Income Tax Appellate Tribunal – Mumbai
Krossover Entertainment Pvt Ltd, … vs Dy Cit 12(3)(1), Mumbai on 5 October, 2021 THE INCOME TAX APPELLATE TRIBUNAL
“H” Bench, Mumbai
Shri Shamim Yahya (AM) & Shri Pavankumar Gadale (JM)
I.T.A. No. 550/Mum/2020 (Assessment Year 2012-13)
Krossover Entertainment Vs. DCIT-12(3)(1)
Pvt. Ltd. Aayakar Bhavan
Flat No. 1503, G-Wing M.K. Road
Jade Garden, MIG Colony Mumbai-400020.
Ghandhi Nagar, Bandra-E
Mumbai-400 051.
PAN : AADCK8786D
(Appellant) (Respondent)
Assessee by Shri Rajiv Khandelwal
Department by Shri Garbinder Singh
Date of Hearing 27.07.2021
Date of Pronouncement 05.10.2021
ORDER
Per Shamim Yahya (AM) :-
This appeal by the assessee is directed against the order of learned
CIT(A)-dated 13.11.2019 pertains to assessment year 2012-13.
2. The grounds of appeal read as under :-
“The following grounds of appeal are independent of, and without prejudice
to, one another:
1. The Commissioner of Income-tax (Appeals) – 20, Mumbai (hereinafter
referred to as the CIT(A)) erred in upholding the action of the Deputy
Commissioner of Income-tax-12(3)(1), Mumbai (hereinafter referred to as the
Assessing Officer) in issuing notice under section 148 of the Act.
The appellants contend that on the facts and in the circumstances of the
case and in law, the issue of notice under section 148 is without jurisdiction,
and hence, bad in law and consequently, the assessment order ought to have
been quashed by the CIT(A).
The appellants further, contend that the reasons recorded by the Assessing
Officer are vague, insufficient and without application of mind and hence, the
CIT(A) ought to have quashed the notice under section 148 and thereby the
consequent assessment order.
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2. The CIT(A) erred in upholding the action of the Assessing Officer in
disallowing Rs 35,00,000, being the claim of weighted deduction of 175%
under section 35(l)(ii), on the ground that donation receipt of Rs 20,00,000 is
not submitted.
The appellants contend that on the facts and in the circumstances of the
case and in law, the CIT(A) ought not to have confirmed the action of the
Assessing Officer in making the impugned disallowance of the claim of
deduction under section 35(l)(ii) of the Act inasmuch the CIT(A) has not
appreciated that the letter dated 29th March, 2012 of the scientific research
institution acknowledges receipt of Rs 20,00,000 by RTGS to their bank
account (details mentioned therein) and has enclosed the necessary
documents and hence, the said disallowance requires to be deleted.
3. Brief facts are that for the AY 2012-13, the assessee filed its return of
income on 28.09.2012 declaring total income at Rs,4,48,03,337/-. The return
was processed u/s.143(l) of the Act, Subsequently, an order u/s.l43(3) was
passed on 16.02.2015 determining total income at Rs.4,48,14,849/-.
Subsequently, the AO received information from Directorate of Income Tax
(Investigation), Kolkata that an institution approved u/s.35(i) namely M/s.
Herbicure Healthcare Bio-Herbal Research Foundation (HHBHRF) was
providing accommodation entries to beneficiaries in the nature of bogus
donation that the modus operandi of HHBHRF was to receive the bogus
donations by cheque and then return money to the donors in cash after
deduction of commission; that the assessee had taken an accommodation
entry from HHBHRF for bogus donation of Rs. 20,00,000/- and had made a
bogus claim of deduction of Rs.35,00,000/- u/s. 35(l)(ii) of the Act. Therefore,
the AO had reason to believe that income to the extent of Rs. 35,00,000/- had
escaped assessment. Based on the information, the Assessing Officer
reopened the assessment u/s. 147 of the Act after obtaining approval from Pr.
Commissioner of Income Tax-12, Mumbai and issued a notice u/s. 148 of the
Act on 30.03.2018. The Assessing Officer also provided the reasons recorded
for reopening to the assessee. By its letter dated 09.05.2018, the assessee
objected to the reopening of the assessment. The Assessing Officer passed an
order dated 14.06.2018 rejecting the objections raised by the assessee. On
21.06.7018, the assessee filed its return of income in response to the notice
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u/s. 148 declaring total income at Rs.4,48,03,340/- which was declared in the
original return of income. Thereafter, Assessing Officer issued notice u/s.
