SHRI GO0VINDDAS GOVARDHANDAS DAGA,NAGPUR vs. A.C.I.T. CIRCLE 2, NAGPUR

4. On appeal, the learned CIT(A) dismissed the appeal of the assessee by confirming the order passed by the Assessing Officer. The observations of the learned CIT(A) are reproduced below:–

“6.3 I have carefully considered the submissions of the AR of the appellant, the order of the AO and the material on record. The AR has contended that the donation of Rs. 1 crore given to the School of Human Genetics and Population Health, Kolkata is through the proper banking channel and the said Trust / Institution was holding approval from the Central Board of Direct Taxes u/s. 35(1) (ii) of the IT Act, 1961 which was valid at time of framing the assessment, therefore, cording to the AR, the assessee is eligible for deduction of Rs. 175 lakhs u/s. 35(1) (ii) of the Act. The AR has further contended that there is no evidence on record to assert that the donation given by the assessee has been routed back in cash to the assessee.. The AR of the appellant in support of his contentions has relied on the decision of Hon'ble Apex Court in the case of CIT Vs. Daulatram Rawatmull reported in 87 ITR 349 (Supreme Court). The AR thus pleaded that the legal documents placed on record being receipt, certificate of approval to such Trust by CBDT and the payment through banking channel discharge the onus cast on the assessee to show that the apparent is real. Thus the appellant contended that the Ld. AO has not brought on record any evidence to show that the transaction made by the assessee is otherwise than as is appearing in the documents placed on record. 6.4 On careful examination of the material facts as emanated from the records, it is seen that the Central Board of Direct Taxes (CBDT) vide its notification in the order F.No. 203/09/2015/ITA.II dated 21st September, 2016 has withdrawn the approval anted u/s. 35(1)(ii) of the IT Act, 1961 d to M/s School of Genetics and Population Health, Kolkata. The CBDT vide the aforesaid office memorandum has withdrawn the approval granted to the three Kolkata based Institutions which are referred by the Ld. AO in his assessment order with reference to the investigations conducted by the Investigation Wing, Kolkata. Since the notification of approval granted u/s.35(1)(ii) Genetics and notification to the said M/s School of Population Hea

4 Shri Govinddas Govardhan Daga ITA no.601/Nag./2015 ITA no.614/Nag./2015 Health, Kolkata vide No. 4/2010/F.No.203/64/2009/ITA-II dated 28th January, 2010 has been withdrawn by CBDT vide order dated 21st September, 2016 with retrospective effect i.e. from 28th January, 2010 itself, the assessee is not eligible for deduction u/s. 35 (1) (ii) of the IT Act, 1961 in respect of the donation given to the said Trust of Kolkata. Therefore, the ratio of the judicial decision relied upon by the AR is not applicable to the facts of the present case of the appellant. confirm the addition of Rs.175 lakhs I, therefore, made by the AO by way of disallowance of claim u/s. 35(1) (ii) of the Act. This ground is dismissed.”

6. The learned Departmental Representative vehemently supported the order of the learned CIT(A) and requested the Bench for not disturbing the impugned order passed by the learned CIT(A), as the order passed by the learned CIT(A) is a reasoned order.

