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Facts
The assessee, an executive, had his income tax assessments for A.Y. 2008-09 to 2010-11 reopened. The Assessing Officer made additions of Rs. 1.5 crore, Rs. 6.5 crore, and Rs. 12.1 crore respectively, alleging that the assessee received unaccounted cash from M/s. South Indian Educational Society, which was then routed back as donations to claim deductions under Section 80G. The additions were based on statements from society officials and impounded material from a survey, but the CIT(A) deleted these additions, citing the denial of cross-examination opportunity to the assessee and lack of direct evidence.
Held
The Tribunal noted that the assessee failed to produce evidence to prove the genuineness and source of the donations. It concluded that the CIT(A) deleted the additions on technical grounds without fully addressing the substance of the alleged tax avoidance scheme. Therefore, the Tribunal set aside the CIT(A)'s order for the quantum appeals (A.Y. 2008-09 to 2010-11) and remanded the matter back to the Assessing Officer for fresh adjudication, including tracing the money trail. The related penalty appeals under Section 271(1)(c) for A.Y. 2009-10 and 2010-11 were also set aside, contingent on the outcome of the quantum proceedings.
Key Issues
Whether the additions made by the Assessing Officer for alleged cash received and converted into donations to claim deduction under Section 80G were justified, especially concerning the requirement for cross-examination and concrete evidence of the money trail. Additionally, whether the penalties imposed under Section 271(1)(c) were sustainable.
Sections Cited
143(1), 143(2), 143(3), 147, 148, 142(1), 80G, 271(1)(c), 133A, 132(4)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘ DB-B ‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice-Shri Madhusudan Sawdia
ORDER
Per Vijay Pal Rao, Vice President These 5 appeals filed by the Department are directed against the separate orders of the learned CIT (A)-4, Hyderabad, out of which 3 appeals are arising from the orders passed u/s 143(3) r.w.s. 147 of the I.T. Act, 1961 for the A.Y 2008-09 to 2010-11 and 2 appeals are arising from the penalty order passed u/s 271(1)(c) of the Act, for the A.Ys 2009-10 and 2010-11 respectively. In the quantum appeals, the Department has raised
Page 1 of 15 identical grounds, except the quantum of additions. The grounds raised by the Department in the quantum appeals are as under:
A.Y 2008-09 “1. The learned CIT (A) erred in deleting the addition made by the Assessing Officer which was based on congent impounded.
2. Any other ground that may be raised at the time of hearing”. The – A.Y 2009-10 “1. The learned CIT (A) erred in deleting the addition made by the Assessing Officer which was based on congent impounded.
2. Any other ground that may be raised at the time of hearing”. – A.Y 2010-11 “1. The learned CIT (A) erred in deleting the addition made by the Assessing Officer which was based on congent impounded.
Any other ground that may be raised at the time of hearing”.
The assessee is an individual and an Executive of the Deccan Chronicle Holdings Ltd deriving income from salary, business, capital gains and other sources. The assessee filed his return of income for the A.Y 2008-09 on 29/09/2008 declaring total income of Rs.2,38,50,370/-. The return was initially processed u/s 143(1) of the Act and thereafter, the assessment was reopened by issuance of notice u/s 148 of the Act for the A.Y 2008-09 to assess the income escaped the assessment on account of the cash received by the assessee for giving donation to M/s. South Indian Educational Society College of Commerce and Economics, Mumbai which was claimed as deduction u/s 80G of Page 2 of 15 the I.T. Act, 1961. The Assessing Officer completed the assessment u/s 143(3) r.w.s. 147 of the Act whereby the addition of Rs.1,50,00,000/- was made by the Assessing Officer on account of cash received by M/s. South Indian Educational Society for giving donation of the identical amount and claimed deduction u/s 80G of the Act. Similar additions were made by the Assessing Officer for the A.Y 2009-10 of Rs.6,50,00,000/- and for the ay 2010-11 of Rs.12,10,00,000/- respectively. The assessee challenged the action of the Assessing Officer before the learned CIT (A) and contended that the additions were made by the Assessing Officer on the basis of the statement of Shri V Shankar, Secretary of the M/s. South Indian Educational Society Trust, Shri G. Chidambaram, Treasurer of the said Society and Shri N. Venkatanathan, alias Rajamani, Life Member of M/s. South Indian Educational Society Trust and Personal Secretary of Sri V Shankar recorded by the Investigation Wing of the Department during the survey conducted at the said Society Trust. The assessee contended that when the assessee was not given the opportunity to cross examine the witness which was the basis of the additions made by the Assessing Officer, the learned CIT (A) accepted the contention of the assessee and deleted the additions made by the Assessing Officer.
