Income Tax Appellate Tribunal - Hyderabad
Mamata Educational Society, Hyderabad vs Department Of Income Tax on 31 July, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'A', HYDERABAD
BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER
AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER
ITA No.1656/Hyd/2014 : Assessment year 2012-13
Asstt, Commissioner of Income- V/s. Mamatha Educational Society,
tax, Central Circle 1, Khammam
Hyderabad
(PAN - AAATM 2428 E)
(Appellant) (Respondent)
Appellant by : Smt. G.V.Hemalatha Devi
Respondent by : Shri C.P.Ramaswamy
Date of Hearing 06.07.2015
Date of Pronouncement 31.7.2015
ORDER
Per P.M. Jagtap, Accountant Member :
This appeal is preferred by the Revenue against the order of the learned Commissioner of Income-tax(Appeals) I, Hyderabad dated 11.8.2014.
2. Grounds No.1 and 6 raised by the Revenue in this appeal are general which do not call for any specific adjudication.
3. The main issue involved in this appeal, as raised by the Revenue in grounds No.2 to 4, relates to the delete by the disallowed CIT(A) of the disallowance made by the Assessing Officer on account of assessee's claim for exemption under S.11 of the Income Tax Act,1961.
4. The assessee in the present case is a society, which is duly registered under S.12A of the Income Tax Act,1961 with effect 2 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam from 20.5.1992. It is engaged in imparting education ield of engineering and medicine. It runs four institutions namely, Mamatha College of Medial, Mamatha College of Dental; Mamatha College of Nursing and Mamatha College of Medical Lab Technology. Number of seats available under management quota in these institutions during the year under consideration were as under
Sl. Name of Course No. of Prescribed No. institution management fee seats Rs.
1. Mamatha College MBBS 60 5,50,000 of Medical Medical PG 45 5,25,000
2. Mamatha College BDS 40 2,50,000 of Dental PG 11 3,70,000 Medical Miscellaneous Seats 20 2,50,000 The return of income for the year under consideration was filed by the assessee on 29.12.2012 declaring total income at Rs.NIL after claiming the entire surplus of Rs.14,32,55,515 as exempt under S.11 of the Act.
5. Search and seizure action under S.132 was conducted at the office premises of the assessee society on 3.8.2011. Simultaneously, search was also conducted at the residence of Shri P.Ajay Kumar, President of the assessee society, and Shri P.Lakshminarayana Reddy, Finance Officer of the assessee society. The residence of Shri Y. Ajay Kumar, 'Lay Secretary' of the assessee society was also covered in the search action. During the course of search, certain incriminating material was found and seized vide Annexure A/PLR/01 and A/PLR/02 from the residential premises of Shri P.Lakshminarayana Reddy. Copies of these 3 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam documents were also stated to be found from the office premises of the assessee society. The seized material contained the names, fee fixed, advance received etc. in the case of students under management quota. There were also entries found recorded in the incriminating material showing the details of cash transactions involving receipt of huge amounts from the students who got admitted under the management quota and the expenses incurred from such receipts in cash. The incriminating material thus was in the nature of a cash book, wherein unaccounted receipts and payments were recorded. During the course of search, a sworn statement of Shri P.Lakshminarayana Reddy, Finance Manager of the assessee society was recorded under S.132(4), and when the incriminating material showing entries of unaccounted receipts and payments in cash found at this residence was confronted to him, he admitted that the same was relating to fee collections for the academic year 2011-12 in respect of students admitted under management quota. He also accepted that the amounts recorded therein were received in cash over and above the amounts of fee fixed by the Government under the management quota, and the aggregate of such receipts amounting to Rs.7,09,50,000 was not recorded in the books of account of the society. He also stated that fee for management quota fixed for various courses was being decided by the management committee headed by Shri P.Ajay Kumar, Chairman and such amount of fee collected in cash over and above the Government fee was handed over by him from time to time to the person, as directed by Shri P.Ajay Kumar. He further stated that such amount in cash was also handed over to Shri Satyanarayana Reddy 'Lay Secretary' and the same to the extent of Rs.2.30 crores was kept in the bank locker of Shri Stayanarayana Reddy, a key of which was found from his residence during the course of search. He confirmed that the said cash found 4 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam in the locker of Shri Satyanarayana Reddy represented cash received by him on behalf of the society for admission of students in the management quota.
