ACIT, EXEMPTION CIRCLE, PATNA vs. M/S SHARDA EDUCATIONAL SOCIETY, PATNA

आयकर अपीलीय अधिकरण पटना पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL PATNA BENCH AT KOLKATA [वर्चुअल कोटु] [Virtual Court] डॉ. मनीष बोरड, लेखा सदस्य एवं श्री संजय शमाु, न्याधयक सदस्य के समक्ष Before DR. MANISH BORAD, ACCOUNTANT MEMBER & SRI SONJOY SARMA, JUDICIAL MEMBER I.T.A. No.: 270/PAT/2018 Assessment Year: 2013-14 M/s. Sharda Educational Society.............................Appellant [PAN: AAGAS 3127 D] Vs. ITO (Exemption), Ward-1, Patna………………………..Respondent I.T.A. No.: 281/PAT/2018 Assessment Year: 2013-14 ACIT (Exemption), Circle, Patna...............................Appellant Vs. M/s. Sharda Educational Society……………………..Respondent [PAN: AAGAS 3127 D] Appearances by: Sh. Sh. A.K.Rastogi, Sr. Adv. and Sh. Rakesh Kumar, Adv., appeared on behalf of the Assessee. Smt. Rinku Singh, CIT (D/R), appeared on behalf of the Revenue. Date of concluding the hearing : December 6th, 2022 Date of pronouncing the order : March 2nd, 2023 I.T.A. No.: 270 & 281/PAT/2018 Assessment Year: 2013-14 M/s. Sharda Educational Society. ORDER Per Manish Borad, Accountant Member: These cross appeals filed by the assessee and Revenue pertaining to the Assessment Year (in short “AY”) 2013-14 are directed against the common order passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by ld. Commissioner of Income- tax (Appeals)-1, Patna [in short ld. “CIT(A)”] dated 07.08.2018 arising out of the assessment order framed u/s 143(3) of the Act dated 22.03.2016.

1. For that the ld. CIT(A) has erred confirming addition of Rs.20,00,000/- out of Rs. 2.38 crore on account of corpus donation u/s. 68 of the Act. 2.For that the appellant has received the donation through proper banking channel and all the donors are Income Tax assessee.

3. For that the sustenance of addition of Rs. 20,00,000/- is wrong, illegal and unjustified.

4. For that the whole order is bad in fact and law of the case and is fit to be modified.

5. For that other grounds, if any, shall be urged at the time of hearing of appeal.”

3. The Revenue is in appeal before this Tribunal raising the following grounds: “(i) The Ld. CIT(A)-1, Patna has erred in fact of the case as well as in law in deleting the addition of Rs. 1,70,00,000/- which was made by the A.O treating the same as unexplained, while the appellant society was failed to explain the sources of deposits in the foreign Bank account of the main trustee of the society from where money has been transferred to his Indian Bank account and from there the money was Page 2 of 14 I.T.A. No.: 270 & 281/PAT/2018 Assessment Year: 2013-14 M/s. Sharda Educational Society. transferred to the Bank account of the donors who in turn have transferred it to the Bank account of the assessee society. (ii) The Ld. CIT(A)-1, Patna erred in law as well as in fact of the case in treating the sources of corpus donation of Rs. 1,70,00,000/ - as explained while the assessee society has denied to furnish sources of deposits in the foreign Bank account of Shri Raj Kumar Singh who was the main trustee of the society and from his foreign Bank account amount was transferred to his NRE account and from there the money was transferred to the Bank account of the donors who in turn have transferred this amount to the Bank account of the society. (iii) Any other ground taken at the time of hearing.”

I.T.A. No.: 270 & 281/PAT/2018 Assessment Year: 2013-14 M/s. Sharda Educational Society.

by the ld. Counsel for the assessee and thus, confirm the addition for bogus donation of Rs. 20 lakh and dismiss ground nos. 1, 2 & 3 raised by the assessee.

