NAV NIRMAN KOSH,KOLKATA vs. CIT(EXEMPTION) KOLKATA, KOLKATA

1 ITA No.07/Kol/2017 Nav Nirman Kosh

आयकर अपील�य अधीकरण, �यायपीठ – “B” कोलकाता, IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH: KOLKATA (सम�)Before �ी जे. सुधाकर रे�डी, लेखा सद�य एवं/and �ी ऐ. ट�. वक�, �यायीक सद�य) [Before Shri J. Sudhakar Reddy, AM & Shri A. T. Varkey, JM]

I.T.A. No. 07/Kol/2017 Assessment Year: --

Nav Nirman Kosh Vs. Commissioner of Income-tax (PAN:AAATN2107K) (Exemption), Kolkata. Appellant Respondent

Date of Hearing 08.11.2017 Date of Pronouncement 05.02.2018 For the Appellant Shri A. K. Gupta, FCA For the Respondent Md. Usman, CIT, DR

ORDER Per Shri A.T.Varkey, JM This is an appeal filed by the assessee Trust against the order of Ld. CIT(E), Kolkata dated 13.12.2016 wherein the Ld. CIT(E) was pleased to cancel the registration granted u/s. 12A of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) exercising his powers u/s. 12AA(3) of the Act w.e.f. 01.04.2010 relevant to AY 2011-12. 2. Brief facts of the case are that the assessee Trust was formed in the year 1981. The assessee Trust, thereafter, received certificate of registration u/s. 12AA of the Act vide No. DIT(E)/T-132/8E/204/81-82 dated 14.07.2010. The Trust Deed has been seen kept at page nos. 88 to 93 of the paper book wherein the main objects of the Trust were to establish, support, maintain and/or grant aid to schools, colleges, technical and/or other institutions, libraries, reading room etc., health for the poor and needy people, etc.

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Ranjan Dasgupta was recorded on oath, wherein he has stated that they had been accepting donations on behalf of M/s. Herbicure and returned the same to the donor after retaining the commission and likewise, M/s. Herbicure accepts money by cash and thereafter disburse the donation through cheque after retaining the commission. The Ld. CIT(E) noted that the assessee Trust in AY 2011-12 had received a donation of Rs. 2,90,000/- from M/s. Herbicure, therefore, he issued notice to the Trust on 02.12.2015 to explain as to why the registration granted u/s. 12A of the Act shall not be cancelled/withdrawn u/s. 12AA(3) of the Act for indulging in bogus activities. Pursuant to the said notice of the Ld. CIT(E), the assessee filed submission on 21.12.2015 excerpts of the same was reproduced by the Ld. CIT(E) and thereafter, he after referring to another submission of the assessee dated 20.01.2016 was of the opinion that the assessee was involved in money laundering. The Ld. CIT(E) and found that assessee is “indulged in ingenuine activities which is not at par with the Trust Deed leads to the ultimate conclusion that the Trust is in the act of money laundering.” After recording the said finding, Ld. CIT(E) was pleased to cancel the registration granted w.e.f. 01.04.2010. Aggrieved by the said decision of the Ld. CIT(E) the assessee Trust is in appeal before us.

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asking the assessee why the registration granted u/s. 12AA of the Act should not be cancelled. The assessee Trust replied that the amount of Rs.2.90 lacs donated by M/s. Herbicure was received and applied for the objects of the Trust and stoutly refused that it was a bogus donation. There was series of letters written by the assessee to the Ld. CIT(E) which were dated 21.12.2015, 20.01.2016 and 03.02.2016 wherein the assessee Trust has denied to be part of any money laundering activity and even filed confirmation from M/s. Herbicure dt. 08.04.2016 which has been reproduced by the Ld. CIT(E) at page 16 of the impugned order. We note that the Ld. CIT(E) in order to cancel the registration has taken the statement of Shri Swapan Ranjan Dasgupta recorded on oath during survey conducted u/s. 133A of the Act and mainly the answer to the question nos. 23 which have been reproduced by ld CIT(E) is reproduced again below:

