TaxTMI 
TaxTMI 
TaxTMI 
2022 (4) TMI 1173
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....ar 1993 with the objects of imparting the education. The appellant society is also registered u/s. 12A of the Income Tax Act, 1961 ('the Act'). It is running several Colleges i.e. it has got 12 Campuses and 97 Institutions in the State of Maharashtra. 4. A search and seizure operations were conducted under the provisions of section 132 of the Income Tax Act, in the premises of the appellant society on 06.08.2013. As a result of search and seizure action, several documents, loose papers had been found and seized. According to the Assessing Officer, these loose sheets indicated collection of capitation fees for admission of the students under Management Quota in the various institutions of the appellant society. The details of seized assets and documents found unearthed as result of search and seizure operations as set out by the AO vide page no. 2 of the assessment order as under:- Sr. No. Particulars of Premises with address Cash (in Rs.) Jewellery (valued in Rs.) Seized / impounded documents. (Number mentioned in bracket is digital seized material) Found Seized Found Seized 1 Society Office STE Society Campus, S. No. 44/1, Vadgaon (Bk.), Off Sin....
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....g the exemption of income u/s. 11 of the Act and taxed the total income at maximum marginal rate of tax. While doing so, the Assessing Officer had brought to tax the excess income of expenditure of Rs. 89,65,46,443/- and unaccounted capitation fees of Rs. 22,66,25,000/-. The factual matrix of the case leading to the above additions is as under: There was a search and seizure operations conducted u/s. 132 of the Act on 06.08.2013. As a result of search and seizure operations, the cash amounting to Rs. 17,97,700/- was found. Out of which, the cash of Rs. 13,64,000/- was seized and certain documents were impounded as set out by the Assessing Officer in para 1 of the assessment order (extracted supra). During the course of assessment proceedings, the Assessing Officer had analyzed the seized materials and also considered the statements recorded by the Investigation Wing of the Department from three persons u/s. 132(4) of the Act and had come to conclusion that the appellant society had indulged in collection of capitation fees for admission of students under Management Quota, which is against the public policy as well as the provisions of Maharashtra Educational Act. The incriminating....
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....alyzed the notings found on the Application Forms of the students admitted under Management Quota. He also set out the procedure adopted for admission of the students under Management Quota as well as the modus operandi adopted for collection of capitation fees vide para 4 of the assessment order. (For the sake brevity of the order we chosen not to reproduce the order). The Assessing Officer also reproduced the scanned images of the notings on the Application Forms at page 8 of the assessment order. According to the Assessing Officer, these notings were made by one Shri Arvind Deshpande, who was the Principal of Smt. Kashibai Navale Engineering College, Pune, an institution runs by the appellant society, another person viz. Shri Sharad Bhosale who was the Accounts Officer of the appellant society. 9. The Assessing Officer also examined the statements given by Shri Arvind Deshpande, Shri Sharad Bhosale and Dr. Janardan Garde u/s. 132(4) of the Act on the above notings and had come to conclusion that Shri Sharad Bhosale is the person who actually collected the amount of donation/capitation fees for admission of the students under Management Quota in cash under instructions from Shri....
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.... wherein the said Shri Sharad Bhosale had admitted that the amounts as mentioned by Shri Arvind Deshpande on the notings made in the application forms were received by him and the figures mentioned in the loose sheets represent the amount in 'Lakhs'. The AO also considered the statement recorded from Dr. Janardan Garde u/s. 132(4), who looks after admissions to PG and UG Dental courses under management quota, reproduced at page no. 50, 51, 52, 53 and 54 of the assessment order wherein, the said Dr. Janardan Garde had stated that he was only acting as per the instructions of Shri Maruti N. Navale and he was responsible for negotiation with the students and their parents for capitation fees. He also confirmed that the SMS messages exchanged between Shri Arvind Deshpande and Shri Sharad Bhosale are regarding the capitation fees charge. Another statement was recorded from Dr. Janardan Garde on 21st August, 2013 wherein, he stated that the answers given by him in the statement recorded u/s. 132(4) are based on the fact and the statement was given voluntarily without influenced by anybody/any fears and without any threat. Based on the notings found in the loose sheets and the sta....
