TaxTMI 
TaxTMI 
2019 (5) TMI 840
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....cts, in brief, are that M/s Heribicure Healthcare Bio Herbal Research Foundation (hereinafter referred to as 'HHBRF') is a non-Government and nonprofit entity registered under the West Bengal Societies Registration Act, 1961. HHBRF was approved u/s 35(1)(ii) of the Income Tax Act, 1961 as a scientific research organization. The assessee made a donation of Rs. 5,00,000/- to HHBRF on 06.03.2013 by cheque No.339348 drawn on Citi Bank, Kolkata, in response to an appeal for donation. The recipient of the donation i.e. HHBRF, issued a certificate to the assessee enabling him to claim deduction u/s 35(1)(ii) of the Act. 4. The Income-Tax Authorities conducted a survey u/s 133A of the Act on HHBRF. A statement was recorded from Shri Swapan Ranjan Dasgupta, Founder Director of HHBRF. The Revenue alleged that Shri Swapan Ranjan Dasgupta admitted that they had received such donation and thereafter returned these donations in cash through some operators, to the donor, in lieu of a commission. The Revenue alleged that he had given a list of beneficiaries. A statement was recorded from Mr. Kishan Bhawsinghka, one of the broker. It was alleged that he also confessed to the similar modus ....
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....no proximate relationship with him or would benefit him or her in any manner. Research in the field of Herbal and Bio would not benefit a businessman in the field of Polymer and plastic granules. It is a settled proposition of law that the income tax liability is to be ascertained on the basis of the material available on record, the surrounding circumstances, human conduct and the preponderance of probabilities. The material available on record for the Ld AO were the statements and confessions of the recipient of the donations, which have not been rebutted by the appellant-firm or its partners. The behavior of the appellant is therefore to be measured against the norms of human conduct. Similarly in the appeal stage the appellant has submitted certain documents which are mere self-serving recitals, and therefore they do not have any evidentiary value. Therefore on the preponderance of probability, I find that the ld. A.O has rightly disallowed the alleged donation and claim of deduction thereon as inadmissible, and added back the same to the returned income of the appellant. In view of the above discussion, I find no infirmity in the orders of the ld. A.O, and I according....
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....val of the Government of India was in force in the Assessment Year for the organization u/s 35(1)(ii) of the Act, the donations made to that organization shall be entitled to deduction in the hands of donor." He relied on certain other case laws which we will refer to as and when necessary. 9. The ld. Departmental Representative, on the other hand, submitted that the entire registration, donation and claim of deduction to HHBRF was a organized racket of money laundering and this was proved by the evidence collected by the Revenue in the form of numerous statements. He submitted that the statements of Shri Swapan Ranjan Dasgupta, Founder Director of HHBRF and statement of Smt. Sujata Ghosh Dastidar, one of the directors and research directors of HHBRF shows that money taken as donation was returned to those donors in cash through brokers. He also referred to the statements of Mr. Kishan Bhawasingka and Shri Shanker Kumar Khetan, entry operators and relied on the same, as evidence, in supporting the additions. He relied on the order of the Assessing Officer as well as ld. CIT(A) and submitted that human behavior and probabilities have to be considered and the addition in question ....
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....9P. I am assessed with Ward 43(1), Kolkata. Q.9 Please provide your bank account details of last six years which you have/had. Ans. I have three bank accounts: Sl. No. Bank name A/c no. Branch 1 ING VYSYA Bank 504010047038 H.B. Sarani Branch 2 HDFC Bank 03821570006926 G.C. Avenue Branch 3 YES Bank Not remember at present time Stephen House Branch Q.10 How do you know and associated with the company "Herbicure Healthcare Bio-Herbal Research Foundation" (HHBRF)? Ans. I know this company through some common contract from last four years. Then I met the key person of the company Sri S.R. Dasgupta. The, he asked me help in donation for his company u/s 35(1)(ii). I used to send him donors. The donors used to give me Rs. 2000 to 10000 per donation depending on the quantum. Q.11 How many donors you sent to HHBRF? What is total quantum of donation done by them and brokerage earned by you? Ans. I don't have any record of the donors and quantum. I have earned around Rs. 100000. Q.12 Kindly go through the statement of Shri S.R. Dasgupta taken on 27.01.2015. Read question no.23 and the....
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.... Kishan Bhawasingka and that after the amount passes through in 2 to 3 layers of companies the same was returned back in cash to the original donors after deducting commission. The name of the assessee is not mentioned in this statement. He states that the broker Mr. Kishan has done these transactions. Mr. Kishan denied the same. So nothing much turns on this statements. 14. Now, I come to the statement of Smt. Sujata Ghosh Dastidar, one of the directors of HHBRF. In her statement of Smt. Sujata Ghosh Dastidar alleges that Mr. Kishan Bhawasingka was the key man who has organized the entire operation of receiving donation and thereafter returning cash to those persons. This allegation, as already stated, are denied by Mr. Kishan Bhawasingka. In response to question no.18, Smt. Dastidar states that she has heard that this money being returned back which suggest that she did not have first hand knowledge. Now, I come to the statement of Shri Shankar Kumar Khetan, entry operator. In the statement of Shri Khetan stated that HHBRF had issued cheques to him and that he has given bogus bills and he has returned cash for a commission of 0.8%. This statement does not lead to a conclusion ....
