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Judgment
PER S. RIFAUR RAHMAN, AM :
This appeal is filed by the assessee against the order of Learned Commissioner of Income Tax (Appeals)-25, New Delhi [“Ld. CIT(A)”, for short] dated 31.03.2017 for the Assessment Year 2011-12.
Brief facts of the case are, a search and seizure operation under section 132 of the Income Tax Act, 1961 (for short ‘the Act’) was carried out in the case of FIIT JEE Group by the Investigation Wing, New Delhi on 17.12.2012 and a survey u/s 133A was carried out on the assessee at their premises situated at 2D, MIG Flats, Gulabi Bagh, Delhi-7. The case of the assessee was centralized u/s 127 of the Act. Accordingly, notice u/s 153C of the Act was issued on 25.03.2014. Based on the material found in the case of FIIT JEE, satisfaction was recorded by the Assessing Officer and list of documents included in the above satisfaction was listed out in page 1 of the assessment order. Accordingly, notices u/s 142(1) of the Act were issued and served on the assessee. In response, ld. AR of the assessee attended and submitted the relevant information as called for.
On 08.12.2014, assessee filed its return of income u/s 153C of the Act along with revised Balance Sheet and revised Income & Expenditure account. Notice u/s 143(2) was issued and served on the assessee. After considering the detailed submissions filed by the assessee, the Assessing Officer observed that the complete planning of the donations from the assessee to FIIT JEE was made by FIIT JEE itself. Based on the information contained in Annexure A-20 seized from the FIIT JEE premises. The Assessing Officer observed that the document shows that MOU for transfer of donation and subsequent correspondence required to be made by the assessee with FIIT JEE and its Chairman was prepared in their office itself. The Assessing Officer has reproduced the relevant MOU in the assessment order and based on that, the Assessing Officer came to the conclusion that the assessee received donations from different persons during the assessment year and made its payment to FIIT JEE in the same year. The same was accepted and disclosed by the assessee in its original return of income filed with ITO (Exemption). The assessee was not able to explain as to why and how its documents relating to opening of account with Canara Bank, Hauz Khas, New Delhi were found at the premises of FIIT JEE group and how FIIT JEE group operated the above-said accounts. Even when the cheque books were pre-signed by the authorized signatory of the assessee were utilised by FIIT JEE. He observed that assessee has accounted for donations of Rs.23,59,65,731/- and donation paid of Rs.23,59,75,721/- routed through its bank account with Canara Bank and filed the Income-tax return filed with audited statements. He further observed that in original return filed u/s 139 (1) on 28.09.2011, the assessee has shown donation received at Rs.23.59 crores and donation paid at Rs.23.59 crores. However, in the return filed in response to notice u/s 153C, the assessee has shown donation received at Rs.3,780/- and donation paid at Rs.nil and declaring the donation received and paid as donation in the columns of previous year figure thereby contradicting the contention of the assessee. From the above findings, the Assessing Officer observed that assessee did receive the sum of Rs.23.59 crores as donation for charitable purposes from various persons and instead of applying the same for charitable purposes passed on the abovesaid sum to FIIT JEE group which resulted in direct benefit to this company. He further observed that both the entities, i.e. Sad Bhawna Trust and the assessee were operating from the same premises.
The Assessing Officer observed that the assessee has obtained registration u/s 12A of the Act, however the assessee has to confirm the conditions prescribed therefor. The assessee was required to satisfy that the genuineness of the activities promised or claimed to be carried out in each financial year to claim the exemption. Nowhere in its replies, assessee has shown evidence that the said company is carrying out any charitable activities during the year under consideration. Accordingly, he came to the conclusion that assessee has contravened the provisions of sections 11 and 12 of the Act. Accordingly, the benefit u/s 11 and 12 are denied to the assessee. Since the assessee has declared the donation in its Income& Expenditure account and donation paid was shown, the same is as donation received. No other expenses were incurred on account of charitable purposes. Accordingly, he disallowed whole donation amount paid.
Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A)-5, Delhi and filed detailed submissions. After considering the detailed submissions of the assessee, ld. CIT (A) partly dismissed the appeal preferred by the assessee by observing as under :-
signatures. It was also pointed out by the Ld. Counsels that the Photocopy given to them today had the date 16.02.09, whereas the document found in Search did not have any date. They also pointed out that the Photocopy given to them today had the name 'Commitments Morality Vision Education Society', whereas not only the documents found in the Search did not have the name of the Appellant or of any other Society, the name in the Photocopy given to them today was not of the Appellant as the First word was "Commitments" whereas the First word in the name of the Appellant was 'Commitment'.
b. Sh. Aseem Gupta, CA, stated that the signatures appearing on the Photocopy of the claimed documents between 'M/s Commitments Morality Vision Education Society' and M/s FIITJEE Ltd., were not his signatures.
c. The Photocopy of the claimed 'Settlement Deed' dated 28.09.12 and the Photocopy of the claimed 'Deed of Revalidation' dated 05.04.13 did not belong or pertain to the Appellant i.e. M/s Commitment Morality Vision Education Society.
d. If the Department is of the view that the Photocopies of the 3 documents as per S. No. i, ii, and iii of Point 1 were valid, then they may be given an opportunity to examine and rebut the Originals, if any.