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....ppellant society had been in the habit of collection of the capitation fees for admission of the students under the management quota. The search and seizure operations were also conducted in the residential premises of one of the admission agents, namely, Shri Surendra Nagar. During the course of said search and seizure operations, the loose papers containing 33 pages were found. The loose papers are in handwriting of Shri Arvind Deshpande. The scanned image of one of the loose papers is also reproduced at page no. 41 of the assessment order. The statement of said Shri Surendra Nagar was also recorded u/s. 132(4) of the Act wherein, he had clearly admitted that he was working as an admission agent for the appellant society in coordination with Shri Arvind Deshpande and Shri Sharad Bhosale for admission of the students under the management quota in consideration of some commission. The statement recorded from Shri Surendra Nagar was reproduced by the Assessing Officer in page no. 41, 42 and 43 of the assessment order. Further, the Assessing Officer also took note of the digital backup of mobile of Shri Arvind Deshpande as well as digital data of Dr. Janardan Garde, who looks after t....
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...., Shri Maruti N. Navale. According to the AO, the funds so siphoned off by Shir M.N. Navale were introduced by him in the accommodation bills for jewellery sale and cash deposit of Rs. 3,00,84,382/-. The Assessing Officer further held that the capitation fees so collected by the appellant society was siphoned off by another family members who are specified persons under the provisions of section 13(1)(c) of the Act, Accordingly, the Assessing Officer invoked the provisions of section 13(1)(c) r.w.s. 13(2)(b) by holding that Shri Maruti N. Navale, President/Chairman, Smt. Sunanda M. Navale, Secretary, Shri Rohit M. Navale & Ms. Rachana M. Navale, Vice Presidents are using the property of the appellant society for the residential purposes without compensating the appellant society. 15. The Assessing Officer also denied the exemption of income from property held under trust u/s. 11 of the Act on account of violation of provisions of section 13(1)(c) and assessed the excesses income over expenditure at maximum marginal rate of tax. 16. Being aggrieved by the above order of assessment, an appeal was filed by the assessee before the ld. CIT(A) challenging the findings of the Assessing ....
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....iety had been siphoned off by the President of the appellant society, namely, Shri Maruti N. Navale for his personal enrichment. The ld. CIT(A) also enhanced the quantum of capitation fees to Rs. 5726.60 lakhs. The ld. CIT(A) also confirmed the findings of the Assessing Officer that the appellant society had violated the provisions of section 13(1)(c) of the Act. However, as regards to the interest paid to M/s. M.N. Navale Investment and Finance Ltd., the ld. CIT(A) returned the findings that it does not amount to violation of provisions of section 13(1)(c) of the Act. As regards to the exemption u/s. 11 of the Act, ld. CIT(A) upheld the action of the Assessing Officer withdrawing the exemption claimed u/s. 11 of the Act and directed the Assessing Officer to tax the entire income of the appellant society in respect of income not eligible for exemption u/s. 11 under the normal rate of tax whereas, in respect of income resulted on account of violation of provisions of section 13(1)(c) to be taxed at maximum marginal rate of tax. Thus, the appeal filed by the assessee came to be partly allowed by the ld. CIT(A). 18. Being aggrieved by the decision of the ld. CIT(A), which is against ....
