M/S. ANANDALOK ,KOLKATA vs. ACIT(EXEMPTION), CIRCLE - 1(1), , KOLKATA

Per Shri Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-25, Kolkata [hereinafter referred to as ‘Ld. CIT(A)’] dated 31.08.2018 for the assessment year 2014-15.

2 ITA No. 2128/Kol/2018 AY: 2014-15 M/s Anandalok 3. Facts in brief are that the assessee is a trust engaged in the charitable activities and is registered u/s 12A vide No. S-47/WB-VII of 1984-85 dated 01.03.1985. The objectives of the trust are to establish and maintain dispensaries for free distribution of medicine and treatment of poor patients , to set up and operate hospitals, nursing homes and to render medical aid to poor and deserving patients. During the year, AO notes that the assessee has distributed/donated medicines of Rs. 3,84,55,428/- and accordingly he called upon the assessee trust to prove and justify the said distribution of free medicines. The assessee vide written submission dated 10.08.2016 provided the list of medicines which were distributed. In the said submission, the assessee submitted that it used to receive requests from various social organizations for free medicines which are also engaged in providing help to the poor and needy public. In October, 2013, the assessee received such requests from some social organizations located in Purba Medinipur district for free distribution of medicines to the affected people as the Medinipur Dist was worse affected by heavy rainfall and resultant floods. The assessee submitted that due to excessive rain fall in that district, the entire area remained inundated for a long time which resulted into several water borne diseases and their spread in that area. The assessee submitted that since the assessee was located in the same area for long time, the assessee sent a team of doctors along with ambulances and medicines to set up Medical Camps in that area for help and treatment of affected people. The assessee submitted that the medicine worth to Rs. 2,21,95,113/- were distributed to the affected people directly through medical camps and also medicine worth Rs. 1,62,60,315/- were distributed through various social organizations operating in that Moyna /Tamluk in order to ensure that timely and quick help reached to the affected people. Thus the assessee incurred Rs. 3,84,55,428/- by way of free distribution on medicines. The assessee also furnished the list of parties/suppliers form whom it had purchased medicines and also the list of areas and the social organizations to whom the medicines were distributed/donated. The AO, in order to verify the claim of the assessee, issued notice u/s 133(6) to the drug suppliers who have confirmed having supplied the medicines to the assessee trust. The AO also issued summons u/s 131 to the social organizations to whom the

3 ITA No. 2128/Kol/2018 AY: 2014-15 M/s Anandalok

assessee claimed to have donated this medicines but the office bearers of the social organizations denied to have received any free medicines from the assessee. Thereafter the assessee vide letter dated 07.12.2016 requested the AO to allow the opportunity to cross-examine the office bearers of these social organizations who have denied to have received the free medicine from the assessee. But no such opportunity was allowed by the AO to the assessee trust. The AO drew adverse view and inference on the basis of their statements and disallowed a sum of Rs. 1,62,60,315/-. Similarly the AO doubted the distribution of free medicines of Rs. 2,21,95,113/- on the ground that there was no flood in that District and thus added the same to the income of the assessee.

“4.2.12. I have perused the AO’s order and fact of the case with submission of the appellant. The appellant had no evidences in respect of distribution of medicines had been submitted in respect of distribution of medicines through various organizations as claimed by the appellant trust during the course of hearing and appeal proceedings. The appellant trust had completely failed to discharge the onus in respect of claim of expenditure in respect of the distribution of medicines. The appellant was given plenty opportunity to controvert the finding of the AO. The appellant did not bring any confirmatory letter from the club in respect of receipt of medicine. Neither it produced them as his witness. No doctors confirmation was submitted regarding visiting of camps and identity of the patients. No patient’s register of the camp was produced. In distribution of medicine in such health camp, there is responsibility of doctors in case of ‘reaction of medicine’, follow up treatment is also required. No register was produced which can prove identity of the patients who received the benefits. Normally the VANS are accompanied by the doctors. As per MCI norms and public health and safety rules, the medicine can prescribed to the persons only by registered doctors. The volume of medicine is worth 2,21,95,113/- through camp and 16,26,03,157/- totalling at Rs.3,84,54,428/-. If the same is multiplied by 365 days it comes to Rs.60,808/- per day and going by it, it is impossible to distribute medicine by comp for more than 300 persons in a day without identification of these diseases. Further the A.R of the appellant Trust had not furnished any further evidences to counter the facts brought on record made by the Ld. Assessing officer in view of the statements taken from the office bearers of the organizations through whom appellant Trust had distributed medicines. The appellant has simply argued that it's all purchases were not denied. The appellant further argued that the photographs of camps and distribution of medicines were submitted before the

