Appeal allowed under Section 35(1)(ii) - Approval in force grants deduction despite subsequent withdrawal. Natural justice principles emphasized.

The Tribunal allowed the appeal of the assessee, holding that the disallowance of the deduction under Section 35(1)(ii) was not justified. It emphasized that the approval in force at the time of donation entitled the assessee to the deduction, unaffected by the subsequent withdrawal of recognition. The Tribunal stressed the importance of natural justice principles, stating that adverse material not confronted to the assessee cannot be used against them. The appeal was allowed for statistical purposes.

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Issues Involved
1. Disallowance of the claim made by the assessee under Section 35(1)(ii) of the Income Tax Act, 1961.
2. Validity of the retrospective withdrawal of approval granted to the donee institution by the Central Government.
3. Opportunity for cross-examination and use of adverse material against the assessee.
4. Impact of the donee institution approaching the Settlement Commission on the assessee's claim.

Detailed Analysis

1. Disallowance of the claim made by the assessee under Section 35(1)(ii) of the Income Tax Act, 1961
The assessee made a donation of Rs. 65 lakhs to M/s. School of Human Genetics and Population Health (SHG&PH), which was approved by the Ministry of Finance for weighted deduction under Section 35(1)(ii) of the Income Tax Act. The Assessing Officer (AO) disallowed the claim, citing information from the Principal Director of Income Tax (Investigation) that SHG&PH was involved in bogus donations. The AO concluded that the donation was routed back to the assessee after deducting a commission, and thus disallowed the deduction of Rs. 1,13,75,000 claimed under Section 35(1)(ii).

2. Validity of the retrospective withdrawal of approval granted to the donee institution by the Central Government
The first appellate authority upheld the AO's disallowance, noting that the Ministry of Finance had rescinded the approval granted to SHG&PH with retrospective effect from April 1, 2007. The Tribunal, however, referred to the Taxation Laws (Amendment) Act, 2006, which introduced an explanation in Section 35 stating that the deduction shall not be denied merely because the approval granted to the institution has been withdrawn subsequent to the payment. The Tribunal held that the withdrawal of recognition with retrospective effect was unwarranted and did not affect the assessee’s right to claim the deduction.

3. Opportunity for cross-examination and use of adverse material against the assessee
The assessee argued that the adverse statements were not confronted to them, and no opportunity for cross-examination was provided. The Tribunal noted that the name of the assessee did not appear in the adverse statements, and these statements were recorded behind the back of the assessee. It emphasized that without providing an opportunity for cross-examination, reliance on such statements violates the principles of natural justice. The Tribunal cited several case laws, including the Supreme Court's decision in the case of Andaman Timber, to support this view.

4. Impact of the donee institution approaching the Settlement Commission on the assessee's claim
The Tribunal considered the fact that the donee institution had approached the Settlement Commission but held that this did not affect the assessee's claim for deduction under Section 35(1)(ii). It referred to previous decisions by the Kolkata Bench of the Tribunal, which had consistently held that the assessee's right to claim deduction is not impacted by the donee's subsequent actions or the withdrawal of approval.

Conclusion
The Tribunal allowed the appeal of the assessee, holding that the disallowance of Rs. 1,13,75,000 under Section 35(1)(ii) was not justified. It reiterated that the assessee is entitled to the deduction as the approval was in force at the time of donation, and subsequent withdrawal of recognition does not affect the claim. The Tribunal emphasized the principles of natural justice, stating that adverse material not confronted to the assessee cannot be used against them. The appeal was allowed for statistical purposes.

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