SWASTIK TECHNOPACK PVT.LTD, MUMBAI V. DCIT, CIRCLE-3(2) (1) , MUMBAI

ITA 1521/MUM/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2726 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2015-2016
• Appeal Filed On: 02-09-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bonafide belief; Retrospective amendment; Wrong claim; Accommodation entries; Competent authority; Cancellation of registration; Revised return; Set aside; Bogus
• Section: 271(1)(c); 133A; 12AA; 143(2); 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E”, MUMBAI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI GAGAN GOYAL, ACCOUNTANT MEMBER ITA No. 1521/Mum/2021 (A.Y. 2015-16) Swastik Technopack Pvt. Ltd. A 1, Pankaj Building, Symphony IT Park, Near Megarugus Hall, Chandivali, Andheri (E), Mumbai-400072 PAN: AAICS9255L ...... Appellant Vs. DCIT, Circle-3(2)(1), Aayakar Bhavan, M.K. Road, Mumbai-400020. ..... Respondent Appellant by : Sh. Aditya Ramchandran Respondent by : Sh. B.K. Bagchi, Sr. DR Date of hearing : 20/06/2022 Date of pronouncement : 27/06/2022 ORDER PER GAGAN GOYAL, A.M: This appeal by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)-18, Mumbai [hereinafter referred to as ‘the CIT (A)’] dated 21.02.2020 for the Assessment Year (AY) 2015-16. The assessee has raised the following grounds of appeal: 2 ITA No. 1521 Mum 2021-Swastik Technopack Pvt. Ltd. 1. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming the levy of penalty of Rs. 22,71,150/- under section 271(1)(c) of the Act. 2. Brief facts of the case are that the assessee has e-filed its return of income for AY 2015-16 on 23.09.2015 declaring total income at Rs. 2,66,09,380/-. Thereafter, the case was selected for limited scrutiny wherein one of the issues under examination was large deduction claimed under section 35 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) (weighted deduction @ 175% of the amount). 3. Statutory notices were issued under section 143(2) of the Act on 18.03.2016. Thereupon the appellant e-filed its revised return of income on 13.09.2016 thereby upward revising its total income at Rs. 3,36,09,380/- i.e. on account of withdrawal of claim of weighted deduction at Rs. 70,00,000/- under section 35(1)(ii) of the Act against bogus claim of donation of Rs. 40,00,000/-. This donation by assessee was made to one M/s Bioved Research Society, Allahabad. Assessee was asked to furnish complete details with regard to claim of deduction under section 35 of the Act made by it in its original return of income, though the claim was withdrawn by filing revised return of income subsequent to the scrutiny notice issued by the Revenue authorities. 4. The assessment order was passed after considering the overall facts and circumstances of the case considering the submissions made by the assessee during the assessment proceedings. Assessment was completed on the basis of revised return filed by the assessee and no further addition was made, however, penalty proceedings were initiated against the assessee-company under section 3 ITA No. 1521 Mum 2021-Swastik Technopack Pvt. Ltd. 271(1)(c) of the Act for furnishing inaccurate particulars of income in its original return of income. 5. Relevant extracts of penalty proceedings are reproduced as under: “5.2 In response to the said penalty notice, the assessee company vide letter dated 26.09.2017 requested to take lenient view and drop the penalty proceedings stating that application in Form under IDS scheme, 2016 was filed on 15.09.2016 with the PCIT 11, Mumbai in respect of AY 2013-14 wherein declaration was made on an identical issue. Further, the assessee placed its reliance in this regard on CBDT's order u/s 119 of the Income Tax Act 1961 dated 21.09 2016. 5.3 After having gone through the facts and circumstances of the case as well as the submission of the assessee carefully, it is undisputed that the wrongful and frivolous claim of weighted deduction u/s 35 of the Act was made by the assessee in its original return of income with a clear motive of tax evasion. However, the case was got selected for limited scrutiny under CASS for specific reason of huge deduction claimed u/s 35 of the Act and accordingly, notice u/s 143(2) of the Act was issued to the assessee company on 18.03.2016 Le during FY 2015 16 itself As a matter of fact, after 6 months of the service of said statutory notice issued u/s 143(2) of the Act, the assessee company filed its revised return of income withdrawing the subject claim of wrongful deduction of Rs 70,00,000/- u/s 35(1)(ii) of