9. Ground nos. 4 & 5 are general in nature which need no adjudication.

10. In the result, the appeal filed by the assessee is dismissed.

11. Now we take up the Revenue’s appeal wherein the sole issue is regarding deletion of addition of Rs. 1.70 Cr for corpus donation received by the assessee. We notice that ld. CIT(A) has dealt with this issue in detail taking note of the fact that the Trustee of the assessee Society Mr. Rajesh Kumar Singh is a non-resident Indian and he transferred the funds from his overseas bank account maintained with SBI, UK Branch and also from his NRE account held with ICICI Bank, Patna which was first transferred to various donors’ account in India and thereafter these donors gave the Page 5 of 14 I.T.A. No.: 270 & 281/PAT/2018 Assessment Year: 2013-14 M/s. Sharda Educational Society. corpus donation to the assessee Society. Complete details and the transaction trail has been put on record by the assessee. Considering the same, ld. CIT(A) deleted the addition of Rs. 1.70 Cr observing as follows:

“Ground No.1: The appellant has raised objection to the addition made on a total income of Rs. 2,38,90,000/- as against returned income of Rs. Nil declared by the appellant by treating the corpus donation as bogus which is wrong, illegal and unjustified on the facts and in circumstances of the case. In the course of the assessment proceedings of the case, the AO had verified that Balance Sheet of the appellant forming part of the Audit Report and on such verification, it was found that the appellant- society had received corpus donation to the tune of Rs.2,38,90,000/- which the appellant-society was requested to substantiate in respect of identity, creditworthiness and genuineness of the transaction. The appellant, in the course of assessment proceeding of the case, submitted the names and addresses, amount of donation and PAN of such donors. On the basis of detail submitted by the appellant, ld. AO issued notices under section 133 (6) of the Act to the so-called donors, so that the donation so claimed to be made by them would be confirmed. However, it was found out by the AO that none of these notices had been complied with, as the so called donors did not confirm the fact of donation as claimed by the appellant society. On the given facts and circumstances of the case, the AO concluded that the corpus donation amounting to Rs. 2,38,90,000/- is, thus, bogus which was added to the total income of the appellant society against which present appeal has been filed. In the course of the appellate proceedings of the case, it has been contended on behalf of the appellant society that the addition on account of corpus donation has been made on the ground that the donors had not complied to the notices issued under section 133 (6) of the Act without confronting the appellant society with the aspect of non-compliance by their respective donors. It had been also submitted by the appellant society that the corpus donation had been received through proper banking channels and also that all the donors are assessed to tax as their complete addresses along with IT particulars had been provided to the AO at the time of assessment proceeding of the case. It was also attempted to be submitted that it is not the case I.T.A. No.: 270 & 281/PAT/2018 Assessment Year: 2013-14 M/s. Sharda Educational Society. of the AO that notices issued under section 133 (6) of the Act had returned unserved or the donors were non-existent/fictitious/bogus. It had been also submitted on behalf of the appellant society that the addition made by the AO is directly in teeth of the judgment of the Apex Court in the case of Commissioner of Income-tax Vs. Orissa Corporation, Pvt. Ltd. reported in 159 ITR page 78 (SC) wherein it was held that:- “In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income tax assessees. Their Index No. were in the file of the Revenue. The Revenue, apart from issuing notices u/s 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based on some evidence on which a conclusion could be arrived at, no question of law as such arises.” It was further contended on behalf of the appellant that, if the facts of the appellant’s case is tested on the anvil of the aforesaid judgment, it is clear that the appellant has provided name, addresses and PAN Nos. of the donors and on the basis thereof notices u/s 133(6) was issued and duly served. The AO thereafter did not pursue the matters with the donors and the addition was made which is fit to be deleted in view of aforementioned judgment of the Apex Court which is law of the land as per Article 141 of the Constitution of India. The appellant society, it was submitted, that, had received donation from different parties through proper banking channel, details of which were already on record of