NASH FASHIONS (INDIA) LTD.,JAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, JAIPUR

That the learned Commissioner (Appeals) grossly erred in not following the judgment of Hon'ble Jurisdictional High Court passed on 11.08.2015 in assessee's own case for assessment year 2009-10 in DB Income Tax Appeal No.54/2015 wherein the Hon'ble Court dismissed the departmental appeal and maintained the order of Income tax Appellate Tribunal dated 05.11.2014 allowing deduction u/s. 80G of the I.T. Act to the assessee.

That sustaining by the learned Commissioner (Appeals) of disallowance of deduction claimed by the assesses u/s. 80G of the I.T. Act and consequential addition of Rs.1,27,67,676/- made by the AO to the returned total income and thereby sustaining levy of additional tax and charging of interest thereon under different sections consequent to such additions is unjust and in the alternative excessive.

That on the facts and circumstances of the case and under the law upholding by the learned Commissioner (Appeals) of the disallowance of Rs.36,00,008/- made by the AO u/s.40(a)(ia) of the I.T. Act and consequently adding the same in the total income of assessee is most arbitrary, unjust and in the alternative excessive.”

Ground Nos. 1 to 3 of assessee’s appeal effectively relates to disallowance of deduction claimed by the assessee U/s 80G of the Act amounting to Rs. 1,27,67,676/-. Briefly, the facts of the case are that during the course of assessment proceedings, the Assessing Officer observed that on perusal of details, it is noticed that the donation has been made otherwise by way of money which is not allowable as per

Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A). The ld. CIT(A) referring to the decision of the Coordinate Bench and the decision of the Hon’ble Rajasthan High Court held that the issue before the Coordinate Bench was in the context of revision proceedings initiated by the Pr. CIT, Jaipur U/s 263 of the Act and against the said order, the department has gone in appeal before the Hon’ble Rajasthan High Court and the same was dismissed as no substantial question of law emerges in the said appeal. The ld. CIT(A) accordingly held that the impunged case is not covered by the decision of Hon’ble Rajasthan High Court as claimed by the assessee. The ld. CIT(A) thereafter referred to the Finance Bill, 1976 through which Explanation 5 was inserted in Section 80G and held that the said explanation is clearly applicable to the facts of the instant case. Regarding various decisions relied upon by the ld. AR, the ld. CIT(A) held that all these decisions are distinguishable and appears prior to the

In his submission, the ld. AR heavily relied on the decision of the Co-ordinate Bench in assessee’s own case for AY 2009-10 and submitted that the matter is squarely covered by the said decision of the Co-ordinate Bench which has been affirmed by the Hon’ble Rajasthan High Court, and which has been followed by the Coordinate Bench subsequently in AY 2012-13. Further, the ld. AR has referred to the written submissions which are reproduced as under:- “ 1. That the observations of the learned CIT(A) that the donation given is otherwise than by way of money is not correct. The factual position is that on the request of M/s Rajasthan Medicare Relief Society, S.M.S. Hospital, Jaipur as well as SPMCHI, Jaipur, the cheques were issued in favour of supplier of medical equipments, who directly supplied and installed the equipments in both the hospitals. To support its claim that donation given by it is in money and not in kind, the assessee company submitted certificate issued by hospital authorites certifying that two donations, one of Rs. 31,23,590/- is made to Rajasthan Medicare Relief Society (PAN: AAATR5094F) SMS Hospital, Jaipur and other of Rs. 96,44,086/- is made to Rajasthan Medicare Relief Society (PAN: AAABR 0418D) S.P.M.C.H.I. Jaipur i.e. total donation of Rs. 1,27,67,676/-.

That firstly list of medical equipments required by hospital authorities was sent by Rajasthan Medicare Relief Society to the suppliers of medical equipments and simultaneously and separately the assessee company sent the payment by way of account payee cheques issued by it in favour of the suppliers of medical equipments.

