Donation/Capitation Fee Payment Case: ITAT Deletes Addition Due to Lack of Evidence

Hitesh Rohilla Vs ACIT (ITAT Delhi)

In a significant ruling, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, has deleted an addition of ₹24 lakh made by the Assessing Officer (AO) against Hitesh Rohilla for Assessment Year 2013-14. The addition, categorized as unexplained expenditure under Section 69C of the Income Tax Act, 1961, pertained to alleged capitation fees paid in cash to Santosh Medical College, Ghaziabad. The ITAT’s decision, pronounced on February 7, 2025, primarily hinged on the absence of direct evidence linking the payment to the assessee.

The case originated from information received by the Investigation Wing following a search and seizure operation at Santosh Group of Institutions and its Director, Dr. P. Mahalingam. Seized documents reportedly detailed cash donations or capitation fees paid by “parents of students” for admission to various medical courses from FY 2007-08 to 2013-14. Dr. Mahalingam had also admitted to receiving such payments. Based on this, the AO concluded that Mr. Rohilla, who had taken admission to an MBBS course, must have paid ₹24 lakh as a capitation fee out of undisclosed sources, adding it to his income. This was in addition to the accepted regular fee of ₹7.18 lakh.

Mr. Rohilla, who was 19 years old at the time of admission, consistently denied making any such payment, stating that his parents and extended family managed admission formalities and had sufficient sources for his regular fees. He contended that the addition was made without providing an opportunity for cross-examination of Dr. Mahalingam and relied on information collected behind his back, violating principles of natural justice. He cited previous Delhi Tribunal orders in Shri Naresh Pamnani vs ITO and Shri Manjit Singh Gahlot vs ITO, which emphasized the necessity of sharing adverse evidence and allowing cross-examination. He also invoked PCIT vs Meenakshi Overseas Pvt. Ltd. (2017) 395 ITR 677 (Delhi HC), asserting that the AO needed to conduct independent inquiries rather than relying solely on investigation reports.

The Commissioner of Income Tax (Appeals) (CIT(A)) had, however, upheld the AO’s addition. The CIT(A) relied on Dr. Mahalingam’s statement and the Supreme Court’s decision in Sushil Bansal vs PCIT (2020) 115 taxmann.com 226 (SC), which confirmed an addition for unexplained capitation fees where the source was not satisfactorily explained. The CIT(A) further dismissed the request for cross-examination, citing the Calcutta High Court’s view in PCIT vs Swati Bajaj, 139 taxmann.com 352 (Kol.), which stated that cross-examination is not mandatory in all cases.

Upon reviewing the case, the ITAT observed a crucial discrepancy. The reasons recorded by the AO, based on the seized documents, referred to capitation fees paid by the “parents of students,” not directly by the student (Hitesh Rohilla) himself. The Tribunal found that neither the AO nor the CIT(A) provided any specific document or a detailed analysis from the seized material to establish that the ₹24 lakh in question was indeed paid by Mr. Rohilla. The ITAT held that without such direct documentary evidence or a clear link demonstrating that the assessee personally made the alleged payment, the addition could not be sustained in his hands.

Consequently, the ITAT deleted the addition of ₹24 lakh, allowing Ground No. 5 of the assessee’s appeal. Given this decision, the other grounds related to the validity of reassessment proceedings under Section 147/153C and the lack of a Section 143(2) notice became academic and were not adjudicated upon. The appeal was allowed, providing relief to Mr. Rohilla. This judgment underscores the necessity for tax authorities to establish a direct and clear nexus between the alleged unexplained expenditure and the assessee, rather than relying on general information from third-party searches.

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal filed by the assessee is directed against the order dated 13.12.2023 of the NFAC/Ld. Commissioner of Income Tax (Appeals), Delhi, relating to Assessment Year 2013-14 arising out of assessment order dated 28.12.2019 passed u/s 147/143(3) passed by the ACIT, Circle-36(1), New Delhi.

