Income Tax Appellate Tribunal - Rajkot
Shri Milind Pankajbhai Shroff, ... vs The Principal Commissioner Of Income ... on 20 May, 2024
IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT
BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER
AND
SHRI DINESH MOHAN SINHA, JUDICIAL MEMBER
आयकरअपीलसं./ITA No.93/RJ T/2023
( नधारणवष / Assessment Yea r: (2018-19)
(Hybrid Hea ring)
Milind Pankajbha i S hro ff, Vs. The Pr. CIT - 1,
C/o S. K. Jani, Opp. Co nvent Rajkot
Schoo l, Gand higr am, Jnagadh
थायीले खासं . /जीआइआरसं . /PAN/GIR No. : AGNPS6837Q
(Appellant) (Respondent)
Appellant by : Shri Samir Jani, AR
Respondent by : Shri Shramdeep Sinha, CIT-DR
Date of Hearing : 29/04/2024
Date of Pronouncement : 20/05/2024
आदे श / O R D E R
PER DR. ARJUL LAL SAINI, AM:
By way of this appeal, the assessee has challenged the correctness of the order dated 16.03.2023, passed by the Learned Principal Commissioner of Income-tax (in short "Ld PCIT") under section 263 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year (AY) 2018-19.Grievances raised by the assessee, which, being interconnected, will be taken up together, are as follows:
"1. The Ld. PCIT erred in invoking the provisions of S.263 as the assessing officer had inquired into the allowability of deduction u/s 80GGC (Chapter-VIA), applied his mind and allowed the deduction. The order u/s 143(3) dated 02.02.2021 is neither erroneous inso far as prejudicial to interest of revenue. The order u/s 143(3) is prayed for restoration and quashed the order u/s 263.
2. The Ld. PCIT has erred in not accepting the plea of the appellant as to his fulfilling all the conditions of section 80GGC and genuineness is not required to be looked into by the Ld. assessing officer before allowance of deduction u/s 80GGC. The order u/s 263 dated 16.03.2023 is prayed for setting aside.ITA No.93/RJT/2023
Miling P. Shroff
3. The Ld. PCIT has erred in passing an order u/s 263 dated 16.03.2023 ignoring the judicial precedents of Delhi Tribunal in the case of Pushp Steel and Mining Private Ltd., Pune Tribunal in Alfa Laval Lund AB. The same is prayed for deletion.
4. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the Grounds at or before the time of final hearing of appeal."
2. Brief facts, as discernible from the orders of lower authorities are that assessee had e-filed return of income for assessment year(AY).2018-19 on 17.09.2018, declaring total income of Rs.1,57,88,570/-. Thereafter, assessee`s case was selected for Limited type scrutiny through CASS for the reason; Viz: (i) deduction from total income (Chapter VI-A)(Business ITR). The assessment was completed u/s 143(3) r.w.s. 143(3A) and 143(3B) of the Income Tax Act on 02.02.2021, determining total income at Rs.1,58,13,570/-.
3. Later on, Learned Principal Commissioner of Income-tax (in short "Ld PCIT") exercised his jurisdiction under section 263 of the Income-tax Act, 1961. On verification of assessee`scase records, it was noticed by ld PCIT that the assessee has claimed deduction u/s. 80GGC of Rs 30,00,000/- for donation made to one political party "Rashtriya Samajwadi Party (Secular)" which was found to be bogus.Thereafter, on verification of case records, it was noticed by ld PCIT that the assessee has paid another donation of Rs.2,25,000/- to one Trust Tara Foundation and claimed 50% deduction under Chapter VI-A i.e. Rs.1,12,500/-. Looking at the nature of claim and subsequent search on political party, it was noted that the donation paid by the assessee was nothing but accommodation entry to claim bogus donation and thereby evade taxes. Therefore, the aggregate amount of Rs.31,12,500/- (Rs.30,00,000 + Rs.1,12,500) was required to be disallowed and added to the total income of the assessee. The Assessing Officer ought to have made the said disallowance while finalizing the assessment proceedings u/s 143(3) of the Income Tax Act, which he/she has not done Page | 2 ITA No.93/RJT/2023 Miling P. Shroff so. Considering such facts, notice u/s 263 of the Act was issued by Ld. PCIT, vide letter dated 09.03.2023, which is reproduced below for ready reference:
"Notice under section 263 of the IT. Act, 1961 A.Y: 2018-19-Reg Please refer to your return of income for AY 2018- 19 filed vide acknowledgement No. 295251971170918 declaring total income at Rs 1,57,88,570/-. Assessment was completed u/s 143(3) r.w.s. 143(3A) & 143(3B) of the I.T. Act on 02/02/2021 determining total assessed income at Rs 1,57,88,570/-. The case was selected for Limited scrutiny through CASS for the reason (i) Deduction from total income (Chapter VI-A) (Business ITR).
2 On going through the case records, it is seen that the assessee had paid donations of Rs 30,00,000/- to one political party known as Rashtriya Samajwadi Party(Secular) and claimed the 100% deduction under chapter VIA. However, recently on the directions of the Election Commission of India a search was carried out by the Director of Income tax, Ahmedabad in certain cases, who had indulged in bogus donation racket wherein, donations were received through cheque and returned in cash, after deducting a small commission. The search clearly revealed this modus operandi. During the course of search proceedings, it was observed that the aforesaid political party, to whom the assessee had given donation, was also found to be not genuine. This party had received the donations by cheque after that the amount withdrawn in cash and paid the cash to the donors after deduction of them commission i.e. around 3% of the total amount and helped the donors to evade the taxes. On the other hand, the assessee availed 100% deduction on such donations. Further on verification it is observed that you have also paid the donations of Rs.2,25,000/ to one trust Tara Foundation and claimed the 50% deductions under chapter VIA i.e. Rs. 1,12,500/-, looking to your nature for claiming deduction to evade the payments of tax. Therefore, it is clear that, this is nothing but accommodation entry to claim bogus donation and thereby evade taxes. Hence, the entire amount of donations of Rs 30,00,000/- was required to be disallowed as 100% deduction has been claimed under chapter VIA and the entire amount of Rs 2,25,000 is required to be disallowed (as 50% deduction has been claimed under chapter VIA) and tax on such deduction has escaped assessment.
