2011 (7) TMI 1018 - AT - Income Tax

Capitation fee allegations and admissibility of search statements in tax assessmentstatements without corroboration could not sustain additions, deletion confirmed

Relevance and admissibility of statements recorded during search formed the primary issue: the tribunal distinguished statements under search-procedure ... Addition towards Capitation fees - Relevence of statement made u/s 131 and 132(4) - The addition towards capitation fee by AO, was solely based on the sworn statement recorded under section 132(4) - CIT(A) deleted such addition HELD THAT:- We have gone through the facts, there is a whisper of collection of capitation fees by SO, but nowhere else there is such an admission made by him. Statement of president was recorded u/s 131, he has stated that whatever was received from the students was reflected in the books of account. Such statement was also made a basis for this addition. He was not examined u/s 132(4) A statement made u/s 131 cannot be equated with a statement recorded under section 132(4). A statement recorded u/s 132(4) is a valid and relevant piece of evidence but a statement recorded under section 131 is not so relevant. Nevertheless, even a statement recorded under section 132(4) cannot be made a sole basis for any such addition unless corroborated by seized material. If any admission is made in a statement recorded under section 132(4), this can be used with reference to any piece of evidence found during the course of search. In this case, no such piece of evidence or to say any incriminating evidence was either found or seized. In our well considered view, this addition could not have been made at all in the hands of the assessee-trust on the basis of such evidence. With regard to involuntary statement, extracted from the deponent, the Central Board of Direct Taxes has issued instructions, wherein it has been directed that search party shall not obtain confessions. So, the admission made u/s 132(4) by the concerned officer cannot be treated even as a valid piece of evidence. There being no incriminating document having been found or seized during search and the statement also being abstruse, the addition in question has no legs to stand on. Had there been a valid statement, even then, solely on the basis thereof, addition could not have been made. The decisions of the hon'ble Supreme Court in the case of COMMISSIONER OF INCOME-TAX, WEST BENGAL II VERSUS DURGA PRASAD MORE [1971 (8) TMI 17 - SUPREME COURT and SUMATI DAYAL VERSUS COMMISSIONER OF INCOME-TAX [1995 (3) TMI 3 - SUPREME COURT], which speak about human probabilities and realities which have to be taken into consideration while dealing with income-tax matters. In fact, this is not such a case. The ratio decidendi of these decisions would not apply in the absence of any direct piece of evidence available on record. We, therefore, confirm the order of the learned Commissioner of Income-tax (Appeals) in deleting the addition. Excess Income under the Income and Expenditure Account u/s 164(1) - Donations receipts of the trust have been diverted to the personal investment of the president. AO made addition regarding excess income under the income and expenditure account as per the proviso to section 164(1) HELD THAT:- When we have already held that there is no proof that the assessee had collected capitation fees in the guise of donation as has been alleged, there is no violation of the Tamil Nadu Educational Institutions (Prohibition of Collection of Capitation Fee) Act, 1992. The donation received/voluntarily given by anybody to charitable institutions towards its corpus is a permissible and legal activity and not an illegal activity terminating into denial of exemption under section 11. There is no evidence on record to show a link between the investments made with the trust's activities as per the provisions of section 164(1) read with section 13(1)(c) and 13(1)(d). Therefore, this addition cannot be sustained in the eye of law in view of our above observation. Accordingly, we confirm this impugned deletion Addition of cash found and seized by dept - Case of revenue is that this cash seized during search does not stand properly explained by the assessee - HELD THAT:- We have found that the list of students and the details of fees collected were found in the computer at the time of survey itself. The assessee had also explained the cash balance through letter before the Assistant Director of Income-tax, which is recorded in the assessment order also. The Assessing Officer issued summons under section 131 to the students and their sworn statements were recorded in which the students have admitted payment of such