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....Sharad Bhosale and Dr. Janardan Garde are shifty witnesses, proved by the fact that the Department had issued a prosecution notice u/s. 277 as they made false statements. Thus, it is contended that the Assessing Officer cannot rely on the statements of shifty witnesses in judicial proceedings, once is false is always is false relying on the decision of the Hon'ble Calcutta High Court in the case of Amal Kumar Chakraborty vs. CIT, 207 ITR 376 (Cal. - HC). Thus, it was submitted that the statements of above said three persons have no evidentiary value in the present proceedings. In the absence of evidentiary value of the statements from these three persons, the loose papers found are merely dumb papers and dumb documents cannot form the basis for making the additions. It is further submitted that while interpreting the figures found or noted in the loose papers, the Assessing Officer decoded the figures, which is impermissible in law. In support of this fact, the appellant society relied on the following decisions:- (i) Amarnath Virendra Kumar - Delhi High Court dated 11.12.2014. (ii) D.S. Doors Pvt. Ltd. - Delhi ITAT, 43 CCH 261. (iii) Girish Chaudhary - Delhi High Court -....
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....Garde recorded u/s. 132(4) are to be believed, it would only mean that they collected the capitation fees for their personal enrichment. It is further fortified by fact that even the Central Government had been stepped into control the corruption in the private sector and the Lokpal and Lokayukta Act passed in the year 2013. In the said Act, the office bearers of NGO's have been treated as public official for the purposes of the Act. As regard to the exemption u/s. 11 of the Act, the ld. AR submitted that in a case addition on account of receipt of capitation fees is sustained, denial of exemption u/s. 11(2) be restricted to the addition on account of receipt of capitation fees and balance income should be considered as exempt relying on the following decisions:- (i) Sheth Mafatlal Trust, 249 ITR 533. (ii) Fr. Mullers Charitable Institutions, 363 ITR 230. (E). As regards to the allegation of violation of provisions of section 13(1)(c) by providing rent free accommodation to Shri Maruti N. Navale, it is submitted that the said Shri Maruti N. Navale had not been paid any remuneration by the appellant society for the following services rendered by him:- "a. Complete adminis....
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....ulate Conception, 241 ITR 193. (iii) Foundation for Social Care, 37 taxmann.com 389. (iv) Manockjee Cowasjee Petit Charities, 21 taxmann.com 456. Thus, it is submitted that there is no violation of section 13(1)(c) of the Act on account of rent free accommodation provided to Shri Maruti N. Navale alleged by the Assessing Officer. As regards to the violation of provisions of section 13(1)(c) of the Act on account of salary paid to Shri U.Y. Pawar, who was admittedly working for a company like JSAPL as the amount of salary was reimbursed to the appellant society violation had been cured. (G). As regards to the disallowance of prior period expenses, the ld. AR submits that the prior period expenses had been disallowed by the Assessing Officer without giving an opportunity to the assessee. Thus, he prayed that no disallowance for prior period expenses can be made. 21. On the other hand, ld. CIT-DR vehemently opposed the submissions by filling the written submissions. The substance of the arguments of the ld. CIT-DR is that: I. There is a concrete evidence brought on record by the Assessing Officer suggesting that the appellant society had been collecting the capitation fees f....
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....rd by the Assessing Officer clearly brings out and substantiate role played by (a) Shri Maruti N. Navale, Founder and President of the appellant society, (b) Shri Arvind Deshpande, Director and Principal, (c) Dr. Janardan Garde, Professor and HOD, Dental College and (d) Shri Sharad Bhosale, Accounts Officer. Even the statements recorded u/s. 132(4) of the Act had clearly confirmed the factum of receipt of capitation fees by the appellant society. VI. The statements which are in the form of retraction are bald and given afterthought and cannot take way the evidentiary value of the statement given u/s. 132(4) of the Act. Specially, in the light of the fact that even in the post-search proceedings, veracity of statement had been confirmed under the statement given u/s. 131(1) of the Act. The ld. CIT-DR also relied upon the judgments of the Hon'ble Supreme Court in the case of M/s. Bannalal Jat Construction (P) Ltd. vs. ACIT, 106 taxmann.com 128 (SC) wherein the Hon'ble Supreme Court held that once the statements are recorded on oath and duly signed, it has a great evidentiary value and retraction after sufficient long gap loose its significance and is an afterthought. VII.....
