ANIL KUMAR BHALLA,NEW DELHI vs. ITO WARD - 61(4), NEW DELHI

These appeals by the same assessee arise out of two

separate orders of learned Commissioner of Income Tax (Appeals)-

20, New Delhi, for the assessment years 2011-12 and 2012-13.

identical, except variation in figures. Essentially, the assessee has

raised to major issues in both the appeals, firstly, regarding

validity of reopening of assessment under section 147 of the

Income-tax Act, 1961 (for short ‘the Act’) and secondly, the

ITA Nos.732 & 1366/Del/2020 AYs: 2011-12 & 2012-13

additions made under section 68 of the Act on account of alleged

capitation fee paid for admission of assessee’s children in Santosh

Medical College.

For the assessment years in dispute, the assessee had filed his

return of income in regular course under section 139(1) of the

Act. As stated by the Assessing Officer, the assessee is a doctor by

profession and has earned income from profession. It is alleged,

in course of a search and seizure operation conducted under

section 132 of the Act in the premises of Santosh Medical College,

it was found that in addition to regular course fee paid in

DD/cash by parents of the students for taking admission in

various medical courses, the college used to receive capitation fee

in cash. The information revealed that while admitting his

daughter, Dr. Sugandha Bhalla in Santosh Medical College in the

financial year relevant to assessment year 2011-12, the assessee,

in addition to regular fee of Rs.18 lakhs, has paid capitation fee of

Rs.27 lakhs. Similarly, in financial year relevant to assessment

year 2012-13, while admitting his son, Dr. Pulkit Bhalla to

Santosh Medical College, the assessee, in addition to regular fee

of Rs.30,01,500/-, paid capitation fee of Rs.8,98,500/-. Based on 2 | P a g e

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such information, the Assessing Officer reopened the assessment

under section 147 of the Act. In course of assessment proceeding,

the Assessing Officer called upon the assessee to explain the

source of payments made to Santosh Medical College towards

admission of his children. In response to the query raised, the

assessee denied of having paid any capitation fee over and above

the regular fee. Further, he denied of having paid the amount in

cash as alleged by the Assessing Officer. The Assessing Officer,

however, did not find merit in the submission of the assessee and

proceeded to complete the assessment by adding an amount of

Rs.45 lakhs in assessment year 2011-12 and Rs.39 lakhs in

assessment year 2012-13. Further, the Assessing Officer

disallowed a part of the expenses incurred by the assessee.

Against the assessment orders so passed, the assessee preferred

appeals before learned Commissioner (Appeals). However, learned

Commissioner (Appeals), being not convinced with the

submissions of the assessee, confirmed the additions made by the

Assessing Officer.

counsel appearing for the assessee as well as learned

Departmental Representative, both, on the legal issue as well as 3 | P a g e

ITA Nos.732 & 1366/Del/2020 AYs: 2011-12 & 2012-13

on merits. At the outset, I consider it appropriate to address the

issue on merits. Undisputedly, based on the information received

from internal sources, the Assessing Officer found that while

getting his children admitted to Santosh Medical College, the

assessee had paid capitation fee in cash in addition to regular fee.

As observed by the Assessing Officer, in course of search and

seizure operation and in post search proceeding, Dr. P.

Mahalingam, who is the head of the Santosh Group, had admitted

that students pay capitation fee in cash. Thus, primarily relying

upon certain documents seized in course of search and seizure

operation in case of Santosh Group and the statements recorded

from Dr. P. Mahalingam, the Assessing Officer has proceeded to

make the additions having concluded that the assessee, in fact,

had paid capitation fee as well as regular fee in cash. However, on

perusal of facts on record, including the submissions made by the

assessee in course of assessment proceeding as well as

proceeding before the first appellate authority, it is observed that

from the stage of assessment proceeding itself the assessee had

emphatically denied of having paid any capitation fee in cash

leave alone any regular fee in cash to Santosh Medical College. It

is the specific case of the assessee that his daughter, Dr. 4 | P a g e

ITA Nos.732 & 1366/Del/2020 AYs: 2011-12 & 2012-13

Sugandha Bhalla was admitted to MDS course for a duration of 3

years and for pursuing such course she had paid regular fee of

Rs.18,50,000/- in three years. It was submitted by the assessee

that entire fee was paid by his daughter from her own sources,

savings and Stridhan.