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....e would be invited with consequential disallowance thereon, the assessee asked for all the adverse materials which the ld AO proposed to rely upon and also sought an opportunity to cross examine the directors of HHBRF. We find from the perusal of the assessment order, that the ld AO had denied the cross examination and by placing reliance on the statement given by directors of HHBRF, proceeded to frame the assessment u/s 143(3) of the Act in the hands of the assessee by disallowing the deduction claimed u/s 35(1)(ii) of the Act. Hence it could be safely concluded that there was no cross examination of the adverse witnesses. 5.2. We find that on the other hand, the assessee had submitted all the documents pertaining to the claim of deduction u/s 35(1)(ii) of the Act before the ld AO. The undisputed fact before us is that the assessee had paid a sum of Rs. 14,00,000/- vide Cheque No. 786400 dated 28.11.2012 drawn on Canara Bank, Brabourne Road Branch, Kolkata to HHBRF, which has been acknowledged vide letter dated 6.12.2012. This payment of Rs. 14,00,000/- was duly reflected in the bank statement of the assessee. Hence the source for making this payment stood clearly explain....
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....assessee, the same was not allowed by the ld AO and hence respectfully following the aforesaid decisions of the Hon'ble Supreme Court and various High Courts supra, we hold that there was no material available with the reveneue on the basis of which it could justify its action of disallowing the claim of deduction u/s 35(1)(ii) of the Act. 5.5. Moreover, we find that the provisions of Explanation to section 35(1)(ii) of the Act also comes to the rescue of the assessee. For the sake of convenience, the said Explanation is reproduced below:- Section 35(1)(ii) - Explanation 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. In the instant case, the ld DR argued that the recognition u/s 35(1)(ii) of the Act was withdrawn in the case of HHBRF by the CBDT with retrospective effe....
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.... herbal healthcare industry much less in the area of research thereon and accordingly there was no need for the assessee to give donation of Rs. 14,00,000/- to HHBRF. We find that this aspect has been duly addressed by the assessee by stating that one Cardiologist Doctor had introduced the assessee to HHBRF and donations were given after due satisfaction of the assessee based on personal visits to the two research centres of HHBRF and activities carried on by them. Moreover, it is well settled that it is always the prerogative of the assessee to give or not to give any donation to a particular institution, which wisdom cannot be questioned by the revenue. The question of business expediency of an expenditure had to be viewed from the point of view of the businessman and not from the view point of the revenue. The businessman knows his interest best. However, it cannot be denied that this donation paid to HHBRF is free from any suspicion. It definitely leads to further probe by the revenue, which has been carried out by the revenue by summoning the Director of HHBRF. The said Director Shri Swapan Ranjan Dasgupta, though could not appear in person before the ld AO for cross-examinati....
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....e not conclusive piece of evidences by itself. This decision of Hon'ble Madras High Court was affirmed by the Hon'ble Apex Court in the case of CIT vs S Khader Khan Sons reported in 352 ITR 480 (SC), wherein their Lordships of Supreme Court held as under:- "Heard Counsel on both the sides. Leave granted. The civil appeal filed by the department pertains to Assessment Year 2001-02. In view of the concurrent findings of fact, this civil appeal is dismissed. " We find that the sole basis of ld AO making this disallowance of deduction u/s 35(1)(ii) of the Act was on the basis of statement recorded during survey from the Director of HHBRF which does not have any evidentiary value. Hence respectfully following the aforesaid decision of the Hon'ble Madras High Court affirmed later by the Hon'ble Apex Court supra, we hold that there is no case made out by the ld AO for making this disallowance u/s 35(1)(ii) of the Act. 5.8. We also find that similar issue came up before the co-ordinate bench of this tribunal in the case of Saimed Innovation vs ITO in ITA No. 2231/Kol/2016 for Asst Year 2013- 14 dated 13.9.2017, wherein it was hel....
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....ch carried on by the said M/s. Herbicure, the partners of the assessee firm had replied that during their visit at Pailan and Baral they were satisfied with the scientific research work and for question no. 17 the partners replied that they had seen the certificate issued by Govt. of India and also have gone through the research paper of the people working there. For question no. 20 they have given the name of the doctor who was a Cardiologist who introduced them to M/s. Herbicure. We note that the AO enquired about Dr. Bhuban Chakraborty's address for which the partner replied that the doctor resides at Kshudiram Sarani, Rathtala, Kolkata. For question no. 21 as to whether they knew about the Directorate of Investigation, Kolkata carried out survey u/s. 133A and that its investigation is found that the activities were not genuine, the partners replied that they were not aware of the survey, however, they added that after their visit of the two centers they were on a bona fide belief that M/s. Herbicure was a competent institute and based on the recommendation of the Cardiologist Dr. Bhuban Chakrabrty they made donation to the said concern. We also note that the AO issued summo....
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....n Dasgupta has confirmed that M/s. Herbicure 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 Dasgupta 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(1)(ii) of the Act. 12. In the result, appeal of assessee is assessee is allowed". ....