Commissioner Of Income Tax (Central), Ludhiana v. M/S. Maharishi Markandeshwar Education Trust

IN THE HIGH COURT OF PUNJAB AND HARYANA AT|CHANDIGARH ITA No.614 of 2010DATE OF DECISION: October 21,2015 Commissioner of Income Tax (Central), Ludhiana ... Appellant. Versus M/s. Maharishi Markandeshwar Education Trust waa ReSpOndent ITA No.841 of 2010DATE OF DECISION: October 21,2015 Commissioner of Income Tax (Central), Ludhiana .. Appellant Versus M/s. Maharishi Markandesnhwar Education Trust vane RESPONdent CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE RAMENDRA JAIN Present: Mr.Rajesn Sethi, Advocate for the appellant. Mr.Ravi Snankar, Advocate for the respondent. | RAMENDRA JAIN,J. By this judgment, we shall dispose of two IT Appeals Nos. 614 and 841 of 2010, in wnich common questions of law nave arisen. for determination by tnis Court. These appeals have been filed by the Commissioner| of Income Tax (Central) Ludhiana against the orders dated| 30.10.2009 (Annexure A.3) passed by the Income Tax Appellate Tribunal, Delhi Bench E’, New Delhi (for short, the Tribunal’). Before discussing the general law governing the subject, itis appropriate to summarized the facts as under: ITA NO.614 OF.9010 Therespondent-assesseeWas!.''%'?nine|educational institutions. On 7.9.2005, a search and seizure|operation under section 132(1) of the Income Tax Act (for|short, the Act’) was carried out in the premises of the trust(inshort, the assessee’). During this operation, certain bogus.casn receipts amounting toL18,67,2/7/7/- were seized. On1.8.2006, a notice under section 153-A of the Act was issued to the assessee to furnish the return of income. In response|thereto, the assessee furnished return of income deciaring net|loss ofL16,44,05,110/-. Subsequently, the assessee was—served with questionnaire and notices under sections 142(1)|and 143(2) of the Act which were duly replied. Dis-satisfied|with the material/evidence produced by the assessee, the|Assessing Officer inferred that the assessee failed to explain thecash receipts amounting to 718,6/7,22/7/- in the books of account,by relying upon the statements of Accountants recorded duringsearcn that these bogus receipts were generated in the fictitious”name tn order to cover the aforesaid deficit for the year 2003-04. That being so, an adaition:oT|418,67,227/- under section 68 )16,25,37,883/- for the assessment year 2004-05 vide order.dated 31.12.2007. Penalty notice under Section 274 of the Actfor default under section 2/71(1)(c ) of the Act was ordered to beissued separately. ITA NO.841 OF 2010 During the above very search operation on 7.9.2005,|certain documents, inciuding the details of salary paid to the|doctors/staff by cash, in addition to salary paid by cheque were|seized in the institution of the assessee. Inventory of cash|drawn and the cash amounting to.413,98,4/76/- was found atthe college premises. In the return filed on 31.10.2006, the|assessee declared net loss of422,03,50,033/-. The assesseewas served with questionnaire and notices under Sections|142(1) and 143(2) of the Act which were duly replied. On|appreciation of material/evidence, the Assessing Officer inferredthat the amount ot <44,/70,372/- was pald as salary from theunexplained source, while relying upon the statements ofDr.R.P.Aggarwal and Dr.S.K.Ahiuwalia recorded during search.Dr.R.P.Aggarwal had admitted in nis statement that an amountof <12,000/- per month was paid to him in cash, over and above.to his salary, whereas, against his name mentioned at page 1,3and 5 of document No.A-37 a sum of <28,000/- was mentioned. In this very document No.A-37, an amount of=16,000/-—appearedCOnavepeen|paid against.the.nameoF In this very document No.A-37, an amount of=16,000/-—appearedCOnavepeen|paid against.the.nameoF Dr.R.P.Aggarwal of416,000/- per month and further mentioningof=16,000/- against the name of Dr.S.K.Anluwalia in document|A-37 was considered by tne Assessing Officer as it has been|paid from unexplained source. The list annexed with document.A-37 containing the names of 74 doctors. Hence, taking into|consideration the difference of748, 000/- In the statement ofDr.R.P.Aggarwal and further ~48,000/- on account of denial byDr.S.K.Ahluwalia out of total amount reflected in the sneets as.per A-3/7 for three months, the Assessing Officer made anadaition of *44,70,372 under Section 69-C treating this as anamount paid out of books of account vide order dated31.12.2007. Penalty notice under Section 274 of the Act fordefault under section 2/71(1)(c ) of the Act was ordered to beissued separately. Both the said assessment orders dated 31.12.2007 weremade subject matter of challenge beforethe Commissioner ofIncome Tax (Appeals )-I, Ludhiana. Vide order dated 7.4.2008 (Annexure A-2) in ITA|No.614 of 2010, learned CIT(A) set aside, holding