2023 (8) TMI 137 - AT - Income Tax

Deduction u/s 35(1)(ii) grant of donation to School of Human Genetics and Population Health - whether the appellants are entitled to weighted deduction @ 175% of the donations given by them to allege Research Institute? - HELD THAT - As it is not a simple case of claiming deduction on fulfilment of conditions u/s 35(1)(ii) of the Income Tax Act, rather it is a case where Revenue has disproved this claim and proved that, with a criminal mind all such donors have layered their transaction in such a manner which apparently appears to be genuine, but in reality not genuine. They took such a step to commit fraud, an economic offence against the economy of the country. The bonafide of the assessees can be appreciated if they have demonstrated that they have given the donations in the past or subsequent periods to some Institution of national importance, such as Tata Research Centre, certain Hospitals, etc. but none of them has given such a donation except a small amount of few thousand in the case of Abhilasha Tradecom Pvt. Limited. The moment Assessing Officers have dispelled onus discharged by the assessee, then it was their duty to prove the genuineness of their claim with circumstantial evidence as pointed out by the ld. Commissioner in the case of Tarasafe International Pvt. Limited, i.e. what was the purpose of the donation; whether such donation has been given to the School in the past or in the future; whether the Corporate Houses have discussed in the meeting and the Management Committee passed the Resolution for giving the donations; what influenced the assessee to give this donation to the Institution other than deduction under section 35(1)(ii) etc. Benefit of claim under section 35(1)(ii) is outcome of an organized fraud with the help of certain manipulators. Therefore, we do not find any material in the first-fold of arguments raised by the ld. Counsels for the assessees. The appellants are not entitled for deduction under section 35(1)(ii) of the Income Tax Act. As argued notice issued u/s 143(2) for scrutinising the return of assessee for A.Y. 2013-14 is without jurisdiction - The argument of the assessee is that had the returns were placed before the Deputy Commissioner of Income Tax. He might have not formed an opinion to issue notice under section 143(2) of the Income Tax Act. This argument is misplaced because this selection of the cases for scrutiny has been computerized and the cases are being selected under CASS means Computer Assisted Scrutiny System. A unanimous view is being taken laying down the procedure that which type of cases will be selected for scrutiny that would eliminate pick and choose and discretion of any Assessing Officer. There is no jurisdictional element involved in that. Notice is to be issued after the analysis of the computer on the basis of PAN data of an assessee. In other words, the first jurisdiction is with the ITO, Ward-10(3) and for the purpose of distribution of work in order to remove the hardship to the taxpayers/ the professionals, it is to be assigned to particular authorities on the basis of monetary limit. As far as the contention of assessee that a jurisdiction cannot be infused on the consent of an assessee in an authority is concerned, we do not have any dispute. The authority assumes jurisdiction by virtue of the provisions of the Act and not on the strength of the consent given by the party. Similarly there cannot be any waiver on behalf of an assessee qua a jurisdictional aspect, namely if an authority is not having jurisdiction, then assessee cannot give concession for assumption of jurisdiction, but that issue is not involved in the present case. Here a simple issue is, whether section 143(2) contemplates that in selection of the cases for scrutiny assessment, there is a jurisdictional issue involved. If it is to be construed as involved, then what is the meaning of CBDT guidelines providing the process for selection of cases for scrutinies. There is not even a single judgment from any of the Hon ble High Court or of the Hon ble Supreme Court propounding therein that if ld. Assessing Officer failed to record his satisfaction for selecting a particular case for scrutiny assessment and issuance of a notice under section 143(2) would be invalid. If that be so, how it will become a jurisdictional aspect. As on distribution of work amongst the ITOs, vis-a-vis Addl. Commissioner/Deputy Commissioner even no order for transfer of jurisdiction under section 127 is required to be passed. This is an exercise after the process of selection of the case for scrutiny. Once computer identifies a particular case for selection of scrutiny, then on the basis of PAN data, notice is to be issued upon the assessee providing an opportunity to the assessee that its case has been selected for scrutiny assessment and kindly submit what the assessee wants to submit in support of the return. As observed earlier, the process of selection for scrutiny does not contemplate any discretion in the Assessing Officer. He is bound to follow the CBDT guidelines issued for the purpose of selection of the cases for scrutiny. Thus in this case also, the ld. Assessing Officer has issued the notice on the basis of PAN Data, which infuses jurisdiction in ITO, Ward-10 and thereafter following the Instruction No. 1 of 2011, the case was taken up for determination of taxable income by the ld. Deputy Commissioner. There is no violation in the procedure. Hence, additional ground of appeal is rejected. Validity of reopening of assessment - reasons to believe - HELD THAT - As we are of the view that ld. Assessing Officer did not commit any error in reopening the assessment. The information supplied by the Principal DIT(Investigation), Kolkata was sufficient to harbour belief that income in the shape of alleged claim of donation to Herbicure is a bogus one, because the Department was able to lay its hand on a large number of material, which was available with the Revenue and it was intimated to all the Assessing Officers. The ld. Assessing Officer has made reference to the statements of the Founder and Director Shri Dasgupta as well as other persons, who have deposed during the survey and post-survey inquiries. Thus we are of the view that sufficient material was available with the ld. Assessing Officer for forming an opinion that income has escaped assessment

