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Income Tax Appellate Tribunal, “A(SMC
Before: Shri A. T. Varkey, JM]
This is an appeal preferred by the assessee against the order of Ld. CIT(A)-23, Kolkata dated 18-06-2019 for the assessment year 2014-15.
The sole issue involved in this appeal of assessee is against the action of Ld. CIT(A) in upholding the disallowance for deduction u/s. 35(1)(ii) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) of Rs.8,75,000/-.
Briefly stated facts are that the assessee filed its return of income for AY 2014-15 on 08.09.2014 declaring a NIL income after claiming a deduction of Rs.8,75,000/- u/s. 35(1)(ii) of the Act for donation made to M/s. Herbicure Health Care Bio Herbal Research Foundation (hereinafter referred to as “M/s. HHCBHRF”) for a sum of Rs. 5,00,000/-. The return was processed u/s. 143(1) of the Act accepting the returned income. Thereafter the same was reopened by the ACIT, Circle 10(2), Kolkata by issuing notice u/s. 148 of the Act on 24.11.2016 based on an information that the assessee had made a bogus donation to an entity named M/s. HHCBHRF. Thereafter, the AO by relying on the investigation report made by the DDIT (Inv.), Kolkata in consequence to a survey proceedings in the premises of this donee organization as well as the statement made by the directors about involvement of bogus donation, the AO passed the assessment order disallowing the donation as claimed
Indradhanush Agencies Pvt. Ltd. AY- 2014-15 by the assessee u/s. 35(1)(ii) of the Act. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who confirmed the addition by observing as under: “On careful perusal of the documents placed in the file I am of the considered opinion that the Ld. AO relied upon the true facts and information provided by the DDIT (Inv.). Before the AO as well as in appellate proceedings, the appellant was unable to controvert the facts and findings of survey report. It is noted that in the survey action conducted u/s. 133A on M/s Herbicure Bio Herbal Research Foundation, to whom donation had been given, has specifically admitted to providing accommodation entries and the cash was returned to the donors. It is further noted that the done only existed on paper having conducted no actual research whatsoever. All these facts cumulatively considered, prove that the donation given by the appellant to M/s. Herbicure Bio Herbal Research Foundation was bogus and hence the claim made u/s. 35(1)(ii) was rightly denied by the AO. Moreover even the certificated granted u/s. 35(1)(ii) by the CBDT has since been withdrawn/rescinded. Accordingly no infirmity is noted in the order of the AO. Hence, the impugned addition is confirmed and the appeal is hereby dismissed.” Aggrieved, assessee is before us.
At the outset, the Ld. Counsel for the assessee Shri M. D. Shah contended that the issue involved is no longer res integra since the Tribunal has been allowing consistently the deduction claimed by the assessee after having given the donation to M/s. HHCBHRF which had enjoyed registration u/s. 35(1)(ii) of the Act. The Ld. Counsel for the assessee relied on the decision of the Tribunal in the case of Indian Coal Agency Vs. ACIT, & 465/Kol/2018 for AYs 2013-14 and 2014-15 dated 23.10.2019 as well as the decision of the Tribunal in the case of DCIT Vs. M/s. Maco Corporation (India) Pvt. Ltd., ITA No. 16/Kol/2017 for AY 2013-14 dated 14.03.2018 and contended that since the issue is covered by the decision of Tribunal in similar cases, the assessee’s claim for deduction should be allowed. Per contra, the Ld. DR opposing the appeal submitted that in cases of this nature wherein the donee was M/s. School of Human Genetics which entity also enjoyed section 35(1)(ii) registration was found by the department to be involved in nefarious activity of providing accommodation entries to donors like assessee and when the assessments were made against the assessees by their Assessing Officers then they (donees) changed tactics and retracted their admission/confession they earlier made to the department, which resulted in this Tribunal giving relief to the assessee. However in the case of the donee, [ M/s. School of Human Genetics ] they later on approached the Settlement Commission wherein again they reiterated and admitted that they were providing accommodation entries in lieu of commission to donors like assessee and thereafter, the Settlement Commission had accepted only their commission income. So, according to the Indradhanush Agencies Pvt. Ltd. AY- 2014-15 Ld. DR, since the department is in the process of collecting evidences/the order of the Settlement Commission viz., statement filed by the School of Human Genetics etc. to bring before this Tribunal the proof that the donation given by persons like assessee are bogus in nature and does not deserve to be given deduction as prayed for by them. Therefore, he prayed that this appeal may be adjourned so that it can await the decision in other cases involving donee M/s. School of Human Genetics.