2.1 On the above facts, disallowance of Deductions claimed under chapter VIA i.e. donation Rs.31,12,500/ of the I.T. Act resulted in underassessment of Rs 31,12,500/-.
3. Thus, it is clear that while completing the assessment u/s 143(3) r.w.s. 143(3A) & 143(3B) of the IT Act on 02.02 2021, the assessing officer has not properly verified/ examined the facts of the case and the issues under consideration.
4. As per the provision of section 263 of the I.T. Act. Explanation-2 any orderpassed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue.In this case, theassessing officer has failed to examine the genuineness of deduction under Chapter VI- A claimed by the assessee, which Page | 3 ITA No.93/RJT/2023 Miling P. Shroff was in fact, one of the reasons of selection of this case for scrutiny. Therefore, in view of the above, the assessment order has become erroneous and prejudicial to the interest of revenue.
5. In view of the above and in the light of facts and circumstances of the case, the order passed by the assessing officer u/s 143(3) of the I.T. Act being erroneous and prejudicial to the interest of revenue needs to be revised u/s 263 of the I.T. Act. Therefore, I hereby initiate proceedings u/s 263 of the Act, with a view to pass a suitable revision order. Before passing of such order, you are hereby given an opportunity of being heard in the matter. In this connection you are requested to furnish your reply/submission/ explanation or objection if any, by email to rajkot.cit@ incometax.gov.in, through e-file portal or by speed post to this office on or before 16.03.2023."
4. In response to the notice of Ld. PCIT, the assessee has submitted his reply dated 06.03.2023, which is reproduced in the order of Ld. PCIT, vide page nos.3 to 6. The assessee submitted before ld PCIT, in his reply that against the notice under section 142(1) of the Act, dated 25-11-2020, the assessee furnished before assessing officer, the details of deduction claimed under chapter VI-A and bank statement. The assessing officer (A.O.), after applying his mind, has allowed the deduction under chapter VI-A , therefore, order passed by assessing officer is neither erroneous nor prejudicial to the interest of Revenue. The assessee has also stated before ld PCIT that order passed by the assessing officer, under section 143(3) of the Act, dated 02.02.2021 has merged with the order of the Commissioner of Income Tax (Appeals), as the assessee has filed, the appeal before the ld CIT(A), therefore, ld PCIT does not have right to revise such assessment order, which is subject matter of appeal before ld CIT(A).
5. The Ld. PCIT had gone through the assessee's submission dated 02.12.2020 filed during the course of original assessment proceedings and the reply of the assessee filed on 06.03.2023 before him and noted that in respect of donation made of Rs.30,00,000/-, to the political party, known as Rashtriya Samajwadi Party (Secular), and it was observed by ld PCIT that assessee furnished copy of four donation receipts of Rs.10,00,000/- dated Page | 4 ITA No.93/RJT/2023 Miling P. Shroff 01/02/2018, Rs.10,00,000/- dated 02/02/2018, Rs.5,00,000/- dated 07/02/2018 and Rs.5,00,000/- dated 21/02/2018,alltotaling to Rs.30,00,000/- , being made to Rashtriya Samajwadi Party. Such receipts as submitted by assessee were reproduced by ld PCIT in his order page Nos. 7 to 8.The assessee has also submitted copy of certificate of registration of Rashtriya Samajwadi Party (Secular), as political party and also bank account evidencing payment made by cheque and stated that it has contributed a sum of Rs.30,00,000/- by cheque during the year underconsideration and claimed the same as deduction u/s80GGC and since it falls within the explanation to section 80GGC, hence the same is eligible.
6. However, ld PCIT did not accept the above contentions of the assessee and noted that asearch, action u/s 132 of the Act was carried out on 07.09.2022 in multiple (23) RUPPs including "Rashtriya Samajwadi Party(Secular)", its related persons and layering dummy entities/exit providers. The findings emanating from search action and post search investigation, as well as, survey action undertaken in the case of controller of dummy entities established the allegation of involvement, inter-alia, of "Rashtriya Samajwadi Party(Secular) in the racket of bogus donation in connivance with the dummy/paper entities facilitating accommodation entries to the donors. The search u/s 132 of the Act was carried out by ADIT, Ahmedabad and as per report received from Investigation Wing, above referred party was receiving bogus donations in lieu of cash. Main finding of ADIT/statement recorded during the course of search, are summarized as under:
(i)Rashtriya Samajwadi Party(Secular) is a Registered Unrecognized Political Party and it is one of the 23 RUPPs covered in the RUPPs Group of Ahmedabad. This party was established on 21.10.2008 and its registered address as per its website is Samruddhi Complex, Opp- Sakar-3, Income Tax Page | 5 ITA No.93/RJT/2023 Miling P. Shroff Circle, Ahmedabad. However, during pre-search enquiry, no party office is found at the aforesaid address. Therefore, further analysis was carried out from the data available with department/open source. During the analysis, it is revealed that in accordance with PAN database/facebook page of the party, its addresses were found as: (i) UG 8 Harekrishna Complex Nr CTM Cross Road Amraiwadi Ahmedabad (receipts of donation submitted, by assessee contains this address) and (ii) A/104, Rajshree Avenue, B/h. -
Income Tax, Nr. Dinesh Hall, Ashram Road, Ahmedabad, respectively. However, during the pre-search enquiry, no party office was found at these addresses also. Smt. Sandhya Singh is the national president of SVPP.