Summary

Issues Involved:
1. Disallowance of deduction under section 35(1)(ii) of the Income Tax Act.
2. Computation of book profit under section 115JB.
3. Charging of interest under section 234C.
4. Reopening of assessment under section 147.
5. Jurisdictional issue regarding issuance of notice under section 143(2).

Detailed Analysis:

1. Disallowance of Deduction under Section 35(1)(ii) of the Income Tax Act:
- Facts and Arguments: The primary issue across multiple appeals was the disallowance of deductions claimed under section 35(1)(ii) for donations made to institutions like SHG&PH (School of Human Genetics and Population Health). The Assessing Officer (AO) disallowed these claims based on investigations revealing that these institutions provided bogus donation receipts in exchange for commissions. The AO confronted the assessees with evidence from surveys and statements from brokers and the recipient institutions admitting to the fraudulent activities.
- Tribunal's Findings: The Tribunal found that the donations were not genuine and were part of an organized fraud. Despite the institutions being approved at the time of donations, the subsequent revelation of fraudulent activities invalidated the claims. The Tribunal emphasized that the assessees failed to demonstrate genuine intent or past patterns of similar donations to credible institutions. The Tribunal upheld the disallowance of deductions under section 35(1)(ii).

2. Computation of Book Profit under Section 115JB:
- Facts and Arguments: In some appeals, the assessees contested the AO's computation of book profit under section 115JB, arguing that the disallowed donations should not affect the book profit calculation.
- Tribunal's Findings: The Tribunal upheld the AO's adjustments to the book profit calculations, aligning with the disallowance of the deductions under section 35(1)(ii). The Tribunal found no merit in the assessees' arguments against the computation adjustments.

3. Charging of Interest under Section 234C:
- Facts and Arguments: The assessees also contested the charging of interest under section 234C, which pertains to interest for deferment of advance tax.
- Tribunal's Findings: The Tribunal upheld the AO's decision to charge interest under section 234C, as it was a consequence of the disallowed deductions and the resultant increase in taxable income.

4. Reopening of Assessment under Section 147:
- Facts and Arguments: In some cases, the assessees challenged the reopening of assessments under section 147, arguing that the AO did not have sufficient reason to believe that income had escaped assessment.
- Tribunal's Findings: The Tribunal found that the AO had sufficient material, including information from the Director of Investigation and statements from involved parties, to justify the reopening of assessments. The Tribunal upheld the validity of the reopening under section 147.

5. Jurisdictional Issue Regarding Issuance of Notice under Section 143(2):
- Facts and Arguments: In the case of Tarasafe International Pvt. Limited, the assessee raised an additional ground challenging the jurisdiction of the ITO to issue a notice under section 143(2), arguing that it should have been issued by a higher authority as per CBDT instructions.
- Tribunal's Findings: The Tribunal rejected this ground, clarifying that the selection of cases for scrutiny is done through a computerized system (CASS) and the initial notice by the ITO was valid. The subsequent assessment by the Deputy Commissioner was in line with procedural guidelines, and there was no jurisdictional error.

Conclusion:
The Tribunal dismissed all the appeals, upholding the disallowance of deductions under section 35(1)(ii), the computation of book profit under section 115JB, and the charging of interest under section 234C. The Tribunal also validated the reopening of assessments under section 147 and rejected the jurisdictional challenge regarding the issuance of notice under section 143(2). The Tribunal's decisions were based on substantial evidence of fraudulent activities by the recipient institutions and the involvement of brokers in providing bogus donation receipts.