Principal Commissioner Of Incometax-4, Kolkata v. M/S. Maco Corporation (India) Pvt.ltd

ITA/42/2020 IA No.GA/2/2019 (Old No.GA/1477/2019) IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE PRINCIPAL COMMISSIONER OF INCOMETAX-4, KOLKATA -Versus- M/S. MACO CORPORATION (INDIA) PVT.LTD. Appearance:Ms. Smita Das De, Adv....for the appellant. Mr. J. P. Khaitan, Sr. Adv.Mr. Anil Dugar, Adv.Mr. Rahjarshi Chatterjee, Adv....for the respondent. BEFORE: The Hon’ble JUSTICE T.S. SIVAGNANAM -And- The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA Date : 12[th] August, 2022. The Court : This appeal filed by the revenue under Section260A of the Income Tax Act, 1961 (the ‘Act’ for brevity) isdirected against the order dated 14[th] March, 2018 passed by theIncome Tax Appellate Tribunal, “B” Bench, Kolkata (the Tribunal)in ITA No.16/Kol/2017 for the assessment year 2013-14.The appeal was admitted on 11[th] March, 2020 on thefollowing substantial questions of law:260A of the Income Tax Act, 1961 (the ‘Act’ for brevity) isdirected against the order dated 14[th] March, 2018 passed by theIncome Tax Appellate Tribunal, “B” Bench, Kolkata (the Tribunal)in ITA No.16/Kol/2017 for the assessment year 2013-14.The appeal was admitted on 11[th] March, 2020 on thefollowing substantial questions of law: “ i)Whether on the facts and in the circumstances ofthe case, the impugned order of the tribunal dated14[th] March, 2018 is perverse for failing to takeinto account that the donation in question to thetrust was not “genuine” and also not consideringthe effect of cancellation of registration of thedonee?”the case, the impugned order of the tribunal dated14[th] March, 2018 is perverse for failing to takeinto account that the donation in question to thetrust was not “genuine” and also not consideringthe effect of cancellation of registration of thedonee?” We have heard Ms. Smita Das De, learned standing counselfor the appellant/revenue and Mr. J. P. Khaitan, learned seniorAdvocate assisted by Mr. Anil Dugar and Mr. Rajarshi Chatterjee,advocates for the respondent/assessee. The short issue involved in the instant case is whetherthe donation given by the assessee to two organizations can beheld to be not genuine on the ground that the registration grantedto those organisations under Section 35C of the Act having beencancelled with retrospective effect. On facts, the tribunal notedthat there is nothing on record to show that therespondent/assessee connived with the scheme of arrangementbetween the concerns in bogus billing etc. The factual findingrecorded by the CIT(A) is to the following effect: “5.5It has been brought to my notice that videnotification No.82/2016 dated 15.09.2016 andnotification No.79/2016 dated 06.09.2016 theregistration of SHG&PH & HHBHRF respectively has beencancelled by CBDT. Thus there remains no doubt thatthese concerns were engaged in the improperutilization of moneys received by them. If thestatements are taken at face value then on perusal of extracts of statements of brokers/mediators/and entryoperators as reproduced in the assessment order I findthat there remains no doubt that the management ofthese concerns were directly or indirectly engaged ismisappropriating the funds and not utilizing thedonation amounts entirely for research relatedactivities. However the connivance of appellant inthis scheme of arrangements between these concerns aswell as the bogus billing parties is not establishedeither by DDIT, (Inv), Kolkata or by the AD. Theallegation that the cash was refunded to the appellantafter deducting commission by these concerns remainsin serious doubt. It is observed that a suspicion howso ever strong it may be cannot form disallowing anyclaim of the appellant until any material is broughton record.” extracts of statements of brokers/mediators/and entryoperators as reproduced in the assessment order I findthat there remains no doubt that the management ofthese concerns were directly or indirectly engaged ismisappropriating the funds and not utilizing thedonation amounts entirely for research relatedactivities. However the connivance of appellant inthis scheme of arrangements between these concerns aswell as the bogus billing parties is not establishedeither by DDIT, (Inv), Kolkata or by the AD. Theallegation that the cash was refunded to the appellantafter deducting commission by these concerns remainsin serious doubt. It is observed that a suspicion howso ever strong it may be cannot form disallowing anyclaim of the appellant until any material is broughton record.” After noting the above factual position, the tribunalexamined the law on the subject and took note of the decision ofthe Hon’ble Supreme Court in the case of Industrial InfrastructureDevelopment Corporation (Gwallior) M.P. Ltd. vs. Commissioner