the Act which was at the rate of 175% of the bogus entry of donation for Rs.40,00,000/-. In response to specific query raised during the assessment proceedings, the assessee company submitted that the donation of Rs.40,00,000/- was made via cheques to Bioved Research Society Allahabad, UP and after being aware that the donee had misappropriated the funds and violated the conditions of claiming benefit u/s.35(1)(ii) of the Act it revised its return of income thereby offering an additional income of Rs.70,00,000/-. It is worth mentioning here that the assessee has not furnished any explanation as to how it got acquainted with the said institution and what was due diligence made by it before donating such huge amount with regard to the actual activities of the said institution. Similarly, it failed to explain the source of information as to how it became aware that the said party had misappropriated the funds. On the other hand, it is worth mentioning here that a number of survey action were conducted by the Revenue Authorities in cases of various beneficiaries of the said accommodation entry provider institutions which resulted in the finding that the 4 ITA No. 1521 Mum 2021-Swastik Technopack Pvt. Ltd. said institution was merely engaged in providing accommodation entries of donation against certain commission thereby enabling such beneficiaries to make frivolous claim of weighted deduction (175% of such donation u/s.35(1)(ii) of the Act. It was also Unearthed that the amount so involved in such bogus donations made through banking channel were being returned to the beneficiaries in cash after layering of funds and routing the same through various accounts. Therefore, para 4.3 of the assessment order clearly held that there was no substance in the plea taken by the assessee that it had revised its return because it became aware of misappropriation of funds by the said institution. In fact, the assessee had revised its return only after it came to know that the Income tax department was coming down heavily against all the beneficiaries of such accommodation entries of donations provided by such institutions which are indulged in such unethical practices, it in abundantly clear that the entire set of financial transactions was arranged in such a way that it should appear a genuine one so that the assessee can take undue advantage of deduction u/s 35 of the Act. It is only when it became abundantly and apparently clear to the assessee that the modus operandi of tax evasion deducted by various beneficiaries of said Institution was revealed to the revenue and there was no escape route available to the answer anymore the assessee found no other alternative but to withdraw the wrongful claim of deduction u/s 35 of the Act made by it in its validly filed original return of income which was by that time already had been selected for scrutiny and as such, the under reported portion of its income involved in the subject structured transaction was bound to be brought to tax consequent to the ongoing assessment proceedings 5.4 Therefore, in the totality of the facts and circumstances of the case, the wrongful, frivolous and illegitimate claim of deduction of Rs. 70,00,000/- made u/s 35(1)(iii) of the Act by the assessee in its original return, though withdrawn by filing a revised return of income, duly attracts penal provisions u/m:271(1)](c) of the Act As regards the pica taken by the assessee vide its submission dated 26.09.2017 in the course of penalty proceedings that it had availed IDS 2016 scheme in respect of identical issue for AY 2013-14 and hence, penalty proceedings for the AY under consideration or the very same issue of wrongful claim of deduction u/s 35 of the Act deserves to be dropped; it is observed that the assessee had filed Form No. 1 on 15.09.2016, thereby disclosing additional income of Rs. 17,50,000/- in its hands under IDS Scheme 2016, However, it is observed that the assessee while requesting for dropping the penalty proceedings has placed its reliance on order dated 21.09.2016 issued by the CBDT vide F.No.282/227/2016-IT[Inv.V)/26/2016 which merely advices the Pr.CIT for taking 5 ITA No. 1521 Mum 2021-Swastik Technopack Pvt. Ltd. a lenient view on receipt of a valid application u/s 273A of the Act in respect of any issue for the AY, under question. Firstly, the power for taking lenient view in respect of penalty imposable or imposed u/s, 271(1)(c) of the Act is vested with the Pr CIT or the Commissioner u/s 273A of the Act and not with the Assessing Officer Secondly, the pre requisite or any such action on part of the Pr.CIT or the Commissioner is a valid application filed by the assessee in terms of the concluding Para of above referred Board's Circular dated 21.09.2016. In the instant case, the assessee company has not placed any plausible material on record to suggest if it had filed any valid application with the learned Pr CIT 11, Mumbai with the request to taken a lenient view within the purview of section 273A of the Ant during the course of pending penalty proceedings which are otherwise time barring in nature. 