Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE KAND SHRI S.R. RAGHUNATHA
आदेश /O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal at the instance of the assessee is directed against CIT(A)’s order dated 09.05.2024, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2013-14.
2. The grounds raised read as under:-
1. For that the Order of the Ld. ADDL/JCIT (A)-4, Delhi and Assessment Order of the Ld. AO is erroneous, bad in law and is against the facts and merits of the case, opposed to the principles of natural justice, equity & fair play.
2. For that the Ld. ADDL|JCIT (A) erred in not considering the objections of the Appellant during the course of set-aside appeals, wherein the Ld. AO erred in the proceedings u/s. 143(3) r.w.s. 254 made the additions without considering the factual details and evidences submitted by the Appellant Company.
3. For that the Ld. AO in the course of set-aside proceedings, had brushed aside the evidences submitted in support of the claim of contribution made u/s. 35(1)(ii) of the IT Act, 1961 to the eligible organization recognized by the Government of India.
4. That the Ld. AO further rejected the explanations provided during the course of set-aside proceedings, by holding that there was no other information that was brought on record and hence the claim of the Appellant u/s. 35(1) (ii) of the Act is not tenable and erroneously upheld the addition as per the assessment order completed u/s. 143(3) r.w.s 147 of the IT Act, 1961 dated 20.12.2016.
5. That the Ld. AO further reiterated the sworn statement of the director of the Herbicure Healthcare Bio-Herbal Research Foundation (HHBHRF) which was never confronted to the Appellant for cross examination except a part of the statement was relied without application of principles of natural justice renders the assessment u/s. 143 (3) r.w.s. 254 of the IT Act, 1961 erroneous and illegal.
6. That the Ld. Addl. / JCIT (A) also relied on the assessment order passed u/s. 143(3) r.w.s 254 of the IT Act, 1961 for dismissing the appeal preferred by the Appellant without controverting the submissions made by the Appellant in the Paper Book submitted in the course of hearing proceedings.
7. The Assessing authority and the First Appellate Authority have brushed aside the facts of the case as the proceedings have been relating to the Assessment Year 2013-2014, wherein the Assessing Authority have not brought any evidence against the Appellant and no mention about the Appellant's name in the Sworn statement renders that the entire addition is purely a surmise or conjecture.
8. For that the Assessing Authority has not brought on record about the cancellation of the registration u/s. 12A and 80G of the Act for the Assessment Year covered under this proceeding, renders the entire proceedings an arbitrary and surmise.
For that the Ld. JCIT / Addl. (A) has neither called for the report from the Investigation Department of Income Tax Department, Kolkata nor had directed the Ld.AO to obtain the copy of the retraction of the directors of the Herbicure Healthcare Bio-Herbal Research Foundation, in the light of the decisions of the Hon'ble co-ordinate tribunals, renders the dismissal of the Appeal is contrary to the provisions of section 250 of the IT Act, 1961.
For these grounds and any other additional grounds that may be adduced before or at the time of hearing, the appellant prays that the appeal be allowed.
Brief facts of the case are as follows: The assessee is a company engaged in the business of food related activities. For the assessment year 2013-14, the return of income was filed on 30.09.2023 declaring ‘nil’ income. The assessment was selected for scrutiny through CASS and order u/s.143(3) of the Act was passed on 10.02.2016 assessing total loss of Rs.89,92,609/-. Subsequently, assessment was reopened and order was passed u/s.143(3) r.w.s. 147 of the Act on 20.12.2016. In the reassessment order, the AO made disallowance of donation made to Herbicure Health Bio Herbal Research Foundation (HHBHRF) amounting to Rs.43,75,000/- (being 175% of Rs.25,00,000/-) u/s.35(1)(ii). Aggrieved by the assessment order, assessee company preferred appeal before the CIT(A), who dismissed the appeal of the assessee. Aggrieved by the order of CIT(A), the ITAT. The Chennai Bench of ITAT in (order dated 07.05.2018) restored the matter to the files of the AO for fresh adjudication of the claim by the assessee.
Pursuant to the ITAT order, the AO completed the assessment u/s.143(3) r.w.s. 254 of the Act on 23.12.2019. In the said order passed u/s.143(3) r.w.s. 254 of the Act, the AO once again disallowed the claim of deduction u/s.35(1)(ii) of the Act amounting to Rs.43,75,000/-. The relevant finding of the AO in the order passed u/s.143(3) r.w.s. 254 of the Act dated 23.12.2019 reads as follows:- “In this regard, Assessing Officer has discussed this issue elaborately in his reassessment order. He has given an elaborate show-cause notice and also number of opportunities given to the appellant to prove appellant's claim otherwise than bogus. AO has als0 arranged cross-examination al Calcutta which facility could not be availed by the appellant. AO has given all the material received by the Investigation Wing of Calcutta to the appellant to substantiate its claim.
