2023 (4) TMI 126 - AT - Income Tax

Additions made u/s 68 - capitation fee paid for admission of assessee s children - Additions u/s 68 instead of u/s 69C - incriminating materials found and statement recorded in course of the search and seizure operation carried out or not? - HELD THAT - As the primary condition of section 68 that the amount must be credited to the books of account of the assessee is not fulfilled. Though, Commissioner (Appeals) has made an attempt to cover up the legal lacuna by stating that the AO has treated the payment of fee in cash as unexplained expenditure under section 69C, however, such observation of learned Commissioner (Appeals) is factually incorrect, hence, cannot be accepted. Thus, the conditions of section 68 having not being satisfied, the addition made under the said provision has to be deleted. Accordingly, additions made u/s 68 of the Act are hereby deleted. Disallowance of part of the expenses on ad-hoc basis - HELD THAT - As 50% of the expenditure claimed has been disallowed on purely ad-hoc basis. The disallowance made not being backed by valid reasoning is deleted. Unexplained deposits in bank account - HELD THAT - As the amount was paid through account payee cheque to the assessee and in the said confirmation, the concerned person has clearly stated that the amount paid was towards consideration of the car sold. Thus, when the assessee has furnished evidence to prove the source of the deposit, no addition can be made under section 68 of the Act without conducting any inquiry. Other deposits the assessee has stated that said deposit was out of fees paid by the patients. As it appears on record, the first appellate authority has rejected assessee s explanation without making any inquiry, either himself or through the AO to ascertain the veracity of assessee s claim - delete the addition made in assessment year 2012-13. Assessee appeals are partly allowed.

Summary

Issues Involved:
1. Validity of reopening of assessment under section 147 of the Income-tax Act, 1961.
2. Additions made under section 68 of the Income-tax Act on account of alleged capitation fee paid.
3. Disallowance of part of the expenses on an ad-hoc basis.
4. Addition of Rs.2 lakhs under section 68 for unexplained deposits in bank accounts.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment under section 147 of the Income-tax Act, 1961. The reopening was based on information from a search and seizure operation at Santosh Medical College, which indicated that the assessee allegedly paid capitation fees in cash. The tribunal did not delve deeply into this issue as the primary focus was on the merits of the additions made.

2. Additions under Section 68 for Capitation Fee:
The Assessing Officer (AO) made additions of Rs.45 lakhs for the assessment year 2011-12 and Rs.39 lakhs for the assessment year 2012-13 under section 68, alleging that the assessee paid these amounts as capitation fees for his children's admission to Santosh Medical College. The AO's conclusion was based on documents seized and statements from Dr. P. Mahalingam, head of the Santosh Group, who admitted to receiving capitation fees in cash. The assessee denied these allegations, stating that the regular fees were paid from legitimate sources.

The tribunal observed that the AO did not provide the assessee with an opportunity to cross-examine Dr. Mahalingam or confront the adverse material, violating the principles of natural justice. Furthermore, the tribunal noted that no conclusive evidence was presented to prove the payment of capitation fees. The tribunal referred to a similar case (Sh. Rajendra Singh Vs. ITO) where the addition was deleted due to lack of evidence and opportunity for cross-examination. Consequently, the tribunal deleted the additions of Rs.45 lakhs and Rs.39 lakhs.

3. Disallowance of Expenses on Ad-hoc Basis:
The AO disallowed 50% of the expenses claimed by the assessee on an ad-hoc basis, without valid reasoning. The tribunal found this disallowance to be unjustified and deleted it.

4. Addition of Rs.2 Lakhs under Section 68 for Unexplained Deposits:
For the assessment year 2012-13, the AO added Rs.2 lakhs under section 68, citing unexplained deposits in the assessee's bank accounts. The assessee explained that Rs.1 lakh was received from the sale of a car and the other Rs.1 lakh was from patient fees. The tribunal observed that the assessee provided a confirmation for the car sale, and the first appellate authority did not verify the explanation for the patient fees. The tribunal found the addition unjustified and deleted it.

Conclusion:
The tribunal allowed the appeals partly, deleting the additions made under section 68 for capitation fees and unexplained deposits, and the disallowance of expenses on an ad-hoc basis. The tribunal emphasized the importance of adhering to natural justice principles and the need for conclusive evidence before making additions.