J G ENGINEERS PVT. LTD.,KOLKATA V. I.T.,O,WARD-1(2), KOLKATA

ITA 1145/KOL/2019

AI Insights

The case involves J G Engineers Pvt. Ltd., which appealed against the order of the Commissioner of Income-tax (Appeals)-5, Kolkata, concerning the Assessment Year 2013-14. The primary contention was the disallowance of a donation claimed under Section 35 of the Income Tax Act, 1961, which was treated as bogus by the Assessing Officer following a survey operation. The tribunal's decision was influenced by a precedent set by the Hon'ble Calcutta High Court, which addressed similar issues of retrospective withdrawal of approval for tax benefits under Section 35(1)(ii).

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 46775 (ITAT-KOLKATA)
• Duration Of Justice: 5 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 25-09-2024
• Assessment Year: 2013-2014
• Appeal Filed On: 14-05-2019
• Other Referred Cases: Principal Commissioner Of Income Tax 5,Kolkata Vs. J P Financial Services Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Retrospective amendment; Assessment record; Bogus
• Section: 143(3); 143(2); 250; 12AA; 208; 131; 133A; 260A

Judgement Text

"आयकर अपीलीय अधिकरण कोलकाता 'सी' पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘C’ BENCH, KOLKATA श्री राजेश क ुमार, लेखा सदस्य एवं श्री प्रदीप क ुमार चौबे, न्याधयक सदस्य क े समक्ष Before SRI RAJESH KUMAR, ACCOUNTANT MEMBER & PRADIP KUMAR CHOUBEY, JUDICIAL MEMBER I.T.A. No.: 1145/KOL/2019 Assessment Year: 2013-14 J G Engineers Pvt. Ltd………………………………………………………Appellant [PAN: AAACJ7587J] Vs. ITO, Ward-1(2), Kolkata........................................................Respondent Appearances: Assessee represented by: Miraj D. Shah, AR. Department represented by: Monalisha Pal Mukherjee, JCIT. Date of concluding the hearing : September 25th, 2024 Date of pronouncing the order : November 29th, 2024 ORDER Per Pradip Kumar Choubey, Judicial Member: This appeal filed by the assessee pertaining to the Assessment Year (in short ‘AY’) 2013-14 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the ‘Act’) by ld. Commissioner of Income-tax (Appeals)- 5, Kolkata [in short ld. ‘CIT(A)’] dated 23.01.2019 arising out of the assessment order framed u/s 143(3) of the Act dated 11.03.2016. 1.1. The brief facts of the case of the appellant are that the assessee filed its return of income for AY 2013-14 on 03.09.2013 declaring loss of Rs. 64,623/- . Case of the assessee was selected for scrutiny, notices u/s 143(2) and u/s I.T.A. No.: 1145/KOL/2019 Assessment Year: 2013-14 J G Engineers Pvt. Ltd. Page 2 of 8 142(1) of the Act were duly issued. In response to such notices the authorized representative of the assessee appeared and explained about the return of income. The Assessing Officer (hereinafter referred to as ld. 'AO') found that in course of survey operation u/s 133A of the Act conducted on 27.01.2015 in the premises of SHG&PH and Examination and Analysis impounded books of accounts and other important documents along with post survey enquiries establish that SHG&PH was indulge in providing bogus donation entries u/s 35 of the Act through various brokers in lieu of the commission. In course of survey statement of several persons related to School of Human Genetics and Population Health (in short SHG&PH) were recorded, notice u/s 131 of the Act was issued to various brokers and their statements were also recorded on oath. The assessee was requested to show cause vide letter dated 13.01.2016 as to why the above noted donation of Rs. 1.25 Crore will not be treated as bogus and the deduction claimed in relation to that amount not be disallowed and added back to the total income of the assessee for the AY 2013-14. The assessee has submitted written submission and, in his submission, he claimed that the donation was bona fide and the deduction was claimed on the basis of approval and notification of the Govt. of India. But the Ld. AO did not find the submission of the assessee tenable and accordingly, donation of Rs. 1.25 Crore is being treated as bogus and such claim of deduction u/s 35 of the Act of Rs. 2,18,75,000/- is being disallowed and added back to the total income of the assessee. The Ld. AO further found that as per the detailed submission during the course of assessment proceedings it is found that in the FY 2012-13 with respect to the following expenses no tax was deducted and the assessee was requested to explain the reason for such non-deduction of tax at source. Ld. AO on perusal of the details furnished with such submission found that total payment made