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....e capitation fees was set by Shri Maruti N. Navale. The ld. CIT-DR, in view of the following facts:- i) Cash of Rs. 38,12,595/- was found at the residential premises of Sh. M.N. Navale out of which an amount of Rs. 35 lakhs was seized which couldn't be explained satisfactorily by the Sh. M.N. Navale. Out of Rs. 38,12,595/- an amount of Rs. 3419500/- was found in the bedroom of Sh. Rohit Navale who is son of Sh. M.N. Navale and also vice-president of STES. The most important point to ponder is, out of this Rs. 3419500/- an amount of Rs. 1727800/- was found kept in a bag having details of amount of cash received from various students of different colleges and campus of STES. There is no adequate justification given by the appellant society in this regard (refer paper book-2 page 297). ii) Excess gold of 6.68 Kg and diamond of 685 Cts were found for which no bills and invoices in support were produced. iii) During the search action numerous instances wherein involvement of Sh. M.N. Navale instructing acceptance or refund of capitation fee/donation were found. iv) Sh. Sharad Bhosale, account officer used to receive direct instructions from Sh. M.N. Navale on request letters....
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.... been processed further by Sh. M.N. Navale by passing on due instruction to Sh. Bhosale." XII. The ld. CIT-DR submits that Mr. M.N. Navale is key person behind the scheme of collection of capitation fees and he is final authority in deciding the quantum/concession for the capitation fees. He also submits that the statement given by Shri Surendra Nagar who is alleged to be admission agent, whose statement recorded u/s. 132(4) on 06.08.2013 also supports the findings of the Assessing Officer that the appellant society had been collecting capitation fees from the students. XIII. As regards to the quantification of capitation fees, ld. CIT-DR submits that during the course of remand proceedings before the ld. CIT(A), the appellant society itself had worked out the capitation fees based on the evidence unearthed as result of search and seizure action and the Assessing Officer had not made any resort to the extrapolation. XIV. As regards to the denial of exemption u/s. 11 of the Act, ld. CIT-DR submits that since the appellant society had been formed only with an object of collecting the capitation fees for personal enrichment of the Founder and President of the appellant society, ....
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....nts Officer of the appellant society. After completion of the negotiation, these students are directed to meet Shri Sharad Bhosale for depositing the capitation fees in cash. In the meantime, Shri Sharad Bhosale was informed about by internal system i.e. either oral or through notings in the chits/papers of the amount to be collected from the students. On receipt of the capitation fees, Shri Sharad Bhosale makes notings of the donation receipt on the reverse of the application form. The Assessing Officer also placed heavy reliance on the application forms and loose sheets which are impounded as extracted in the assessment order to conclude that the appellant is engaged in the collection of capitation fees. The Assessing Officer also relied on the statement recorded u/s. 132(4) of the Act from Shri Arvind Deshpande, Shri Sharad Bhosale, Dr. Janardan Garde and Shri Maruti N. Navale wherein, in the statements recorded on 06.08.2013, Shri Arvind Deshpande was confronted with the loose sheets found in bundle no. 2 at the society office, accepted that the notings made in the chit no. 3 to 11 are in his own handwriting and the notings are pertained to the receipt of the capitation fees re....
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....apers clearly indicates that the appellant society had been indulging in the collection of capitation fees for admission of the students under the management quota. The main contention of the appellant society is that the statements recorded from three persons u/s. 132(4) have no evidentiary value in view of the fact that the said statements were retracted by the said people by filing the affidavit dated 16.04.2014 filed before the Assessing Officer on 21.04.2014 stating that the answers given in response to query at the time of recording the statements u/s. 132(4) on 07.08.2013, 19.08.2013, 21.08.2013 and 01.11.2013 are incorrect, insofar as, their statements are adverse to the appellant society. The said statements of retraction were enclosed at page no. 17 to 48 of the Paper Book. 23. In the backdrop of these facts, the issue that is required to be adjudicated by us is whether or not any evidentiary value can be attached to statements recorded u/s. 132(4) from above said three persons. 24. We have carefully gone through the notings on the loose sheets which are reproduced in the assessment order as well as we have also gone through the statements recorded from 3 people like Sh....