(ii) The modus-operandi of this political party is that the donation is received through cheque in the bank account of the party and then routed through intermediary(ies) (which is generally shell entity(ies) controlled by either the persons running the party or by any other person) in the garb of various purchases or otherpayments, which are found to be bogus in nature. This money isthen re-routed through various layers, and returned to theoriginal donors, primarily in the form of cash, in lieu of some commission that ranges from 3.5% to 5%. It is pertinent to mention here that the political party doesn't pay any tax since itis exempt u/s 13A of the Act.
(iii). The modus operendi of such political party for receipt of non-genuine deposit is explained by the ld PCIT on page No. 10 of his order.
(iv) During the search proceedings, on 07.09.2022, statement on oath u/s 132(4) of the I.T. Act, was recorded of Smt. Sandhya Singh, National Party President of the Rashtriya Samajwadi Party (Secular).As evident from the declaration made on oath by Smt. Sandhya Singh that although she is national party president of the party, however, all the work related with party Page | 6 ITA No.93/RJT/2023 Miling P. Shroff is being looked-after by her husband Shri Bishwajeet Singh. She was not aware about any activity of the party. Further, vide Q.No. 18 and 19, she was categorically asked regarding details of bank accounts, books of accounts, nature and quantum of the expenditures of the Rashtriya, Samajwadi Party. In reply to the same, she again stated that she is not aware of any details regarding these subjects. She stated that all these things arebeing handled by her husband Shri Bishwajeet Singh.
(v) It is on record that statement of Shri Bishwajeet Singh, on oath u/s 132(4) of the I.T. Act, was recorded on 07.09.2022. During the statement proceedings, Shri Bishwajeet Singh admitted the fact that on his instance, his wife Smt. Sandhya Singh joined RSP, as president. During the statement proceedings, Shri Bishwajeet Singh revealed that the party i.e. RSP is involved in bogus donations scam across India and founder of party i.e. Shri Surya, Nath Chaturvedi carried out bogus donations scam since inception of the party. He further stated that after deducting certain commission donations are being returned to the donors. Shri Bishwajeet Singh further explained the modus-operandi of the bogus donation scam. He stated that Shri Riteshkuraar S Shah arranges bogus donations for the party as Ritesh Shah has wide network of GAs across India. He convinces CAs for bringing bogus donations to the party. Ritesh Shah keeps and issues donations receipts to the donors through these CAs. Bishwajeet, Singh further stated that his own number has been registered in the Bank Account of the party which is maintained with Punjab National Bank.
(vi) Furthermore, Shri Bishwajeet Singh has also submitted modus-operandi regarding generation of cash, which subsequentlyreturned to the donors. He stated that after layering of fund through bank accounts of various dummy entities, donated amounts are being credited in the bank accounts of APMCshops. From the accounts of APMC shops, the cash iswithdrawn to return it to the original donors. He stated thatthese Page | 7 ITA No.93/RJT/2023 Miling P. Shroff affairs are also being handled by the Shri Ritesh Shah. Siri BishwajitSingh submitted list of some bogus entities used for cash generation, which is reproduced by ld PCIT on page number 13 of his order.
(vii) During the post search inquiries, statement of Shri Amitkumar Chaturvedi (AHLPC7736R), past president of political party was also recorded, he categorically admitted that the party was engaged in bogus donations scam. He explained the modus operandi of the party with respect to donation received by the party. He stated that the party arranges donations through CAs/commission agents from, various individuals. On receipt of such donations, party follows the following two modus:
(a).The party withdraws cash from its bank account and returns donated amount to the donors either directly orthrough angadiya/CAs/commission agents after deducting certain commission.
(b).Donated, amount is transferred to bank accounts of various dummy entities. The amount is transferred forlayering purpose and to show that such entities havefacilitated in purchase of agro-based products e.g. wheat, rice, vegetables etc, from the vendor of APMC market. Atleast, the donated amounts are transferred to accounts ofvendor of APMC Market. From these accounts, cash iswithdrawn and returned to donors after deducting certaincommission. He has categorically stated that thesetransactions are sham transactions and reflected only onpaper. He further stated that no goods are ever beingpurchased from any entities. He has also mentioned thatcash are being withdrawn from the accounts of vendors of APMC Market as there is no restriction of cash withdrawalon the bank accounts of vendors of APMC Market.
Page | 8 ITA No.93/RJT/2023 Miling P. Shroff
(viii).It is relevant to refer to the fact that on verification with the website of regional Chief Electoral Officer where the party is registered i.e. CEO, Gujarat State, it has been found that Rashtriya Samajwadi Party (Secular) has not filed any contribution report, since F.Y. 2013-14 onward (details withrespect to filing of contribution report is available on the state CEO's website from F.Y. 2013-14 to 2021-22).
(ix).It is evident that the conditions laid down in section 13A of the Income Tax Act is clearly not fulfilled by the party since F.Y. 2013-14. Accordingly, the party is not entitled to claim exemptions on the income earned since F.Y. 2013-14. In this connection, details of ITR and the date of filing of report u/s 29C of R.P. Act since 2017-18, are placed hereunder for ready reference:
Sr. No. F.Y. Date of filing of Date of Date of submission of return of submission of contribution report u/s.
income contribution 29C as mentioned in IT
report return
1 2017- 18 Not filled Not filled N.A.
2 2018-19 26.10.2019 Not filled "NO" written in the
prescribed column
3 2019-20 Not filled Not filled N.A.
4 2020-21 Not filled Not filled N.A.
:
5 2021-22 Not filled Not filled N.A.
Therefore, it is crystal clear that not only has the party been claimingwrong and invalid exemption, over the years under section 13A of the I.T. Actbut it has also been, mentioning in its Income TaxReturn of F.Y. 2018-19 that no contribution report has been filed u/s 29C of the R.P. Act, 1951.
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7. In view of aforesaid facts, it was observed by ld PCIT that donation received by "Rashtriya Samajwadi Party(Secular) is bogus and cash has been received back by the assessee in lieu of cheque. The entire modus operandi of said political party was discussed by him which clearly indicates that donation given by assessee is bogus. The assessee has claimeddeduction under Section 80GGC of the Act, which is bogus and to that extent Assessment Order passed by assessing officer is erroneous and prejudicial to the interest of Revenue.