Before the Tribunal, the learned CIT (DR) has submitted that the addition is not merely based on the statement but the incriminating material was found and impounded by the Director of Income Tax (Inv.) Mumbai during the survey conducted in case of M/s. South Indian Educational Society Trust
Page 3 of 15 showing that the Trust has received the capitation fee and the same was converted into donation by adopting the modes operandi of paying the cash to different individual and receiving back the same as donation. As per the impounded material, it is established that the assessee has received Rs.1,50,00,000/- during the financial year 2007-08, Rs.6,50,00,000/- during the financial year 2008-09 and Rs.12,10,00,000/- during the financial year 2009-10 respectively from M/s. South Indian Educational Society. The Assessing Officer asked the assessee to explain and produce the relevant details and evidences. However, instead of producing any supporting evidence to show that the donations given by the assessee in these A.Ys are out of assessee’s own funds and not against the consideration of the alleged amount in cash. The learned DR has further submitted that the assessee has only raised an objection for an opportunity to cross examine the persons from whom the statements were recorded. The Assessing Officer has made it clear to the assessee that the said statements were recorded by the Investigation Wing at Mumbai and therefore, the opportunity to cross examine the persons cannot be given to the assessee by the Assessing Officer. The learned DR has further contended that the evidences gathered during the search along with the statements recorded from the officials/office bearers of the Trust have a great evidentiary value and in the absence of rebuttal on the part of the assessee, the additions made on the basis of the said evidence is justified. The learned DR has then referred to the findings of the learned CIT (A) and submitted that the learned CIT (A) has deleted the addition only on the ground that the Assessing Officer has Page 4 of 15 made the addition on the basis of the information and evidence gathered by the Investigation Wing without giving an opportunity to the assessee to cross examine the persons whose statements were relied upon by the Assessing Officer. She has contended that the assessee has not disputed the fact which is also a matter that the assessee has given the donation of huge amounts during these 3 years and during the investigation in the case of the Trust, it was unearthed that the said Trust was collecting capitation fee and the same was converted into donation as the cash was routed through the persons including the assessee. Therefore, it is a case of arrangement of these transactions with the sole motive of avoidance of the Tax on the part of the Trust as well as on the part of the assessee. Thus, the learned DR has submitted that the orders of the learned CIT (A) be set aside and the order of the Assessing Officer be restored.