143(2) of the Act on 25.09.2018. Thereafter, the Assessing Officer passed an
order u/s.143(3) r.w.s. 147 of the Act on 29.10.2018 determining the total
income of the assessee at Rs.4,83,14,850/-. In that order, the Assessing
Officer rejected the claim of deduction u/s.35(l) of the Act and added the same
to the total income of the assessee.
4. Aggrieved, by the said order, the assessee has filed this appeal. Before
learned CIT(A) the assessee challenged both the issues of reopening and merits
of addition. Both were rejected by learned CIT(A).
5. On the issue of reopening learned CIT(A) noted following submission by
the assessee :-
“1) The regular scrutiny assessment u/s.l43(3) was completed by the
assessing officer in March, 2015 itself, accepting the returned income as
assessed income, after verification of alt supporting documents, including
the documents of the subject under appeal. Hence reo-opening the case for
the matter which was already discussed during the assessment proceedings
is itself bad in low.
2) The re-opening of the said case was duly objected to by the appellant
Company. The appellants contend that the Assessing Officer has made the
impugned addition merely relying on the information received from the
Investigation Wing and no independent inquiries are conducted by the
Assessing Officer and no evidences are brought on record to prove that the
contribution made by the appellants is non-genuine.
3) The appellants further, contend that the assessment has been made in
utter disregard to the principles of nature justice in as much as the
Assessing Officer has not provided the statements on oath of persons
searched, on which he has placed reliance and hence, there was no
opportunity to the appellants to rebut the request for an opportunity to
cross-examine the said persons.
4) Further, the Assessing Officer only on presumption and without bringing
any evidence on record has alleged that cash has been returned to the
appellants. The appellants have denied that cash has been received! by them.
Under such circumstances, it was incumbent upon the Assessing Officer to
bring evidences on record that cash has been received by the appellants.
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5) The appellants further would like to submit that how “b payment”, made
through “banking channels” can form a belief that it is a bogus transaction,
which tantamount to “income” and which has “escaped assessment”. Thus,
there is no reason to believe that income chargeable to tax has escaped
assessment which is the sine qua non for issuing a notice under section
148.”
6. However learned CIT(A) rejected the same by holding as under :-
“4.4.1 I have considered the rival contentions. In this case the AO receive
specific information from Directorate of income Tax (Investigation), Kolkata
that the appellant had claimed bogus donation and deduction u/s. 35(ii) of
the Act. Therefore, the AO had the reason to believe that income of Rs.
35,00,000/- had escaped assessment. The appellant’s contention that the AO
did not make enquiry before reopening the assessment is not tenable
because under the Scheme of the Act the AO has little power to make
enquiry when proceedings are not pending before him.
4.4.2 The appellant has contended that the AO did not provide the
statements on which he had placed reliance and did not give opportunity to
the appellant to cross examine the persons who made those depositions. The
appellant’s contention has no merit because the Act does not envisage giving
opportunity to the assesses to rebut the evidences before the assessment is
reopened.
4.43 The appellant has also contended that before the reopening the
assessment, the AO ought to have established that the donation paid had
been received back by the appellant. This contention of the appellant is not
correct. For reopening the assessment, it is not necessary for the AO to
conclusively prove that income had actually escaped assessment. Mere
existence of reason to believe that income has escaped is sufficient for the AO
to reopen the assessment.
Apropos issue of addition for donation :
7. In this case the Assessing Officer noted that a survey action was
conducted in the HHBHRF by the Kolkata Directorate of the Investigation wing
wherein it was found that the said entity did no conduct any research activity
or any such activity which can be considered as scientific in nature or for the
purpose for which the section 35 was incorporated in the Act. On the contrary
the investigation wing opined that the said entity was more involved in
providing assistance to tax evaders by offering their services on account of
obtaining funds through other than cash and after deducting a commission
returned the amount to the beneficiary in cash.