submitted by the assessee that his son was pursuing five years

MBBS Course for which regular fee of Rs.30 lakhs over a period of

5 years starting from 2011 to 2015 was paid. It is a fact on record

that except third party evidence, being statement recorded from

Dr. P. Mahalingam and information received from the search and

seizure operation in case of Santosh Group, no other materials

have been brought on record to conclusively prove that the

assessee has paid the amounts, as alleged by the Assessing

Officer.

statement/evidence were utilized in detriment to assessee’s

interest, however, no opportunity of cross examination or even

confrontation of the adverse material was made. This, in my view,

is in gross violation of Rules of Natural Justice. When, the

Assessing Officer is making an addition based on certain adverse 5 | P a g e

ITA Nos.732 & 1366/Del/2020 AYs: 2011-12 & 2012-13

material in his possession, it is his fundamental duty to disclose

such material to the assessee and seek his rebuttal. This has not

been done by the Assessing Officer in the present case. There is

no conclusive evidence brought on record by the Assessing Officer

to dislodge assessee’s claim that nothing has been paid over and

above the regular fee.

the assessee, indeed, had paid capitation fee of Rs.45 lakhs for

assessment year 2011-12 and Rs.39 lakhs for assessment year

2012-13. At this stage, it is relevant to observe, in a case of

identical nature wherein identical addition was made based on

the incriminating materials found and statement recorded in

course of the very same search and seizure operation carried out

in case of Santosh Group of Institutions, a division Bench of the

Tribunal in case of Sh. Rajendra Singh Vs. ITO, ITA No.

8320/Del/2018, dated 18.06.2020 has held as under:

“8. We have considered the rival submissions and perused the material on record. It is not in dispute that the assessee has filed original return of income for the assessment year under appeal on 11.02.2011 (PB-1). Such fact is also mentioned in the assessment order. The reopening of the assessment is made subsequently in 2015. Copy of the reasons for reopening of the assessment are filed at page-13 of the PB in which the A.O. has recorded that as per information received from Investigation Wing search was carried-out on 27.06.2013 in Santosh Medical College Group of Institutions and Dr. P. Maha Lingam, who was Chairman/Director of this Institution, 6 | P a g e

ITA Nos.732 & 1366/Del/2020 AYs: 2011-12 & 2012-13

in which, he has admitted to have received regular fees by cash as well as unaccounted money and surrendered the same for taxation. A preliminary letter was issued to the assessee to file the documents. Since none attended, therefore, reopening of the assessment was made in the matter. Thus, the entire case is set-up against the assessee on the basis of statement recorded of Shri P. Mahalingam, Chairman/Director of Santosh Medical College Group recorded during the course of search and seizure operation. It is not brought on record if his statement was ever supplied to assessee or subjected to cross-examination on behalf of assessee. There is no other material available on record to justify the addition made against the assessee. Vide Order Dated 15.06.2020, the Ld. D.R. sought two days time to produce the evidence of payment of amount in question by assessee to the Medical College. However, nothing is produced on record if assessee made actual payment to the Medical College. The assessee since beginning of the re-assessment proceedings have denied to have paid any amount to the Medical College. The assessee in his explanation in writing as well as affidavit has affirmed that he has not paid any amount for admission of his daughter to MBBS Course because of the losses suffered by him in the business. The assessee further explained that amount of admission fees was paid by his brothers on behalf of his daughter which is supported by documentary evidences, though the same were not accepted by the Revenue. The daughter of the assessee has also owned-up that amount in question have been paid through her uncle for admission to the Medical College. The receipt executed by the College is also affirmed this fact that daughter of the assessee has made the payment for MBBS Course. Thus, no material is available on record to prove that assessee made any payment on behalf of the daughter for admission to the MBBS Course. Since the Revenue alleged that the amount in question is paid by assessee for admission of her daughter to the Medical Course, therefore, burden is very heavy upon Revenue to prove by positive evidence that assessee has in fact made the payment to the Medical College for admission for her daughter. However, no evidence is available on record to prove such contention rather the evidences on record and initial denial of the assessee itself supports the explanation of assessee that no amount is paid by assessee for admission of her daughter in Medical Course. The same issue have been considered by ITAT, Delhi Bench in the case of Shri Naresh Pamnani, Delhi (supra), which is reproduced as under:

“IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCHES “SMC” : DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER

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ITA.Nos.1561/Del./2018 Assessment Year 2010-2011

Shri Rajinder Singh, Vs. The Income Tax Officer, A-56, New Multan Nagar, Ward-42(4), New Delhi -110 056, New Delhi PAN: ACCPS9831R (Appellant) (Respondent)

For the Assessee : Shri Gautam Jain, Advocate For Revenue : Shri R.K. Gupta, Sr. DR

ORDER PER BHAVNESH SAINI, J.M.