In his rejoinder to the submissions made by the Ld. DR, Mr. M. D. Shah for assessee pointed out that the donee involved in the present appeal is M/s. HHCBHRF which entity has nothing to do with M/s. School of Human Genetics. According to Ld. Counsel, the present donee M/s. HHCBHRF has not gone to the Settlement Commission and has not made any assertions as submitted by the ld. DR and there is no shred of evidence or material to overturn the ratio decidendi of the coordinate bench of this Tribunal wherein the donee is M/s. HHCBHRF. Therefore, according to Ld. AR, the question for awaiting the decision in the case involving M/s. School of Human Genetics does not arise and, therefore, he wanted us to adjudicate the issue involved. I note that to this factual assertion made by the Ld. AR, the Ld. DR for the department could not controvert that M/s. HHCBHRF had approached the Settlement Commission and offered settlement as in the case involving M/s. School of Human Genetics.
Having heard both the sides and after perusing the records, it is noted that the main objection of the Ld. DR that similar deduction was claimed by donors/assessees who had given donation to another entity which enjoyed registration u/s. 35(1)(ii) of the Act i.e, M/s. School of Human Genetics [donee]had approched the Settlement Commission and accepted before it that it had been engaged in providing accommodation entries in lieu of commission and, therefore, this appeal of assessee should not be adjudicated and adjournment sought should be granted. However, after hearing both the parties, I note that M/s. School of Genetics had gone before Settlement Commission, (other allegation like they accepted before the Settlement Commission that they were involved in facilitating accommodation entries etc. and that department was in the process of collecting materials from Settlement Commission etc. are submissions made by DR before me but no evidence/material till date has been produced before me, and, therefore, the cases involving M/s. School of Genetics
Indradhanush Agencies Pvt. Ltd. AY- 2014-15 (donees) have been given adjournment) and not the donee involved in the present case which is M/s. HHCBHRF , which entity has not gone to the Settlement Commission or has not made any assertions (i.e. true and correct disclosure) before Settlement Commission. In such a scenario, the objection of the Ld. DR to adjourn the appeal cannot be accepted and I proceed to hear the appeal on merits. After hearing both the parties, it is noted that the assessee, has given a donation of Rs. 5 lakhs to M/s. HHCBHRF which enjoyed registration u/s. 35(1)(ii) of the Act and claimed deduction u/s. 80GGA of the Act i.e. 175% deduction for the amount donated. Based on survey statements and the fact that the Ld. CIT(E) has withdrawn the recognition retrospectively of the donee M/s. HHCBHRF, the AO/Ld. CIT(A) has disallowed the deduction claimed by the assessee. However, it is noted that the issue is no longer res integra and the Tribunal was pleased to allow the claim of the assessee in similar cases. So, since there is no change in facts and in law and taking note that the assessment year is for AY 2013-14, it is noted that this Tribunal in the case of Indian Coal Agency (supra) has allowed the claim of assessee for donation given to M/s. HHCBHRF by holding as under:
“6. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the assessee had claimed exemption u/s. 35(1)(ii) of the Act for making donation of Rs.1,55,00,000/- to M/s. Herbicure Healthcare Bio-Herbal Research Foundation which enjoyed registration u/s. 35(1)(ii) of the Act granted on 14.03.2008 and renewed vide dated 13.08.2012 which fact has not been disputed. The only ground on which the AO has denied the claim of weighted deduction was that it has come to his knowledge that the founder of M/s. HHBHRF has admitted before the department that it was indulging in the nefarious practice of giving accommodation entry to the entities like assessee and a whistle- blower has also supported this allegation. However, when the AO issued notice u/s. 133(6) to M/s. HHBHRF, it did not support the allegation of AO and on the other hand, corroborated the fact of assessee giving donation of Rs.2,71,25,000/- to it. And it was brought to our notice that the founder of M/s. HHBHRF has retracted the allegation made earlier. And the assessee pleaded before the Ld. CIT(A) that even if the certificate granted u/s. 35(1)(ii) of the Act has been withdrawn retrospectively, that cannot be a ground to disallow the