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8. Thereafter the Assessing Officer referred to the modus operandi found by
the investigation team and also the reply of the founder director of the said
institution. By referring to it, the Assessing Officer made following conclusion:-
“The said faces clearly proved that the contributions to the said entity was
not a donation or payment made for scientific research or any purpose
mentioned in section 35 of the Act but merely a transaction created to give
the effect of a donation wherein the chequc/RTGS transfer was created as
the evidence and for a small commission obtained a certificate of
contribution as another evidence to benefit from the tax benefit provided by
the relevant section;. The said investigation findings had resulted in most of
the entities withdrawing their claim, and offering the income evaded under
the IDS scheme 2016. However the assessee still sought to get refuge with
the evidence it had created of a cheque payment and a certificate. The
records of the assessee indicated that there was no such philanthropy or
scientific concern in earlier years or subsequent year of such magnitude, it
was further seen that the assessee is throughout based in Mumbai and does
not have any major business in other places especially in Kolkata.
Accordingly the affinity for a Kolkata teased organisation, when you have so
many registered genuine organization in Mumbai is not explained from the
record of the assessee.”
9. He noted the submission of the assessee and also referred to two ITAT,
Kolkata decision, but did not accept the same. He noted as under :-
“During the course of present reassessment proceeding the assessee was
required to provide a genuine explanation to the said facts to prove that its
contribution, was out of genuine concern for scientific research unlike the
hundreds of others who merely made the payment to get the benefit of a
certificate of donation to claim the deduction .The assessee had in reply vide
letter dated 9th July 2018 provided the receipt of the donation and other
supporting, including the registration for exemption u/s.80G(5)(vi) and u/s
12AA and the publication made in the Gazette of India. The assessee also
enclosed copies of two judgment rendered by the Kolkata with respect to the
donation to the very same organization. However notwithstanding the fact
that the decisions are not of the Jurisdictional ITAT and consequently not
binding, the ITAT is a fact finding Authority also and the Honorable ITAT may
have in that case found the appellant to be a genuine philanthropist and
having a scientific concern etc and may have decided in favor of the
appellant. Besides the documents created for the sole purpose of defeating
the intention of the Government cannot in itself be the final evidence to
absolve the payment made by the assessee to be different from that explained
by the Founder Director of the said organization.”
10. He proceeded to make the disallowance.
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11. Upon assessee’s appeal learned CIT(A) proceeded to confirmed the
Assessing Officer’s order by observing as under :-
5.4.1 1 have considered the rival contentions, I find that the present appeal
is against disallowance of Rs.35,00,000/- representing deduction claimed
u/s, 35(1) of the Act towards donation made to HHBHRF, The AO rejected
the submissions of the appellant and disallowed the claim of the appellant
relying on the findings of the Directorate of income Tax (Investigation),
Kolkata from the Survey conducted on 27.01.2015. I also find that the
approval u/s 35(1)(ii) of the Act had been subsequently withdrawn only vide
Notification No.79/2015/F.No.203/135/ 2007/ITA.II dated 06th September.
2016. Notification dated 6lh September, 2016 is reproduced below:
“S.O. 2882(E)- In exercise of the powers conferred under clause (ii) of
subsection (1) of section 35 of the Income-tax Act, 1961 read with
rides 5C and 5E of the Income-tax Rules 1962, the Central
Government hereby rescinds the notification of the Government of
India, Ministry of finance, Department of Revenue number 35/2008
dated 14th March, 2008 published in the Gazette of India, Part II.
Section 3, Subsection (II) vide S.O. 798 dated I4lh March, 2008 with
effect from 1st April, 2007 and shall be deemed that the said
notification has not been issued for any (ax benefits under the Income-
tax Act, 1961 or any Other law of the time being in force. ”
5.4.3 I find that the appellant’s claim is not acceptable for another reason.
The appellant has claimed that it paid Rs.20,00,000/- to HHBHRF as
donation which was eligible for deduction u/s.35(1)(ii). In the course of the
appellate proceedings, the appellant has produced a “receipt” in support of
its claim. On going through the “receipt” produced, which is in the form of a
letter, I find that the “receipt” acknowledges appellant’s letter to HHBHRF
sanctioning donation of Rs.20,00,000/-, The relevant portion of the letter
reads as under:
“We acknowledge with thanks your letter dated 29.03.2012
sanctioning therein a donation of sum of Rs.20,00,000/-(Rupees
Twenty Lacs only) through RTGS to our IDBI Bank Account
No,0060102000117470 on 29.03.2012 for Scientific Research and
Other Allied Activities related to application of science. ” (emphasis
supplied),
5.4.4 Thus, I find that the so called receipt is acknowledgment of appellant’s
letter dated 29.03.2012 and not a receipt for money. Thus, I find that the
appellant has failed to furnish the receipt in support of its claim of donation.