It is trite law that admitted facts need no further explanation. The entire modus operandi of the M/s HHBHRF has been unearthed by Survey Team. It has been categorically stated by the Managing Director of the Trust that M/s HHBHRF is indulging in providing accommodation entries. In this regard, Assessing Officer has reproduced the relevant portion of the statement of the Founder Director of the Trust, Mr. Swapan Ranjandas (as per Annexure). From the statement It is evident that he received donations and cheques from various persons including the assessee and thereafter returning the amount in cash through various intermediaries and entire accommodation entries of bogus donations were facilitated by various brokers. Consequent to the Kolkata the CBDT vide its order dated 15.09.2016 has withdrawn the approval granted u/s 35(1)(i) of the IT, Act w.e.f 01.04.2017. In the said order, the CBDT has elaborately discussed the modus operandi followed by the Trust & the entry operators and that no research activity was carried by the said trust, for the purpose of which the assessee company has made the alleged donations.
Considering the fact that the assessee has failed to produce any material evidence to substantiate its claim, the alleged donations of Rs.25 lakhs to M/s HHBHRF, Kolkata during FY 2012-13 is treated as bogus claim of deduction u/s 35(1)(ii) of IT, Act amounting to and Rs. 43,75,000/- is disallowed.”
Aggrieved by the order of the AO passed u/s.143(3) r.w.s. 254 of the Act dated 23.12.2019, assessee preferred an appeal before the First Appellate Authority. The FAA dismissed the appeal of the assessee. The relevant observation of the Addl./JCIT(A) reads as follows:- “5.1.4. During the course of proceedings u/s. 143(3) read with section 254 of the Act, the assessee company did not file any fresh submission to prove the genuineness of its claim except submitting the documents of donation made through banking channel by RTGS and copy of 12AA registration certificate. The findings of survey action, subsequent withdrawal of approval u/s.35(1)(ii) of the Act with effect from 01/04/2007 based on the findings of survey proceedings and the facts incorporated by AO in its assessment order, established it beyond any doubt that the M/s Herbicure Healthcare Bio-Herbal Research Foundation, Kolkata was engaged in issuing accommodation entries of bogus donation and not carried out any scientific research activity.
5.1.5.Considering the facts and circumstances mentioned above. Ld. AO has correctly disallowed the deduction claimed u/s.35(1) (i) of the Income Tax Act to the extent of Rs.43,75,000/- vide order passed for FY 2012-13 u/s.143(3) read with section 254 of the Act dated 23.12.2019 and addition made by AO is upheld. Accordingly, grounds of appeal No.1 to 5 are hereby dismissed.
6.In the result, the appeal of the assessee stands dismissed.”
Aggrieved by the above order of the Additional / Joint Commissioner (Appeals), the assessee has preferred the present appeal before the Tribunal. The assessee has filed a paper-book enclosing therein the CBDT Notification No.35/2008 dated 14.03.2008 (granting approval to HHBHRF), the CBDT Notification No.79/2016 dated 06.09.2016 (withdrawing approval to HHBHRF) and the case laws relied on. The ld.AR has also filed written submissions running into 45 pages and strongly relied on the same.
The Ld.DR on the other hand by referring to the ITAT order dated 07.05.2018 which had restored the matter to the files of the AO, submitted that the assessee company had not discharged the burden that was placed on it to prove said donation / contribution of Rs.25,00,000/- was not an accommodation entry.
