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Income Tax Appellate Tribunal, ‘’ A’’ BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax(Appeals), Ahmedabad-5, dated 16/02/2018 (in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dt.25/10/2016 relevant to the Assessment Year 2014-2015.
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The assessee has raised following grounds of appeals Your appellant being dissatisfied with the order passed by the CIT (Appeals)-S, Ahmedabad presents this appeal against the same on the following amongst other grounds. 1. The Order passed by CIT (Appeals) is bad in law and on facts of the case in as much as he failed to appreciate the appellant's submission in proper perspective though reproduced in the appellate order and also failed to address various factual and legal contentions raised by the appellant. The appellate order is therefore perverse and may please be cancelled. 2. The learned CIT(A) grossly erred in law and on facts of the case in confirming the action of the AO in making addition/disallowance for a sum of Rs. 1,12,50,000/- in respect of the donation of Rs.50,00,000/- given to School of Human Genetic & Population Health (which is eligible for deduction @ 175% u/s 35(1 )(ii)) and donation of Rs.25,00,000/- given to Navjivan CharitableTrust, Mumbai which had been accorded approval by the government u/s. 35AC of the IT. Act eligible for deduction 100%. It is prayed that the impugned additions may please be deleted being contrary to law and facts of the case. 3. The learned CIT(A) grossly erred in law and on facts of the case in confirming the action of the AO in making the addition/disallowance by making use of the evidence collected behind the back of the assessee and without providing copies of statements of various persons in spite of the specific requests made by the appellant. The AO has passed the impugned order in violation of the principle of natural justice and therefore the Order passed is requires to be quashed. 4. The learned CIT(A) grossly erred in law and on facts of the case in confirming the action of the I AO in making the addition/disallowance without providing the appellant an opportunity to cross examine the persons whose statements had been blindly followed by the AO for making the impugned addition. The action of the AO is in clear violation of principles of natural justice and therefore the Order passed is requires to be quashed. 5. The learned CIT(A) grossly erred in law and on facts of the case in confirming the action of the AO in making the addition/disallowance without appreciating the fact that the appellant is legitimately entitled to deduction for a sum of Rs.1,12,50,000/- in respect of the donation of Rs.50,00,000/- given to School Human Genetic & Population Health @ 175% and donation of Rs.25,00,0007- @ 100%) given to the Navjivan Charitable Trust which has been duly approved u/s. 35(1 )(ii) and 35AC of the IT. Act respectively and the appellant has furnished before the AO corroborative documentary evidences in support of the donation so given. Therefore, addition made is requested to be deleted. 6. The learned CIT(A) grossly erred in law and on facts of the case in confirming the action of the AO in making the impugned addition/disallowance on the alleged ground that the approval given to School of Human Genetic & Population Health was withdrawn by the Central Board of Direct Taxes, New Delhi vide F.No. 203/09/2015/ITA.II dated 21/09/2016. The learned AO failed to appreciate that at the material point of time when the appellant had given the donation, the approval granted by the government was in force and that the subsequent withdrawal of the approval by the government does not operate to disqualify the assessee for the legitimate claim of deduction in view of the specific provision contained in the Income Tax Act. It is therefore prayed that impugned addition may please be deleted. 7. It is therefore prayed that the impugned addition made by the AO and confirmed by the CIT (A) may please be deleted.
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The appellant craves leave to add and or alter any ground at the time of hearing of appeal.
The interconnected issue raised by the assessee is that the Ld. CIT-A erred in confirming the addition for the sum of Rs. 1,12,50,000.00 made by the AO.
Brief facts of the case are that the assessee is a Private Limited Company and engaged in the business of manufacturing & sale of Light of Aluminum Flayer, Pressure Die Cast Components, Precision Engineering Soutions & Spares. The assessee in the year under consideration has claimed the deduction with respect to the donation made to the charitable institution and trust as detailed under:
School of Human Genetics 50,00,000/- 175% 87,50,000/- 35(1)(ii) and Population Health 2. Navjivan Charitable Trust 25,00,000/- 100% 25,00,000/- 35AC
3.1 The assessee in support of its claim submitted that the donations were made through account payee cheques/RTGS to the above said parties and the same were credited in their account. The assessee further submitted that the trust/institution has been notified under section 35AC/35(1)(ii) by issuing notification in the official gazette of the Central Government which can be verified from the receipts issued by the trust/institution against the donations received. The assessee also furnished the certificate of expenditure in form 58A read with rule 11 of Income Tax Rules. Thus it claimed that it has duly complied the provisions for the claims made by it as discussed above as specified under the Income Tax Act.
3.2 The assessee regarding the donations made to the School of Human Genetics and Population Health (in short “SHG & PH”) also contended that no cross examination was provided to it of the statement of the office bearers/trustee recorded during the survey operation carried out by the Kolkata Directorate despite of the request made by it upon which the department placed it reliance. In addition the assessee also made reply of the various objection raised by the AO which are
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available on page nos. 19 to 24 of the assessment order. Thus the assessee was of the view that the question of disallowance of the deductions claimed by it does not arise at all.