during the year to such persons exceeds Rs. 70,000/- and accordingly, as per provisions of Section u/s 40(a)(ia) of the Act such expenditure of Rs. 4,61,304/- is being disallowed and added back to the total income returned for the 13-. The said order has been challenged by the assessee before the Ld. CIT(A) wherein he challenges the disallowances of Rs. 1.25 Crore u/s 35(i)(ii) of the Act and submitted that the assessee is entitled to the deduction. The Ld. CIT(A) after considering the I.T.A. No.: 1145/KOL/2019 Assessment Year: 2013-14 J G Engineers Pvt. Ltd. Page 3 of 8 submission, documents and the notification issued by the Ministry of Finance vide notification no. 82/2016/F.No.203/64/2009/ITA-II] dated 15.09.2016 held thus: “The above notification makes clear that the earlier notification No. 4/2010 dated 28.01.2010 shall be deemed not to have been issued for any income- tax benefits under the Income-tax Act. Therefore, the payment of Rs.1,25,00,000/- for the purpose of availing weighted deduction of 175% u/s 35(l)(ii) of the Act made to. M/s School of Human Genetics and Population Health, Kolkata is denied.ht may be clarified here that explanation to section 35(l)(iii) of the Income-tax Act shall not come to the rescue of the. appellant as it relates, only to approvals which have been withdrawn subsequent to the payments made to Institutions to which clause (ii) or clause (iii) applies. In the case of M/s School of Human Genetics and Population Health, Kolkata, the notifications had been deemed not to have been issued for any tax benefits under the Income-tax Act, 1961 or any other law of the time being in force. Though the appellant made a donation of only Rs.1,25,00,000/-, however, he has claimed u/s 35(i)(i) and (ii) weighted deduction amounting to Rs.2,18,75,000/-from his return income. The disallowance is, therefore, restricted to the deduction claimed at Rs.2,18,75,000/-. After a careful consideration of the relevant assessment records and the submission of the appellant, the disallowance of Rs.2,18,75,000/- on account of expenditure made u/s 35(l)(i) and (ii) of the IT. Act, 1961 is, hereby, confirmed. The Assessing Officer is directed accordingly.” Being aggrieved and dissatisfied with the impugned order, the present appeal has been preferred. 1.2. The ld. Counsel for the assessee challenges the impugned order by citing a decision passed in the case of Principal Commissioner Of Income Tax 5,Kolkata Vs. J P Financial Services Pvt. Ltd. in ITAT/153/2023 IA NO: GA/2/2023 has submitted that issue in the present case and the issue before the Hon’ble High Court in the above cited decision are the same and his case is entirely covered with the cited decision as above. The ld. Counsel for the assessee submits that Ld. CIT(A) in its order has dismissed the appeal of the assessee in view of the notification that Section 35(i)(iii) of the Act shall not come to rescue the appellant as it relates only to approvals which have been withdrawn subsequent to the payments made to the institutions to which Clause 'ii' or Clause 'iii' applies. Ld. Counsel for the assessee submits that I.T.A. No.: 1145/KOL/2019 Assessment Year: 2013-14 J G Engineers Pvt. Ltd. Page 4 of 8 Hon'ble High Court has clearly dealt with this issue and passed an order in favour of the assessee 1.3. On the contrary, ld. DR supports the impugned order. 2. We have perused the case record and find that the during the assessment proceedings assessee has explained that M/s. SHG&PG was having registered u/s 12AA of the Act granted by the Director of Income Tax (Exemption) with effect from 27.10.2004. We further find that the said SHG&PG was approved u/s 35(i)(ii) of the Act is a recognized institution by CBDT, Department of Revenue vide notification no. 4/2010/F. No. 203/64/2009/ITA-II dated 28.01.2010. Further the Scientific Industrial Research Organization (SIRO), Ministry of Science Technology, Government of India, had renewed the approval till 31/03/2013 vide approval no. 14/473/2007-TU-V dated 17/06/2010. The assessee had also explained about its commercial objective for association with such an accredited institution apart from getting an immediate tax benefit via weighted deduction for any donation to the institution. The assessee paid a sum of Rs. 1,25,00,000 to M/s. School of Human Genetics Population health (SHGPH) on various dates in the month of February and March, 2013 and claimed deduction u/s 35(l)(ii) of the Income Tax Act, 1961 @ 175% of the donation i.e. a sum of Rs.2,18,75,000. 