Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, KOLKATA BENCH “C” KOLKATA
Before: Shri N.V.Vasudevan & Shri Waseem Ahmed
आदेश /O R D E R
PER Waseem Ahmed, Accountant Member:-
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Exemptions) u/s 12AA(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 06.01.2017 for assessment year 2011-12 onwards. Grounds raised by assessee per its appeal are as under:- “(1) That the order dated 6.1.2017 passed by the Ld. Commissioner of Income Tax (Exemptions) [CIT(E)] cancelling the registration of the appellant under Section 12AA(3) of the Income Tax Act, 1961 (Act) with effect from 1.4.2010 is bad in law and on facts of the case. (2) That the reasons given by the Ld. CIT (E) for cancellation of registration of the appellant under Section 12AA(3) of the Act are contrary to law and on facts of the case. (3) That the Ld. CIT(E) erred in cancelling the registration without really going into the genuineness of the activities of the appellant and without any evidence whatsoever has erred in holding that the activities of the trust are not being carried out in accordance with the objects of the appellant.
Sanskriti Sagar Vs. CIT-Ex) Kol Page 2 (4) That the Ld. CIT (E) erred in cancelling the registration of the appellant on the ground that the Corpus Donation of Rs.85,000 received by the appellant from M/s. Herbicure Healthcare Sio-Herbal Research Foundation (Herbicure) during the Financial Year 2010-2011 was an accommodation entry based on the alleged statement of the Director of Herbicure, even though the genuineness of the donation having been confirmed by Herbiucure subsequently. (5) That the Ld. CIT (E) was not justified in cancelling the registration of the appellant without providing an opportunity to the appellant for cross- examination of the Director of Herbicure which is in gross violation of the principles of natural justice and therefore the order of the Ld. CIT (E) deserves to be quashed. (6) That the Ld. CIT (E) erred in cancelling the registration of the appellant despite there being no specific information with regard to the ingenuineness of the corpus donation of Rs.85000 received by the appellant from Herbicure during the Financial Year 2010-2011. (7) That the Ld. CIT (E) failed to record any satisfaction with regard to the conditions prescribed in Section 12AA(3) of the Act and has thus clearly exceeded his power in cancelling the registration. The Ld. CIT(E) erred in not providing a single iota of evidence that the activities of the trust are not genuine and the cancellation of the trust is completely dependent on a non- verified statement of a third party. (8) That the Ld. CIT (E) erred in cancelling the registration of the appellant with retrospective effect i.e. from 1.4.2010 which is not provided under the provisions of the Act. (9) That the appellant reserves the right to add to the above grounds and / or amend or delete any of them at the time of or before the date of hearing of the appeal.”
Shri A.K. Gupta, Ld. Authorized Representative appeared on behalf of assessee and Shri Goulean Hangshing, Ld. Departmental Representative represented on behalf of Revenue. 2. This is an appeal by the Assessee against the order dated 06.01.2017 of C.I.T. (Exemption), Kolkata cancelling the registration granted to the assessee trust u/s 12AA of the Income Tax Act, 1961 (Act).
The assessee is a society constituted under the West Bengal Society Registration Act 1961 dated 26.3.1985. The assessee was granted registration u/s 12AA of the Act by an order dated 20.02.1989 by the Director of Income Tax (Exemption), Kolkata. The assessee has been enjoying the benefit of registration ever since the grant of registration. The assessee is engaged in various charitable activities.
Sanskriti Sagar Vs. CIT-Ex) Kol Page 3 4. There was a survey operation carried out u/s 133A of the Act on 27.01.2015 in the business premises of Herbicure Healthcare Bio-Herbal Research Foundation (HHBHRF). HHBHRF is a company incorporated u/s 25 under the Companies Act, 1956. It is engaged in basic and fundamental bio medical research in the field of micro biology and analytical chemistry. The HHBHRF was recognized in the year 2006-07 as a Scientific and Industrial Research Organization (SIRO) by the Ministry of Science and Technology, Government of India and subsequently recognized as institution u/s 35(1)(ii) of the Act. The aforesaid recognition would mean that any sum paid to HHBHRF would be entitled to a deduction of one and one fourth times of any sum paid to the person making payment while computing business income of such payee. Any sum paid means it includes donations also.
