QUADEYE TRADING ,KOLKATA vs. DCIT, CIRCLE - 36, KOLKATA , KOLKATA

In response to the notice of hearing, the assessee has filed an application for adjournment. However, the Bench has passed the following order:-

01.05.2023: The present appeal is directed at the instance of assessee against the order of ld. Commissioner of Income Tax (Appeals)-10, Kolkata dated 31.07.2018 passed for A.Y. 2013-14.

As observed earlier, the assessee has raised five grounds of appeal, however, its grievances revolve around a single issue, namely ld. CIT(Appeals) has erred in confirming the disallowance of Rs.87,50,000/-, which was claimed as a deduction under section 35(1)(ii) of the Income Tax Act, 1961.

Brief facts of the case are that the assessee has filed its return of income on 12.08.2013 declaring total income of Rs.3,51,07,500/-. The case of the assessee was selected for scrutiny assessment under CASS and a notice under section 143(2) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the ld. Assessing Officer that the assessee had given a donation of Rs.50,00,000/- to The School of Human Genetics and Population Health (in short ‘SHG & PH’). On this donation, the assessee has claimed deduction under section 35(1)(ii) of the Income Tax Act at Rs.87,50,000/- i.e.

With the assistance of ld. D.R., we have gone through the record carefully. Recently we have decided bunch of appeals involving similar issue, i.e. in (A.Y. 2013- 14) & others. Our finding on this issue reads as under:- “23. The Department has filed a paper book containing 268 pages in M/s. Tarasafe International Pvt. Limited. On second page of the paper book, order of the Settlement Commission dated 22.07.2016 passed under section 245D(4) of the Income Tax Act has been placed on record. In this order, Settlement Commission has noticed the facts of assessee before them, i.e. SHG&PH. Such facts have been noticed by them on the basis of statement of facts filed before them. We deem it appropriate to take note of the facts about the Institution, who has received such a huge donation. As emerging out from that order, the facts are that the Society SHG&PH was registered under West Bengal Society Registration Act, 1961 on 26.04.1993. It was founded by Professor D.P. Mukherjee, the Society was formed with the objective of service oriented researches in the field of Human Genetics and to address all the problems ailing the population i.e. epidemics, ethnicity and ethos of common man along with following welfare activities:- (i) to conduct seminars, lecture sessions, conferences awareness generation; (ii) to acquire, establish and run educational centre (science medicine, IT), (iii) women empowerment through self-help group, women literacy & vocation; (iv) to fight major population health issues, as Cancer Thalassaemia etc. The Registered Office of the donee society is situated at 7, Nilamber Mukherjee Street, Kolkata-700004. The particulars of various registrations/approvals/legal status of the Applicant Society are as under:- Particulars Regn. No. Date Authority Registration DIT(E)/S- 27.10.2004 Director of 4

It was further, submitted that as the society had inadequate financial resources, it was made to understand by certain persons acting as mediators about a way of earning some income as commission through the route of giving accommodation entries for 'donations'. The Society was enticed into accepting cheques towards ‘donations' and refunding almost similar amounts by debiting the payments under various heads in books of account after retaining a certain margin of 3% to 8% towards service charges for itself. Owing to lack of financial flows and for the need for meeting their financial requirements, the Secretary and Treasurer of the Society accepted such ‘donations' during the F.Y. 2011-12, 2012-13 and 2013-14, which were accommodating entries for ‘donations’ through mediators. The refunds were made by debiting the payments, mainly under the head Research & Development Expenditures and some other heads i.e. SHG Advances etc. in the books of account and returned to the ‘donors’.

It was also submitted before Settlement Commission that a survey operation under section 133A of the Act was carried out at the premises of the done Society at 6A, Malanga Lane, Kolkat-12 on 27.01.2015. During the course of survey following documents were found and impounded:- Name & Items Annexure Documents Documents Address found impounded School of Books of ‘A’ SHG/1 to SHG/1 to Human accounts SHG/8 and SHG/8 and Genetics & SHG/PD/1 SHG/PD/1 Population (one Pen Drive) (one Pen Drive) Health, 6A, Malanga Cash ‘3’ Rs.82,400/- NIL Lane, Kolkata- 700012 Bank A/c. ‘2’ 16 nos. NIL Debit/Credit ‘4’ 4 nos. NIL Card 28. The main allegation and reason for the survey against the donee was that it had received huge amount of donations on which the applicant society earned service charges. During the survey operation, statements of the Secretary and the Treasurer of the Society were recorded in which they admitted the fact of accepting donations through certain mediators and refunding the same after keeping 3% - 8% as service charges for the society.