6. During the course of search, a statement of Shri P.Ajay Kumar was also recorded on 3.8.2011. Keeping in view the statement of Shri P.Ajay Kumar, which was being simultaneously recorded during the course of search, the statement of Shri P.Lakshminarayana Reddy was not finally concluded by the search team and the admissions made by him in his statement t ll that stage were confronted to Shri Ajay Kumar seeking his explanation. Shri P.Ajay Kumar did not accept the version of Shri Lakshminarayana Reddy that all the collection of extra fee was with his knowledge. He categorically stated in his statement recorded under S.132(4) that he was not aware of any cash receipts mentioned by Shri Lakshminarayana Reddy, who was in charge of admissions under the management quota. He stated that Shri P.Lakshminarayana Reddy having admitted in his statement of receipt of cash for admissions under the management quota, the same represented his income. Shri P.Ajay Kumar was also sought for the cross examination of Shri P.Lakshminarayana Reddy and keeping in view the same, the search team allowed Shri P.Ajay Kumar to contact Shri P.Lakshminarayana Reddy over phone. r having conversed with Shri P.Ajay Kumar over phone, Shri P.Lakshminarayana Reddy accepted in his statement that the excess fee received from the students under management quota was his undisclosed income and made a disclosure of Rs.18 crores on this count as his undisclosed income for assessment year 2012-
13. 5 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam
7. The sworn statement of Shri P.Lakshminarayana Reddy, was again recorded under S.131 of the Act on 8.8.2011 in the office of the DCIT Unit II(2), wherein he categorically accepted that the assessee society was not aware of the cash receipts part in the fees of management quota, and that such receipts represented his own undisclosed income. He reiterated that he has already agreed to disclose Rs.18 crores as his undisclosed income for assessment year 2012-13, which also included cash of Rs.7,50,000 seized from his residence as well as cash of Rs.2.3 crores seized from the bank locker in the name of Shri Saatyanarayana Reddy. He stated that the assessee society or its President, Shri P.Ajay Kumar did not have any role in the collection of extra fee in cash from the students of the management quota and the statement earlier made by him that such collection was made at the instance of Shri P.Ajay Kumar was due to pressure and tension. He stated that he had an apprehension at that stage that the management might take action against him for the collection of extra fee under management quota. He reiterated that the additional undisclosed income of Rs.18 crores offered by him was inclusive of the excess fee of Rs.7.09 crores received for admissions under management quota as well as the seized cash of Rs.2.375 crores and any other deficiency that might have been noticed during the course of search.
8. After recording of this statement under S.131 on 8.8.211, Shri P.Lakshminarayana Reddy also filed an affidavit on 9.8.2011, admitting Rs.18 crores as his undisclosed income for the assessment year 2012-13. Thereafter, he also filed the return of income for assessment year 2012-13 declaring such undisclosed income and the same was accepted by the Assessing Officer in the assessment completed under S.143(3) read with S.153A of the Act.
6 ITA No.1656/Hyd/2014Mamatha Educational Society, Khammam
9. In the case of the assessee society, the claim made for exemption under S.11 was examined by the Assessing Officer in the light of the findings of the search and seizure action. In this regard, he relied on the decision of Hon'ble Supreme Court in the case of Mohini Jain V/s. State of Karnataka & Others (1992) 2 SCC 666, wherein it was held that capitation fee is nothing but a price for selling education. According to the Assessing Officer, the charitable activity/educational institution was used by the assessee as an apparatus for selling education, and therefore, the activity of assessee society had no element of charity. He also held that the material seized during the course of search clearly established collection of money over and above the fee prescribed by the Government for admission of students under management quota and the concerned employee of the assessee society having admitted that the amount so collected was handed over to the Chairman and other interested persons in the assessee society, it was a clear case of collection of capitation fee.
10. The Assessing Officer further held that the way in which exorbitant amounts were collected by the assessee society for admission under the management quota clearly established that it was not administering the educational institution for le purpose within the meaning of S.2(15) of the Act, but it was done for a profit motive. He held that the capitation fee received for admission under management quota was handed over to the Chairman and other interested persons of the assessee society, as admitted by Shri P.Lakshminarayana Reddy in his statement and there was thus a clear violation of S.13(1)(v) of the Act, making the assessee society disentitled for exemption under S.11. In this regard, the objection raised by the assessee society that it was not 7 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam at all connected with the collection of capitation fee and such collection having been admitted by Shri P.Lakshminarayana Reddy as his income and the money having never reached the assessee society or any person related to it, no adverse inference could be drawn in its case, was not found sustainable by the Assessing Officer, and overruling the same, he disallowed the claim of the assessee for exemption under S.11 for the surplus of Rs.14,32,05,514 earned during the year under consideration and also added the capitation fee of Rs.7,76,50,000 in its hands, as undisclosed income, in the assessment completed under S.143(3) read with S.153A of the Act, vide order dated 30.9.2013 .