5 Shri Govinddas Govardhan Daga ITA no.601/Nag./2015 ITA no.614/Nag./2015 “37. The stand of all these appellants right from the ld. Assessing Officer upto the Tribunal is that since Institution was approved by the Competent Authority to receive donation. This approval was intact when they have made the donation. Therefore, under bonafide belief, they have given the donations and on the basis of post donation, material collected by the Revenue should not be used against them for doubting the genuineness of the donation. The scheme of the Income Tax Act provides that a claim made by an assessee has to be proved by the assessee. Thus the first onus is upon the assessee about the claim made by him. This onus was discharged by the assessee by pointing out that Institution to whom donations were given. They are approved by the Income Tax Authority and, therefore, their claim is to be allowed. However, if the first onus discharged by the assessee was dispelled by the ld. Assessing Officer by confronting them with the material recovered during the survey and post survey enquiries, then the questions posed before us is, whether this belief harped by all the appellants was such a bonafide that could not be questioned in any circumstances. To our No. 136/KOL/2020, & 133/KOL/2021, ITA No. 2247/KOL/2017, ITA Nos. 2316, 2317/KOL/2019, ITA No. 2385/KOL/2019, ITA Nos. 2448, 2449/KOL/2019 mind, it is a misplaced argument at the end of the appellants. It is to be appreciated that recipient came into existence in 1993, it might have been working on charitable objects and got approval for the purpose of recognition of Scientific and Industrial Research Organisation first time on 17.06.2010. There might be a good intention at the end of the recipient but it has detracted its objectives and indulged in fraudulent activities. The fraud of this magnitude cannot be done without an organised planning where involvements of alle ged brokers have come. Thus operative force in the minds of all decision-maker in donors organisation/individual was acting with a fraudulent intent in giving donation through broker in this manner. The ld. CIT(Appeals) in the case of Tarasafe International Pvt. Limited has posed the following questions to the assessee:- (a) What was the purpose of this donation? (b) Whether such donation has been given to the School in the past or in the future? (c) How the assessee came to know about the activities of the Trust? No. 136/KOL/2020, ITA No. 23/KOL/2020, ITA Nos. 132 & 133/KOL/2021, ITA No. 2247/KOL/2017, ITA Nos. 2316, 2317/KOL/2019, ITA No. 2385/KOL/2019, ITA Nos. 2448, 2449/KOL/2019 (d) What influence the assessee to give this donation to this Institution other than deduction under section 35(1)(ii). (e) The appellants are not in this line of business and, therefore, it is difficult to understand the very purpose of this transaction undertaken by them. They have failed to explain how the cheques in their case were given to the Society, whether it was given by post or directly to the Office bearer or through some agents. (f) If it was handed over to the office bearer, then name of such office bearer.

6 Shri Govinddas Govardhan Daga ITA no.601/Nag./2015 ITA no.614/Nag./2015 38. These are certain questions, which point a figure to the circumstances, which are to be explained by each appellant. Their first onus discharged by them has been dispelled by the ld. Assessing Officer with credible material. If the appellants are of such a spirited Corporate House, who wants to build the research organisation of the nation, then they have to demonstrate how such donations were given in the past or in the subsequent period. We have confronted them specifically, but none of the assesses except M/s. H.K. Dutta & Company could submit anything in this regard. In the case of this Company, ld. Counsel for the assessee No. 136/KOL/2020, & 133/KOL/2021, ITA No. 2247/KOL/2017, ITA Nos. 2316, 2317/KOL/2019, ITA No. 2385/KOL/2019, ITA Nos. 2448, 2449/KOL/2019 has submitted that small amount of donation has been given to a different organisation in the next year. Therefore, if we weigh the simple plea of the appellants about their bonafide belief for giving such donations, vis- a-vis huge materials collected by the Revenue demonstrating the fact how such a belief is misplaced, then, the scale would tilt in favour of the revenue. It is to be appreciated that roughly 720 entities including individuals available in a part-list on pages no. 72 to 81 of the paper book compiled by the Revenue would have not formed a bonafide belief about giving donation to one entity across India in Kolkata. This material speaks in itself that under a criminal conspiracy, these donations have been arranged by the brokers across India for defrauding the nation. We do not find any credence in the belief of bonafide raised by the appellants.

7 Shri Govinddas Govardhan Daga ITA no.601/Nag./2015 ITA no.614/Nag./2015 136/KOL/2020, & 133/KOL/2021, ITA No. 2247/KOL/2017, ITA Nos. 2316, 2317/KOL/2019, ITA No. 2385/KOL/2019, ITA Nos. 2448, 2449/KOL/2019 upon Batanagar Society and satisfied that it was an organized fraud to misuse the status of a charitable entity. This judgment has been pronounced on 02.08.2021. After this judgment, a judgment of the Hon'ble Calcutta High Court in the case of Mackaw Corporation has been passed, which has been relied upon by the ld. Counsel, but in this decision, Hon'ble High Court has not considered the judgment of the Hon'ble Supreme Court, because the judgment of the Hon'ble Supreme Court in the case of Batanagar Education & Research Trust was not cited by both the parties.

