2023 (4) TMI 625 - AT - Income Tax

Unaccounted professional charges received in cash - Addition u/s 28 - difference between professional charges received and offered by the assessee as income - Addition on the basis of statement of the third party alone - search operations conducted by the Department in the case of M/s.Apollo Hospitals - assessee was working for M/s.Apollo Hospitals as Consultant and received professional charges on his own, which was not considered as receipts of M/s.Apollo Hospitals - HELD THAT - We do not ourselves subscribe to the reasons given by AO to make additions towards unaccounted professional charges received in cash for simple reason that except statement of an employee recorded during the course of search, the AO has never brought on record any other evidence to support his finding that the assessee has received professional charges in cash from Apollo Hospitals. Explanation given by the assessee that additions cannot be made on the basis of number of patients registered with Apollo Hospitals appears to be reasonable and bonafide. AO never disproved claim of the assessee with any evidences, but went on to make additions only on the basis of statement of a third party, that too without providing evidences and opportunity of cross examination to the assessee in violation of principles of natural justice. It is well settled principles of law by the decision of M/s.Andaman Timber Industries Vs. Commissioner of Central Excise, Kolkatta-II 2015 (10) TMI 442 - SUPREME COURT where it was categorically held that not allowing assessee to cross examine witnesses by the adjudicating authority, though statements of those witnesses were made on the basis of impugned order is a serious flaw, which makes the order nullity, inasmuch as it amounted to violation of principles of natural justice, because of which the assessee was adversely affected. Therefore, we are of the considered view that no addition can be made on the basis of statement of the third party alone, without any corroborative evidence. We are of the considered view that the AO is completely erred in making addition towards difference amount of professional charges on the basis of Out Patients data collected from M/s.Apollo Hospitals and statement of Manager (Operations) Ms.Subhadra.G, without any corroborative evidence to suggest that the assessee has received so much professional charges from the Hospitals and further, the same has not been accounted in his books of accounts - assessee has analyzed Out Patients list given by the Hospitals with his books of accounts and also reconciled the amount of income accounted in his books of accounts for all these assessment years and claimed that income accounted by the assessee from M/s.Apollo Hospitals is more than the amount of income quantified by the AO from the list of Out Patients supplied by the Hospitals. AO is completely erred in making addition towards differential amount of professional charges u/s.28 - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of reopening the assessment under section 147/148.
2. Addition of Rs. 5,52,155/- towards undisclosed professional charges under section 28.

Summary:

Issue 1: Legality of Reopening the Assessment
The assessee challenged the reopening of assessment on the ground that there was no tangible material and that the assessment was based on search and seizure operations of a third party. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the reopening, citing that the Assessing Officer (AO) had reasonable belief of income escapement based on data from the Investigation Wing. The CIT(A) relied on precedents such as Vasudev Fatandas Sawlani Vs Santosh Kumar and Raymond Woolen Mills Ltd. v. ITO, which held that the AO needs only a prima facie material to reopen the case.

Issue 2: Addition of Rs. 5,52,155/- Towards Undisclosed Professional Charges
The AO made an addition of Rs. 5,52,155/- based on the data obtained during the search and seizure operation at Apollo Hospitals. The AO concluded that the assessee, a consultant at Apollo Hospitals, did not account for all professional fees received. The CIT(A) partially upheld this addition, reducing the estimated consultancy fees to Rs. 500 per patient but maintaining the total number of patients consulted as 990.

The assessee argued that the AO's addition was based solely on unverified third-party statements and did not consider the actual accounting records. The Tribunal found that the AO's reliance on the statement of Ms. Subhadra.G, Manager (Operations) at Apollo Hospitals, without corroborative evidence, violated principles of natural justice. The Tribunal referenced the Supreme Court decision in M/s. Andaman Timber Industries, which held that statements without cross-examination and corroborative evidence are insufficient for making additions.

The Tribunal also considered similar cases, such as Dr. Srinivasulu Reddy Ponnaluru v. ACIT, where it was held that no addition can be made solely based on third-party information. The Tribunal concluded that the AO erred in making the addition without concrete evidence and directed the AO to delete the addition for the assessment years 2011-12 to 2015-16.

Conclusion:
The Tribunal allowed the appeals filed by the assessee for all assessment years, annulling the reassessment proceedings and directing the deletion of the addition of Rs. 5,52,155/- made by the AO.