11. Against the order passed by the Assessing Officer under S.143(3) read with S.153A, an appeal was preferred by the assessee before the learned CIT(A), challenging the action of the Assessing Officer in disallowing its claim for exemption under S.11 as well as making the addition of Rs.7,76,50,000 on account of capitation fee treating the same as its undisclosed income. During the course of appellate proceedings before the learned CIT(A), it was submitted on behalf of the assessee that no incriminating material evidencing collection of extra fee from the management quota students over and above the fee fixed by the government was found either from the premises of the assessee society or even from the residential premises of its president or any other official. It was also pointed out that no unaccounted cash was found either in the premises of the assessee society or even in the residential premises of the office bearers. It was submitted that Shri P.Lakshminarayana Reddy was in charge of the admission of students under management quota for the academic year 2011-12 and as categorically stated by him in the sworn statement, neither the assessee society nor the President or any Executive Member 8 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam had got anything to do with this matter. It was submitted that the said collection was made by Shri P.Lakshminarayana Reddy for his personal benefit, and since the additional income on this issue offered by him to the tune of Rs.18 crores for assessment year 2012-13 was accepted by the Department, without raising any question, it was clearly established that the capitation fee as found during the course of search was collected by Shri P.Lakshminarayana Reddy and not by the assessee society. It was contended that there was thus no evidence found during the course of search to establish that the activities of the assessee society involved an element of profit and the adverse inference drawn by the Assessing Officer while denying the claim of the assessee for exemption under S.11 was without any logical reason. It was contended that the burden of proving any violation for denying the claim of assessee for exemption under S.11 was on the Assessing Officer, and there was a clear failure on his part to discharge the same. It was contended on behalf of the assessee society that its claim for exemption under S.11 was denied by the Assessing Officer merely on the basis of wild allegation that there was violation of the provisions of S.11(5), S.11(4A) and S.13(1)(c) of the Act In this regard, it was pointed out that a detailed letter dated 23.9.2013 denying all the allegations point-wise with sound reasoning was filed before the Assessing Officer, but the same was completely overlooked by him, while denying the claim of the assessee for exemption under S.11 of the Act.
12. It was also contended on behalf of the assessee society before the learned CIT(A) that the relevant seized documents were found and seized from the residence of Shri P.Lakshminarayana Reddy and not from the office of the society or the residence of its office bearers. It was brought to the notice of the learned CIT(A) 9 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam that the said documents contained the signatures of only Shri P.Lakshminarayana Reddy and there being no signature of any office bearer of the assessee society, it was clearly established that the said documents were found and seized from the residence of Shri P.Lakshminarayana Reddy and not from the residence of any office bearer or the premises of the assessee society. It was also pointed out that no question whatsoever was put to Shri P.Ajay Kumar while recording his statement on the basis of the relevant seized documents, which again goes to prove that the said documents were not found from the premises of the assessee society or the residence of Shri P.Ajay Kumar. It was submitted that the assessee society right from the beginning had taken a consistent stand that no capitation fee or donation was received by it from the management quota students and this stand was supported by Shri P.Lakshminarayana Reddy , who clearly admitted that he collected the extra amount on his own for his personal benefit misusing the responsibilities given to him for looking after the management quota admissions. It was contended that the assessee society thus received only the fee from the students admitted under the management quota as permitted by the State Government, and the same having been duly accounted for in its books of account, there was no receipt of any extra amount towards donation or capitation fee by the assessee society showing any element of profit motive, to justify denial of its claim for exemption under S.11 or treating the amount of donation/capitation fee as its undisclosed income. It was contended that the extra fee was fraudulently collected by Shri P.Lakshminarayana Reddy without any authorisation or permission from the assessee society and since this impropriety was done by Shri P.Lakshminarayana Reddy in his individual capacity and not by the assessee society, who never received any such extra fee, there 10 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam was no violation of any provision of S.11, 12 or 13 making it disentitled for exemption under S.11.
13. The learned CIT(A) found merit in the submissions made on behalf of the assessee society and deleted the addition of Rs.7,76,50,000 made by the Assessing Officer on account of extra fee, treating the same as undisclosed income of the assessees Society for the following reasons given in paragraph Nos.6.0 to 6.2 of his impugned order.