A mere letter acknowledging a correspondence regarding donation cannot be
treated as proof of donation. Therefore, no deduction u/s35(l)(ii) can be
allowed on the basis of the said letter.
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5.4.5 The case laws cited by the appellant mentioned in para 5.3.1 above
does not help appellant’s cause because the appellant had failed to produce a
valid receipt.”
12. Against the above order the assessee is in appeal before us.
13. We have heard both the parties and perused the records. Learned
Counsel of the assessee submitted that the issue is duly covered in favour of
the assessee by several decisions as under :-
1 Chotatingrai Tea (2002) 258 ITR 529 (SC)
2 National Leather Cloth Manufacturing Co (2000) 241 ITR 482 (Bom)
3 Urnish Jewellers ITA No. 1583/Mum/20I9 (Mum-Trib)
4 Shirish Lakhamshi Keniya (HUF) ITA No. 5385/Mum/2018 (Mum-Trib)
5 Thakkar Govindbhai Ganpatlal (HUF) Tax Appeal No 881 of 2013 (Guj)
6 Raj da Polymers ITA No. 333/Kol/2017 (Kol-Trib)
7 Maco Corporation (India) Pvt Ltd. ITA No. 16/Kol/2017 (Kol-Trib)
14. Per contra learned Departmental Representative relied upon the order of
authorities below.
15. Upon careful consideration we note that the notice for reopening in this
case reads as under :-
“Reasons for reopening
Entertainment Private Limited
PAN: AADCK8786D
A.Y. 2012-13
The Assessee, M/R Crossover Entertainment Private Limited, PAN:
AADCK8786D is in the business of Talent & Event Management,
sponsorship/allied promotions and branding activities.
The assesses company tiled, its return of income for A.Y. 2012-13 on
28.09.201 2 declaring of Rs. 4,48,03,337/-. The return was processed u/s.
143(1) of the I.T. Act.
As per the information, received from Kolkata Directorate of investigation, the
institution-Herbicure Healthcare Bio-Herbal Research Foundation was
providing accommodation entries to beneficiaries in the nature of bogus
donation in lieu of commission. As per the modus operandi, the bogus
donations were returned buck 10 the donors in the lieu of commission.
The assessor company i.e. M/s Krossover Entertainment Private Limited has
been identified as one of the beneficiaries of such syndicate. I have perused
the information received and case records of the assessee. It is noticed that
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the assesses company during A.Y. 2012-13 has shown donation of Rs.
20,00,000/- to the above institution and has claimed deduction of Rs.
35,00,000/- under section 35(l)(ii) of the Income Tax act 1961.
Further, vide notification No. 79/20 16/F. No. 203/135/2007/ITA, II,
Central government has rescinded approval issued vide notification number
35/2008 dated 14.03.20U8 to Herbicure Healthcare Bio-Herbal Research
Foundation u/s 35(1)(ii) of the Income Tax Act, 1961 retrospectively w.e.
from 1st April 2007. Notification reads as it shall be deemed that the said
notification has not been issued for any tax benefits under Income Tax Act,
1961 or any other law of the time being in force.
In view of the above, the claim of deduction made by the assesses u/s.
35(1)(ii) of Rs. 35,00,000/- is non genuine. Therefore, 1 have a reason to
believe that by reason of the failure on the part of the assessee to disclose
fully and truly nil material facts, income of Rs. 35,00,000/- , chargeable to
tax for A.Y. 2012-13 has escaped assessment. Hence, it is a fit case for issue
of notice u/s. 148 of the I.T, Act, 1961.”
16. We note that the assessee has made following submission the Assessing
Officer in its objection to reopening :-
“The assessee, on receipt of the recorded reasons, hereby raises its formal
objection on disputing the re-opening of the completed assessment and
erroneous issue of notice u/s.148 of the Act on understated reasons:-
a. In the reasons recorded for re-opening the assessment, it is merely stated
that Kolkata Directorate of Investigation has given information of an
institution viz. Herbicure Healthcare Bio-Herbal Research Foundation
(HHBRF), which was providing accommodation entries to beneficiaries, and it
is alleged that the assessee Company is one of the beneficiaries. There is no
supporting document provided to the assessee, for which we request your
good selves to serve the relevant document on the assessee Company.
