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TMI Blog2018 (7) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The assessee’s act was in a bonafide manner. It is well settled proposition of law that no additional tax burden can be put on the assessee by making retrospective operations of certain notifications or withdrawal of notifications. - Decided in favour of assessee. - ITA No. 529/JP/2018 - - - Dated:- 5-7-2018 - SHRI VIJAY PAL RAO, JM AND SHRI BHAGCHAND, AM For The Assessee : Shri Manish Agarwal (CA) AND Shri O.P. Agarwal (CA) For The Revenue : Smt. Seema Meena (JCIT-DR) ORDER PER: BHAGCHAND, A.M. The appeal filed by the assessee emanates from the order of the ld. CIT(A)-I, Jaipur dated 21/03/2018 for the A.Y. 2014-15. 2. The brief facts of the case are that assessee is a private limited company incorporated in the year 1997 under The Companies Act, 1956 and is mainly engaged in manufacturing of rolled steel products which is called as Hot Rolling of Steel. Return of income for the year under appeal was filed electronically on 26.09.2014 declaring total income at ₹ 3,19,04,990/-. The case was selected for scrutiny and details and explanations sought by the AO were provided and assessment was completed vide order dated 26.12.2016 by m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal are interlinked and the main issue involved in the appeal is confirming the addition of ₹ 1,75,00,000/- made by way of disallowance of deduction U/s 35 of the Act by the ld. CIT(A). The ld. CIT(A) has dealt the issue in paragraph No. 3.1.2 of his order, which is reproduced as under: 3.1.2 Determination: ( i) The brief facts of the case are that the appellant company was engaged in manufacturing of rolled steel products which is called as Hot Rolling of Steel. It filed its return of income for the year under consideration declaring total income at ₹ 3,19,04,990/- and the assessment was completed wherein the deduction of ₹ 1.75 Crore claimed u/s 35(1)(ii) was disallowed and the total income was determined at ₹ 4,94,04,990/-. During the year under consideration, the appellant had made donation of ₹ 1 Crore to School of Human Genetics Population Health (M/s SHG PH), which was notified by the CBDT for claiming deduction u/s 35(1) (ii). A survey u/s 133A of the Act was conducted at the said institute on 27.01.2015 and it was found that the said institute was providing accommodation entries and accordingly, CBDT, vide Notification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d deserves to be allowed. ( iii) It was further submitted that donation of ₹ 1.00 crore was paid by assessee company through payee s account cheque, which was duly debited in its accounts to School of Human Genetics Population Health in terms of the receipt issued by the said society. However, the same has been denied by Ld. AO solely on the basis of statements of Smt. Moumita Raghwan [Treasurer] and Smt. Samadrita Mukherjee Sardar [Secretary], of the institute recorded during the course of survey. It was further submitted by the appellant that from the perusal of the statements of above executives, it was noticed that there are contradictions and anomalies in the statements and thus, it cannot be conclusively said that the society was not engaged in the research work and had not actually received the donation for the research activity actually carried out by them. It was further submitted that at no stage, they had accepted that the society was solely indulged in the issue of bogus donation receipts as against which, actually the society was engaged in regular research works which is evident from the statement of Smt. Moumita Raghwan (Q. No. 20) and Smt. Samadrita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012-13 1,95,00,000 2012-13 2013-14 4,00,00,000 2013-14 2014-15 15,75,00,000 10. It was finally submitted by the Ld. AO that as the facts have been fully and truly disclosed in the settlement application by way of service charges earned by the applicant by providing accommodation entries for donations received and refunding amounts after deducting such service charges, the applicant had paid taxes and interests on the additional income with fees of ₹ 500/-, along with the intimation made to the AO under section 245C, it was prayed, that the settlement application submitted u/s 245C be admitted for the aforesaid years u/s 245D(1) of the I.T. Act. 11. We have considered the above facts carefully. The facts of this case are rather peculiar in as much as the above entity is a registered society as noted in para 2 above. Registration under Section I2A has been granted by the 171 (Exemption) on 27,10.2004. Registration u/s HOG was initially granted on 27.10.2004 was therefore also available to it since 12,10.2011 till withdrawn. Simil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receive donations through cheques. RTGS and simultaneously we issue cheques in the name of some companies and in this process our organization originally receives @ 7% to 8% of the donation amount. The total process has been maintained by brokers whose details are given as below: i) Shri Navin Kumar Choucharia - His office is as Centre Point, 2 Floor, Opposite Great Eastern Hotel, Kolkata. His Contact Nos. are 9831498341, 8478972771. ii) Shri Makhan Lai Satnaniwala - His office is at Bentinck Street. 