5.5 In view of the above discussion and after carefully considering all the relevant facts of the issue, the undersigned is of the view that the assessee had filed inaccurate particulars of its income in its original return of income leading to under reporting of its taxable income by Rs.70 00,000/-. If the case wild not have been selected for scrutiny, the assessee would have benefited by his wrongful and frivolous claim of deduction u/s.35(1)(ii) of the Act. It is undoubtedly established that the assessee company had entered into bogus transaction in the garb of donation whereby an amount of Rs.40,00,000/- were given to an accommodation entry provider institution through banking channel only to take undue benefit of deduction of an amount equal to 175% of such payment u/s 35(1)(ii) of the Act When it became abundantly and apparently clear to the assessee that the modus operandi of tax evasion by the beneficiaries of the said institution got revealed to the Revenue during the survey actions conducted by the Income Tax Department, Mumbai and as such, there was no escape route available to it; the assessee found no other alternative bur to withdraw the wrongful claim of deduction w/s 35(1)(ii) of the Act made by it in its validly filed original return of income which was already selected for scrutiny assessment and as such, the additional income involved in the said transaction was bound to be brought to tax consequent to assessment proceedings. It is now well settled proposition that the penalty u/s. 271(1)(c) is leviable, if assessee fails to disclose truly and correctly all the particulars of its income in its validly filed return.” 6. The contentions of the assessee with reference to above are as under: “As mentioned earlier, the appellant had surrendered as clan of deduction us 351 merely on the basis of a suspicion that the donee had misappropriated the 6 ITA No. 1521 Mum 2021-Swastik Technopack Pvt. Ltd. funds, which is not the case (as Hon'ble ITAT has held that the society has been carrying out activities as per its objects.) Therefore, had the appellant not surrender its claim and contested the matter in appeal the appeal should have been decided in the favour of the appellant In fact now the appellant has already suffered to a great extent by surrendering a genuine claim u/s 35(1)(ii). Therefore, it is humbly requested before your honour that the penalty may please be deleted as it has been levied against a deduction which was otherwise available to the appellant Quantum addition has been deleted by the Hon'ble ITAT in another case where the deduction was claimed on the contributions made to Bioved Research Society. (ii) Hon'ble ITAT, Mumbai in the case of M/s. Vora Financial Services P. Ltd. vs. ACIT ITA No. 532/Mum/2018 wherein the said assessee's claim u/s 35(1)(ii) on account of M/s Bioved Research Society was disallowed by the Ld. AO merely an the ground that the institute's registration was cancelled by the CIT(E) and that survey proceedings revealed that the contributions were: bogus in nature. However, the Hon'ble ITAT. Mumbai deleted the additions by holding as under. 20. In the instant case, the assessee has given the donation of Rs 50.00 Lakes to Ma Bioved Research Society In the assessment order passed by the AO in the hands of the above said society, he has only recommended for cancellation of the approval granted u/s 35/1 of the Act According to Ld A.R, the said approval has not been cancelled till date Though the Survey proceedings conducted in the hands of certain donors, which revealed that the donations were bogus in nature, no such finding has been given in the hands of the assessee herein. Hence, we are of the new that the genuineness of payment of donations cannot be doubted in the instant case, particular in the absence of any material to support the view taken by the AO, Hence we agree with the contentions of Ld. AR that the AO was not justified in rejecting the claim of weighted