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Facts
A search operation was conducted on M/s. Arihant Educational Society (Medical College), revealing seized documents indicating the assessee paid a donation of Rs. 29.5 Lakhs for his son's admission, in addition to a regular fee. The Assessing Officer, based on these seized documents, added Rs. 20,50,000/- to the assessee's income for AY 2012-13, which was confirmed by the CIT(A).
Held
The Tribunal held that the addition was made solely based on seized material found from a third party without any corroborative evidence from the AO or providing the assessee with an opportunity for cross-examination. Citing principles of natural justice and a similar precedent, the Tribunal deleted the addition.
Key Issues
Whether an addition made solely on the basis of seized material found from a third party, without corroborative evidence or cross-examination opportunity, is sustainable in law and adheres to principles of natural justice.
Sections Cited
132, 153C, 143(3), 234A, 234B
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Income Tax Appellate Tribunal, Hyderabad ‘ SMC ‘ Bench, Hyderabad
Before: Shri Ravish SoodShri Madhusudan Sawdia
(िनधा�रण वष�/Assessment Year: 2012-13) Shri Rondla Pushpasena Vs. Income Tax Officer Reddy, Hyderabad Ward 1 PAN:CUHPR3280A Warangal (Appellant) (Respondent) िनधा��रती �ारा/Assessee by: Shri T Chaitanya Kumar, Advocate राज� व �ारा/Revenue by:: Smt.V Koteshwaramma, Sr.DR सुनवाई की तारीख/Date of hearing: 25/09/2025 घोषणा की तारीख/Pronouncement: 03/10/2025 आदेश/ORDER Per Madhusudan Sawdia, A.M.: This appeal is filed by Shri Rondla Pushpasena Reddy (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals)-12, Hyderabad, (“Ld. CIT(A)”), dated 31.01.2022 for the A.Y. 2012-13.
The assessee has raised the following grounds of appeal:
The brief facts of the case are that, the assessee is an individual engaged in agricultural operations. The assessee did not file any return of income for the Assessment Year 2012–13. A search and seizure operation under section 132 of the Income Tax Act, 1961 (“the Act”) was conducted in the case of M/s. Arihant Educational Society (“Medical College”), which runs a medical college. During the search, evidences were found indicating collection of donations by Medical College over and above the regular fees prescribed by the Government. The medical college admitted undisclosed income of Rs.40,45,00,000/- on account of Page 2 of 7 such donations. On verification of seized material, it was noticed that the name of the assessee also figured in the documents, showing that his son, Dr. R. Venkateshwars Reddy, had taken admission in the college for the academic year 2011–12. As per the seized documents, the assessee had paid regular fee of Rs.10,50,000/- and a donation of Rs.29,50,000/- totaling Rs.40,00,000/-. Based on this, the Learned Assessing Officer (“Ld. AO”) issued notice to the assessee under section 153C of the Act on 27.03.2017.
During the assessment proceedings, the Ld. AO called upon the assessee to explain the source of the payment of Rs.40,00,000/-. After considering the submissions, the Ld. AO held that out of the total of Rs.40,00,000/-, the assessee had paid Rs.20,50,000/- during the year under consideration (AY 2012–13) and Rs.19,50,000/- during the AY 2013-14. Being not satisfied with the explanation, the Ld. AO added Rs.20,50,000/- in the hands of the assessee for AY 2012–13 and completed assessment under section 143(3) r.w.s. 153C on 27.12.2017.
Aggrieved with the order of the Ld. AO, the assessee preferred appeal before the Ld. CIT(A). The Ld. CIT(A) confirmed the addition and dismissed the appeal.
Aggrieved with the order of the Ld. CIT(A), the assessee is now in further appeal before this Tribunal. The Learned Authorized Representative (“Ld. AR”) submitted that the sole issue out of the ground of appeal of the assessee is the addition of Rs.20,50,000/- made by the Ld. AO. The Ld. AR submitted that addition was made solely on the basis of seized material found in Page 3 of 7 the premises of a third party (Medical College). The document was not recovered from the possession or control of the assessee. Therefore, no presumption can be drawn under the Act that the document belonged to the assessee. It was also argued that the Ld. AO has not brought any independent material or corroborative evidence to establish that the assessee actually paid the alleged donation. The Ld. AR also submitted that neither were the seized documents confronted to the assessee in the assessment proceedings, nor was the assessee granted an opportunity of cross-examination of the concerned persons. This is a clear violation of the principles of natural justice as held by the Hon’ble Supreme Court in Andaman Timber Industries v. CCE [2015] 281 CTR 214 (SC).