In the course of survey operations the authorized officer carrying out the survey recorded the statement of Shri Swapan Ranjan Dasgupta, the founder director of HHBHRF. The revenue had information that since HHBHRF enjoys approval u/s 35(1)(ii) of the Act and therefore it was being used by money launderers to give donations which is basically accommodation entries. Question No.22 and 23 and answer to those questions will show the modus operandi of alleged money laundering carried out by HHBHRF. The same reads as follows :- “Q.22. Let me remind you that as one of the Directors of Herbicure Healthcare Bio- Herbal Research Foundation you are duty bound' to keep complete information regarding transactions being made by the said entity and the genuineness of persons / entities with whom the said transactions are being made. Your attention is further been drawn to the computer extracts taken out of the tally which was found in your e-mail. These pages are related to the bank book of Herbicure Healthcare Bio-Herbal Research Foundation wherein it is clearly reflected that the amount of Rs.25 Iakh (in two trenches] received from OCL India Ltd an 15.07.2011, Rs.251akh received from OCL India Ltd on 11.08.2011 & 17.08-2011 are immediately being transferred to A.S. Enterprises which is a paper company on the same dates. Similar trend is visible in the case of Donations received from other parties where just immediately after the receipt of donation amount the same is being transferred to the account of any paper company. In view of the same you are once again being given an opportunity to speak the truth and explain the transactions reflected from your bank book as above.
Sanskriti Sagar Vs. CIT-Ex) Kol Page 4 Ans. Sir, I wish to state that our concern Herbicure Healthcare Bio-Herbal Research Foundation was incorporated in the year 2003 u/s 25 of the Companies Act, 1956 which was recognized in 2006-07 as a scientific and industrial research organization (SIRO) by the Ministry of Science & Technology, Govt of India and subsequently we became a Gazette notified company u/s 35(1)(ii) of the I.T. Act. 1961 in March, 2008, Despite of our -sincere, honest and best intention we failed to procure any genuine donations till 2010-11, The situation was becoming bad to worse due to non-availability of fund" for not agreeing to the prevalent practice in the donation market. The situation became so critical for us to survive and carry on our mission to do the work for the larger interest of the ailing population we had no other alternative but to become the victim of the circumstances against our will and principle. Subsequently, I was approached by one Mr Kishan Bhawasingka with the proposal to adopt the prevalent practice of scientific and research organizations of giving accommodation entries on commission to different beneficiaries in the garb of donation receipts to be finally given back to them in the form of cash or cheque. Since we were facing severe financial crisis and the genuine donations were not coming to us we were compelled to accept the proposal. 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 fur 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 Bhawasingka 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. Subsequently, a sanction letter is received from the donor reflecting the amount of donation and mode of payment. The particulars arc then verified with the amount credited in our bank accounts after which an exemption u/s 35(1)(ii) of the LT. 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.”
Sanskriti Sagar Vs. CIT-Ex) Kol Page 5 6. The gist of the statement as recorded above is that till 2010-11 HHBHRF could not get genuine donations and was starved funds for carrying out its activities. In those circumstances one Mr. Kishen Bhawasingka approached the assessee for the purpose of enabling the assessee to give accommodation entry of receipts of donations as well as giving of donations by the assessee for which the assessee would be paid a commission. Since HHBHRF was having financial crunch it acceded to the proposal. With regard to the modus operandi of giving of accommodation entries it was stated that bogus donations are received by cheques/RTGS into various bank accounts of the assessee out of the said bank account payments were made to paper or bogus companies for bogus purchases or expenses on the advice of Shri Kishan Bhawasingka. Sometimes donations are also given from the bank account as donations by/ of the assessee. The commission payable for such transactions of the assessee as well as the broker Shri Kishan Bhawasingka would be deducted and the remaining amounts would be siphoned either as donations or towards laundering of bogus purchases or expenses of parties identified by Shri Kishan Bhawasingka.
