Appeal allowed for Rs. 52.50 lakhs deduction under Section 35(1)(ii) of Income Tax Act

The ITAT Mumbai Bench allowed the appeal of the assessee, directing the Assessing Officer to permit the deduction of Rs. 52.50 lakhs claimed under Section 35(1)(ii) of the Income Tax Act, 1961. The Tribunal held that the retrospective withdrawal of approval for deductions to the recipient organization should not invalidate the deduction claimed by the assessee, emphasizing the statutory explanation under Section 35(1)(ii) and the lack of opportunity for the assessee to cross-examine the trustee of the recipient organization.

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Issues Involved:
1. Disallowance of deduction under Section 35(1)(ii) of the Income Tax Act, 1961 for donations made to Herbicure Health Care Bio Herbal Research Foundation (HHCBHRF).

Detailed Analysis:

Disallowance of Deduction U/s 35(1)(ii) of the Income Tax Act, 1961:
The primary issue in this case revolves around the disallowance of a deduction claimed by the assessee under Section 35(1)(ii) of the Income Tax Act, 1961, for a donation of Rs. 30 lakhs made to Herbicure Health Care Bio Herbal Research Foundation (HHCBHRF). The assessee claimed a weighted deduction of Rs. 52.50 lakhs in the computation of income.

Facts and Observations:
- The Assessing Officer (A.O.) noted that a search and seizure action was conducted on HHCBHRF, revealing that the Trust was involved in taking donations and returning the amount in cash.
- The Central Government had retrospectively withdrawn the approval for deduction u/s 35(1)(ii) granted to HHCBHRF via notification No. 79/2016/F No. 203/135/ITA dated 06/09/2016.
- Based on this information, the A.O. disallowed the deduction of Rs. 52.50 lakhs claimed by the assessee.
- The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s decision, leading the assessee to appeal before the Income Tax Appellate Tribunal (ITAT).

Arguments and Precedents:
- The assessee's Authorized Representative (AR) presented the ITAT Kolkata Benches' decision in the case of DCIT Vs. M/s Desmet Reagent Pvt. Ltd., where under similar facts, the donation to HHCBHRF was allowed under Section 35(1)(ii).
- The ITAT Kolkata Benches had noted that HHCBHRF was approved for deductions under Section 35(1)(ii) at the time the donations were made, and retrospective cancellation of approval should not affect the deduction claimed.
- The explanation under Section 35(1)(ii) clarifies that deductions should not be denied merely because the approval was withdrawn after the donation was made.

ITAT's Decision:
- The ITAT Mumbai Bench reviewed the facts and circumstances, noting that the assessee had made the donation when HHCBHRF was approved for deductions under Section 35(1)(ii).
- The Tribunal emphasized that the retrospective cancellation of approval should not invalidate the deduction claimed, aligning with the ITAT Kolkata Benches' decision and the statutory explanation under Section 35(1)(ii).
- The Tribunal also highlighted that the A.O.'s reliance on the statement of HHCBHRF's trustee during the search was insufficient without allowing the assessee to cross-examine the trustee, as mandated by the Supreme Court in Andaman Timbers Ltd. vs. Commissioner of Central Excise.

Conclusion:
- The ITAT Mumbai Bench found no merit in the disallowance of the deduction claimed by the assessee.
- The Tribunal directed the A.O. to allow the deduction of Rs. 52.50 lakhs under Section 35(1)(ii) of the Income Tax Act, 1961.

Result:
- The appeal of the assessee was allowed.

Pronouncement:
- The order was pronounced in the open court on 06th January, 2020.

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