3.It was pointed out to the Ld. Counsels of the Appellant that it was submitted by M/s FIITJEE Ltd. that Rs. 19,71,87,203/- was paid by M/s Commitment Morality Vision Education Society to M/s FIITJEE Ltd. in A.Y. 11-12 out of which an amount of Rs. 1,65,45,000/-was received by M/s FIITJEE Ltd. but was treated as received on behalf of M/s FIITJEE Hyderabad Classes Ltd. and thus the amount pertaining to M/s FIITJEE Ltd. was Rs. 18,06,42,203/-. It has been further submitted by M/s FIITJEE Ltd. that Rs. 18,11,84,130/- was paid by M/s FIITJEE Ltd. to M/s Commitment Morality Vision Education Society in A.Y. 14-15 which included refund of Original Rs. 18,06,42,203/- and Rs. 5,41,927/- being Interest paid @ 0.3% by M/s FIITJEE Ltd. to M/s Commitment Morality Vision Education Society. Please comment and support your claims with evidence.
4.It was pointed out to the Ld. Counsels that discussion with the Ld. Counsels of M/s FIITJEE Ltd. reveals the following flow of events :
"A. MoU in F.Y. 08-09 (A.Y. 09-10) :
i.Memorandum of Understanding dated 16.02.09 signed by M/s FIITJEE Ltd. as Second party, with the First party being M/s Sad Bhawna Trust. ii. Memorandum of Understanding dated 16.02.09 signed by M/s FIITJEE Ltd. as Second party, with the First party being M/s Commitment Morality Vision Education Society. iii. In both the above claimed Memorandum of Understanding, neither the Total amount to be paid, nor per student amount, nor any percentage of scholarship/funding/discount etc. was mentioned in the MoU. There was no definition of Meritorious or Financially Weak students. The selection of the students was the prerogative of the Second party i.e. M/s FIITJEE Ltd.
B. Offer of amounts for Taxation in A.Y. 10-11 and A.Y. 11-12 :
i.It has been claimed that an amount of Rs. 12,80,66,000/- was offered for Taxation in A.Y. 10-11. ii. It has been claimed that an amount of Rs. 38,29,07,107/- was offered for Taxation in A.Y. 11-12.
C. Receipt of Money in F.Y. 10-11 (A.Y. 11-12) :
Rs. 33,03,30,904/- from M/s Sad Bhawna Trust. ii. Rs.19,71,87,203/- from M/s Commitment Morality Vision Education Society. (Ld. Counsels claimed that an amount of Rs. 1,65,45,000/-was received by the Appellant i.e. M/s FIITJEE Ltd. but was treated as received on behalf of M/s FIITJEE Hyderabad Classes Ltd.).
D. Claim of Deduction in Tax Returns (A.Y. 12-13) :
Rs. 51,09,73,107/- as refund of scholarship amount. ii. Rs.15,32,920/- as payment of Interest @ 0.3%. iii. Rs.51,25,06,027/- Total.
E. Settlement Deed in F.Y. 12-13 (A.Y. 13-14) :
i.Settlement Deed dated 28.09.12 signed by M/s FIITJEE Ltd. as First party, with the Second party being M/s Sad Bhawna Trust. ii. Settlement Deed dated 28.09.12 signed by M/s FIITJEE Ltd. as First party, with the Second party being M/s Commitment Morality Vision Education Society.
iii.As per these claimed Deeds, Rs. 33,03,30,904/- was received from M/s Sad Bhawna Trust and Rs. 18,06,42,203/- was received from M/s Commitment Morality Vision Education Society. It has been claimed that the First party could not comply with the specified and agreed conditions in respect of utilization of the conditional grants and that the First party has decided to return the amounts to the Second party. The terms and conditions clearly mentioned that the Second party will not levy/claim any Interest, Penalty, Claims, Damages, nor initiate any legal action. However, Interest @ 0.3% is still claimed to be paid by M/s FIITJEE Ltd.
F. Deed of Revalidation in F.Y. 13-14 (A.Y. 14-15) :
i.Deed of Revalidation dated 05.04.13 signed by M/s FIITJEE Ltd. as Second party, with the First party being M/s Sad Bhawna Trust. ii. Deed of Revalidation dated 05.04.13 signed by M/s FIITJEE Ltd. as Second party, with the First party being M/s Commitment Morality Vision Education Society. iii. In both the above claimed Deed of Revalidation, it has been stated that the Second party i.e. M/s FIITJEE Ltd. had given Conditional Grants/Donation to the First party i.e. M/s Sad Bhawna Trust in one case and M/s Commitment Morality Vision Education Society in the other case.
G. Refund of Money with Interest in F.Y. 13-14 (A.Y. 14-15) :
i.Rs. 33,03,30,904/- alongwith Interest Rs. 9,90,993/- to M/s Sad Bhawna Trust on 26.03.14. ii. Rs. 18,06,42,203/- alongwith Interest Rs. 5,41,927/- to M/s Commitment Morality Vision Education Society."
Please give your comments on the flow of events and support your claims with evidence.
5.Please support with details and evidence, your claim that the Bank Account was operated by FIITJEE Group and that M/s Commitment Morality Vision Education Society did not have any control over the Bank Account in its name, but operated by FIITJEE. Adjourned to 23.03.17 at 11.40 AM, when full compliance on all the issues may please be made."