We have heard rival contentions and perused the material on record. The assessee company during the relevant assessment year had contributed a sum of Rs.25,00,000/- to Herbicure Healthcare Bio-Herbal Research Foundation (HHBHRF), Kolkata. The HHBHRF was an institution recognized and approved u/s.35(1)(ii) of the Act vide CBDT Notification No.35/2008 dated 14.03.2008. The HHBHRF was entitled to weighted deduction of 175% of the contribution as deduction u/s.35(1)(ii) of the Act. Accordingly, assessee had claimed a sum of Rs.43,75,000/- u/s.35(1)(ii) of the Act. The aforesaid recognition and approval granted u/s.35(1)(ii) of the Act to HHBHRF was withdrawn with retrospective effect from the date of its grant vide Notification of CBDT dated 06.09.2016 (refer Page 49 of paper-book). However, in this context, it is necessary to refer to explanation to sub-section (1) to section 35 of the Act. Explanation to section 35(1)(ii) of the Act states that donation / contributions are made to an institution when it’s recognition / approval u/s.35(1)(ii) of the Act, was in vogue, subsequent withdrawal of recognition / approval to the donee institution cannot be a reason to deny the claim of deduction u/s.35(1)(ii) of the Act. The relevant portion of section for ready reference is reproduced below:- “35. Expenditure on scientific research.—(1) In respect of expenditure on scientific research, the following deductions shall be allowed— (i) ………… (ii) an amount equal to one and one-fourth times of any sum paid [Substituted by Act 27 of 1999, Section 15. for " any sum paid" (w.e.f. 1.4.2000).] to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research [See rules 5C [Guidelines, form and manner in respect of approval u/s 35(1)(ii)/(iii)], 5D [Conditions subject to which approval is to be granted u/s 35(1)(ii)/(iii) to research association] and 5E [Conditions subject to which approval is to be granted u/s 35(1)(ii)/(iii) to University, college or other institution] and Form Nos. 3CF-I and 3CF-II]:
(A) is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed; and (B) such association, university, college or other institution is specified as such, by notification in the Official Gazette, by the Central Government;] 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 (i) or clause (iii) or to a company to which clause (iia)] 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 [Sub. for "clause (ii) or clause (iii)" by the Act. No. 38 of 2020, w.e.f. 1-4-2021. Earlier, the quoted words were amended by the Act. No. 38 of 2020, w.r.e.f. 1-6-2020 and Act No.12 of 2020, w.e.f. 1-6-2020] [clause (ii) or clause (iii) or to a company referred to in clause (iia) has been withdrawn;”
9. In light of the aforesaid explanation, merely because the recognition and approval in the case of donee has been withdrawn subsequently cannot be a reason for disallowance of deduction u/s.35(1)(ii) of the Act.
10. We find on identical facts various judicial pronouncements have categorically held that when the name of the donor has not been specifically mentioned that the contributions to HHBHRF are accommodation entry, then the disallowance u/s.35(1)(ii) of the Act cannot be subjected to, in the case of the said donors / assessees. The Hon’ble Kolkata High Court in the case of PCIT vs. Tirupati Meal Producers P Ltd., (ITAT/120/2021, judgment dated 12.08.2022) was considering the following substantial question of law:- “a) Whether in the facts and circumstances of the case the Learned Income Tax Appellate Tribunal erred in law by ignoring the facts that the Central Government vide notification no.79/2016 dated 6.9.2016 withdrew the recognition given to grant approval under section 35[1][ii] of the Income Tax Act, 1961 of M/s. Herbicare Bio-Herbal Research Foundation w.e.f. 1.4.2007 ? b) Whether in the facts and circumstances of the case the Learned Income Tax Appellate Tribunal was justified in deleting the disallowance made by the Assessing Officer in respect of the claim of assessee regarding deduction under section 35[1][ii] of the Income Tax Act, 1961 ?”
In adjudicating the above questions, the Hon’ble High Court by following its earlier judgment in (judgment dated 12.08.2022) held there is nothing on record to show that donation payments are accommodation entry.
Similar view was taken by the Hon’ble Ahmedabad High Court in the case of PCIT vs. Thakkar Govindbhai Ganpatlal HUF (Tax Appeal No.881 of 2019, judgment dated 20.01.2020). The relevant finding of the Hon’ble Ahmedabad High Court reads as follows:-
“7. In the facts of the present case, the CIT(Appeals) has given the finding of the fact that the amount of donation was transferred to the Herbicure through Bank channel and there is no evidence that the same is returned back in cash.
8. It is also found that the Herbicure Foundation has confirmed that the amount has been utilized for scientific research vide confirmation dated 29.09.2016. Accordingly, the onus placed upon the assessee was discharged.
9. In view of the aforesaid findings of the fact given by both the authorities below, no interfere in the impugned order passed by the Tribunal is required to be made. No substantial question of law arise from the order of the Tribunal. Therefore, the appeal fails and is hereby, dismissed.”
In the instant case, there is no specific finding by any of the authorities that the donation made by the assessee company has routed back to the assessee. In this context, it is also relevant to note, the broker who had arranged the accommodation entry to the donee namely HHBHRF has not mentioned anywhere the name of the assessee company. The statement of the broker has been extracted in the order of Kolkata Bench of the Tribunal in the case of Raj Karan Dassani in (order dated 08.05.2019). On perusal of the said order and the statement recorded of the broker, it is clear that the name of the assessee does not appear wherein the payment of donation has been made for the purpose of accommodation entries.