4 ITA No. 2128/Kol/2018 AY: 2014-15 M/s Anandalok

AO against which the AO has not found any adverse findings. The appellant further argued that the cross examination of the persons, office bearers of the club has not been provided. In this regard it is to point out that the club members/office bearers were made as a witness of the appellant in terms of receiving the medicines, and these members club were examined by the AO. Once the club has denied the benefit of distribution any medicine and receiving any benefit or issuing any letter of confirmation for receiving medicines by the appellant, it was appellant's duty to controvert these statements made by the club members. No evidence was placed on record for distribution of medicines. Why the appellant distributed medicines to such club who are not running for the purpose of medical relief nor they have deployed any doctor for this purpose. It was the duty of the appellant to obtain the prescription of the patients along with diseases in order to ensure that supply of medicines is not getting into waste. No such step has been taken by the appellant. If at all it considered that the medicines are really distributed amongst the club for the sake of argument. The club has outrightly denied the receipt of any such medicines and it is also a matter of record that the club has received blankets in very few numbers which has been accepted by them. Their credence cannot be doubted upon as what they have received has been accepted and what not received has been denied. Once all these materials were confronted to the appellant it was duty of the appellant to give clarificatory letter or retracting letter of the aforesaid club members and further circumstantial evidences which may suggest the distribution of medicines. But, it was not done by the appellant. As regards the claim that purchases has not been doubted, therefore, expenses has to be allowed, this claim is also not sustainable because the utilization of the medicines has not been proved under the head which was claimed by the appellant. The appellant can return these medicines, can sale out of book, can sale to the patients or can do whatever can be done out of books. Once, the appellant has claimed that it has used for the purpose of free distribution then the proving uses of such medicines was the onus of the appellant which the appellant failed to do so. As regards the claim made by the appellant for photography of the camp is concerned, it is seen that the appellant has distributed blankets and polythene. The camp can be made for health check-up or general medical awareness purpose. Simplygiving photographs does not become evidence of venue, place and distribution of medicines particularly when the District Collector has confirmed that there was no such epidemic diseases in the area during the year. In present technological era the photographs can be morphed or generated on computer. As already stated that in case of medicine prescription it is to be given by the doctors and it is for specific diseases. The Appellant has not given any such evidence, therefore, keeping in view all these facts, I agree with the view of the AO that the appellant has failed to prove the distribution of medicines through camp and through club and all the circumstantial evidences also suggest that there was no such distribution of medicines and distribution of medicines at such huge quantity through camp or club. Keeping in view all these facts, the addition made by the AO is hereby upheld and ground of appeal dismissed.” 5. The Ld. A.R., while controverting the observations of the authorities below that there was no flood in that area, submitted before the Bench that the findings of the authorities below are against the facts available on record. The Ld. A.R. referred to the Annual Flood Report for the year 2013 brought out by the Govt. of West Bengal in which at page no. 28 it has been mentioned that there was a flood in that district of