“Q. 23. Please explain in detail the modus operandi of giving the accommodation entries by way of accepting donations to different beneficiaries, Also state who is the/are the broker/brokers (while giving his mobile no. and address) through which you have given accommodation entries in the form of bogus donations on commission? Please also state what are the commission charged by you and broker concerned for providing accommodation entries to different beneficiaries. Ans. The entire accommodation entries of bogus donations are facilitated by Mr. Kishan Bhawasingka having his mobile nos. 9830087866&9883051515 who lives somewhere in Bhawanipore near Netaji Subhas Metro Station. The modus is like this. The information is given to us by Mr. Kishan Bhawsingka as to bogus donation entry is needed by a particular party. Sometimes we come to know about the accommodation entry being given to a party when we directly receive communication from the concerned bank that the amount has been credited. Thus, the accommodation entry is completely controlled and managed by Mr. Kishan Bhawasingka. The bogus donations are received vide cheque/RTGS into any of the bank accounts mentioned by me in response to question no.7 of this statement. After this, payment is made to any of the paper/bogus companies on account of bogus purchase/expense on the advice of Mr. Kishan Bhawasingka. The remaining transaction is also managed on paper by him only which happens in the form of routing of the donation amount through his bogus/paper companies in 2 to 3 layers. Finally, cheque of the donation amount (after deducting the cut of commission charged by us and broker Mr. Kishan Bhawasingka) is given back to the original beneficiary who gave donation to us. Sometimes, the amount is withdrawn at 3rd or 4th level and cash is given back to the original beneficiary (after deducting the cut of commission charged by us and broker Mr. Kishan Bhawasingka) who gave donation to us. In this entire process of providing entry in the form of bogus Donation to different beneficiary companies/individuals a commission of 5% approx is charged by us which is the actual donation we receive from that particular donor in reality. The commission of almost 5 to 8% is charged by Mr. Kishan Bhawasingka for facilitating the said accommodation entry.

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Subsequently, a sanction letter is received from the donor reflecting the amount of donation and mode of payment. The particulars are then verified with the amount credited in our bank accounts after which an exemption u/s. 35(1)(ii) of the I.T.Act, 1961 which qualifies him/her to claim one and three fourth of the said donation as tax exempt u/s. 35(1)(ii) of the I. T. Act, 1961.” 5. As stated above and armed with the aforesaid sworn statement of Shri Swapan Ranjan Dasgupta, the Ld. CIT(E) issued notice dated 02.12.2015 for cancellation of registration granted u/s. 12AA of the Act. The assessee Trust was asked to produce the Income and Expenditure Account and Balance Sheet for AYs 2011-12 to 2015-16, the list of corpus donation received by the Trust along with their PAN, names and addresses from 01.04.2010 to 31.03.2015, list of corpus donation/non corpus donated by the assessee with the donees’ PANs, names and addresses from 01.04.2010 to 31.03.2015. The assessee Trust had furnished reply and produced the documents sought by the Ld. CIT(E) vide letter 21.12.2015 wherein the assessee has clearly refuted the allegation of accepting donation and returning the same in lieu of cash; and also have clearly explained with documents that Rs.2.90 lacs which was donated by M/s. Herbicure has been applied and utilized for the objective for which it was established. The assessee Trust stoutly denied the allegation of money laundering and asked the Ld. CIT(E) to provide to it any material/document for making such allegation against the assessee Trust; and also asked for a copy of the statement of Shri Swapan Ranjan Dasgupta. Later, we note that the statement of Shri Swapan Ranjan Dasgupta was handed over to the assessee Trust. After perusal of the same, the assessee Trust pointed out to Ld. CIT(E) that nowhere in the statement recorded that is to question nos. 1 to 24, the assessee Trust’s name never surfaced or any allegation has been imputed against the assessee Trust. The assessee Trust also pointed out to the Ld. CIT(E) that since the entire case of the ld. CIT(E) was based on the sworn statement of Shri Swapan Ranjan Dasgupta recorded during survey cannot be the sole basis for the impugned action. We note that the Ld. CIT(E) passed the impugned order holding that the assessee has taken donation in lieu of cash and, therefore, has indulged in ingenuine activity of money laundering and, therefore, as per section 12AA(3) of the Act he was of the opinion that the activities of the assessee are not genuine and it was not being carried out in accordance with the objectives of the Trust. Therefore, registration granted u/s. 12A of the Act dated 14.07.2010 was cancelled w.e.f. 01.04.2010 vide impugned order dated 13.12.2016. It is an undisputed fact