Further we submit that the case is being reopened by just merely relying on
the report of the investigation department without making any independent
inquiries which is bad in law.
b. We further would like to submit that how “a payment”, through “banking
channels” can form a belief that it is a bogus transaction, which tantamount
to “income” and which has “escaped assessment”. Thus, there is no reason to
believe that income chargeable to tax has escaped assessment which is the
sine qua non for issuing a notice under section 148.
Assessee had made the payment of Rs. 20,00,000/- through RTGS from its
bank account of State Bank of India, Bandra (East) branch, Mumbai, directly
to their IDBI Bank account, which has been duly acknowledged vide their
letter dt 29.03.2012. This payment is also reflecting in the bank statement of
the assessee.
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c. Further, your good selves has very wrongly stated and alleged that the
funds have been paid back to the assessee company.
d. Your good selves have further stated in the notice u/s. 148 that:
Further, vide notification No. 79/2016/F. No. 203/135/2007/ITA. II. Central
government has rescinded approval issued vide notification number 35/2008
dated 14.03.2008 to Herbicure Healthcare Bio-Herbal Research Foundation
u/s 35(1 )(ii) of the Income Tax Act. 1961 retrospectively w.e.f. 1st April 2007.
Notification reads as it shall be deemed that the said notification has not
been issued for any tax benefits under Income Tax Act. 1961 or any other
law of the time being in force.
We respectfully submit that the statute itself, i.e., the Income Tax Act, 1961,
has provided as follows:
“The deduction, to which the assessee is entitled in respect of any sum paid
to a research association, university, college or other institution 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 institution referred to
in clause (ii) or clause (iii) has been withdrawn”‘
The date on which donation was given, the notification u/s 35(1)(ii) was in
force and valid and therefore the deduction claimed by the assessee was in
order and as per the explanation, subsequent cancellation of notification
does not affect the claim made. We believe notification does not over-rule the
Act.
Last but not the least, an order u/s. 143(3) has been passed for the said
assessment year, wherein all relative details are on record, and which the
Assessing officer then, has inspected the details and supporting documents
filed, and allowed the deduction.
Hence, in lieu of the above submissions and in the said circumstances, the
re-opening of the said case is bad in law.
A humble prayer is made to drop the re-assessment proceeding for which the
assessee shall ever remain grateful and oblige. Hope the above information is
to your full satisfaction.”
17. In disposing off the objection the Assessing Officer only mentioned to the
modus operandi found by the investigation wing in the case of said entity.
There is no whisper that anything specific was found with reference to this
particular assessee. The Assessing Officer has inferred the following in the case
of assessee :-
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“The assessee was also found to have given such purported donations of
Rs.20 lacs and from the return of income it was seen that it had claimed
deduction u/s. 35(l)(ii) of Rs.35 lacs on such bogus donation which has been
given the colour of contribution towards the noble cause of scientific
research. The earlier and subsequent returns of the assessee did not indicate
and such consistent philanthropic activity.”
18. The Assessing Officer also disposed off the objection that earlier the
assessment was completed under section143(3) by holding as under :-
“The final argument advanced by the assesses is that the assessment was
completed earlier u/s. 143(3) and consequently the issue was examined by
the then Assessing Officer for allowing the claim. However the assessee has
not provided any supporting to prove that the Assessing Officer was aware of
the actual activity conducted by IIHBRF which was unearthed consequent to
investigation by the Kolkata Directorate. Accordingly there is no justification
in the said contention of the assessee that the matter was examined in detail
including in the light of the present findings by the Kolkata Directorate. In
view of the same the argument of the assessee on this ground is also not
acceptable.”
19. We note that in the case assessment was earlier completed under section
143(3) of the Act. Subsequently on information from the investigation wing at
Kolkata that M/s. Herbicure Healthcare Bio-Herbal Research Foundation
(HHBHRF) was engaged in providing accommodation entries the case of the
assessee was reopened. In this regard it is noted that there is nothing on
record that any specific information regarding the assessee was received.
Consequently, upon reopening on the basis of the same information the
Assessing Officer made the assessment disallowing the payment. There is no
further material brought on record by the Assessing Officer. The assessee has
submitted the payment evidence. The same was through banking channel. At
the time of payment the said entity was very much eligible of the deduction.
