2024 (2) TMI 103 - AT - Income Tax

Reopening of assessment - assessee taken bogus donation - whether search/survey carried out on the donee 2-3 months prior to the finalisation of the scrutiny assessment of the assessee would be construed as if material was transmitted to the knowledge of the ld. Assessing Officer or not? - HELD THAT - We are of the view that immediately after the search and survey upon a donee, the material will not be amplified and distributed amongst all the ld. Assessing Officers throughout the country. It was a fraud in an organized manner spreading over throughout the country in which the assessee is also a beneficiary. So it is not humanly possible for the AO to lay his hands on that material before finalisation of the assessment order. It is totally new information given to AO by the DDIT, Kolkata. Whether AO has used borrowed opinion for harbouring the belief that income has escaped assessment? - AO has formed an opinion that on the basis of information received from DDIT, it is found that assessee has taken a bogus donation. How it can be termed as a borrowed opinion. DDIT has transmitted the details exhibiting the fact that donee was engaged in providing accommodation entries to alleged such donors. Therefore, we do not deem it necessary to recite six case laws referred by assessee on this point because it is a question of fact and not any proposition. We agree if there is no specific information to the ld. Assessing Officer, and he has blindly followed some dictum, then reopening is not justified but here the DDIT has remitted the information and on that basis he formed his opinion. Whether CIT(Appeals) has erred in rejecting its ground of reopening by following the case law where original assessment was processed under section 143(1) of the Income Tax Act. ? - We are of the view that Assessing Officer reopened the assessment on the basis of information transmitted to it by the DDIT (Investigation). Therefore, that investigation revealed that more than 1500 donors have taken accommodation entries. AO has gone through these materials and thereafter prima facie formed an opinion. Therefore, by making reference to a case law where original assessment was under section 143(1) would not make much change in the opinion formed by the ld. 1st Appellate Authority. The question is assessment has been reopened within four years from the end of the assessment year. There was a specific information, which has duly been perused by the ld. Assessing Officer before forming the opinion that income has an escaped assessment. Therefore, we do not find any merit in the Cross Objection raised by the assessee. Accordingly 1st ground of the Cross Objection is rejected. Disallowance of deduction claimed u/s 35(1)(ii) - donation been made to M/s. School of Human Genetic and Population Health, Kolkata. - as alleged transaction of bogus donation through false billing and by providing accommodation entries in this matter - main allegation and reason for the survey against the donee was that it had received huge amount of donations on which the applicant society earned service charges - HELD THAT - In the past, ITAT has consolidated a number of appeals involving this issue in the case of M/s. Tarasafe International Pvt. Limited 2023 (8) TMI 137 - ITAT KOLKATA held that first onus discharged by them has been dispelled by the ld. Assessing Officer with credible material. If the appellants are of such a spirited Corporate House, who wants to build the research organisation of the nation, then they have to demonstrate how such donations were given in the past or in the subsequent period. We have confronted them specifically, but none of the assesses except M/s. H.K. Dutta Company could submit anything in this regard. In the case of this Company, ld. Counsel for the assessee has submitted that small amount of donation has been given to a different organisation in the next year. Therefore, if we weigh the simple plea of the appellants about their bonafide belief for giving such donations, vis-a-vis huge materials collected by the Revenue demonstrating the fact how such a belief is misplaced, then, the scale would tilt in favour of the revenue. It is to be appreciated that roughly 720 entities including individuals available in a partlist on pages no. 72 to 81 of the paper book compiled by the Revenue would have not formed a bonafide belief about giving donation to one entity across India in Kolkata. This material speaks in itself that under a criminal conspiracy, these donations have been arranged by the brokers across India for defrauding the nation. We do not find any credence in the belief of bonafide raised by the appellants. It is also pertinent to note that it is not a simple case of claiming deduction on fulfilment of conditions under section 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. This issue has been examined in the case of Swati Bajaj Others 2022 (6) TMI 670 - CALCUTTA HIGH COURT . A large number of assessees have claimed long-term capital gain/loss. The Income Tax Department has carried out search/survey upon different entities, which unearthed that certain companies and professionals were providing such claim in the shape of accommodation by manipulating the stocks of certain shell companies. The Hon ble Court has made a detailed analysis of the material found during the course of search and survey on the premises of third entities and set aside the orders of the ITAT in a group of appeals by holding that such claim by the assessees for long-term capital gain was a bogus claim. The Hon ble Court has considered the material collected by the Investigating Wing of the Department on the premises of certain companies ,who were manipulating the stocks or indulging any accommodation entry business. If we apply the ratio of this judgment upon these cases, then it would reveal that the 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 u/s 35(1)(ii). Thus respectfully following the above, we allow the appeal of the Revenue, set aside the finding of the ld. CIT(Appeals) and restore that of ld. Assessing Officer that assessee is not entitled for deduction under section 35(1)(ii) of the Income Tax Act. Decided in favour of rvenue.

Summary

Issues Involved:
1. Jurisdictional aspect of reopening the assessment under section 147 of the Income Tax Act.
2. Entitlement of the assessee for deduction under section 35(1)(ii) of the Income Tax Act, 1961.

Summary:

Jurisdictional Aspect of Reopening the Assessment:
The assessee challenged the reopening of the assessment under section 147 of the Income Tax Act, arguing that the objections against reopening were not decided by the Assessing Officer (AO) before proceeding with the assessment. The Tribunal noted that the AO had issued notices under sections 143(2) and 142(1) and commenced reassessment proceedings. The Tribunal examined various judicial decisions, including those from the Madras High Court and Delhi High Court, which held that non-disposal of objections is a procedural irregularity that does not invalidate the reassessment proceedings. The Tribunal concluded that the procedural error of not disposing of objections does not render the reassessment order invalid and can be cured.

Entitlement for Deduction under Section 35(1)(ii):
The core issue was whether the assessee was entitled to a deduction of Rs. 1,75,00,000/- under section 35(1)(ii) for donations made to M/s. School of Human Genetic and Population Health, Kolkata. The Tribunal referred to the ITAT Kolkata's decision in the case of Tarasafe International Pvt. Limited, which disallowed such deductions based on findings that the donee institution was involved in providing accommodation entries rather than genuine research activities. The Tribunal considered the material evidence from the survey and statements of brokers, which indicated that the donations were part of a fraudulent scheme to claim tax deductions. The Tribunal concluded that the assessee's belief in the legitimacy of the donation was not bonafide, given the organized fraud involving brokers and the donee institution, and thus upheld the disallowance of the deduction.

Conclusion:
The Tribunal dismissed the Cross Objection filed by the assessee, upheld the reopening of the assessment under section 147, and disallowed the deduction under section 35(1)(ii), aligning with the findings of the earlier ITAT decisions and the material evidence presented. The appeal of the Revenue was allowed, and the Cross Objection of the assessee was dismissed.