5 ITA No. 2128/Kol/2018 AY: 2014-15 M/s Anandalok East and West Midnapore and during the flood, the water level has crossed EDL eight times. The Ld. A.R. submitted that since the assessee is a leading charitable trust operating in that district, therefore, it has genuinely sent a team of doctors and set up many medical camps for free distribution of medicine to the affected people and distributed medicines worth Rs. 2,21,95,113/-through the medical camps set up by the assessee in Moyna/Tamluk in PurbaMedinipore. The Ld. AR submitted that besides the assessee has received written requests from the various social organizations who were also engaged in the same activities in that area to whom the assessee donated medicines worth Rs. 1,62,60,315/-. The Ld. A.R. took us through various documents testifying the holding of medical camps in that area for distribution of free medicines and doctors advice. The Ld. A.R also brought to our notice that the written requests received from various social organizations for donation of medicines so that same could be distributed to the flood affected poor people. The Ld. A.R. therefore requested that the genuineness of expenses which are incurred purely for purpose of charity and in terms of objectives of trust could not be doubted. The Ld. A.R also referred to the notices issued u/s 133(6) of the Act to these medicines suppliers who have confirmed to have supplied medicines to the assessee. The AR also referred to the statement of Dr. Chatterjee on 01.12.2016 recorded by the AO wherein he stated that he associated with Anandalok Hospital as resident medical officer since 1997 but due to personal issues, he left Anandalok in March 2013 and again joined in July 2015 and so he did not attend any medical camp for Anandalok and submitted that the said statement was recorded under duress and undue pressure. The ld AR then referred to second statement recorded on 25.02.2014 in the remand proceedings of Dr. T. N. Chatterjee u/s 131 of the Act wherein he stated that he was associated since 1997 and was getting contractual fee of Rs. 1,00,000/- per month and in March 2014 on request of other doctors and staff members of the hospital, he verified the medical equipments lying inside of hospital premises and advised the Managing Trustee Mr. Deo Kumar Saraf to discard the old machine/equipment. The ld AR thus contended that there is conflict in the statement given by Dr. T.N. Chatterjee as in the statement recorded on 01.12.2016 he stated that he left the hospital in March 2013 and again joined in July,

6 ITA No. 2128/Kol/2018 AY: 2014-15 M/s Anandalok 2015 whereas in the statement recorded in the remand proceedings on 02.05.2018 Dr. Chatterjee stated that he was working in the hospital since 1997 and in March 2014, he stated that on request of doctors and staff member of Anandalok Hospital certain equipments / machineries which were obsolete and outdated ,he recommended the scrapping of the same after carrying out the necessary examination. The ld AR submitted that this proved amply that the first statement was recorded under pressure and has no evidentiary value. The Ld. A.R. strongly opposed the manner in which addition was made on the basis of statements recorded u/s 131 of the Act of various office bearers of social organizations who denied to have received any free medicines from the assessee. The Ld. A.R. ,while drawing our attention to the written request made by the assessee vide letter dated 07.12.2016 to allow the assesse opportunity to cross-examine the office bearers of the social organization who have denied to have received free medicine, argued that no addition can be made on the basis of these statements without confronting the assesse with the said statements. The Ld. A.R. submitted that in utter violation of principles of natural justice as no such opportunities to cross-examine the office bearers of those social organizations was ever allowed by the AO while the AO has made the addition on the basis of statements given by the office bearers. The Ld. A.R. in defense of his argument relied on the decision of Hon’ble Supreme Court in the case of M/s Andaman Timber Industries vs. Commissioner of Central Excise in Civil Appeal No. 4228 of 2006.The ld. AR further argued that the AO has not doubted the activities of the trust which is wholly and exclusively in engaging providing such relief to the poor and needy in terms of its objects. Finally the ld AR prayed that the order of Ld. CIT(A) may kindly be reversed on this issue and the AO be directed to delete the disallowance.

7 ITA No. 2128/Kol/2018 AY: 2014-15 M/s Anandalok suffice. The Ld. D.R. also drew our attention to the findings of AO as well as Ld. CIT(A) that there was no flood in that area and therefore on this count alone the order of Ld. CIT(A) may kindly be upheld as these expenses could not be explained by the assessee with relevant evidences of having distributed/donated the medicines as claimed by the assesse.

