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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI SAKTIJIT DEY
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the assessee against the order dated 22.12.2017 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11.
The grounds taken by the assessee are as under: 1. On the facts and in the circumstances of the appellant's case and in law the Ld. CIT(A) erred in dismissing/rejecting the following legal ground of appeal
raised before him:-
1. On the facts and the circumstances of the appellant's case and in law the learned Assessing Officer erred in reopening the assessment u/s. 147 by issue of notice u/s. 148 dated 08.03.2016, which is barred by limitation in view of 1st proviso to section 147 of the Act.
2. On the facts and the circumstances of the appellant's case and in law, the Ld. Assessing Officer erred in confirming the AO's action of making addition of Rs.
2 M/s. Saroj Plantations Pvt. Ltd. 10,00,000/- on account of contribution made to Navjeevan Charitable Trust which was allowed as deduction u/s. 35AC in the regular assessment order dated 22.01,2013 passed u/s. 143(3). 3. The appellant craves leave to add to. alter, amend and /or delete all or any of the foregoing grounds of appeal.”
3. The first issue is against the order of Ld. CIT(A) confirming the reopening of assessment under section 147 of the Act and the issue in 2nd ground is against the confirmation of addition of Rs.10,00,000/- as made by the AO towards bogus contribution to Navjeevan Charitable Trust under section 35AC.
The facts in brief are that the assessee filed the return of income on 08.10.2010 declaring income of Rs.80,790/-. The case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 dated 08.03.2016 after the AO received information from Pr. DIT (Inv.) Mumbai that the assessee has given donation to Navjeevan Charitable Trust which was accepting donations from various companies/individuals and returning back the cash after retaining the commission thereby operating a racket of accepting donations under section 35AC of the Act. The said fact was admitted by the trustees of the trust during the course of search. The assessee objected to the reopening of the assessment by submitting that the said donations under section 35AC of the Act were made when the trust was having valid authority under the Act to accept donations which was examined and accepted by the AO in the original scrutiny proceedings which culminated in the assessment order passed under section 143(3) dated 22.01.2013. The assessee also objected the reopening of assessment on ground that the notice under section 148 dated 08.03.2016 is barred by limitation as 3 M/s. Saroj Plantations Pvt. Ltd. issued after expiry of 4 years and and there is no failure on the part of the assessee to disclose fully and truly the material facts necessary for the assessment under which is envisaged in the 1st proviso to section 147 the Act. The said objections were disposed of by the AO vide letter dated 22.08.2016 by observing as under: “a. Point No. 1 pertains to facts recorded & therefore required no comments. b. Notice u/s 147 has been issued subsequent to the completion of assessment proceedings u/s 143(3) dated 22.1,2013. This being specific information, the reassessment proceedings have been correctly initiated. c. The notice is not barred by limitation as per 1st proviso to sec 147, since the AO had new material in the form of evidences as uncovered by the investigation wing. d. In view of the evidences that the bogus deduction u/s 35AC of the Act has been claimed by the assessee, it implies that the assessee had not disclosed fully and truly material facts necessary for assessment. e. Reliance placed by the assessee on the Bombay High Court decision is not applicable in the instant case as the AO had specific information for initiating proceedings u/s 147 of the IT Act.”
The assessee again vide letter dated 14.10.2016 submitted that the reassessment proceedings are barred by limitation and therefore illegal and void ab-initio and the donation made to Navjeevan Charitable Trust is an allowable deduction under section 35AC of the Act. The AO, however, not accepting the contentions of the assessee observed that Navjeevan Charitable Trust was engaged in the racket of hawala donations by accepting donations through cheques and returning the cash after retaining the commission. Even the statement recorded during the course of search revealed that the trust was operating a hawala racket of accepting donations and there were 400 doners to the trust out of which the assessee is one of the doners who claimed deduction under section 35AC. During the course of assessment proceedings also an inspector was sent to the office of Navjeevan Charitable Trust at New Marine Lines,
4 M/s. Saroj Plantations Pvt. Ltd. Mumbai and the inspector vide her report dated 25.08.2016 stated that the said trust no longer operates from the said premises and had stopped functioning since last four years and accordingly a letter was written to the CBDT for withdrawing the recognition of the trust with retrospective effect and the said trust was derecognized by withdrawal of exemption certificate under section 12 and thus the AO dismissed the legal as well as factual ground of the assessee resulting into withdrawal of exemption under section 35AC of Rs.10,00,000/- to the assessee which was added to the income of the assessee. In the assessment order framed under section 143(3) read with section 147 of the Act dated 29.10.2016.
In the appellate proceedings, the Ld. CIT(A) also dismissed the appeal of the assessee by upholding the order of AO that the trust was engaged in the hawala activities with any actual charities.