“7.1 The AO has discussed this issue in para-4 of the assessment order. The appellant has claimed the agricultural income of Rs.2,17,500/- in the computation of income. The AO therefore, asked the assessee to explain the agricultural income with reference to bills for purchase and sale of agricultural products and 7/12 extracts. On perusal of the 7/12 extracts, the AO observed that there were no agricultural activities mentioned therein. The assessee explained that the authority concerned has not updated the data and it is but for this reason that 7/12 extracts does not give mention of agricultural activity and claimed that the agricultural activities were carried out on the land holding by the assessee.

9 Shri Govinddas Govardhan Daga ITA no.601/Nag./2015 ITA no.614/Nag./2015

“7.3 On careful examination of material facts, it is seen that the AO has disallowed the claim of agricultural income mainly on the grounds firstly; that 7/12 extracts submitted by the assessee does not mention the agricultural activities which shows that no agricultural activities have been carried out by the appellant during the relevant financial year and secondly; submitted the bills assessee that the for sale of has not agricultural products. It is a fact emanated from records that the appellant' has not furnished the bills for sale of agricultural products or any other proof of having carried out the agricultural activities during the relevant financial year. The contention raised by the AR of the appellant that the concerned authority has before, the not updated the revenue records, the agricultural activities carried out assessee are not figuring in the 7/12 extracts also does not carry any substance in as much as that the appellant has not been able to furnish the updated 7/12 extracts. raised by The contentions that the AR of the appellant agricultural income declared by the the assessee has been accepted by the department in the order passed u/s. 153A r.w.s. 143 (3) also does not carry any substance for the reason that each assessment year is a separate assessment and acceptance of agricultural income in one particular year does not mean that the appellant had carried out the agricultural activities in the year under appeal in the absence of any proof filed on record by the appellant. Therefore, the claim of the appellant for agricultural income, under the facts and circumstances of the case, does not sustain. I, therefore, decline to interfere with the addition made by the AO. The addition made by the AO is confirmed. This ground is dismissed.”

./2016 Revenue’s Appeal – A.Y. 2013–14

10 Shri Govinddas Govardhan Daga ITA no.601/Nag./2015 ITA no.614/Nag./2015 “1. On the facts and in the circumstances of the case and in law the learned CIT(A) has erred in deleting the addition of Rs. 8,10,99,937/- u/s 68 of the I.T. Act, without extending an opportunity to the AO to verify the fresh evidence as per the provisions of Rule 46A of the Income Tax Rules.

3. On the facts and in the circumstances of the case and in law the learned CIT(A) has erred in deleting the addition of Rs. 22,67,356/- on account of mark to market charges.

5. On the facts and in the circumstances of the case and in law the learned CIT(A) has erred in deleting the addition of Rs. 1,65,284/ on account of misc expenses.

7. Any other ground that may be raised at the time of hearing.”

“7. …… In this the amount of capital brought in, the assessee not submitted anything for explanation. But in the return of income Schedule IF and EF showing share from partnership firm and claiming exemption. The two concern mention in ROI is AOP, not partnership and then the assessee is not a partner. The assessee simply brought income of AOP to capital account and deliberately hide the truth to avoid the tax. Therefore, Rs. 8,10,99,937/- is treated u/s 68 of I.T. Act as unexplained cash credit in the capital account of the assessee and added to the income of assessee.”

