Tribunal allows appeal, grants deduction for donations, emphasizing legislative intent.

The Tribunal allowed the appeal of the assessee, setting aside the addition of Rs. 2,18,75,000/- as weighted deduction under Section 35(1)(ii) of the Income Tax Act. The Tribunal emphasized the legislative intent to protect donors from the donee's fraud, citing judicial precedents that support allowing the deduction in the hands of donors even if approval to the donee is withdrawn retrospectively. The Tribunal held that the deduction claimed by the assessee for donations made to the organization in question is allowable, ruling in favor of the assessee.

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Issues Involved:
1. Addition of Rs. 2,18,75,000/- being weighted deduction claimed under Section 35(1)(ii) of the Income Tax Act.
2. Withdrawal of weighted deduction under Section 35(1)(ii) based on a third-party statement without offering the opportunity for cross-examination, leading to a denial of natural justice.
3. Withdrawal of weighted deduction under Section 35(1)(ii) without appropriate enquiries and based on a general statement by a third party.

Detailed Analysis:

Issue 1: Addition of Rs. 2,18,75,000/- as Weighted Deduction under Section 35(1)(ii)
The assessee, a company engaged in transport solutions, filed its return of income for the assessment year 2013-14, disclosing an income of Rs. 3,07,22,727/-. The Assessing Officer (AO) disallowed the claim for deduction under Section 35(1)(ii) amounting to Rs. 2,18,75,000/- and made an additional disallowance of Rs. 10,00,000/- for lorry expenses. The disallowance was based on the information that the donee, School of Human Genetics and Population Health (SHGPH), admitted to providing accommodation entries for donations and refunding the money to donors after retaining service charges.

Issue 2: Denial of Natural Justice
The AO conducted a survey operation and recorded a statement from the Joint Managing Director of the appellant company, who admitted to making the donation but pleaded ignorance of the donee's modus operandi. The appellant later retracted this admission and requested a cross-examination of SHGPH, which was not facilitated by the AO. The AO's failure to enforce the attendance of SHGPH officers for cross-examination led to a denial of natural justice.

Issue 3: Withdrawal of Deduction without Appropriate Enquiries
The AO's decision to disallow the deduction was based on the general statement made by SHGPH and the retrospective rescinding of SHGPH's approval by the Central Board of Direct Taxes (CBDT). The appellant argued that the deduction should not be denied merely because the approval was withdrawn retrospectively, citing legislative intent and judicial precedents.

Judgment:
The Tribunal noted that there was no conclusive evidence that the appellant received back the donation in any form. The legislative intent, as evident from the Explanation inserted to Section 35(1)(ii) by the Finance Act, 2006, is to allow the deduction in the hands of the donors, notwithstanding the retrospective withdrawal of approval granted to the donee organization.

The Tribunal referred to several judicial precedents, including the Hon'ble Supreme Court's decision in CIT vs. Chotatingrai Tea & Ors., which held that the deduction cannot be withdrawn in the hands of the donors even if the approval to the research organization is withdrawn subsequently.

The Tribunal concluded that the claim made by the assessee company towards deduction under Section 35(1)(ii) on account of donation made to SHGPH is allowable. The grounds of appeal filed by the assessee were allowed, and the appeal was decided in favor of the assessee.

Conclusion:
The appeal of the assessee was allowed, and the addition of Rs. 2,18,75,000/- as weighted deduction under Section 35(1)(ii) was set aside. The Tribunal emphasized the legislative intent to protect the donors from the consequences of the donee's fraud and the necessity of providing an opportunity for cross-examination to ensure natural justice.

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