2. The grounds of appeal raised by the assessee are as under:-

1. That on the facts and circumstances of the case and in the Law, the Ld. CIT(A), NFAC, Delhi has erred in upholding the addition made by the Ld. AO Circle 36(1), New Delhi while passing order passed Us 147 r.w.s. 143(3) dated 28.12.2019 of Rs. 24,00,000/- us 69C of the Income Tax Act, 1961, for the Asstt Year 2013-14, as unexplained expenditure being the alleged Capitation Fees paid in Cash, to the Santosh Medical College, Ghaziabad, UP on the basis of report of Investigation Wing, DDIT(Inv.) Unit-S(1), New Delhi.

2. That The Ld. CIT(A) has erred in law and in facts in confirming the assessment order passed by the AO assessing the total income at Rs. 26,18,060/- as against returned income of Rs. 2,18,060/-.

3. That the Ld. CIT(A) has erred in holding that it was the burden of the appellant to establish that no amount of capitation fees has been paid to M/s Santosh Medical College, even since beginning of the Re-Assessment proceedings, Assessee (who was of 19 Years of age at the time of admission to the Santosh Medical College) had already denied to have paid any amount as Donation / Capitation Fees over and above the regular course fees to Santosh Medical College, Ghaziabad for his admission.

4. That the Ld. CIT(A) has erred on facts and in law in upholding the addition of Rs. 24,00,000/- on account of alleged payment to M/s Santosh Medical College without providing any opportunity of cross examination and relying upon the information collected behind the back of the appellant.

5. That the Ld. CIT(A) has erred on facts and in law in upholding the addition of Rs. 24,00,000/- on account of alleged payment to M/s Santosh Medical College, without providing any Documentary evidence except only relying upon the statement of Dr. P. Mahalingam (Chairman of Santosh Group of Institutions).

6. That the Ld. CIT(A) has erred both in law and on facts in failing to appreciate the written submissions furnished by the appellant and overlooking the judicial pronouncements relied upon by the appellant.

7. All the other grounds of appeal as filed before the Ld. CIT(A) shall remain the same.

3. Further, during the course of hearing, the assessee filed additional grounds by the assessee vide his submission dated 08.08.2024 as under:-

1. On the facts and circumstances of the case and in law, the Id. assessing officer/CIT(A) erred in making the assessment under section 147 of the Income Tax Act, 1961 (“The Act”‘) without appreciating that assessment could be made only under section 153C of the Act based upon documents/ information found during the course of search of the third party.

2. That the Ld. AO grossly erred in reopening the case of the assessee u/s 147 of the Act, without application of mind, on the basis of reasons recorded which are contrary to the assumption of any income escaping assessment in the hands of assessee.

3. That the ld. assessing officer/Ld. CIT (Appeals) has erred in law and on facts in not appreciating that the impugned assessment order was bad in law in the absence of issuance of mandatory notice u/s 143(2) r.w.s 147 of the Act.

4. Brief facts of the case:- The assessee is an individual and filed his return of income for AY 2013-14 on 16.08.2014 declaring total income of Rs. 2,18,060/-. Subsequently, the AO was in receipt of information from investigation wing that a Search & Seizure operation was carried out in one M/s. Santosh Group of Institution & Director P. Mahalingam, Ghaziabad during which certain documents/books of account were seized containing details of donation/capitation fee over and above the regular course fee paid in cash by the parents of students taking admission in various medical courses during FY 20007-08 to 2013-14. The said Director admitted of accepting donation/capitation fee in cash. On analysis of the documents, it was revealed that the assessee has paid Rs.24,00,000/- as donation/capital fee out of total payment of Rs.31,18,000/-. Hence, the AO had reason to believe that the assessee’s income for FY 2012-13 relevant to AY 2013-14 has escaped assessment within the meaning of sec 147 and accordingly issued notice u/s. 148. Initially the assessee did not comply with the notice. Further opportunities of being heard were issued by the AO in the form of notices u/s. 142(1) along with questionnaires in response to which the assessee has filed certain details before the AO. The assessee stated that he was residing in a joint family wherein his parents, brother’s family are having sufficient sources for arranging his medical college fee. With regard to the payment of Rs. 24,00,000/- as donation/capitation the assessee denied payment of any such sum. The payment of Rs.7,18,000/- as regular/tuition fee by the assessee was accepted by the AO. However, with regard to the alleged cash payment of Rs.24,00,000/- as donation/capitation fee, the AO held that the same cannot be ruled out in private medical colleges and specifically when the chairman of trust/college has himself admitted of having received such payment from students, it is reasonably inferred that the assessee had made such payment and same has been paid out of undisclosed sources which represents unexplained expenditure. Accordingly, the AO made an addition of Rs.24,00,000/- u/s 69C of the Act as unexplained expenditure. The assessment was accordingly completed u/s. 143(3) r.w.s. 147 dated 28.12.2019 determining total income at Rs. 26,18,060/-.