8 ITA No. 2128/Kol/2018 AY: 2014-15 M/s Anandalok by the AO by issuing notices u/s 133(6) of the Act to various suppliers who have confirmed to have supplied the medicines to the assessee. We note that only on the basis of statements recorded u/s 131 of the office bearers of the social organization, the AO disallowed the expenses incurred by the assessee for supplying free medicines to social organizations. Besides the assesse was not provided cross examination despite specific request made by the assessee vide letter dated 07.12.2016 to allow cross- examination of the said office bearers of the social organizations. We note that the AO straightway drew adverse inference from the said statements and disallowed the expenses incurred on account of donation of medicines to these social organizations. We also note that the assessee has been providing free construction of huts to the homeless people and also organized various charitable activities in keeping with its objects during the year.We note that the AO recorded the statement of Dr. Chatterjee on 01.12.2016 wherein he stated that he associated with Anandalok Hospital as resident medical officer since 1997 but due to personal issues, he left Anandalok in March 2013 and again joined in July 2015 and so he did not attend any medical camps for Anandalok. However on 25.02.2014 in the remand proceedings, Dr. T. N. Chatterjee was again recorded u/s 131 of the Act wherein he stated that on his recommendation , the assessee trust scrapped assets worth Rs. 17,32,99,000/-which were not usable / or obsolete. He stated that he was associated since 1997 and was getting contractual fee of Rs. 1,00,000/- per month and in March 2014 on request of other doctors and staff members of the hospital, he verified the medical equipments lying inside of hospital premises and advised the Managing Trustee Mr. Deo Kumar Saraf to discard the old machines/equipments. We note that there is conflict in the statement by Dr. T.N. Chatterjee as in the statement recorded on 01.12.2016 he stated that he left the hospital in March 2013 and again joined in July, 2015 whereas in the statement recorded in the remand proceedings on 02.05.2018 Dr. Chatterjee stated that he was working in the hospital since 1997 and in March 2014, he stated that on request of doctors and staff member of Anandalok Hospital certain equipments / marchinaries which were obsolete and outdated ,he recommended the scrapping of the same after carrying out the necessary examination. So therefore find a merit in the

9 ITA No. 2128/Kol/2018 AY: 2014-15 M/s Anandalok contention of Ld .A.R that first statement was recorded under pressure. Therefore on this account also the addition of Rs. 2,21,95,113/- for free distribution of medicine to affected people is wrongly made by the AO.In our considered view, the statements/material cannot be used on the back of the assessee and if done so it is against the principles of natural justice as has been held by the Hon’ble Supreme Court in the case of Andaman Timber Industries (supra) wherein the Hon’ble Apex Court has held that failure to give assessee the cross-examination of witnesses whose statements were relied upon to take an adverse view results in breach of principles of natural justice. In our viewthis is a serious flaw and renders the action of AO as nullity. In view of these facts and circumstances and also decision of Hon’ble Supreme Court as discussed above we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition. In the result the ground no. 1 is allowed.

10 ITA No. 2128/Kol/2018 AY: 2014-15 M/s Anandalok

machinery as deduction at the time of purchase and he accordingly added this amount to the income of the assessee.

“4.4.8. I have perused the fact submitted by the appellant. The appellant trust had again reiterated that the appellant trust has been acquiring assets since inception of the trust for carrying out of medical activities. The original cost of the assets which had been written of were forming part of the block of assets and most of the assets written off had been become dilapidated and were not usable owing to change in technology and efflux of time. It can be seen that the written down value of such assets would have been substantially low. However, the actual date of acquisition of such assets is from time to time and all were forming part of the cost of assets as on 31.03.2007 as claimed by the appellant. The actual cost of the block of which these assets formed a part as per records available were as follows: Particulars 31.03.2003 31.03.2004 31.03.2005 31.03.2006 31.03.2007 Cardiac 477,44,089 477,44,089 477,44,089 477,44,089 477,44,089 Cathersation& bypass Surgery Furniture & 23,79,810 149,66,782 166,37,099 178,97,829 215,35,336 Fixtures Medical Total 531,50,544 983,59,422 1081,85,076 1343,15,310 1473,22,657 Equipments Total 602,74,443 1610,70,293 1725,66,264 1999,57,228 2166,02,083

