Sulekh Chand Singhal vs ACIT – Challenge to Alleged Donation Payment for AY 2007-08

Case Summary: Sulekh Chand Singhal vs ACIT – AY 2007-08

This article provides an in-depth analysis of the case between Sulekh Chand Singhal and the Assistant Commissioner of Income Tax (ACIT), Circle-57(1), New Delhi. The case, listed under ITA No. 6700/DEL/2019, pertains to the assessment year 2007-08 and was decided on July 23, 2020.

Background and Reason for Filing the Case

Sulekh Chand Singhal, a resident of Delhi, filed his income tax return for the assessment year 2007-08 on July 24, 2008, declaring an income of Rs. 78,263. The return was initially processed under Section 141(1) of the Income Tax Act, 1961. Subsequently, information was received from the Investigation Wing following a search operation under Section 132 of the Income Tax Act conducted on June 27, 2013, at the premises of Santosh Group of Institutions and Dr. P. Mahalingam, its Chairman.

During the search, documents were seized that allegedly revealed that donation or capitation fees were paid in cash by parents for their children’s admission to medical courses. Dr. P. Mahalingam, in his statement recorded under Section 132(4), admitted to accepting such fees and offered these unaccounted sums for taxation in the relevant assessment years.

The Assessing Officer (AO) concluded that Sulekh Chand Singhal had paid Rs. 27 lakhs in cash as a donation for his son’s admission to the MBBS course. Based on this, the AO reopened the assessment under Sections 147/148 of the Income Tax Act and made an addition of Rs. 27 lakhs to the assessee’s income.

Why the Case Was Filed

The case was filed by the appellant to challenge the reopening of the assessment and the subsequent addition of Rs. 27 lakhs made by the AO. The appellant argued that the addition was baseless and that the assessment had been reopened without any concrete evidence linking the payment to him.

Proceedings Before the ITAT

The appeal was heard by a bench comprising Shri Bhavnesh Saini, Judicial Member, and Shri B.R.R. Kumar, Accountant Member, through video conferencing, a necessity due to the COVID-19 pandemic.

Appellant’s Position

The appellant, represented by Shri Raj Kumar Gupta and Shri Sumit Goel, CAs, contended that the entire addition was based on the statement of Dr. P. Mahalingam, which was recorded during the search. The appellant denied making any payment towards donation or capitation fees and argued that no direct evidence linked him to the alleged payment. He also emphasized that the right to cross-examine Dr. P. Mahalingam was denied, both during the assessment and appellate stages, making the addition legally unsustainable.

Respondent’s Position

The Revenue, represented by Shri Rakesh Gupta, Senior DR, defended the addition and the reopening of the assessment, arguing that the statement of Dr. P. Mahalingam was sufficient evidence to justify the action taken by the AO.

ITAT’s Analysis and Decision

The ITAT carefully considered the arguments presented by both parties. It noted that the entire addition was based on the statement of Dr. P. Mahalingam, who admitted to accepting cash donations. However, the Tribunal found that the AO failed to provide the appellant with an opportunity to cross-examine Dr. P. Mahalingam, which is a crucial aspect of the principles of natural justice.

Lack of Cross-Examination

The Tribunal observed that the right to cross-examine a witness whose statement forms the basis of an assessment is fundamental. In this case, despite the CIT(A) directing the AO to arrange for the cross-examination of Dr. P. Mahalingam, the witness did not appear. As a result, the appellant was deprived of the opportunity to challenge the adverse material used against him.

The ITAT referenced the Supreme Court judgments in Kishanchand Chellaram vs CIT (125 ITR 713) and Andaman Timber Industries vs CCE (281 CTR 214), both of which emphasize that evidence collected at the back of the assessee, without giving them a chance to rebut or cross-examine, cannot be used against them in tax proceedings.

Onus of Proof

The Tribunal also highlighted that the onus was on the Revenue to prove that the appellant had indeed made the cash payment. In the absence of any corroborative evidence apart from the disputed statement, the ITAT found that the Revenue failed to discharge this burden of proof.

Reopening of Assessment

The appellant also challenged the reopening of the assessment. However, the ITAT chose not to delve into this issue, deeming it academic since the addition itself had already been deleted on merits.

Conclusion and Final Judgment

The ITAT ruled in favor of the appellant, Sulekh Chand Singhal, and deleted the addition of Rs. 27 lakhs made by the AO. The Tribunal held that the lack of cross-examination of Dr. P. Mahalingam rendered the addition invalid. The decision serves as a reminder of the importance of adhering to the principles of natural justice in tax proceedings.

The final judgment was pronounced on July 23, 2020, with the ITAT setting aside the orders of the lower authorities and allowing the appeal of the assessee.

Implications of the Decision

This case underscores the necessity for tax authorities to provide a fair hearing, including the right to cross-examine witnesses. The ruling highlights the judiciary’s role in upholding taxpayers’ rights and ensuring that assessments are conducted within the bounds of law and fairness.

For taxpayers, this judgment offers reassurance that the courts will protect their rights against arbitrary assessments and will require tax authorities to substantiate their claims with credible evidence.

Takeaways

The ITAT’s decision in the case of Sulekh Chand Singhal vs ACIT reaffirms the significance of due process in tax assessments. It is a clear indication that the courts will not uphold additions or assessments based on uncorroborated statements, especially when the taxpayer is denied the opportunity to challenge such evidence through cross-examination.

This ruling is an essential precedent for taxpayers and tax professionals alike, emphasizing the importance of fairness and the protection of rights within the Indian tax system.

Sulekh Chand Singhal vs ACIT – Challenge to Alleged Donation Payment for AY 2007-08