2015 (8) TMI 367 - AT - Income Tax

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 keeping in view the decision Sree Educational Society (2015 (2) TMI 571 - ITAT HYDERABAD) 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 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. Unaccounted expenditure allegedly incurred by the assessee society - CIT(A) deleted addition - Held that - 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 ₹ 18 cores declared by him was sufficient to cover the amount of ₹ 10 lakhs reflected in the said voucher, there was no justifiable reason for the Assessing Officer to make the addition of ₹ 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, - Decided against revenue.

Summary

Issues Involved:
1. Disallowance of exemption under Section 11 of the Income Tax Act, 1961.
2. Addition of capitation fee as undisclosed income.
3. Addition of unaccounted expenditure.

Issue-wise Detailed Analysis:

1. Disallowance of Exemption under Section 11:
The main issue raised by the Revenue was the disallowance of the assessee's claim for exemption under Section 11 of the Income Tax Act, 1961. The assessee, a society registered under Section 12A, claimed exemption for its surplus income, which was denied by the Assessing Officer (AO) based on findings from a search operation. The AO argued that the society was involved in collecting capitation fees, indicating a profit motive, thus disqualifying it from exemption under Section 11. However, the CIT(A) found that the capitation fees were collected by an individual, Shri P.Lakshminarayana Reddy, without the society's knowledge or authorization. The Tribunal upheld the CIT(A)'s decision, noting that the seized documents and statements supported the conclusion that the society was not involved in the collection of capitation fees. Consequently, the society's claim for exemption under Section 11 was allowed.

2. Addition of Capitation Fee as Undisclosed Income:
The AO added Rs. 7,76,50,000 as undisclosed income of the society, based on the capitation fees collected from students under the management quota. The CIT(A) deleted this addition, concluding that the capitation fees were collected by Shri P.Lakshminarayana Reddy for his personal benefit, without the society's involvement. The Tribunal agreed with the CIT(A), emphasizing that the seized documents and statements clearly indicated that the capitation fees were collected by Shri P.Lakshminarayana Reddy in his individual capacity. The Tribunal also noted that the income from capitation fees was already assessed in Shri P.Lakshminarayana Reddy's hands. Therefore, the addition of Rs. 7,76,50,000 as the society's undisclosed income was not justified.

3. Addition of Unaccounted Expenditure:
The AO made an addition of Rs. 10 lakhs as unaccounted expenditure, based on a voucher found during the search. The CIT(A) deleted this addition, noting that the voucher was found at Shri P.Lakshminarayana Reddy's residence and not at the society's premises. Since Shri P.Lakshminarayana Reddy had already declared Rs. 18 crores as his personal income, which included the amount reflected in the voucher, the CIT(A) concluded that the addition of Rs. 10 lakhs in the society's hands was not justified. The Tribunal upheld the CIT(A)'s decision, agreeing that the addition was not warranted given the circumstances.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues. The society's claim for exemption under Section 11 was allowed, and the additions of Rs. 7,76,50,000 and Rs. 10 lakhs as undisclosed income and unaccounted expenditure, respectively, were deleted. The Tribunal emphasized that the capitation fees were collected by an individual for personal benefit, without the society's involvement, and that the income from these fees had already been assessed in the individual's hands.