MBBS Capitation Fee: ITAT relief to parent who had allegedly paid cash to medical college

The present case pertains to the plea filed by the assessee whose name came up during the assessment conducted under section 132 of the I.T. Act, 1961 on 27.06.2013 in Santosh Group of Institutions 

During the inquiry proceedings; the facts of the case surfaced mentioning that one Singhal, the assessee in the case, had admitted his son to an MBBS course in the medical college. He filed a return of income on 24.07.2008 declaring income of Rs.78,263/-.

Later on, information was received from Investigation Wing and a search was conducted on the medical Institutions

During the search, certain documents/books of account were seized from their premises and Administrative Block at Ghaziabad which revealed receipt of donation/capitation fees over and above the regular course fees paid in cash by parents of the students for taking admission in various medical courses.

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During the course of recording statements under section 132(4) relevant seized documents were confronted to the Chairman of the Trust running the medical college in which he admitted of accepting donation/capitation fees in cash and offered this unaccounted money for taxation in relevant assessment years.

The A.O. on the basis of such information found that assessee has already paid cash of Rs.27 lakhs for admission of his son to the MBBS course.

On the basis of this information, the authorities reopened the assessment under section 147/148 of the I.T. Act. The statement of the assessee was recorded under section 131 of the I.T. Act, but, he failed to explain correctly that he had not given the donation. The assessee, however, denied giving any cash for admission of his son. The A.O. was not satisfied with the explanation of the assessee and made the addition of Rs.27 lakhs in the tax.

Aggrieved, the petitioner had moved the tribunal challenging the addition. He contended that no adverse material was confronted to him and that the chairman was never produced for cross-examination on his behalf and even his statement was not adverse in nature against the assessee because he denied of receipt of any capitation fees.

The Learned Counsel for the Assessee submitted that no right of cross-examination have been allowed to the statement of Chairman, therefore, addition on merit is wholly unjustified.

In response, CIT (A), contended that the right of cross-examination is not the absolute right of the assessee.

Hearing the submissions, the tribunal deliberated on the matter and noted that the entire addition is based on the statement made by the chairman which were recorded under section 132(4) of the I.T. Act, in which, he has admitted to have received donation/capitation fees in cash which was surrendered for taxation. The assessee, however, denied to have paid any amount in cash on account of donation/ capitation fees to the chairman or the College in which his son was admitted for MBBS Course.

"Since the Revenue Department alleged that assessee has paid cash of Rs.27 lakhs as donation/capitation fees, therefore, onus is upon A.O. to prove through cogent and reliable evidence that assessee has in fact paid cash by way of donation of capitation fees to the Medical College..."

The bench observed that in the present case, the entire case is set-up on the basis of the statement of the chairman recorded during the course of search under section 132(4) of the I.T. Act, 1961, in which he has admitted to have received donation/capitation fees in cash. However, the assessment order is silent if any right of cross-examination has been allowed on behalf of the assessee at the assessment stage.

Noting that the right to cross-examination of the chairman's statement was denied to the assessee to check the veracity of the claim recorded, the Tribunal observed:

"It is well settled Law that any adverse material collected at the back of the assessee when not confronted and that if any statement is recorded by the A.O./Revenue Department at the back of the assessee and such statement is not allowed for cross-examination on behalf of the assessee, such material cannot be considered against the assessee in the Income Tax proceedings and such material/statement cannot be read in evidence against the assessee."

Granting relief, the tribunal ordered the deletion of the addition and held:

"there is no other material available on record so as to make any addition against the assessee. Thus, onus upon the Revenue Department to prove that assessee paid cash to *chairman* or the Medical College is not discharged in the present case."