8. It was observed by ld PCIT that though assessee has given cheque of Rs.30,00,000/- and as per modus operandi discussed herein above, the assessee has received cash against such donation which is not found to be recorded in books of account. It is found that assessee has used bogus donation, as a tool to generate unexplained cash and as he is found to be owner of such cash, which is not disclosed in books of account, such cash is "unexplained money" under section 69A of the Act. It is relevant to refer to provision of section 115BBE of the Act which states that when the total income of the Assessee includes, income referred in Section 69A of the Act, the tax payable shall be @ 60% as increased by relevant surcharge and interest. Even on this ground, order of Assessing Officer is erroneous and prejudicial to the interest of the Revenue.
9. The ld PCIT noticed in respect of donation paid to Tara Foundation of Rs.2,25,000/-, that assesses has submitted receipt dated 20.02,2018 along with copy of approval u/s80G(5) of the Act, dated 30.05.2017, copy of PAN card of Tara Foundation and bank account statement highlighting the transaction. However, it was noticed by ld PCIT that the assessee is found to be claiming huge bogus donation payment as deduction under Chapter-VIA Page | 10 ITA No.93/RJT/2023 Miling P. Shroff to evade payment of tax, however, assessee has paid donation of Rs,2,25,000/- by cheque to the Tara Foundation, therefore, genuineness of the impugned transaction is doubtful. The Assessee has claimed 50% deduction, being, Rs.1,12,500/- of such donation paid Rs.2,25,000/- under Chapter VI-A of the Act. However, since the donation is paid of Rs.2,25,000/- and looking to the earlier claim of bogus donation by the assessee to evade payment of tax, the entire amount of Rs.2,25,000/- can be bogus. The assessing officer has not recorded his satisfaction to the genuineness of the transaction and to that extent assessment order passed by assessing officer is erroneous and prejudicial to the interest of Revenue.
10. The assessee has contested before ld PCIT that during the course of original assessment proceedings, assessee had responded on 03.12.2020 along with five PDF files to the notice issued by the then assessing officer and after application of mind to the details complied with, assessment order u/s 143(3) r.w.s. 143(3A) and 143(3B) was passed on 02.02.2021 and thus, the assessing officer had raised, the issue through notice dated 21.09.2019 and 25.11.2020 which were complied at length through replies dated 14.10.2019 and 03.12.2020, therefore, the order passed u/s 143(3) of the Act, dated 02.02.2021, cannot be considered, as erroneous in so far as prejudicial to the interest of revenue and has no jurisdiction vests with the ld PCIT. However, ld PCIT rejected the contention of the assessee and observed that investigation carried out in a search and post-search action, it, is found that donation received, by "Rashtriya Sarnajwadi Party (Secular) is bogus and therefore, the donation, given by the assessee to the said party is also bogus. Further, considering the modus operandi, adopted by the assessee for claiming bogus deduction, under Chapter VIA to evade payment of tax, the claim of donation paid of Rs.2,25,000/- to Tara Foundation is also bogus. The assessing officer has accepted the assessee's version without any discussion, in assessment order. It is observed that search action under Page | 11 ITA No.93/RJT/2023 Miling P. Shroff Section 132 of the Act was carried out in the case of "Rashtriya. Sarnajwadi Party(Secular) subsequent to assessment proceedings which clearly proves that such donation is bogus. Further, though the assessee has submitted copies of donation receipts, copy of approval given by the Election Commission of India, approval u/s80G of the Act and bank account, statement highlighting the transactions routed through banking channel, however, considering the modus operandi adopted by the political party and to evade payment of tax by claiming bogus deduction under Chapter VIA of the Act, the donation paid to Tara Foundation may be treatedas bogus. While passing the Assessment Order, assessing officer hasoverlooked the details of donation received by such parties/trusts which is available on public domain, as discussed herein above and such list does not include the name of assessee. These facts clearly proves that assessment "order passed by assessing officer is prejudicial to interest of revenue as well as erroneous as envisaged in provisions of section 263 of the Act.
11. The ld PCIT also noted that with effect from 01/06/2015, Explanation 2 to the section 263(1) has been, inserted by which scope of section 263 of the Act has been expanded by incorporating the concept of "deemed to be erroneous". The same is reproduced as under:
"Explanation 2-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, it, in the opinion of the Principal Commissioner or Commissioner, -
(a) The order is passed without making inquiries or verification which should have been made;
(b) The order is passed allowing any relief without inquiring into the claim;
(c) The order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or Page | 12 ITA No.93/RJT/2023 Miling P. Shroff
(d) The order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person."
Thus, the argument that the assessing officer collected details/information during assessment proceedings does not hold good, any more. Once in the opinion of PCIT, the order passed without making inquiries or verification which should have been done, is not done, then, such order need to be treated as "erroneous". In the present case also, assessing officerhas not made proper inquiry in connection with details of donation received by such party as political party and Trust whether they have not filed return of income for said assessment years as discussed herein above and violated provisions of the Act. The assessing officer has not considered this fact and passed the assessment order without makingany further disallowance in this regard. Therefore, ld PCIT was of the considered opinion that the impugned order was passed by the then assessing officer without making enquiries/verification, which should have been made. Thus, this case is covered by clause (a) of Explanation 2 to section 263 of the Act.
12. In view of above facts, assessment order passed by assessing officerwas considered by ld PCIT, to be erroneous and prejudicial to interest of revenue, as the claim of Assessee for deduction under Chapter VIA, under section 80GGC and u/s80G of the Act was bogus and to that extent such deduction cannot be allowed. Further, as assessee has received cash against donation and such cash is not recorded in books of account and represents unexplained income, such cash is required to be taxed as unexplained money under Section 69A of the Act. Therefore, the assessment order passed by the assessing officer u/s 143(3) of the Act dated 02.02.2021 was treated erroneous and prejudicial to the interest of the revenue. Therefore, ld PCITset-asidethe order u/s 143(3) of the Act, dated 02.02.2021 on the issues discussed above and ld PCIT directed the Page | 13 ITA No.93/RJT/2023 Miling P. Shroff Assessing Officer to pass a fresh assessment order to the extent the issues discussed herein above.
