2019 (3) TMI 1267 - HC - Income Tax

Addition of Undisclosed Income - Source of payment of Capitation Fee - Assessee in the statements recorded u/s 132(4) admitted payment of Capitation Fee - scope of the admission in the statement - HELD THAT - There is no admission on the part of the Assessee in the present case that Capitation Fee was paid by the Assessee out of Undisclosed Income not so far declared. Just because the statements state that he paid Capitation Fee to the Engineering College viz., Satyabhama Engineering College, Chennai, it does not mean that it could result in an addition ipso facto in the already declared Undisclosed Income in the hands of the Assessee in his Returns filed after the search. In fact, on the basis of disclosure of Undisclosed Income made by the Assessee himself in the Return of Income after search was made to the extent of ₹ 23,65,700/- and the same was brought to tax, the Assessee has paid tax thereon. Therefore, even though such Capitation fee was presumed by the Assessing Authority to have been paid out of Undisclosed Income, there was no reason to impose tax separately on the said amount and the same could have been very well taken as paid out of Declared Undisclosed Income in the Return filed by the Assessee after the search. We cannot sustain such an addition merely on the basis of the alleged admission made by the Assessee in the Statements. Such an addition could not have been made, as we do not find any incriminating confession made by the Assessee in the said statements recorded under Section 132 (4) of the Act. Such an admission on the part of the assessee would require a corroborative evidence to support such an addition and, therefore, such an unsupported, vague and non-specific admission can not result in a sustainable addition in the declared income, attracting imposition of tax thereon. The scourge of Capitation Fee by Medical and Engineering Colleges is an infamous and thoroughly extortionist act that is going on in the education sector in our country and it is almost a known fact that these so called Educational Institutions act more like Business Houses rather than Educational Institutions, throwing out of gear the entire higher educational system in India. Parents and students, who are compelled to pay such high Capitation Fee in different forms developed in innovative ways, have no choice in the matter and such Capitation Fee is just extracted from them, making an affordable higher education a mirage for middle class families. What the Revenue-Department i.e., Income Tax Department, having come to know of such facts existing should have proceeded against such Engineering Colleges cancelling their Section 11 exemption entitlements, which most of them illegally enjoy, rather than punishing parents and students by imposing tax on such alleged Undisclosed Income merely on the basis of the so called admission made in the statements recorded u/s 132 (4) which too, as we have found in the present case, does not support the case of the Revenue at all. Therefore, we find that the orders passed by both the Appellate Authorities below are perverse and unsustainable - Appeal of the Assessee deserves to be allowed

Summary

Issues:
Addition of Capitation Fee as Undisclosed Income without evidence found during search.

Analysis:
The appellant filed an appeal challenging the addition of ?5,60,000 as undisclosed income by the Income Tax Appellate Tribunal. The appellant admitted in statements that he paid ?5.00 lakhs as Capitation Fee and ?60,000 as Annual Fee for his son's admission to an Engineering Course. The Assessing Authority made the addition during the Assessment proceedings under Section 158BC of the Income Tax Act. The appellant disclosed undisclosed income of ?23,65,700 and paid tax on it. The Tribunal upheld the addition, stating that the appellant's admission in the sworn statement justified the inclusion of the amount in the undisclosed income. The appellant argued that there was no admission that the Capitation Fee was paid from undisclosed income. The High Court observed that the statements alone cannot lead to a separate addition if there is no incriminating confession. The Court noted the prevalence of Capitation Fees in educational institutions and criticized the punitive action on parents and students instead of the institutions. The Court allowed the appeal, stating that the admission in the statements did not disclose the source of payment as undisclosed income, and the addition was not justified.

In conclusion, the High Court allowed the appeal, ruling in favor of the Assessee and against the Revenue. The Court emphasized that the statements alone cannot lead to a sustainable addition in declared income without corroborative evidence. The Court criticized the practice of imposing tax on alleged undisclosed income without proper investigation and action against institutions involved in extortionate practices.