IN INCOME TAX APPELLATE TRIBUNAL BENCH, CHENNAI BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IT (SS) No.14/Mds/2015 Block Assessment Period from 01.04.1999 to 13.01.2000 Shri P.Chinnadurai, v. Deputy Commissioner of S/o. Parasuraman, Income tax, No.23, Railway Colony 2nd Street, Central Circle I(3), Nelson Manickam Road, Chennai 600 034. Aminjikarai, Chennai 600 029. PAN : AABPC6070D (Appellant) ( Respondent) IT (SS) No.15/Mds/2015 Block Assessment Period from 01.04.1989 to 12.08.1999 Deputy Commissioner of v. M/s.Jaisakthi Educational Trust, Income tax, No.23, Railway Colony, II Street, Central Circle I(3), Nelson Manickam Road, 46, Nungambakkam High Road, Chennai 600 029. Chennai 600 034. PAN : AAATJ0281A (Appellant) ( Respondent) Assessees by : Ms. S.Jayashree, C.A. Department by : Mr.Shiva Srinivas, JCIT Date of Hearing : 04.08.2016 Date of Pronouncement : 07.10.2016 2 I.T.(SS).A. Nos.14 & 15/Mds/2015 O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: This appeal by assessee and revenue are directed against order of CIT(A) -18, Chennai dated 08.06.2015 and pertains to Block Period 01.04.1989 to 13.01.2000 and 01.04.1989 to 12.08.1999 respectively. 2. Shri Shiva Srinivas, learned department representative submitted that there was search in premises of managing trustee of asessee Shri P.Chinnadurai on 13.01.2000. During course of search operation, several incriminating material were found. Therefore, proceeding was initiated against trust in IT(SS)A No.15/2015 under Section 158BD of Act. Proceedings under Section 153C was against Shri P.Chinnadurai against IT(SS)A No.14/Mds/2015. In course of assessment proceeding, Assessing Officer made addition in hands of Shri Chinnadurai, assessee in IT(SS)A No.14/Mds/2015 on substantive basis. However, protective assessment also was made in hands of M/s.Jaisakthi Educational Trust in IT(SS)A No.15/Mds/2015. 3. On appeal by assessee before CIT(A), order of Assessing Officer was confirmed in case of Shri P.Chinnadurai. Consequently, protective assessment made in hands of M/s.Jaisakthi Educational Trust was vacated. According to learned department representative, revenue has filed appeal against order of CIT(A) apprehending that in case, 3 I.T.(SS).A. Nos.14 & 15/Mds/2015 addition made in hands of Shri P.Chinnadurai is to be deleted then it has to be added as income in in hands of M/s.Jaisakthi Educational Trust. 4. Coming to merit of appeal, learned department representative submitted that during course of search operations several incriminating materials were found. first issue arises for consideration is addition of Rs.1,54,25,000/- as undisclosed income of assessee. According to learned representative, Assessing Officer made addition of Rs.1,69,27,000/- as undisclosed income. However, CIT(A) found that advance said to be refunded by Shri Bhoopalan has to be assessed only in hands of Shri P.Chinnadurai to extent of Rs.1,54,50,000/-. CIT(A) found that accounts was written off subsequent to search. Therefore, claim of assessee that Shri Bhoopalan refunded advance given by trust is afterthought. Therefore, it was rightly rejected by CIT(A). Moreover, for purchasing land Shri P.Chinnadurai took loan of Rs.3 crores in his individual capacity from UCO Bank. When Shri P. Chinnadurai took loan and made advance for purchase of land, refund made by said Shri Bhoopalan has to be taken only in hands of P.Chinnadurai and not in hands of trust. Therefore, CIT(A) has rightly found that substantive assessment has to be made in hands of Shri P.Chinnadurai. 5. Referring to unauthorized collection of donation to extent of Rs.41,15,400/- from students, learned department representative submitted that assessee could not produce any material evidence to 4 I.T.(SS).A. Nos.14 & 15/Mds/2015 suggest that collection of donation was not from students. Since, Shri P.Chinnadurai collected money according to learned representative, CIT(A) has rightly confirmed addition. Referring to addition of Rs.16,56,000/, learned Department Representative submitted that assessee claimed that above said Rs.16,56,000/- was paid to Shri Bhoopalan. Though assessee claimed before CIT(A) that above said amount was initially advanced out of borrowed funds, amount was borrowed only by Shri P.Chinnadurai and not by trust. Therefore, CIT(A) has rightly confirmed addition made by Assessing Officer. 