20. We further note that the ITAT in the case of Sopariwala Exports Pvt. Ltd.
(ITA No.2039/Mum/2018 vide order dated 17.6.2021) has decided the identical
issue in favour of the assessee by observing as under :-
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11. Upon careful consideration we note that identical issue was decided in
favour of the assessee in the aforesaid decisions of the ITAT. We may refer to
the decision in the case of Kitchen Essentials (supra) as under :-
“We have heard the rival submissions and perused the material on
record including the decisions cited by the Id. AR. The undisputed
facts are that the assessee has made donations of Rs.50 lakhs to the
“The School of Human Genetics and Population Health” and claimed
deduction u/s.35(1)(ii) of the Act equal to Rs.87,50,000/- being 175%
of the amount paid. A survey was conducted at the office premises of
the school namely, “The School of Human Genetics and Population
Health” u/s.133A of the Act on 27.01.2015 and it was observed by the
survey team that this institute in connivance with donors, brokers and
accommodation entry providers has indulged in a duvious scheme of
tax evasion, under which bogus donations were received from donors
and money used to be returned back to the donors in lieu of
commission, even while the donor availed of deductions u/s.35(1)(ii) of
the Act. The registration of the institution was cancelled by the
Government of India with retrospective effect and it was held that the
institution has misused the exemption. However, under similar facts
and circumstances, various coordinate benches have taken the view
that mere admission on the part of the office bearers of the
body/trust, the assessee cannot be penalized and the amount of
donations claimed by the assessee on account of payment to the said
school cannot be denied. In the case of Narbheram Vishram Qua, ITA
No.42&43/Kol/2018, order dated 27.07.2018, the Kolkata Bench of
the Tribunal under similar circumstances and facts has held as
under:-
“13 we have given a careful consideration to the rival submissions and
perused the materials available on record, we note that the assesses
has challenged disallowance of weighted deduction of Rs.4,81,25,0007-
for A.Y. 2013-14 and disallowance of weighted deduction of
Rs.10,50,00,000/-, for A.Y. 2014-15, claimed by him under section
35(l)(ii) of the Act in respect of the amounts of donations made to two
Institutions viz. ‘Matrivani Institute Experimental Research & Education’
(hereinafter referred to as ‘Matrivani’) and ‘The School of Human
Genetics and Population Health’ (hereinafter referred to as ‘SHG’). The
Assessee Firm in A.Y. 2014-15, made donation of Rs,2,00,00,000/ to
Matrivani and Rs,4,00,00,000/ to SHG and claimed weighted deduction
of Rs.10,50,00,000 under section 35(l)(ii) of the Income Tax Act, 1961,
being 175% of the aggregate sum of Rs.6,00,00,000/-(Rs,2,00,00,000 +
Rs,4,00,00,000) donated to these two institutes which were approved
by the Central Government for the purposes of section 35(1) (ii) of the
Act read with Rule 5C and SE of the Income Tax Rules, 1962. In the
assessment year 2013-14, the assessee claimed weighted deduction of
Rs.4,81,25,000/- under section 35(1) (ii) of the Act, which is 175% of the
amount of donation being the sum of Rs.2,75,00,0007- in respect of the
donation given to ‘The School of Human Genetics and Population
Health’. We note that the Notifications to this effect, that these two
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institutions viz. ‘Matrivani’ and ‘SHG’, were approved by the Central
Government for the purpose of section 35(1)(ii) of the Act, was published
in the Gazette of India. However, the deduction claimed by the assessee
was denied by the Assessing Officer on the basis of the allegations
contained in the report of the Investigation Wing of Kolkata that the said
donations were bogus. The reasons stated therein, in short, were that
statements of some key persons of these two donee institutions were
recorded by the Investigation authority in course of survey proceedings
in their cases. The said key person, in their statements, accepted to
have received donations from various entities in lieu of cash returned to
them after deducting commission there from.
14. We note that, during the course of hearing, before us, the Id Counsel
for the assessee submitted that, the sums paid to “Matrivani and “SHG,
were genuine donations and both of the Institutions were admittedly
registered under section 12A of the Income Tax Act, 1961. We note that
both of the said two Institutions viz, “Matrivani” and “SHG”, are
Scientific Research Association approved as such by Central
Government under section 35(l)(ii) of the Income Tax Act, 1961 vide
Notification, bearing No. 229/2007 (F.N0.203/135/2007/ITA-II) dated
21.08.2007 and Notification No. 4/2010 (F. No. 2B/A/2009,/ITA-II
dated 28.01.2010 respectively, published in Official Gazette of India.