On contrary, the above mentioned broker has mentioned many other entities who had provided donations to HHBHRF for the purpose of getting accommodation entries. The statement of the broker (Mr. Kishan Bhawasingka), who had arranged donation for HHBHRF for the purpose of getting accommodation entries is reproduced below for ready reference:- "I myself, my wife Smt. Sangita Bhawsinghka (House Wife), my son Vishal Bhawsinghka (self business), he is going to start a factory for Polybedding by using raw material 'polyster fibre' etc. in the name of Polyfiber Fabricator' firm partner are myself, my son and Bhagwat Prasad Agarwal. The registered office of this factory is situated at 21, Hemant Basu Sarani, 3 Floor Room No.-318, Kolkats-700001 and factory premises has been taken on rent and Factory address is at 3/4, Forshore Road, Shalimar, Howrah- 71l103. My daughter-in-law Sruchi Bhawsinghka (House wife), One proprietorship business Shree Enterprise" is registered in her name and nature of business of this firm is trading of cloths.
I have two brothers. One is Vijay Bhawsinghka, he is engaged in business of trading in handicraft in local market in the name of 'Viki Export' situated at 6, Mullick Street, Kolkata-700007 and second is Shyamsunder Bhawsinghka'" he is engaged in business of cloth merchants which is situated at 196, Jamunalal Bazar Street, Kolkata-700007.
Q.6 What is your occupation? Ans. I am working as a broker. My office address is at 7, Mango Lane, 3 Floor. Room No- 307, Kol-l and this office is currently managed & controlled by my partner Ashok Kumar Sureka.
Q7 What is your source of income ? Ans. My main source of income is from brokerage for land deals, arranging accommodation entry/jamakharchi work, raising bogus bills for various beneficiaries/parties. I also earn rental income from shop situated at Avani Mall, Shop no. 12, 1 floor, Howrah which is given on rent to Sree Shoppers Limited. I also have some interest income. I also do investment through Dimensional Securities Pvt. Ltd. Q8 Are you assessed to tax? If yes, please state your PAN and jurisdiction. Ans. Yes, I submit Income tax return regularly and my PAN number is ADDPB6929P. I am assessed with Ward 43(1), Kolkata.
Q.9 Please provide your bank account details of last six years which you have/had.
Sl.No. Bank Name A/c. No. Branch 1 ING VYSYA Bank 504010047038 H.B. Sarani Branch 2 HDFC Bank 03821570006926 G.C. Avenue Branch 3 YES Bank Not remember at Stephen House present time Branch Q.10 How do you know and associated with the company "Herbicure Healthcare Bio-Herbal Research Foundation '" (HHBRF)? Ans. I know this company through some common contract from last four years. Then I met the key person of the company Sri S.R. Dasgupta. The, he asked me help in donation for his company u/s 35(1)(ii). I used to send him donors. The donors used to give me Rs. 2000 to 10000 per donation depending on the quantum.
Q.11 How many donors you sent to HHBRF? What is total quantum of donation done by them and brokerage earned by you? Ans. I don't have any record of the donors and quantum. I have earned around Rs. 100000.
Q.12 Kindly go through the statement of Shri S.R. Dasgupta taken on 27.01.2015. Read question no.23 and the answer, Offer your comment? Ans. I have gone through the statement. I do not agree with his statement. I don't know anything about it. I have just introduced some donors to them and have received around Rs.one lakh from donors.
Q.13 Kindly go through the statement of Shri Manoj Kothary taken on 27.02.2015. Read question no.22 and the answer. Offer your comment. Ans. I have gone through his statement. I don't agree with him. J have collected money receipts and appeal letter for my donors only.
Q.14 I want to remind you, you are on oath. As per S.S. Dasgunta you have arranged bogus donation and bogus expenses on Commission. As per Shri Manoi Kothary, you are the one who used to collect money receipts and appeal letters on behalf of HHBRE from his office. Kindly offer your comment. Ans. I don’t agree with them. I have done some work for some donors only. (Emphasis supplied)
Q.15 Kindly go through the donor list of HHBRF for F.Y. 2010-11 to 2012- 13. Identify your donors. (emphasis supplied) Ans. Sl.No. Donors’ Name Amount (Rs.) 1 YASH-MACH RESOURCES 3,00,000/- 2 SHREE VRAJ GLOBAL 30,00,000/- 3 DR.ANJALI KUMAR 15,00,000/- 4 NATHMAL NEVATIA 35,00,001/- 5 BIPIN SHAH & ASSOCIATES 10,00,000/- TOTAL Rs.93,00,001/-
From the above statement of the broker, it is clear that assessee’s name does not figure anywhere. The assessee cannot be expected to prove the negative namely that the payments were made not as an accommodation entry. In light of the aforesaid reasoning and judicial pronouncement cited by supra, we hold that assessee company is entitled to deduction u/s.35(1)(ii) of the Act.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 18th November, 2024 at Chennai.