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TMI Blog2015 (8) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... namely, Mamatha College of Medial, Mamatha College of Dental; Mamatha College of Nursing and Mamatha College of Medical Lab Technology. Number of seats available under management quota in these institutions during the year under consideration were as under Sl. No. Name of institution Course No. of management seats Prescribed fee Rs. 1. Mamatha College of Medical MBBS Medical PG 60 45 5,50,000 5,25,000 2. Mamatha College of Dental BDS PG 40 11 2,50,000 3,70,000 Medical Miscellaneous Seats 20 2,50,000 The return of income for the year under consideration was filed by the assessee on 29.12.2012 declaring total income at Rs.NIL after claiming the entire surplus of Rs. 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 assessee society was also covered in the search action. During the course of search, certain in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay 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 he was not aware of any cash receipts mentioned by Shri Lakshminarayana Reddy, who was in charge of admissions under the management quota. He stated that Shri P.Lakshminarayana Reddy having admitted in his statement of receipt of cash for admissions under the management quota, the same represented his income. Shri P.Ajay Kumar was also sought for the cross examination of Shri P.Lakshminarayana Reddy and keeping in view the same, the search team allowed Shri P.Ajay Kumar to contact Shri P.Lakshminarayana 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for selling education. According to the Assessing Officer, 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. He also held that the material seized during the course of search clearly established collection of money over and above 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 that it was not administering the educational institution for le purpose within the meaning of S.2(15) of the Act, but it was done for a profit motive. He held that the capitation fee received for admission under management quota was handed over to the Chairman and other interested persons of the assessee society, as admitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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. It was contended that there was thus no evidence found during the course of search to establish that the activities of the assessee society involved an element of profit and the adverse inference drawn by the Assessing Officer while denying the claim of the assessee for exemption under S.11 was without any logical reason. It was contended that the burden of proving any violation for denying the claim of assessee for exemption under S.11 was on the Assessing Officer, and there was a clear failure 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h extra fee, there was no violation of any provision of S.11, 12 or 13 making it disentitled for exemption under S.11. 13. The learned CIT(A) found merit in the submissions made on behalf of the assessee society and deleted the addition of Rs. 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 Rs. 7,76,50,000/- as the appellant's undisclosed income, it is seen that the Assessing' Officer has quantified the unaccounted receipts collected from the students who joined in MBBS, PG, BDS and MDS under management quota and arrived at the above amount based on the incriminating material found at the residence of Sri P.L.N.Reddy, the Finance Officer of the Society. It is also noted that right from the date of search, the appellant-society has been contending that it has not received any capitation fee/donations from the management quot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The addition made in the hands of Society is directed to be deleted. It is also held that the benefit of section of the Act cannot be denied to the Society as there are no circumstances justifying the denial of benefits of section of the Act to the Society. Accordingly, the grounds of appeal of the Revenue in the case of the Society and MJB are dismissed. " 06.2 It is also noted that the Hon'ble ITAT, Hyderabad Bench 'A' in the case of Sree Educational Society vs. CIT(Central), Hyderabad has relied on the above decision 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 have been given by the society and it is only, then, it can be said that the acts of the employees will bind the principal. Anything done by the employee beyond the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fee. Further, since the Registration granted u/s. 12A of the Act has not been cancelled till date (verified from the Addl. CIT, Central Range-1, Hyderabad), the Assessing Officer is not justified in treating the Society as AOP. In view of the above, since the registration of the appellant-society has been in vogue and since it is held in the preceding paragraph that the appellant society has not collected the capitation fee denying the exemption u/s 11 of the I.T. Act, adding the surplus of Rs. 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 Rs. 7,76,50,000 made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our attention to the copies of the relevant seized documents placed at pages Nos.95 and 96 of the paper-book and submitted that the entries found recorded therein had also involved entries relating to certain expenditure pertaining to the assessee society, which are sufficient to show that all the entries found recorded in the 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 activities were carried on by the assessee society with profit motive, and it was therefore, not entitled for exemption under S.11, as rightly held by the Assessing Officer. She contended that this vital aspect has not been properly appreciated by the learned CIT(A) and the claim of the assessee for exemption under S.11 is allowed by her merely relying on the surrender made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 total income of Rs. 18 cores was accordingly offered by Shri P.Lakshminarayana Reddy in his individual return filed for the year under consideration, which included the amount of capitation fee, cash found during the course of search as well as other discrepancies that might have been noticed during the course of search, and the Department having assessed the said income in his hands on substantive basis, it is not permissible to consider the same amount as the income of the assessee society, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iety and one other office bearer. During the course of search, relevant documents identified as per Annexure A were found and seized 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 of Shri P.Lakshminarayana Reddy were brought to its office and this case of the assessee was accepted by the learned CIT(A), after having found that the said documents contained the signature of Shri P.Lakshminarayana Reddy only and there were no signatures of either Shri P.Ajay Kumar or any other executive committee member of the assessee society. The learned CIT(A) also noted that no question was put to ShriAjay Kumar relating to the said documents during the course of recording his statement under S.132(4), which again was a clear indicator that the said docum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the statement initially made by him during the course of search involving the name of the assessee society and its president, Shri P.Ajay Kumar the collection of capitation fee was due to pressure and tension due to fear that the management might take action against him for such collection. Thereafter on 9.8.2011, Shri P.Lakshminarayana Reddy also filed an affidavit affirming all these averments on oath and admitting Rs. 18 crores as additional income for the year under consideration. 23. The 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 the cash found from his residence as well as from the bank locker maintained in the name of Shri Satyanarayana Reddy, but also admitted that the capitation fee was collected by him for his person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring 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 residence of any of its executive committee members to show any unexplained or unaccounted investment either in the name of the assessee society or in the names of its executive committee members. In the case of Sree Educational Society (supra) cited by learned counsel for the assessee, similar facts were involved as much as one employee of the society had collected the capitation fee in cash without any authority or without ay knowledge of the society. The amount of such capitation fee was also assessed 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... residence of Sri P.Lakshminarayana Reddy who has declared Rs. 18.00 crores as his personal income. Since all these transactions are well covered in the amount of personal income declared by him as can be seen from the assessment order in the case of Sri P.L.N.Reddy, the, addition made of Rs. 10,OO,OOOj - in the hands of appellant-society, cannot be sustained and hence, is ordered to be deleted." 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 Rs. 18 cores declared by him was sufficient to cover the amount of Rs. 10 lakhs reflected in the said voucher, there was no justifiable reason for the Assessing Officer to make the addition of Rs. 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, we dismiss Ground No.5 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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