that additionOT|<18,6/,22//-under Section 68 of the Act was not legallysustainable, inasmuch as, the statements of Accountants do not|substantiate that the aforesaid alleged receipts were bogus|because the receipts were duly found entered in the books of.account and also in the balance sheet showing that the amount|was deposited with the trust, wnich is registered under Section| 12AA of the Act. Therefore, the aforesaid addition under|Section 68 of the Act was ordered to be deleted. Dis-satisfied |with tne aforesaid order dated /7.4.2008, the revenueapproached the Income Tax Appellate Tribunal (Delhi Bench E’New Delhi), who dismissed its appeal vide order dated.30.10.2009 affirming the findings of CIT(A). Vide order dated 8.4.2008 (Annexure A-2) in ITA)No.841 of 2010, the learned CIT(A) set aside the addition of|<44,70,372/- made by assessing officerUnder Section 69-C of.the Act for lack of legal credibilities. The main focus todisagree and negate the view taken by the Assessing Officer|was that he had placed reliance on the statements of two)doctors, namely, Dr.S.K.Ahluwalia and Dr.R.P.Aggarwal, who|were considered to have not Deen made any payment in cashn,though|paymentof412,000/-WaspaidIn|casntODr.R.P.Aggarwal as per his admission before the Assessing|Officer and in the seized documents, a sum of.416,000/- wassnown to Nave been paid in cash to Dr.S.kK.Anluwalia. The)learned CIT(A) came to the conclusion that remaining 72)doctors could not have been made payment in casn in view of|the affidavits furnished by them, before the Assessing Officer,|especially wnen they were not examined. Even the revenue Nas|failed to prove the unexplained expenditure. Accordingly, it|ordered for deletion of addition made by the Assessing Officer. The revenue approached the Income Tax Appellate Tribunal|(Delhi BenchE’ New Delhi), who dismissed the appeal videorder dated 30.10.2009. Additionally, it came to the conclusionthat if, the amount is added as unexplained expenditure, still|the character of the expenditure incurred was on the object otfthe trust and that being so, the assessee was entitled to claim|deduction while computing its income under Sections 11 and 12of the Act. Now the revenue has approached this Court|challenging the orders dated 30.10.2009 passed in both the|cases by the ITAT, Delhi. _ From the respective pleadings and the stands|taken by both the parties, following points emerge for|consideration: *(,Whether the addition of |=18,6/7,22/7/- made undesection 68 of the Act by the Assessing Officer Is legal2section 68 of the Act by the Assessing Officer Is legal2 (D)Whetherthecasn.payment.OT Salary|as|unexplained expenditure falls under section 69C of.the Act?unexplained expenditure falls under section 69C of.the Act? Re: Point No. 1 Learned counsel appearing for the revenue submitted that the revenue has rightly invoked the provisions of Section| Now the revenue has approached this Court|challenging the orders dated 30.10.2009 passed in both the|cases by the ITAT, Delhi. _ From the respective pleadings and the stands|taken by both the parties, following points emerge for|consideration: *(,Whether the addition of |=18,6/7,22/7/- made undesection 68 of the Act by the Assessing Officer Is legal2section 68 of the Act by the Assessing Officer Is legal2 (D)Whetherthecasn.payment.OT Salary|as|unexplained expenditure falls under section 69C of.the Act?unexplained expenditure falls under section 69C of.the Act? Re: Point No. 1 Learned counsel appearing for the revenue submitted that the revenue has rightly invoked the provisions of Section| 68 of the Act, inasmuch as, the assessee failed to establish the genuineness, creditworthiness and identity of the cash credits| and, therefore, addition of418,67,22/7/- under the aforesaid section in the total income of the assessee had rightly been|made. Moreover, it makes no difference, if the receipts formingpart of income are taken as donation or unexplained credit.Thus, the orders passed by the Appellate Authorities below are|llable to be set aside. | On the other hand, learned counsel appearing for theassessee submits that the Appellate Authorities below have|rigntly dismissed the claim of the revenue holding that the|assessee has duly proved that the proper entries were made inthe relevant registers showing the deposits of the amount withthe trust. Thus, the appeal of the revenue be dismissed. We have given our thoughtful consideration to the|arguments of learned counsel for the parties. In the present case, the premises of the trust was|searched on /7/.9.2005. During searcn, donation receiptsamounting to418,67,2/77/- were seized. No particulars or|addresses were detailed out in the cash receipts. Statements ot |Shri D.K.Bansal, Senior Accountant and Shri Yashpal Ananda,Accountant were recorded, who stated