2020 (7) TMI 243 - AT - Income Tax

ITAT allows firm's appeal, grants deduction under Section 35(1)(ii) of Income Tax Act

The Income Tax Appellate Tribunal (ITAT) allowed the appeal of the assessee firm, setting aside the Commissioner of Income Tax (Appeals) order and ... Deduction u/s 35(1)(ii) - donation to SHG&PH [School of Human Genetics & Research health, Kolkata] - whether or not the subsequent cancellation of registration to SHG&PH, vide CBDT order dated 15.09.2016, with retrospective effect, can invalidate the assesses claim of deduction under Sec. 35(1)(ii) - HELD THAT:- The issue of allowability of deduction in respect of donation to School of Human Genetics and Population Health is squarely covered by the decision of M/s P.R. Rolling Mills Pvt. Ltd. Vs DCIT [2018 (7) TMI 737 - ITAT JAIPUR] AND DCIT Vs Maco Corporation (India) [ [2018 (3) TMI 811 - ITAT KOLKATA]as considered the issue in regard to very same trust i.e. SGHPH and holds that prior to the date of donation under cancellation of registration has happened and there is absolutely no provision of withdrawal of recognition under section 35(1)(ii). Provisions of the Act are very clear that the payer (the assessee herein) would not get affected if the recognition granted to the payee had been withdrawn subsequent to the date of contribution by the assessee. Hence no disallowance u/s 35(1)(ii) - Decided in favour of assessee. Issues Involved:1. Treatment of donation as an accommodation entry and bogus.2. Denial of deduction under Section 35(1)(ii) of the Income Tax Act, 1961.Detailed Analysis:1. Treatment of Donation as an Accommodation Entry and Bogus:The assessee firm, engaged in real estate, filed its return of income for A.Y. 2014-15, declaring a total income of Rs. 1,15,36,050/-. During the assessment, the Assessing Officer (A.O) observed that the assessee had claimed a deduction of Rs. 1.75 crore under Section 35(1)(ii) of the Income Tax Act, based on a donation of Rs. 1 crore to the 'School of Human Genetics and Population Health' (SHG&PH). The A.O was not convinced of the genuineness of this deduction, citing a survey conducted under Section 133A of the Act on SHG&PH, which revealed that the institution provided accommodation entries of bogus donations through brokers. Statements from the Secretary and Treasurer of SHG&PH confirmed these activities. Consequently, the A.O disallowed the deduction, viewing the donation as a means to launder unaccounted funds.2. Denial of Deduction Under Section 35(1)(ii):The assessee appealed against the A.O's decision, arguing that SHG&PH had a valid registration certificate at the time of the donation. The CIT(A) upheld the A.O's decision, noting that SHG&PH had admitted to providing bogus donation entries before the Settlement Commission. The assessee further appealed to the ITAT, contending that the subsequent cancellation of SHG&PH's registration should not affect the deduction claimed under Section 35(1)(ii). The assessee cited the 'Explanation' to Section 35(1)(ii), which states that a deduction should not be denied merely because the approval granted to the institution was withdrawn after the donation.The ITAT referred to several judicial precedents, including the Hon’ble Supreme Court's judgment in CIT Vs. Chotatingrai Tea and the Bombay High Court's decision in National Leather Cloth Mfg. Co. Vs. Indian Council of Agricultural Research, which supported the assessee's position. The Tribunal noted that the issue was covered by earlier decisions of co-ordinate benches, which had allowed similar deductions despite the retrospective withdrawal of approval.Conclusion:The ITAT concluded that the subsequent withdrawal of SHG&PH's approval could not invalidate the assessee's claim for deduction under Section 35(1)(ii). The Tribunal set aside the CIT(A)'s order and vacated the disallowance of the deduction, allowing the assessee's appeal. The ITAT also addressed procedural delays in pronouncing the order due to the COVID-19 lockdown, citing exceptional circumstances to justify the delay.Final Order:The appeal filed by the assessee was allowed, and the disallowance of the deduction under Section 35(1)(ii) was vacated. The Tribunal's decision was pronounced under Rule 34(4) of the Income Tax (Appellate Tribunal) Rules, 1962, by placing the details on the notice board.