The appellant claimed that all assets written off were acquired long time back and had lost its utility value and hence based on management decision written off. From perusal of submissions and documents submitted by the appellant it is observed that these assets being written off was part of the assets the appellant trust had been acquiring since the inception of the trust. Over the efflux of time and usage of assets the value of asset has diminished. Based on the report of an expert the Trust had decided to write off the asset and as there is no ready market to sell the assets, the equipment were scrapped and handed over to the employees to dispose the same. The assessee Trust had given complete description of the assets and passed a resolution for treating the discarded assets as scrap based on the report of medical consultant. The assessee Trust had submitted the copy of the resolutions, report of the medical consultant and the details of the persons to whom assets were handed over with a direction to dispose of the scrap of the discarded Machineries and Equipment and distribute the sale proceeds, if any between the employees of "D" Group. The appellant has argued that the assessment u/s 143(3) of the Income Tax Act, 1961 has been made each year and never during the course of assessment of earlier year had any disallowance been made in respect of application of income for acquisition of asset. The

11 ITA No. 2128/Kol/2018 AY: 2014-15 M/s Anandalok

appellant Trust had produced such compelling evidences in respect of the assets i.e complete statement of the assets acquired periodically and the actual cost of assets written off is lower than the actual cost of asset as on 1.4.2007. Further the Assessing officer had taken statement of the employees and medical practitioner who had certified the existence of assets and handing over of assets. The Appellant Trust had submitted that assessee Trust was subject to assessment for earlier years also and no adversity was found over utilization of assets. Just because sale of assets is doubted the existence of assets cannot be denied in the presence of such evidences. From the submission of the appellant and observation of the AO and the details submitted during the course of appellate proceedings it is seen that the appellant had claimed sale of assets of Rs. 17,32,99,000/- which was its original value. Considering the claim of the appellant and submission made it is transpired that these assets were purchased prior to 2007 and up to year of assessment in question the same had lost its utility value. The appellant formed committee and decided to dispose off these unused assets and accordingly its proposal was came into effect and sale was made which gross value up to 2007 (are the actual cost) was ascertained at Rs. 17,32,99,000/-. The appellant claimed that it haddisposed off with the help of 2 employees. But the value of disposed of stock was taken at Rs.85,000/- only and which was also not shown in the books of accounts. The AO treated entire value of assets as sale. In this regard there are 2 issues - (1) whether the asset was existing at all and whether it was genuinely purchased by the appellant and whether it was sold at appropriate value or not. As regards the existence of asset is concerned the aforesaid issue was enquired from the appellant. The appellant has stated that aforesaid assets were acquired prior to 2007. The : also argued that in almost every year the scrutiny of the case u/s. 143(3) of the Income Tax Act, 1961 was done and nothing adverse was found against utilization of surplus against purchase of assets. The appellant also submitted chart and details of purchase of assets from 2003 to 2007 which shows that there wereassets worth Rs. 14,73,22,657/- up to 2007. In none of the year any adversity was found by the AO against purchase of these assets. Now coming to the sale of these assets, including furniture & fixtures it is seen that appellant has not deducted any TDS nor submitted any detail as to whom these sale have been made nor any evidence of auction is submitted . It is a matter of fact that the assets worth Rs.17 crore and more cannot be disposed off at a throw away price and that too at the wisdom of group 'd' employees who have no experience of selling medical tools. No auction has been done. Proper discourse of assets disposal has not been followed. The medical equipments are very costly; some are manufactured with titanium and other costly item which can be re-used to some other hospitals. Therefore, it is a clear case that the appellant sold entire assets out of books of accounts. It is also a case that the gross value of 2007 cannot be taken as a market value of the assets being unused and old one. As the appellant Trust could not furnish any documentary evidence in respect of the sale value of scrap except that the scrap was handed over to the employees and the same was sold and the sale proceeds was shared. The reply of the appellant trust in respect of scrap is not acceptable as these machines are of high quality and even Schedule II of Companies Act, 2015 provides that residual value of an asset shall not be more than five percent. The appellant did not submit any proof of sale which clearly shows that the sales were made out of books of account. The Assessing officer had made the addition on actual value of assets without going into the facts that this was the original value and in the year of sale it could have fetched only scrap value. In view of the facts and evidences furnished and submission made in respect of year wise addition made it can be concluded conclusively that asset written off was part of the assets acquired from time to time. In the instant case the actual cost of the asset cannot be assessed as income of the Trust as the same had been acquired long time back and had been used for the operations of the Trust. The same had been disposed off as scrap and only the