claim of the assessee. We note that this issue is no longer res integra. It is not in dispute that M/s. HHBHRF was enjoying the approval under Sec. 35(1)(ii) of the Act as on the date of receipt of donation and by retrospective cancellation of approval of the concerned institution, the deduction claimed in respect of the donation given by the assessee cannot be denied. This view of ours has been approved by the Hon’ble Bombay High Court in M/s Seksaria Biswan Sugar Factory Ltd. and Another vs. Inspecting Assistant Commissioner and Others (1990) 184 ITR 123 and we note that this view has been consistently taken when application of weighted deduction has been claimed against M/s. HHBHRF. Moreover, our view is fortified by the Explanation given u/s. 35(1)(ii) of the Act is reproduced under: “Section 35(1)(ii) - Explanation. The deduction, to which the assessee is entitled in respect of any sum paid to a research association, university, college or other institution to which clause (ii) or clause (iii) applies, shall not be denied merely on the ground that, subsequent to the payment of such sum by the Indradhanush Agencies Pvt. Ltd. AY- 2014-15 assessee, the approval granted to the association, university, college or other institution referred to in clause (ii) or clause (iii) has been withdrawn.”
7. We find that there is no provision in section 35(1)(ii) of the Act to withdraw the recognition granted to the assessee therein. When there is no provision for withdrawal of recognition in the Act, the action of the revenue in withdrawing the recognition with retrospective effect from 1.4.2007 is unwarranted. In this regard, the recent decision of the Hon’ble Supreme Court in the case of Industrial Infrastructure Development Corporation (Gwalior) M.P. Ltd vs CIT Gwalior reported in (2018) 90 taxmann.com 281 (SC) wherein it was held that :- 21. In our considered opinion, the CIT had no express power of cancellation of the registration certificate once granted by him to the assessee under Section 12A till 01.10.2004. It is for the reasons that, first, there was no express provision in the Act vesting the CIT with the power to cancel the registration certificate granted under Section 12A of the Act. Second, the order passed under Section 12A by the CIT is a quasi judicial order and being quasi judicial in nature, it could be withdrawn/recalled by the CIT only when there was express power vested in him under the Act to do so. In this case there was no such express power.
Indeed, the functions exercisable by the CIT under Section 12A are neither legislative and nor executive but as mentioned above they are essentially quasi judicial in nature.
Third, an order of the CIT passed under Section 12A does not fall in the category of "orders" mentioned in Section 21 of the General Clauses Act. The expression "order" employed in Section 21 would show that such "order" must be in the nature of a "notification", "rules" and "bye laws" etc. (see - Indian National Congress(I) v. Institute of Social Welfare [2002] 5 SCC 685.
In other words, the order, which can be modified or rescinded by applying Section 21, has to be either executive or legislative in nature whereas the order, which the CIT is required to pass under Section 12A of the Act, is neither legislative nor an executive order but it is a "quasi judicial order". It is for this reason, Section 21 has no application in this case.
The general power, under Section 21 of the General Clauses Act, to rescind a notification or order has to be understood in the light of the subject matter, context and the effect of the relevant provisions of the statute under which the notification or order is issued and the power is not available after an enforceable right has accrued under the notification or order. Moreover, Section 21 has no application to vary or amend or review a quasi judicial order. A quasi judicial order can be generally varied or reviewed when obtained by fraud or when such power is conferred by the Act or Rules under which it is made. (See Interpretation of Statutes, Ninth Edition by G.P. Singh page 893). 26. ………… 27. It is not in dispute that an express power was conferred on the CIT to cancel the registration for the first time by enacting sub-Section (3) in Section 12AA only with effect from 01.10.2004 by the Finance (No.2) Act 2004 (23 of 2004) and hence such power could be exercised by the CIT only on and after 01.10.2004, i.e., (assessment year 2004-2005) because the amendment in question was not retrospective but was prospective in nature.