5. Against the above order, the assessee appealed before the Ld. CIT(A).

6. During the appellate proceedings, the assessee denied to have paid any amount in cash on account of donation/capitation fee to Dr. P. Mahalingam (Chairman of Santosh Group of Institutions) in which the assessee was admitted for MBBS course. It was further submitted that the assessee was student during the FY 2012-13 aged about 19 years and all admission formalities were completed by the parents of the assessee and the assessee had not paid any amount as capitation fee/donation during the assessment year 2013-14 relevant to FY 2012-13. It was further submitted that the said addition was made without providing any opportunity, cross examination and relying upon the information collected behind the back of the assessee, which was in violation of principles of contemporary jurisprudence. In this regard, the Ld. AR relied upon the order of the Co-ordinate Bench of the Delhi Tribunal in the case of Shri Naresh Pamnani vs ITO in ITA No.1561/Del/2018, for AY 2010-11 vide order dated 05.03.2019 and the subsequent order dated 04.10.2022 in ITA No.219/Del/2020 for AY 2013-14 in the case of Shri Manjit Singh Gahlot vs ITO, where it has been held that in absence of sharing the adverse evidence and without giving any cross examination, the addition was not justified.

6.1. However, the Ld. CIT(A) held that the statement of Dr. P. Mahalingam proved that institution had accepted capitation fee/donation from each student for giving medical sheet over and above the regular college fee. The ld. CIT(A) further held that the receipt of capitation fee/donation taken by Santosh Medical College was proved and addition made based on the statement given by Dr. P. Mahalingam was upheld by the Hon’ble Apex Court in the case of Sushil Bansal vs PCIT (2020) 115 taxmann.com 226 (SC)/2020. The Ld. CIT(A) held that based on the ratio of the above judgment and placing reliance on the statement of Dr. P. Mahalingam for making the addition was in order. Regarding the plea of the assessee for not allowing cross examination, the ld. CIT(A( held that cross examination is not mandatory in all cases and referred to the decision of the Hon’ble Calcutta High Court in the case of PCIT vs Swati Bajaj, 139 taxmann.com 352 (Kol.), where it was held that merely by stating that the report has not been furnished to them nor the director of the company was not made available for cross examination would not suffice and rejected the claim of the assessee for the cross examination of Dr. P. Mahalingam. In view of these facts, the ld. CIT(A) confirmed the addition of Rs.24,00,000/- u/s 69C of the Act.

