2022 (4) TMI 1173 - AT - Income Tax

Exemption u/s 11 - appellant society had undisclosed income - appellant had been indulging in collection of the capitation fees - Reliance on statement recorded from the students and their parents u/s. 131 or 133(6) - As per assessee statement recorded u/s. 132(4) cannot be discarded merely because the retractment statements were filed - CIT(A) confirmed the findings of the Assessing Officer that the appellant society had been accepting the cash donations or capitation fees outside the books of accounts towards admission of the students under the management quota in the various institutions run by the appellant society - as course of search and seizure operations the Investigation Wing of the Department unearthed certain loose sheets - HELD THAT - It is settled position of law that the admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It is open to the assessee who made the admission to show that it is incorrect as held by the Hon ble Supreme Court in the case of Pullangode Rubber Produce Company Ltd. vs. State of Kerala Another 1971 (9) TMI 64 - SUPREME COURT An admission if clearly and unequivocally made is the best evidence against the party making it and though not conclusive shifts the onus on the maker on the principle that what a party himself admits to be true may reasonably be presumed to be so and until the presumption was rebutted the fact admitted must be taken to be established Thiru John v. Returning Officer 1977 (4) TMI 173 - SUPREME COURT . In the light of this above legal position the statement voluntarily made by the assessee could form the basis of assessment. As retraction statements can be said to be self-serving and no credence can be given and the retraction statements looses significance and an afterthought. Therefore the statement recorded u/s. 132(4) cannot be discarded merely because the retractment statements were filed. The statements u/s. 132(4) are true and correct and brings out the correct picture as at that time the maker of the statement is uninfluenced by external agencies and it is the statements are recorded in the presence of the independent witnesses. Therefore in our considered opinion the so-called retraction statements are simple a self-serving statements without any material and cannot override the statements recorded u/s. 132(4) of the Income Tax Act. The reliance placed by the ld. Counsel on the decision of the Hon ble Delhi High Court in the case of CIT vs. Sunil Agarwal 2015 (11) TMI 286 - DELHI HIGH COURT cannot come to the rescue of the appellant herein for the reason that in the said case the assessee apart retracting the statement also discharged the onus of proving the statement is incorrect through cogent material We have no hesitation to hold that the so called retraction statements cannot be given any credence on the other hand the statements given by three persons named above u/s. 132(4) of the I.T. Act carries more evidentiary value and cannot be discarded. Assessing Officer also brought corroborative evidence in the form of the evidence showing refund of capitation fees recommendation letters given by VIPs of the locality seeking waiver/reduction in the capitation fees/donations exchange the SMS messages between Shri Arvind Deshpande and Shri Sharad Bhosale and Dr. Janardan Garde and admission agent Shri Surendra Nagar. This corroborative evidence remains uncontroverted by the appellant society. Thus there is a conclusive evidence brought on record by the Assessing Officer to hold that the appellant had been indulging in collection of capitation fees from the students at the time of admission in various courses under the management quota. The contention raised on behalf of the appellant that the addition on account of capitation fees cannot be sustained for the reason of the failure of the Assessing Officer to consider the statement recorded from the students and their parents u/s. 131 or 133(6) even assuming for a moment that the students and their parents have denied having paid any capitation fees no credence can be given to their testimony as the students and their parents are complementary and supplementary to the appellant society as they are undergoing studies in the institution run by the appellant society and any adverse testimony against the appellant society would also result in adverse consequences to them under the provisions of the Income Tax Act. Thus the testimony by students and their parents is only self-serving hence no credence can be given. It is settled position of law that the amount of capitation fees received over and above the prescribed under the provisions of the Maharashtra Educational Institution (Prohibition of Capitation Fees) Act 1987 is not eligible for exemption u/s. 11 as the practice of collection of capitation fees is contrary to the law laid down by the Hon ble Apex Court in the case of Islamic Academy Of Education And Another vs. State Of Karnataka And Others 2003 (8) TMI 469 - SUPREME COURT and also against public policy and the contrary to the provisions Maharashtra Educational Institution (Prohibition of Capitation Fees) Act 1987. Thus the appellant is not eligible for exemption of income of capitation fees received outside books of accounts u/s. 11 and the Assessing Officer had rightly brought to tax. Accordingly the ground appeal no. 1 to 7 stands dismissed. Denying the exemption u/s. 11 of the entire income for violation of provisions of section 13(1)(c) on receipt of the capitation fees - Hon ble Supreme Court in the case of Director of Income-tax vs. Bharat Diamond Bourse 2002 (12) TMI 8 - SUPREME COURT wherein the Hon ble Apex Court held that when specified person in the present case President of the appellant society because of the position as a trustee misuses his powers by lending himself or taking away the income or the funds of the trust then it tantamount to breach of the trust indicating that the trust was formed for a personal gain and therefore it cannot be said that the objects of the appellant society are charitable and therefore the income of the appellant trust does not qualify for exemption u/s. 11 of the Act. Therefore we uphold the action of the Assessing Officer in denying the exemption on the whole of income derived by the appellant society. We must clarify here that though the AO denied the exemption of entire income u/s. 11 for the reason of alleged violation of provisions section 13(1)(c) of the Income Tax Act though the action of the AO denying the exemption on entire income is untenable under law for violation of provisions of section 13(1)(c) the action of the AO is upheld by us in view of our findings that the appellant society was formed with for the purpose of private gains. Thus we do not find any merit in the ground of appeal raised by the appellant society and stands dismissed. Disallowance of prior period expenses - AO disallowed as sum by holding that the expenditure is pertaining to the prior period - HELD THAT - No evidence is filed before us demonstrating that the liability for this expenditure was crystallized for the previous year relevant to the assessment year under consideration when the income of the appellant society has been assessed to tax. The action of the Assessing Officer on this issue is totally justified. Hence we do not find any merit in the ground of appeal no. 10 and the same stands dismissed. Income of the appellant society not attributable to the violation of provisions of section 13(1)(c) shall be taxed at normal rate of tax - HELD THAT - This finding of the ld. CIT(A) contrary to the plain provisions of section 164 of the Act according to which the beneficiaries of the trust are unknown. The income of the trust shall be assessed at maximum marginal rate of tax. Therefore the findings of ld. CIT(A) are hereby reversed the grounds of appeal filed by the Revenue stands allowed

