exemption on the income of an educational institution which is run for educational purposes and not for purposes of profit. The language of Section 10(22) is plain and clear and the availability of the exemption would essentially depend upon the objects of the institution being promotion of education and not personal benefit of the organisers. In the instant case of the assessee-trust, admitted facts are that the trust running the school is registered as a public charitable trust under the Bombay Public Trusts Act, 1850, and is also registered as a society under the Societies Registration Act. The running of the school by the trust is thus subject to close monitoring and supervision of the Charity Commissioner under the Public Trusts Act as well as the Registrar under the Societies Registration Act. Apart from this monitoring mechanism, the school is recognised by the Board of Secondary Education, Gujarat State, and is required to abide by the rules and regulations in the matter of fees structure as well fulfilling all the other requisites concerning the organisational infrastructure of the institution. From the facts on record, it is evidently clear that accounts of the school are being audited from year to year and audit reports along with the statement of accounts are duly filed with the returns of income by the assessee-trust from year to year. No allegations of embezzlement or misappropriation of funds by the trustees or principal appear to have been made either by the Charity Commissioner of by the Registrar of Societies. With regard to the veracity of the accounts also audit reports prepared by the auditors do not bring out any such misappropriation on the part of the management. Regarding the reasons cited by the AO in support of denial of exemption, we feel that the block assessment order abounds in glaring contradictions and inconsistencies which directly impinge upon the correctness of the reasoning adopted by the AO. On the one hand, the AO records the finding that expenses on rent for the school premises have been met out of unaccounted donations and further that trust fund has been credited in the books by non-genuine donations, the AO also records a finding that the principal and the trustees have misappropriated the funds of the school." The facts in the case under appeal before us are also identical. In this case also, the trust running the school is registered as public charitable trust under the Bombay Public Trust Act, 1850. The school is recognised by Board of Secondary Education, Gujarat State, and is required to abide by rules and regulations of the State Government with regard to running of educational institutions. There is no allegation of embezzlement or misappropriation of trust funds by the trustees or the principal. There is some irregularity in the maintenance of regular books of account. However, it was explained by the learned Counsel that the trustees are basically teachers and they are not well versed in maintaining the accounts. The job of maintenance of books of account was left to the clerical staff who committed certain irregularities.
However, merely because there is some irregularity in the maintenance of accounts that by itself would not be sufficient to hold that the claim of exemption of the income under Section 10(22) was false. To conclude, we find that the assessee is an educational institution and its claim under Section 10(22) is not found to be false on the basis of search. Therefore, we hold that while adjudicating the income of the block period, the AO will follow the view taken by the Department in the assessments of respective assessment years, i.e., if in the regular assessments of any assessment year or years, exemption under Section 10(22) was allowed then while determining the income of the block period in respect of such assessment year/years exemption under Section 10(22) will be allowed and vice versa.
31. At the time of hearing before us, both the parties stated that their arguments with regard to exemption under Section 11 are the same as were made by them with regard to exemption under Section 10(22). We have already considered the arguments of the respective parties in detail while adjudicating about the claim of exemption under Section 10(22)/10(23C). For the detailed discussion, we direct the AO to follow the finding of regular assessment, i.e., to allow exemption under Section 11 in the years in which it is allowed in regular assessments of such years.
32. At the time of hearing before us, it is submitted by the learned Counsel that the above income was as per P&L a/c enclosed along with the return of income for asst. yr. 1997-98 which was filed prior to the search. Therefore, it cannot be treated as undisclosed income.
33. The learned Departmental Representative, on the other hand, stated that in the assessment for asst. yr. 1997-98, the above income was treated as exempt under Section 10(22). Since in the block assessment, the exemption under Section 10(22) is denied, therefore, the addition is made for the above income.
34. We have carefully considered the arguments of both the parties and perused the material placed before us. While disposing of the ground with regard to exemption under Section 10(22), we have already concluded that if in the regular assessment exemption under Section 10(22) is allowed, the same cannot be withdrawn in the block period unless the claim of the assessee is found to be false. We have also come to the conclusion that the Revenue has not been able to prove that the claim of the assessee for exemption under Section 10(22) was false.
In view of above, we hold that when in the regular assessment for asst.
yr. 1997-98 exemption under Section 10(22) was allowed there was no justification to refuse the same in the block assessment for the income of asst. yr. 1997-98. Accordingly, the addition of Rs. 3,31,250 is deleted. 35. In the result, the assessee's appeal is partly allowed.