"06.0 The assessment order, the submissions of the appellant and the judicial pronouncements relied on by the appellant have been carefully considered. With regard to the addition made of Rs. 7,76,50,000/- as the appellant's undisclosed income, it is seen that the Assessing' Officer has quantified the unaccounted receipts collected from the students who joined in MBBS, PG, BDS and MDS under management quota and arrived at the above amount based on the incriminating material found at the residence of Sri P.L.N.Reddy, the Finance Officer of the Society. It is also noted that right from the date of search, the appellant-society has been contending that it has not received any capitation fee/donations from the management quota students. The same fact has also been confirmed by Sri P.Lakshminarayan Reddy who has initially stated that he collected the amounts on behalf of the Society, but wh n the DDIT allowed the Trustee of the Society to confront him, has categorically stated that he collected the ex a amount on his own for his personal benefit misusing the responsibilities of looking after the management quota 11 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam admissions entrusted to him for the Financial year 2011-
12. He has also confirmed that neither the Society has authorized this collection nor aware of it and these extra collections never reached the Society. Accordingly, he declared an additional income of Rs. 18 Crores for the Asst. Year 2012-13 in his personal return and also paid the due taxes thereon. The DDIT and the Assessing Officer have accepted this disclosure both during search and assessment stage. No enquiries were made nor any evidence gathered and placed on record to show that the Society has collected excess capitation fee from the students of management quota. The Assessing Officer has also not examined as to whether the capitation fee collected by Sri P.L.N.Reddy has reached either the Society or its trustees or whether the same has been invested n the Trustees' personal properties. As pointed out by t e appellant's Authorized Representative and also the records available that none of the seized documents suggest that the monies were collected by Sri P.L.N.Re y on the authority and consent of the Society. In addition to the above, it may be noted that no incriminating mater al evidencing collection of 'extra fee from the management quota students over and above the fee fixed by the Government was found in the Society's premises.
, 06.1 The facts of the case appear to be identical to t e facts of the case cited by the appellant i.e., the decision of Bangalore 'B' Bench of the ITAT in the case of Sri MJ.Balachandar Vs. DCIT and others. In the cited case, Sri MJ.Balachandar was collecting Extra Tuition Fee(ETF) on his own without any authority or consent of the 12 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam Society. The decision of Hon'ble ITAT in this case is reproduced hereunder:
"We hold that it is only MJB w ho was collecting ETF and not the Society. We also hold that ETF to the extent of 5 5 % of the total collections of ETF as evidenced by the seized docum ents should be brought to tax in the hands of MJB on a substantive basis. The addition made in the hands of Society is directed to be deleted. It is also held that the benefit of section 1 1 of the Act cannot be denied to the Society as there are no circum stances justifying the denial of benefits of section 1 1 of the Act to the Society. Accordingly, the grounds of appeal of the Revenue in the case of the Society and MJB are dismissed. "
06.2 It is also noted that the Hon'ble ITAT, Hyderabad Bench 'A' in the case of Sree Educational Society vs. CIT(Central), Hyderabad has relied on the above decision and held -
"We are of the opinion that Sri K. Mahi seems to have collected capitation fee on his own without any authority of the society, therefore, the society is not involved in collection of capitation fees in cash. The argument of the learned OR that the acts of the servant will bind the master cannot be applied to the facts of the present case for the reason that Sri K.T.T.Mahi was never authorized to collect the excess capitation fees. The authority to collect the excess fees should have been given by the society and it is only, then, it can be said that the acts of the employees will bind the principal. Anything done by the employee beyond the scope of powers given to him will not bind the principal/society.' The cash deposited in the Head Office by itself cannot be treated as fund collected by the society. The said amount has been assessed in the personal hands of Sri K.T.Mahi as the collected amounts have not reached the society, therefore, the exemption u/s.L:
cannot be denied. It cannot also be said that the seized documents, on which, the Assessing Officer had placed 13 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam reliance conclusively proved that it was only the society, which is received the excess money. The circumstances only show that it was Sri K. T Mahi, who has collected excess money without the knowledge or the authority of the society. In other words, none of the monies were collected by Sri K. T Mahi on the authority of the society."
, The facts of the above cited cases are identical to that of instant case. In the above case, it was Sri K.T.Mahi, is the Managing Trustee of the Society where it has been held that the excess amounts collected by the Managing Trustee have nothing to do with the Society while in the instant case, it is Sri P.Lakshminarayana Reddy, who worked as Finance Officer of the Society, in-charge of admissions in management quota, has collected capitation fee without any authorization from the Society and the incriminating material was found at his residence and not at the premises of the Society, the contention of the appellant that it has not collected capitation fee may be accepted. Moreover, Sri P.L.N.Reddy admitted the additional income and paid taxes thereon and the same has been accepted by the same Assessing Officer who is also the Assessing Officer of the appellant-society. In view of the above findings, the additio n m ade of R s. 7 ,76,50,000/- as the appellant- so ciety's undisclosed inco m e is ordered to be deleted."
14. The learned CIT(A) also held that the assessee society having not received any capitation fee, there was no reason to deny its claim for exemption under S.11. Accordingly, the addition of Rs.14,32,05,514 made by the Assessing Officer by denying the claim of exemption under S.11 for the surplus of the year under consideration was deleted by the learned CIT(A) for the following reasons given in paragraph No.6.3 of his impugned order.
