BRIJBASI EDUCATION AND WELFAREW SOCIETY,MATHURA vs. ADDL.CIT, RANGE-1, GHAZIABAD

The Joint Director Of Income Tax (Investigation) as per letter dated 22/06/2012 informed that regular case RC has been registered by the Central Bureau Of Investigation against One Shri Manojkumar Agarwal , IAS, who has acquired immovable and immovable assets to an extent of approximately INR 4580266/– in the name of self and his wife during the period 1990 – 2008 which he could not satisfactorily account for. It was also disclosed during the investigation that Sri SK Sharma floated society by the name and style of Brijbasi education and welfare society ( Appellant) on 21/7/2005 having 7 members belonging to 3 members of the family of Sri Manoj Kumar Agarwal who were authorised to operate the bank account of the appellant. It was further noted that huge amount of cash was deposited in the bank accounts of the said society. The examination of several witnesses disclosed during the CBI investigation that they have not donated to the appellant. One of the witnesses Shri Mahesh Garg stated that Rs. 35,00,000 in cash were given by Sri SK Sharma for arranging the donation Page | 2 in favour of appellant. Therefore number of suspicious transactions in the account of the appellant and the role of Sri Manoj AGrwal needs to be thoroughly investigated to find out the source of the above funds.

Based on the above information the reasons were recorded. A notice u/s 148 of the income tax act was issued on 28/3/2013. Subsequently notices u/s 143 (2) were also issued. In response to the query, the assessee submitted that assessee has nothing to submit apart from whatever has been submitted in the course of assessment proceedings earlier. The assessee was also issued a show cause notice as to why the donation of INR 4,000,000 should not be treated as unexplained income of the society and be taxed u/s 68 of The Income Tax Act.

Meanwhile DIG CBI as per letter dated 10/2/2014 provided copies of the statement of the donors and the copies of statement of Shri Mahesh Garg and Shri Vinod Garg recorded u/s 161 of criminal procedure code. On perusal of the statement of all the donors given before the Central bureau of investigation it was found that, all of them denied to have donated to the appellant. On going through the statement of Shri Mahesh Garg it was noted that Mr Garg accepted before the CBI that he was involved in the work of providing accommodation entries through 7 bank account of his brother Vinod Garg and charge INR 500 per lakh for giving such entries. It was further noted that in the month of June 2006 Sri SK Sharma contacted Shri Mahesh Garg for issue of demand draft in favour of the appellant. He gave INR 3,500,000 to Shri Mahesh Garg in cash for issuance of demand draft and Mr Mahesh Garg was having 12 firms deposited the same cash in those accounts. He deposited the cash in one company and issued the cheques from another company. He has deposited the cash in several companies and issue demand draft favouring the appellant from various companies. Assessee was asked to explain the donation of INR 4,000,000 as well as an accommodation entry of INR 3,500,000 from Shri Mahesh Garg and assessee was confronted with statements recorded by the various donors where they have denied giving any donation to the assessee as well as the findings of the Central bureau of investigation. The assessee submitted the details of unsecured loan, list of donors along with name and address and date of donation and further stated that society was not in receipt of INR 3,500,000 from Shri Mahesh Garg and it does not have any connection with that. The learned AO noted that despite confronting the assessee with the statement of the donor and the fact of accommodation entries received from Shri Mahesh Garg, no satisfactory reply was furnished. He further noted that assessee has shown donation of INR 4,000,000 from 14 different persons which were proved to be bogus. After the time of original assessment, enquiries made by the CBI , the statement of those donors were recorded and they have categorically denied to have made any donation to the assessee society. Therefore, the learned AO held that it is proved that the assessee society has generated unaccounted cash, which has been routed to its books of accounts in the disguise of donation, which are proved bogus. Thus, the learned assessing officer made an addition of INR 4,000,000 under section 68 of The Income Tax Act. Further with respect to the accommodation entry of INR 3,500,000 received by the assessee from Shri Mahesh Garg , the learned AO on the basis of statement of accommodation entry provider, made an addition of INR 3,500,000 in the hands of the assessee. Thus assessment order u/s 143 (3) read with section 147 of the income tax act was passed on 28/02/2014 determining the total income of the assessee at INR 7,500,000.

The assessee aggrieved with the order of the learned assessing officer challenged the same before the learned CIT – A on the issue of the reopening of the assessment as well as on the merits of the addition of INR 75 Lacs. The learned CIT – A upheld the reopening of the assessment as per para number 7.1 of his order as and also upheld the addition of INR 4,000,000 , out of Rs 75 lakhs, under section 68 of the income tax act as per para 7.2 of his order. However, with respect to the addition of INR 3,500,000 vide para number 7.3 he deleted the addition holding that the appellant received the above amount in the financial year 2006 – 07 from Shri Mahesh Garg and therefore the addition cannot be made in assessment year 2006 – 07 and further he enhanced the assessment for assessment year 2007 – 08 by INR 3,500,000. Consequently, the assessee aggrieved with the order of the learned CIT – A has preferred an appeal before us.