ofIncome Tax reported in [2018] 403 ITR 1 (SC).In our considered view, we need not travel thus far todecide the substantial question of law in the case on hand as weare considering the case falling under Section 35 of the Act. Interms of Explanation to Section 35(1)(iii) of the Act, deductionsto which the assessee is entitled to in respect of any sum paid toa research organisation, university etc. shall not be deniedmerely on the ground that subsequent to the payment of such sum by the assessee, the approval granted to the research organisation oruniversity etc. has been withdrawn. This issue was considered bythe Hon’ble Supreme Court in the case of Commissioner of IncomeTax vs. Chotatingrai Tea & Ors. reported in (2002) 258 ITR 529(SC). The operative portion of the said decision is as follows: “It is not in dispute that the assessees had madedonations to the Society for Integral Development,Calcutta, which had as its object the undertaking tocarry out approved programmes of rural development. Thesociety had granted a certificate to the assessee whichhad also been approved by the prescribed authority. According to the Revenue authorities theassessees were not entitled to deduction as claimeddespite the aforesaid because subsequently the approvalgranted by the prescribed authority was withdrawn withretrospective effect. It was also alleged that theassessees had received back the donation which had beenmade by them to the society. When the matter came upbefore the Tribunal at the instance of the assessees, theTribunal found, as a matter of fact that the assessee hadfulfilled all the conditions under section 35CCA of theAct for grant of deduction thereunder. The Tribunal alsofound that the assessees’ position could not be affectedby any subsequent withdrawal of the certificate grantedby the prescribed authority under section 35CCA but foundthat there was no evidence in support of the Revenue’scase that the assessees had received back the amountdonated by them to the society. However, the matter wasremanded back to the Assessing Officer for fresh disposalfor the purpose of determining whether the money had in fact been utilised for an approved programme. Pursuant tothe directions of the High Court the following questionswere referred under section 256(2) of the Act (page 645): fact been utilised for an approved programme. Pursuant tothe directions of the High Court the following questionswere referred under section 256(2) of the Act (page 645): (1) Whether, on the facts and in the circumstancesof the case, the Tribunal having held that the assesseehave fulfilled all the conditions laid down in section35CCA of the Income-tax Act, 1961, read with rule 6AAA ofthe Income-tax Rules for deduction of the amount donatedto the approved society, which had not come back to theassessee soon after or later on in some form or theother, that the Tribunal was justified in law inrestoring the matter to the Assessing Officer on thereasons and grounds given in the order passed on appeal?(2) Whether, on the facts and in the circumstancesof the case, and in view of the findings of factsrecorded by the Tribunal on questions of facts arisingfor decision, the Tribunal was justified in law inholding that the entitlement of the assessee for claimingdeduction of the amount donated to the approved societywould depend upon the utilisation of such fund by theapproved society in the approved programme before thedate specified in the section and on this basis onlyrestoring the matter to the Assessing Officer?” The High Court followed the reasoning of theCalcutta High Court in CIT v. Bhartia Culter Hammer Co.[1998] 232 ITR 785, and came to the conclusion that onceit was found that the assessees had fulfilled all theconditions which had been laid down under section 35CCAof the Act for claiming deduction of the amount donatedby it, there was no obligation on the part of theassessee to see that the amount was utilised for the purpose for which it was donated. Furthermore, thededuction was allowed on the certificate furnished and itwas not for the assessee to show whether the institutionto which the money had been donated was carrying on therural development work, as envisaged under section 35CCAof the Act. In our view, the reasoning of the High Courtwhile answering the question referred to it in favour ofthe assessee is sound and calls for no interference.” In the light of the above decision, we find the reasoninggiven by the tribunal to be just and proper and cannot be held tobe perverse. In the result, the appeal filed by the revenue(ITA/42/2020) is dismissed and the substantial question of law isanswered against the revenue. Consequently, the connected application for stay (IANo.GA/2/2019) also stands closed. (HIRANMAY BHATTACHARYYA, J.) S.Das/As.