2018 (3) TMI 811 - AT - Income Tax

ITAT Upholds CIT(A)'s Decision on Section 35(1)(ii) Deduction

DCIT, Circle-12 (1), Kolkata Versus M/s Maco Corporation (India) Pvt. Ltd.

The Income Tax Appellate Tribunal (ITAT) upheld the Commissioner of Income Tax (Appeals) [CIT(A)]'s decision to delete the disallowance of a deduction ... Disallowance u/s 35(1)(ii) - scientific research organization donation - eligibility criteria - Held that:- The payer (the assessee herein) would not get affected if the recognition granted to the payee had been withdrawn subsequent to the date of contribution by the assessee. Hence no disallowance u/s 35(1)(ii) of the Act could be made in the instant case. There is no provision in section 35(1)(ii) of the Act to withdraw the recognition granted to the assessee therein. When there is no provision for withdrawal of recognition in the Act, the action of the revenue in withdrawing the recognition with retrospective effect from 1.4.2007 is unwarranted. As decided in the case of Industrial Infrastructure Development Corporation (Gwalior) M.P. Ltd vs CIT Gwalior reported in (2018 (2) TMI 1220 - SUPREME COURT OF INDIA) held that the power of cancellation of registration us 12A of the Act was conferred by the Act on the ld CIT w.e.f. 1.10.2004 and the Hon’ble Apex Court held that prior to that date , no cancellation of registration could happen. But in the instant case, there is absolutely no provision for withdrawal of recognition u/s 35(1)(ii) of the Act . Hence we hold that the withdrawal of recognition u/s 35(1)(ii) of the Act in the hands of the payee organizations would not affect the rights and interests of the assessee herein for claim of weighted deduction u/s 35(1)(ii) of the Act. - Decided in favour of assessee Issues Involved:1. Justification of disallowance of deduction under Section 35(1)(ii) of the Income Tax Act, 1961.2. Violation of principles of natural justice.3. Merits of the case regarding the genuineness of donations.4. Retrospective withdrawal of approval by CBDT.Issue-wise Detailed Analysis:1. Justification of Disallowance of Deduction under Section 35(1)(ii):The primary issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the disallowance of Rs. 3,06,25,000/- under Section 35(1)(ii) of the Income Tax Act, 1961. The Assessing Officer (AO) disallowed the deduction on the grounds that the donations made to School of Human Genetics & Population Health (SHGPH) and Herbicure Healthcare Bio-Herbal Research Foundation (HHBHRF) were bogus. The AO relied on a survey report indicating that these institutions were engaged in collecting bogus donations to enable beneficiaries to claim weighted deductions. The AO issued a show cause notice and disallowed the deduction based on statements and findings from the survey.2. Violation of Principles of Natural Justice:The CIT(A) observed that the AO had not provided the assessee with copies of statements or the survey report, nor allowed cross-examination of the persons whose statements were relied upon. This was deemed a violation of the principles of natural justice, as the assessee was not given an opportunity to rebut the evidence used against it. The CIT(A) cited the Supreme Court judgment in the case of M/s Andaman Timber Industries vs. Commissioner of Central Excise, which emphasized the importance of allowing cross-examination to ensure fair adjudication.3. Merits of the Case Regarding the Genuineness of Donations:On the merits, the CIT(A) found that the donations were made to institutions that were duly registered and recognized under Section 35(1)(ii) at the time of donation. The assessee had provided various supporting documents, including registration certificates and donation receipts. The AO did not independently verify or refute these documents. The CIT(A) noted that the AO's reliance on the survey report and statements was insufficient without independent verification or material evidence to prove the donations were bogus. The CIT(A) also highlighted that the assessee had a history of making donations to various institutions, supporting the genuineness of its philanthropic activities.4. Retrospective Withdrawal of Approval by CBDT:The CIT(A) addressed the retrospective withdrawal of approval by the CBDT for SHGPH and HHBHRF. It was noted that the Explanation to Section 35(1)(ii) and CBDT Circular No. 1/2007 clarified that deductions should not be denied merely because the approval was withdrawn after the donation was made. The CIT(A) cited judicial precedents, including a Calcutta High Court decision, which held that an executive order withdrawing approval cannot have retrospective effect to the detriment of the donor. The CIT(A) concluded that the assessee was entitled to the weighted deduction as the donations were made when the institutions were approved.Conclusion:The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision to delete the disallowance. The ITAT emphasized that the assessee's right to claim deduction under Section 35(1)(ii) could not be affected by the subsequent withdrawal of approval. The revenue's appeal was dismissed, affirming that the disallowance was unjustified both on procedural grounds (violation of natural justice) and on merits (genuineness of donations and lack of provision for retrospective withdrawal of approval).Order:The appeal of the revenue was dismissed, and the order pronounced in the court on 14.03.2018.