The 1st ground of appeal is with respect to challenging the action of the learned assessing officer of reopening of the assessment u/s 148 of the income tax act. The learned authorised representative referred to the reasons recorded by the learned assessing officer which are placed at page number 16 – 17 of the paper book and submitted that the reassessment has been made after the 4 years from the end of the assessment year and there is no allegation that assessee has failed to disclose fully and truly the correct facts of his income. He therefore submitted that the reopening made by the learned assessing officer is not in accordance with the law. He relied upon the several judicial precedents prominently among them of the honourable Delhi High Court in case of SUBH INFRASTRUCTURE LTD VS ACIT and PRINCIPAL COMMISSIONER OF INCOME TAX VS MORE INTERNATIONAL placed at serial number 10 and 11 of the paper book.

The learned departmental representative vehemently supported the order of the learned CIT – A and submitted that information was received from the investigation wing as well as the central bureau of investigation which categorically stated that there are credit entries in the books of accounts of the assessee from various sources and INR 29,700,000 were received from l 31/7/2006 from various persons ranging from Rs. 5,00,000 to INR 2,500,000. It was further stated that in the reasons recorded there is a specific allegation of INR 35,00,000 received by assessee from accommodation entry provider Shri Mahesh Garg. Further the chartered accountant of the assessee during the CBI investigation has clearly stated that relevant application form signed by the 22 people along with the supporting documents for obtaining the permanent account number was made by him. Further the conversation in the compact disc also proves the unaccounted money routed of Mr Manoj, kumar Agarwal. He further referred to the reasons which clearly shows that the confirmation submitted by the donor were not genuine persons and a bogus donation. He therefore submitted that there is a clear-cut failure on the part of the assessee to disclose the correctness of the amount of donation received by it and hence the reopening has been correctly made by the learned assessing officer and confirmed by the learned CIT appeal.

We have carefully considered the rival contention and perused the orders of the lower authorities. No doubt, the reasons were recorded on 28/3/2013, i.e. is after the expiry of 4 years from the end of the assessment year.

The learned authorised representative has vehemently relied upon the judicial precedents and especially on the decision of the honourable Delhi High Court in SABH INFRASTRUCTURE LTD VS ASST COMMISSIONER OF INCOME TAX dated 25/9/2017. We have carefully gone through the decision of the honourable Delhi High Court. In that particular decision the honourable Delhi High Court in para number 14 has held that merely an allegation that the companies are paper companies without further facts is by itself insufficient to reopen assessments that stand closed after passing of the order u/s 143 (3) of the income tax act. Here in the present case all the donors were found to be bogus, their permanent account numbers were also obtained by the chartered accountant of the assessee, the accommodation entry operator has given a categorical statement that he has provided the assessee with the bank funds in lieu of cash funds. Further, on reading of para number 15 of that order where there is a clear-cut finding that where there is a mention of the fact or information which has been withheld by the petitioner gives the power to the assessing officer to reopen the assessment proceedings. In the present case the central bureau of investigation has made the detailed enquiry and found that the financing of the appellant to the extent stated in the reasons recorded are not what is disclosed by the assessee but a camouflage transaction. It is also interesting to note in the para number 16 of the order of the honourable High Court where in it relied upon the decision of CIT vs Multiplex trading and industrial company limited 378 ITR 350 and stated that where in cases where the primary facts as asserted by the assessee for framing of assessment are subsequently discovered as false, the reopening of assessment may be justified. In the present case, the primary facts stated by the assessee in the original assessment proceedings are found to be false. Further, the AO has also mentioned the details of the report of the investigation wing as well as the information received from the central bureau of investigation. In view of this, reliance placed on the decision of the honourable Delhi High Court on above decision is misplaced.

The learned authorised representative further relied on the decision of the honourable Calcutta High Court in case of CIT Vs More International dated 08/02/2018. We have carefully perused the facts and the ratio laid down by the honourable High Court in that particular case. The fact in that particular case shows that the honourable High Court held that no reopening could be initiated merely based on action initiated by the customs department. In that particular case merely based on the show cause notice issued by the custom authorities the reopening was initiated by the AO. Further neither in the reasons recorded for reopening the assessment nor in the order of reassessment under section 147 of the income tax act there was any noting about the failure of the assessee to disclose fully and truly material facts necessary for the assessment. However, in the present case it is not a show cause notice but the statement of the donors, enquiry by the investigation wing of the income tax department, enquiry by the central bureau of investigation, the statement of the chartered accountant , statement of donors, statement of entry operator etc. Therefore the facts of that particular case does not apply to the facts in the case before us.