The assessee had received a corpus donation of Rs. 85,000/- from HHBHRF vide cheque no. 645855 dated 3.03.2011. Since the assessee had received donations from HHBHRF the Ld. CIT(Exemptions) Kolkata was of the view that the assessee had also indulged in money laundering and therefore the registration granted to the assessee u/s 12AA of the Act deserves to be cancelled by invoking the powers of Ld. CIT(Exemptions), Kolkata vested u/s 12AA(3) of the Act which reads as follows :- “12AA (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1)[or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No.2) Act, 1996 (33 of 1996)]] and subsequently the [Principal Commissioner of ] Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution : “
Sanskriti Sagar Vs. CIT-Ex) Kol Page 6 8. The Ld. CIT(Ex), Kolkata issued a show cause notice dated 02.12.2015 in which he explained the survey operations in the case of HHBHRF and admission by them that they were engaged in providing accommodation entries of bogus donations. The Ld. CIT(Exemptions), Kolkata further was of the following opinion : “3. It is seen that you have received donation amounting to Rs. 85,000/- for A.Y.2011-12 from the above mentioned person – Herbicure Healthcare Bio- Herbal Research Foundation. It is evident that by accepting bogus donation then returning the money you have indulged in money laundering which is illegal, not genuine and not at par with the objects of the trust/society.
In view of the above you are requested to explain why the registration u/s 12A/12AA will not get cancelled by invoking the provision of Section 12AA(3).”
The assessee in reply to the aforesaid show cause notice took a stand that as far as the assessee was concerned it received a corpus donation from HHBHRF and that the same was genuine and that it had not indulged in any money laundering. The assessee had in the course of proceedings for cancellation of registration u/s 12AA(3) of the Act filed a confirmation from HHBHRF dated NIL wherein HHBHRF have confirmed that it had given a sum of Rs. 85,000/- to the assessee as Donation towards corpus fund.
The Ld. CIT(Ex), Kolkata proceeded to pass an order u/s 12AA of the Act after making a reference to the survey in the case of HHBHRF and also after making a reference to a letter dated 12.10.2015 addressed to the Ld. CIT(Ex) Kolkata in which HHBHRF have reiterated that the brokers arranged for donations to HHBHRF and also asked them to return the donation in the form of donations to other trust. The Ld. CIT(Ex), Kolkata also referred to the fact that HHBHRF disowned having dealt with cash and that the brokers dealt with cash received from the persons to whom donations were made by HHBHRF. The Ld. CIT(Ex) thereafter referred to the fact that CBDT vide its Notification dated 06.09.2016 had withdrawn the approval accredited to HHBHRF u/s 35(1)(ii) of the Act. Thereafter the Ld. CIT(Ex) withdrew the registration granted to the assessee by observing as follows :-
Sanskriti Sagar Vs. CIT-Ex) Kol Page 7 “Indulging in ingenuine activities which is not at par with the trust deed leads to the ultimate conclusion that the society is in the act of money laundering. The provisions of Section 12AA(3) of the I.T. Act 1961 is as follows: "Where a trust or an institution has been granted registration under clause (b) of sub-section (1) [or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No.2) Act, 1.996 (33 of 1996)]] and subsequently the [Principal Commissioner or] Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case 'may be, he shall pass an order in writing cancelling the registration of such trust or institution" Considering the activities of the assessee not genuine and are not being carried out in accordance with the objectives of the society, the registration u/s. 12A of the I.T. Act 1961 vide order no. Assmnt./8E/80/85-86/CT/4645 dated 09/20.02.1989 is hereby cancelled u/s. 12AA(3) of the I.T.Act 1961 w.e.f. 01.04.2010 i.e. F.Y. 2010-11 relevant to A.Y. 2011-12, as the violation took place in the F.Y. 2010-11.”
Aggrieved by the order of CIT(Ex), Kolkata the assessee has preferred the present appeal before the Tribunal.