The same line of reasoning has been developed everywhere including ITAT, Kolkata. The order of the ITAT, Kolkata got the approval of the Hon’ble High Court, a reference can be made to the decision of the Hon’ble Calcutta High Court in the case of Pr. CIT –vs.- Mackaw Corporation (2022) 8 TMI 1750, ITA 42 of 2020, G.A. No. 2 of 2019, Old G.A. No. 1477 of 2019.

The ld. Counsels have emphasized that under identical circumstances, deductions have been allowed by the ITAT and the order of ITAT has been upheld by the Hon’ble High Courts. Therefore, these appeals are to be allowed and deductions be granted to the appellants. 32. With respect to all the case laws including our own order, which has been upheld by the Hon’ble Gujarat High Court, we are of the view that all the decisions are based on the set of facts in those cases. In these cases, the Department did not file paper book, did not bring it to the notice of the ITAT about the nature and quantum of the material discovered during the course of survey exhibiting as to how a modus operandi in an organized manner was adopted by the recipients with the help of brokers to fraud the nation. There was no question of law involved in the factual finding given by the Tribunal in all the cases. Thus on facts the orders of the Tribunal were upheld. 33. Let us take note of the material placed before us persuading us to record a finding of fact being a last authority on this aspect. There is no dispute that a survey under section 133A was carried out at the premises of M/s. SHG&PH as well as M/s. Herbicure Healthcare Bio-Herbal Research Foundation (in short ‘HHBRF’) because Abhilasha Tradecom Pvt. Limited obtained the accommodation entry from this Institution and issue is involved in ITA No. 132/KOL/2021. In this survey, statement of the Secretary of M/s. SHG&PH was recorded. The Secretary has admitted that the Trust has not used such amount in any research activity, rather it has received the donation in a connived manner on the alliance of certain brokers. They have pleaded specifically in their statement of facts before the Settlement Commission that certain brokers have approached them for augmentation of their revenue in this fraudulent manner and without realising the seriousness of its impact upon the economy in general and Income Tax Department in particular. They involved in this activity. 34. The Department thereafter recorded the statements of the brokers, who have arranged these claim of bogus deduction for the assessees across the country. It has been brought to our notice that in one assessment year total Quadeye Trading donations of around Rs.387 crores were received by this Institution and the donors have availed benefit of deduction of more than Rs.650 crores. This is the magnitude of revenue swindled by the donors with the connivance of brokers and SHG&PH. These details have come up in the Settlement order.

We would like to refer the statement of one of the brokers Shri Vijay Kumar Agarwal, son of Late Mohan Lal Agarwal, aged about 65 years. His statement was recorded under section 131 of the Income Tax Act, 1961 on Oath on 23.02.2015, which was in continuation of his statement recorded dated 13.02.2015 i.e. subsequent to the survey conducted upon SHG&PH. Copy of this statement along with the statements of other brokers have been placed by the Revenue and copy of the statement of Shri Vijay Kumar Agarwal is available on pages 82 to 90 of the paper book. Certain questions and their answers are very important in order to demonstrate the modus operandi adopted by them:- Q.

What is your source of income? Ans. My main source of income is from brokerage by raising bogus bills for various beneficiaries/parties. Q.13. How do you know the Trust called “School of Human Genetics & Population Health (SHGPH)? Ans.: Initially, I came with the contact of Smt. Moumita Raghavan, President and Smt. Samadrita Mukherjee Sardar, Secretary of School of Human Genetics & Population Health through a market broker named Shri Sailesh Gupta, residing at howrah who approached me for bogus billing. After that, I have direct contact with Smt. Moumita Raghavan & Smt. Samadrita Mukherjee Sardar of SHGPH regularly and raise bogus bills for SHGPH over the years as per their directions. I shall furnish the details of bogus billing on 10.03.2015. Q. 6: Please explain the nature of business done by you in detail. Ans.: I am an accommodation entry operator and I am engaged in the business of providing accommodation entries in the form of bogus share capital/unsecured loans/bogus bills etc. to various beneficiaries/parties through various ‘jama-kharchi’/paper companies/proprietorship concerns controlled by me in lieu commission. Q.7. Kindly go through the Annexure-A which is submitted by you in the case of SHG&PH. Kindly provide the bank account along with the bank name and branch addresses of 21 concerns mentioned in the Annexure-A.

