ITAT relief to doctor, quashes addition of Rs 95 lakh allegedly paid as capitation fees for admitting his ward to MD Dermatology course

The I-T appellate tribunal quashed this addition, holding that the allegation was based only on the basis of scribbled notes found in the college during a search and seizure operation.

Income-tax (I-T) officials treated the amount of Rs 95 lakh reportedly paid by the doctor as “unexplained expenditure” and asked him to explain the source of income from which the expenditure was made. In other words, this meant it would be treated as income of the payer, in this case the doctor, on which income tax at 60 percent would be payable. With surcharge, cess and penalty, the aggregate rate of tax can be above 80 percent.

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The doctor had filed an I-T return for the financial year 2013-14 declaring a total income of Rs 64.7 lakh. His case was selected for limited scrutiny under the Computer-Assisted Scrutiny Selection (CASS) mechanism. The I-T official received information from another unit of the I-T department regarding payment of Rs 95 lakh capitation fees by the doctor to Sinhgad Technical Education Society (STES) for his daughter's admission.

Thereafter, the doctor was asked to explain the source of income from which the expenditure was made. A show cause notice seeking such information was also issued questioning why the sum of Rs 95 lakh should not be added to his total income as unexplained expenditure under Section 69C of the I-T Act. The doctor, though, stated he paid only Rs 5.5 lakh as tuition fees through a cheque drawn from HDFC Bank.

During the search and seizure operation carried out at the educational institution, handwritten notings (jottings) were seized from the dean. Also, an appraisal report had made a mention of such payment. Thus, the commissioner (appeals) also upheld the action of the I-T official, resulting in the doctor filing an appeal with the tax tribunal.

The managing trustees of the concerned college had given details of capitation fees paid by students to the I-T department's investigation wing.

As per a recent media report in TOI, ITAT quashed the addition of Rs 95 lakh. It held;

"Only on the basis of the scribbled note without any other oral/documentary evidence to support the allegation of capitation fees it is quite unsafe to fasten addition."