3.3 However, the AO found, as per the information received from the Kolkata Directorate, that the donations made by the assessee to “SHG & PH” were returned back to it in the form of cash. As such the “SHG & PH” accepted that the transactions were carried through entry operators/bogus billers who earned commission income after the transactions were completed. Similarly during the search operation of the trust Shri Amish A. Modi Authorized Person and Shri Shubas Kadam trustee of the trust in their statement on oath has stated that they received donation in form of cheques and returned back the same to the donors in form of cash after deducting some nominal commission.
In view of the above, the AO disallowed the deduction of Rs. 87,50,000.00 being 175% of Rs. 50,00,000.00 in respect to the donations made to the “SHG & PH” by observing that the Government by issuing notification dated 21/09/2016 withdrew the approval granted under section 35(1)(ii) of the Act.
3.4 Similarly the AO regarding the donations made to the Navjivan Charitable Trust ( in short “NCT”) found that the assessee has never tried to find out whether such amount has been utilized for achieving the objects of the trust or not. The AO also was of the view that merely on relying the information provided by the trust no one can made donation of such a huge amount unless it knows details of the entity. Thus the AO disallowed the deduction of Rs. 25,00,000/- being 100% of Rs. 25,00,000/- claimed under section 35AC of the Act by observing that the assessee did not submit any strong evidence against its contention.
Aggrieved assessee preferred an appeal before the CIT-A.
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The assessee before the Ld. CIT-A reiterated the submission as made before the AO and further contended that the AO without conducting any independent inquiry with respect to the donation made to “SHG & PH” concluded that such institution has been indulged in the activity of funds rotation by providing bogus entries. The AO solely on the basis of information received from the Directorate of Kolkata has made the addition.
4.1 The assessee further submits that the statement recorded under section 133A of the Act during the survey at “NCT” has no evidentiary value except the fact that such statement may help in conducting the enquiries in the proceedings. Besides the statement recorded by the department was not provided for cross examination.
4.2 The assessee also submits that the AO refuses to allow the deduction for the donation made to “SHG & PH” on the ground that Government has withdrawn the approval granted under section 35(1)(ii) of the Income Tax Act. However, the undisputed fact is that at the time of donation, the entity was eligible to accept the donation under section 35(1)(ii) of the Act and the Government has withdrawn the approval granted after two and half year (i.e. 21-09-2016) from the end of the previous year (F.Y. 2013-14) in which donation was made.
4.3 As such the provision of explanation below section 35(1)(ii) provides that the deductions under section 35(1)(ii) on donations made to specified institution cannot be denied merely on the ground that subsequent to payment of donation the approval granted to such institution has been withdrawn.
4.4 However the Ld. CIT-A observed that the survey operation in the case “SHG & PH” and the NCT evidence that it is engaged with the entry operator/bogus billers for receiving donations and returning back the same in the form of cash to the donors after charging nominal commission for providing services to such
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transactions. As such it was noted by the AO that the assessee was also one of the beneficiary in facilitation of bogus donation transaction.
4.5 The Ld. CIT-A also was of the view that the withdrawal of the approval granted by the Government was proving that the institution was doing such bogus activity. The assessee was also not able to provide sufficient documentary evidences in support of the genuineness of the transactions and the nature of the activity carried out by trust/institution.
4.6 The Ld. CIT-A thus presumed that the transactions was bogus & non- genuine. The Ld. CIT-A therefore confirmed the order of the AO.
Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us.
The Ld. AR before us filed a paper book running from pages 1 to 50 and submits that the assessee under bona fide believe has made donations to such institution. It can be verified with the receipts issued by such institution against the donation received.
5.1 The Ld. AR also submitted that the report of the survey operation conducted by the Department at both institution has not been provided by the lower authorities despite various requests were made by the assessee even though the opportunity of cross examination were also not provided of the statement recorded. As such the disallowance of deduction was made solely on the basis of such report in case of “SGH & PH” and statement of the trustee in case of “NCT”.
On the other hand the Ld. DR argued that the survey report and statement recorded under section 133A of the Act clearly establishes that the assessee was involved in the bogus donation transactions. The survey report and statement recorded cannot be ignored during the assessment proceedings. The ld. DR vehemently supported the order of the authorities below.
