MARINA SHIP BROKERS ,CHENNAI vs. ITO NON CORPORATE WARD 11(2) , CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) – 13, Chennai, dated 04.05.2017 and pertains to assessment year 2013-14.

Shri P. Raghunathan, the Ld. counsel for the assessee, submitted that for the year under consideration, the net profit disclosed by the assessee is about `40 lakhs. Out of this `40 lakhs, a sum of `20 lakhs was donated to M/s Herbicure Health Care and Bio Herbal Health Foundation. Another sum of `3 lakhs was donated to School of Human Genetics and Population Health.

The Ld. counsel for the assessee further submitted that the Revenue authorities appear to have examined some personnel in Kolkata. The persons who were examined by the Revenue authorities claimed that they have refunded the funds to the companies who are identified by the donors after taking small amount towards commission. According to the Ld. counsel, a copy of statement and other documents relied on by the Assessing Officer for completing the assessment were not furnished to the assessee, therefore, the assessee is not in a position to explain the case in an effective manner before the Assessing Officer and before the CIT(Appeals). Even now, according to the Ld. counsel, a copy of the statement said to be recorded by Revenue authorities and other relevant documents relied on by the Assessing Officer were not furnished to the assessee. Placing reliance on the judgement of Apex Court in Kishanchand Chellaram v. CIT 90 TMI 3, 1980, SC, the Ld. counsel submitted that evidence collected at the back of the assessee has to be confronted to the assessee giving an opportunity to rebut the evidence, otherwise the same cannot be relied upon by the Revenue authorities. Placing reliance on the judgement of Delhi High Court in CIT v. SMC Share broker Ltd. 159 Taxman 306, the Ld. counsel submitted that the statement cannot be relied upon unless an opportunity was given to the assessee to cross-examine.

On a query from the Bench, is there any special reason for donating the institutions in Kolkata when there are several institutions of similar nature in the city of Chennai? The Ld. counsel submitted that the assessee has chosen the Kolkata institutions for giving donation. Since donations were given to the research institutions, according to the Ld. counsel, the assessee is eligible for deduction under Section 35(1)(ii) of the Act. Since a copy of statement and other documents were not furnished to the assessee, according to the Ld. counsel, there was a gross violation of principles of natural justice.

We have heard Ms. Vijayaprabha, the Ld. Departmental Representative also. According to the Ld. D.R., the assessee has not requested either the Assessing Officer or any other income-tax authorities to give copy of statement and other documents . Since the assessee has not made any request before the lower authorities, according to the Ld. D.R., the assessee cannot make any compliant at this stage. On a query from the Bench, is it necessary to make a request by the assessee in respect of statement and documents which were relied upon by the Assessing Officer in the assessment order? The Ld. D.R. submitted that as

We have considered the rival submissions on either side and perused the relevant material available on record. From the orders of the lower authorities it appears that out of `40 lakhs of net profit, `23 lakhs was donated to two institutions at Kolkata for the purpose of claiming deduction under Section 35(1)(ii) of the Act. On the basis of the survey conducted by the Revenue authorities in the premises of the above said two research institutions at Kolkata, it was found that the said institutions were providing accommodation entries by receiving bogus donation. One of the Directors who was examined, categorically admitted that the donations were received from various persons across the country and after receiving small amounts of cash at 3% in the initial year to 8% in the later years, the balance amount was returned back to the companies/persons who are identified by the donors. Some of the funds also appear to have been refunded to the donors through banking channel. From the order of the Assessing Officer it appears that one of the institutions, namely, School of Human Genetics and Population Health moved the Settlement Commission and admitted that they have provided accommodation entries in respect of bogus donations received by them. Similarly, the Director of Herbicure Healthcare Bio Herbal Research Foundation has also admitted to have given accommodation entries after receiving commission. The Assessing Officer after reproducing the statement recorded from the respective persons, has concluded that the claim of donation more than 50% of profit was far-fetched one.

Now the issue before this Tribunal is whether the assessee is entitled to receive copy of statement and other material which were relied upon by the Assessing Officer in the assessment order?

In this case, admittedly, the Assessing Officer placed reliance on the statement recorded during the course of survey operation and other material found during the course of survey operation. Principles of natural justice is one of the cordial rule to be followed in the adversary system of judicial administration. Rule of law is supreme in this country, therefore, unless it otherwise provided in the relevant statute enacted by the Legislature, the principles of natural justice cannot be taken away by means of the procedure or the formalities prescribed in the Office Manual which is meant for the internal administration of Department. In this case, even the Office Manual was not brought to the notice of the Bench even though the Ld. D.R. claims that as per Office Manual, copies need to be furnished only on request. This Tribunal is of the considered opinion that irrespective of the request of the assessee for the copies of statement and documents, the same shall be furnished to the assessee in case the Assessing Officer intended to rely on such statement and the documents. In this case, the copies of the statement and other documents relied upon by the Assessing Officer were not furnished to the assessee, therefore, there was gross violation of principles of natural justice. Accordingly, the orders of the authorities below are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall furnish the copies of documents and statement to the assessee and give sufficient opportunity to rebut the same, and thereafter decide the issue afresh in accordance with law.

It is made clear that this being an accommodation entry and such type of donations are rampant from Chennai to Kolkata institutions, the Assessing Officer shall make a thorough investigation. The Assessing Officer shall also examine, if necessary, through his counterpart at Kolkata how the bank accounts are opened at Kolkata by such institutions. Whether any bank officials were involved in opening such accounts also needs to be found out so that this kind of irregularities can be put to an end at earlier stage.

With the above observation, the appeal of the assessee is allowed for statistical purposes.