The Ld. A.R., at the outset, submitted that the case of the assessee is squarely covered in its favour by the decision of co- ordinate bench of the Tribunal wherein the identical issue was decided by the co-ordinate bench of the Tribunal in favour of the assessee on the ground that the assessee has made donation to the said trust before the date of withdrawal of recognition by the CBDT, Govt. of India. In other words the trust was entitled to accept the donation and therefore any subsequent withdrawal of the recognition of the trust would not impact the claim of the assessee under section 35AC of the Act. The Ld. Counsel, therefore prayed that in view of the decision in the case of DCIT circle-12(1), Kolkata vs. Maco Corporation (India) Pvt. Ltd. in ITA
5 M/s. Saroj Plantations Pvt. Ltd. No.16/Kol/2017 A.Y. 2013-14 order dated 14.03.2018 and National Leather Cloth Manufacturing Co. vs. India Council of Agricultural Research & Ors. (2000) 241 ITR 0482 (Bombay –HC) the donation claimed by the assessee under section 35AC may be allowed by reversing the order of Ld. CIT(A). On the issue of reopening, the Ld. A.R. submitted that the case of the assessee has been reopened after a period of four years from the end of the relevant assessment year and therefore can only be reopened if the condition as envisaged in the 1st provisions to section 147 are satisfied. The Ld. A.R. submitted that the original assessment was framed under section 143(3) vide order dated 22.1.2013 and had disclosed all information truly and fully which were material to the assessment of the income. Therefore the case was not validly reopened as no fault can be attributed to the assessee for no disclosing any material facts for the assessment of income and thus the reopening is void ab-initio. The ld counsel of the assessee submitted that on that count also, the reassessment proceedings may be quashed.
The Ld. D.R., on the other hand, relied on the order of Ld. CIT(A) by submitting that the Navjeevan Charitable Trust was found engaged in the racket of hawala donations by accepting donations in cheques and returning the cash in the form of various expenses after retaining the commission and therefore this was a clear cut case of bogus donation of Rs.10,00,000/- given by the assessee and the deduction claimed of the said amount was rightly withdrawn by the AO and confirmed by the Ld. CIT(A). The Ld. D.R. also pointed out that the recognition of the trust was withdrawn retrospectively by the CBDT after the fact of bogus donation racket was unearthed during the search
6 M/s. Saroj Plantations Pvt. Ltd. action on the Navjeevan Charitable Trust and the fact of hawala being carried on by the trust was also accepted in the statement of trustees/secretary of the trust during search.
After hearing both the parties and perusing the material on record, we find that the issue at hand is identical to one as decided by the co-ordinate bench of the Tribunal in the case of DCIT circle-12(1), Kolkata vs. Maco Corporation (India) Pvt. Ltd. (supra). The operative part of the decision is reproduced hereunder:
“8. We have heard the rival submissions and perused the materials available on record. The brief facts pertaining to HHBHRF are as under:- a) HHBHRF was registered u/s 12AA of the Act by the ld DIT(Exemptions), Kolkata with effect from 26.12.2003. b) HHBHRF was also recognized in the year 2006-07 as a scientific industrial research organization (SIRO) by Ministry of Science & Technology, Government of India. The renewal of recognition as SIRO by the Department of Scientific and Industrial Research under the Scheme on Recognition of Scientific and Industrial Research Organisation , 1988 was made for the period from 1.4.2012 to 31.3.2015 vide communication in F.No. 14/444/2006-TU-V dated 13.8.2012. c) HHBHRF was recognized vide Gazette Notification No. 35/2008 dated 14.3.2008 issued by the Central Board of Direct Taxes (CBDT in short), Ministry of Finance, Government of India, u/s 35(1)(ii) of the Act.
8.1. The brief fact pertaining to SGHPH are as under:- a) SGHPH was recognized vide Gazette Notification dated 28.1.2009 issued by the Central Board of Direct Taxes (CBDT in short), Ministry of Finance (Department of Revenue), Government of India, u/s 35(1)(ii) of the Act. b) SGHPH was also recognized as a scientific industrial research organization (SIRO) by Ministry of Science & Technology, Government of India. The renewal of recognition as SIRO by the Department of Scientific and Industrial Research under the Scheme on Recognition of Scientific and Industrial Research Organisation , 1988 was made for the period from 1.4.2010 to 31.3.2013 vide communication in F.No. 14/473/2007-TU-V dated 17.6.2010.
8.2. At the outset, we find that the Taxation Laws (Amendment) Act, 2006 with retrospective effect from 1.4.2006 had introduced an Explanation in Section 35 of the Act which reads as under:-
7 M/s. Saroj Plantations Pvt. Ltd. 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 assessee, the approval granted to the association, university, college or other institution referred to in clause (ii) or clause (iii) has been withdrawn.
Hence the aforesaid provisions of the Act are very clear that the payer (the assessee herein) would not get affected if the recognition granted to the payee had been withdrawn subsequent to the date of contribution by the assessee. Hence no disallowance u/s 35(1)(ii) of the Act could be made in the instant case.
8.3. 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 :-
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 8 M/s. Saroj Plantations Pvt. Ltd. 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).
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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 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.
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.
9 M/s. Saroj Plantations Pvt. Ltd. 8.4. 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 for Asst Year 2013-14 dated 13.9.2017.
The findings of those decisions are not reiterated herein for the sake of brevity.
8.5. 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 rightly deleted the disallowance u/s 35(1)(ii) of the Act in the sum of Rs 3,06,25,000/- made by the ld AO. Accordingly, the Grounds raised by the revenue are dismissed.”
In the above case the co-ordinate bench of the Tribunal has taken a view that the donation given by the assessee to the trust is valid and assessee is entitled to deduction as on the date of making donation the said trust was having a valid exemption certificate to accept the donations. The facts of the case before us are substantially similar to the one as decided by the Coordinate bench and therefore following we hold the same view that assessee is entitled to deduction of Rs.10,00,000/- under section 35AC of the Act. Since we have decided the issue on merits in favour of the assessee, we are not deciding the legal issue raised by the assessee. Accordingly, the appeal of the assessee is partly allowed. Order pronounced in the open court on 05.04.2019.