Appeal granted for deduction under Income-tax Act; Tribunal cites lack of evidence and violation of natural justice.

The Tribunal allowed the assessee's appeal, directing the Assessing Officer to grant the deduction under Section 35(1)(ii) of the Income-tax Act. The disallowance of a Rs. 35 lakhs deduction claim was deleted as the Tribunal found that the recipient was approved at the time of donation, and there was no evidence of cash return. The Tribunal emphasized the lack of corroborative evidence for statements recorded during the survey and the denial of cross-examination rights to the assessee, highlighting violations of natural justice principles. The retrospective cancellation of approval was also deemed impermissible.

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Issues Involved:
1. Disallowance of deduction under Section 35(1)(ii) of the Income-tax Act, 1961.
2. Validity of the statements recorded during the survey.
3. Entitlement to cross-examination of witnesses.
4. Retrospective cancellation of approval under Section 35(1)(ii).

Issue-wise Detailed Analysis:

1. Disallowance of Deduction under Section 35(1)(ii):
The sole substantive grievance of the assessee was the disallowance of a Rs. 35 lakhs deduction claim under Section 35(1)(ii) on the grounds that the recipient, M/s. Heribicure Healthcare Bio-Herbal Research Foundation (HHBRF), was an accommodation entry provider. The Revenue argued that HHBRF admitted to providing entries to donors and cited landmark judgments and statements from HHBRF's authorized persons. However, the Tribunal found no merit in the Revenue's reason, referencing a previous decision in ITA No. 2346/Kol/2018, which dealt with similar issues against the department. The Tribunal emphasized that HHBRF was approved under Section 35(1)(ii) at the time of the donation, and there was no proof that the assessee received back the money in cash.

2. Validity of the Statements Recorded During the Survey:
The Revenue's case relied heavily on statements recorded during a survey under Section 133A of the Act from various individuals associated with HHBRF. However, the Tribunal noted that these statements were not corroborated by any other evidence. Specifically, Mr. Kishan Bhawsinghka, a broker, denied the allegations made by HHBRF's founder director, Mr. Swapan Ranjan Dasgupta, and other individuals. The Tribunal highlighted that statements made during a survey do not have conclusive evidentiary value unless supported by corroborative evidence.

3. Entitlement to Cross-Examination of Witnesses:
The Tribunal underscored the importance of cross-examination, stating that the assessee was not provided copies of the statements nor given the opportunity to cross-examine the individuals who made the statements. This was a significant flaw, as it violated the principles of natural justice. The Tribunal referenced the Hon'ble Supreme Court's decision in Andaman Timber Industries Ltd. vs. Commissioner of Central Excise, which held that not allowing cross-examination of witnesses whose statements were used as the basis for an order is a serious flaw that makes the order a nullity.

4. Retrospective Cancellation of Approval under Section 35(1)(ii):
The Tribunal discussed the provisions of the Explanation to Section 35(1)(ii), which states that the deduction should not be denied merely because the approval granted to the research association was withdrawn after the donation was made. The Tribunal found that the assessee made the donation when HHBRF's approval was valid, and thus, the deduction was in order. The Tribunal also noted that the Hon'ble Jurisdictional High Court had held that there was no power to cancel the registration retrospectively.

Conclusion:
The Tribunal adopted the detailed reasoning from the previous decision in ITA No. 2346/Kol/2018 and directed the Assessing Officer to grant the deduction under Section 35(1)(ii) of the Act. The assessee's appeal was allowed, and the impugned disallowance of Rs. 35 lakhs was deleted. The order was pronounced in the Court on 31-01-2020.

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