Summary

Issues Involved:
1. Collection of capitation fees by the appellant society.
2. Siphoning off of capitation fees by the President of the appellant society.
3. Violation of provisions of section 13(1)(c) of the Income Tax Act.
4. Denial of exemption under section 11 of the Income Tax Act.
5. Disallowance of prior period expenses.

Detailed Analysis:

1. Collection of Capitation Fees:
The appellant society, a trust registered under the Bombay Public Trust Act, 1950, and section 12A of the Income Tax Act, 1961, was found to have indulged in the collection of capitation fees for admissions under the management quota. A search and seizure operation conducted on 06.08.2013 revealed several documents and loose papers indicating unaccounted capitation fees. The Assessing Officer (AO) concluded that these documents evidenced the collection of capitation fees, which were not recorded in the books of accounts. Statements recorded under section 132(4) from key individuals like Shri Arvind Deshpande, Shri Sharad Bhosale, and Dr. Janardan Garde corroborated these findings. The AO assessed the total capitation fees collected at ?5223.85 lakhs, with ?2266.25 lakhs collected in the assessment year 2014-15.

2. Siphoning Off of Capitation Fees:
The AO held that the capitation fees collected were siphoned off by the President of the appellant society, Shri Maruti N. Navale, for personal enrichment. Evidence included loose sheets, statements from involved individuals, and recommendation letters from VIPs. The AO also highlighted the role of admission agents and SMS exchanges as corroborative evidence. The AO concluded that the siphoned funds were introduced into accommodation bills for jewelry sales and cash deposits.

3. Violation of Provisions of Section 13(1)(c):
The AO invoked section 13(1)(c) r.w.s. 13(2)(b) of the Income Tax Act, holding that the President and other specified persons were using the property of the appellant society for personal purposes without compensating the society. This included providing rent-free accommodation to Shri Maruti N. Navale and his family members.

4. Denial of Exemption Under Section 11:
The AO denied the exemption under section 11 of the Income Tax Act, considering the violation of section 13(1)(c) and the collection of capitation fees against public policy and the Maharashtra Educational Institution (Prohibition of Capitation Fees) Act, 1987. The CIT(A) upheld this denial and directed that income not eligible for exemption under section 11 be taxed at the normal rate, while income resulting from the violation of section 13(1)(c) be taxed at the maximum marginal rate.

5. Disallowance of Prior Period Expenses:
The AO disallowed prior period expenses amounting to ?2,27,35,426/- on the grounds that the appellant society did not furnish evidence to justify that the liability for these expenses crystallized in the relevant assessment year. The CIT(A) confirmed this disallowance.

Judgment:
The Tribunal upheld the findings of the lower authorities on all issues. The appellant society's appeals were dismissed, and the Revenue's cross-appeals were allowed. The Tribunal concluded that the appellant society had been collecting capitation fees, which were siphoned off by the President for personal enrichment, violating section 13(1)(c) and justifying the denial of exemption under section 11. The disallowance of prior period expenses was also upheld. The Tribunal emphasized that the statements recorded under section 132(4) had significant evidentiary value, and the retractions made by the individuals involved were not credible.