2017 (9) TMI 1637 - AT - Income Tax

ITAT grants deduction under Section 35(1)(ii)

The ITAT allowed the appeal of the assessee, directing the AO to permit the deduction of Rs. 26,28,500 claimed under Section 35(1)(ii) of the Income-tax ... Disallowance of deduction claimed u/s. 35(1)(ii) - Disallowance based on statement recorded on oath during survey - no opportunity to cross examine the witness - Held that:- AO got swayed away with the statement recorded on oath of Mr. Swapan Ranjan Dasgupta during survey conducted at the premises of M/s. Herbicure. 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 (2013 (6) TMI 305 - SUPREME COURT). Moreover, we note that if the AO was hell bent determined to disallow the claim of the assessee, then he should have granted an opportunity to cross examine Shri Swapan Ranjan Das Gupta and Shri Kishan Bhawasingka as held by Hon’ble Supreme Court in Andaman Timber (2015 (10) TMI 442 - SUPREME COURT). - Decided in favour of assessee Issues Involved:1. Disallowance of deduction claimed under Section 35(1)(ii) of the Income-tax Act, 1961 for donation made to M/s. Herbicure Healthcare Bio-Herbal Research Foundation.Issue-wise Detailed Analysis:1. Disallowance of Deduction Claimed Under Section 35(1)(ii):The assessee, a partnership firm engaged in the business of medical equipment, made a donation of Rs. 15,02,000 to M/s. Herbicure Healthcare Bio-Herbal Research Foundation (Herbicure) and claimed a deduction under Section 35(1)(ii) of the Income-tax Act, 1961 amounting to Rs. 26,28,500 in its return of income. The Assessing Officer (AO) disallowed this claim based on information received from the Principal Director of Income-tax (Investigation), Kolkata, which was derived from a survey operation conducted under Section 133A at Herbicure's office on 27.01.2015. During this survey, the Founder Director of Herbicure, Shri Swapan Ranjan Dasgupta, admitted to providing accommodation entries. Consequently, the AO considered the assessee's claim as bogus and added the deduction amount to the returned income, resulting in an assessed total income of Rs. 33,81,940.The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the AO's decision. Subsequently, the assessee brought the case before the Income Tax Appellate Tribunal (ITAT).The ITAT examined the facts and circumstances of the case. It was noted that Herbicure had several registrations and recognitions from various authorities, including Section 12AA of the Act, Section 80G(5)(vi), the Foreign Contribution (Regulation) Act, 1976, and recognition as a Scientific Industrial Research Organisation (SIRO) by the Ministry of Science & Technology, Government of India. Herbicure was also gazetted under Section 35(1)(ii) of the Act.The ITAT scrutinized the statement of Shri Swapan Ranjan Dasgupta recorded during the survey, which was the sole basis for the disallowance. The Tribunal emphasized that the statement recorded on oath during a survey cannot be the sole basis for making a disallowance, as established by the Supreme Court in CIT Vs. S. Kader Khan Son (2013) 352 ITR 480 (SC). Furthermore, the AO did not provide the assessee an opportunity to cross-examine Shri Dasgupta, which is a procedural lapse as per the Supreme Court ruling in Andaman Timbers Ltd. Vs. Commissioner of Central Excise 62 Taxman 3.The Tribunal also noted that the AO had recorded the statements of the partners of the assessee firm, who confirmed their bona fide belief in the genuineness of Herbicure's activities based on their visits and the certifications provided by Herbicure. Additionally, Shri Dasgupta, in a letter to the AO, confirmed the receipt of the donations and stated that no money was refunded to the assessee.Given these facts, the ITAT concluded that the disallowance was based on suspicion rather than concrete evidence. The Tribunal highlighted that suspicion, however strong, cannot replace evidence. The confirmation from Shri Dasgupta supported the assessee's claim for the weighted deduction under Section 35(1)(ii) of the Act.Judgment:The ITAT set aside the orders of the lower authorities and directed the AO to allow the deduction of Rs. 26,28,500 under Section 35(1)(ii) of the Act. The appeal of the assessee was allowed, and the order was pronounced in the open court on 13.09.2017.