Sri. Senapathy Gopalakrishnan, Bangalore V. Income Tax officer, Ward- 3(1)(4), Bangalore

ITA 1414/BANG/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0109 (ITAT-BANGALORE)
• Duration Of Justice: 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-12-2019
• Assessment Year: 2016-2017
• Appeal Filed On: 12-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Business income; Depreciation; Business expenditure; Additional evidence; TDS; Capital Gains; CHAPTER IV
• Section: 80G; 44AB; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER IT A NO. 1414/BANG/2019 ASSESSMENT YEAR: 2016 - 17 SENAPATHY GOPALAKRISHNAN, NO.855, 13 TH MAIN, KORAMANGALA, 3 RD BLOCK, BANGALORE 560 034. PAN: ABDPG 5014C VS. THE INCOME TAX OFFICER, WARD 3(1)(4), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI PADAMCHAND KHINCHA, CA RESPONDENT BY : SMT. R. PREMI, JT. CIT(DR)(ITAT) BENGALURU. DATE OF HEARING : 0 4 .12 .2019 DATE OF PRONOUNCEMENT : 30 .1 2 .2019 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THE ABOVE APPEAL BY THE ASSESSEE IS AGAINST THE O RDER DATED 30.05.2019 OF THE CIT(APPEALS)-3, BENGALURU RELATIN G TO ASSESSMENT YEAR 2016-17. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO, WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN D ENYING THE BENEFIT OF ITA NO.1414/BANG/2019 PAGE 2 OF 9 WEIGHTED DEDUCTION TO THE ASSESSEE U/S. 35(1)(II) O F THE INCOME-TAX ACT, 1961 [THE ACT]. 3. THE ASSESSEE IS AN INDIVIDUAL. FOR THE AY 2016- 17, HE FILED A RETURN OF INCOME DECLARING TOTAL INCOME OF RS.NIL AND CLAI MING A REFUND OF RS.1,12,08,993. THE COMPUTATION OF TOTAL INCOME FIL ED BY THE ASSESSEE IS EXTRACTED IN PAGE 4 OF THE ORDER OF THE AO AND THE SAME IS AS FOLLOWS:- INCOME FROM HOUSE PROPERTY (24 DIFFERENT HOUSE PROPERTIES) 80,29,000 INCOME FROM BUSINESS OR PROFESSION (4,52,77,277) NET PROFIT AS PER P&L 73,61,082 ADD: DEPRECIATION DEBITED INTO P&L 0 LESS: DEDUCTIBLE EXPENSES TO BE EXCLUDED (35 TO 3 5E, 32AD, 33AB, 33ABA) (5,25,00,000) LESS: INCOME CONSIDERED SEPARATELY (1,38,359) ADJUSTED PROFIT FROM BUSINESS (4,52,77,277) TOTAL INCOME FROM BUSINESS OR PROFESSION (4,52,77,277) CAPITAL GAINS 50,94,610 INCOME FROM OTHER SOURCES 8,52,08,107 TOTAL 5,30,54,460 LESS: BROUGHT FORWARD LOSS (38,19,775) GROSS TOTAL INCOME 4,92,34,685 DEDUCTION U/S 80G (12,00,00, 000 ) 80TTA (10,000) 4.92,34.685) TOTAL INCOME 0 PREPAID TAXES TDS 61,83,993 ( 4 .92,3 4 . 