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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 ..... icer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide Annexure A/PLR/01 and A/PLR/02 from the residential premises of Shri P.Lakshminarayana Reddy. Copies of these documents were also stated to be found from the office premises of the assessee society. The seized material contained the names, fee fixed, advance received etc. in the case of students under management quota. There were also entries found recorded in the incriminating material showing the details of cash transactions involving receipt of huge amounts from the students who got admitted under the management quota and the expenses incurred from such receipts in cash. The incriminating material thus was in the nature of a cash book, wherein unaccounted receipts and payments were recorded. During the course of search, a sworn statement of Shri P.Lakshminarayana Reddy, Finance Manager of the assessee society was recorded under S.132(4), and when the incriminating material showing entries of unaccounted receipts and payments in cash found at this residence was confronted to him, he admitted that the same was relating to fee collections for the academic year 2011-12 in respect of students admitted under management quota. He also accepted that the amounts recorded therein wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd made a disclosure of ₹ 18 crores on this count as his undisclosed income for assessment year 2012- 13. 7. The sworn statement of Shri P.Lakshminarayana Reddy, was again recorded under S.131 of the Act on 8.8.2011 in the office of the DCIT Unit II(2), wherein he categorically accepted that the assessee society was not aware of the cash receipts part in the fees of management quota, and that such receipts represented his own undisclosed income. He reiterated that he has already agreed to disclose ₹ 18 crores as his undisclosed income for assessment year 2012-13, which also included cash of ₹ 7,50,000 seized from his residence as well as cash of ₹ 2.3 crores seized from the bank locker in the name of Shri Saatyanarayana Reddy. He stated that the assessee society or its President, Shri P.Ajay Kumar did not have any role in the collection of extra fee in cash from the students of the management quota and the statement earlier made by him that such collection was made at the instance of Shri P.Ajay Kumar was due to pressure and tension. He stated that he had an apprehension at that stage that the management might take action against him for the collection of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri P.Lakshminarayana Reddy in his statement and there was thus a clear violation of S.13(1)(v) of the Act, making the assessee society disentitled for exemption under S.11. In this regard, the objection raised by the assessee society that it was not at all connected with the collection of capitation fee and such collection having been admitted by Shri P.Lakshminarayana Reddy as his income and the money having never reached the assessee society or any person related to it, no adverse inference could be drawn in its case, was not found sustainable by the Assessing Officer, and overruling the same, he disallowed the claim of the assessee for exemption under S.11 for the surplus of ₹ 14,32,05,514 earned during the year under consideration and also added the capitation fee of ₹ 7,76,50,000 in its hands, as undisclosed income, in the assessment completed under S.143(3) read with S.153A of the Act, vide order dated 30.9.2013 . 11. Against the order passed by the Assessing Officer under S.143(3) read with S.153A, an appeal was preferred by the assessee before the learned CIT(A), challenging the action of the Assessing Officer in disallowing its claim for exemption under S.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled before the Assessing Officer, but the same was completely overlooked by him, while denying the claim of the assessee for exemption under S.11 of the Act. 12. It was also contended on behalf of the assessee society before the learned CIT(A) that the relevant seized documents were found and seized from the residence of Shri P.Lakshminarayana Reddy and not from the office of the society or the residence of its office bearers. It was brought to the notice of the learned CIT(A) that the said documents contained the signatures of only Shri P.Lakshminarayana Reddy and there being no signature of any office bearer of the assessee society, it was clearly established that the said documents were found and seized from the residence of Shri P.Lakshminarayana Reddy and not from the residence of any office bearer or the premises of the assessee society. It was also pointed out that no question whatsoever was put to Shri P.Ajay Kumar while recording his statement on the basis of the relevant seized documents, which again goes to prove that the said documents were not found from the premises of the assessee society or the residence of Shri P.Ajay Kumar. It was submitted that the assessee soc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the management quota students. The same fact has also been confirmed by Sri P.Lakshminarayan Reddy who has initially stated that he collected the amounts on behalf of the Society, but wh n the DDIT allowed the Trustee of the Society to confront him, has categorically stated that he collected the ex a amount on his own for his personal benefit misusing the responsibilities of looking after the management quota admissions entrusted to him for the Financial year 2011- 12. He has also confirmed that neither the Society has authorized this collection nor aware of it and these extra collections never reached the Society. Accordingly, he declared an additional income of ₹ 18 Crores for the Asst. Year 2012-13 in his personal return and also paid the due taxes thereon. The DDIT and the Assessing Officer have accepted this disclosure both during search and assessment stage. No enquiries were made nor any evidence gathered and placed on record to show that the Society has collected excess capitation fee from the students of management quota. The Assessing Officer has also not examined as to whether the capitation fee collected by Sri P.L.N.Reddy has reached either the Society or its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anything done by the employee beyond the scope of powers given to him will not bind the principal/society.' The cash deposited in the Head Office by itself cannot be treated as fund collected by the society. The said amount has been assessed in the personal hands of Sri K.T.Mahi as the collected amounts have not reached the society, therefore, the exemption u/s.L: cannot be denied. It cannot also be said that the seized documents, on which, the Assessing Officer had placed reliance conclusively proved that it was only the society, which is received the excess money. The circumstances only show that it was Sri K. T Mahi, who has collected excess money without the knowledge or the authority of the society. In other words, none of the monies were collected by Sri K. T Mahi on the authority of the society." The facts of the above cited cases are identical to that of instant case. In the above case, it was Sri K.T.Mahi, is the Managing Trustee of the Society where it has been held that the excess amounts collected by the Managing Trustee have nothing to do with the Society while in the instant case, it is Sri P.Lakshminarayana Reddy, who worked as Finance Officer of the Society, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S.11 and deleting the addition of ₹ 7,76,50,000 made by the Assessing Officer on account of extra fee treating the same as undisclosed income of the assessee, Revenue has raised the following rounds in the present appeal filed before the Tribunal. "1. The Ld. CIT(A)-I, Hyderabad has erred in both facts and in law. 2. The Ld. CIT(A)-I, Hyderabad erred in allowing the exemption u/s. 11 to the assessee society inspite of violation of sec.13(1)(c) of the I.T. Act by the assessee society. 