We have heard the submissions of the ld. Counsel for the assessee and the ld. DR. The ld. Counsel for the assessee firstly drew our attention to the answer given by founder and director of HHBHRF to question no.22 recorded at the time of survey carried out in the business premises of HHBHRF. He drew our attention to the fact that in the said statement the founder director had specifically referred to a period from which bogus donations were received by HHBHRF viz., after A.Y.2010-11.He drew our attention to the fact donation was given to the assessee by HHBHRF through cheque dated 03.03.2011 which was admittedly prior to the period in which bogus donations were received by HHBHRF. According to him the statement recorded at the time of survey based on which the impugned order was passed was not incriminating, so far the assessee is concerned. According to him therefore the very basis on which the impugned order has been passed by the Ld. CIT(Ex), Kolkata is unsustainable. His next submission was that there was no other incriminating material on the basis of which it can be concluded that the assessee gave cash and in return got donation of Rs.85,000/- and it was the Sanskriti Sagar Vs. CIT-Ex) Kol Page 8 assessee who arranged through the brokers for getting bogus donations. It was also his submission that there is no evidence of the assessee having indulged in money launderings. The assessee brought to our notice that assessee has been carrying out charitable activities and the activities carried out by it during the FY 2010-11 are placed on page 90 of the paper book.
According to the ld. AR, the ld. CIT(Ex), Kolkata has no direct evidence against the assessee warranting cancellation of registration u/s 12AA (3) of the Act. It was submitted by him that registration granted to the assessee can be cancelled u/s 12AA(3) only on conditions being satisfied (a) that the activities of the trust of institution are not genuine (b) that the activities of the trust or institution are not being carried out in accordance with the objects of the trust or institution. There is no evidence brought on record whatsoever to show either of the aforesaid conditions have been satisfied to warrant cancellation of registration u/s 12AA(3) of the Act. The ld. Counsel for the assessee placed strong reliance on the decision of ITAT, Kolkata Bench rendered in the case of Sri Mayapur Dham Pilgrim and Visitors Trust Nadia vs C.I.T.(Exemptions), Kolkata in order dated 03.05.2017.
The ld. DR placed reliance on the order of Ld. CIT(Exemptions), Kolkata. According to him the answer given at the time of survey in reply to question no.22 is sufficient to come to a conclusion that the assessee has indulged in money laundering. Alternatively it was his submission that the assessee should be afforded an opportunity of cross examination of Shri Swapan Ranjan Dasgupta, the founder director of HHBHRF.
We have given a very careful consideration to the rival submissions. From the answer to question no.22 given by Shri Swapan Ranjan Dasgupta, founder director of HHBHRF at the time of survey in the business premises of HHBHRF, it is possible to entertain a doubt with regard to genuineness of the donations given by HHBHRF. It can be a money launderings indulged by a third party, who gave donations to the assessee by using the middlemen Sanskriti Sagar Vs. CIT-Ex) Kol Page 9 connected with HHBHRF. So far as the assessee is concerned it received donation from HHBHRF a sum of Rs.85,000/- duly accounted the same in profit and loss account as corpus donation. There is no evidence whatsoever brought on record to show that the cash was paid by the assessee which in turn reached the hands of HHBHRF which was returned in the form of donation to the assessee after retaining the commission. As we have already observed that the answer to question no.22 given by Shri Swapan Ranjan Dasgupta referred to donations given in the financial year 2011-12 as bogus donations. With regard to the donations received/given prior to 31.03.2011 there is no reference to such donations given or received by HHBHRF being in the nature of bogus donations. The assessee had received the donation from HHBHRF on 03.03.2011. It is therefore not possible to place reliance on the statement recorded at the time of survey and come to a conclusion that the assessee has been indulging in money laundering.
15.1 In answer to question no.23 Shri Swapan Ranjan Dasgupta founder director of HHBHRF has made reference to certain middle men who are engaged in money laundering using HHBHRF as a medium for money laundering. There is no evidence brought on record to show any connection between those brokers and the assessee. In the absence of such corroborative evidence, it is not possible to come to any conclusion that the assessee indulged in money laundering and that the donation received by the assessee from HHBHRF was a bogus donation. In fact on identical facts this Tribunal in the case of Sri Mayapur Dham Pilgrim and Visitors Trust (supra) came to the conclusion that cancellation of registration u/s 12AA cannot be sustained. In fact in the case of Sri Mayapur Dham Pilgrim and Visitors Trust (supra) the factual position was that the donor had made a reference to the name of that assessee in a list of bogus donations given by it in an application filed before the Settlement Commission of Income Tax. Still the Tribunal came to the conclusion that there was absence of material to show that the concerned trust had indulged in money laundering. We are of the view that in