The assessee also relied upon the decision of the honourable Supreme Court in case of ACIT vs Dharia construction Co 328 ITR 515 (SC). In that particular decision the reopening on the basis of the report of the district valuation officer was held to be not an information for the purpose of the reopening of the assessment. It was further held that the assessing officer has to apply mind to the information collected and must form a belief thereon. In the present case the assessing officer has received a specific information about the huge cash deposit in the bank account of the assessee and through Mr SK Sharma and backed by the statement of the donors, statement of the chartered accountant, statement of the entry operator et cetera, reasons are recorded. Therefore, the reliance placed on this decision is incorrect.

In view of above facts we do not find any merit on ground number 1 of the appeal of the assessee against the reopening of the assessment. In view of this ground number 1 is dismissed.

The ground number 2 is against the confirmation of the addition of INR 4,000,000 as unexplained income in treating the donation is bogus donation when such addition was made by him without making any independent enquiry at his end. On the perusal of assessment order, it is found that the assessing officer questioned the assessee about the genuineness of the receipt of INR 4,000,000 as the donation. The assessee could not submit anything else other than the name and address of the donor. Therefore, based on the information collected , the learned assessing officer held that the above donation is a bogus donation and therefore the addition u/s 68 of the income tax act was made. The learned CIT – A confirmed the above addition as per para number 7.2 of his order. He noted that the assessee could not substantially prove before the assessing officer about the genuineness of the donation and therefore the learned assessing officer has clearly recorded Lack of satisfactory proof to substantiate the donation received by the appellant during the reassessment proceedings and hence he confirmed the above addition.

The learned authorised representative submitted that where originally the assessing officer has accepted the above donation as genuine donation however subsequently after reopening of the assessment the learned assessing officer has made the above addition as bogus donation. He referred to the page number 25 and 26 of the paper book wherein he has given the list of donation received stating the name, address and the date and amount of the donation received. He referred that 38 persons has given a donation in the range of INR 100,000 to INR 150,000 to the assessee which totaled to INR 4,000,000. He therefore submitted that assessee has given the complete detail of the donation received by the assessee and therefore the addition made by the AO is incorrect 18. The learned departmental representative submitted that assessee has received the donation of INR 4,000,000 and credited it to the general fund account in the balance sheet for the year ended on 31st of March 2006. The assessee did not produce any information about the donor such as permanent account number as well as their income tax details. He further submitted that all the 22 donors have categorically stated that they have not given any donation to the assessee. Such statement was confronted to the assessee and assessee could not reply. Therefore in view of this it is very high onus cast upon the assessee in reassessment proceedings to show that these donations are genuine donation. He further referred to the order of the learned assessing officer as well as the learned CIT – A before both the lower authorities the assessee failed to produce any cogent evidences. In view of this, he submitted that there is no infirmity in the order of the lower authorities.

We have carefully considered the rival contention and perused the orders of the lower authorities. During the year the assessee has received from 38 persons amount ranging between Rs. 1,00,000 – 1,50,000 amounting in all to INR 4,000,000. In the list of donor, assessee has given the address of those donors as well as the date of donation. The above amount has not been credited to the income and expenditure account of the trust but is shown as a general fund account in the balance sheet. Therefore, the above amount was not shown as income in the income and expenditure account but was carried to the balance sheet as a general fund. Concurrent lower authorities have held that assessee has failed to show the genuineness of the transaction. The assessing officer has made addition u/s 68 of the income tax act which has been confirmed by the learned CIT – A. No futher evidences were produced before us. Therefore, the moot question that arises is whether the provisions of section 68 of the income tax act can be applied to a charitable trust or not. The honourable Delhi High Court in CIT vs Keshav social and charitable foundation in 278 ITR 152 has categorically held that:- “11. Section 68 of the Act has no application to the facts of the case because the assessee had in fact disclosed the donations of Rs. 18,24,200 as its income and it cannot be disputed that all receipts, other than corpus donations, would be income in the hands of the assessee. There was, therefore, full disclosure of income by the assessee and also application of the donations for charitable purposes. It is not in dispute that the objects and activities of the assessee were charitable in nature, since it was duly registered under the provisions of section 12A of the Act. “ [ underline supplied by us] 20. Therefore, apparently if the trusts has credited alleged donation to the income and expenditure account, provisions of section 68 cannot be applied. Therefore in such cases from 1-4-2007 u/s 15 BBC the provisions of anonymous donation and its taxability at a different rate applies. However if the donation is not credited to the income and expenditure account on provisions of section 68 are rightly applied by the lower authorities.