This appeal by assessee has been directed against the Order of Ld. CIT(A)-27, New Delhi, Dated 29th January, 2018, for the assessment year 2010-2011. 2. Briefly the facts of the case are that assessee filed return of income declaring income of Rs.29,14,950/-. An information was received from DDIT, Investigation, New Delhi, on the basis of which, the case of the assessee was reopened under section 147 of the Income-Tax Act, 1961. The reasons are reproduced in the assessment order, in which, it is mentioned that information was received from DDIT, Investigation, New Delhi, regarding donation/ capitation fees paid for the regular course fees to Santosh Medical College, Ghaziabad, for assessment year 2009- 2010 through Pr.CIT, Delhi-15. The DDIT, Investigation New Delhi has submitted that a search and seizure action under section 132 of the Income Tax Act was carried out on 27th June, 2013 in Santosh Group of Institute & Dr. P. Mahalingam. During the search, certain documents/books of account were seized from the premises of H-1 to H-6, Santosh Nagar, Pratap Vihar. The main administrative block of the college which revealed receipts of donation/capitation fee, over and above the regular course fees, paid in cash by the parents of students admitted of accepting the donation/ capitation fees in cash and offered the unaccounted money so received for taxation in the relevant assessment year, In the case of the assessee, it was mentioned that he had made cash payment of Rs.19,75,000/- towards donation/ capitation fee over and above the regular course fees to the above college. Therefore, notice under section 148 was issued. The assessee was confronted with the query regarding cash payment to the above college. The assessee was asked to furnish documentary evidences of the source of the aforesaid payments in cash. The assessee is a Doctor by profession. During the course of assessment proceedings, statement of assessee was recorded

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under section 131 of the Income-Tax Act. The A.O. noted that Dr P Mahalingam has admitted in his statement under section 132(4) of the Income Tax Act that he had accepted the capitation fees from the assessee and surrendered the amount for taxation. The assessing officer, therefore, made addition of Rs.19,75,000/- in the hands of the assessee. 2.1. The assessee challenged the reopening of the assessment as well as the addition on merit before the Ld. CIT(A). However, appeal of assessee has been dismissed. 3. The assessee, in the present appeal, challenged the reopening of the assessment as well as the addition on merit. 13 ITA.No.8320/Del./2018 Shri Rajinder Singh, New Delhi. 4. I have heard the Learned Representatives of both the parties and perused the material available on record. 5. Learned Counsel for the Assessee submitted that assessee raised specific ground on merit to challenge the addition on merit, but, the Ld. CIT(A) without any reason noted in the impugned order that assessee has not raised any ground in this regard. He has submitted that Ld. CIT(A) has reproduced all the grounds in the appellate order, in which, in Ground No.6, assessee has challenged the addition of Rs.19,75,000/-. He has submitted that A.O. or the Investigation Wing have not supplied copy of the statement of Dr P Mahalingam to him for rebutting his statement and no cross-examination to his statement have been allowed at any stage, therefore, this statement cannot be read in evidence against the assessee. He has referred to the statement of assessee recorded at assessment stage, copy of which is filed on record, in which he has denied to have paid any amount to Dr P Mahalingam or the above college as capitation fees. He, therefore, submitted that since no material has been confronted to assessee, therefore, no addition could be made against the assessee. 6. On the other hand, Ld. D.R. relied upon orders of the authorities below. 7. After considering the rival submissions, I am of the view that addition on merit is wholly unjustified. It is well settled Law that unless the incriminating documents or statement used against the assessee are confronted to assessee and assessee have been allowed to cross-examine such statements, no such material or statement, could be read in evidence against the assessee. I rely upon the decision of the Hon’ble Supreme Court in the case of Kishan Chand Chellaram 125 ITR 713 (SC). In the present case, the 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 of Rs.19,75,000/- in cash. The assessing officer recorded statement of assessee at assessment stage, in which, the statement of Dr P 9 | P a g e

ITA Nos.732 & 1366/Del/2020 AYs: 2011-12 & 2012-13

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. The assessing officer 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. The 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. In the absence of any material on record against the assessee and in the absence of cross examination to the statement of Dr P Mahalingam on behalf of the assessee, such material cannot be used against the assessee so as to make the impugned addition. I, accordingly, set aside the Orders of the authorities below and delete the addition of Rs.19,75,000/-. 8. Both the parties also argued on initiation of reassessment proceedings and have also cited various case Laws and Ld. D.R. also submitted written submissions. However, in view of the fact that addition on merit have been deleted, the issue of reopening of assessment is left with academic discussion only. I do not propose to decide the same. In view of the above, appeal of assessee is allowed. 9. In the result, appeal of Assessee is allowed.”