In the above backdrop, if the facts of the assessee's case are analyzed, it can be noted that the assessee made payment by cheque to the various suppliers of the equipment and thereafter the suppliers supplied the equipment directly to the Medical Superintendent of both hospitals. At the time of placing of the order by the hospital authorities to the supplier, 10% payment is made in advance and the remaining 90% payment is made after installation of the equipment to the satisfaction of the Medical Superintendent of the Hospital. As such the fact remains is that medical equipments are directly sent to hospital authorities and installation is also made by the suppliers but the invoice is issued by supplier in the name of the company. This is evident from the various papers/documents filed by the AO. Therefore, only because invoices are raised by the supplier in the name of the assessee would not make any difference particularly when all other correspondences by the supplier is with Medical Superintendent of the hospitals. All these facts show that the transaction in substance is a money transaction and the donation is virtually a donation in cash.

That the learned AO failed to consider that the assessee donor is not the manufacturer of the medical equipments which were installed in the above mentioned government owned Hospitals in Jaipur. The factual position is that at the instance of Hospital authorities, the money for purchase of the equipments/items for both the hospitals was paid by the appellant assessee to the manufacturers of those machines by way of account payee cheques. Meaning thereby what the appellant assessee donated was money i.e. cash and not

That the AO failed to note that in this case on the advice of the hospital authorities the money was sent directly by the assessee to the manufacturers of the medical equipments and machineries for and on behalf of both the Hospitals and there was a due confirmation by hospital authorities in regard to medical equipments and machineries being installed at the above mentioned Hospitals and amount having been paid by account payee cheque by the assessee to the manufacturers. It is further submitted that the AO should have appreciated that after installation of the machines in Hospitals there was a counter check by the government authorities i.e. medical superintendent etc.

That the AO failed to take into consideration the fact that so far as assessee is concerned, he has paid the amount of donation by way of account payee cheque issued to the manufacturers on the directions of Hospital authorities and soon after getting the cheque from the assessee, the manufacturers directly supplied machinery and equipments to the Hospitals and not to the assessee. To make the things clear, it is respectfully submitted that on the advise of the hospital authorities, the assessee issued a cheque in favour of the

That both the lower authorities failed to appreciate that Explanation-5 of Section 80G do not mandate that the payment should be made directly to the donee. The assessee had made payments by cheque to suppliers of equipments/items and goods were supplied/installed at SMS Hospital as well as Sir Padampat Matri Avam Shishu Swasthya Sansthan(S.P.M.C.H.I) JLN Marg,

That the humble appellant also craves leave to a recent judgment dated 15.11.2017 of ITAT, Jaipur in I.T.A.N0.1069/JP/2016 for assessment year 2012-13 in assessee's own case wherein the Hon'ble Tribunal held as under:

The assessee very respectfully submits that the substance should be seen and not form of donation. That in relation to the issue as to whether a donation in substance is a money transaction or not, the appellant assessee craves leave to refer to and rely upon the decision of Bombay High Court in CIT Vs. Associated Cement Co. Ltd. 68 ITR 478. In this case, University of Bombay wrote to the Chairman of the assessee co. a letter saying that it is carrying out important laboratory experiments for which it require 'rottery experimental kiln'. Since the company was fabricating the kiln, its Board of Director passed a resolution sanctioning Rs.6,600/- which was paid by the assessee company as donation to the University, entitled for deduction u/s.15B of the Income Tax Act, 1922. Similarly, in CIT Vs. Bangalore Woollen, Cotton & Silk Mills Co. 91 ITR 166 where cloths manufactured by it were donated to different institution of the value of Rs.6,834/- the Mysore High Court held that the substance of the transaction reveals that what is donated is a sum of money and therefore the rebate must be granted to the assessee. Again in case of CIT Vs. Amonbolu Rajiah 102 ITR 403 (AP) where the assessee agreed to donate necessary funds for construction of school building for Zila Parishad and advanced various amounts from time to time to the contractor for the purpose of construction of school building on a site belonging to Zila Parishad it was held that arrangement itself indicates that the intention was to donate the money earmarked for the purpose of

One such issue came before the Hon'ble Gujarat High Court in the case of CIT Vs. Smt. Dhirja Ben R. Amin 141 ITR 875 where the donation was of shares, the Hon'ble Court held that since donation is in kind deduction under section 80G is not available. However, in this decision, Hon'ble Gujarat High Court after referring to the decision of Bombay High Court in case CIT Vs. Associated Cement Co. Ltd. 68 ITR 478, Mysore High Court in case of CIT Vs. Bangalore Woollen, Cotton & Silk Mills Co. 91 ITR 166, Andhra Pradesh High Court in case of CIT Vs. Amonbolu Rajiah 102 ITR 403, Bombay High Court in case of CIT Vs. Khandelwal Laboratory Pvt. Ltd. 118 ITR 531 and Gujarat High Court in case of Saurashtra Cement and Chemical Industries Ltd. Vs. CIT 123 ITR 669 held in para 17 as under:

That it is respectfully submitted that Explanation-5 of section 80G do not mandate that the payment should be made directly to the donee. The factual position as given above is that the assessee had made the payments by cheques to the suppliers of equipments on behalf of donee which tantamount to donation made in a sum of money. That the learned Commissioner (Appeals) should have taken into consideration the substance of the entire transaction and other facts and circumstances of the case.

Further the genuineness of this donation has not been doubted by the Revenue. The payments was made by the appellant on behalf of the donee to make available equipment without going to the technical formalities of the State Government for purchasing the

That the above mentioned issue of deduction u/s.80G of the I.T. Act also arose in assessee's case for assessment year 2009-10 i.e. for the previous year ended on 31.3.2009. In assessment year 2009- 10 the appellant company filed its return of income for AY 2009-10 on 30.9.2009 declaring total income of Rs.68,77,320/-. The assessing officer after scrutinizing the case u/s.143(3) of the Income tax Act, 1961 and after examining the books of accounts of the assessee allowed the assessee's claim of deduction u/s.80G of the Income tax Act as claimed by the appellant company. Subsequently, Commissioner of Income tax by taking action u/s.263 of the Income tax Act took a contrary view and disallowed the assessee's claim of deduction u/s.80G. Against this disallowance of deduction u/s.80G by the learned CIT assessee preferred an appeal before the Income Tax Appellate Tribunal which by order dated 5th Nov., 2014 allowed the claim of the assessee u/s.80G of I.T. Act by holding that the order passed by Commissioner of Income tax u/s.263 is not valid in law. Against this judgment of Hon'ble ITAT, Income tax department filed appeal before the Hon'ble Rajasthan High Court. The appeal number was DB Income tax Appeal No.54/2015. The appeal of the department was dismissed by the Hon'ble High Court and the order

Recently the assessee’s case for assessment year 2013-14 i.e. year under appeal was selected for scrutiny under CASS and assessment proceedings were started. In the course of assessment proceedings the AO raised the issue of deduction u/s.80G of the I.T. Act in regard to donation made by appellant company otherwise by way of money. The assessee company supported its claim u/s.80G of the I.T. Act by way of filing with the AO copy of order dated 11.8.2015 of Hon'ble Rajasthan High Court in DB Income tax Appeal No.54/2015 for assessment year 2009-10 in assessee's own case whereby the Hon'ble High Court had dismissed the departmental appeal and the order allowing deduction u/s.80G passed by the learned Income tax Tribunal was sustained. However the learned AO by observing in 1st para of page 4 of the assessment order for 2013- 14 that the department has not accepted the finding of the Hon'ble Rajasthan High Court in assessment year 2009-10 and has filed S.L.P. before the Hon'ble Supreme Court of India and accordingly the matter has not received finality disallowed deduction u/s.80G of the I.T. Act claimed by the assessee at Rs.1,27,67,676/- on the ground that the donation made is in kind and not in cash. It is very respectfully submitted that the mere filing of a special leave petition or grant of leave to appeal or pendency of appeal against the High Court's judgment does not denude that judgment of its binding effects.

In regard to binding force of a High Court judgment the humble appellant craves leave to submit that a decision of a High Court would have binding course in the state in which the court has jurisdiction, but not outside that state. Decisions of the High Court are binding on the subordinate courts, authorities and Tribunal situated within its jurisdictional territory.

That the disallowance of deduction u/s.80G of the I.T. Act at Rs.1,27,67,676/- made by the AO is highly unjustified and assessee craves leave to make following respectful submissions before your honour in above regard:

The ld. DR is heard who has vehemently argued the matter and has relied on the findings of the lower authorities. He submitted that the matter is squarely covered by the decision of the Hon’ble Supreme Court in case of H.H. Sri Rama Verma (supra) and it is clearly a case of donation in kind which is not eligible for deduction under section 80G of the Act.