11 Shri Govinddas Govardhan Daga ITA no.601/Nag./2015 ITA no.614/Nag./2015

“10.6 On examination careful of the material facts, it is seen that the appellant being one of the members of the aforesaid two AOPs is not in dispute. It is also not disputed balance sheets of both the AOPS, that in the amount of Rs.8,10,99,937/- has been shown as advance given to the appellant by the said AOPS. The appellant has furnished the documentary evidence in the form of balance sheets of both the AOPs as on 31-03-2012 and as on 31-03-2013 wherein the assessee has been shown as debtors to the tune of Rs.8,10,99,937/- of the said two AOPs. In the balance sheet of the assessee as on 31st March, 2012 both the AOPs are appearing as creditors to the tune of Rs.7,77,37,735/-. Both the AOPs have regularly been assessed to tax and the copies of returns of income filed by the said AOPS were also filed before the Ld. AO as well as during the appellate proceedings. The fact that income has arisen to the said AOPs out of sale of shares in the financial year 2011-12 on which taxes have been pai is also not disputed. As per the P & L account a on 31-03-2012, Krishna & Associates and M/s Ridh Sidhi Associates have paid advance taxes Rs.2,51,08,742/-Rs.5,02,17,484/-. each, aggregating t It is thus established that bot the AOPs had paid taxes at the maximum marginal rate. It is also the fact as emanated from the records that the maximum balance shown outstanding in the name of these two AOPs is brought onward balance as on 01-04-2012. Therefore, the contention raised by the AR of the being a bona-fide error of the Auditor, the amounts were shown as share of income from these two AOPS which, according to the AR of the appellant, in fact is the advance received by the assessee from the two AOPs carries substantial force and appears to be correct. It is also not the case of the AO that any fresh flow of funds are received during the year which is required to be explained by assessee and same remain unexplained. The entire record of assessee as well as of AOPs clearly indicate that no transaction remain unexplained so to bring the as same to tax u/s. 68 of the IT Act, 1961. The AR has also taken an alternate plea that even otherwise in principle the share of income from AOPS to the member assessee is not exigible to tax by virtue of provisions of section 86 of the IT Act, 1961. Thus, looking to all the cumulative factors, the addition made by the Ld. AO cannot be held to be justified both on the grounds either assessee having received an advance or share of profit from the AOPS which are assessed to tax as per the Act because under both the situations, the said sum received from AOPs is not exigible to tax. The appellant has also satisfactorily explained the source of liability shown as advance in the balance sheet being out of profit of Rs.12,16,11,513/- in the hands of M/s Krishna & Associates and profit of Rs.12,15,89,697/- in the hands of M/s. Ridhi Sidhi Associates on which both the AOPS have been assessed to tax at maximum marginal rate. Therefore, to my considered opinion, the addition made by Ld. AO of Rs.8,10,99,937/- deserves to be deleted. These grounds are allowed.”

12 Shri Govinddas Govardhan Daga ITA no.601/Nag./2015 ITA no.614/Nag./2015 Representative could not bring out what additional evidences were relied upon. Accordingly, ground no.1, raised by the Revenue is dismissed.

Delayed payment charges ` 1,02,508 Mark to market charges ` 22,67,356 Commission ` 2,35,229 Misc. Expenses ` 1,65,284

“The AO has dealt with the issue in para-5 of the assessment order. The AO asked the appellant to explain the delayed payment charges debited to the tune of Rs.1,02,508/ under the head other expenses. The AO in para-5 has recorded a finding that the assessee submitted a ledger copy of delayed payment charges but did not submit any further details. Therefore, the Ld. AO inferred that in his opinion the delayed payment charges of Rs.1,02,508/- is 45 penal in nature which is not allowable u/s. 37 of the Act. The AR of the appellant has submitted that the sum of Rs.1,02,508/- has been debited to the account of the appellant by M/s India Infoline Commodities Ltd.: on account of delayed payment in respect to the business activities of the appellant. The aforesaid payment is stated to be in the nature of finance charges paid due to delay in making contractual payments for business activity. Thus, the appellant explained that the delayed payment charges are compensatory in nature and not penal in nature as the same has not been paid for infringement of any law. On careful examination of the material facts, it is seen that the delayed payment charges have been paid for delay in making the contractual payments and the same are not paid in lieu of infringement of any law. Therefore, the inference drawn by the Ld. AO that the delayed payment charges are penal in nature is not justified. The addition is therefore, directed to be deleted.”

“On careful examination of the material facts, it is seen that the future trading in silver by the appellant through M/s India Infoline Commodities Ltd., has not been disputed by the Ld. AO. The appellant has also submitted a copy of ledger account of the appellant in the books of company in which no infirmity has been pointed out by the Ld. AO. Therefore, the mark to market expenses claimed by the appellant as having been incurred in the course of its future trading activity are allowable business expenditure. Therefore, keeping in view of the judicial decision of the Jurisdictional High Court relied upon by the AR and expenses being genuine business expenses the same are allowable business expenses in the absence of any evidence contrary to the records. Therefore, the addition made by the AO of Rs. 22,67,356/ on account of mark market charges included in other expenses is directed to be deleted.”