the AO. However, for the sake of convenience, the appellant society had, once again enclosed following evidences to support its case that the so-called donor was towards corpus of the appellant society are identifiable, transaction is genuine and the credit worthiness of the donor is duly established:- Details of fund transferred from the bank account of Rajesh Kumar Singh to the bank account of the donors providing donation to the appellant I.T.A. No.: 270 & 281/PAT/2018 Assessment Year: 2013-14 M/s. Sharda Educational Society. The submissions made in the course of the appellate proceedings of the case had been carefully perused at this end and on such perusal, it was found that in the Bank A/c No. 00030100017539 maintained at Bank of Baroda in the name of Sri Rajesh Kumar Singh Secretary of the Society held jointly with Neeta Singh, there are credits and debit of equivalent sums on different dates. The credit in the account has come from Societies Bank Account No. 00030200000966 with Bank of Baroda. It was also found that the debits from Bank A/c No. 00030100017539 represented transfer of funds by Rajesh Kumar Singh to his close relatives who in turn provide the funds to the society which has been credited in their respective names extracted as above. It is found that Sri Rajesh Kumar Singh has transferred the funds from his overseas account No. 11819801 maintained with State Bank of India, UK Branch and from his NRE Account No. 030701001378 with ICICI Bank, Kahkarbagh, Patna to the Bank A/c No. 00030200000966 of the society. The transfer of funds from Overseas Bank Account at UK was made by Sri Rajesh Kumar Singh in the year 2011 when Mr. Singh was not even Member of the Society. Thereafter, it was found that the transfers were made from UK to his NRE account. The bank, in this regard, objected to these transfer of funds from UK directly to the account of the appellant Society on the ground that Mr. Singh is not a Member of the society and therefore, the funds so transferred were repaid back by the Society to Mr. Singh which has been found to be credited in his bank account who in turn transferred the funds to his close relatives and, in turn, such relatives transferred the funds back to the society through their respective account. Therefore, it was submitted on behalf of the appellant society that the appellant has not only been able to establish the source of the funds but also the source of source and also that the identity of the donors towards was fund of the appellant society and genuineness of transaction cannot be doubted as the parties are known to the bank, Income Tax and are also on the voter list. Thus all the three ingredients of the credit entry in the books which is by way of donation, thus stands fully established establish. On the basis of submissions made by the appellant in the course of the appellate proceeding of the case, report of the AO under section 250 (4) of the Act was called for by this office letter No. CIT(A)- 1/Pat/RR/2016-17/1787 dated 23/01/2017, on which the Assessing Officer submitted the Remand Report, duly forwarded by I.T.A. No.: 270 & 281/PAT/2018 Assessment Year: 2013-14 M/s. Sharda Educational Society. the Range Head by its letter No. JCIT/Exemptions/Misc./Pat/2017- 80/947 dated 17/01/2018. In the Remand Report, it was submitted by the AO of the case that “On perusal of the details it is observed from the bank statement of M/s Sharda Educational Society's Bank of Baroda, Patna main branch Account No. 00030200000966 that the assessee society has received Rs. 2,12,50,000/- from various donors, which are verifiable the donors account. Further, the donors account has been verified with the trustee Sri Rajesh Kumar Singh’s account No. 00030100017539 and it is found that an amount equal to Rs. 1,70,00,000/-has been transferred from trustee’s above account various donors account." Further, the appellant assessee had stated in the submission before you in response to this office letter dated 27/04/2017 that a sum of Rs. 1,70,00,000/- has been transferred from NRE account of the trustee in the bank account of his friends and relatives who in turn have given the funds to the petitioner's society.” However, on verification from NRE account to trustee’s account No. 00030100017539 it is found that no such transfer has took place or matched. Therefore, the source of the source that is amount transferred from an NRE account No. 030701001378 and account No. 030701075222 of the ICICI Bank to trustee Rajesh Kumar Singh’s account No.000 301000017539 of the Bank of Baroda could not be verified. Further, now the appellant has submitted confirmation letter from major donors before the AO except for an amount of Rs. 23,00,000/-" The appellant society was provided with the copy of the aforesaid remand report for