TaxTMI 
TaxTMI 
2020 (2) TMI 1755
X X X X Extracts X X X X
X X X X Extracts X X X X
....ving sums of Rs. 6,17,750/- and Rs. 24,50,000/-; assessment year, wise respectively. The Revenue's case as per the CIT(A)'s detailed discussion under challenge is that the assessee's recipient is a mere accommodation entry provider going by the DDIT(Inv.), Kolkata's investigation carried out in its case indicating bogus donation racket. The CIT (A) identical lower appellate discussion to this effect reads as under: "DECISION: Ground No. 1&10, These grounds of appeal are general in nature and hence not adjudicated upon separately. Ground No. 2 to 5 :- The issue in these grounds of appeal are regarding the disallowance of Rs. 24,50,000/-, for Its donation of Rs. 14,00,000/- representing deduction U/s 35(1)(ii) of the Act on account of donation made to a research foundation namely M/s Herbicure Bio Herbal Research Foundation (HHBHRF), PAN:AABCH4849J. In this regard it was submitted by the appellant that the donation made was genuine in manner. On perusal of the findings of the Ld. AO. It has been observed that the Ld. Assessing Officer relied upon the information which was received from DDIT(Inv), U-4(....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs in lieu of commission. Bogus donations are being taken vide cheque/RTGS and thereafter after taking commission, the same is routed back to the donor in the form of cash vide 3-4 layers after bogus billing or other accommodation entries in the books of these Institutes. The commission rate in market is 12 to 18 percent. Whereas share of the exempted organization is 8-10% of total amount and remaining 2 to 8 percent of total amount is charged by the broker. As the benefit is 175% of donated amount a large number of unscrupulous assessee is lured by these brokers. The whole cycle of transaction take place within 1 to 3 days. More than Rs. 724/- crores bogus donation has been given to these three institute from 1 April, 2011, on which more than Rs. 380 crore tax(deduction of an amount equal to one and three fourth times of sum paid) has been evaded. A diagrammatic representation of the modus operandi is enclosed in the CD. 2. Statements of key persons like secretary/Treasurer/President and other persons recorded during the survey and confirming the above modus operandi is enclosed in the Survey Report. 3. Statement of the auditors of these institutes is a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ir contribution to scientific research is too negligible for the kind of donation they have received. Any independent valuation of their research work will reveal that it is nothing but copy, plagiarism and mixing/editing of the various published articles. The research facilities like instruments, lab, skilled staff, storage facilities etc. are near about absent at these institutes. * The institute approved u/s 35(1)(ii) have to follow rule 5C, 5D and 5E of Income Tax Rules. These institutes have blatantly violated the concerned income tax rules. Some of these violations, listed along with the conditions of Rule 5D of Income Tax Rules, are as following: Rule 5D: Conditions subject to which approval is to be granted to a research association under clause (ii) or clause (iii) of the sub-section (1) of section 35. 1. The sole object of the applicant research association shall be to undertake scientific research or research in social science or statistical research, as the case may be. -The sole object here seems to be getting commission on bogus donation. 2. The applicant research association shall carry on the research activity by itself ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aken by it during the previous year; (ii) a summary of research articles published in national or international journals during the year; (iii) any patent or other similar rights applied for or registered during the year; (iv) programme of research projects to be undertaken during the forthcoming year and the financial allocation for such programme. Most of the above is fabricated, copied and what is known as cut-paste research and on paper only. Any independent valuation of research done by these institutes will prove this." The assessee was also confronted with the survey report of M/s Herbicure Bio Herbal Research Foundation (HHBHRF) and was also informed that the Certificate U/s 35(i)(ii) of the IT Act, 1961 was cancelled by the Central Govt. Further, Notification No. SO 2882(E) [NO.79/2016(F.NO.203/135/2007-ITA. II)], Dated: 06.09.2016. "In exercise of the powers conferred under clause (ii) of sub section (1) of section 35 of the Income Tax Act, 1961 read with rules 5C and 5E of the Income-Tax Rules, 1962, the Central Government hereby rescinds the notifications of the Government of India, Ministry of Finance,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....essment was completed u/s 16.12.2016 disallowing the claim for deduction u/s 35(1)(ii) of the Act of Rs. 8,75,000/- which is 175% from Rs. 5,00,000/- of donation paid to M/s Heribicure Healthcare Bio Herbal Research Foundation. 3. The facts, in brief, are that M/s Heribicure Healthcare Bio Herbal Research Foundation (hereinafter referred to as 'HHBRF') is a non-Government and non-profit 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 donation....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... In my opinion the suspicious evidence that the Ld. AO has gathered clearly bring forth that the transaction is a dubious one, and against the rational behavior of a businessman. No businessman would donate more than 50% of his hard earnings to anybody, and certainly least to a cause that has 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 probabi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pan Rajan Dasgupta, Founder Member of HHBRF was common and had been examined. 8. The ld. Counsel for the assessee further relied on the judgment of Hon'ble Supreme Court in the case of CIT vs. Chotatingrai Tea & Ors.; (2002) 258 ITR 529 and submitted that Hon'ble Supreme Court and High Courts have held that "if the approval 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 an 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 r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted at Avani Mall, Shop no.12, 1st floor, Howrah which is given on rent to Sree Shoppers Limited. I also have some interest income. I also do investment through Dimensional Securities Pvt. Ltd. Q.8 Are you assessed to tax? If yes, please state your PAN and jurisdiction. Ans. Yes, I submit Income tax return regularly and my PAN number is ADDPB6929P. 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 BioHerbal 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....awasingka. On the contrary he denies the allegations. Hence these statements are not evidence for the revenue. 13. I now examine the statement recorded for Shri Swapan Ranjan Dasgupta. In response to question no.23, he states that bogus donations were received by cheque and RTGS through bank accounts and thereafter payments were made to paper/bogus companies on account of bogus purchase on the advice of Mr. 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 questi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee had 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 made to the institution. We find that when the ld AO informed the assessee that Director of HHBRF had given some statement before the Investigation wing as per which the donation made by the assessee was to be held as a bogus transaction and assessee 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 deductio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rovide the material rather he merely allowed the assessee to read the statement. This, in our considered opinion, was not justified. The assessee cannot be expected to give reply to the statement without going through the same in detail and prepare its counter thereon. Hence it could be safely concluded that in the instant case, the ld AO did not provide the relevant materials to the assessee. Further despite request for cross examination being made by the 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 institu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l) and Jai Kumar Kankaria vs CIT reported in 251 ITR 707 (Cal) had held that there was no power to cancel the registration retrospectively. Hence even on this count, the deduction claimed u/s 35(1)(ii) of the Act by the assessee deserves to be allowed. 5.6. We find that the ld CITA had made an observation which has been heavily relied upon by the ld DR that the assessee's line of business has got nothing to do even remotely with the healthcare or 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 fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... has incorrectly been made and the person, making the statement should be given proper opportunity to show that it does not show the correct state of facts." It was further held that the materials found in the course of survey could not be the basis for making any addition in the assessment. The word "may" used in section 133A(3)(iii) of the Act makes it clear that the material collected and statement recorded during the survey u/s 133A of the Act are 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 re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he partner knew about M/s. Herbicure, the partner of the assessee firm has answered that Dr. Bhuban Chakraborty, a Cardiologist friend introduced them to M/s. Herbicure and to question no. 15 as whether the partners have visited the office of M/s. Herbicure to which the partners answered that they had visited the premises of M/s. Herbicure on two occasions and for question no. 16 as to whether the partners were satisfied with the work of scientific research 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, Kolk....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed at the premises of M/s. Herbicure. 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. 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....