1st Floor, beside Haldiram Shop. His Contact No. is 9331023766. iii) Shri Vijay Agarwal - His office is at Room No.48B. 2nd Floor, 207, Maharshi Devendra Road. Kolkata-7. His contact nos. 9051726402, 9007118177, 9051726425. iv) Shri Amit Gupta - His office address is not known to me. His contact No is 9804359206. v) Shri Madan Gupta - He is brother of Shri Amit Gupta. His office address is also not known to me. His contact No. is 8282967343. vi) Shri Avijit Sinharoy - His office is at Grant Lane. Kolkata and his contact Nos. are 9674111333, 9830777757. vii) Shri Sailesh Gupta - His office address is not known to me. His contact No. is 80131424 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion w.e.f. 01.04.2014 till date has been found in your office either manually or in computerized form. Where do you keep the books of accounts for this period? Ans. Sir, as I have mentioned earlier, we have to adjust our accounts for the said donations received and as such, the data in tally software in the computer of the office is entered at the end of the financial year after receiving all the bogus bills which supports the bogus expenses made and reflected in our accounts. The bills for the said period has not been finalized and so no accounts has been prepared for this year. Q.11. Please explain in detail the sources of income and major heads of expenses of your organization. Ans. The sources of income of this organization is mainly out of donation from corporate bodies as well as from individuals. In fact, we receive donations through cheques, RTGS and simultaneously we issue cheques in the name of some companies and in this process our organization originally receives commission @ 7% to 8% of the donation amount. The total process has been maintained by the brokers whose details are given as below: i) Shri Navin Kumar Choucharia - His office is at Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 1 days in the names of various companies provided by the donor after deducting the amount of actual donation to 8%. The records have been managed by-issuing normally back-dated appeal letters to the donors, (he money which has been returned back to them is shown as expenses in our books of accounts mainly under the head R D expenses. ( X) It is to be noted that it has been observed by the AO in the assessment order that the contribution of the said Institute to scientific research was negligible in contrast to the kind of donations received by it. In fact, the research facilities like instruments, lab, skilled staff, storage facilities etc. are almost negligible at the institute. ( xi) It has already been stated earlier that the appellant was engaged in the business of rolled steel products which is called as Hot Rolling of Steel and it has made donation to School of Human Genetics Population Health i.e. there is no connect between the two. Though there is no bar on making donation to any entity not related with the business of the appellant, but it is to be noted that if a donation is made to a scientific research Institute, it is a normal tendency to keep in m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titution to which clause(ii) or clause(iii) 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 association, university, college or other institution referred to in clause(ii) or clause(iii) has been withdrawn.] [emphasis supplied] ( XV) It is to be noted that the above Explanation is of no help to the appellant as the deduction was not disallowed by the AO to the appellant company merely on the ground that subsequent to such payment, the approval granted was withdrawn by the competent authority. In fact, it is the specific admittance of the authorized signatories of M/s SHG PH in unequivocal terms that the said institute was used for providing accommodation entries of donations to various persons on commission basis @ 8% of such amount. Further, their admission in their statements was followed by filing application before the Hon ble ITSC, wherein the income from such commission was offered for taxation, as discussed earlier in this order and has paid the huge taxes thereon, as is evident from the order of Hon ble ITSC passed u/s 245D( 1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essarily include right of cross examination. The right of cross examination must depend upon the circumstances of each case and also on the statute concerned (State of J K vs. Bakshi Gulam Mohammad AIR 1967 SC 122). The question, whether the assessee is entitled to cross examination is a question which may largely depends on the facts and circumstances of the case (Shyamlal Biri Merchant vs. UOI (1993) 68 ELT 548, 551 (All.) In the present case no such circumstances are warranted as in the list of beneficiaries to whom accommodation entries were provided by the M/s SHG GH contains the name of the appellant and the name of the broker who arranged such bogus transaction and the categorical admittance of the authorized signatories of M/s SHG GH, as discussed earlier in this order. The appellant is trying to use this shield of absence of opportunity of cross-examine of the persons who were managing the show. But that will be miscarriage of justice if assessee be given benefit on this account. Even, it is also not possible to allow opportunity of cross-examination of each of the share broker, associated concern etc. to all the beneficiaries of the accommodation entries in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B 25). However, it was as late as in F.Y. 2016-17 i.e. vide order dated 15.09.2016 that the said notification was rescinded by the CBDT, vide notification no.82/2016 (F N 203/64/2009/ITA.II). Moreover same was ordered to be done with retrospective effect from 1.04.2007 (APB-39) on the basis of some enquiries done in the case of the institute i.e. SHGPH. Accordingly, ld. AO disallowed the weighted deduction claimed u/s 35(1)(ii) on the donation of ₹ 1,00,00,000/-, which disallowance has been confirmed by ld.CIT(A). At the outset, kind attention of your goodself is invited to provisions of section 35(1)(ii), which reads as under: Expenditure on scientific research. 