6. On contrary, Ms.S.Jayashree, learned representative for assessee submitted that Shri P.Chinnadurai, assessee in IT(SS)A No.14/Mds/2015 is Managing Trustee of M/s.Jaisakthi Educational Trust, assessee in IT(SS)A No.15/Mds/2015. Admittedly, there was search operation in premises of Shri P.Chinnadurai on 12.08.1999 and on 13.01.2000. Assessing Officer initiated assessment proceedings against Shri P.Chinnadurai under Section 158BC. Simultaneously, assessment proceedings also was initiated against M/s.Jaisakthi Educational Trust under Section 158BD of Act. According to learned representative, assessee trust namely M/s.Jaisakthi Educational Trust was established for managing several educational institutions. During year under consideration, assessee has received refund of advance given to Shri Bhoopalan for purchasing land. According to learned representative, assessee intended to purchase land at Varadharajapuram for establishing new engineering college. assessee borrowed Rs.3 crores from UCO Bank. 5 I.T.(SS).A. Nos.14 & 15/Mds/2015 assessee has also paid sum of Rs.3,29,54,500/- as advance to Shri Bhoopalan. Since there was difficulty in procuring land to extent of 50 acres, assessee was ultimately managed to purchase 25 acres of land at rate of Rs.6,00,000/- per acre. assessee has paid total consideration of Rs.1,50,50,000/-. sum of Rs.52,20,050/- was paid in cheque. Balance amount of Rs.97,79,950/- was in fact paid by cash. According to learned department representative, balance amount was used for construction of college building. Referring to sworn statement recorded from Shri P.Chinnadurai on 12.08.1999 under Section 132(4) of Act, learned representative for assessee submitted that Shri P.Chinnadurai explained before revenue authorities that land was purchased by M/s.Jaisakthi Educational Trust for purpose of starting engineering college at Varadharajapuram. fact that sum of Rs.1,54,25,000/- was refunded by Shri Bhoopalan is not dispute. CIT(A) rejected claim of assessee only on ground that account was written subsequent to date of search. 7. According to learned representative, when fact that refund was made by Shri Bhoopalan is not dispute merely because books of accounts were written subsequent to date of search cannot be reason for rejecting claim of assessee. managing trustee took loan on behalf of trust. Therefore, addition made by assessing officer which was confirmed by CIT(A) has to be deleted. 6 I.T.(SS).A. Nos.14 & 15/Mds/2015 8. We have considered rival submissions on either side and perused relevant material available on record. managing trustee of M/s.Jaisakthi Educational Trust filed appeal against order of CIT(A) contending that no addition can be made in hands of assessee with regard to refund made by Shri Bhoopalan. fact that M/s.Jaisakthi Educational Trust has established several education institutions is not dispute. During year under consideration, Shri P.Chinnadurai borrowed loan of Rs.3 crores. Shri P.Chinnadurai claimed that advances were made to Shri Bhoopalan for purchasing land at Varadharajapuram for purpose of establishing engineering college. Shri P.Chinnadurai has also claimed that sum of Rs.1,54,25,000/- was refunded by Shri Bhoopalan. 9. From material available on record, it appears that Administrative Commissioner examined this issue in exercise of his power under Section 263 of Income Tax Act and found that assessee has not reconciled books of accounts with regard to payments yet to be made for purchase of land. Shri P.Chinnadurai himself admitted before revenue authorities that initially amount of Rs.3 crores was paid to land owners for purchasing 25 acres of land at Varadharajapuram. rate per acre was Rs.17.75 lakhs. said Shri P.Chinnadurai further clarified that he received back sum of Rs.1.5 crores by cash. order of administrative commissioner was challenged before this Tribunal. This Tribunal by order dated 24.07.2009, confirmed order of administrative commissioner. Therefore, there was confusion whether advance was paid to Shri Bhoopalan or to land owners directly. In sworn statement, Shri 7 I.T.