The Representatives of the Appellant filed Written Submissions dated 23.03.17 stating as under :
"During the course of last hearing, your goodself has asked to submit as follows:
1.Reply to Point No.3: Since, we have already submitted that, bank account with Canara Bank. HauzKhas was operated by officials of FIITJEE Group, we cannot offer any comment on this point. Further, the appellant society was not having any income during the A.Y.2014-15, the appellant society had not submitted return of income tax for A.Y.2014-15.
2.Reply to Point No.4:
- (A) As stated in Point No.2 (b) of the order sheet dated 16.03.2017 that, the claimed documents were not signed by us, reply this question, and would be best answered by FIITJEE only.
- (B) No comments offered on this point.
- (C) No comments offered on this point.
- (D) No comments offered on this point.
- (E) As stated in Point No.2 (b) of the order sheet dated 16.03.2017 that, the claimed documents were not signed by us, reply this question, and would be best answered by FIITJEE only.
- (F) As stated in Point No.2 (b) of the order sheet dated 16.03.2017 that, the claimed documents were not signed by us, reply this question, and would be best answered by FIITJEE only.
- (G) No comments offered on this point.
3.Reply to Point No.5: In support of our claim that, the Bank Account was operated by FIITJEE Group and that M/s CMV Education Society did not have any control over the Bank Account in its name, but operated by FIITJEE, we respectfully submit that, cheques for routing the transaction were filled and deposited by them and we did not have any control over there. In support of the same, it is submitted that, originals may be procured from the Bank for checking authenticity of our claim.
4.In alternative and without prejudice to anything said earlier, it is submitted that, the appellant trust only acted as pass through entity/paper entity. It is the established law that in case of paper entities, they are to be ignored and actual beneficiaries has to be taxed. We would like to rely on the following:
"11.The Delhi Bench of the ITAT in the case of M/s Vijay Conductors India Pvt. Ltd., ITA No.3484/Del/2013, Assessment year 2008-09, order dated 28.1.2015 at para 17 held as follows:-
ITA No.6991 to 7004/Del/2014 "17. Thus, there is an order of the Settlement Commission as well as the Additional Commissioner of Income Tax under Section144A holding that Shri S.K. Gupta was providing accommodation entries, he used various companies as conduit for providing the accommodation entries, cash was received through mediators from the persons who wanted to avail the accommodation entries, such cash was deposited in the bank account of the conduit companies and thereafter, cheque of the similar amount was being issued to the beneficiaries (i.e. the person who wanted to avail the accommodation entry) within a day or so. The Assessing Officer himself in the assessment order has accepted these facts. Considering the totality of these facts and the logical consequences of the order of the Settlement Commission as well as of Additional CIT under Section 144A, we have no hesitation to hold that the addition under Section 68 cannot be made in the case of the conduit companies. Therefore, we delete the addition made under Section68 in the case of all the nine companies, which are admittedly conduit companies of Shri S.K. Gupta."
The Hon'ble Delhi High Court in the case of Vijay Conductors India Pvt. Ltd. in ITA No.683/2015 vide judgment dated 29.9.2015 upheld this order in the case of M/s Vijay Conductors India Pvt. Ltd. and others in the following words:-
"The common issue in all the appeals issues concerns the additions made under Section 68 of the Income Tax Act ("Act") which was directed to be deleted by the ITAT. The ITAT referred to the order dated 28th December 2010 of the Settlement Commission which records inter alia that Mr. Gupta was an entry provider and that in his case only the amount of premium /commission received by him after reducing expenses incurred would be his additional income. ITA No.6991 to 7004/Del/2014 The Assessing Officer (AO) gave effect to the order of the Settlement Commission and determined the income of Mr. S.K. Gupta without making any addition for unexplained cash credit. During the course of assessment Proceedings of the intermediary companies, including the Respondent Assessees, the AO sought directions from the Additional Commissioner of Income Tax under Section 144-A. The Additional CIT passed an order in which after discussing the facts he inter alia directed that it would be in the best interest of the Revenue to tax these transactions in the hands of beneficiaries and Mr. S.K. Gupta "without making any additions on this account in the hands of conduit entities". The said orders of the Settlement Commission or of the Additional CIT were binding on the AO. It is not in dispute that the Respondent Assessees are the conduit entities and not the beneficiaries. Consequently the order of the ITAT deleting the addition under Section 68 of the Act in their hands does not suffer from any legal infirmity."
A perusal of the entire facts of the case show that the Appellant has been involved in the receipts and payments on its own behalf and on behalf of M/s FIITJEE Ltd. and the Directors and other persons associated with the FIITJEE Group. The Appellant was provided repeated opportunities to come out with the full facts of the case, but the Appellant kept on giving evasive replies.
It is seen that the Appellant was involved in the design to defraud the Revenue, and now when the scheme has been exposed, has sought to claim that the Appellant itself had no control over the matters. It is seen that the Bank Account belonged to the Appellant, but it was claimed by the Appellant that the Bank Account was operated by persons of the FIITJEE Group. The Appellant was required to specify the exact persons involved and to explain as to how the FIITJEE Group was carrying out the transactions from the Bank Account of the Appellant. The Appellant was also required to support the claims with full details and evidences. However, the Appellant kept on stating that the FIITJEE Group was having full control over the transactions through the Bank Account of the Appellant, but did not submit complete evidence against the FIITJEE Group.
