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2015 (8) TMI 367 - ITAT HYDERABAD

2015 (8) TMI 367 - ITAT HYDERABAD - TMI - Disallowance of exemption under S.11 - receipt of capitation fee - According to AO 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 - CIT(A) allowed claim - assessee in the present case is a society, which is duly registered under S.12A - Held that:- Having regard to all the facts and circumstances of the case and keepi .....

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rs, 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 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.- Decided in favour of assessee.

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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, - Decided against revenue. - ITA No.1656/Hyd/2014 - Dated:- 31-7-2015 - SHRI P.M.JAGTAP AND SHRI SA .....

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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 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 .....

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29.12.2012 declaring total income at Rs.NIL after claiming the entire surplus of ₹ 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 a .....

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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 wh .....

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9,50,000 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 .....

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y 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 h .....

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arayana 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 ₹ 18 crores on this count as his undisclosed income for assessment year 2012- 13. 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 .....

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ted 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 u .....

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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. 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 .....

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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 .....

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S.11. In this regard, the objection raised by the assessee society that it was not 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.1 .....

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claim for exemption under S.11 as well as making the addition of ₹ 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 res .....

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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 ₹ 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. .....

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e 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 overl .....

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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 wer .....

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anagement 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 f .....

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n the submissions made on behalf of the assessee society and deleted the addition of ₹ 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 ͅ .....

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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 admissions entrusted to him for the Financial year 2011- .....

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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 .....

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the cited case, Sri MJ.Balachandar was collecting Extra Tuition Fee(ETF) on his own without any authority or consent of the Society. The decision of Hon'ble ITAT in this case is reproduced hereunder: "We hold that it is only MJB who was collecting ETF and not the Society. also hold that ETF to the extent of of the total collections of ETF as evidenced by the seized documents should be brought to tax in the hands of MJB on a substantive basis. The addition made in the hands of Society i .....

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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 .....

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t be denied. It cannot also be said that the seized documents, on which, the Assessing Officer had placed 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 o .....

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ot 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 addition made of ₹ 7,76,50,000/- as the appellantsociety's undisclosed income is ordered to be deleted. 14. The learned CIT(A) al .....

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ociety as AOP and treated the surplus of ₹ 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 .....

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77; 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 ₹ 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. 1. The Ld. CIT(A)-I, Hyderabad .....

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) 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 ac .....

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nt 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 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 .....

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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 activitie .....

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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. 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 .....

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e 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 th .....

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its office bearers. 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 t .....

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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 t .....

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r 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 o .....

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e 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 indicat .....

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ed 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 .....

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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 Sh .....

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city 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 ₹ 18 crores for assessment for the year under consideration. 22. It is pertinent to note here that cash of ₹ 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 .....

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d cash of ₹ 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 th .....

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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 .....

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aving 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 ₹ 18 cores surrendered during the course of search on account of capitation fee, seized cash etc. During the course of assessment proceedings before the Assessing Officer, the stand taken .....

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e 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 ₹ 18 cores on account of such capitation fee, cash fo .....

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n 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 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 resid .....

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ssed 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 coordina .....

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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 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) o .....

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curred 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 ₹ 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 wi .....

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