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that the assessee is a charitable Trust registered in 1981 which is engaged in various philanthropic activities including in the field of education and health for the poor and needy section of the people and has been provided with certificate of registration u/s. 12A of the Act on 14.07.2010. The sheet anchor of the entire exercise emanates from a statement recorded during survey which was recorded on oath on 27.01.2015 at the premises of M/s. Herbicure. The statement of the founder Director of M/s. Herbicure states that it was involved in giving accommodation entries like giving donations in lieu of cash and accepting donations and giving it back for a commission thus, providing accommodation entries. It was also stated by the founder-director that one Mr. Kishan Bhawasingka who lives somewhere in Bhawanipore near Netaji Subhash Metro Station was the main facilitator. Further, it was stated that bogus donations are received by cheque/RTGS which is deposited in the accounts of M/s. Herbicure and on the advice of Mr. Kishan Bhawasingka bogus purchases are booked and amounts are disbursed through 2/3 layers and finally the donor receives cash after deducting the commission. Thereafter, a sanction letter is received from the donor reflecting the amount of donation and mode of payment which M/s. Herbicure verifies from the bank account and then certificate of exemption u/s. 35(1)(2) of the Act given to the donor wherein the donor qualifies for deduction 175% of the donated amount. We note that there was another letter dated 12.10.2015 issued by M/s. Herbicure to the Ld. CIT(E) which has been reproduced by the Ld. CIT(E) in the impugned order at page 14 wherein M/s. Herbicure has explained the fate of the donation made by it to the donees. It was stated that few brokers had arranged donation for it and asked M/s. Herbicure to return the donation to some other Trusts. It was stated in the letter that M/s. Herbicure made donation from the donation it received from brokers. It was stated that the brokers collected the cash from whom the donations were made by M/s. Herbicure and it was certified that the donations to the Trusts were made as per the direction of the broker which letter also has been signed by the Director of M/s. Herbicure Shri Swapan Ranjan Dasgupta. After perusal of the statement recorded on oath as well as the letter, the ld. CIT(E) was of the opinion that since the assessee Trust has received donation to the tune of Rs.2.90 lacs from M/s. Herbicure in AY 2011-12, the assessee had received donation in lieu of cash and, therefore, it was engaged in the money laundering which, according to him,