14 Shri Govinddas Govardhan Daga ITA no.601/Nag./2015 ITA no.614/Nag./2015 “The AO found that the assessee has paid commission to M/s India Infoline Commodities Ltd. which is found reflected in the ledger account submitted by the in the course of assessment proceedings. The AO Issued notice u/s. 133(6) to the said company, however, since there was no reply, the Ld. AO disallowed the entire commission of Rs. 2,35,229/- debited to the P & L account for want of confirmation from the said party. The AR has submitted that the commission paid was duly reflected in the ledger account submitted to the AO. The AR further submitted that the payment of commission is made by debiting the account of the assessee regularly maintained by the said M/s India Infoline Commodities Ltd. The AR has contended that the Ld. AO has accepted the transactions of trading activity reflected in the ledger account but disallowed the commission paid to the company on the ground of suspicion. The genuineness of the commission payment in respect to various transaction cannot be doubted on bare perusal of the financial statement of the assessee. Con careful examination of the material facts, the contention raised by the AR are found to be in order. The Ld. AO having accepted all the trading transactions of ledger account as genuine ought not to have doubted the genuineness of the small amount of commission paid to the said company in the absence of any corroborative evidence record, on more particularly; when the trading transactions of the appellant with the said company are established. Therefore, the addition made by the AO on account of commission deleted. of Rs.2,35,229/-is directed to be deleted.”

“As regards to the misc. expenses of Rs. 1,65,284/- the AO has stated that only ledger copy has been submitted by the assessee without any supporting evidence. The AO, therefore disallowed the misc. expenses as not genuine on this sole ground. The AR has submitted that the misc. expenses are properly recorded in the regular books of account which have been accepted by the Ld. AO. On careful examination of the material facts, it is seen that the Ld. AO has disallowed the expenses without a proper reason. Having accepted the audited books of account and without finding any infirmity with the ledger account for 15 Shri Govinddas Govardhan Daga ITA no.601/Nag./2015 ITA no.614/Nag./2015 such expenses, the disallowance cannot be held to be justified. Therefore, the addition made on trivial ground deserves to be deleted.”

“In these grounds, the appellant has objected to the estimated addition of Rs.27,46,986/-being 25% out of claim of deduction of interest payment of Rs.1,09,87,945/- u/s. 57 of the IT Act, 1961. 9.1 The Ld. AO has discussed this issue in para-6 of his assessment order. computation of income, the AO On perusal of found that the has credited interest income of Rs.2,66,55,877/- under the head income from other sources and claimed deduction of Rs.1,09,87,945/-u/s. 57 of the I T Act, 1961. The AO asked the assessee to produce the details of interest received and paid and substantiate the nexus between borrowed funds and interest from that. The AO in para-6 has stated that the assessee failed to bring the nexus between the borrowed funds and interest income. The AO, therefore, made the estimated disallowance of out of total deduction of Rs.1,09,87,945/- which comes to Rs.27,46,986/-. 9.2 The assessee has shown the income from other sources at Rs.2,56,57,877/-, out of which a sum of Rs.1,09,87,945/- is claimed as deduction u/s. 57 of the IT Act, 1961. The deduction claimed u/s. 57 of the Act is total financial charges interest paid by the assessee which is not in dispute. The AR has submitted that the borrowed funds have been utilized for earning the income from the investment declared as income from other sources. Thus, the appellant submitted that the entire borrowed funds have been utilised for the purpose of making investment and the interest income

16 Shri Govinddas Govardhan Daga ITA no.601/Nag./2015 ITA no.614/Nag./2015 derived there from have been declared under the head income from other sources. The appellant has filed the submission before the AO but the Ld. AO has proceeded to disallow 25% out of total claim for deduction on estimated basis. The genuineness of the interest paid is not in dispute. The amount of interest paid is in respect to borrowed capital which is utilised for earning interest income. The AO has not faulted with the submissions made before him that interest paid on borrowed money is utilised for earning interest income but he proceeded to make Therefore, the adhoc addition made by the AO without any basis when the аssessee is otherwise eligible for such deduction under the law is directed to be deleted, the same being devoid of any merits.”