The stand of all these appellants right from the ld. Assessing Officer upto the Tribunal is that since Institution was approved by the Competent Authority to receive donation. This approval was intact when they have made the donation. Therefore, under bonafide belief, they have given the donations and on the basis of post donation, material collected by the Revenue should not be used against them for doubting the genuineness of the donation. The scheme of the Income Tax Act provides that a claim made by an assessee has to be proved by the assessee. Thus the first onus is upon the assessee about the claim made by him. This onus was discharged by the assessee by pointing out that Institution to whom donations were given. They are approved by the Income Tax Authority and, therefore, their claim is to be allowed. However, if the first onus discharged by the assessee was dispelled by the ld. Assessing Officer by confronting them with the material recovered during the survey and post survey enquiries, then the questions posed before us is, whether this belief harped by all the appellants was such a bonafide that could not be questioned in any circumstances. To our mind, it is a misplaced argument at the end of the appellants. It is to be appreciated that recipient came into existence in 1993, it might have been working on charitable objects and got approval for the purpose of recognition of Scientific and Industrial Research Organisation first time on 17.06.2010. There might be a good intention at the end of the recipient but it has detracted its objectives and indulged in fraudulent activities. The fraud of this magnitude cannot be done without an organised planning where involvements of alleged brokers have come. Thus operative force in the minds of all decision-maker in donors organisation/individual was acting with a fraudulent intent in giving donation through broker in this manner. The ld. CIT(Appeals) in the case of Tarasafe International Pvt. Limited has posed the following questions to the assessee:- (a) What was the purpose of this donation? (b) Whether such donation has been given to the School in the past or in the future? (c) How the assessee came to know about the activities of the Trust? (d) What influence the assessee to give this donation to this Institution other than deduction under section 35(1)(ii). (e) The appellants are not in this line of business and, therefore, it is difficult to understand the very purpose of this transaction undertaken by them. They have failed Quadeye Trading to explain how the cheques in their case were given to the Society, whether it was given by post or directly to the Office bearer or through some agents. (f) If it was handed over to the office bearer, then name of such office bearer.

These are certain questions, which point a figure to the circumstances, which are to be explained by each appellant. Their first onus discharged by them has been dispelled by the ld. Assessing Officer with credible material. If the appellants are of such a spirited Corporate House, who wants to build the research organisation of the nation, then they have to demonstrate how such donations were given in the past or in the subsequent period. We have confronted them specifically, but none of the assesses except M/s. H.K. Dutta & Company could submit anything in this regard. In the case of this Company, ld. Counsel for the assessee has submitted that small amount of donation has been given to a different organisation in the next year. Therefore, if we weigh the simple plea of the appellants about their bonafide belief for giving such donations, vis-a-vis huge materials collected by the Revenue demonstrating the fact how such a belief is misplaced, then, the scale would tilt in favour of the revenue. It is to be appreciated that roughly 720 entities including individuals available in a part-list on pages no. 72 to 81 of the paper book compiled by the Revenue would have not formed a bonafide belief about giving donation to one entity across India in Kolkata. This material speaks in itself that under a criminal conspiracy, these donations have been arranged by the brokers across India for defrauding the nation. We do not find any credence in the belief of bonafide raised by the appellants.

We are aware of the facts that a large number of orders have been passed in favour of the assessee by ITAT and some of those were upheld by Hon’ble High Courts also. We have extracted one of the orders from Hon’ble Gujarat High Court. The Hon’ble Supreme Court in the case of CIT –vs.- Batanagar Education & Research Trust reported in 129 taxmann.com 30, whose copy has been placed on the record by the ld. CIT(DR), has considered the identical material, which has been placed before us also. In the case of Batanagar Education & Research Trust, the facts are that during the course of survey at the premises of SHG&PH, and in post survey inquiry statement of Shri Ramendra Lahiri, Managing Trustee of the assessee, i.e. Batanagar Society was recorded. The Secretary, Smt. Samadrita Mukherjee Sardar and Treasurer Smt. Moumita Raghavan of SHG&PH have categorically deposed in their statements that source of income of SHG&PH was the money received in the form of donations from Corporate Bodies as well as from individuals. The assessee Quadeye Trading Batanagar Society was selected by the brokers, who have arranged the donations to SHG&PH as a conduit for receiving the donations from SHG&PH. This donation was to be returned back to those Corporate Houses and individuals in cash after layering the transaction and the Batanagar Education & Research Trust would also retain commission income for such an activity. On the basis of that, its registration was cancelled by the ld. Commissioner (Exemption) by exercising the powers under section 12AA(3). This order was upheld by the ITAT. However, on further appeal, Hon’ble High Court has reversed this order but Hon’ble Supreme Court restored this order, in other words upheld the cancellation of the registration to Batanagar Education & Research Trust. In this judgment, Hon’ble Supreme Court has made reference to the outcome of the survey at SHG&PH coupled with the post survey enquiry conducted upon Batanagar Society and satisfied that it was an organized fraud to misuse the status of a charitable entity. This judgment has been pronounced on 02.08.2021. After this judgment, a judgment of the Hon’ble Calcutta High Court in the case of Mackaw Corporation has been passed, which has been relied upon by the ld. Counsel, but in this decision, Hon’ble High Court has not considered the judgment of the Hon’ble Supreme Court, because the judgment of the Hon’ble Supreme Court in the case of Batanagar Education & Research Trust was not cited by both the parties.

