2019 (3) TMI 1787 - AT - Income Tax

Cash payment towards donation/ capitation fee over and above the regular course fees - A.O. has relied upon the statement of Dr P Mahalingam, recorded during the course of search, under section 132(4) of the Income Tax Act against the assessee, in which he has admitted to have received capitation fees from the assessee in cash - HELD THAT - AO recorded statement of assessee at assessment stage, in which, the statement of Dr P Mahalingam recorded under section 132(4) of the Income Tax Act, have been referred to, but, it is nowhere mentioned in which statement, if such copy of the statement was provided to assessee for explanation of assessee. The assessee denied to have made any cash payment to Dr P Mahalingam. AO in the assessment order also did not mention any fact if statement Dr P Mahalingam have been provided to the assessee for his comments or was confronted to assessee at any stage. The assessing officer did not record in the assessment order if statement of Dr. P Mahalingam recorded at the back of the assessee by the Investigation Wing, was allowed for cross examination on behalf of the assessee at any stage, therefore, statement of third party, cannot be used against the assessee unless assessee has been allowed a right to cross-examine such statement. A.O. in the assessment order also did not mention, if any, material found during the course of search, was confronted to the assessee. Thus, assessee was justified in denying in making any cash payment to Dr. P Mahalingam at any stage. There is no material available on record to justify the addition against the assessee on merits - Decided in favour of assessee.

Summary

Issues: Reopening of assessment and addition on merit

Reopening of Assessment:
The case involved the reopening of the assessment under section 147 of the Income-Tax Act, 1961 based on information received regarding donation/capitation fees paid to a medical college. The information was obtained during a search and seizure action on the college premises. The assessing officer made an addition of the amount paid as capitation fees by the assessee, leading to a notice under section 148. The assessee challenged the reopening and the subsequent addition before the Ld. CIT(A), but the appeal was dismissed.

Addition on Merit:
The main issue revolved around the addition made by the assessing officer based on the statement of Dr. P Mahalingam, who admitted to receiving capitation fees from the assessee. The assessing officer relied on this statement without providing the assessee with a copy for rebuttal or allowing cross-examination. The assessee denied making any cash payment to Dr. P Mahalingam and argued that no material was confronted to him, hence no addition could be justified. The ITAT held that unless incriminating documents or statements are confronted to the assessee and cross-examination is allowed, such material cannot be used against the assessee. Referring to legal precedent, the ITAT emphasized the importance of due process and the right to cross-examine. As there was no evidence to support the addition against the assessee and no opportunity for cross-examination, the ITAT set aside the orders of the authorities below and deleted the addition.

Conclusion:
The ITAT allowed the appeal of the assessee, ruling in favor of the assessee on both the issues of reopening of assessment and addition on merit. The ITAT highlighted the lack of evidence and due process in making the addition, emphasizing the importance of providing the assessee with an opportunity to rebut incriminating statements. The decision to delete the addition was based on the absence of material justifying the addition and the failure to allow cross-examination. As the addition on merit was deemed unjustified, the issue of reopening of assessment was considered academically moot and left undetermined.