We have heard the rival contentions and perused the material available on record. We find that the issue is no more res integra and has been decided by the Hon’ble Supreme Court in case of H.H. Sri Rama Verma (supra) wherein the Hon’ble Supreme Court after considering the conflicting decisions of the various High Courts, also referred by the ld AR in his contentions and submissions made before us, as well as the insertion by way of explanation to section 80G which has been relied upon by the Revenue, has held as under:

There has been a conflict of opinion between the various High Courts on the interpretation of section 80G(2)(a). In CIT v. Associated Cement Co. Ltd. [1968] 68 ITR 478 (Bom.); Addl. CIT v. Abhai Maligai [1978] 113 ITR 737 (Mad.) and Cir v. Bangalore Woollen, Cotton & Silk Mills Co. Ltd. [1973] 91 ITR 166 (Mys.), courts have taken the view that while, interpreting section 80G(2)(a), the substance of the nature of the transaction should be taken into account and it is not necessary that the donation must be in cash. As against this view, other High Courts in CIT v. Amonbolu Rajiah [1976] 102 ITR 403 (AP); CIT v. Gopal Krishna Singhania [1980] 121 ITR 260 (All.) and CIT v. Smt. Dhirajben R. Amin [1983] 141 ITR 875 (Guj.), have held that section 80G(2)(a) does not contemplate any donation in kind; instead, the expression 'sums' relates to the cash amount of money which may have been donated by the assessee. On a careful scrutiny of the two opinions in the

It appears that, in view of the conflicting opinions expressed by the various High Courts, Parliament intervened and added Explanation 5 to section 80G, 1976. Explanation 5 reads as under:

After the insertion of the aforesaid Explanation, there cannot be any doubt that, for purposes of claiming deduction, only cash amounts which may have been donated would be taken into account. No doubt this provision is not retrospective in nature; nonetheless it indicates the legislative intent behind section 80G(2)(a) even prior to its amendment.

We, therefore, agree with the view taken by the Kerala High Court. The appeal fails and is, accordingly, dismissed. There would be no order as to costs.”

The ratio decidendi of the above judgement rendered by the Hon’ble Supreme Court will clearly applies to the case in hand. In the instant case, what is therefore relevant to determine is whether

The question for consideration is therefore the determination of the finer distinction between the cash donation and donation in kind. In both the cases, there is outflow of money from the assessee’s hand. However, there could be various scenarios in particular facts and circumstances of each case. In one sceanrio, the money is going directly from the assessee to the donee which doesn’t create any confusion and it will be clearly eligible for deduction. In another scenario, where the assessee has an existing asset/property/stock-in-trade in its possession/control and the same is thereafter transferred by way of donation, it will be a clear case of donation in kind and the same will not be eligible for deduction. There could be a third scenario where the assessee purchases any asset/property/equipments etc from a third party and thereafter, the same is donated. In this case, even though the money has been spent by the assessee in purchasing the asset/property/equipment, what has been actually donated is the asset/property/equipment. The act of donation is subsequent to purchase/acquisition by the assessee in its own right. Once the assessee has purchased/acquired the asset/property/equipment, the title/ownership in such asset/property/equipment has been

If we look at the last two scenarios as discussed above, the finer distinction between these two scenarios is that in the first scenario, the assessee donor has purchased/acquired the asset/property/equipment in its own right and thereafter, the title/ownership in such asset/property/equipment has been transferred by way of gift to the donee institution. In the second scenario, the donee institution itself has purchased/acquired the asset/property/equipment in its own right and therefore, there is no question of transfer of the title/ownership in such asset/property/equipment by the donor to the donee institution and which has been spent/transferred by the donor is the sum of money equivalent to the purchase price of the equipments purchased directly by the done insitution. The first scenario will not qualify for deduction as what has been donated is property in kind, however