(SS).A. Nos.14 & 15/Mds/2015 P.Chinnadurai claims that advance of Rs.3 crores was paid to 25 land owners for purchasing land. refund was said to be received from Shri Bhoopalan. 10. In view of above factual situation, this Tribunal is of considered opinion that matter needs to be reconsidered by Assessing Officer. Assessing Officer shall re-examine matter in light of material available on record and find out whether advance was made to Shri Bhoopalan or to land owners directly. If refund was said to be received from Shri Bhoopalan, it is also to be examined relationship between assessee and said Bhoopalan. Since these aspects were not examined either by CIT(A) or Assessing Officer, this Tribunal is of considered opinion that matter needs to be examined. Accordingly, orders of lower authorities are set aside and issue of addition of Rs.1,54,25,000/- is remitted back to file of AO. 11. next issue arises for consideration is addition of Rs.41,15,400/-. This amount appears to be collected from students for admission of MBA/MCA. incriminating material found during course of search operation which was extracted by assessing officer at para.9 of assessment order in case of M/s.Jaisakthi Educational Trust shows receipt was capitation fee for admission of students. If capitation fees was received for admission of students, it has to be assessed only in hands of trust and it is not known why was added in hands of Managing Trustee Shri P.Chinnadurai in his individual capacity. CIT(A) found that out 8 I.T.(SS).A. Nos.14 & 15/Mds/2015 of Rs.41,15,400/- sum of Rs.38,31,600/- was utilized for repayment of loan. If Shri P.Chinnadurai utilized money collected from students for repayment of loan borrowed in his individual name, then, certainly, it is diversion of trust fund for non educational activity. Therefore, it has to be ascertained, purpose for which loan was borrowed and whether repayment by Shri P.Chinnadurai is for educational activity or not? This Tribunal is of considered opinion that in order to ascertain real facts, matter needs to be reexamined by Assessing Officer. Accordingly, orders of lower authorities are set aside and issue of addition of Rs.41,15,400/- is remitted back to file of AO. 12. Coming to addition of Rs.15,56,000/-, assessee claims that this amount was paid to Shri Bhoopalan for construction of road. CIT(A) found that cost road is corollary to first issue. Since first issue was remitted back to file of Assessing Officer, issue of disallowance of Rs.15,56,000/- is also remitted back to file of assessing officer. Accordingly, orders of lower authorities are set aside and issue of addition of Rs.15,56,000/- is remitted back to file of AO for re- consideration. 13. CIT(A) deleted protective assessment in hand of M/s.Jaisakthi Educational Trust only on ground that substantive assessment addition made only in hands of Shri P.Chinnadurai was confirmed. Since this Tribunal found that facts needs to be reexamined, AO also needs to re-examine issue in relation to M/s.Jaisakthi Educational 9 I.T.(SS).A. Nos.14 & 15/Mds/2015 Trust. Accordingly, orders of lower authorities in case of both assessees are set aside and entire issue is remitted back to file of AO. AO shall re-examine matter afresh in light of materials that may be filed by assessee and bring on record entire facts with regard to advance made to purchase of land and so called refund of amount, classification of capitation fees for admission of students, purpose for which loan was borrowed and its repayment and decide matter afresh in accordance with law after giving reasonable opportunity to assesee. 14. In result, both appeal of assessee and revenue are allowed for statistical purposes. Order pronounced on 07th October, 2016 at Chennai. Sd/- Sd/- (Abraham P. George) (N.R.S. Ganesan) Accountant Member Judicial Member Chennai, Dated, 07th October, 2016. sp. Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT, 5. DR 6. GF. P.Chinnadurai v. Deputy Commissioner of Income tax, Central Circle I(3), Chennai