14 ITA No.1656/Hyd/2014Mamatha Educational Society, Khammam "06.3 The Assessing Officer has denied exemption u/s. 11, treated the appellant-Society as AOP and treated the surplus of Rs.14,32,05,514/- arrived at as per the Income and Expenditure statement filed for the Financial year 2011-12. As discussed above, since no evidence was found in this matter that the Society collected extra capitation fee as against the objectives of the Trust, the benefit of section 11 of the Act cannot be denied to the appellant-society. The Assessing Officer has also not brought on record any evidence that the Society has collected the capitation fee. Further, since the Registration granted u/s. 12A of the Act has not been cancelled till date (verified from the Addl. CIT, Central Range-1, Hyderabad), the Assessing Officer is not justified in treating the Society as AOP. In view of the above, since the registration of the appellant-society has been in vogue and since it is held in the preceding paragraph that the appellant society has not collected the capitation fee denying the exemption u/s 11 of the I.T. Act, adding the surplus of Rs.14,32,05,514/- to the total income is not correct and the Assessing Officer is directed to delete the same."
15. Aggrieved by the order of the learned CIT(A) allowing the claim of the assessee for exemption under S.11 and deleting the addition of Rs.7,76,50,000 made by the Assessing Officer on account of extra fee treating the same as undisclosed income of the assessee, Revenue has raised the following rounds in the present appeal filed before the Tribunal.
15 ITA No.1656/Hyd/2014Mamatha Educational Society, Khammam "1. The Ld. CIT(A)-I, Hyderabad has erred in both facts and in law.
2. The Ld. CIT(A)-I, Hyderabad erred in allowing the exemption u/s. 11 to the assessee society inspite of violation of sec.13(1)(c) of the I.T. Act by the assessee society.
3. The Ld. CIT(A)-I, Hyderabad ought to have appreciated the fact that the Shri P.Lakshminarayan Reddy is in-charge of admissions in management quota and therefore he is responsible for managing the admission in management quota and worked as manager, hence he is well covered u/s. 13(3)(cc) of the I.T. Act.
4. The Ld. CIT(A)-I, Hyderabad ought to have appreciated the fact that the material related to the collection of capitation fee found at the residence of Shri P. Lakshminarayan Reddy belongs to the society and hence, the society is responsible for the collection of capitation fee."
16. The Learned Departmental Representative submitted that the claim of the assessee for exemption under S.11 was rightly disallowed by the Assessing Officer on the basis of findings of the search action. She submitted that search action under was conducted in the premises of the assessee as well as at the residence of some of its office bearers including Shri P.Lakshminarayana Reddy. She contended that the incriminating material found during the course of search clearly revealed that capitation fee was being collected from the students of various courses for admission under the management quota in the educational institutions run by the assessee society. She pointed out that in his statement recorded under S.132(4) during the course of search, Shri P.Lakshminarayana Reddy Finance Officer and connected person of the assessee society initially accepted that 16 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam capitation fee was collected by him on behalf of the assessee society at the instance of Shri P.Ajay Kumar, President of the assessee society. She contended that even though Shri P.Lakshminarayana Reddy in the latter portion of his statement changed his version and surrendered the entire capitation fees collected as his personal income, it was done by him to bail out the assessee society, after the telephonic discussion he had with Shri P.Ajay Kumar President of the assessee society. She invited our attention to the copies of the relevant seized documents placed at pages Nos.95 and 96 of the paper-book and submitted that the entries found recorded therein had also involved entries relating to certain expenditure pertaining to the assessee society, which are sufficient to show that all the entries found recorded in the relevant seized documents were belonging to the assessee society and the same were owned up Shri P.Lakshminarayana Reddy only at the behest of Shri P.Ajay Kumsr, President of the assessee society to bail out the assessee society. She contended that the fact that the assessee society was collecting capitation fee from the students for admission under management quota over and above the fees prescribed by the government as found during the course of search is sufficient to prove that its activities were carried on by the assessee society with profit motive, and it was therefore, not entitled for exemption under S.11, as rightly held by the Assessing Officer. She contended that this vital aspect has not been properly appreciated by the learned CIT(A) and the claim of the assessee for exemption under S.11 is allowed by her merely relying on the surrender made by Shri P.Lakshminarayana Reddy on account of capitation fee, accepting the same as his individual income ignoring the fact that the capitation fee was being collected by the said employee on behalf of the assessee society, at the instance of its President, as revealed during the course of search.
