Tarasafe International Private Limited Vs DCIT & Connected Appeals (ITAT Kolkata)
Summary: The Income Tax Appellate Tribunal (ITAT), Kolkata ‘A’ Bench, comprising Shri Rajpal Yadav, Vice-President (KZ), and Shri Manish Borad, Accountant Member, disposed of a batch of 13 appeals involving Tarasafe International Pvt. Ltd., REACHASIA, P.S. Magnum, Coalsale Co., Abhilasha Tradecom Pvt. Ltd., Orient Industrial Corporation, Hiralal Bhandari and H.K. Dutta & Co. through a common order dated 7 March 2023. The principal controversy concerned the allowability of weighted deductions at 175% under Section 35(1)(ii) of the Income-tax Act, 1961, in respect of donations made to scientific research institutions. The Assessing Officers had disallowed the deductions on the ground that the recipient institutions, including the School of Human Genetics and Population Health (SHG&PH), were involved in providing accommodation entries against purported donations. The Commissioner (Appeals) had substantially upheld these disallowances, prompting the assessees to approach the Tribunal.
The assessees contended that the donations were made to research institutions holding valid approval from the prescribed authorities at the relevant time. According to them, the statutory conditions under Section 35(1)(ii) stood satisfied once payments were made to approved institutions, and donors could not reasonably be expected to investigate the internal activities of such organisations. They further argued that subsequent withdrawal of approval, including its retrospective operation, could not invalidate deductions claimed on the basis of approvals existing when the donations were made. Reliance was placed on the Supreme Court decisions in CIT v. Vatika Township Pvt. Ltd. and Hitendra Vishnu Thakur v. State of Maharashtra, along with various Tribunal decisions allowing deductions in comparable circumstances. The assessees also disputed the evidentiary value of statements obtained during departmental investigations and challenged the conclusions drawn regarding the genuineness of their contributions.
The Tribunal examined the investigation findings, survey proceedings, statements of persons associated with the recipient institutions, proceedings before the Income Tax Settlement Commission and other material concerning the alleged accommodation-entry arrangements. It observed that the dispute was not merely about the subsequent cancellation of approval granted to a research institution, but about whether the payments represented genuine donations qualifying for deduction. The Revenue had relied upon material indicating that the institutions were receiving amounts in the guise of donations and facilitating accommodation entries for commission. The Tribunal considered the evidence against the assessees and found that their explanations, principally based on the approved status of the recipients and claims of bona fide belief, were insufficient to establish the genuineness of the disputed donations. Consequently, the Tribunal upheld the disallowances under Section 35(1)(ii), distinguishing the circumstances from cases where deductions had been allowed because the Revenue failed to establish the involvement of the donors in accommodation-entry transactions.
The Tribunal also considered additional legal objections raised in certain appeals. These included the validity of scrutiny proceedings where the notice under Section 143(2) was issued by an Income Tax Officer while the assessment was subsequently completed by a Deputy Commissioner, and challenges to reassessment proceedings under Sections 147 and 148. Regarding the scrutiny jurisdiction objection, the Tribunal examined CBDT Instruction No. 1 of 2011 and held that the allocation of assessment work between officers did not invalidate the proceedings merely because different officers were involved at different stages. It further observed that a separate transfer order under Section 127 was not required in the circumstances discussed. In the appeals of Abhilasha Tradecom Pvt. Ltd. for Assessment Years 2011-12 and 2012-13, the Tribunal upheld reopening of assessment because the information received from the Investigation Wing, supported by statements and other investigation material, provided sufficient grounds for the Assessing Officer to form a belief that income had escaped assessment through allegedly bogus donation claims.
On the cumulative assessment of the facts, documentary material, investigation findings and applicable statutory provisions, the Tribunal concluded that the assessees had failed to establish entitlement to the disputed weighted deductions under Section 35(1)(ii). It rejected the contention that approval of the recipient research institutions, by itself, conclusively established the genuineness of the donations, particularly where the Revenue had placed contrary material on record. The jurisdictional objections and challenges to reassessment proceedings were also rejected. Accordingly, the ITAT Kolkata dismissed all 13 appeals by its common order pronounced on 7 March 2023. The decision emphasises that statutory approval of a research institution does not dispense with examination of the actual nature and genuineness of donations where specific evidence of accommodation-entry arrangements is available.
Cases Discussed:
- CIT v. Batanagar Education & Research Trust, (2021) 129 taxmann.com 30 (SC): Relied upon regarding the investigation into bogus donation routing and cancellation of registration in an organised accommodation-entry scheme.
- PCIT v. Swati Bajaj & Others, (2022) 139 taxmann.com 352 (Calcutta HC): Applied by analogy in assessing circumstantial evidence of an organised accommodation-entry scheme.
- PCIT v. Mackaw Corporation, ITA 42 of 2020, (2022) 8 TMI 1750 (Calcutta HC): Distinguished with reference to the evidence and the Supreme Court ruling discussed in the present order.
- CIT (Exemption) v. Sanskriti Sagar (Calcutta HC), decided 26 April 2022: Distinguished on facts concerning the recipient of a small donation and absence of involvement in a donation-refund scheme.
- PCIT v. Thakkar Govindbhai Ganpatlal HUF, Tax Appeal No. 881 of 2019, dated 20 January 2020 (Gujarat HC): Discussed and distinguished based on the evidentiary record before the Tribunal.
- CIT v. Vatika Township Pvt. Ltd., (2014) 367 ITR 466 (SC): Cited by the assessees on the presumption against retrospective operation.
- Hitendra Vishnu Thakur v. State of Maharashtra, AIR 1994 SC 2623: Cited by the assessees concerning retrospective operation of procedural statutes.
- S.G. Vat Care Private Limited (ITAT Ahmedabad), ITA No. 1943/Ahd/2017: Earlier favourable decision quoted while discussing lack of specific evidence in the donor’s case.
Relevant notification discussed: Notification No. 4/2010.