13. Aggrieved by the order of Ld. PCIT, the assessee is in appeal before us.
14. Shri Samir Jani,Learned Counsel for the assessee, argued that during the assessment proceedings, the Assessing Officer has issued the notice under section 142(1) of the Act to examine thedeductions under Chapter VI- A of the Income Tax Act. In response to the said notice, under section 142(1) of the Act, the assessee has submitted detailed reply before the Assessing Officer, which is placed at paper book page no.3 to 37. Before the assessing officer, the assessee has submitted various documents and details, including bank statements, and receipt of donation etc.The ld Counsel for the assessee also relied on the following judgments:
(i). Asiatic Bearing Co. ITA No.67/RJT/2022, order dated 10.11.2023.
(ii). Smt. PravinabenAnantrai, ITA No.94/RJT/2020, order dated
15.12.2022.
In the light of the above judgements, the ld Counsel stated that Assessing Officer made the adequate inquiry and hence the order passed by the Assessing Officer is neither erroneous nor prejudicial to the interest of Revenue. Therefore, Ld Counsel contended that order passed by the Ld PCIT, under section 263 of the Act, may be quashed.
15. On the other hand, Learned Commissioner of Income Tax - Departmental Representative [ld. CIT(DR)] for the Revenue,argued that assessee had contributed donation of a sum of Rs.30,00,000/- under section 80GGC of the Act to the Rashtriya Samajwadi Party (Secular), a political Page | 14 ITA No.93/RJT/2023 Miling P. Shroff party. The assessing officer had issued a notice dated 13.01. 2021, under section 142(1) of the Act, wherein the assessing officer never asked the assessee to submit the details and documents in respect of donation made to the political party, namely Rashtriya Samajwadi party (Secular), hence, it is a case of complete non-enquiry on the part of the assessing officer. Since, the assessing officer never conducted enquiry by way of issuing notice under section 142 (1) of the Act, therefore, it is a case of non-application of mind by the assessing officer, hence order passed by the assessing officer is erroneous and prejudicial to the interest of revenue.
16. The ld. CIT-DR further submitted that first of all, the said political party, namely,Rashtriya Samajwadi party (Secular), is not registered with the Election Commission of India. It is unregistered party and therefore not entitled to receive donation. The President of the party has admitted in his statement that the party is receiving the bogus donation and providing accommodation entries.On the address, given to the Income Tax Department, the Department has conducted enquiry and noticed that this party`s office does not exist on the address supplied to the Department. Hence, it is a complete fraud and fraud, vitiates everything. The Ld. CIT-DR for the Revenue, to support his arguments, relied on the following judgments:
(i)Babulal S. Solanki v. ITO, in ITA No.3493/Ahd/2016
(ii)Abhishek Ashok Lohade v. ITO, in ITA No.816/Pun/2018 Therefore, Ld. CIT-DR contended that order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue, as it is made by assessing officer without application of mind and without making inquiry, hence order passed by the Ld. PCIT may be upheld.
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17. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. PCIT and other material brought on record. First, we should examine the fact whether assessing officer has conducted enquiry by issuing notice under section 142 (1) of the Income Tax Act 1961, in respect of the donation given by the assessee to the tune of Rs.30,00,000/- to Rashtriya Samajwadi party (Secular). The relevant para of the notice issued by the assessing officer under section 142(1) of the Income Tax Act 1961, is reproduced below:
"You have furnished the detail/documents in response to the notice u/s 142(1) of the Income Tax Act, 1961 vide letter dated 02 12 2020. It is seen that you have claimed deduction u/s 80D of the Act amounting to Rs 25,0000/- You have submitted the receipt of the payment of the premium towards the mediclaim of amounting to Rs. 26,163/-, paid to the New India Assurance Co. Ltd., dated 23.03.2017. The receipt of the premium paid is belong to the FY 2016-17, i.e. AY 2017-18. Therefore, you are requested to furnish your explanation and furnish the documentary evidence in respect of the deduction claimed u/s 80D of the Act for the F.Y. 2017-18.
Please note that in case you fail to furnish the documentary evidence in respect of the deduction claimed u/s 80D of the Act. The deduction of Rs. 25,000/- claimed by you in the ROI of AY 2018-19, may be disallowed and added to the total income."
From the above notice of the assessing officer, issued under section 142 (1) of the Act, it is vivid that assessing officer had conducted enquiry only in respect of deduction under section 80D of the Act amounting to Rs.25,000/-. We note that assessee had paid donations of Rs 30,00,000/- to one political party known as "Rashtriya Samajwadi Party(Secular)" and claimed the 100% deduction under chapter VI-A, under section 80GGC of the Act, for said donation, the assessing officer never conducted enquiry by way of Page | 16 ITA No.93/RJT/2023 Miling P. Shroff issuing notice under section 142 (1) of the Act. That is, assessee had contributed donation of a sum of Rs.30,00,000/- under section 80GGC of the Act to the "Rashtriya Samajwadi Party (Secular)", a political party, which remain unexamined and unattended on the part of the assessing officer. Hence, it is a case of no enquiry, on the part of the assessing officer, so far deduction under section 80 GGC of the Act, is concerned.
18. The findings of the ld PCIT in respect of donation paid to Tara Foundation of Rs.2,25,000/-,u/s 80G(5) of the Act, is also correct, as the assessing officer has not conducted any enquiry in respect of said donation by issuing notices under section 142(1) of the Act.