17 ITA No.1656/Hyd/2014Mamatha Educational Society, Khammam
17. The learned counsel for the assessee, on the other hand, strongly supported the impugned order of the learned CIT(A), allowing the claim of the assessee for exemption under S.11. He submitted that as per the clear finding given by the learned CIT(A) in her impugned order, the relevant seized documents were found and seized from the residence of Shri P.Lakshminarayana Reddy and only photo copies of the said documents were brought to the premises of the assessee society. He pointed out that the said documents contained the signature of Shri P.Lakshminarayana Reddy only, and they did not bear the signature of Shri P.Ajay Kumar, which clearly shows that these documents were found from the residence of Shri P.Lakshminarayana Reddy and not from the premises of the assessee society or from the residence of Shri Ajay Kumar. He also took us through the statement of Shri Ajay Kumar recorded during the course of search to show that no question whatsoever was asked to him during the course of search in respect of the relevant seized documents or even the entries appearing therein. He also submitted that when it was brought to the notice of Shri Ajay Kumar during the course of recording of his statement, that Shri P.Lakshminarayana Reddy has accepted in his statement, of having received the capitation fee on behalf of the assessee society at the instance of its President, Shri Ajay Kumar denied his involvement as well as the involvement of the assessee society in the collection of the capitation fee. He submitted that Shri Ajay Kumar sought cross-examination of Shri P.Lakshminarayana Reddy in this regard, and when he was allowed to talk to Shri P.Lakshminarayana Reddy on phone, the latter accepted of having collected the capitation fee in his individual capacity, without any knowledge of the assessee society or its office bearers.
18 ITA No.1656/Hyd/2014Mamatha Educational Society, Khammam
18. The learned counsel for the assessee submitted that Shri P.Lakshminarayana Reddy subsequently not only offered the amount of capitation fee found to be collected by him as per the relevant seized document as his income, but also declared extra income in order to cover the cash found from his residence as well as from the bank locker in the name of Shri Satyaanrayana Reddy, the key of which was found from the possession of Shri P.Lakshminarayana Reddy. He contended that total income of Rs.18 cores was accordingly offered by Shri P.Lakshminarayana Reddy in his individual return filed for the year under consideration, which included the amount of capitation fee, cash found during the course of search as well as other discrepancies that might have been noticed during the course of search, and the Department having assessed the said income in his hands on substantive basis, it is not permissible to consider the same amount as the income of the assessee society, especially when there was nothing found during the course of search to show that the capitation fee amount was received by the assessee society or any of its office bearers on its behalf. He pointed out that even during the course of search, neither any cash nor any documents evidencing any undisclosed investment made by the assessee society were found either from its premises or even from the residence of its executive committee member.
19. The learned counsel for the assessee contended that the capitation fee as found during the course of search thus was received by Shri P.Lakshminarayana Reddy in his individual capacity for his personal benefit and not by the assessee society, and the same having been already assessed in the hands of the said individual by the department, it cannot be said the same represented the income of the assessee society, to draw an adverse 19 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam inference that the activities of the assessee society were with profit motive, making it disentitled for exemption under S.11. He contended that the learned CIT(A) therefore, has rightly deleted the addition made by the Assessing Officer to the total income of the assessee on account of capitation fee and has also allowed the claim of the assessee society for exemption under S.11. In support of this contention, the learned counsel for the assessee relied on the decision of the coordinate Bench of this ibunal in the case of Sree Educational Society V/s. CIT (ITA No.564/Hyd/2012 dated 31.7.2013) and the decision of the Bangalore Bench of this Tribunal in the case of Shri M.J.Balachander V/s. DCIT (ITA Nos.92 to 94/Bang/2012 dated 21.12.2012) wherein a similar issue was decided by the Tribunal in favour of the assessee holding that the extra tuition fee or capitation fee having collected by the employee in his individual capacity without any involvement of assessee society and such fee collected having not been received by the assessee society, its claim for exemption under S.11 could not be denied.
20. We have considered the rival submissions and also perused the relevant material on record. It is observed that capitation fee found to be collected from the students admitted under management quota as per the relevant seized documents was treated by the Assessing Officer as the income of the assessee and on the basis of such collection of capitation fee, the claim of the assessee for exemption under S.11 was also denied by him, holding that the collection of capitation fee by the assessee indicated its intention to carry on its activities with profit motive. In this regard, it is observed that search action under S.132 was conducted at the office premises of the assessee society on 3.8.2011. Simultaneously, search was also conducted at the residence of Shri 20 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam P.Lakshminarayana Reddy as well as at the residence of Shri P.Ajay Kumar, President of the assessee society and one other office bearer. During the course of search, relevant documents identified as per Annexure A were found and seized from the residence of Shri P.Lakshminarayana Reddy. The said documents contained entries inter alia of receipt of capitation fee from the students admitted to the institutions run by the assessee society under the management quota. Although copies of the said documents were also stated to be found from the office premises of the assessee society, the case made out by the assessee before the learned CIT(A) was that only photo copies of the relevant documents found and seized from the residence of Shri P.Lakshminarayana Reddy were brought to its office and this case of the assessee was accepted by the learned CIT(A), after having found that the said documents contained the signature of Shri P.Lakshminarayana Reddy only and there were no signatures of either Shri P.Ajay Kumar or any other executive committee member of the assessee society. The learned CIT(A) also noted that no question was put to ShriAjay Kumar relating to the said documents during the course of recording his statement under S.132(4), which again was a clear indicator that the said documents were not found either from the premises of the assessee society or from the residential premises of Shri P.Ajay Kumar.