In the present case, the ld AR has contended that on the advise of the Hospital authorities, the assessee issued a cheque in favour of the manufacturers to directly supply the desired machinery and equipments to Hospitals. After getting the cheque from the assessee, the manufacturers directly sent the machinery and equipments to the Hospitals. The machinery and equipments sent by manufacturers were directly delivered to the hospital authorities and also got installed in the hospital premises. It was submitted that at no stage, equipments are delivered to the assessee company. Moreover after having made the payments by way of cheques to the suppliers, the assessee has no connection with the suppliers. It was submitted that all works including placing of order of medical equipments required by hospital authorities, taking of delivery of goods, checking of quality and quantity of the medical equipments and getting installed these medical equipments in the hospitals are under direct supervision of the medical superintendent and at no stage assessee comes into picture nor it has any say in the supply of the equipments and installation thereof. It was submitted that so far as assessee is concerned, it has paid the donation in money i.e. by way of issuing cheque from his bank account in favour of suppliers

Regarding reliance placed by the ld AR on the findings of the Coordinate Benches in earlier years which has been decided in favour of the assessee, we find that the decision of the Coordinate Bench in AY 2009-10 was rendered in the context of exercise of powers by the ld CIT u/s 263 where the AO has already examined the matter in the course of assessment proceedings u/s 143(3) and which has been followed subsequently by the Coordinate Bench in AY 2012-13. In our view, the act of donation whether cash or in kind being a factual matter needs to be examined for the each of the years under consideration. Even if we were to follow the orders passed by the Coordinate Benches in earlier years, the matter needs to be examined on facts prevailing in the impunged assessment year

In the entirety of facts and circumstances of the case and in light of above discussions and in particular, the decision of the Hon’ble Supreme Court in case of H.H. Sri Rama Verma (supra) referred supra, we set-aside the matter to the file of the AO to examine the same afresh taking into consideration the above discussions, after providing reasonable opportunity to the assessee.

In the result, the ground is allowed for statistical purposes.

In ground No. 4 the assessee has submitted that this ground of appeal is in regard to sustenance by learned Commissioner (Appeals) of disallowance and consequential addition u/s.40(a)(ia) of the I.T. Act made by the AO on the ground that the certificate of

It was submitted that the facts leading to above disallowances and consequential addition are that the assessee company is engaged in the business of manufacturing and export of readymade garments. It took unsecured loan from S.E. Investment Ltd., an NBFC. However TDS was not deducted on interest payment of Rs.36,00,008/- made by assessee to this NBFC and on account of this, the AO added this amount of Rs.36,00,008/- u/s.40(a)(ia) of the I.T. Act.

It was submitted that before the learned Commissioner (Appeals), the assessee's argument was that before making disallowance U/s. 40(a)(ia) the AO did not provide reasonable and sufficient opportunity of being heard. In as much as the AO did not issue and serve upon the assessee any specific show cause notice of his intention to make disallowances u/s.40(a)(ia) of the I.T. Act. It was further argued before the learned Commissioner that this omission of the AO in not issuing specific show cause notice to the assessee before making disallowances and additions deprived the assessee from his right of being heard and to put his defence before the AO against proposed disallowances and additions is against the principles of natural justice and accordingly the

That without prejudice to submissions made above, the assessee craves leave to mention the present legal position of the provisions of section 40(a)(ia) r.w.s.201(1) of the I.T. Act which is as under:

It was submitted that the learned AO ought to have appreciated that after the amendment in section 201 of the I.T. Act by way of insertion of proviso to section 201(1) of the I.T. Act, 1961 by Finance Act 2012 (w.e.f. 01.07.2012) payment of interest made to NBFCs without deduction of tax at source is an allowable expenditure [of course it is subject to some statutory compliances which included filing of certificate from Chartered Accountant] and not hit by the mischief of the provisions of section 40(a)(ia) of the I.T. Act.

It was submitted that the assessee understands that the NBFC, namely, S.E. Investment Ltd has furnished its return of income u/s.139

The ld. DR is heard who has relied on the findings of the lower authorities.

We have heard the rival contentions and perused the material available on record. The assessee has contended that the addition has been made without providing reasonable opportunity and further, it is unlikely that the NBFC has not reported the payment in its return of income and paid taxes thereon and it shall be able to produce the necessary certificate in support thereof. As we have already set-aside the matter relation to deduction u/s 80G, in the interest of justice, this matter is also set-aside to the file of the AO to examine the same afresh after providing reasonable opportunity to the assessee. In the result, the ground is allowed for statistical purposes.