19. We are aware of the fact that the Assessing Officer's role while framing an assessment is not only an adjudicator. The assessing officer has a dual role to dispense with i.e. he is an investigator as well as an adjudicator; therefore, if he fails in any one of the roles, as afore-stated, his order will be termed as erroneous. We note that it is also a case of non-application of mind by the assessing officer, so far deductions under section 80GGC of the Act and under section 80G(5) of the Act, are concerned. Hence, it is evidently clear that there is no enquiry on the part of the assessing officer, therefore order passed by the assessing officer is erroneous as well as prejudicial to the interest of revenue. As stated above that the Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 Page | 17 ITA No.93/RJT/2023 Miling P. Shroff includes the failure to make such an enquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct. We derive support for the proposition as stated above, from the decision of the Hon'ble Delhi High Court in the case of Gee Vee Enterprises 99 ITR 375 (Del). Therefore, we find that what the talk to conduct further enquiry, we note that assessing officer has never conducted enquiry, so far donationsof Rs 30,00,000/- to political party,"Rashtriya Samajwadi Party(Secular)" and donation to Tara Foundation of Rs.2,25,000/-,u/s 80G(5) of the Act, are concerned. Hence, we find merit in the submissions of Ld. DR to the effect that assessing officer has not conducted any enquiry so far these two deductions are concerned.
20. Let us take the guidance of judicial precedents laid down by the Hon'ble Apex Court in Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83(SC) wherein their Lordship have held that twin conditions needs to be satisfied before exercising revisional jurisdiction u/s 263 of the Act by the PCIT. The twin conditions are that the order of the Assessing Officer must be erroneous and so far as prejudicial to the interest of the Revenue. In the following circumstances, the order of the AO can be held to be erroneous order, that is:(i) if the Assessing Officer's order was passed on incorrect assumption of fact; or
(ii) incorrect application of law; or
(iii)Assessing Officer's order is in violation of the principle of natural justice; or
(iv) if the order is passed by the Assessing Officer without application of mind; or
(v) if the AO has not investigated the issue before him;
Page | 18 ITA No.93/RJT/2023 Miling P. Shroff then the order passed by the Assessing Officer can be termed as erroneous order. Coming next to the second limb, which is required to be examined as to whether the actions of the AO can be termed as prejudicial to the interest of Revenue. When this aspect is examined one has to understand what is prejudicial to the interest of the revenue. The Hon'ble Supreme Court in the case of Malabar Industries (supra) held that this phrase i.e. "prejudicial to theinterest of the revenue'' has to be read in conjunction with an erroneous order passed by the Assessing Officer. Their Lordship held that it has to be remembered that every loss of revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of the revenue. When the Assessing Officer adopted one of the courses permissible in law and it has resulted in loss to the revenue, or where two views are possible and the Assessing Officer has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interest of the revenue "unless the view taken by the Assessing Officer is unsustainable in law".
Therefore, we are of the considered opinion that the judicial precedents laid down by the Hon'ble Apex Court in Malabar Industries Ltd(supra) is applicable to the assessee`s facts under consideration, as the conditions mentioned in the above judgment, viz: (iv) if the order is passed by the Assessing Officer without application of mind; (v) if the AO has not investigated the issue before him, are applicable to the facts of the assessee`s case under consideration therefore, the order passed by the Assessing Officer can be termed as erroneous order which is prejudicial to the interest of Revenue also.
21. On the identical facts, our view is fortified by the Judgment of the Coordinate Bench of ITAT Mumbai in the case of Babulal as Solanki, in ITA No. 3493/Ahd/2016, order dated March 4, 2019, wherein the coordinate Bench held as follows:
Page | 19 ITA No.93/RJT/2023 Miling P. Shroff "5. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of applicable legal position.
6. We find that the Assessing Officer, vide letter dated 9thDecember 2013, did state, in rather general terms, that where the stamp duty valuation (i.e. jantri value) is different from sale consideration, the assessee has to state whether the stamp duty valuation was adopted as sale consideration. There was neither a specific reference to the facts of this case or the application of Section 50. In reply to this letter, the assessee stated that "the land sold is agricultural land as clearly mentioned in the sale deed", that "index copy dated 3rdJune 2011 (i.e. after the date of sale deed) clearly shows the said land as an agricultural land" and that "jantri value of said agricultural land is Rs 4,900 per sqmtr which was clearly mentioned as per letter of Superintendent of Stamps, Gandhinagar, Gujarat". It was further clarified that "the value of Rs 11,750 per square meter on which stamp duty is paid by the purchaser is for non agricultural land". The assessee thus explained that the sale consideration is less than the stamp duty valuation for the land sold, and then he pointed out the computation of conversion premium paid by the assessee was on the basis of valuation of agricultural land. This plea, however, proceeds on the assumption that the provisions of Section 50C come into play on a fair stamp duty valuation of the land or building or both, rather than the actual valuation adopted by the stamp valuation authority. Section 50 C comes into play, for substitution of actual sale consideration by the value adopted for stamp duty valuation purposes, "where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed...by any authority". What is thus clear is that, on the face of it, the actual stamp duty valuation adopted by the assessing authority rather than what would be the right, even if that be different from actual, stamp duty valuation which ought to have been adopted by the stamp duty valuation authority. If the registration does not take place in the year of transfer and no stamp duty is actually assessed as such, then, of course, value assessable could come into play but that's not the case here. The reply of the assessee was thus less than acceptable in law and on the basis of this explanation. The correctness of claim, on this basis of this claim by the assessee, cannot be established. Of course, there can be other aspects on which the jantri value may, or may not, be applicable but that is a different issue. The claim made by the assessee was thus clearly something which should have provoked further examination or at least being dealt by way of a speaking order, but the Assessing Officer chose to remain silent on the same. As observed by Hon'ble Delhi High Court, in the case of Gee Vee Enterprises Vs ACIT (99 ITR 375), "The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it.