35. ( 1) In respect of expenditure on scientific research, the following deductions shall be allowed- ( i) .. ( ii) [an amount equal to [one and three-fourth] times of any sum paid] to a [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 : [ Provided that such association, university, college or other institution for the purposes of this clause- ( A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation for this purpose and publishes in Official Gazette of Government of India. Thus, a common person/ entity, who wishes to avail the benefit of section 35(1)(ii) by contributing a specified sum, is not supposed to and in fact is not equipped with so much tools to verify genuineness of the activities of such institution. It is bonafide belief that once approval is granted by CBDT, contribution can be safely made to such institution more particularly when such institution is not related at all to the assessee and assessee has no control whatsoever over the activities of such institution in any manner. In the instant case also, assessee has acted under bonafide belief that institution (SHGPH) to which donation is being made, is engaged in research activity as per its objects, as obviously after detailed enquiries, reporting, investigation etc. the CBDT must have issued notification No. 4/2010 dated 28.01.2010 treating SHGPH to be covered for Sec. 35(1)(ii). Merely for the reason that such notification has been rescinded after the expiry of more than 2 year from the end of the previous year relevant to assessment year under appeal ( precisely on 15.09.2016) (APB 39) that too with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive changes or orders having retrospective effect have to be passed in rarest cases where it is very much warranted. Moreover the scope of retrospective order is limited to the person/ entity concerned (here in this case the society i.e. SHGPH). This retrospective effect cannot in any way be extended to third parties and doing so would not only be against the settled position of law but would also be clearly doing un-justice to third parties who acted in bonafide manner. Thus further adverse action in the hands of third parties (like that of assessee) on account of retrospective notification passed in the case of institute be held as unjust and unlawful. In fact, the fact of cancellation of notification was not in the knowledge of assessee till the time it was conveyed by Ld. AO during assessment proceedings. Thus, assessee was under bonafide belief that SHGPH has a valid approval in terms of the above stated gazette notification available with it who after examining the legality of the said approval has made the contribution and claimed the deduction. Apart from the above submission, kind attention of the Hon ble bench is invited to explanation to section 35(ii) (iii), w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of recognition u/s 35(1)(ii) of the Act in the hands of the payee organizations would not affect the rights and interests of the assessee herein for claim of weighed deduction u/s 35(1)(ii) of the Act. Thus, deduction claimed by assessee is absolutely in accordance with law and deserves to be allowed. It is further submitted that while confirming the order of ld. AO, ld. CIT(A) has further observed that : - the donee institute i.e. SHGPH has filed an application before Hon ble Settlement Commission , Kolkata offering additional income of ₹ 15.75 crores for A Y 2012- 13, 2013-14 and 2014-15 and the same has been admitted. - why assessee has made such huge donations to such a far off place - right to cross examination is not absolute In this regard, it is submitted that merely because such done (SHGPH), who is completely unrelated to the assessee, accepts certain income subsequent to receiving such donation for the errors and wrongdoing on its part, the same cannot be a reason to deny the assessee from a valid deduction available to it. Also appellant was not confronted with any such petition as stated to have been filed by the donee institute (SHGPH) before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to a particular institution, which wisdom cannot be questioned by the revenue. The question of business expediency of an expenditure had to be viewed from the point of view of the businessman and not from the view point of the revenue. It is further submitted that while making disallowance, Ld. AO solely relied upon the statements of Smt. Moumita Raghwan [Treasurer] and Smt. Samadrita Mukherjee Sardar [Secretary], office bearer of SHGPH which were recorded during the course of survey conducted at its premises on 27.01.2015 wherein they have stated to have accepted that SHGPH is not working for the research activity and is mainly issuing the donations receipts on commission basis. Copies of the same were supplied to the assessee (APB 