Donations to approved institutions qualify for deductions despite later withdrawal of government approval or survey statements

ITAT Ahmedabad allowed the assessee's appeal regarding deductions under sections 35(1)(ii) and 35AC. For donations to SHG PH, the tribunal held that subsequent withdrawal of government approval cannot deny deduction benefits if the institution was approved at the time of donation. For donations to NCT, the tribunal ruled that statements recorded during survey operations without cross-examination cannot be used to deny deductions under section 35AC, particularly when no evidence showed donations returned as cash to the assessee.

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Issues Involved:
1. Legality and factual correctness of the CIT(A)'s order.
2. Addition/disallowance of Rs. 1,12,50,000/- regarding donations to School of Human Genetics & Population Health and Navjivan Charitable Trust.
3. Use of evidence collected behind the back of the assessee.
4. Denial of opportunity to cross-examine persons whose statements were used by the AO.
5. Entitlement to deductions for donations under sections 35(1)(ii) and 35AC.
6. Impact of subsequent withdrawal of approval for the institution on the legitimacy of deductions.

Issue-Wise Detailed Analysis:

1. Legality and Factual Correctness of the CIT(A)'s Order:
The assessee argued that the CIT(A) failed to appreciate its submissions properly and did not address various factual and legal contentions raised. The appellate order was claimed to be perverse and requested to be canceled.

2. Addition/Disallowance of Rs. 1,12,50,000/- for Donations:
The assessee claimed deductions for donations made to the School of Human Genetics & Population Health (SHG & PH) and Navjivan Charitable Trust (NCT), which were eligible for deductions under sections 35(1)(ii) and 35AC, respectively. The AO disallowed these deductions, alleging that the donations were returned in cash after deducting a commission, based on information from a survey by the Kolkata Directorate and statements from trustees. The CIT(A) upheld the AO's decision, noting that the institutions were involved in bogus transactions.

3. Use of Evidence Collected Behind the Back of the Assessee:
The assessee contended that the AO used evidence collected behind its back without providing copies of statements or an opportunity for cross-examination. The AO's reliance on such evidence was claimed to be a violation of natural justice.

4. Denial of Opportunity to Cross-Examine:
The assessee argued that it was not given an opportunity to cross-examine the persons whose statements were used by the AO. The CIT(A) upheld the AO's decision despite this contention.

5. Entitlement to Deductions for Donations:
The assessee asserted that it was legitimately entitled to deductions for the donations made, as the institutions were approved under the relevant sections at the time of donation. The AO and CIT(A) disallowed the deductions, citing the subsequent withdrawal of approval and allegations of bogus transactions.

6. Impact of Subsequent Withdrawal of Approval:
The AO disallowed the deduction for donations to SHG & PH, citing the withdrawal of approval by the Central Board of Direct Taxes. The assessee argued that the approval was in force at the time of donation, and subsequent withdrawal should not affect the legitimacy of the claim. The CIT(A) upheld the AO's decision, presuming the transactions were bogus.

Tribunal's Findings:

On Donations to SHG & PH:
The Tribunal noted that at the time of donation, SHG & PH was approved under section 35(1)(ii). The subsequent withdrawal of approval does not justify disallowing the deduction. The Tribunal relied on a previous decision in a similar case (ACIT vs. M/s Thakkar Govindbhai Ganpatlal HUF), where it was held that donations made to an institution approved at the time cannot be disallowed based on later withdrawal. The Tribunal disagreed with the lower authorities and held that the assessee is entitled to the deduction.

On Donations to NCT:
The Tribunal observed that the denial of deduction was based on statements recorded during a survey, which were not cross-examined. Citing the Gujarat High Court's judgment in CIT vs. Chartered Speed Pvt. Ltd., the Tribunal held that statements recorded during a survey cannot be used against the assessee without cross-examination. The Tribunal noted the absence of tangible evidence showing that the donation was returned in cash. Consequently, the Tribunal set aside the CIT(A)'s findings and directed the AO to delete the addition.

Conclusion:
The Tribunal allowed the appeal, holding that the assessee is entitled to the deductions for donations made to both SHG & PH and NCT. The orders of the lower authorities were set aside, and the additions were directed to be deleted.

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