21. In his statement recorded during the course of search under S.132(4), Shri P.Lakshminarayana Reddy initially stated that capitation fee found recorded in the relevant seized documents was collected by him on behalf of the assessee society at the instance of Shri P.Ajay Kumar. When this statement of Shri P.Lakshminarayana Reddy was confronted to Shri P.Ajay Kumar, while recording his statement during the course of search, Shri 21 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam P.Ajay Kumar flatly denied either his involvement or the involvement of the assessee society in collection of the capitation fee and sought cross examination of Shri P.Lakshminarayana Reddy. When he was allowed to talk to Shri P.Lakshminarayana Reddy on phone, the latter changed his version and admitted that the capitation fee was collected by him in his individual capacity for his personal benefit without any involvement of the assessee society. Accordingly, in the latter part of his statement recorded during the course of search, Shri P.Lakshminarayana Reddy agreed to surrender additional income of Rs.18 crores for assessment for the year under consideration.
22. It is pertinent to note here that cash of Rs.7.5 lakhs was found from the residence of Shri P.Lakshminarayana Reddy and a key of bank locker maintained in the name of Shri P.Satyaanrayana Reddy was also found from his residence, which had a cash of Rs.2.30 crores, as found after opening the said locker. After the search, a statement of Shri P.Lakshminarayana Reddy was once again recorded under S.131 on 8.8.2011 in the office of the DDIT, Unit II(2), wherein he stated that additional income of Rs.18 crores was surrendered by him for the year under consideration, on account of capitation fee collected by him, as well as cash of Rs.7,50,000 found from his residence and cash of Rs.2.30 crores found from the bank locker in the name of Shri R.Satyanarayana Reddy. He further stated that relevant entries found recorded in the seized documents showing the receipt of capitation fee were written by him in his own handwriting and the society was not aware of such capitation fee collected by him. He also stated that neither the assessee society nor any of its executive committee member had any role in the collection of the capitation fee. He also revealed that the statement initially made 22 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam by him during the course of search involving the name of the assessee society and its president, Shri P.Ajay Kumar the collection of capitation fee was due to pressure and tension due to fear that the management might take action against him for such collection. Thereafter on 9.8.2011, Shri P.Lakshminarayana Reddy also filed an affidavit affirming all these averments on oath and admitting Rs.18 crores as additional income for the year under consideration.
23. The conspectus of all the facts narrated above clearly shows that the relevant seized documents showing collection of capitation fee were found from the residence of Shri P.Lakshminarayana Reddy and the entries found recorded therein were written by him in his own hand writing. In the concluding part of his statement recorded during the course of search as well as in the statement recorded under S.131 on 8.8.2011 and in the affidavit filed on 9.8.2011, Shri P.Lakshminarayana Reddy not only owned up the cash found from his residence as well as from the bank locker maintained in the name of Shri Satyanarayana Reddy, but also admitted that the capitation fee was collected by him for his personal benefit without any knowledge or involvement of the assessee society or its executive committee members. On the other hand, when this aspect of collection of capitation fee was confronted to Shri P.Ajay Kumar, while recording his statement under S.132(4) during the course of search, he flatly denied having any knowledge about the same, and also categorically stated that neither he nor the assessee society was involved in the collection of any capitation fee. Finally, Shri P.Lakshminarayana Reddy filed his return of income for the year under consideration on 27.8.2023 offering the additional income of Rs.18 cores surrendered during the course of search on account of capitation fee, seized cash etc. 23 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam During the course of assessment proceedings before the Assessing Officer, the stand taken in the later part of his statement recorded during the course of search as well as in the statement recorded on 8.8.20111 and in the affidavit on 9.8.2011 was reiterated by him, and the same was accepted by the Assessing Officer in the assessment completed under S.143(3) read with S.153A, vide order dated 30.09.2013, assessing the sum of Rs.18 cores in his hands on substantive basis.
