2016 (6) TMI 95 - AT - Income Tax

Addition of capitation fees/donation made on protective basis in the hands of the assessee - CIT(A) deleted the addition - Held that - We find that the learned CIT(A) on examination of the composition of the Managing Council of SPM, Pune and the Admission Committee for the period relevant to assessment years 2005-06 to 2011-12 found that the name of the assessee in the case on hand does not appear in any of these two lists of Managing Council and Admission Committee members for the said period. It is also a matter of record that neither was any unexplained/ unaccounted cash found in the personal custody of the assessee in the course of search nor were any unexplained assets found in his case. We concur with the observations of the learned CIT(A) that while the assessee may have had a role to play in the admission process in respect of management seats at Welingkar alongwith several other persons, there was no material evidence brought on record by the AO to indicate that the assessee was solely authorized or responsible for finally deciding the admissions for management quota seats and for receiving the cash as capitation fees and donations thereof. No additions on account of cash receipts as capitation fees/donations for management quota seats for MMS/PGDM courses at Welingkar are to be made in the hands of the assessee in the case on hand for assessment years 2005-06 to 2011-12, since the substantive additions of the same income have been made in the hands of SPM, Pune who have challenged these additions on merits and have not so far challenged their assessments in appeal on the technical issue of in whose hands these additions are to be made and incomes are to be assessed. We also reiterate and uphold here the caveat laid down by the learned CIT(A) that in case the learned CIT(A) at Pune holds that the said income should be assessed in the hands of the assessee in the case on hand and not SPM, Pune, then the AO of Shri Uday N. Salunkhe will issue a show cause notice and can make the substantive assessment in this case after considering the assessee s submissions in this regard. It is accordingly ordered. - Decided against revenue

Summary

Issues Involved:
1. Legitimacy of additions on account of capitation fees/donations made on a protective basis in the hands of the assessee.
2. Whether the substantive additions should be made in the hands of the SPM Trust, Pune, or the assessee.
3. Procedural correctness of the assessment and appellate proceedings.

Issue-wise Detailed Analysis:

1. Legitimacy of Additions on Account of Capitation Fees/Donations:

The Revenue's appeals challenged the deletion of additions made on a protective basis in the hands of the assessee. The assessments for the years 2005-06 to 2011-12 included protective additions on account of capitation fees received for management quota seats at 'Welingkar', based on statements from six individuals associated with the institute. These statements were later retracted, and the individuals claimed no role in the admission process. The Assessing Officer (AO) did not accept these retractions, citing a lack of evidence of coercion and additional evidence found during the search. The CIT(A) observed that since the additions were made on a protective basis, tax demands could not be recovered from the assessee. The CIT(A) held that if the CIT(A) at Pune determined that the income should be assessed in the hands of the assessee, the AO could convert the protective assessments into substantive ones after issuing a show cause notice.

2. Substantive Additions in the Hands of SPM Trust, Pune:

The CIT(A) concluded that the substantive additions should be made in the hands of the SPM Trust, Pune, and not the assessee. The CIT(A) found that the SPM Trust, which manages several institutions, including 'Welingkar', is responsible for admissions under the management quota. Statements from key officials indicated that any capitation fees collected were sent to trustees of the SPM Trust. The CIT(A) noted that the SPM Trust had filed a letter stating that any additions should be made in its hands. The CIT(A) also observed that the assessee was not a member of the Managing Council or the Admission Committee responsible for admissions. The CIT(A) held that the same income could not be assessed in the hands of two different entities and that the substantive additions made in the hands of the SPM Trust were not challenged on the technical issue of whose hands the income should be assessed.

3. Procedural Correctness of the Assessment and Appellate Proceedings:

The CIT(A) noted that the search and seizure operations included the premises of key officials of the SPM Trust. The assessments for the SPM Trust were centralized in Pune, and the same additions were made substantively in its hands. The CIT(A) found that the SPM Trust had not challenged the substantive additions on the grounds of whose hands the income should be assessed. The CIT(A) emphasized that the protective additions in the assessee's hands were to safeguard the Revenue's interests. The CIT(A) provided a caveat that if the CIT(A) at Pune held that the income should be assessed in the hands of the assessee, the AO could issue a show cause notice and convert the protective assessments into substantive ones.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, agreeing that no additions on account of capitation fees/donations for management quota seats should be made in the hands of the assessee, as the substantive additions were made in the hands of the SPM Trust, Pune. The Tribunal reiterated the caveat that if the CIT(A) at Pune determined the income should be assessed in the hands of the assessee, the AO could issue a show cause notice and make the substantive assessment after considering the assessee's submissions. Consequently, the Revenue's appeals for the assessment years 2005-06 to 2011-12 were dismissed.