The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry. The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be Page | 20 ITA No.93/RJT/2023 Miling P. Shroff correct." Of course, if the explanation given by the assessee was of the nature as could possibly satisfy any reasonable person, even if other view was possible, the situation would have been different. The explanation given by the assessee in this case, however, was simply not a legally possible view of the matter. Even in the oft quoted case of Malabar Industrial Co Ltd Vs CIT (243 ITR 83), Hon'ble Supreme Court has observed that "when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law" (Emphasis supplied by us now). The view canvassed by the assessee, in our considered view, was unsustainable in law. Therefore, even if the matter was examined by the Assessing Officer and it was a conscious call of the Assessing Officer to accept the plea of the assessee, such a situation would not take the matter outside the ambit of Section 263 as the view adopted by the Assessing Officer was clearly unsustainable in law. Having said that, we must add that there can be other legal reasons for grant of relief on merits, and that area is not yet explored by, or before, us. In any case, all that the learned Commissioner has directed is examination of the claim on merits and, for the above reason, we see no infirmity in that direction. In view of these discussions, as also bearing in mind entirety of the case, we uphold the impugned revision order and decline to interfere in the matter. As we do so, we make it clear that our expression of view on merits of the case is only a prima facie impression, and it must not, therefore, influence the decision of the Assessing Officer on merits. Uninfluenced with these observations, the Assessing Officer will take a call on merits of the matter.
7. In the result, the appeal is dismissed. Pronounced in the open court today on the 4thday of March, 2019."
As we have noted above that there is no enquiry on the part of the assessing officer, therefore order passed by the assessing officer is erroneous as well as prejudicial to the interest of revenue and therefore, we uphold the order passed by ld PCIT under section 263 of the Act, dated 16.03.2023.
22. Now, we shall also adjudicate the other arguments advanced by ld. DR for the revenue to the effect that "fraud vitiates everything". In this connection, at the cost of repetition, we reiterate the findings of ld PCIT, which are as follows:
(i)Rashtriya Samajwadi Party (Secular) is a Registered Unrecognized Political Party and it is one of the 23 RUPPs covered in the RUPPs Group of Ahmedabad. This party was established on 21.10.2008 and its registered address as per its website is Samruddhi Complex, Opp- Sakar-3, Income Tax Page | 21 ITA No.93/RJT/2023 Miling P. Shroff Circle, Ahmedabad. However, during pre-search enquiry, no party office is found at the aforesaid address.
(ii) The modus-operandi of this political party is that the donation is received through cheque in the bank account of the party and then routed through intermediary(ies) (which is generally shell entity(ies) controlled by either the persons running the party or by any other person) in the garb of various purchases or other payments, which are found to be bogus in nature. It is pertinent to mention here that the political party doesn't pay any tax since it is exempt u/s 13A of the Act.
(iii) During the search proceedings, on 07.09.2022, statement on oath u/s 132(4) of the I.T. Act, was recorded of Smt. Sandhya Singh, National Party President of the Rashtriya Samajwadi Party (Secular).As evident from the declaration made on oath by Smt. Sandhya Singh that although she is national party president of the party, however, all the work related with party is being looked-after by her husband Shri Bishwajeet Singh. She was not aware about any activity of the party. Further, vide Q. No. 18 and 19, she was categorically asked regarding details of bank accounts, books of accounts, nature and quantum of the expenditures of the Rashtriya, Samajwadi Party. In reply to the same, she again stated that she is not aware of any details regarding these subjects. She stated that all these things are being handled by her husband Shri Bishwajeet Singh.
(iv) It is on record that statement of Shri Bishwajeet Singh, on oath u/s 132(4) of the I.T. Act, was recorded on 07.09.2022. During the statement proceedings, Shri Bishwajeet Singh admitted thefact that on his instance, his wife Smt. Sandhya Singh joined RSP, as president. During the statement proceedings, Shri Bishwajeet Singh revealed that the party i.e. RSP is involved in bogus donations scam across India and founder of party i.e. Shri Page | 22 ITA No.93/RJT/2023 Miling P. Shroff Surya, Nath Chaturvedi carried out bogus donations scam since inception of the party. He further stated that after deducting certain commission donations are being returned to the donors.
(v) Furthermore, Shri Bishwajeet Singh stated thatthese affairs are also being handled by the Shri Ritesh Shah. Siri Bishwajit Singh submitted list of some bogus entities used for cash generation, which is reproduced by ld PCIT on page number 13 of his order.
(vi) During the post search inquiries, statement of Shri Amitkumar Chaturvedi (AHLPC7736R), past president of political party was also recorded, he categorically admitted that the party was engaged in bogus donations scam.
(vii).It is relevant to refer to the fact that on verification with the website of regional Chief Electoral Officer where the party is registered i.e. CEO, Gujarat State, it has been found that Rashtriya Samajwadi Party (Secular) has not filed any contribution report, since F.Y. 2013-14 onward.
(viii).The party been claimingwrong and invalid exemption, over the years under section 13A of the I.T. Actbut it has also been, mentioning in its Income TaxReturn of F.Y. 2018-19 that no contribution report has been filed u/s 29C of the R.P. Act, 1951.
(ix)Rashtriya Samajwadi Party (Secular) is not registered, as of today, as informed by ld Counsel for the assessee, with Election Commission of India/R.P. Act, 1951.
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(x) There is no retraction of statements given by Smt. Sandhay Singh, Shri Bishwajeet Singh and Shri Amit Kumar, hence their statements are correct and valid.