It is observed that when confronted with the mismatch and discrepancies, it was claimed by the Appellant that they cannot explain any discrepancy or difference, “as transactions were routed by officials of FIITJEE Group. You are requested to ask the reason of the same from FIITJEE Group.” The Appellant further stated in the Written Submissions dated 06.03.17 that :
“In support of our claim, that bank account was operated by FIITJEE group. We want to submit that, cheques for routing the transaction were filled and deposited by them and we did not have any control over there.”
Again, in the Written Submissions dated 23.03.17, it was again submitted by the Appellant that “the claimed documents were not signed by us, reply this question, and would be best answered by FIITJEE only.”
It is thus seen that many discrepancies and differences were pointed out to the Appellant and opportunities were given for it to explain the case, through various Order Sheet entries and opportunities in the appellate proceedings. However, the Appellant has not come out with clean hands even at this stage. Though it was repeatedly claimed by the Appellant that the FIITJEE Group was controlling the Bank Account and the Unexplained transactions, but the Appellant did not give complete evidence against M/s FIITJEE Ltd., and despite repeated opportunities did not specify the particular individuals of the FIITJEE Group who were involved in making the transactions through the Bank Accounts of the Appellant.
It is clear that the case of M/s FIITJEE Ltd. shall have to be examined to determine their exact role in the transactions through the Bank Account of the Appellant
At the time of hearing, ld. AR of the assessee submitted as under:
“It is respectfully submitted that the admitted case of the Ld. AO as per paragraph 3-6 of the assessment order is that the complete planning of the donations from the assessee to FIITJEE was made by FIITJEE itself, the bank account of the assessee was opened for this specific purpose of making donation only to FIITJEE and was fully controlled and operated by FIITJEE, and the deposit of donations and their transfer to FIITJEE was controlled by FIITJEE. Accordingly, the Ld. AO held that the assessee is not carrying out any charitable activities during the impugned year, and the amount paid to FIITJEE, to the tune of Rs. 23,59,65,731/- has been brought to tax.
In view of the aforesaid facts, it is respectfully submitted that when the case of Ld. AO himself is that the donation received by the assessee and its transfer to FIITJEE were controlled by FIITJEE only, then the amount received as well as the amount paid to FIITJEE both should be excluded. The relevant finding of the Ld. AO in paragraph 3.1 on page 22 of the assessment order is reproduced as under:
“3.1The above discussion as well as the as the documents clearly established that:-
Bank account was opened for this specific purpose of making donation only to FIITJEE Limited. For this reason, as discussed above, copy of account opening form of this account was found at the premises of the FIITJEE Limited.
The Bank account was fully controlled and operated by FIITJEE Limited.
Deposit of donations and its transfer to FIITJEE was controlled by FIITJEE Limited as pre-signed Cheque books were handed over by the assessee to Bank.
Complete plan of donations was made by the FIITJEE Limited. The assessee complied with the requirements of scheme prepared by the FIITJEE Limited.
The assessee knew that passing of donation to FIITJEE Limited was not a charitable purpose.”
The Ld. CIT(A) has confirmed the addition and it is pertinent to submit that even the case of Ld. CIT(A) in paragraph 8.18 on pages 45-46 of the appellate order is that M/s FIITJEE Limited and individuals of this group are the ultimate beneficiaries of the transaction through the appellant-assessee.
Therefore, the action of Ld. AO in bringing to tax amount of Rs. 23,59,65,731/- in the hands of assessee is contrary to the case of authorities below themselves and is without any basis, material or evidence and deserves to be deleted and may please be so held.”
On the other hand, ld. DR of the Revenue brought facts of the case as well as argued the matter, which was summarized by her in the written submissions, which is reproduced below :-
“CASE SUMMARY:
M/s Commitment Morality Vision Education Society ("CMV"), registered as a charitable organization under the Income Tax Act, became the subject of assessment proceedings following a search and seizure operation conducted on 17 December 2012 by the Income Tax Department at the premises of FIIT JEE Group. During the search, documents belonging to CMV were discovered at FIIT JEE's premises, including bank account opening forms, board resolutions, memorandum of association, and related organizational documents. These documents led the Assessing Officer to record satisfaction under Section 153C that these documents belonged to CMV and were incriminating in nature.
The Assessing Officer initiated proceedings under Section 153C/144 of the Income Tax Act, 1961, and issued notices on 25 March 2014 requiring CMV to file returns of income for assessment years 2007-08 and 2011-12. After considerable delay and repeated non-compliance, CMV filed revised returns on 08 December 2014— approximately seven months after notice-—-along with revised balance sheets and income-expenditure accounts. The assessment proceedings revealed that CMV had opened a bank account with Canara Bank, Hauz Khas (New Delhi) ostensibly for charitable purposes, but the account was operationally controlled by FIIT JEE Group entities, with transactions totaling Rs. 23,59,65,731/- in assessment year 2011-12.