12 ITA No. 2128/Kol/2018 AY: 2014-15 M/s Anandalok sale proceeds of such scrap can be treated as income. The appellant has not submitted any valuation of scrap goods nor the sales was proved. No details regarding sale has been submitted. Therefore the scrap value of such machines is not acceptable and applying the rate of 5% as per Schedule II of Companies Act, 2015 which provides support for residual value of an asset , addition on this account should be restricted to 5% of the asset written off i.e. Rs. 86,64,950/- in respect of such scrap value. Remaining addition is hereby deleted .The ground of appeal is partly allowed.” 12. We have heard rival submissions and perused the material on record including the statements recorded u/s 131 of the Act of two employees Shri Sudam Maity and Bhavesh Jha of the assessee charitable trust during the course of remand proceedings. Undisputedly the assesse trust discarded/disposed off the obsolete, out of order and worn out machineries and equipments which were purchased right from the inception of trust. The said scrapping/discarding of asset was done on the recommendation of Dr. T. N. Chatterjee who after inspecting these plants or machineries/equipments submitted a report that the said assets were not usable and should be discarded. Thereafter a committee of two employees Shri Sudam Maity and Bhavesh Jhawas constituted who were assigned the job of discarding of the said assets lying in the hospital premises located at Salt Lake. The said committee sold them at Rs. 85,000/- and utilized the same in a party of all the staff of the assesse trust. We also note that both the authorities have not brought any material/evidence on record which corroborate that these assets were sold for more than Rs. 85,000/- . The Ld. CIT(A) also agreed to the contentions of the assessee that these obsolete machineries which were not usable and thus directed the AO to make the addition @ 5% which comes to Rs. 86,64,950/-. But in our view by doing so the Ld. CIT(A) has merely acted on surmises and conjectures sans any concrete basis. The said action of the ld CIT(A) is wrong and cannot be sustained. Under these facts and circumstances we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Consequently the ground no. 2 is allowed.

13 ITA No. 2128/Kol/2018 AY: 2014-15 M/s Anandalok 13. In the result, the appeal of the assessee is allowed.

Order is pronounced in the open court on 21st October, 2022

Sd/- Sd/- (RajpalYadav /राजपाल यादव) (Rajesh Kumar / राजेश कुमार) Vice-President /उपा�य� Accountant Member / लेखा सद�य Dated: 21st October, 2022 SB, Sr. PS

Copy of the order forwarded to: 1. Appellant- M/s Anandalok, DK-7/3, Salt Lake city, Kolkata-700091 2. Respondent – ACIT(Exemption), Circle-1(1), Kolkata 3. Ld. CIT(A)-25, Kolkata (sent through e-mail) 4. PCIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order

Assistant Registrar ITAT, Kolkata Benches, Kolkata