2018 (10) TMI 674 - AT - Income Tax

Tax Tribunal Upholds Donation Deduction, Rejects Revenue's Appeal

Deputy Commissioner of Income-tax, Circle-12 (1), Kolkata Versus M/s. Desmet Reagent Pvt. Ltd.

The ITAT dismissed the revenue's appeal and upheld the CIT(A)'s order, allowing the deduction under Section 35(1)(ii) of the Income-tax Act, 1961, for the ... Deduction u/s. 35(1)(ii) - weighted deduction - bogus donation - it was found that the concern M/s. Herbicure Healthcare Bio-Herbal Research Foundation (HHBHRF) was engaged in providing bogus donation u/s. 35(1)(ii) of the Act to beneficiaries like assessee to enable them to claim deduction of 175% of the amounts purported to have been paid as donation to it. Held that:- It is not in dispute that M/s. HHBHRF was enjoying the approval within the meaning of Sec. 35(1)(ii) of the Act as on the date of receipt of donation and retrospective cancellation of approval of the concerned institution, the deduction claimed in respect of donation cannot be denied. - Decided against the revenue. Issues Involved:1. Deletion of disallowance of deduction under Section 35(1)(ii) of the Income-tax Act, 1961.Issue-wise Detailed Analysis:1. Deletion of disallowance of deduction under Section 35(1)(ii) of the Income-tax Act, 1961:The sole issue in this appeal is the deletion of disallowance of a deduction claimed under Section 35(1)(ii) of the Income-tax Act, 1961, amounting to Rs. 1,05,00,000/-. The Assessing Officer (AO) disallowed the deduction on the basis that the donation made by the assessee to M/s. Herbicure Healthcare Bio-Herbal Research Foundation (HHBHRF) was bogus. This conclusion was drawn from a survey operation conducted by the Investigation Wing, Kolkata, which found that HHBHRF was engaged in providing bogus donation entries to beneficiaries, enabling them to claim a weighted deduction of 175%.The AO issued a show cause notice to the assessee, who responded, but the AO found the reply unacceptable. Consequently, the AO disallowed the deduction and added the amount back to the total income of the assessee. The assessee appealed to the Commissioner of Income-tax (Appeals) [CIT(A)], who allowed the appeal and directed the AO to delete the addition in full. The revenue then appealed to the ITAT.The ITAT noted that HHBHRF was an institution approved under Section 35(1)(ii) of the Act, as evidenced by notifications and renewals from the Ministry of Science & Technology, Government of India. The donation of Rs. 60 lakh was made through RTGS, and HHBHRF confirmed receipt of the donation. The ITAT emphasized that the approval of HHBHRF was valid at the time of the donation, and the subsequent cancellation of approval by the Central Board of Direct Taxes (CBDT) could not retroactively affect the deduction claimed.The ITAT cited the Bombay High Court's decision in Seksaria Biswan Sugar Factory Ltd. and Another vs. Inspecting Assistant Commissioner and Others (1990) 184 ITR 123, which supported the view that retrospective cancellation of approval does not affect the deduction claimed. The Tribunal also referred to the Explanation under Section 35(1)(ii) of the Act, which clarifies that the deduction shall not be denied merely because the approval was withdrawn after the payment.In a similar case, M/s. Saimed Innovation ITA No. 2231/Kol/2016, the ITAT had dealt with the merits of disallowance of weighted deduction for donations made to HHBHRF. The Tribunal observed that the assessee had made the donation based on a bona fide belief in the legitimacy of HHBHRF, supported by various registrations and recognitions from government authorities. The Tribunal found that the AO's disallowance was primarily based on a statement made by a director of HHBHRF during a survey, which indicated that HHBHRF provided accommodation entries. However, the director later confirmed in writing that no money was refunded to the assessee against the donations.The ITAT concluded that the AO's reliance on the survey statement without allowing cross-examination of the director was insufficient to disallow the deduction. The Tribunal reiterated that suspicion, no matter how strong, cannot replace evidence. The confirmation from HHBHRF's director that no money was refunded to the assessee fortified the claim for the weighted deduction.In light of these findings, the ITAT upheld the CIT(A)'s order allowing the deduction under Section 35(1)(ii) and dismissed the revenue's appeal. The judgment emphasized the importance of adhering to statutory provisions and judicial precedents in determining the allowability of deductions.Conclusion:The ITAT dismissed the revenue's appeal and upheld the CIT(A)'s order allowing the deduction under Section 35(1)(ii) of the Income-tax Act, 1961, for the donation made to HHBHRF. The Tribunal emphasized that the subsequent cancellation of approval by the CBDT could not retroactively affect the deduction claimed, and the AO's disallowance based on a survey statement without cross-examination was insufficient. The judgment reinforced the principle that suspicion cannot replace evidence in tax assessments.