23. From the above facts, it is abundantly clear that donation received by "Rashtriya Samajwadi Party" is bogus. The assessee has claimed deduction under Section 80GGC of the Act, and 80G(5) of the Act, which isalso bogus and to that extent Assessment Order passed by assessing officer is erroneous and prejudicial to the interest of Revenue. There is a saying thatThe 'tail' cannot wag the 'dog'.When there is a fraud, then the details and documents submitted by the assessee, before the assessing officer, during the assessment proceedings, do not assist the assessee in any manner, that is, the assessee cannot take the plea that he has submitted enough documents and details before the assessing officer and assessing officer has taken the plausible view. For that reliance can be placed on the judgment of the Coordinate Bench of ITAT Pune, in the case of Abhishek Ashok Lohade in ITA No.816/PUN/2018, order dated 22.11.2022, the findings of the Coordinate Bench of ITAT Pune, are reproduced below:
"9. There is yet one more reason as to why we are inclined to confirm the addition made by Assessing Officer, in view of the well settled principle of law that fraud vitiate everything and even principle of natural justice have no application and such transaction is void ab initio. The Hon'ble Supreme Court in the case of Friends Trading Co. vs. Union of India in Civil Appeal No.5608 of 2011 vide order dated 23.09.2022 held in the context of availment of alleged forged DEPB under the Customs Act, wherein, it was found DEPB licenses were forged and it was held that the exemption benefit availed on such forged DEPB are void ab initio on the principle that fraud vitiate everything and the period of limitation was held to have no application and the Department was held to be justified in invoking the extended period of limitation and the fact that whether the beneficiary had no knowledge of about the fraud/forged and fake DEPB licenses have no bearing the imposition of custom duty. The ratio of judgement is squarely applicable to the transaction under consideration before us. Further, the application of principle of the fraud under judicial Acts was considered by the Hon'ble Supreme Court in the case of Smt. Badami (Deceased) By her L.R. vs. Bhali in Civil Appeal No.1723 of 2008 dated 22.05.2012, wherein, the Hon'ble Apex Court held as follows :
"20. In S. P. Chengalvaraya Naidu (dead) by L.Rs. v. Jagannath (dead) by L.Rs. and others [AIR 1994 SC 853] this court commenced the verdict with the following words:-
Page | 24 ITA No.93/RJT/2023 Miling P. Shroff "Fraud-avoids all judicial acts, ecclesiastical or temporal" observed Chief Justice Edward Coke of England about three centuries ago. It is the settled proposition of law that a judgment or decree obtained by playing fraud on the court is a nullity and non est in the eyes of law. Such a judgment/decree by the first court or by the highest court - has to be treated as a nullity by every court, whether superior or inferior. It can be challenged in any court even in collateral proceedings."
21. In the said case it was clearly stated that the courts of law are meant for imparting justice between the parties and one who comes to the court, must come with clean hands. A person whose case is based on falsehood has no right to approach the Court. A litigant who approaches the court, is bound to produce all the documents executed by him which are relevant to the litigation. If a vital document is withheld in order to gain advantage on the other side he would be guilty of playing fraud on court as well as on the opposite party.
22. In Smt. Shrist Dhawan v. M/s. Shaw Brothers [AIR 1992 SC 1555] it has been opined that fraud and collusion vitiate even the most solemn proceedings in any civilised system of jurisprudence. It has been defined as an act of trickery or deceit. The aforesaid principle has been reiterated in Roshan Deen v. Preeti Lal [AIR 2002 SC 33], Ram Preeti Yadav v. U. P. Board of High School and Intermediate Education and other [(2003) 8 SC 311] and Ram Chandra Singh v. Savitri Devi and others [(2003) 8 SCC 319].
23. In State of Andhra Pradesh and another v. T. Suryachandra Rao [AIR 2005 SC 3110] after referring to the earlier decision this court observed as follows:-
"In Lazaurs Estate Ltd. v. Beasley [(1956) 1 QB 702] Lord Denning observed at pages 712 & 713, "No judgment of a Court, no order of a Minister can be allowed to stand if it has been obtained by fraud. Fraud unravels everything." In the same judgment Lord Parker LJ observed that fraud vitiates all transactions known to the law of however high a degree of solemnity. "
24. Yet in another decision Hamza Haji v. State of Kerala &Anr. [AIR 2006 SC 3028] it has been held that no court will allow itself to be used as an instrument of fraud and no court, by way of rule of evidence and procedure, can allow its eyes to be closed to the fact it is being used as an instrument of fraud. The basic principle is that a party who secures the judgment by taking recourse to fraud should not be enabled to enjoy the fruits thereof."
10. In the present case also, the appellant deliberately withheld the information from the Assessing Officer as well as the ld. CIT(A) which is within exclusive knowledge of appellant to establish the genuineness of transactions of purchase of shares of that company. It is nothing but a fraud played by the appellant against the Assessing Officer as well as the ld. CIT(A) who are quasi- judicial authorities employed for execution of the provisions of the Income Tax Act. Therefore, the principle of fraud can be squarely applied to the facts of the present case and principles of natural justice have no application. Applying the said doctrine, we have no hesitation to hold that the transaction of purchase and sale of shares of SRK Industries under consideration before us is void ab-initio, this is nothing but sham, make believe and colourful device adopted with excellent paper work with intention bringing the undisclosed income into books of account. Accordingly, we confirm the orders of the Assessing Officer as well as the ld.
Page | 25 ITA No.93/RJT/2023 Miling P. Shroff CIT(A) and find no merits in the appeal preferred by the assessee before us.
11. In the result, the appeal filed by the assessee stands dismissed."
24. Considering the above facts and circumstances, as narrated above, we are of the view that order passed by the assessing officer is erroneous as well as prejudicial to the interest of revenue.We, are therefore, of the considered view that the plea of the ld Counsel for the assessee does not merit legal acceptance. Accordingly, we uphold the order passed by the Ld.PCIT under section 263 of the Act, dated 16thMarch 2023.
25. In the result, the appeal filed by the assessee is dismissed.
Order is pronounced in the open court on 20 /05/2024
Sd/- Sd/-
(DINESH MOHAN SINHA) (Dr. A.L. SAINI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Rajkot / दनांक/ Date: 20/05/2024
Copy of the Order forwarded to
1. The Assessee
2. The Respondent
3. The CIT(A)
4. Pr. CIT
5. DR/AR, ITAT, Surat0
6. Guard File
By Order
Assistant Registrar/Sr. PS/PS
ITAT, Rajkot
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