2020 (4) TMI 745 - AT - Income Tax

Tribunal allows Section 35 deduction, rejects disallowance based on withdrawn notification. Clarifies rental income treatment.

The Tribunal set aside the CIT(A)'s decision and directed the AO to allow the deduction under Section 35 as claimed by the assessee, rejecting the ... Disallowance u/s 35 - bogus donations - assessee company had given donation to Matravaini Institute of Experimental Research Education, Kolkata - HELD THAT:- Assessee is entitled to deduction of section 35(1)(ii) of the Act as the said research institute was eligible to accept donation and on the date of giving donation by the assessee and that Notification was valid and it is only by way of subsequent letter it was cancelled from back date. The case of the assessee is squarely covered by a series of decisions as referred to and relied by the Ld. A.R. In the case of Borsad Tobacco Company Pvt. Ltd. vs. DCIT [2019 (6) TMI 1484 - ITAT MUMBAI]the co-ordinate bench of the Tribunal has held that donor is not affected due to subsequent withdrawal of recognition with retrospective effect Hon’ble Bombay High Court in the case of Ram Das Maniklal Gandhi vs. UOI [1999 (9) TMI 64 - BOMBAY HIGH COURT] has held that the donation to an institution whose approval was withdrawn by the prescribed authority with retrospective effect would not affect the assessee who gave the donation. The assessee is entitled to rely upon the certificate granted to an institution under section 35CCA of the Act for claiming deduction under section 35CCA of the Act for claiming deduction under that section which was valid and subsisting when donation was made to it - We set aside the order of Ld. CIT(A) and direct the AO to allow the deduction as claimed under section 35 of the Act by the assessee. Addition towards depreciation on the let out property - HELD THAT:- As decided in own case 2019 (9) TMI 544 - ITAT MUMBAI] no deprecation u/s 32 of the 1961 Act can be allowed on the two properties which were acquired in earlier years and were let out throughout the year under consideration income thereof being offered for tax under the head income from house properties, as doctrine of supervening impossibility has set in as neither these properties were used for business purposes, nor ready to be used for business nor available for business user for the purposes of business of the assessee, for the entire year under consideration. Thus, deprecation u/s 32 of the 1961 Act under these circumstances can not be allowed on these two properties merely on the grounds that once these properties entered Block of Assets viz. Building many years back and continues to be part of Block of Asset viz. Building despite the fact that factual matrix surrounding these two properties had undergone substantial change over years which cannot be given complete go bye. Issues Involved:1. Disallowance of Assessee’s Claim under Section 35 of the Income Tax Act.2. Addition of Depreciation on Let-Out Property.Issue 1: Disallowance of Assessee’s Claim under Section 35 of the Income Tax ActThe assessee’s appeal challenges the CIT(A)’s order confirming the AO’s disallowance of a Rs. 1,05,00,000/- claim under Section 35 of the Income Tax Act. The AO’s disallowance was based on information indicating a bogus donation to Matravaini Institute of Experimental Research Education, Kolkata. The CBDT had withdrawn the institute’s notification under Section 35(1)(ii) with retrospective effect from 21.08.2007, leading the AO to issue a show-cause notice to the assessee. Despite the assessee’s defense that the donation was genuine and made via cheque while the institute held valid approval, the AO disallowed the claim based on statements from the institute’s directors denying knowledge of the donation and the CBDT’s withdrawal of notification.The CIT(A) upheld the AO’s decision, noting the investigation wing’s findings that the donation sums were returned to donors and the director’s statement denying awareness of the donation or the institute’s existence. The CIT(A) also found the donation receipt doctored and invalid, leading to the conclusion that the donation was bogus.Upon review, the Tribunal observed that the donation was made when the institute held valid approval, and subsequent withdrawal of recognition with retrospective effect should not affect the donor. The Tribunal cited several decisions, including Borsad Tobacco Company Pvt. Ltd. vs. DCIT and Ram Das Maniklal Gandhi vs. UOI, which support the view that donors should not be penalized for subsequent withdrawal of recognition. Therefore, the Tribunal set aside the CIT(A)’s order and directed the AO to allow the deduction under Section 35 as claimed by the assessee.Issue 2: Addition of Depreciation on Let-Out PropertyThe second issue pertains to the addition of Rs. 8,81,137/- towards depreciation on let-out property. The AO noted that the assessee claimed depreciation on premises let out during the year and treated the rental income as business income, allowing depreciation accordingly. However, the CIT(A) directed the AO to treat the rental income under the head “House Property,” allowing a 30% standard deduction from the rent received and reducing the depreciation claim under Section 38(2) of the Act.The Tribunal noted that a similar issue in the assessee’s case for the previous year was remanded to the AO for verification. The Tribunal reiterated that if properties are let out and income is offered under the head “Income from House Property,” depreciation under Section 32 cannot be allowed. The Tribunal emphasized that the concept of Block of Assets should not be stretched to allow depreciation on properties not used for business purposes. The Tribunal directed the AO to follow the decision of the co-ordinate bench for A.Y. 2013-14 and decide the issue accordingly.Order pronounced in the open court on 18.02.2020.