685) ADVANCE TAX 50,25,000 REFUND DUE 1,12,08,993 4. IT CAN BE SEEN FROM THE AFORESAID COMPUTATION OF TOTAL INCOME THAT UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION , THE ASSESSEE HAD CLAIMED LOSS OF RS.4,52,77,277. DURING THE PREVIOU S YEAR, THE ASSESSEE RECEIVED MANAGEMENT & CONSULTANCY FEE OF RS.72,35,9 15 AND THE SAME ITA NO.1414/BANG/2019 PAGE 3 OF 9 WAS CLAIMED AS INCOME UNDER THE HEAD INCOME FROM B USINESS. AGAINST THE AFORESAID INCOME FROM BUSINESS, THE ASSESSEE CL AIMED DEDUCTION OF SUM OF RS.5.25 CRORES. THE ASSESSEE MADE A DONATIO N OF RS.3 CRORES TO NATIONAL CENTRE FOR BIOLOGICAL SCIENCE (NCBS) TAT A INSTITUTE OF FUNDAMENTAL RESEARCH (TIFR). IT IS NOT IN DISPUTE THAT THE AFORESAID INSTITUTION IS RECOGNIZED U/S. 35(1)(II) OF THE ACT . THE ASSESSEE IS ENTITLED TO A DEDUCTION OF 175% OF ANY SUM PAID TO RESEARCH ASS OCIATION, WHICH HAS AS ITS OBJECT, THE UNDERTAKING OF SCIENTIFIC RESEARCH AND WHICH ORGANIZATION IS APPROVED FOR THE PURPOSE OF SECTION 35(1)(II) OF TH E ACT. THE PROVISIONS OF SECTION 35(1)(II) OF THE ACT READS AS FOLLOWS:- EXPENDITURE ON SCIENTIFIC RESEARCH. 35. (1) IN RESPECT OF EXPENDITURE ON SCIENTIFIC RESEAR CH, 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 OBJ ECT THE UNDERTAKING OF SCIENTIFIC RESEARCH OR TO A UNIVERSI TY, COLLEGE OR OTHER INSTITUTION TO BE USED FOR SCIENTIFIC RESEARC H : PROVIDED THAT SUCH ASSOCIATION, UNIVERSITY, COLLEGE OR OTHER INSTITUTION FOR THE PURPOSES OF THIS CLAUSE (A) IS FOR THE TIME BEING APPROVED, IN ACCORDANCE WITH THE GUIDELINES, IN THE MANNER AND SUBJECT TO SUCH CONDI TIONS 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; 5. THE AO WAS, HOWEVER, OF THE VIEW THAT THE ASSESS EE HAS MADE THE CONTRIBUTION IN QUESTION ONLY WITH A VIEW TO CREATE AN ARTIFICIAL LOSS UNDER THE HEAD INCOME FROM BUSINESS WITH A VIEW TO SET OFF TH E LOSS AGAINST INCOME ARISING OUT OF OTHER HEADS OF INCOME. ITA NO.1414/BANG/2019 PAGE 4 OF 9 6. IN REPLY TO THE AFORESAID QUERY OF THE AO, THE ASSE SSEE SUBMITTED THAT SECTION 35(1)(I ) GOVERNS THE EXPENDITURE LAID OUT OR EXPENDED ON SCIENTIFIC RESEARCH RELATED TO ASSESSEE'S BUSINESS. WHEREAS. SECTION 35(1)(II) DEALS WITH DEDUCTION ALLOWABLE IN RESPECT OF AMOUNT PAID TO MANY UNDERTAKING OF SCIENTIFIC RESEARCH OR TO A UNIVERSI TY, COLLEGE OR OTHER INSTITUTION TO BE USED FOR SCIENTIFIC RESEARCH. IN OTHER WORDS. DEDUCTION U/S. 35(1)(II) IS NOT DEPENDENT ON WHETHER THE AMOUNT PAID IS RELATED TO ASSESSEES BUSINESS OR NOT. SINCE THE ABOVE SECTION IS PLACED IN PART D OF CHAPTER IV WHICH DEALS WITH COMPUTATION OF PROFITS AND GAINS OF BUSINESS OR PROFESSION, THE ONLY CONDITION TO BE FULFILLED BY THE ASSESSEE IS, HE NEEDS TO HAVE INCOME CHARGEABLE UND ER THE HEAD 'INCOME FROM BUSINESS OR PROFESSION'. 7. IT WAS SUBMITTED THAT THE ASSESSEE IS NOT ELIGIB LE TO CLAIM THE SAME UNDER 80GGA WHICH DEALS WITH DEDUCTIONS IN RES PECT OF DONATIONS TO SCIENTIFIC RESEARCH/ SOCIAL RESEARCH OR RURAL DEVELOPMENT SINCE THE SUB-SECTION (3) OF 80GGA BARS THE DEDUCTIONS TO ASSESSEE WHOSE GROSS TOTAL INCOME INCLUDES INCOM E CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PR OFESSION'. 8. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE EARNS MA NAGEMENT CONSULTANCY INCOME FROM FOREIGN COMPANIES FOR WHICH A SEPARATE BANK ACCOUNT (NO. 400024451750019) IS MAINTAINED WITH DEUTSCHE BANK WHICH IS EXCLUSIVELY USED FOR HIS FOREIGN CONSULTAN CY INCOME. FINANCIALS ARE PREPARED ONLY FOR HIS CONSULTANCY INCOME WHICH WERE SUBJECTED TO TAX AUDIT U/S. 44AB OF THE ACT. COPY OF THE FINANCIALS AND BANK STATEMENT FOR THE YEAR ENDED 31ST MARCH 2016 WAS FURNISHED BEFORE THE AO. HOWEVER, THE SAID DONATION TO NCBS WAS MADE OUT OF HIS PERSONAL BANK ACCOUNT WITH ICICI BANK. A COPY OF WH ICH WAS ALREADY FURNISHED TO THE AO AND HENCE THE SAID DONATION IS NOT APPEARING IN HIS INCOME AND EXPENDITURE ACCOUNT. THE ASSESSEE CLAIME D THAT SINCE HE ITA NO.1414/BANG/2019 PAGE 5 OF 9 EARNED INCOME CHARGEABLE UNDER 'INCOME FROM BUSINES S OR PROFESSION' DEDUCTION SHOULD BE ALLOWED IN RESPECT OF DONATION COVERED U/S. 35(1)(II) UNDER THE HEAD 'INCOME FROM BUSINESS OR P ROFESSION ONLY. 9. THE AO, HOWEVER, HELD THAT INCOME IN THE FORM OF MANAGEMENT CONSULTANCY FEE RECEIVED BY THE ASSESSEE DURING THE PREVIOUS YEAR WAS ONLY RS.72,35,915 AND THIS SUM AFTER SETTING OFF EX PENSES WAS TRANSFERRED TO ASSESSEES CAPITAL ACCOUNT. ACCORDING TO THE AO, IT WAS THEREFORE CLEAR THAT THE SUM OF RS.3 CRORES PAID TO NCBS(TIFR) WAS NOT PAID OUT OF BUSINESS INCOME AND THAT THE SAME WAS PAID OUT OF E XEMPT INCOME EARNED BY ASSESSEE AND THEREFORE CANNOT BE SAID TO BE INCU RRED FOR THE PURPOSE OF BUSINESS OF ASSESSEE. ACCORDING TO THE AO, SINCE TH E EXPENDITURE IN QUESTION WAS NOT INCURRED AS BUSINESS EXPENDITURE, THE CLAIM OF DEDUCTION U/S. 35(1)(II) CANNOT BE ALLOWED. 10. BEFORE THE CIT(APPEALS), THE ASSESSEE REITERATE D THE SUBMISSIONS MADE BEFORE THE AO THAT TO CLAIM DEDUCTION U/S. 35( 1)(II), THE EXPENDITURE NEED NOT BE RELATED TO THE BUSINESS OF ASSESSEE. T HE ASSESSEE ALSO SUBMITTED THAT IT IS NOT A CONDITION PRECEDENT FOR ALLOWING DEDUCTION U/S. 35(1)(II) THAT THE CONTRIBUTION/DONATION SHOULD BE GIVEN OUT OF BUSINESS INCOME. IN THIS REGARD, THE ASSESSEE PLACED RELIAN CE ON THE DECISION OF THE ITAT BANGALORE BENCH IN THE CASE OF INFOSYS TECHNOLOGIES LTD. V. JCIT [2008] 19 SOT 7 (BANG) (URO). IN THE AFORESAID DECISION, DEDUCTION U /S. 80G CLAIMED BY THE ASSESSEE WAS DENIED ON THE GROUN D THAT DONATION WAS MADE OUT OF PROFITS OF AN UNIT WHICH WAS EXEMPT U/S . 