2019 (5) TMI 1323 - AT - Income Tax

Assessee wins deduction claim despite registration cancellation

The tribunal ruled in favor of the assessee, allowing the deduction claimed under section 35(1)(ii) of the Income Tax Act, 1961. The tribunal held that ... Disallowance of deduction claimed u/s 35(1)(ii) - retrospective withdrawal of approval granted by the prescribed authority - Donation to the research Institute - HELD THAT:- If at the time of giving the donation to the research Institute it had a valid registration granted under the Act, subsequent withdrawal of such approval would not be a reason to deny deduction claimed by the donor. In case of Chotatingrai Tea [2002 (10) TMI 3 - SUPREME COURT] the Hon'ble Supreme Court while dealing with the deduction claimed under section 35CCA of the Act, held that retrospective withdrawal of approval granted by the prescribed authority would not invalidate assessee’s claim of deduction. Similar view was expressed by the Hon'ble Supreme Court in Suresh Trading Co. [1996 (2) TMI 451 - SUPREME COURT] while dealing with the issue of effect of retrospective cancellation of registration certificate. A reading of Explanation to section 35(1)(ii) would make it clear that if the assessee acting upon a valid registration/approval granted to an Institution has donated the amount for which deduction is claimed, such deduction cannot be disallowed if at a later point of time such registration is cancelled with retrospective effect. Thus, we have no hesitation in holding that assessee is entitled to claim deduction under section 35(1)(ii) of the Act. Accordingly, we delete the disallowance of ₹ 17.50 lakh.- Decided in favour of assessee. Issues:1. Validity of re-opening of assessment under section 147 of the Income Tax Act, 1961.2. Disallowance of deduction claimed under section 35(1)(ii) of the Act for an amount of Rs. 17.50 lakh.3. Levy of interest under section 234B of the Act.Analysis:Issue 1: Validity of re-opening of assessment under section 147The appeal challenged the order dated 28th February 2019, concerning the assessment year 2012-13. The assessee disputed the re-opening of assessment under section 147 of the Income Tax Act, 1961. However, the tribunal proceeded to address the grounds related to the disallowance of deduction claimed under section 35(1)(ii) of the Act.Issue 2: Disallowance of deduction claimed under section 35(1)(ii) of the ActThe assessee, a partnership firm, claimed a deduction of Rs. 17.50 lakh under section 35(1)(ii) for a donation made to an institution. The assessing officer disallowed the deduction as the institution was found to be involved in bogus activities and had its registration retrospectively canceled. The assessee argued that the subsequent cancellation of registration should not affect the deduction claim, citing relevant legal provisions and court decisions supporting their position. The tribunal agreed with the assessee, emphasizing that if the donation was made when the institution had a valid registration, the subsequent withdrawal of approval does not invalidate the deduction claim. Citing legal precedents, the tribunal allowed the deduction of Rs. 17.50 lakh, stating that the cancellation of registration with retrospective effect does not impact the validity of the claim under section 35(1)(ii).Issue 3: Levy of interest under section 234BThe tribunal did not address the issue of interest under section 234B as it was considered consequential and did not require adjudication following the decision on the deduction claim. The appeal was partly allowed based on the tribunal's decision to uphold the deduction claimed under section 35(1)(ii) of the Act.In conclusion, the tribunal ruled in favor of the assessee, allowing the deduction claimed under section 35(1)(ii) of the Income Tax Act, 1961, and deemed other issues as academic or consequential, resulting in a partial allowance of the appeal.