fees. The cumulative effect of these observations is that this amount cannot be so easily added in the hands of the assessee as it stands explained on record. In our considered opinion, the entire cash stands fully and satisfactorily explained and cannot be sustained in the hands of the assessee. Issues Involved:1. Addition of Rs. 5,37,00,000 towards capitation fees.2. Addition of Rs. 4,12,67,096 towards excess income under the income and expenditure account.3. Addition of Rs. 21,26,923 towards unaccounted cash.4. Addition of Rs. 1,27,00,000 towards capitation fees in the case of M/s Saveetha Institute of Medical and Technical Sciences.5. Addition of Rs. 5,26,21,407 towards excess income under the income and expenditure account in the case of M/s Saveetha Institute of Medical and Technical Sciences.6. Addition of Rs. 3,69,950 towards unaccounted cash in the case of M/s Saveetha Institute of Medical and Technical Sciences.Issue-wise Detailed Analysis:1. Addition of Rs. 5,37,00,000 towards capitation fees:The Revenue's appeal contested the deletion of the addition towards capitation fees allegedly collected from students. The addition was based on a sworn statement under section 132(4) by Dr. B. Muthukumaran, who claimed the institution collected capitation fees in cash without maintaining books. However, the Commissioner of Income-tax (Appeals) deleted this addition, noting that no incriminating evidence was found during the search to corroborate the statement. The Tribunal upheld this deletion, emphasizing that statements under section 132(4) alone, without supporting evidence, cannot justify such additions. The Tribunal also noted that the statements were contradicted by other evidence and denied by other trustees, making the addition unsustainable.2. Addition of Rs. 4,12,67,096 towards excess income under the income and expenditure account:The Revenue's appeal also challenged the deletion of an addition made under the proviso to section 164(1). The Assessing Officer argued that the trust diverted funds for personal use, thus violating section 13(1)(c). However, the Commissioner of Income-tax (Appeals) found no evidence of capitation fees or diversion of funds. The Tribunal agreed, noting that no concrete evidence was found during the search, and the admissions made by Dr. N. M. Veeraiyan were in his personal capacity, not on behalf of the trust. Consequently, the Tribunal confirmed the deletion of this addition.3. Addition of Rs. 21,26,923 towards unaccounted cash:The assessee's appeal contested the addition of unaccounted cash found during the search. The assessee claimed the cash represented tuition fees and other legitimate receipts. The Commissioner of Income-tax (Appeals) upheld the addition, but the Tribunal found that the cash was satisfactorily explained through statements and corroborating evidence, including statements from students. Therefore, the Tribunal deleted the addition, allowing the assessee's appeal.4. Addition of Rs. 1,27,00,000 towards capitation fees in the case of M/s Saveetha Institute of Medical and Technical Sciences:Similar to the first issue, the Revenue's appeal contested the deletion of an addition towards capitation fees allegedly collected from students in another trust. The facts and circumstances were similar, and the Commissioner of Income-tax (Appeals) had deleted the addition for lack of corroborating evidence. The Tribunal upheld this deletion, following the same reasoning as in the first issue.5. Addition of Rs. 5,26,21,407 towards excess income under the income and expenditure account in the case of M/s Saveetha Institute of Medical and Technical Sciences:The Revenue's appeal also challenged the deletion of an addition made under the proviso to section 164(1) for another trust. The facts and circumstances were similar to the second issue, and the Commissioner of Income-tax (Appeals) had deleted the addition for lack of evidence. The Tribunal upheld this deletion, following the same reasoning as in the second issue.6. Addition of Rs. 3,69,950 towards unaccounted cash in the case of M/s Saveetha Institute of Medical and Technical Sciences:The assessee's appeal contested the addition of unaccounted cash found during the search in another trust. The facts and circumstances were similar to the third issue, and the Commissioner of Income-tax (Appeals) had upheld the addition. The Tribunal found that the cash was satisfactorily explained through statements and corroborating evidence, including statements from students. Therefore, the Tribunal deleted the addition, allowing the assessee's appeal.Summary of Results:- Both appeals of the Revenue were dismissed.- Both appeals of the assessee were allowed.