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....ned Counsel for the petitioner in the case of V.C. Shukla case (supra), and others reported in 1998 (3) SCC 410, has no bearing for the case on hand, as that case was dealing with a criminal proceeding involving criminal conspiracy under section 120-B of IPC and further, it was dealing with "books of accounts". Whereas, in the case on hand, it is an income tax proceeding before a quasi judicial authority. A Division Bench of the Madras High Court, in the case of Rangroopchand Chordia (supra), relied upon by the learned Standing Counsel for the respondent, while dealing with section 132 of the Income-tax Act, similar to the case on hand, has held that loose sheets picked up during search under section 132 of the Income-tax Act, falls within the definition of "document", mentioned in section 132(4) of the Income Tax Act and therefore, it has got evidentiary value. Therefore, the contention raised by the learned Counsel for the petitioner that loose sheets seized during the search under section 132 of the Income-tax Act does not have any evidentiary value, is rejected by this Court." 25. Therefore, the contention of the appellant that the loose sheets are merely dumb documents cannot....
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.... made as soon as possible and immediately after statement has been recorded (ii) the retraction should be supported by duly sworn affidavit and statement through convincing evidence the assessee could demonstrate that the earlier statement was incorrect and (ii) whenever pleadings were made that to effect that the earlier statements was recorded under pressure, coercion or compulsion by filing a complaint to higher officials. This position was reiterated in catena of decisions by the various High Courts in the case of CIT vs. Lekh Raj Dhunna, 344 ITR 352 (P&H), Bachittar Singh vs. CIT, 328 ITR 400 (P&H), Rameshchandra & Co. vs. CIT, 168 ITR 375 (Bom.), Dr. S.C. Gupta vs. CIT, 248 ITR 782 (All.), CIT vs. Hotel Meriya, 332 ITR 537 (Kerala), CIT vs. O. Abdul Razak, 350 ITR 71 (Kerala). 28. In the present case, on careful examination of the so called retractment statements filed in the form of affidavits dated 16.04.2014 notarized on 19.04.2014, we find that all these affidavits are stereo typed, identically worded stating that the statement made u/s. 132(4) to the effect that the receipt of capitation fees are not correct as the statements are given under tremendous pressure as well ....
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.... such statement has been recorded by filing a complaint to the higher officials or otherwise brought to the notice of the higher officials by way of duly sworn affidavit or statement supported by convincing evidence, stating that the earlier statement was recorded under pressure, coercion or compulsion. We deem it appropriate to reproduce para 15 of the said judgment, which reads thus, "15. In our view, the statements recorded under Section 132(4) have great evidentiary value and it cannot be discarded as in the instant case ITA No. 720/JP/2017 M/s. Bannalal Jat Construction Pvt. Ltd., Bhilwara vs. ACIT, Central Circle-Ajmer by the Tribunal in a summary or in a cryptic manner. Statements recorded under Section 132(4) cannot be discarded by simply observing that the assessee retracted the statements. One has to come to a definite finding as to the manner in which retraction takes place. On perusal of the facts noticed hereinbefore, we have noticed that while the statements were recorded at the time of search on 9.11.1995 and onwards but retraction, is almost after an year and that too when the assessment proceedings were being taken up in November 1996. We may observe that retract....