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is an ingenuine activity and so the said activity is not in consonance with the objects of the Trust, therefore, he cancelled the 12AA registration. We do not uphold the impugned action of the Ld. CIT(E). Right from the notice given by the ld. CIT(E) the assessee pleaded that the assessee had utilized Rs.2.90 lacs donated by M/s. Herbicure was applied for the objectives of the Trust and is not involved in money laundering or it has not given any cash in lieu of the donation it received. We note that the statement of Shri Swapan Ranjan Dasgupta does not specify as to whether the assessee Trust has indulged in receiving donation in lieu of cash. The statement of Shri Swapan Ranjan Dasgupta is general in nature and we note that from the answer to question no. 9 that M/s. Herbicure is engaged in the basic and fundamental bio-medical research in the field of microbiology and analytical chemistry (molecular biology and cell culture) and it was involved in research to come out with the solution in respect of resistance to various levels of drug resistance and there were eight full time researchers. It has been stated by Shri Swapan Ranjan Dasgupta that since they had financial crunch, M/s. Herbicure got involved in giving accommodation entries. For answer to Question no. 23 (supra), we note that Shri Swapan Ranjan Dasgupta has explained in respect to donations it received and the modus operandi by which it has returned back whereas it does not say anything about the donations it has given to anyone including that of the assessee Trust. We note that from letter dated 12.10.2015 Shri Swapan Ranjan Dasgupta has stated about some brokers who were involved with M/s. Herbicure for giving donation and collecting the cash. Other than the general statement we note that there is no other material on record to suggest that the assessee Trust was engaged in receiving donation in lieu of cash or was practicing money laundering. Only piece of material was statement recorded on oath u/s. 133A (during survey) of the Act. As per the Hon’ble Supreme Court in S. Kader Khan Sons, (2013) 352 ITR 480 (SC), has clearly laid out that section 133A of the Act does not empower any Income-tax Authorities to examine any person on oath. Hence, any such statement does not have any evidentiary value and any admission made during survey cannot by itself be made the sole basis of addition. In such a scenario, the statement of Shri Swapan Ranjan Dasgupta alone cannot be the basis for the impugned action of the Ld. CIT(E). The Hon’ble Supreme Court in Andaman Timber Industries Vs. Commissioner of Central Excise 62 Taxman.com 3 wherein their Lordships

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has categorically held that not allowing the assessee to cross examine the third party though the statement of those witnesses were made the basis of the impugned order is a serious flaw which makes the order nullity inasmuch as it amounted to violation of principles of natural justice because of which the assessee was adversely affected. Their Lordships noted that in that case the impugned order of the ld. CIT(E) was based upon the statement given by two witnesses and even when the assessee disputed the correctness of the statement and wanted the cross examine, the adjudicating authority did not grant this opportunity to the assessee. In such a scenario, the Hon’ble Apex Court held that when the testimony of these two witnesses got discarded there was no material with the department on the basis of which it could justify this action and the additions were deleted. We note that in the present case, the assessee was not offered an opportunity to cross-examine Shri Swapan Ranjan Dasgupta and Shri Kishan Bhawasingka which makes the order fragile for violation of natural justice and, therefore, the sole basis for the impugned action is infirm and not legally sustainable.

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be the sole material as held by Hon’ble Supreme Court in Kader Khan, (supra) and moreover, we note that this statement of Shri Swapan Ranjan Dasgupta has not been tested by cross examination cannot be the basis for the impugned action of the Ld. CIT(E) and, therefore, the assessee Trust which is carrying out philanthropic activities is a charitable organization. So its registration granted u/s. 12AA of the Act cannot be cancelled without infraction of law as contemplated u/s. 12AA(3) of the Act. As per the requirement of section 12AA(3) of the Act, the Ld. CIT(E) has to be satisfied that the activities of the trust or institution are ingenuine or are not being carried out in accordance with the object of the trust or institution. When the assessee is carrying out the object of the trust for which it was created and has applied the donation it received from M/s. Herbicure for the objects for which it has been created, the assessee Trust cannot be termed to be ingenuine or cannot be held to be not carrying out its activity in accordance with the object of the trust. Therefore, we set aside the order of the Ld. CIT(E) and allow the appeal of the assessee.

Order is pronounced in the open court on 05.02.2018 Sd/- Sd/- (J. Sudhakar Reddy) (Aby. T. Varkey) Accountant Member Judicial Member Dated : 5th February, 2018 Jd.(Sr.P.S.) Copy of the order forwarded to: Appellant – Nav Nirman Kosh, Birla Building, 5th floor, 9/1, R. N. 1. Mukherjee Road, Kolkata-700 001. Respondent – CIT(Exemption), Kolkata. 2 The CIT(A), Kolkata 3. 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,

Sr. Pvt. Secretary