The Ld. AR further submitted that in a similar case, based on the very same seized documents of Medical College, the Ld. AO made an addition in the hands of another assessee, Shri Venkata Satya Surya Sree Ranganadha Raju Alluri. However, this Tribunal (SMC Bench) deleted the addition in for AY 2012–13 vide order dated 22.01.2020. In view of the above, the Ld. AR prayed that the addition of Rs.20,50,000/- be deleted.
Per contra, the Learned Departmental Representative (“Ld. DR”) strongly relied upon the orders of the lower authorities. She submitted that the seized material clearly contained the name of the assessee, his son, and the details of fee and donation paid for admission in the medical college. Therefore, the seized material constitutes good evidence for making the addition. It was further
Page 4 of 7 submitted that the assessee did not file any return of income, and when called upon, he failed to explain the source of the cash payment of Rs.20,50,000/-. In such circumstances, the addition was rightly made by the Ld. AO and confirmed by the Ld. CIT(A). Accordingly, the Ld. DR prayed that the appeal of the assessee be dismissed.
We have carefully considered the rival submissions and gone through the material available on record. It is evident that the addition in the present case has been made solely on the basis of seized documents found in the premises of Medical College during the course of search under section 132 of the Act. The documents were not recovered from the possession or premises of the assessee. The Ld. AO has not brought on record any independent or corroborative evidence to establish that the assessee actually paid the alleged donation amount of Rs.20,50,000/-. Further, from the assessment order, it is clear that the seized documents were not confronted to the assessee, nor was any opportunity of cross-examination provided. The denial of such opportunity amounts to violation of the principles of natural justice as held by the Hon’ble Supreme Court in Andaman Timber Industries (supra). In this regard, we have also gone through the decision of the SMC Bench of this Tribunal in Venkata Satya Surya Sree Ranganadha Raju Alluri v. ITO (Supra), wherein this Tribunal at para nos.7 & 8 of its order has held as under: “7. There is a search and seizure carried on in the case of M/s.Arihant Educational Society where seized material was found to the extent of Rs. 30.00 lakhs. A statement of the Page 5 of 7
cashier was recorded u/sec. 132(4) and accordingly issued notices to the assessee calling explanation in respect of cash payment made by the assessee relating to the admission of his son into P.G. medical course under management quota. The assessee categorically explained that he has not paid any amount over and above the fee as prescribed by the Government. However, the Assessing Officer not accepted the explanation of the assessee and based on the seized material and statement of the cashier, addition of Rs. 30.00 lakhs was made as unexplained source in the hands of the assessee, the same is confirmed by the ld. CIT(A) in appeal, According to the ld. CIT(A), seized material and statement given by the cashier of the medical college is conclusive proof, hence, addition made by the Assessing Officer was confirmed. I find that when the seized material was found in the premises of the college, it has to be presumed that it belonging to the college. When the addition is proposed in the hands of the assessee and when assessee has specifically denied, the Assessing Officer should have given opportunity to cross-examine the cashier and thereafter he has to pass the assessment order. In this case, without giving opportunity to the assessee to cross- examine the person who has given statement u/sec. 132(4) on behalf of the college, simply addition was made on the basis of seized material, in my view, is not correct. I, therefore, of the opinion that the addition made by the Assessing Officer and confirmed by the ld. CIT(A) cannot survive. Accordingly, addition is deleted.
8. So far as the judgment of the Hon'ble Supreme Court in the case of Andaman Timber Industries (supra), the Apex Court has expressed a view that failure to give the assessee the right to cross-examine witnesses whose statements are relied upon results in breach of principles of natural justice. It is a serious flaw which Officer renders the order a nullity. In the present case, the Assessing based on the seized material and statement given by the cashier of the college addition was made. Therefore, the addition is based on the statement of the third party though assessee has not specifically asked for cross examination, it is the duty of the Assessing Officer to give opportunity to the assessee and allow him cross- examination. In this case, the assessee specifically denied that he has not paid any amount other than the amount paid by him as per the Government prescribed fee. Keeping in view of the principles laid down by the Hon'ble Supreme Court in the above referred to case, the addition made by the Assessing Officer has to be deleted and the order of the ld. CIT(A) has to be cancelled. Accordingly, I find that the order passed by the ld.CIT(A) is not correct therefore same is cancelled.”
On perusal of the above, we also notice that in a similar matter, involving the same medical college and identical seized material, the SMC Bench of this Tribunal has already held that no addition can be sustained in the absence of corroborative evidence. Following the said precedent, we are of the view that the addition made in the present case is not sustainable in law. Accordingly, we direct the Ld. AO to delete the addition of Rs.20,50,000/- made in the hands of the assessee.
In the result, the appeal of the assessee is allowed.