Tribunal directs AO to grant deduction under Section 35(1)(ii) & emphasizes natural justice principles.

The Tribunal directed the AO to grant the deduction under Section 35(1)(ii) for Rs. 24,50,000/-, allowed the appeal partly, and dismissed the grounds related to TDS credit and interest as not pressed. The order emphasized adherence to principles of natural justice and proper evidentiary procedures.

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Issues Involved:
1. Disallowance of deduction claimed under Section 35(1)(ii) of the Income Tax Act, 1961.
2. Denial of opportunity for cross-examination.
3. Reliance on statements recorded during the survey.
4. Retrospective withdrawal of approval under Section 35(1)(ii).
5. Business expediency of the donation.
6. Non-granting of credit for TDS.
7. Chargeability of interest under Sections 234A, 234B, 234C, and 234D.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction Claimed under Section 35(1)(ii):
The primary issue was whether the disallowance of Rs. 24,50,000/- claimed as a deduction under Section 35(1)(ii) was justified. The assessee, a partnership firm engaged in trading polymers, claimed a weighted deduction for a donation made to The Herbicure Healthcare Bio-Herbal Research Foundation (HHBRF). The AO disallowed the claim based on a survey which revealed that HHBRF was involved in a tax evasion scheme. The Tribunal found that the assessee had made the donation through a proper banking channel and had all necessary documentation, including a confirmation from HHBRF, which was registered under Section 35(1)(ii) at the time of donation. The Tribunal held that the disallowance was not justified as the AO did not provide the assessee with the adverse materials or allow cross-examination of the HHBRF director.

2. Denial of Opportunity for Cross-Examination:
The assessee argued that the additions were made based on statements and evidence collected behind its back without the opportunity for cross-examination. The Tribunal noted that the AO denied the assessee's request for cross-examination, which violated principles of natural justice. Citing the Supreme Court decision in Andaman Timber Industries Ltd vs Commissioner of Central Excise, the Tribunal held that not allowing cross-examination made the order nullity.

3. Reliance on Statements Recorded During the Survey:
The Tribunal observed that the AO's disallowance was based solely on the statement recorded during the survey from the HHBRF director, which does not have evidentiary value. The Tribunal cited the Supreme Court decision in CIT vs S Khader Khan Sons, which held that statements recorded during a survey cannot be the sole basis for making additions.

4. Retrospective Withdrawal of Approval under Section 35(1)(ii):
The Tribunal addressed the argument that the CBDT had withdrawn HHBRF's recognition under Section 35(1)(ii) retrospectively. It held that the deduction could not be denied merely because the approval was withdrawn after the donation was made. The Tribunal emphasized that the assessee's bona fide belief at the time of donation, based on the then-valid recognition, could not be disturbed by subsequent events.

5. Business Expediency of the Donation:
The Tribunal rejected the AO's observation that the assessee's business had no connection with healthcare or herbal research, stating that it is the prerogative of the businessman to decide on donations. The Tribunal found that the assessee had conducted due diligence before making the donation and had a bona fide belief in the genuineness of HHBRF's activities.

6. Non-Granting of Credit for TDS:
The assessee's grievance regarding non-granting of TDS credit was resolved as the AO had granted the credit. Therefore, this ground was dismissed as not pressed.

7. Chargeability of Interest under Sections 234A, 234B, 234C, and 234D:
The issue of interest chargeability was deemed consequential and did not require specific adjudication.

Conclusion:
The Tribunal directed the AO to grant the deduction under Section 35(1)(ii) for Rs. 24,50,000/-, allowed the appeal partly, and dismissed the grounds related to TDS credit and interest as not pressed. The order emphasized adherence to principles of natural justice and proper evidentiary procedures.

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