The issue involved in this appeal had also come up for consideration before three High Courts, namely, Delhi High Court in the case of DIT (Exemptions) v. Mool Chand Khairati Ram Trust [2011] 11 taxmann.com 42/199 Taxman 1/339 ITR 622, Uttaranchal High Court in the case of Welham Boys' School Society v. CBDT [2006] 285 ITR 74/[2007] 158 Taxman 199 and Allahabad High Court in the case of Oxford Academy for Career Development v. Chief CIT [2009] 315 ITR 382.
All the three High Courts after examining the issue, in the light of the object of Section 12A of the Act and Section 21 of the General Clauses Act held that the order of the CIT passed under Section 12A is quasi judicial in nature. Second, there was no express provision in the Act vesting the CIT with power of cancellation of registration till 01.10.2004; and lastly, Section 21of the General Clauses Act has no application to the order passed by the CIT under Section 12A
Indradhanush Agencies Pvt. Ltd. AY- 2014-15 because the order is quasi judicial in nature and it is for all these reasons the CIT had no jurisdiction to cancel the registration certificate once granted by him under Section 12A till the power was expressly conferred on the CIT by Section 12AA(3) of the Act w.e.f. 01.10.2004.
8. We hold that the ratio decidendi of the aforesaid judgement of the Hon’ble Apex Court would squarely be applicable to the facts of the instant case. Infact the assessee’s case herein falls on a much better footing than the facts before the Hon’ble Apex Court. In the case before Hon’ble Apex Court, the power of cancellation of registration us 12A of the Act was conferred by the Act on the ld CIT w.e.f. 1.10.2004 and the Hon’ble Apex Court held that prior to that date , no cancellation of registration could happen. But in the instant case, there is absolutely no provision for withdrawal of recognition u/s 35(1)(ii) of the Act . Hence, we hold that the withdrawal of recognition u/s 35(1)(ii) of the Act in the hands of the payee organizations would not affect the rights and interests of the assessee herein for claim of weighted deduction u/s 35(1)(ii) of the Act.
We also find that the co-ordinate bench of this tribunal in exactly similar facts had decided the issue in favour of the assessee in the following cases:- a) Rajda Polymers vs DCIT in for Asst Year 2013-14 dated 8.11.2017. b) Saimed Innovation vs ITO in ITA No. 2231/Kol/2016 for Asst Year 2013-14 dated 13.9.2017. c)DCIT Vs. M/s. Maco Corporation (India) Pvt. Ltd. in ITA No. 16/Kol/2017 for AY 2013-14 dated 14.03.2018. d) DCIT Vs. M/s. Desmet Reagent Pvt. Ltd. in ITA No. 15/Kol/2017 for AY 2013-14 dated 10.10.2018 The findings of those decisions are not reiterated herein for the sake of brevity.
In view of the aforesaid findings in the facts and circumstances of the case and respectfully following the various judicial precedents relied upon hereinabove, we hold that the ld CITA had wrongly confirmed the disallowance as made by the AO u/s 35(1)(ii) of the Act of Rs. 2,71,25,000/-. Therefore, following the ratio of the aforesaid decisions, we allow this ground of appeal in favour of assessee.”
So, since there is no change in facts and in law, I respectfully following the decisions of the coordinate bench of this Tribunal in the case of Indian Coal Agency (supra) and the decision in the case M/s. Maco Corporation (India) Pvt. Ltd. (supra) allow the deduction claimed u/s. 80GGA of the Act of Rs.5,00,000/- and overturn the decision of the AO and the Ld. CIT(A). Therefore, the ground of appeal of the assessee is allowed.
In the result, the appeal of assessee is allowed.
Order is pronounced in the open court on 19th February, 2020.