Mere Uncorroborated Statement During Search Can’t Justify Presumption of Capitation Fee Collection: Madras High Court

The Madras High Court has dismissed a batch of tax appeals filed by the Income Tax Department, holding that statutory presumptions under Sections 132(4) and 132(4A) of the Income Tax Act cannot be invoked in the absence of corroborative material, particularly when the allegation of capitation fee collection itself remains unproved. The Bench of Justice G. Jayachandran and Justice Shamim Ahmed upheld the orders of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT), which had granted relief to the educational trust and rejected the additions made by the Assessing Officer. The case arose out of a search conducted under Section 132 of the Income Tax Act at the premises of an educational institution running dental and engineering colleges. The search was initiated based on information that the institution allegedly collected large amounts as capitation fees for admissions. During the search, officials recovered ₹3,69,950 from the dental college premises and ₹20 lakh from the engineering college premises, while 5,036 grams of gold jewellery were seized from the residence of the managing trustees. The Department relied primarily on a statement recorded from a managing trustee during the search, in which he allegedly admitted that the institution used to collect ₹1 lakh as capitation fee from students admitted under the management quota. Based on this statement and certain slips recovered during the search, the Assessing Officer concluded that the trust had collected undisclosed capitation fees and diverted the funds for personal benefit, thereby denying exemption under Section 11 of the Income Tax Act and making substantial additions to income. The assessment included several additions, including ₹1.27 crore as alleged capitation fees collected from students, ₹3.69 lakh as unexplained cash, and ₹5.26 crore as excess income reflected in the Income and Expenditure Account The total assessed income was determined at ₹6.56 crore, leading to a tax demand of nearly ₹2.97 crore including interest. The Commissioner of Income Tax (Appeals) overturned the assessment order after finding that the Department had failed to produce any material evidence supporting the allegation of capitation fee collection. The appellate authority noted that no students were examined during the search or assessment to confirm payment of capitation fees. The 56 slips recovered during the search merely contained details of students admitted under various quotas and did not mention any payment of capitation fees or donations. The trustee’s statement relied upon by the Department was later retracted and remained uncorroborated.Saveetha Institute The ITAT subsequently confirmed the findings of the CIT(A), leading the Department to file appeals before the High Court. The High Court examined the scope of Sections 132(4) and 132(4A), which allow authorities to draw certain presumptions regarding documents and statements obtained during a search. However, the Court emphasized that such presumptions are rebuttable and cannot be invoked automatically without foundational material. The Bench held that the documents relied upon by the Department did not qualify as “books of account”, as they only contained details of student admissions and had no connection with financial records or accounts. The Court further observed that a single uncorroborated statement made during the search, particularly one that was subsequently retracted, cannot form the sole basis for concluding that capitation fees were collected. The Bench noted that the Department failed to examine any students or produce supporting material to substantiate the allegation that capitation fees were collected. Without such evidence, the Court held that even the basic foundation of the Department’s case remained unproven. Consequently, the question of whether the trust violated conditions for exemption under Section 11 did not arise. Holding that the Department had failed to establish the alleged capitation fee collection even on the preponderance of probabilities, the High Court concluded that the additions made during the assessment were unsustainable. Accordingly, the Court dismissed all three tax appeals filed by the Revenue, thereby affirming the orders of the CIT(A) and the ITAT. Case Details Case Title: Commissioner Of Income Tax Versus M/s Saveetha Institute of Medical Citation: JURISHOUR-255-HC-2026(MAD) Case No.: TCA.Nos.111, 112 & 113 of 2015 Date: 02-03-2026 Counsel For Petitioner: J.Narayanasamy Counsel For Respondent: A.S.Sriraman Click Here To Read Order Read More: Money Laundering Can Arise From Handling Proceeds of Crime Even if Predicate Offence Occurred Earlier: Madras HC

Mere Uncorroborated Statement During Search Can’t Justify Presumption of Capitation Fee Collection: Madras High Court

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