8.1. Considering the totality of the facts and circumstances of the case noted above in the light of material on record as well as Order of the Tribunal in the case of Shri Naresh Pamnani, Delhi (supra), we are of the view that no addition could be made against the assessee of the impugned amount. In view of the above, we set aside the Orders of the authorities below and delete the entire addition in the hands of the assessee. However, the Revenue is at liberty to pursue their remedy if any, against Ms. Priyanka Kadian is so advised as per Law. . Since the addition on merit have been deleted, therefore, the issue of reopening of the assessment is left with academic discussion only and we do not propose to decide the same. In view of the above, appeal of the assessee is allowed.” 10 | P a g e

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squarely apply to the facts of the present case. Thus, in view of

the aforesaid, I hold that, on merits, the additions made of Rs.45

lakhs and Rs.39 lakhs in the assessment years under dispute are

unsustainable. Accordingly, I delete them.

whether additions can, at all, be made under section 68 of the

Act. Undisputedly, while framing the assessment for the relevant

assessment years, the Assessing Officer has made the disputed

additions under section 68 of the Act. On a careful reading of

section 68 of the Act, it is observed that the condition precedent

for invoking the said provision is if any sum is found credited in

the books of account of the assessee maintained for any previous

year and the assessee offers no explanation about the nature and

source of such credit. In the facts of the present appeals,

admittedly, the amounts of Rs.45 lakhs and Rs. 39 lakhs,

respectively, added to the income of the assessee under section 68

of the Act for the assessment years 2011-12 and 2012-13 were

not found credited in the books of account of the assessee.

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authorities, in course of search and seizure operation conducted

in Santosh Group, it was found that the assessee had paid these

amounts at the time of admission of his children. Thus, the

primary condition of section 68 that the amount must be credited

to the books of account of the assessee is not fulfilled. Though,

learned Commissioner (Appeals) has made an attempt to cover up

the legal lacuna by stating that the Assessing Officer has treated

the payment of fee in cash as unexplained expenditure under

section 69C of the Act, however, such observation of learned

Commissioner (Appeals) is factually incorrect, hence, cannot be

accepted. Thus, the conditions of section 68 of the Act having not

being satisfied, the addition made under the said provision has to

be deleted. Accordingly, I do so. In nutshell, the additions of

Rs.45 lakhs and Rs.39 lakhs made under section 68 of the Act

are hereby deleted.

part of the expenses on ad-hoc basis.

materials on record, I find that 50% of the expenditure claimed

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has been disallowed on purely ad-hoc basis. The disallowance

made not being backed by valid reasoning is deleted.

13, is addition of an amount of Rs.2 lakhs under section 68 of the

Act. Briefly the facts are, in course of assessment proceeding, the

Assessing Officer found that the assessee had deposited Rs.1 lakh

in his ICICI bank account and Rs. 1 lakh in his PNB bank

account. When called upon to explain the source of such deposit,

as alleged by the Assessing Officer, the assessee did not file any

reply explaining the source of such deposit. Thus, in absence of

any explanation from the assessee, the Assessing Officer added

back the amount to the income of the assessee. The addition was

also confirmed by learned Commissioner (Appeals).

materials on record. Though, it may be a fact that the assessee

could not furnish any explanation before the Assessing Officer

regarding the source of deposit in the bank accounts, however,

before the first appellate authority, the assessee did explain that

an amount of Rs.1 lakh was received from Sh. Paramjeet Singh on

account of sale consideration of a car sold to the concerned

person and the other amount of Rs. 1 lakh was out of the fees 13 | P a g e

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paid by patients in check up camp held in his clinic in Jangpura.

It is observed, in support of his claim that the amount of Rs.1

lakh was received from sale of car, the assessee had furnished a

confirmation before learned Commissioner (Appeals). On perusal

of the said confirmation, it is observed that 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.

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 Assessing Officer to ascertain the veracity of

assessee’s claim. In view of the aforesaid, I delete the addition of

Rs.2 lakhs made in assessment year 2012-13. In view of my

decision hereinabove, the other grounds raised by the assessee

being of mere academic interest are not required to be

adjudicated. 14 | P a g e

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above.

Order pronounced in the open court on 30th November, 2022

Sd/- (SAKTIJIT DEY) JUDICIAL MEMBER

Dated: 30th November, 2022. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi

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