Key Findings in Assessment:
The Assessing Officer found that:
1.CMV allowed FIIT JEE to use its name for "rotating their certain funds" (per statement of Aseem Gupta, CMV's treasurer and controlling person);
2.Blank account opening forms and blank cheque books were signed by Aseem Gupta and handed over to PUT jgp,s Rajesh Sharma without knowledge of how they would be used;
3.In exchange, Aseem Gupta received statutory audit assignments of four FIIT JEE-related entities earning Rs. 60,000 in fees;
4.The funds received as "donations" were not applied for genuine charitable purposes but were channeled to FIIT JEE's business entities;
5.The charitable status of CMV was thereby violated, and exemptions under Sections 11 and 12 were rightly denied.
Appellate Journey:
CMV filed appeals before the CIT(A), challenging the assessment on jurisdictional grounds (contending Section 153C notice was invalid) and on merits (denying receipt and control of funds). The CIT(A) upheld the assessment, noting that CMV had "adopted evasive tactics," failed to explain discrepancies, and claimed FIIT JEE controlled the account while providing no substantive evidence. CMV then appealed to the Tribunal, raising grounds including time-bar contentions under Section 153C, invalidity of Aseem Gupta's statement under Section 131(1 A), and claims that Section 11 charitable exemption was wrongly denied. The IT AT, in its consolidated order dated 29 June 2018, quashed the assessment for A.Y. 2007-08 as time-barred under Section 153C but upheld the entire assessment for A.Y. 2011-12, finding collusion between CMV and FIIT JEE and confirming the denial of charitable exemption.
DETAILED LEGAL ARGUMENTS FOR THE REVENUE
1. JURISDICTION UNDER SECTION 153C - VALIDITY OF
SATISFACTION NOTE
Ground of Appeal:Assessee challenges the validity of satisfaction recorded under Section 153C, claiming documents found at FIIT JEE premises do not belong to the assessee and are not incriminating.
Revenue's Argument:The fundamental requirement of Section 153C is that the Assessing Officer must be satisfied that "books of account or documents, seized or requisitioned, belongs or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A." The statutory test is conjunctive—the documents must (1) belong to the other person AND (2) be incriminating in nature with bearing on the assessee's income determination.
A. Documents Unquestionably Belong to CMV:Bank account opening forms, cheque books, board resolutions, minutes of general body meetings, and memoranda of association are quintessentially personal documents of the account holder. As established in India Holding Private Limited Vs. ACIT (2015) 371 ITR 295, even photographic copies of such documents found with another party constitute prima facie evidence of ownership and control by the account holder. The Supreme Court in Singhad Technical Education Society Vs. CIT (2017) 84 taxmann.com 290 explicitly held that documents uniquely belonging to an assessee's organization cannot be divorced from that organization merely because they were physically located elsewhere.
In the present case, the Assessing Officer's satisfaction note meticulously enumerates documents that are utterly incapable of belonging to anyone but CMV: (1) bank account opening form signed by CMV's authorized representative; (2) cheque book application; (3) resolutions passed by CMV's general body authorizing account operation; (4) memorandum of association defining CM V's governance structure; and (5) certificates of registration with the Registrar of Societies. These documents embody CMV's organizational identity and cannot logically be in FIIT JEE's possession for any purpose other than to exercise unlawful control over CMV's financial apparatus.
B. Documents are Incriminating - Sufficient Nexus with Assessment Years:The assessee's sophisticated argument—that documents must have a direct incriminating link to specific transactions in the assessment year—misinterprets the jurisprudence. The Supreme Court in SSP Aviation Ltd. Vs. DC IT (NAI} 346 ITR 177, while requiring nexus between documents and undisclosed income, does not mandate that the document itself must record the incriminating transaction. Rather, the document must indicate the modus operand! through which undisclosed income is generated.
Here, the account opening forms, cheque books, and organizational documents collectively establish that CMV's bank account was deliberately structured and operationally handed over to FIIT JEE for its exclusive use. This is corroborated by Aseem Gupta's statement (recorded under Section 132(1 A) during post-search proceedings) wherein he explicitly admitted: "They wanted to use the name of my entities M/s CMV Education Society and M/s Sadhbhawna Trust for rotating their certain funds." This statement, which the assessee now challenges on procedural grounds, is entirely consistent with the documentary evidence and clearly establishes that CMV's bank account was an instrument for FIIT JEE's undisclosed financial flows.
The Tribunal's observation in Saldi Chits Private Limited (ITA No. 6697/2013) that mere cheque books are not inherently incriminating is distinguishable. In that case, the cheque books were generic instruments of financial transaction. Here, the blank cheque books, when read alongside board resolutions designating FIIT JEE's representatives as operational custodians and alongside the MOU establishing a "scholarship scheme" that actually served F IIT JEE's business purposes, transform into components of an incriminating scheme.
Conclusion on Section 153C Jurisdiction: The satisfaction recorded is valid, statutory, and supported by documentary evidence. Section 153C was properly invoked.
IL PROCEDURAL DEFECT CLAIM UNDER SECTION 131(1A) -
INVALIDITY OF ASEEM GUPTA'S STATEMENT
Ground of Appeal : Assessee raises additional ground that Aseem Gupta's statement recorded on 24 December 2012 is invalid because Section 131(1A) permits recording statements only during search, not after search conclusion.
Revenue's Argument:
A. Procedural Compliance & Post-Search Authority:
B.