deduction. We further notice that the Ld CIT(A) has placed reliance on the cancellation of registration granted u/s 12AA of the Act to M/s Vioved Research Society with retrospective effect. The registration granted u/s 12AA of the Act and the approval granted u/s 35(1)(ii) of the Act operates on different field. Hence we are of the view that the Ld. CITA was not justified in placing reliance on the order of cancellation of registration u/s 12AA of the Act. 21. Even if the approval is cancelled subsequently with retrospective effect, various case laws discussed above bring out the ratio that the weighted 7 ITA No. 1521 Mum 2021-Swastik Technopack Pvt. Ltd. deduction claimed by the assessee u/s 35(1) of the Act cannot be denied, if there was valid and subsisting approval when the donation was given. In the instant case, it is the contention of Ld. AR that the approval was not cancelled till date. Before us, the revenue did not furnish any material to refute the contentions of Ld. A.R. 22. In view of the foregoing discussions, we are of the view that there is no justification in rejecting the claim of weighted deduction claimed u/s 35(1)(a) of the Act. Accordingly we set aside the order passed by Ld. CITA) on this issue and direct the AO to allow the weighted deduction claimed u/s 35(1)(ii) of the Act." 7. During the penalty proceedings, assessee submitted that for AY 2013-14 a declaration under IDS Scheme, 2016 on an identical issue was made. For this year also assessee would have do the same but a notice under section 143(2) of the Act was issued on 18.03.2016. This notice issued made the assessee ineligible to go for IDS Scheme, 2016 for this year also. Nevertheless, during the assessment proceeding assessee filed a revised return and declared the amount of weighted donation claimed amount to Rs. 70,00,000/- under section 35(1)(ii) of the Act. 8. Facts discussed (supra) in para-7 confirms one thing that despite the institution over whom allegation of fake transactions were labelled, cleared itself clean hands before Appellate Authorities and out of fear and confusion just to buy mental peace and to avoid litigation, assessee opted for IDS Scheme, 2016 for AY 2013-14 and then surrendered the same weighted deduction through revised return for AY 2015-16. No malafide or mens rea established against the assessee. 9. On the similar facts, Jurisdictional Bench (Mumbai) in the case of M/s Vora Financial Services P. Ltd. Vs. ACIT in ITA No. 532/Mum/2018 dated 29.06.2018; M/s Madhav Engineers Pvt. Ltd. Vs. Dy. CIT in ITA No. 3179/Mum/2019 dated 8 ITA No. 1521 Mum 2021-Swastik Technopack Pvt. Ltd. 21.04.2021 and Sammy E Major Vs. ACIT in ITA No. 965/Mum/2019 dated 09.06.2020. 10. Findings of the Jurisdictional Bench in the case of M/s Madhav Engineers Pvt. Ltd. (supra) for sake of clarity and matching the facts of case decided and appeal under consideration is as under: “3. We have heard the rival submissions and perused the materials available on record. We find that the assessee had filed its return of income for the Asst year 2015-16 on 29.9.2015 declaring total income of Rs 3,72,87,290/-. In the return of income, the assessee claimed deduction of Rs 70 lacs u/s 35(1)(ii) of the Act at the rate of 175% of actual contribution made in the sum of Rs 40 lacs to School of Human Genetics and Population Health (SHGPH) . There was a survey u/s 133A of the Act on 27.1.2015 at the registered/administrative office of SHGPH and it was found that SHGPH through a network of brokers was engaged in the practice of issuing bogus receipts for donation for commission. This was alleged to have been done by SHGPH in connivance with donors, brokers and accommodation entry providers by indulging in an organized scheme of tax evasion. During the assessment proceedings of the assessee, the assessee withdrew this claim of weighted deduction u/s 35(1)(ii) of the Act in the sum of Rs 70 lacs. Accordingly, the same was added to the total income of the assessee by the ld AO while completing the assessment. The ld AO simultaneously initiated penalty proceedings u/s 271(1)(c ) of the Act for the said addition. In response, the assessee submitted that it had full and true disclosure of all the facts pertaining to the said claim of deduction by furnishing all the requisite documents in support of its claim. It was pleaded that no falsity was found by the ld AO in the various documents furnished by the assessee. The only reason available with the ld AO was that the recognition given to SHGPH u/s 35(1)(ii) of the Act was withdrawn by the Board with retrospective effect. There was absolutely no evidence brought on record by the lower authorities that assessee had indulged in accommodation entry ITA No.3179/Mum/2019 M/s. Madhav Engineers Pvt. Ltd., transaction by indulging in organized scheme of tax evasion by getting back cash in the instant transaction of giving contribution to SHGPH. Despite this, the assessee had come forward to withdraw its claim of weighted deduction in order to purchase peace from the department, though the entire facts relating to the said claim of deduction was available in the return of income itself supported by various documents furnished during the course of assessment proceedings. The entire addition was sought to be 9 ITA No. 1521 Mum 2021-Swastik Technopack Pvt. Ltd. made ultimately based on the evidences gathered in the course of survey proceedings u/s 133A of the Act carried out in the premises of SHGPH (donee institution) and statements recorded from their office bearers. No where in the said statements, the office bearers had even whispered the name of the assessee or payments given back to assessee in cash in lieu of contributions made by assessee to SHGPH. In any case, the Explanation to section 35(1)(ii) of the Act clearly supports the case of the assessee by categorically providing that the claim of deduction in the hands of the donor (i.e the assessee herein) cannot be disturbed under any circumstances even if the recognition of the donee institution has been withdrawn by the competent authority subsequently. The purpose of this Explanation is that the bonafide belief of the assessee (donor institution) at the time of making contributions should be respected and it cannot be faulted for the fraudulent acts, if any, committed by the donee institution. Despite this, the assessee had come forward to offer the said claim of weighted deduction by withdrawing the same during the course of assessment proceedings and had paid tax thereon. This proves the bonafide intent of the assessee, to purchase peace from the department and to avoid vexatious litigation in this regard. In our considered opinion, this intention of the assessee deserves to be accepted in toto. Hence this is not a fit case for levy of penalty u/s 271(1)( c) of the Act.” 11. As discussed in the preceding paragraphs and following the order passed by Co-ordinate Bench of this Tribunal in case of M/s Madhav Engineers Pvt. Ltd (supra), we are of the considered view that when we consider the factum of claiming weighted deduction of Rs. 70,00,000/- by the assessee under section 35(1)(ii) of the Act against the bogus claim of deduction of Rs. 40,00,000/- by the assessee in the light Explanation to section 35(1)(ii) of the Act, it shows that the claim of deduction in the hands of donor (the assessee in this case) cannot be disturbed under any circumstances, even if recognition of the donee institutions has been withdrawn by the competent authority. In these circumstances malafide on the part of assessee has not come on record because in the identical facts in AY 2013-14 for similar claim, the assessee had opted for IDS-2016 scheme and for this year assessee claiming that he could not lodge its claim under IDS-2016 appeal because notice under section 143(2) were already issued. 10 ITA No. 1521 Mum 2021-Swastik Technopack Pvt. Ltd. 12. In the instant case, the assessee has filed the revised return of income withdrawing the claim of wrongful deduction of Rs. 70,00,000/- under section 35(1)(ii) of the Act which was @ 175% of bogus entries of deduction for Rs. 40,00,000/-, paid interest thereon and this fact also goes to prove that the assessee has withdrawn the claim of weighted deduction to buy peace from the Department. So in these circumstances by following the order passed by the Co- ordinate Bench of Tribunal in case of M/s Madhav Engineers Pvt. Ltd. (supra), the penalty levied by AO and confirmed by ld. CIT(A) is not sustainable under section 271(1)(c) of the Act. Accordingly, AO is directed to delete the same. 13. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 27 th day of June, 2022. Sd/- Sd/- (KULDIP SINGH) (GAGAN GOYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, िदनांक/Dated: 27/06/2022 SK, Sr.PS Copy of the Order forwarded to: 1. अपीलाथŎ/The Appellant , 2. Ůितवादी/ The Respondent. 3. आयकर आयुƅ(अ)/ The CIT(A)- 4. आयकर आयुƅ CIT 5. िवभागीय Ůितिनिध, आय.अपी.अिध., मुबंई/DR, ITAT, Mumbai 6. गाडŊ फाइल/Guard file. BY ORDER, //True Copy// (Dy. /Asstt. Registrar) ITAT, Mumbai