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We have heard the rival contentions of both the parties and perused the materials available on record. The issue before us arises with respect to the donations made to the institution “SGH & PH” and “NCT”. Regarding the donations made to “SGH & PH” it is the undisputed facts that at the relevant time of donation to “SHG & PH”, the institution was approved under section 35(1)(ii) of the Act though such approval has been withdrawn on a later date by the Government by issuing notification. Thus, the assessee cannot be denied the benefit of deduction provided under section 35(1)(ii) of the Act merely on the ground that the approval was withdrawn by the Government on a later date. In this regard we place our reliance on the order of this tribunal involving identical issue which has been decided in favour of the assessee in the case of ACIT v/s M/s Thakkar Govindbhai Ganpatlal HUF in ITA No. 2318/AHD/2017 wherein it was held as under: 5. We have duly considered rival contentions and gone through the record carefully. In the case of S.G. Vat care P. Ltd.(supra), the tribunal has recorded the following finding: 2. In the first ground of appeal, the grievance of the assessee is that the ld.CIT(A) has erred in confirming addition of Rs.8,75,000/- on account of alleged bogus donation to Herbicure Healthcare Bio-Herbal Research Foundation. 3. Brief facts of the case are that the assessee has filed return of income on 20.11.2014 declaring total income at Rs.4,47,910/-. On scrutiny of the accounts, it revealed that the assessee-company has given donation to Herbicure Healthcare Bio-Herbal Research Foundation, Calcutta. A survey action was carried out at the premises of the donee wherein it revealed to the Revenue that this concern was misusing the benefit of notification issued by the Income Tax Department. It has been getting donations from various sources, and after deducting certain amount of commission, these donations were refunded in cash. On the basis of that survey report registration granted to its favour was cancelled. On the basis of the outcome of that survey report, the Id.AO construed the donation given by the assessee as bogus. Appeal to the Id.CIT(A) did not bring any relief to the assessee. 4. Before us, the Id.counsel for the assessee contended that donations were given on 25.3.2014. At that point of time, donee was notified as eligible institution and fall within the statutory eligibility criterion. Certificate for receiving donation was cancelled on 5.9.2016. There is no mechanism with the assessee to verify whether such donee was a genuine institute or not, which can avail donation from the society. 5. The Id.DR, on the other hand, contended that in the investigation it came to know about bogus affairs conducted by the donee. Hence, these donations are rightly been treated as bogus, and addition is rightly made. 6. We have duly considered rival contentions and gone through the record carefully. The AO is harping upon an information supplied by the survey tern of Calcutta. He has not specifically recorded statement of representatives of the donee.
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He has not brought on record a specific evidence wherein donee has deposed that donations received from the assessee was paid back in cash after deducting commission. On the basis of a general information collected from the donee, the donation made by the assessee cannot be doubted. Neither representatives of the donee have been put to cross-examination, nor any specific reply deposing that such donation was not received, or if received the same was repaid in cash, has been brought on record. In the absence of such circumstances, donation given by the assessee to the donee, on which the assessee no mechanism to check the veracity, can be doubted, more particularly, when certificate to obtain donation has been cancelled after two years of the payment of donation. It is fact which has been unearthed subsequent to the donations. Therefore, there cannot be any disallowance on this issue. We allow this ground. " 6. There is no disparity on the facts. On the basis same survey report, the genuineness of the donation has been doubted in the case of the assessee also. Therefore, the issue in dispute is squarely covered in favour of the assessee. Respectfully following the order of the ITAT in the case of S.G.Vat care P.Ltd., we do not find any merit in the appeal of the Revenue. It is dismissed.
In the result, appeal of the Revenue is dismissed.
7.1 As the issue decided by this tribunal in the case above, is squarely applicable to the present facts of the case, therefore we disagree with the finding of the authorities below. Accordingly we hold that the assessee is entitled for the benefit of the donation made to “SHG & PH” under section 35(1)(ii) of the Act.
7.2 Regarding the donation made to the “NCT”, we note that the benefit of the deduction under section 35AC of the Act was denied to the assessee on the reasoning that the trustee of such trust in the statement given under section 133A during the survey operation has admitted the fact the NCT is engaged in the activity of providing the accommodating entries to the parties. However, admittedly there was no cross-examination provided to the assessee of the trustees who have admitted to be engaged in providing accommodating entries. Thus the question arises whether the assessee can be denied the benefit of the deduction under section 35AC of the Act on the basis of the statement recorded during survey operation which were not cross verified despite the request was made to the AO by the asssessee. In our considered view the answer stands in favour of the assessee. The statement recorded during survey operation cannot be used against the assessee until and unless it is cross verified in view of the judgment of Hon’ble
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Gujarat High Court in the case of CIT v/s Chartered Speed Pvt. Ltd. reported in Tax Appeal No. 126 of 2015 wherein it was held as under: “It is an undisputed position that the statement of the persons concerned which were recorded by the department, those persons were not made available for cross examination, may be for one reason or another inspite of the attempts made by the department. Therefore the Tribu nal has rightly found that the statement of those persons cannot be read agai nst the assessee”
7.3 Furthermore, the revenue has not brought any tangible material suggesting that the donation paid by the assessee to “NCT” has come back to it in the form of cash. Thus in the absence of necessary documentary evidence, we are not inclined to confirm the order of the authorities below.
7.4 In view of the above, we set aside the finding of the learned CIT (A) and direct the AO to delete the addition made by him. Hence the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 19/03/2020 at Ahmedabad.
-Sd- -Sd- (RAJPAL YADAV) (WASEEM AHMED) VICE PRESIDENT ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 19/03/2020 manish