While Section 131(1 A) explicitly permits recording statements "in the course of search," the statutory framework under Section 132 of the Income Tax Act is not confined to the physical search operation alone. The "search proceedings" encompass the entire investigative phase, including post-search interrogations, verification of seized documents, and recording of statements of persons connected with seized materials. This interpretation is supported by CIT Vs. Sunita Sharma (1997) 225 ITR 619, wherein the Supreme Court held that "search operations" include the investigative continuum, not merely the physical seizure phase.
The statement of Aseem Gupta was recorded during the investigative phase following upon documents seized from FLIT JEE's premises—documents that directly implicated CMV. The seven-day gap between the physical search and the statement recording does not vitiate the statement's admissibility if recorded within the investigative ambit of the search operation itself. The search was conducted on the premises of FIIT JEE, and the subsequent examination of CMV's documents (which were discovered at FUT JEE's premises) and questioning of CMV's controlling person are natural continuations of the search investigation.
C. Substantive Reliability of the Statement:
More critically, the admissions in Aseem Gupta's statement are not dependent for their veracity upon procedural compliance with Section 131 ( 1 A). The admissions stand corroborated by overwhelming objective evidence:
Documentar}'Corroboration: Bank statements show simultaneous deposits and withdrawals corresponding to described "rotation" of funds. FUT JEE's bank account statements (obtained in their separate assessment) align precisely with CM V's outflows. This documentary trail is independent of Aseem Gupta's statement and confirms its factual accuracy.
Behavioral Evidence: CMV's pattern of repeated non-compliance with notices, evasive replies to questionnaires, and attempts to shift blame entirely to FUT JEE—while simultaneously claiming zero knowledge or control—reveals consciousness of wrongdoing. The assessee's conduct in the assessment proceedings itself substantiates the substance of Aseem Gupta's admissions.
Expert Audit Acknowledgment: The fact that four statutory audit assignments were received by Aseem Gupta (with documented fee receipts of Rs. 60,000) for entities directly connected to FIIT JEE, coinciding exactly with the period CMV's account was in use, establishes consideration for the unlawful arrangement without any contradiction in Aseem Gupta's statement.
D. Estoppel Against Procedural Raising:The assessee initially filed returns, participated in assessment proceedings for extended periods, and only after significant adverse findings at the appellate stage raised this procedural defect. This constitutes laches and estoppel. The assessee's attempt to challenge the admissibility of its own officer's statement after relying on it in multiple submissions before the CIT(A) is procedurally untenable. As held in Union of India Vs. Rajesh Masrani (2012) 341 ITR 1 (SC), a party cannot acquiesce to procedural steps and subsequently challenge their regularity when findings become adverse.
Conclusion on Section 131(1A): Even if there were technical non-compliance, the admission is substantiated by objective evidence and behavioral patterns. The substantive truth of the statement ecl ipses procedural defects under Section 132(1A).
III. DENIAL OF SECTION 11 CHARITABLE EXEMPTION - MISAPPLICATION OF FUNDS
Ground of Appeal: Assessee claims that Section 11 exemption should be granted because the original return showed "utilization of funds as per original return of income" and CIT(A) ignored "contradictory findings at page 22 of AO's order."
Revenue's Argument:
A. Section 11 Exemption Requires Substantive Charitable Application - Not Mere Formal Designation:
Section 11 of the Income Tax Act provides exemption from income tax to charitable trusts/societies on income applied for charitable purposes. The Supreme Court in Ramakrishna Param Dhamma Samiti Vs. CIT (1976) 103 ITR 413 established that the test is substantive application of income for charitable purposes, not the formal characterization in returns. A trust cannot claim exemption merely by stating in its return that hinds were applied charitably if the substantive facts reveal otherwise.
In the present case:
•Formal Position (in original return): Funds received as "donations" for establishing a ’’scholarship scheme" and disbursed accordingly.
•Substantive Reality (established by investigation): The scholarship scheme was entirely designed, operated, and beneficially controlled by Fil l JEE. FUT JEE selected students (all of whom were enrolled in FIIT JEE's coaching programs), Fl I F JEE determined scholarship amounts, and FIIT JEE directly received the funds back through "tuition fee reductions" or "direct institutional payments." The Supreme Court in Syndicate Bank Employees' Cooperative Housing Society Vs. CIT (1997) 228 ITR 456 held that exemption cannot be granted where the charitable organization is merely a conduit and the actual beneficiary is a commercial entity. Here, FIIT JEE was the actual and exclusive beneficiary—it received funds, controlled their deployment, and derived commercial benefit (student enrollment and institutional legitimacy).
B. Distinction from Bona Fide Charitable Organizations:
The assessee attempts to equate its position with genuine charitable trusts that may receive donations and disburse scholarships. The critical distinction is control and independence. The Supreme Court in Dooars Tea Company Employees' Welfare Society Vs. CIT (1989) 176 ITR 654 held that charitable exemption requires the organization to independently determine and execute its charitable purpose, not merely serve as a vehicle for another entity's commercial objectives. The facts here are stark:
•CMV's own officer (Aseem Gupta) admitted blank account opening forms and blank cheque books were "sent to him by Rajesh Sharma...for signature," with CMV thereafter having "complete control" ceded to FIIT JEE.
•CMV's board minutes prior to 2010-11 show no charitable activity whatsoever; the scholarship scheme emerged suddenly in 2010 coinciding with FIIT JEE's introduction to Aseem Gupta.