The assessee categorically denied that it ever received back the
amounts of donations in cash or in kind from the said Institutions and
from any person whatsoever in lieu of the various amounts donated to
these two institutions, we note that in the statements, of key persons
and alleged brokers recorded by the Investigation Wing in course of
survey proceedings, in their cases and the extracts of which was
provided to the assesses in the show cause notice, the name of the
assessee firm does not appear anywhere. It is to be noted that none of
those persons implicate the assessee to have made bogus donations
and that cash was paid to the donors assessee in lieu of the alleged
bogus donation after deducting their commission.
We note that the statements of the various parties and persons were
recorded behind the back of the assessee and the Assessing Officer did
not allow opportunity of cross examination. We note that in absence of
opportunity of cross-examination no reliance could be made on such
statements to draw any adverse inference against the assessee firm.
The assessee firm denied its knowledge of the statements made by
these institutes which were relied on by the Investigation Wing and the
Assessing Officer. We note that not providing the opportunity of cross-
examination is against the principle of natural justice and for that we
rely of-the judgment of Hon’ble Delhi High Court in the case of CIT vs.
Dharam Pal Prern Chand Ltd. [2007] 295 ITR 105, 108 (del). We note
that on identical facts, the similar proposition was upheld by the
Coordinate Bench of Kolkata in the case of Rajda Polymers, ITA
No.333/Kol/2017for Assessment Year 2013-14 wherein it was held as
follows:-
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“10. ….Thus we note from the entire facts and circumstances, that the
AO got swayed away with the statement recorded on oath of Mr.
Swapan Ranjan Dasgupta during survey conducted at the premises of
M/s. Herb/cure. We have reproduced Question no. 22 and 23 and
answers given by Shri Swapan Ranjan Dasgupta, wherein he admits to
provide accommodation entries in lieu of cash. This information we
should say can be the tool to start an investigation when the assessee
made the claim for weighted deduction. The general statement of Shri
Swapan Ranjan Dasgupta against donation made the claim of assessee
for deduction suspicious. However, when the AO investigated, Shri
Swapan Ranjan Dasgupta has confirmed that M/s. Herb/cure was in
receipt of the donation and it has not given any refund in cash, then the
sole basis of disallowance of claim as a matter of fact disappeared. It
should be remembered suspicion howsoever strong cannot take the
place of evidence. The confirmation from Shri Swapan Ranjan Dasgupla
fortifies the claim of the assessee for weighted deduction u/s. 35(1 )(ii)
of the Act. The sole basis of the addition/disallowance based on
statement recorded on oath during survey cannot be allowed as held by
Hon’ble Supreme Court in Kader Khan & sons (supra). Moreover, we
note that if the AO was hell bent determined to disallow the claim of the
assessee, then he should have granted an opportunity to cross examine
Shri Swapan Ranjan Das Gupta and Shri Kishan Bhawasingka as held
by Hon’ble Supreme Court in Andaman Timber (supra).
11. In the light of the aforesaid facts and circumstances, we cannot
sustain the order of the authorities below. Therefore, we set aside the
impugned order and direct the AO to allow the deduction of
Rs.26,28,500/- u/s. 35(l)(ii) of the Act.
15. Now, we deal with the arguments of Id DR for the Revenue. We note
that the solitary grievance of the Id DR for the Revenue is that since the
registration had been cancelled by the CBDT, with retrospective effect
that is, with effect from 1sl April 2007, by issuing notification dated
06.09.2016, for both the institutions viz: ‘Matrivani’ and ‘The School of
Human Genetics and Population Health’, therefore these institutions are
not entitled to claim benefit under section 35 (1) (ii) of the Act.
We note that the withdrawal of recognition u/s 35(l)(ii) of the Act in the
hands of the payee organizations would not affect the rights and
interests of the assesses herein for claim of weighted deduction u/s
35(1 )(ii) of the Act, for that we rely on the judgment of the Coordinate
Bench, Kolkata, in the case of M/s Maco Corporation India (P) Ltd, ITA
No.l6/Kol/2017, for Assessment Year 2013-14, wherein it was held as
follows:
“29. All the three High Courts after examining the issue, in the light of
the object of Section 12A of the Act and Section 21 of the General
Clauses Act held that the order of the CIT passed under Section 12A is
quasi judicial in nature. Second, there was no express provision in the
Act vesting the CIT with power of cancellation of registration fill
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01.10.2004; and lastly. Section 21 of the General Clauses Act has no
application to the order passed by the CIT under Section 12A because
the order is quasi judicial in nature and it is for all these reasons the
CIT had no jurisdiction to cancel the registration certificate once granted
by him under Section 12A till the power was expressly conferred on the
CIT by Section I2AAC3) of the Act w.e.f. 01.10.2004.