2.1. On going over the records we find that the assessee identified a research institution, namely School of Human Genetics and Population Health (SHGPH), who happened to be engaged in scientific research in the field of genetic disability. From inter-net search, the assessee father understood that SHGPG is a research institution recognized by the Ministry of Science & Technology, Government of India. When contracted, M/s SHGPG had invited the assessee to visit their office & laboratory. The assessee visited the organization. From the presentation made by the research institution, the assessee came to know that the Institutes was approved by the Central Government under notification no 4/2010/F. No. 203/64/2009/ITA-II dated 28/01/2010 and the assessee would be eligible to get a weighted deduction I.T.A. No.: 1145/KOL/2019 Assessment Year: 2013-14 J G Engineers Pvt. Ltd. Page 5 of 8 @ 175% u/s 35(l)(ii) of the Income Tax act, 1961 for any donation made to the Institution. The assessee further understood that the Institute was also registered u/s 12AA of the Income Tax Act, 1961, The assessee found that the Board of SHGPG was constituted by eminent persons in the field of life sciences. The assessee also had gone through the projects as carried on by the SHGPG as exhibited in the website and the assessee was approached by SHGPG to make donation so as to continue the research activities. 2.2. The assessee was also informed by SHGPG that since the year ending is approaching, the donation have to be made within 31/03/2013 to get the deduction u/s 35(l)(ii) of the Income Tax Act. On request of the assessee, M/s SHGPG had submitted the documents regarding its registration u/s 12AA of the Income tax Act and gazette notification issued by the Central Government dated 28/01/2010 approving SHGPG for the purpose of clause (ii) of sub- section (1) of Section 35 of the Income tax act, 1961. Based on the above, the assessee donated a sum of Rs. 1,25,00,000 through RTGS to the bank account of the donee. 2.3. By submitting all the documentary evidences during assessment, the assessee had shown that it had examined the credentials of M/s SHGPG. The assessee also explained about its objective for association with the Institute. The assessee had gone through the annual report provided by the Institute and relied on the information regarding the projects undertaken by the Institution. The assessee had examined the status of the board members of SHGPG. Tine assessee had taken information about the on-going projects of SHGPG. Thus, the assessee had all along acted as a man of ordinary prudence, examined the documents as are generally asked for, gathered facts from the Institution's website and thus completed its due-diligence about the Institution. The payment was not made by the assessee to an unknown person but to an organization approved by the Central Government which was valid till the date of payment. The payment was made through banking channels i.e. through RTGS so that the donee only gets the fund for carrying out its declared objectives. All the payments were duly covered by the money receipts of the donor. The claim was duly made in the return. Even during assessment, I.T.A. No.: 1145/KOL/2019 Assessment Year: 2013-14 J G Engineers Pvt. Ltd. Page 6 of 8 in respect of the AO's specific query about the investigation carried on by the DDIT(Inv), Kolkata and the statement of the Institute's director & treasurers before the investigation agencies about receipt fund for commission through bogus donation, the assessee explained that the company was not aware of any incident and the donation was given under bona fide belief. In the same context, the assessee requested the AO to supply the adverse material which however was not provided. 2.4. As we have already discussed in our preceding paragraph that the Ld. CIT(A) has confirmed the order of the Ld. AO on addition of Rs. 2,18,75,000/- in his return of income only on the basis of notification as stated above. We have gone through the judgment passed by the Hon'ble Calcutta High Court in the above cited decision and according to him it is essential to reproduce the judgment of the above cited decision which is as under: “The Court This appeal by the revenue filed under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated November 13, 2019 in ITA No. 07/Kol/2019 as well as the order in M.A. No. 4/Kol/2021 dated May 27, 2022 for the assessment year 2015-16. The revenue has raised the following substantial questions of law for consideration A. Whether the Learned Income Tax Appellate Tribunal has committed substantial