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....tance to him because that was a case in which the court found that the assessee, apart from retracting the statement, also discharged the onus on him through cogent material to rebut the presumption that stood attracted in view of the statement made under Section 132(4) of the IT Act with reference to the entries in the books of accounts of the sales made during the year and the stock position. Similar was the position in Kailashben Manharlal Chokshi Vs. Commissioner of Income-tax - (2008) 174 Taxman 466 (Gujarat), wherein the High Court of Gujarat found that the assessee gave proper evidence in support of his retraction. The High Court of Madras in M. Narayanan and Bros. Vs. Assistant Commissioner of Income-tax, supra, held that when assessee had explained his statement as not correct in context of materials produced, no amount could be added to his income on the basis of his statement. Similarly, what has been held by the High Court of Bombay in Commissioner of Income- tax, Central-II, Mumbai Vs. Omprakash K. Jain - (2009)178 Taxman 179 (Bombay) was that the assessing officer, while considering whether retraction was under duress or coercion, had also to consider genuineness of d....
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....assessee failed to produce books of account which may have been maintained during regular course of business or any other authentic contemporaneous evidence of agricultural income. In the circumstances, the statement of the assessee could certainly be acted upon." The High Court of Kerala in The Commissioner of Income Tax Vs. O. Abdul Razak, supra, in para nos. 8, 9 and 10 of the report, held as under:- "8. It cannot be doubted for a moment that the burden of proving the undisclosed income is squarely on the shoulders of the department. Acquisition of properties by the assessee are proved with the documents seized in search. Since understatement of consideration in documents is the usual practise the officer questioned the assessee on payments made over and above the amounts stated in the documents. Assessee gave sworn statement honestly disclosing the actual amounts paid. The question now to be considered is whether the sworn statement constitutes evidence of undisclosed income and if so whether it is evidence collected by the department. In our view the burden of proof is discharged by the department when they persuaded the assessee to state details of undisclosed income, whi....
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....on in our view is not correct. As held by the Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala, (1973) 91 ITR 18 an admission is an extremely important piece of evidence though it is not conclusive. Therefore, a statement made voluntarily by the assessee could form the basis of assessment. The mere fact that the assessee retracted the statement could not make the statement unacceptable. The burden lay on the assessee to establish that the admission made in the statement at the time of survey was wrong and in fact there was no additional income. This burden does not even seem to have been attempted to be discharged. Similarly, P.K. Palwankar v. CGT, [1979] 117 ITR 768 (MP) and CIT v. Mrs. Doris S. Luiz, [1974] 96 ITR 646 (Ker) on which also learned counsel for the assessee placed reliance are of no help to the assessee. The Tribunal's order is concluded by findings of fact and in our view no question of law arises. The applications are, accordingly, rejected." All the aforementioned judgments were considered by this Court in M/s. Bannalal Jat Constructions Pvt. Ltd. (supra) wherein also the assessee retracted from his statement initially given under Secti....
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.... discussed above, it must be held that statement recorded under Section 132(4) of the Act and later confirmed in statement recorded under Section 131 of the Act, cannot be discarded simply by observing that the assessee has retracted the same because such retraction ought to have been generally made within reasonable time or by filing complaint to superior authorities or otherwise brought to notice of the higher officials by filing duly sworn affidavit or statement supported by convincing evidence. Such a statement when recorded at two stages cannot be discarded summarily in cryptic manner by observing that the assessee in a belatedly filed affidavit has retracted from his statement. Such retraction is required to be made as soon as possible or immediately after the statement of the assessee was recorded. Duration of time when such retraction is made assumes significance and in the present case retraction has been made by the assessee after almost eight months to be precise, 237 days." The Hon'ble Madras High Court in the case of A.J. Ramesh Kumar vs. DCIT, 441 ITR 495 after referring to the judgements of the Hon'ble Supreme Court in the case of Pullangode Rubber Produce C....
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....cord 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. 31. 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. 32. It is settled position of law that the amount of capitation fees received over and above the prescribed under the provisions of the Maharashtra Educ....
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....as 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 no. 9 raised by the appellant society and stands dismissed. 34. The ground no. 8 challenges the findings of the lower authorities that the appellant society violated the provisions of section 13(1)(c) of the Act. It is unnecessary to deal with this ground of appeal for the reasons that in the foregoing paragraphs, we held that t....