10A OF THE ACT. THE TRIBUNAL, HOWEVER, HELD THAT THERE IS NO STIPULATIO N IN SECTION 80G OF THE ACT THAT THE DONATION IS TO BE PAID ONLY OUT OF TAXABLE INCOME OF THE YEAR [PARA 4.6 OF THE AFORESAID DECISION OF TRIBUNAL]. BASED ON THE SAME ANALOGY, THE ASSESSEE CONTENDED THAT THOUGH THE DONATION WAS GIV EN OUT OF INCOME EARNED BY THE ASSESSEE, WHICH WAS EXEMPT, DEDUCTION U/S. 35(1)(II) CANNOT BE DENIED TO ASSESSEE. ITA NO.1414/BANG/2019 PAGE 6 OF 9 11. THE CIT(APPEALS), HOWEVER, SUSTAINED THE ORDER OF THE AO ON THE ONLY BASIS THAT DONATION IN QUESTION WAS MADE TO TH E CORPUS FUND AND THEREFORE IT CANNOT BE SAID THAT IT IS A DONATION M ADE FOR THE PURPOSE OF SCIENTIFIC RESEARCH. FOR COMING TO THE AFORESAID C ONCLUSION, THE CIT(A) RELIED ON THE BANK STATEMENT OF THE ASSESSEE, WHICH EVIDENCES THE PAYMENT OF DONATION TO NCBS. THE ENTRY IN THE BANK STATEMENT HAD A DESCRIPTION NCBS CORPUS. THIS IS THE BASIS ON WH ICH THE CIT(A) CAME TO THE CONCLUSION THAT THE ASSESSEE MADE DONATION TO C ORPUS FUND AND SINCE THE DONATION WAS TO A CORPUS FUND, DEDUCTION CANNOT BE USED FOR SCIENTIFIC RESEARCH. THE CIT(A) RELIED ON THE DECISION OF ITA T BOMBAY BENCH IN THE CASE OF SHERPUR MEDICAL RESEARCH CO. V. ITO [1986] 18 ITD 303 (BOM) WHEREIN THE TRIBUNAL TOOK THE VIEW THAT DEDUCTION U /S. 35(1) CANNOT BE ALLOWED IF DONATION IS PAID TOWARDS CORPUS FUND. T HE CIT(A) ACCORDINGLY UPHELD THE ORDER OF AO. 12. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 13. THE ASSESSEE HAS FILED AN APPLICATION UNDER RUL E 29 OF THE ITAT RULES, 1963, SEEKING TO FILE ADDITIONAL EVIDENCE OF THE APPROVAL GRANTED TO NCBS-TIFR U/S. 35(1)(II) OF THE ACT. THE ASSESSEE HAS ALSO FILED A LETTER DATED 4.6.2019 WRITTEN BY NCBS TO ASSESSEE POINTING OUT THAT THE DONATION OF RS.3 CRORES PAID BY THE ASSESSEE WAS NOT TOWARDS ANY CORPUS FUND AND THAT NCBS WAS FREE TO USE THE AFORESAID SUM FOR SCI ENTIFIC RESEARCH. IN THE APPLICATION FOR ADMISSION OF ADDITIONAL EVIDENCE, T HE ASSESSEE HAS STATED THAT THE CIT(A) DID NOT CONFRONT THE ASSESSEE ABOUT HIS INTENTION TO CONFIRM THE ORDER OF AO ON THE GROUND THAT DONATION WAS MAD E TO A CORPUS FUND AND THEREFORE IT CANNOT BE REGARDED AS A DONATION T O BE USED FOR SCIENTIFIC RESEARCH. IT IS ONLY AFTER THE RECEIPT OF THE IMPU GNED ORDER OF CIT(A) THAT THE ASSESSEE MADE A REQUEST TO NCBS TO CONFIRM THE FACT THAT DONATION ITA NO.1414/BANG/2019 PAGE 7 OF 9 GIVEN BY ASSESSEE WAS NOT TOWARDS ANY CORPUS FUND. NCBS HAS ISSUED THE CONFIRMATION ON THE REQUEST OF ASSESSEE. 