error in law in allowing the deductions claimed under Section 35(1 )(ii) of the Act by the assessee company for donation to the M/s. Herbicure Healthcare Bio-Herbal Research Foundation is perverse considering that there were ample evidence on the contrary and placed on record where it is clearly evident that such transactions were carried out by the assessee firm were I the nature of bogus donations made with the sole intention to evade taxes ? B. Whether the Learned Income Tax Appellate Tribunal has committed substantial error in law in giving relief to the assessee by allowing the claim of bogus donations under Section 35(1 )(ii) by stating that the CBDT had recognized such bogus entry providing concerns namely M/s. Herbicure Healthcare Bio-Herbal Research Foundation under section 35(1 )(ii) whereas on the contrary such approval and recognition had been withdrawn by the CBDT vide Gazettee Notification S.O. 2882(E) dated 6th September, 2016 and O.M. vide F. No. 203/09/2015/ITA.II dated 21st September, 2016 considering the nature of unscrupulous activities carried on by these donee concerns ? I.T.A. No.: 1145/KOL/2019 Assessment Year: 2013-14 J G Engineers Pvt. Ltd. Page 7 of 8 We have heard Mr. Om Narayan Rai, learned standing counsel along with Mr. Soumen Bhattacharjee, learned Advocate for the appellant / revenue. The short issue which falls for consideration in this appeal is whether the Tribunal was right in allowing the deductions claimed by the assessee under Section 35(1 )(ii) of the Act for the donation to a organization who initially enjoyed a registration under Section 35(1) of the Act, which was subsequently withdrawn with retrospective effect. The learned Tribunal followed the decision of a co-ordinate Bench of the Tribunal dated 27.07.2018 in the case of Narbheram Vishram in LT.A. Nos. 42&43/Kol/2018. Apart from certain factual similarities the Tribunal in the said decision has also taken note of the decisions of the Hon’ble Supreme Court holding that there is no provision for withdrawal of recognition under Section 35(l)(ii) of the Act. The view taken by the learned Tribunal in the impugned order is supported by the decision of the Hon’ble Division Bench of this Court in the case of Commissioner of Income Tax Versus General Magnets Ltd. ; (2002) 256 ITR 471 wherein the Court after taking note of various decisions namely CIT v. Ethelbari Tea Co.(1931) Ltd., [2002] 256 ITR 470 (Cal), B.P. Agarwalla and Sons Ltd. v. CIT [1994] 208 ITR 863 (Cal), K.M. Scientific Research Centre v. Lakshman Prasad [1998] 229 ITR 23, Seksaria Biswan Sugar Factory Ltd.v. IAC [1990] 184 ITR 123, CIT v. Bhartia Cutler Hammer Co.[l 998] 232 ITR 785, Chotatingrai Tea Estate Put. Ltd. v. CIT [1999] 236 ITR 644, held that for the mistake committed by the department the assessee should not suffer. The withdrawal of approval to the society for retrospective effect is itself bad and no assessee should suffer for the mistake of the department. The department has power of withdrawal but in such cases withdrawal can be only with prospective effect. Further it was held that if the donation to the approved society is genuine, in that case withdrawal with retrospective effect does not affect the right of the assessee for deduction of the amount which has accrued to the assessee on the basis of the payment to an approved society under Section 35CCA of the Act. In the light of the above, the order passed by the learned Tribunal does not call for any interference. In the result, the appeal is dismissed and the substantial questions of law are answered against the revenue.” 3. Going over the judgment and the present facts of the case it appears to us that issues are the same. In the present case also, the approval of the assessee was subsequently withdrawn. Donation to the approved society is genuine.The present case is entirely covered with the said decision of the Hon'ble Calcutta High Court. Accordingly, appeal of the assessee is hereby allowed and the Ld. AO is directed to delete the amount of Rs. 2,18,75,000/- I.T.A. No.: 1145/KOL/2019 Assessment Year: 2013-14 J G Engineers Pvt. Ltd. Page 8 of 8 4. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 29th November, 2024. Sd/- Sd/- [Rajesh Kumar] [Pradip Kumar Choubey] Accountant Member Judicial Member Dated: 29.11.2024 Bidhan (P.S.) Copy of the order forwarded to: 1. J G Engineers Pvt. Ltd., 176/B, Rashbehari Avenue, Triangular Park, Kolkata, West Bengal, 700029. 2. ITO, Ward-1(2), Kolkata. 3. CIT(A)-5, Kolkata. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata "