Information from Pen drive / Laptop of Employees Not Deemed Credible Evidence alone for Tax Assessments: ITAT directs AO to Delete Additions Relating to Capitation [Read Order]

In a recent ruling, the Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has delivered a significant directive to the Assessing Officer (AO), compelling the deletion of additions related to capitation fees. The tribunal emphasized that information solely obtained from pen drives or laptops of employees cannot be deemed as credible evidence for tax assessments.

The crux of the matter revolved around determining whether the assessee had indeed collected capitation fees. The assessee in question was a charitable trust, duly registered under Section 12A of the Income Tax Act, 1961 and approved under Section 80G. Operating various educational institutions, including medical, dental, physiotherapy, biotechnology, and nursing colleges, the trust came under scrutiny due to allegations of collecting capitation fees from students for admissions.

The Assessing Officer's (AO) stance rested on the belief that the trust had indeed collected capitation fees, supported by evidence obtained from statements recorded from key employees. However, the trust vehemently denied such allegations, asserting a lack of tangible evidence to substantiate the AO's claims.

During the proceedings, Mr. Neelkanth Khandelwal, representing the assessee, argued that the cash found with the trust's employees was not indicative of capitation fees collection authorized by the trust. He highlighted that the employees themselves had declared the cash as their income under the Income Declaration Scheme, 2016, bolstering the trust's contention.

In contrast, Mr. K.C. Selvamani, representing the revenue, cited a precedent set by the Pune bench of the Tribunal in a similar case. However, after due deliberation, the Mumbai bench of ITAT, comprising Pavan Kumar Gadale and B.R.Baskaran, ruled in favor of the assessee. The bench emphasized that information solely retrieved from employee pen drives or laptops lacked credibility unless corroborated by other evidence.

The tribunal observed that “the information found in the pen drive/laptop of employees cannot be considered as credible evidences, unless they have been corroborated with any other evidence. Accordingly, no credence could be given to the abstract entries made in the pen drive/laptop. Accordingly, we are of the view that the AO could not have made additions on the basis of those information.”

Consequently, the tribunal upheld the decision of the Commissioner of Income Tax (Appeals) in deleting the additions made by the Assessing Officer.

To Read the full text of the Order CLICK HERE

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