necessary rejoinder if any, by this office letter No. CIT(A)-I/Pat/Comments on RR/2017-/1367 dated 22/01/2018. In its rejoinder submitted on behalf of the appellant society, it was brought on record that “As submitted in the written submission dated 26/12/2016, the funds directly transferred from UK to Society’s account were objected by the Bank and accordingly Society has repaid the sum back to him which was credited in his Bank account with Bank of Baroda. The funds so received amounting to Rs. 1,70,00,000/- (admitted by the Assessing Officer in the remand report) were transferred by Mr. Singh in the Bank account of his close relatives who in turn have transferred the sum so received from Mr. Singh to the bank account of the appellant society (this part of the transaction also accepted by the AO. What has not been accepted by AO is the source of the source i.e. the Page 9 of 14 I.T.A. No.: 270 & 281/PAT/2018 Assessment Year: 2013-14 M/s. Sharda Educational Society. transfer from UK Bank account either the Society's bank Account and/or in the NRE Bank account of Mr. Singh with ICICI Bank by observing that "no such transfer took place or matched". In this regard, it would be relevant to mention that Mr. Singh’s account with SBI, UK is in GBP and not in I NR and it appears that the AO under misconception was trying to find out the debits in UK Bank account in I NR so as to match it with corresponding credit in Indian bank. Since the debits in UK Bank account are in GBP and its corresponding credit in Indian bank account are in INR upon its conversion, it will be never matched.’’ In the same rejoinder, it was submitted on behalf of the appellant society that if the facts of the appellant’s case is tested on the anvil of the aforesaid judgements, it is clear that no addition on account of corpus donation of Rs.2.38 crores is liable to be sustained in view of the categorical finding by the Assessing Officer contained in the last page of remand report wherein it has been observed that further now the appellant has submitted confirmation letter from major donors before the AO except for an amount of Rs. 23,00,000/-. The correct figure should be Rs. 20,00,000/- i.e. corpus donation from four corporate entities in whose case, only PAN was furnished and not the confirmations. For the rest of the corpus donation, the confirmations are already on record. There is no dispute that the corpus donation from other donors have come through proper banking channel and are not in cash. It is also evident from the audited set of accounts that during the year under consideration, there was no revenue receipt. Thus, the judgements refer to the above are all on fours to the facts of the appellant’s case and addition made amounting to Rs. 2.38 crores may kindly be ordered to be deleted. On the basis of aforesaid rejoinder on the Remand Report particularly in respect of transfer and conversion of fund from GBP to INR and its corresponding eye to eye matching with donation, report of the AO under section 250 (4) of the Act was once again called for by this office letter No. CIT(A)-1/Pat/RR/2017-18/1474 dated 20/02/2018, on which the AO submitted the Remand Report, duly forwarded by the Range Head by its letter No. JCIT/Exemptions/Misc./Pat/2017- 1/1233 dated 30/03/2018. In the Remand Report, it was submitted by the AO of the case that “The assessee vide its reply dated 20/03/2018 has submitted copy of bank accounts No. 11819801, 11819802, 030701001378 & 030701075222 of Shri. Rajesh Kumar Singh (President of the trust) from where money has been transferred to other persons account and Page 10 of 14 I.T.A. No.: 270 & 281/PAT/2018 Assessment Year: 2013-14 M/s. Sharda Educational Society. there from the same amount is shown to have transferred to the bank account of the assessee trust. The assessee trust was asked to furnish sources of deposits in the bank accounts of the person from where money has been transferred through banking channel to the bank accounts of the assessee trust. The assessee trust vide its reply dated nil submitted on 20/03/2018 has denied to furnish the sources of deposits in the bank accounts from where money has been transferred to the account of the assessee trust. Shri. Rajesh Kumar Singh (Trustee) has transferred this amount from his Bank account No. 11819801, 11819802, 030701001378 & 030701075222 but assessee trust has failed to furnish sources of deposits in these bank account. The assessee trust has further stated that it cannot be called upon to explain the source of source and cited a judgment of the Hon'ble Jharkhand High Court reported in 400 ITR 120 in its favour but the facts of that case are not identical with the facts of this case. Therefore assessee's plea on this issue are not acceptable. Shri. Rajesh Kumar Singh who is