On the other hand, the learned AR of the assessee has submitted that the Assessing Officer has made the additions solely on the basis of the statement of the office bearers of M/s. South Indian Educational Society Trust without giving an opportunity of cross examination to the assessee. He has further contended that the Assessing Officer has not brought any material on record to show that the assessee has received the alleged cash. Therefore, the addition made by the Assessing Officer on account of the alleged cash received by the assessee is not sustainable in law and has rightly been deleted by the learned CIT (A). In support of his contention, he has relied upon the following decisions:
Page 5 of 15 i) Hon'ble Supreme Court in the case of Andaman Timber Industries vs. Commissioner of Excise, Kolkata (S.C) reported in 281 CTR 214. ii) Hon'ble Delhi High Court in the case of CIT vs. Ashwani Gupta reported in 288 ITR 386 (Delhi High Court). iii) Hon'ble Delhi High Court CIT vs. SMC Share Brokers Ltd reported in [2007]288ITR386(DELHI) iv) ITAT Ahmedabad Benches in the case of Nirav Chandrakantbhai Bhalani vs. Pr. CIT in ITA No.1041/Ahd/2024
Thus, the learned AR of the assessee has submitted that when the Hon'ble Supreme Court in the case of Andaman Timber Industries vs. Commissioner of Excise, Kolkata (Supra) has held that not allowing the assessee to cross examine the witness by the adjudicating authority whose statements were made the basis of the impugned order is a serious flaw which makes the order nullity in as much as it amounts to violation of principles of natural justice. He has further submitted that similar view has been taken by the Hon'ble Delhi High Court in the case of CIT vs. Ashwani Gupta (Supra) as well as the order of the Coordinate Bench of the Tribunal in the cases cited above. He has strongly supported the impugned order of the learned CIT (A).
We have considered the rival submission as well as relevant material available on record. There is no dispute that the assessee has given the donations of Rs.1,50,00,000/- during financial year 2007-08, Rs.6,50,00,000/- during the financial year 2008-09 and Rs.12,10,00,000/- during the financial year
Page 6 of 15 2009-10 to M/s. South Indian Educational Society Trust and claimed the deduction u/s 80G of the I.T. Act, 1961 for the A.Ys under consideration. There was an investigation carried out in case of M/s. South Indian Educational Society Trust by the Investigation Wing of Mumbai and during the course of said investigation, certain incriminating materials were seized and impounded revealed the fact that the said Society was collecting capitation fee and the same was converted into donation with the modus operandi of paying the cash to the persons and receiving back the cheques in the name of donations. The Assessing Officer has issued a show cause notice to the assessee dated 4/3/2015 which is re-produced in para 6 of the as order as under:
The reply to the said show cause notice by the assessee is also reproduced by the Assessing Officer in para 7 of the assessment order as under:
Page 8 of 15 Page 9 of 15 Page 10 of 15
Thus, in reply the assessee has not produced any detail or record to snow that the donations given by the assessee are source from assessee’s own funds and not from the alleged cash received by the assessee from the said society. This is not a case where a fact is revealed during the course of investigation which is denied by the assessee but in the case of the assessee the donations are not in dispute and the only fact which was detected during the investigation is that the said society indulged in collecting the capitation fee and converting the same into donation through various persons including the assessee. The Assessing Officer has referred the statements of the various office bearers of the said society who explained the modus operandi and admitted the fact that the said society received unaccounted cash and given these amounts to the persons who converted the same into donation. Therefore, the donations given by the assessee to the said society coupled with the material found during the investigation and the statements recorded by the Investigation Wing from the office bearers of the said society clearly made out a case of alleged conversion of cash into donations and hence, the onus is shifted to the assessee to dispel the said allegation based