14. WE HAVE CONSIDERED THE REQUEST OF ASSESSEE FOR ADMISSION OF ADDITIONAL EVIDENCE AND ARE SATISFIED THAT THE ADDI TIONAL EVIDENCE RELIED UPON BY THE ASSESSEE IS NECESSARY FOR PROPER ADJUDI CATION OF THE DISPUTE IN THIS APPEAL AND THE SAME IS ACCORDINGLY ADMITTED. WE ALSO FIND THAT THE FIRST DATE OF HEARING WAS 22.5.2019 AND THE SUBMISS IONS OF THE ASSESSEE IN THE APPEAL BEFORE CIT(A) WERE FILED ON 22.5.2019. THE IMPUGNED ORDER OF THE CIT(A) WAS PASSED ON 30.5.2019 AND THERE WAS NO OTHER HEARING DATE BETWEEN 22.5.2019 AND 30.5.2019. THEREFORE THERE I S MERIT IN THE SUBMISSION OF ASSESSEE THAT CIT(A) DID NOT CONFRONT THE ASSESSEE ABOUT HIS PROPOSAL TO SUSTAIN THE ORDER OF AO ON THE GROU ND THAT THE DONATION MADE BY ASSESSEE TO NCBS WAS TOWARDS CORPUS AND THE REFORE NOT ELIGIBLE FOR DEDUCTION U/S. 35(1)(II) OF THE ACT. THE ADDIT IONAL EVIDENCE IS THEREFORE ADMITTED FOR ADJUDICATION. 15. THE LD. COUNSEL FOR ASSESSEE WHILE REITERATING THE SUBMISSIONS MADE BEFORE THE CIT(APPEALS) FURTHER SUBMITTED THAT IN T HE LIGHT OF THE CONFIRMATION NOW FILED BEFORE THE TRIBUNAL, IT CANN OT BE SAID THAT THE DONATION MADE BY THE ASSESSEE WAS TO A CORPUS FUND AND THEREFORE THE DECISION OF ITAT BOMBAY IN THE CASE OF SHERPUR MEDICAL RESEARCH CO. (SUPRA) CANNOT BE APPLIED TO THE FACTS OF ASSESSEES CASE. SINCE THE ASSESSEE SATISFIED ALL OTHER CONDITIONS FOR GRANT O F DEDUCTION, THE SAME SHOULD BE ALLOWED TO THE ASSESSEE. 16. THE LD. DR RELIED ON THE ORDER OF CIT(APPEALS). 17. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT THE CASE MADE OUT BY THE AO HAS NOT BEEN SUSTAINED BY T HE CIT(APPEALS) AND THEREFORE THE ONLY BASIS ON WHICH ADDITION HAS BEEN SUSTAINED BY THE ITA NO.1414/BANG/2019 PAGE 8 OF 9 CIT(A) IS ON THE GROUND THAT THE DONATION IN QUESTI ON WAS TO A CORPUS FIND AND THEREFORE CANNOT BE SAID TO BE A DONATION MADE FOR USE FOR SCIENTIFIC RESEARCH. IT IS NO DOUBT TRUE THAT IN THE BANK STA TEMENT EVIDENCING PAYMENT OF RS.3 CRORES TO NCBS, THERE IS A DESCRIPTION VIZ. , NCBS CORPUS, BUT THIS, HOWEVER, IS CONTRARY TO THE ADDITIONAL EVIDEN CE FILED BY THE ASSESSEE BEFORE US WHICH HAS BEEN ADMITTED FOR ADJUDICATION, IN WHICH NCBS HAS CONFIRMED THAT THE DONATION GIVEN BY THE ASSESSEE W AS NOT CORPUS DONATION. IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT IT WOULD BE JUST AND APPROPRIATE TO SET A SIDE THE ORDER OF CIT(APPEALS) AND REMAND THE ISSUE TO THE AO FRESH A DJUDICATION, AS TO WHETHER DONATION MADE BY THE ASSESSEE IS TOWARDS A CORPUS FUND OR NOT, IN ACCORDANCE WITH THE LAW AND IN THE LIGHT OF ADDITIO NAL EVIDENCE FILED BEFORE THE TRIBUNAL, AFTER DUE OPPORTUNITY BEING AFFORDED TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 30TH DAY OF DECEMBER, 2019. SD/- SD/- ( D S SUNDER SINGH ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 30 TH DECEMBER, 2019. / DESAI S MURTHY / ITA NO.1414/BANG/2019 PAGE 9 OF 9 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FIL E BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.