In view of the above facts, we confirm the actions of lower authorities in taxing the sum of INR 4,000,000 as unexplained income being bogus donation credited to the general fund in the balance sheet. In the result ground number 2 of the appeal is dismissed.

The ground number 3 of the appeal is related to the enhancement made by the learned assessing officer for assessment year 2007 – 08. The above ground relates to the assessment year 2007 – 08 and not to the assessment year 2006 – 07, therefore, the above ground does not arise from the orders of the lower authorities and we will deal with the same at the time of dealing with the appeal of the assessee for assessment year 2007 – 08. Even otherwise, the learned CIT – A has deleted the addition of INR 3,500,000 from this year (assessment year 2006 – 07). Therefore, assessee is not aggrieved in this year. It is not contested that CIT (A) does not have any such power. Hence, ground number 3 of the appeal is dismissed.

Ground number 4 is general in nature, no arguments were advanced by the parties, hence same is dismissed.

In the result, appeal of the assessee in ITA number 4572/Del/2017 for assessment year 2006 – 07 is dismissed.

Now we come to the appeal of the assessee for assessment year 2007 – 08. Assessee filed its return of income on which the assessment was completed u/s 143 (3) on 29/12/2009 at nil income. The assessment was reopened on the similar facts has mentioned for assessment year 2006 – 07. During the year the addition of INR 6,000,000 was made to the total income of the assessee out of INR 9,500,000credited to the general fund , as INR 3,500,000 were already added by the learned assessing officer for assessment year 2006 – 07. The assessment u/s 143 (3) read with section 147 of the income tax act was passed on 20/3/2015 determining the total income of the assessee at INR 6,000,000. The assessee preferred an appeal before the learned CIT – A on the issue of reopening of the assessment as well as the quantum addition made by the learned assessing officer. The learned CIT – A passed an order on 16/3/2017 confirming the reopening of the assessment wide para number 5.1 of his order. On the merits of the addition of INR 6,000,000, the learned CIT – A confirmed the above addition and further as already directed in assessment year 2006 – 07 to tax INR 3,500,000 during this year, he confirmed the addition of INR 9,500,000 as bogus donation. The assessee is aggrieved with that order. The assessee has raised the following grounds of appeal for the Assessment Year 2007- 08:- “1. Whether on the fact and in the circumstances Ld. C.I.T.(A) is justified by upholding the action of the assessing officer as regard issuance of notice u/s 148 without considering the parameter of the reopening of a case and when there was no sanction of the appropriate authority.

The first ground of appeal

The learned departmental representative vehemently supported the orders of the lower authorities.

We have carefully considered the rival contentions and perused the orders of the lower authorities. During the year, the assessee has received a donation from 122 persons amounting to INR 9,500,000. The assessee has given the name, address, permanent account number of those persons as per 7 pages list placed on the paper book at page number 12 – 18. This year also the assessee has credited the same amount to general fund. The opening balance of general fund at the beginning of the year on 01/04/2006 was Rs. 40,00,000 and at the end of the year on 31/03/2007 is INR 13,500,000. The above donation of INR 9,500,000 also was not credited to the income and expenditure account but directly carried to the balance sheet. Thus, the above amount was not shown as income in the income and expenditure account. Except placing the list on record, the assessee could not furnish any other information with respect to the genuineness of the donation. The learned assessing officer made the addition u/s 68 of the income tax act and the learned CIT – A confirms the above addition as per para number 5.2 of his order. The main reason for the confirmation of the addition is that examination of the fact revealed that during the assessement proceedings the appellant failed to substantiate genuineness, creditworthiness of the donors. The above donors were found to be bogus even during enquiry by the CBI. Further as per the reasons recorded by the learned AO it was noted that during the investigation the CBI having interrogated the above donors and observed that these are not genuine persons and established that it is a bogus donation. Further, it was also found that Shri SK Sharma deposited huge amount in the account of the assessee showing is donation, which was corroborated by the conversation in the CD with investigating authorities. Further, the amount of INR 3,500,000 was found to be an accommodation entry from Shri Mahesh Garg who confirmed having given the above sum in exchange of cash from Sri SK Sharma. The above sum is correctly directed by the learned CIT – A to be taxed in assessment year 2007 – 08 instead of assessment year 2006 – 07 as the amount was credited in the books of accounts in assessment year 2007 – 08. Ld AR did not controvert the above facts. Therefore, we do not find any infirmity in the