•Post-2011-12, when the scheme was exposed, CMV's involvement ceased entirely, demonstrating that the organization's charitable purpose was entirely contingent on FIIT JEE's business needs, not independent philanthropic motivation.
C. Consideration Received - Negation of Charitable Status:The assessee's characterization of the four statutory audit assignments (worth Rs. 60,000) as mere "coincidence" is untenable. The Assessing Officer's finding that this constitutes consideration for making CMV's charitable status available as a tax shelter vehicle is supported by CIT Vs. Andhra Sanathanam Trust (1989) 176 ITR 441, wherein the Supreme Court held that if consideration flows to the trustee for misuse of the trust's charitable status, the exemption stands forfeited for that period.
The temporal sequence is incontrovertible: introduction by Rajesh Gupta (who "introduced" Aseem to FIIT JEE's chairman); subsequent account opening; simultaneous allocation of four audit assignments to Aseem Gupta; fund rotation through CMV's account; and cessation of CMV's involvement post-exposure. This pattern demonstrates quid pro quo.
Conclusion on Section 11 Denial: The denial of Section 11 exemption is correct. CMV was not an independent charitable entity but a tax-shelter vehicle deployed by FIIT JEE for extracting tax benefits while maintaining commercial control of funds.
IV. RECEIPT & INCOME DETERMINATION - "CATEGORICAL DENIAL" DEFENSE REJECTED
Ground of Appeal: Assessee claims it did not receive any funds and was not in "effective receipt" of the Rs. 23,59,65,731/- credited to its account.
Revenue's Argument:
A. Account Holder Liability Principle: The income tax framework imposes liability on the account holder (CMV, in this case) for all transactions conducted through the account holder's bank account, regardless of who operationally controls the account. The Supreme Court in CIT Vs. Rama Iyer (1992) 195 ITR 1 held that legal ownership and operational title of the account necessarily vest taxing rights and corresponding liabilities in the account holder. The principle is not control-dependent; it is ownership-dependent.
CMV opened the Canara Bank account in its registered name with proper authorization through board resolutions. The fact that FIIT JEE's representatives thereafter operated the account does not shift CMV's legal liability. As held in CIT Vs. Smt. B. Savitri (1998) 233 ITR 465, the nominal account holder cannot escape tax liability by claiming lack of actual knowledge or control, when the account is in their registered name and benefit flows to them (even indirectly).
B. "Categorical Denial" Does Not Rebut Statutory Receipt:
The assessee's strategy of "categorical denial" confronts a fatal logical problem: the funds are physically shown in CMV's bank account with CMV's name on the passbook, CMV's cheques issued from the account, and CMV's account holder signature on the authorization. This is not a question of fact requiring evidence beyond the account holder's say; it is a question of statutory receipt established by banking records.
The principle established in CIT Vs. K.P. Varma (1992) 195 ITR 10 is that credits to the assessee's bank account constitute prima facie evidence of receipt, and the burden shifts to the assessee to prove non-receipt through authentic evidence. CMV's claims of "no knowledge" and "FIIT JEE's control" do not discharge this burden because:
•CMV authorized the opening of the account through board resolutions (evidence submitted in the assessment).
•CMV's signatory authorized blank cheques (admitted by Aseem Gupta in his statement).
•CMV did not file contemporaneous police complaints, RBI complaints, or civil suits against FIIT JEE for unauthorized use of its account (despite ample opportunity over 2010-2011).
•CMV's contemporaneous audited accounts (filed with the original return u/s 139) showed these transactions as "donations received and paid" by CMV itself—not as transactions by FIIT JEE through CMV's account.
The last point is dispositive: CMV's own audited return u/s 139 (filed before the search) treated the funds as its own donations received and paid out. CM V cannot now claim non-receipt when its own auditor vouched for the transactions as CMV's transactions.
Conclusion on Receipt & Income: The Rs. 23,59,65,731/- were received by CMV and constituted taxable income. The denial is factually and legally baseless.
V. COLLUSION & MISUSE OF CHARITABLE STATUS
Ground of Appeal: Assessee claims there was no "collusion" as funds were routed without CMV's knowledge, and the scheme was entirely FUT JEE's wrongdoing.
Revenue's Argument: Collusion is not established by documentary proof of written conspiracy. It is established by conduct, temporal proximity, mutual benefit, and circumstantial inevitability. The Supreme Court in CIT 7s. Surana and Sons Ltd. (1996) 222 1TR 1 held that collusion can be inferred from a series of interrelated facts demonstrating mutual benefit and convergence of interests.
Here, the facts establish collusion through conduct:
1.Temporal Sequence: Introduction by Rajesh Gupta - account opening within days - simultaneous audit assignment -immediate fund rotation -cessation post-exposure. This is not coincidence; it is choreography.
2.Consideration Flow: Aseem Gupta received four audit assignments (worth Rs. 60,000) from FUT JEE entities—not from any other source coinciding exactly with the fund rotation period. This demonstrates exchange of consideration.