7. Against the above order, the assessee is in appeal before the Tribunal.

8. At the outset, the. Ld. AR relying upon the additional ground submitted that the assessment order passed u/s 147 of the Act was bad in law because the assessment based upon documents/information found during the course of search of the third party can be framed only under the provisions of section 153C of the Act and not u/s 148 of the Act as done by the Assessing Officer in the present case. It was further submitted that the order of the Ld. CIT(A) in confirming the assessment order, was bad in law, in absence of issuance of mandatory notice u/s 143(2) r.w.s. 147 of the Act. The Ld. AR further relying upon the decision of PCIT vs Meenakshi Overseas Pvt. Ltd. (2017) 395 ITR 677, submitted that where the reassessment was based on the information received from the DDIT then the Assessing Officer had to conduct independent necessary enquiries about the veracity of the information to form an independent opinion. The Ld. AR further submitted that the Assessing Officer wrongly presumed that the assessee did not file any ITR for the relevant ITR, whereas, the assessee had filed his return of income for this assessment year on 16.08.2014, declaring income of Rs.2,18,060/-. It was further submitted that the DDIT/AO has not given any basis to show that the assessee had made a donation in cash as alleged by the Assessing Officer in the reasons recorded and on the basis of which, the assessment order was framed. It was further submitted that in the reasons recorded, it is stated that on the basis of seized documents from the premises H-1 to 6, Santo Nagar, Pratap Vihar, Ghaziabad, in the case of Santosh Group of Institution and Dr. P. Mahalingam on 27.06.2013 showed details of donation/capitation fee over and above the regular course fee paid in cash by the parents of students taking admission in various medical courses during FY 2007-08 to 2013-14. He, therefore, submitted that the reasons recorded stated that the details showed payment of donation/capitation fee over and above the regular course fee paid in cash by the parents of students taking admission in various medical courses during FY 2007-08 to 2013-14 and not by the student himself which is the assessee in the present case and therefore, no addition could be made in the hands of the assessee. The Ld. AR further submitted that even though, it is stated by the Assessing Officer in the reasons recorded that ‘on analysis of the available documents, it is revealed that the assessee has paid Rs.24 lakh as donation/capitation, out of total payment of Rs.31,18,000/ And therefore the entire amount i.e. Rs.31,18,000/- has escaped assessment’ but no document or any analysis has been given either by the Assessing Officer or by the Ld. CIT(A) to show that the amount of Rs.24 Lakhs, which was added in the assessment order was paid by the assessee himself. He, therefore, submitted that the addition of Rs.24 lakhs made in the hands of the assessee was not justified and the same should be deleted.

9. The Ld. DR relied upon the orders of the authorities below.

10. We have heard the rival contentions and perused the materials available on record. The reasons recorded by the Assessing Officer in this case as appearing on page no.1 of the paper book is reproduced as under:-

11. On perusal of the same, it is seen that the Assessing Officer states that the documents seized from the premises H-1 to 6, Santo Nagar, Pratap Vihar, Ghaziabad, in the case of Santosh Group of Institution and Dr. P. Mahalingam on 27.06.2013 showed details of donation/capitation fee over and above the regular course fee paid in cash by the parents of students taking admission in various medical courses during FY 2007-08 to 2013-14. Therefore, the reference to the seized documents by the Assessing Officer states that the documents showed payment of donation/capitation fee over and above the regular course fee paid in cash by the parents of students and not by the student, who took admission in the respective courses. Regarding the reasons mentioned by the Assessing Officer in para-3 that on analysis of the available documents, it is revealed that the assessee has paid Rs.24 lakh as donation/capitation, out of total payment of Rs.31,18,000 but no such documents has been mentioned in the reasons recorded nor any intelligible analysis of the said documents has been made in the reasons recorded on the basis of which the Assessing Officer came to such a finding that the amount of Rs.24 lakhs has been paid by the assessee himself. Further, no such document or any analysis has been given either in the assessment order dated 28.12.2019, passed by the Assessing Officer in this case or by Ld. CIT(A) in its order dated 13.12.2023 to show that the amount of Rs.24 lakhs was paid by the assessee himself. In absence of the same, the addition of Rs.24 lakhs made by the Assessing Officer in the hands of the assessee and confirmed by the Ld. CIT(A) is not sustainable in the hands of the assessee and therefore the same is deleted. Ground no.5 of the appeal is allowed.

12. In view of the above, the other grounds of appeal and additional grounds of appeal is academic in nature and are not adjudicated.

13. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 07t^hFebruary, 2025.