The ld. Counsel for the assessee, Shri Soumitra Chowdhury, during the course of argument submitted that in the decision rendered on 26.04.2022 in the case of Commissioner of Income Tax (Exemption), Kolkata –vs.- Sanskriti Sagar, this judgment of the Hon’ble Supreme Court was considered.

We find that in this case, the assesese was recipient of a small donation of Rs.85,000/- from Herbicure and on the basis of receipt of this donation, its registration was sought to be cancelled. The Hon’ble High Court has propounded that the decision in the case of Batanagar Education & Research Trust is not applicable on the facts of that case because Sanskriti Sagar has neither given any donation to this Trust and claimed deduction under section 35(1)(ii) nor it has returned the money in cash out of a small donation received by it from Herbicure, a similar Trust to SHG&PH. Hon’ble High Court has held that Tribunal has rightly set aside the order passed by the ld. Commissioner vide which registration was cancelled. In our opinion, it is purely a fact-based decision without laying down any particular proposition of law, rather an inference could be drawn from it that if there is no element of fraud committed by an assessee, then such an assessee does not deserve to be punished. This case Quadeye Trading cannot buttress any of the contentions of the appellants before us.

It is also pertinent to note that it is not a simple case of claiming deduction on fulfilment of conditions under section 35(1)(ii) of the Income Tax Act, rather it is a case where Revenue has disproved this claim and proved that, with a criminal mind all such donors have layered their transaction in such a manner which apparently appears to be genuine, but in reality not genuine. They took such a step to commit fraud, an economic offence against the economy of the country.

The bonafide of the assessees can be appreciated if they have demonstrated that they have given the donations in the past or subsequent periods to some Institution of national importance, such as Tata Research Centre, certain Hospitals, etc. but none of them has given such a donation except a small amount of few thousand in the case of Abhilasha Tradecom Pvt. Limited. The moment Assessing Officers have dispelled onus discharged by the assessee, then it was their duty to prove the genuineness of their claim with circumstantial evidence as pointed out by the ld. Commissioner in the case of Tarasafe International Pvt. Limited, i.e. what was the purpose of the donation; whether such donation has been given to the School in the past or in the future; whether the Corporate Houses have discussed in the meeting and the Management Committee passed the Resolution for giving the donations; what influenced the assessee to give this donation to the Institution other than deduction under section 35(1)(ii) etc.

It is also pertinent to observe that recently Hon’ble Jurisdictional High Court has examined the issue of bogus capital gain claim made by a large number of assessees in Kolkata. This issue has been examined in the case of Swati Bajaj & Others (2022) 139 taxmann.com 352(Cal.) pronounced on 14.06.2022. A large number of assessees have claimed long-term capital gain/loss. The Income Tax Department has carried out search/survey upon different entities, which unearthed that certain companies and professionals were providing such claim in the shape of accommodation by manipulating the stocks of certain shell companies. The Hon’ble Court has made a detailed analysis of the material found during the course of search and survey on the premises of third entities and set aside the orders of the ITAT in a group of appeals by holding that such claim by the assessees for long-term capital gain was a bogus claim. The Hon’ble Court has considered the material collected by the Investigating Wing of the Department on the premises of certain companies, who were manipulating the stocks or indulging any accommodation entry business. If we apply the Quadeye Trading ratio of this judgment upon these cases, then it would reveal that the benefit of claim under section 35(1)(ii) is outcome of an organized fraud with the help of certain manipulators. Therefore, we do not find any material in the first-fold of arguments raised by the ld. Counsels for the assessees. The appellants are not entitled for deduction under section 35(1)(ii) of the Income Tax Act. This finding is subject to our finding on other preliminary issues in the case of Abhilasha Tradecom Pvt. Limited i.e. & 133/KOL/2021. In ITA Nos. 132 & 133/KOL/2021, assessee has challenged the reopening of the assessment. We will be deciding this issue in the following part of the judgment. Similarly in the case of Tarasafe International Pvt. Limited, i.e. ITA No. 261/KOL/2020, the assessee has taken an additional ground of appeal, which we are taking up separately in the following part”.

In the result, the appeal of the assessee is dismissed.