president of the assessee trust has accepted that amount transferred to the bank account of the assessee trust are transferred from his Bank accounts. Therefore it is duty of the assessee trust to prove his credit worthiness. Since source of deposits in bank account of Shri. Rajesh Kumar Singh (Trustee) has not been proved by the assessee trust. Therefore, the whole amount of Rs. 1,70,00,000/- is found to be unexplained Accordingly, A.O. has rightly made addition u/s.68 of the Income Tax Act, 1961. The appellant society was provided with the copy of the aforesaid remand report for necessary rejoinder if any, by this office letter No. CIT(A)-l/Pat/Comments on RR/2018-19/669 dated 06/07/2018. In its rejoinder submitted on behalf of the appellant society, it was brought on record that “Thus, the appellant has proved the trail of transaction of deposit in the Bank account of the Trustee in India to have come out from transfer of Trustee’s UK Bank account. What has been denied by the appellant in the letter dated 20/03/2018 is not the source of deposit in the Indian Bank account of the Trustee’s rather the source of Page 11 of 14 I.T.A. No.: 270 & 281/PAT/2018 Assessment Year: 2013-14 M/s. Sharda Educational Society. deposit in the Trustee’s UK Bank account on the ground that appellant is not required to prove the source of the source. In the circumstances, the Assessing Officer is wholly unreasonable in holding that the not has failed to explain the source of deposit in the Indian Bank account of the trustee. The chart OF movement of fund already on record along with copies of relevant Bank statements proves beyond all reasonable doubt that sources of deposits in the Trustee’s Indian Bank account have come from the Bank account of the Trustee held in the UK In the circumstances, the adverse finding of the Assessing Officer without cross verification and application of mind on the submission (comment on remand report 6/02/2018) is fit to be reversed. The appellant further reiterates that it is not required to explain source of the source i.e. source or deposit in the UK Bank account of the Trustee in view of the settled judicial pronouncements (400 ITR 120) on which reliance was placed in the reply to the Assessing Officer 20/03/2018 (copy enclosed)" I have gone through the assessment order and submissions made by the appellant in the course of the appellate proceeding, Remand Reports on record as well as comments on the Remand Report and had also given careful consideration to the facts and circumstances of the case. It is matter of record that Sri Rajesh Kumar Singh, at present one of the trustee of the appellant society, had transferred certain funds from his NRE Account maintained in UK in GBP to the Bank account of the appellant society directly which on objection was routed through close relatives/donors of Sri Singh. The movement of funds from one Bank account to another is very much evident from record as well as sources of the funds in the hands of Sri Rajesh Kumar Singh, which was accepted by the AO in his Remand Report, dated 17/05/2017, which however was attempted to be negated in the Remand Report, dated 26/03/2018. In his Remand Report, dated 17/05/2017, the AO had categorically observed that the corpus donation to the appellant society in question had come from the funds in the hands of donors received from Sri Rajesh Kumar Singh from his NRE account when he was not one of the trustee of the appellant society. However, the AO in his Remand Report dated 17/05/2017 had cast doubt on the genuineness of transaction on the ground that there was no matching with the availability of funds in the NRE account in GBP with that of Indian Bank account in INR. It has been categorically brought on record in the course of the appellate proceeding in this case that there would not be any mismatch in the Page 12 of 14 I.T.A. No.: 270 & 281/PAT/2018 Assessment Year: 2013-14 M/s. Sharda Educational Society. availability of the funds in the NRE account maintained in GBP on its conversion into INR which had been also clearly demonstrated with the prevailing rate of conversion at the time of credit in the respective bank account which is also very much evident from the bank statements being brought on record both at the time of the appellate proceeding of the case as well as in the course of proceedings carried out for the Remand Report. In view of the aforesaid, it is thus crystal clear that the appellant society had been able to establish source of corpus donation except for an amount of Rs. 5,00,000/-each totalling up to Rs. 20 lakhs received from following so-called four corporate entities namely; (i) Expression Dealers Private Limited, (ii) Quest Sales Private Limited, (iii) Goldengate India Private Limited and (iv) Regal Delmark Private Limited.”