27-38). From the perusal of the statements of above said executives supplied by Ld.AO, it could be noticed that there were contradictions and anomalies in the statements and thus it could not be conclusively said that the society was not engaged in the research work and had not actually received the donation for the research activity actually carried out by them. It is further submitted that at no stage, they had accepted that SHGPH is solely indu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... please be intimated to assessee for rebuttal by assessee company. However, ld. AO failed to examine any other office bearer and thus acted only on half baked information / presumptions. Even ld.CIT(A) confirmed such action of ld. AO in denying opportunity of cross examination by simply observing that strict rules of Evidence Act do not apply to income tax proceedings and that the right of cross examination is not an absolute right by placing reliance on some judicial pronouncements, however such judgements have been passed in different set of facts and furthermore have been superseded by Hon ble Apex Court judgement in the case of Andaman Timber Industries (324) ELT 641 which now governs the field wherein it has been held as under (Case law PB 13-16): Assessment Natural justice Denial of opportunity to cross-examine witnesses Denial of opportunity to the assessee to cross-examine the witnesses whose statements were made the sole basis of the assessment is a serious flaw rendering the order a nullity in as much as it amounted to violation of principles of natural justice Impugned order as passed by the Tribunal is set aside. Further, reliance is placed on the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia. Very Recently, Hon ble Supreme Court in the case of CIT vs Sunita Dhadda (case law PB 1-12) after considering all the judgements including of Andman Timber has again affirmed the importance of cross examination and held that if the AO wants to rely upon documents found with third parties, the presumption u/s 292C against the assessee is not available. As per the principles of natural justice, the AO has to provide the evidence to the assessee grant opportunity of crossexamination. Secondary evidences cannot be relied on as if neither the person who prepared the documents nor the witnesses are produced. The violation of natural justice renders the assessment void. The Dept cannot be given a second chance. It is further submitted that such persons whose statement were relied upon for making disallowance were neither summoned during assessment proceedings nor any commission was issued to the competent authorities for their examination during the course of assessment proceedings before coming to the conclusion that the donation made by the assessee company was not genuine. In fact no material was brought on record by Ld. AO so as to prove that how the donation paid by ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) of the Act. The assessee had made donation to a institute engaged in Scientific Research. The authorities below has not allowed the deduction. The assessee had made donation of ₹ 1,00,00,000/- to School of Human Genetics Population Health, an institute engaged in scientific research and notified by the Central Board of Direct Taxes in terms of Section 35(1)(ii) of the Act vide notification No. 4/2010 dated 28/01/2010. The institute, whom the donation was made was in existence and notified during the F.Y. 2013-14 when the assessee has made donations. The CBDT has rescinded notification on 15/9/2016. Although, it has been made retrospective effect from 01/4/2007. This institute was validly recognized by the CBDT on the date of donation made by the assessee. The approval granted to the institute was very much in force at the time of donation made by the assessee. The assessee had no reason to disbelieve the operation of approval and notification of the institute. In such a situation, the deduction claimed by the assessee is justified. The subsequent notification by the CBDT rescinding the approval retrospectively shall not or should not affect the claim of the assessee. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he paper book, wherein the donation was made to the same institute i.e. school of Human Genetics and Population Health, was held that in view of explanation to Section 35(1)(ii) of the Act, would not be withdrawn subsequently when recognition has been rescinded. Similarly the Coordinate Bench of Kolkata ITAT in the case of Saimed innovation Vs. ITO in ITA No. 2231/Kol/2016 order dated 13/09/2017 has held that weighted deduction claimed U/s 35(1)(ii) of the Act cannot be denied on the basis of statement recorded during the survey and no opportunity was provided to cross examine the third party, who has given such statement. Further in view of the decision of Hon ble Allahabad High Court in the case of CCE Vs. Shyam Traders 2016 (333) ELT 389 and the decision of Hon'ble Supreme Court in the case of Andaman Timber Industries (324) ELT 641 and the various other case laws relied upon by the ld. A.R., we find that the authorities below were not justified in denying claim of deduction U/s 35(1)(ii) of the Act to the assessee, hence, we set aside the orders of the authorities below. 8. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 05/07/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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