3. The Ld. CIT(A)-I, Hyderabad ought to have appreciated the fact that the Shri P.Lakshminarayan Reddy is in-charge of admissions in management quota and therefore he is responsible for managing the admission in management quota and worked as manager, hence he is well covered u/s. 13(3)(cc) of the I.T. Act. 4. The Ld. CIT(A)-I, Hyderabad ought to have appreciated the fact that the material related to the collection of capitation fee found at the residence of Shri P. Lakshminarayan Reddy belongs to the society and hence, the society is responsible for the collection of capitation fee." 16. The Learned Departmental Representative submitted that the claim of the assessee for exemption under S.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .11 is allowed by her merely relying on the surrender made by Shri P.Lakshminarayana Reddy on account of capitation fee, accepting the same as his individual income ignoring the fact that the capitation fee was being collected by the said employee on behalf of the assessee society, at the instance of its President, as revealed during the course of search. 17. The learned counsel for the assessee, on the other hand, strongly supported the impugned order of the learned CIT(A), allowing the claim of the assessee for exemption under S.11. He submitted that as per the clear finding given by the learned CIT(A) in her impugned order, the relevant seized documents were found and seized from the residence of Shri P.Lakshminarayana Reddy and only photo copies of the said documents were brought to the premises of the assessee society. He pointed out that the said documents contained the signature of Shri P.Lakshminarayana Reddy only, and they did not bear the signature of Shri P.Ajay Kumar, which clearly shows that these documents were found from the residence of Shri P.Lakshminarayana Reddy and not from the premises of the assessee society or from the residence of Shri Ajay Kumar. He also t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its executive committee member. 19. The learned counsel for the assessee contended that the capitation fee as found during the course of search thus was received by Shri P.Lakshminarayana Reddy in his individual capacity for his personal benefit and not by the assessee society, and the same having been already assessed in the hands of the said individual by the department, it cannot be said the same represented the income of the assessee society, to draw an adverse inference that the activities of the assessee society were with profit motive, making it disentitled for exemption under S.11. He contended that the learned CIT(A) therefore, has rightly deleted the addition made by the Assessing Officer to the total income of the assessee on account of capitation fee and has also allowed the claim of the assessee society for exemption under S.11. In support of this contention, the learned counsel for the assessee relied on the decision of the coordinate Bench of this ibunal in the case of Sree Educational Society V/s. CIT (ITA No.564/Hyd/2012 dated 31.7.2013) and the decision of the Bangalore Bench of this Tribunal in the case of Shri M.J.Balachander V/s. DCIT (ITA Nos.92 to 94/Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r S.132(4), which again was a clear indicator that the said documents were not found either from the premises of the assessee society or from the residential premises of Shri P.Ajay Kumar. 21. In his statement recorded during the course of search under S.132(4), Shri P.Lakshminarayana Reddy initially stated that capitation fee found recorded in the relevant seized documents was collected by him on behalf of the assessee society at the instance of Shri P.Ajay Kumar. When this statement of Shri P.Lakshminarayana Reddy was confronted to Shri P.Ajay Kumar, while recording his statement during the course of search, Shri P.Ajay Kumar flatly denied either his involvement or the involvement of the assessee society in collection of the capitation fee and sought cross examination of Shri P.Lakshminarayana Reddy. When he was allowed to talk to Shri P.Lakshminarayana Reddy on phone, the latter changed his version and admitted that the capitation fee was collected by him in his individual capacity for his personal benefit without any involvement of the assessee society. Accordingly, in the latter part of his statement recorded during the course of search, Shri P.Lakshminarayana Reddy agreed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... narayana Reddy, but also admitted that the capitation fee was collected by him for his personal benefit without any knowledge or involvement of the assessee society or its executive committee members. On the other hand, when this aspect of collection of capitation fee was confronted to Shri P.Ajay Kumar, while recording his statement under S.132(4) during the course of search, he flatly denied having any knowledge about the same, and also categorically stated that neither he nor the assessee society was involved in the collection of any capitation fee. Finally, Shri P.Lakshminarayana Reddy filed his return of income for the year under consideration on 27.8.2023 offering the additional income of ₹ 18 cores surrendered during the course of search on account of capitation fee, seized cash etc. During the course of assessment proceedings before the Assessing Officer, the stand taken in the later part of his statement recorded during the course of search as well as in the statement recorded on 8.8.20111 and in the affidavit on 9.8.2011 was reiterated by him, and the same was accepted by the Assessing Officer in the assessment completed under S.143(3) read with S.153A, vide order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the claim of society for exemption under S.11 could not be denied as the amount of capitation fee was not received by it, but was received by the concerned employee. 25. Having regard to all these facts and circumstances of the case, as discussed above and keeping in view the decision of coordinate bench in the case of Sree Educational Society (supra) 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 cl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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