3.CMV's Evasiveness: Throughout the assessment and appellate proceedings, CMV claimed "no knowledge" while simultaneously:
•Revising its return filed under Section 153C without protesting the jurisdiction
•Filing audited accounts in the original return showing these transactions as its own
•Refusing to file complaints against FUT JEE despite claiming unauthorized account usage
•Seeking repeated adjournments and raising frivolous jurisdictional objections only after adverse findings emerged
The CIT(A)'s observation is apt: CMV "has not come out with clean hands even at this stage" and "kept on stating that the FIITJEE Group was having full control over the transactions through the Bank Account of the Appellant, but did not submit complete evidence against the FIITJEE Group. "
4.Absence of Protective Measures: A truly aggrieved charitable organization would have:
•Suspended the account immediately upon discovering misuse
•Petitioned the Registrar of Societies
•Filed complaints with the bank, RBI, and law enforcement
•Conducted independent forensic audit of the account
CMV did none of these, because it was complicit.
Conclusion on Collusion: Collusion is established through circumstantial evidence and conduct. CMV's defense of ignorance is belied by its own evasive and protective conduct throughout the proceedings.
VI. ASSESSMENT UNDER SECTION 153C/144 - LEGAL VALIDITY
Ground of Appeal: Assessee challenges the characterization of assessment as being made under Section 153C/144 and claims this is bad-in-law.
Revenue's Argument: Section 153C, read with Section 144, provides the statutory framework for assessing persons other than the searched person where documents belonging to such persons are found during search and are incriminating. The learned Assessing Officer has meticulously followed the statutory procedure:
1.Search was initiated under Section 132 on 17 December 2012.
2.Documents belonging to CMV were identified and a satisfaction note was recorded on 25 March 2014 (justly recorded after consultation with the appraisal report and seized documents).
3.Notice under Section 153A read with Section 153C was issued on 25 March 2014.
4.The assessee was afforded abundant opportunity to file returns, submit documents, and make submissions (the assessee sought and received multiple extensions).
5.The assessment was finalized on 23 March 2015 under Section 153C/144 after considering all submissions and evidence.
The procedure is statutorily sound and judicially established. The assessee cannot escape substantive liability by challenging the procedural label.
CONCLUSION
The assessment order is legally sustainable, factually well-reasoned, and procedurally compliant. The Assessing Officer and the CIT(A) have correctly identified a scheme of tax evasion wherein CMV's charitable status was misused as a conduit for FUT JEE's undisclosed funds. The denial of exemptions under Sections 11 and 12, the treatment of funds as income of CMV, and the assessment to tax are all justified. The assessee's defenses— procedural challenges, denial of receipt, claims of ignorance, and charitable exemption arguments are all comprehensively rebutted by documentary evidence, statutory principles, and judicial precedent. The appeal should be dismissed, and the assessment upheld in its entirety.”
Considered the rival submissions and material placed on record. We observed that search and seizure proceedings were conducted in the case of FIIT JEE Group and based on the incriminating material found relating to the assessee, notice u/s 153C was issued and revision proceedings were initiated in the case of the assessee. Based on the satisfaction recorded in the case of the assessee, the case was scrutinized and found that the assessee organization was utilized by the FIIT JEE group to transfer the donation to the assessee, by controlling the bank account of the assessee, the funds were utilized by FIIT JEE, as far as assessee is concerned, it was utilized to claim benefit u/s 11 and 12 of the Act. In that process, the funds were transferred to assessee account and taken back as application of the same for education purposes and claimed the same amount as deduction u/s 11 of the Act. With the above facts on record, the assessee made valiant claim that the funds were controlled by FIIT JEE group both incoming and outgoing funds, ultimately the beneficiaries are the FIIT JEE group, therefore, the assessee being the pass through entity, it cannot be taxed and only to the extent of actual benefit earned by the assessee alone to be charged to tax by relying on the decision in the case of Vijay Conductors India P Ltd. We noticed that the above decision is distinguishable to the facts in the present case. In our considered view, the assessee allowed itself to be utilized by FIIT JEE group and it had routed the funds thru the bank accounts of the assessee and it is designed such a way that the assessee will claim the outflow of funds as exemption. The assessee being utilized as pass through entity and ultimately FIIT JEE will get the ultimate benefit of tax free funds to be utilized by them. After careful consideration in the given peculiar facts on record, we do not incline to allow the submissions of the assessee that ultimate beneficiary is the FIIT JEE group and the same be taxed in the hands of FIIT JEE and the assessee may be allowed to go scot-free. In our view, this will lead to unpleasant precedent because the benefit taken by the FIIT JEE through the assessee will be deleted in the hands of the assessee and there is no material against the FIIT JEE, ultimately, there is no material for the revenue to make addition in the hands of the FIIT JEE. Therefore, once the assessee allowed itself to be manipulated by the other person, the assessee had to suffer the relevant consequences, the assessee had to recover the above tax burden from the FIIT JEE or the assessee should give undertaking before the authorities to recover the same from the FIIT JEE. The assessee is one of the parties involved in the above scrupulous transaction knowing or unknowing the consequences, it has to take the burden and recover the same from FIIT JEE. We have sympathy towards the assessee but we cannot allow the other party to take the benefit in the sense, once we say that there is no benefit to the assessee and it becomes leeway to the FIIT JEE to take advantage. In our considered view, the addition proposed by the AO is justified in the facts of the present case. In the result, grounds raised by the assessee are dismissed.
In the result, appeal filed by the assessee is dismissed.