24. It is thus clear that Shri P.Lakshminarayana Reddy who was working with the assessee society as a Finance Officer and was looking after the admission of students under management quota misused his office for his personal benefit, by collecting capitation fee from the students, and this factual position was accepted by him not only in the later part of his statement recorded during the course of the search, but even in the statement recorded on 8.8.2011 and in the affidavit filed on 9.8.2011. He also offered to tax the additional income of Rs.18 cores on account of such capitation fee, cash found and seized during the course of search, etc. in the return of income filed for the year under consideration, and the income so offered was finally assessed to tax by the Assessing Officer in his hands on substantive basis. On the other hand, there was nothing either found during the course of search or brought on record by the Assessing Officer during the course of assessment proceedings to show any involvement of the assessee society or any of its executive committee member in the collection of capitation fee. There is also nothing either found during the course of search or brought on record during the course of assessment proceedings to show that the capitation fee was actually received by the assessee society or any of its executive committee members on behalf of the assessee society. It is 24 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam worthwhile to mention here that neither any cash nor any other incriminating material was found during the course of search either from the premises of the assessee society or from the residence of any of its executive committee members to show any unexplained or unaccounted investment either in the name of the assessee society or in the names of its executive committee members. In the case of Sree Educational Society (supra) cited by learned counsel for the assessee, similar facts were involved as much as one employee of the society had collected the capitation fee in cash without any authority or without ay knowledge of the society. The amount of such capitation fee was also assessed to take in the personal hands of the said employee. In these facts an circumstances of that assessee, which are materially similar to the facts of the present case, it was held by the Tribunal that the claim of society for exemption under S.11 could not be denied as the amount of capitation fee was not received by it, but was received by the concerned employee.
25. Having regard to all these facts and circumstances of the case, as discussed above and keeping in view the decision of coordinate bench in the case of Sree Educational Society (supra) we find ourselves in agreement with the learned CIT(A) that the capitation fee having been received by Shri P.Lakshminarayana Reddy and not by the assessee society, the addition on account of capitation fee can be made only in the hands of Shri P.Lakshminarayana Reddy and not in the hands of the assessee society. We also agree with the learned CIT(A) that neither the assessee society nor any of its officer bearers, being beneficiary of the capitation fee collected, there was no violation of any of the provisions of S.11, S.12 or S.13 of the Act, making the assessee society disentitled to exemption under 25 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam S.11. As held by the learned CIT(A), the addition made by the Assessing Officer to the total income of the assessee on account of capitation fee thus was not sustainable, and the assessee was entitled for exemption under S.11, as claimed by it in the return of income. We therefore, uphold the impugned order of the learned CIT(A) on this issue and dismiss grounds No.2 to 4.
26. In ground no.5, Revenue has challenged the action of the learned CIT(A) in deleting the addition of Rs.10 lakhs made by the Assessing Officer on account of unaccounted expenditure allegedly incurred by the assessee society.
27. After considering the rival submissions and perusing the relevant material on record, it is observed that the addition of Rs.10 lakhs made by the Assessing Officer on account of unaccounted expenditure allegedly incurred by the assessee society was deleted by the learned CIT(A) for the following reasons given in paragraph 6.4 of his impugned order-
"06.4 With regard to the addition made of Rs.10,OO,OOO/- towards unaccounted expenditure, the contention of the appellant-society is that the voucher in the name of M/s.Mamata Educational Society available at page no.17 of annexure A/PLR/04 does not bear the authentication of any of the office bearers of the Society and hence the Society is not concerned with the same. On verification of the assessment records, there appears merit in the contention of the appellant-society since the above voucher was not seized from the Society's premises but was seized from the residence of Sri P.Lakshminarayana Reddy who has 26 ITA No.1656/Hyd/2014 Mamatha Educational Society, Khammam declared Rs.18.00 crores as his personal income. Since all these transactions are well covered in the amount of personal income declared by him as can be seen from the assessment order in the case of Sri P.L.N.Reddy, the, addition made of Rs.10,OO,OOOj - in the hands of appellant-society, cannot be sustained and hence, is ordered to be deleted."
As noted by the learned CIT(A), the relevant vouchers were found and seized from the residence of Shri P.Lakshminarayana Reddy and since the additional income of Rs.18 cores declared by him was sufficient to cover the amount of Rs.10 lakhs reflected in the said voucher, there was no justifiable reason for the Assessing Officer to make the addition of Rs.10 lakhs again in the hands of the assessee society. At the time of haring before us, the Learned Departmental Representative has not been able to raise any material contention to dispute the basis adopted by the learned CIT(A) for giving relief to the assessee on this issue. We therefore, find no justifiable reason to interfere with the impugned order of the learned CIT(A) on this issue and upholding the same, we dismiss Ground No.5 of the Revenue in this appeal.
28. In the result, appeal of the Revenue is dismissed Order pronounced in the court on 31st July, 2015.
Sd/- Sd/-
(Saktijit Dey) (P.M.Jagtap)
Judicial Member Accountant Member
Dt/- 31st July, 2015
27 ITA No.1656/Hyd/2014
Mamatha Educational Society,
Khammam
Copy forwarded to:
1. Mamatha Educational Society, 4-5-510(old 4-2-161), Police Colony, Rotary Nagar, Khammam
2. Asstt. Commissioner of Income-tax Central Circle I, Hyderabad ,
3. Commissioner of Income-tax(Appeals) I, Hyderabad
4. Commissioner of Income-tax Central , Hyderabad
5. Departmental Representative, ITAT, Hyderabad.
B.V.S