that whenever the|assessee society has negative cash balance, the Chairman of|the Trust has instructed to divert cash by preparing fake cash|receipts. However, later on, by furnishing affidavits, both the|above persons Nave resiled from their earlier versions. The]Assessing Officer did not place reliance on their resiled version, inasmuch as, their earlier statements lacks any duress or.tnreat. The respondent assessee is a registered trust under|Section 12AA of the Act and, therefore, it is claiming exemptionunder Sections 11 and 12 of the Act. However, when it Is.establisned that the receipts form part of income and found|mentioned in the account books, in that eventuality, unless anduntil, there is any material/evidence on record to show that theamount was spent on the object of the trust, it is not deductible.Re: Point No.2. Learned counsel for the revenue submitted that thepayment of salary in cash, over and above the cheque amount,was made to the doctors/staff which even did not reflect in the|books of account. Tnat being so, a sum of444,74,372/- is to beconsidered as income for the financial year under Section 69C of the Act. On the other nana, learned counsel appearing for theassessee submits that the two Appellate Authorities below naverigntly dismissed the appeal of the revenue. In the instant case, the authorities below observed.that|SINCe CWO.doctors,namely,Dr.S.K.AhnluwalliandDr.R.P.AgGgarwal were considered to have not been made anypayment in cash and made payment ofL12,000/- instead of=28,000/- in cash, therefore, the appellate authority came to Learned counsel for the revenue submitted that thepayment of salary in cash, over and above the cheque amount,was made to the doctors/staff which even did not reflect in the|books of account. Tnat being so, a sum of444,74,372/- is to beconsidered as income for the financial year under Section 69C of the Act. On the other nana, learned counsel appearing for theassessee submits that the two Appellate Authorities below naverigntly dismissed the appeal of the revenue. In the instant case, the authorities below observed.that|SINCe CWO.doctors,namely,Dr.S.K.AhnluwalliandDr.R.P.AgGgarwal were considered to have not been made anypayment in cash and made payment ofL12,000/- instead of=28,000/- in cash, therefore, the appellate authority came to the conclusion that remaining 72 doctors could not nave been|made payment in cash in view of the affidavits furnished by them, especially, when they were not examined before the|Assessing Officer. Additionally, ITAT came to the conclusion|that if the amount is added as unexplained expenditure, still thecnaracter of the expenditure incurred was on the object of the|trust and therefore, the assessee is entitled to claim deduction|while computing its income under Sections 11 and 12 of the Act.Be that as it may, the findings of the authorities below are not.legally sustainable, because the material/evidence of the.revenue was discarded merely on the premise that since the|aforesaid two doctors were not found to be paid salary in casn|or partly paid, over and above the cheque amount, as depictedabove, therefore, the remaining 7/72 doctors were alsconsidered to be not paid salary in cash, which is factually andlegally incorrect. Furnishing of affidavits by 72 doctors denyingthat they did not get the salary in cash does not mean that thecontent of the concepts remain static. The entire evidence is tobe considered, while adjudicating the matter. Without|examining the concerned doctors/staffs, as to how it can be|inferred that they were to be considered not paid salary in.cash, over and above the cheque amount. However, this fact islacking in this case. Thus, the findings of ITAT that assessee|being a trust, the unexplained expenditure is not chargeable. under sections 11 and 12 of the Act are not legally correct,|because under proviso to section 69C of the Act amount whichwas unexplained expenditure was to be added to the incomeof |the assessee over and above the income declared by the|assessee and Shall not be allowed as a deduction under any|nead of income. Conclusion Re: Points Nos.1 and 72 In view of the aforesaid discussion, we find that this.aspect of the matter nas not been considered by the two|Appellate Authorities below in the light of the aforesaidobservations and accordingly, the present appeals are allowed.Theordersdated7.4.2008/8.4.2008|and.30.10.2009,Annexures A.2 and A.3, respectively, are set aside and the|matter is remanded back to the Commissioner of Income Tax.(Appeals)-I, Ludhiana for taking fresh decision in the light of.aforesaid observations without being influenced by the earlier|orders. The CIT(A) shall decide the matter afresn in|accordance with law. The appeals stand disposed of according. — (RAMENDRA JAIN)JUDGE JUDGE| (AJAY KUMAR MITTAL)