Page 11 of 15 on the material as well as facts and circumstances brought on record by the Assessing Officer with some supporting evidence on the part of the assessee to show that the donations given by the assessee are not sourced or against consideration of the receipt of the alleged cash. This is not a fact brought on record by the Assessing Officer solely on the basis of the statements recorded by the Investigation Wing but the donation given by the assessee is not in dispute and what is the controversy in the case is only whether the assessee has given the donation as part of the arrangements between the society and the assessee to convert the unaccounted cash into donation or not. Therefore, the assessee was under the obligation to produce the record to establish that the donation was given by the assessee to the tune of Rs.20.10 crores during these 3 years is not against the receipt of cash but it is a voluntary donation from the assessee’s own funds. Prima facie, the Assessing Officer has brought on record the relevant material and facts to suggest that there was an arrangement between the society and the other persons including the assessee that the sole purpose of this arrangement is to avoid the tax and that too double avoidance of tax on both sides. The society has avoided the tax by converting unaccounted cash into donation and the persons who are giving the donation against the cash are also taking the benefit of section 80G of the I.T. Act, 1961 by misuse and abuse the provisions of the Act. We found that during the assessement proceedings as well as before the learned CIT (A), the assessee has not produced any evidence to dispel the allegation based on the investigation conducted by the Department in case of M/s. South Indian Educational Society,
Page 12 of 15 Mumbai. These appeals are filed by the Department and the assessee chose not to file any record even before us to show that the donations given by the assessee are genuine transaction and not against the alleged receipt of cash. The learned CIT (A) has deleted the addition only on the technical ground in para 8.4 and 9 as under: “8.4 In this regard, verification of the assessment records and the details furnished by the appellant revealed that there is no evidence to show that the appellant has received Rs.1,50,00,000/- for the year under appeal. Hence, the opinion drawn by the AO in this regard is held to be in- conclusive as they are not substantiated by any cogent material. As can be seen from the above, it can be concluded that there was nothing on the record to show that the appellant has received cash of Rs. 1,50,00,000/- from the above Society. Moreover, the appellant has issued cheques from his own source of funds. The AO's conclusion that the amounts have come back to the appellant and has to be assessed in the hands of the appellant does not seem to be logical. In this regard, the case laws relied upon by the AR are directly on the issue on hand. Hence, respectfully following the same and also on verification of the facts, the AO's action in treating the said amount of Rs.1,50,00,000/- in the hands of the appellant as income is without any cogent evidence. Therefore, the addition of Rs. 1,50,00,000/- made by the AO is directed to be deleted. As a result, the grounds raised in this regard are allowed.
9. It is seen from the assessment order, the assessed income was arrived at Rs.4,01,05,649/-. As the AO made an addition of Rs.1,50,00,000/- to the returned income of Rs.2,38,50,370/-, the assessed income works out to Rs.3,88,50,370/- only. Thus, there is a difference of Rs.12,55,279/- appeared to have been occurred as a result of wrong totaling. Therefore, AO is directed to verify the same and modify the assessed income accordingly. As a result, the ground raised in this regard is allowed for statistical purposes”
Thus, it is manifest from the order of the learned CIT (A) that the assessee has not produced any record and consequently, the learned CIT (A) has not given the findings on Page 13 of 15 the basis of the record/evidence filed by the assessee to show that the donations given by the assessee are not in exchange of alleged cash. Hence, in the facts and circumstances of the case and in the interest of justice, we set aside the impugned order of the learned CIT (A) in the appeals arising from the re-assessment order for the A.Ys 2008-09 to 2010-11 and the matters are remanded to the record of the Assessing Officer for fresh adjudication after conducting a proper inquiry and to trace out the money trail of the alleged cash received directly or indirectly by the assessee. The assessee is also directed to produce all the relevant details and evidence to prove that the donations given by the assessee for these 3 years are genuine transaction and source from its own funds.
In the result, appeals in to 1798/Hyd/2019 are allowed for statistical purposes. & 31/Hyd/2020 In ITA Nos.30 & 31/Hyd/2020 the Revenue has raised identical grounds as under: “1. The learned CIT (A) erred in deleting the penalty levied of Rs.2,21,59,780/- u/s 271(1)(c) of the I.T. Act, 1961.
1. The learned CIT (A) erred in deleting the penalty levied of Rs.3,73,89,000/- u/s 271(1)(c) of the I.T. Act, 1961.
The penalty levied u/s 271(1)(c) of the I.T. Act, 1961 is consequential to the addition made by the Assessing Officer. Since we have set aside the matter of additions made by the Page 14 of 15 Assessing Officer in the quantum appeals, therefore, the matters of levy of penalty u/s 271(1)(c) of the Act are also set aside to the record of the Assessing Officer for taking the steps as per the outcome of the set aside proceedings in the quantum appeals.
In the result, all the 5 appeals filed by the Revenue are allowed for statistical purposes.