We hold that the ratio decidendi of the aforesaid judgement of the
Hon’ble Apex Court would squarely be applicable to the facts of the
instant case. In fact the assessee’s case herein falls on a much better
footing than the facts before the Hon’ble Apex Court. In the case before
Hon’ble Apex Court, the power of cancellation of registration us 12A of
the Act was conferred by the Act on the Id CIT w.e.f. 1.10.2004 and the
Hon’ble Apex Court held that prior to that date , no cancellation of
registration could happen. But in the instant case, there is absolutely no
provision for withdrawal of recognition u/s 35(l)(ii) of the Act. Hence we
hold that the withdrawal of recognition u/s 35(l)(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 weighted deduction u/s
35(1)(H) of the Act.”
16.1n view of the aforesaid findings in the facts and circumstances of
the case and respectfully following the various judicial precedents
relied upon hereinabove, we direct the Id AO to grant deduction u/s
35(1 )(ii) of the Act, in the sum of Rs. 4,81,25,000/- for A. Y, 2013-14
and in the sum of Rs. 10,50,00,000/-, for A. Y. 2014-15, as claimed by
him under section 35(l)(ii) of the Act in respect of the amounts of
donations made to two Institutions viz. ‘Matrivani Institute Experimental
Research & Education’ and The School of Human Genetics and
Population Health’. Accordingly, the Grounds 1 to 4 raised by the
assessee for A.Y. 2013-14 and the Grounds 1 to 5 raised by the
assessee for A. Y. 2014-15 are allowed.”
9. Similarly in various other decisions the issue has been decided by
the Tribunal in favour of the assessee by disregarding the revenue’s
contentions that the registration of the school has been cancelled by
the CBDT with retrospective effect by issuing Notification and,
therefore, the assessee is not entitled to benefit u/s.35(1)(ii) of the Act.
The facts before us being materially same involving the same school,
namely, “The School of Human Genetics and Population Health”, we,
therefore, respectfully following the decisions of the coordinate
benches of the Tribunal, hold that the deduction u/s. 35(1)(ii) of the
Act cannot be denied to the assessee. Accordingly, we direct the AO to
grant deduction u/s. 35(1)(ii) of the Act. Appeal of the assessee for the
assessment year 2013-2014 (ITA No.6672/Mum/2017) is hereby
allowed.”
12. We note that facts in the present case are identical. The withdrawal of
the approval to the payee has taken place subsequent to the payment by the
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assessee. The assessee’s case duly follows under section 35(1)(ii) of the Act
which read as under :-
Section 35(1)(ii) : an amount equal to one and one half 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) is for the time being approved, in accordance with the guidelines,
in the manner and subject to such conditions 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 :
Provided further that where any sum is paid to such association,
university, college or other institution in a previous year relevant to the
assessment year beginning on or after the 1st day of April, 2021, the
deduction under this clause shall be equal to the sum so paid;
13. Hence the payee was duly approved when the payment was done. By
no stretch of imagination it can be said that the assessee could have done
the impossible and known that subsequently the approval will be withdrawn.
Accordingly, following the above said precedent and noting that it is not the
case that Hon’ble Bombay High Court has reversed the decision, we set aside
the order of authorities below. The assessee is therefore held to be eligible for
deduction under section 35(1)(ii) of the Act.”
21. Respectfully following the precedent as above we set aside the order of
the authorities below and decide the issue in favour of the assessee.
22. Since the issue has been decided on merits in favour of the assessee
adjudication on reopening is only academic interest the same is not being gone
into.
23. In the result, appeal filed by the assessee is allowed.
Pronounced in the open court on 5.10.2021.
Sd/- Sd/-
(PAVANKUMAR GADALE) (SHAMIM YAHYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated : 05/10/2021
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Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT(A)
4. CIT
5. DR, ITAT, Mumbai
6. Guard File.
BY ORDER,
//True Copy//
(Assistant Registrar)
PS ITAT, Mumbai
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