2021 (10) TMI 732 - AT - Income Tax

ITAT allows deduction under section 35(1)(ii) - Payment via banking channels eligible for deduction

Krossover Entertainment Pvt. Ltd. Versus DCIT-12 (3) (1), Mumbai

The ITAT allowed the appeal, holding that the assessee was entitled to the deduction under section 35(1)(ii) and that the reopening of the assessment was ... Reopening of assessment u/s 147 - Disallowing claim of weighted deduction of 175% under section 35(l)(ii) on the ground that donation receipt is not submitted - Allegation of providing accommodation entries - AO received information from Directorate of Income Tax (Investigation), Kolkata that an institution approved u/s.35(i) namely M/s. Herbicure Healthcare Bio-Herbal Research Foundation (HHBHRF) was providing accommodation entries to beneficiaries in the nature of bogus donation that the modus operandi of HHBHRF was to receive the bogus donations by cheque - HELD THAT:- There is nothing on record that any specific information regarding the assessee was received. Consequently, upon reopening on the basis of the same information the Assessing Officer made the assessment disallowing the payment. There is no further material brought on record by the Assessing Officer. The assessee has submitted the payment evidence. The same was through banking channel. At the time of payment the said entity was very much eligible of the deduction. See SOPARIWALA EXPORTS PVT. LTD. VERSUS DCIT, CC-8 (1) , MUMBAI [2021 (7) TMI 442 - ITAT MUMBAI] as held the payee was duly approved when the payment was done. By no stretch of imagination it can be said that the assessee could have done the impossible and known that subsequently the approval will be withdrawn.the payee was duly approved when the payment was done. - Decided in favour of assessee. Issues Involved:1. Validity of notice under section 148 of the Income Tax Act.2. Disallowance of weighted deduction under section 35(1)(ii) of the Income Tax Act.Issue-Wise Detailed Analysis:1. Validity of Notice under Section 148:The assessee challenged the validity of the notice issued under section 148 of the Income Tax Act, asserting that the notice was issued without jurisdiction and was based on vague, insufficient, and unsubstantiated reasons. The assessee contended that the reopening of the assessment was bad in law as the reasons recorded by the Assessing Officer (AO) were not specific and lacked independent inquiry. The assessee also argued that the assessment had been reopened based on information from the Directorate of Income Tax (Investigation), Kolkata, without providing any opportunity for cross-examination of the persons whose statements were relied upon.The CIT(A) rejected these contentions, holding that the AO had a valid reason to believe that income had escaped assessment based on the information received. The CIT(A) stated that under the scheme of the Act, the AO has limited power to make inquiries when proceedings are not pending before him and that it is not necessary for the AO to conclusively prove that income had escaped assessment before reopening the assessment.2. Disallowance of Weighted Deduction under Section 35(1)(ii):The AO disallowed the assessee's claim of a weighted deduction of Rs. 35,00,000 under section 35(1)(ii) on the grounds that the donation receipt of Rs. 20,00,000 was not submitted. The AO received information that the institution, M/s. Herbicure Healthcare Bio-Herbal Research Foundation (HHBHRF), was involved in providing accommodation entries for bogus donations. The AO concluded that the donation was not genuine and that the assessee had made a bogus claim for the deduction.The CIT(A) upheld the AO's decision, noting that the approval for HHBHRF under section 35(1)(ii) had been withdrawn retrospectively. The CIT(A) also found that the receipt provided by the assessee was merely an acknowledgment of a letter sanctioning the donation and not proof of payment. Therefore, the CIT(A) concluded that the assessee had failed to furnish valid proof of the donation.The assessee appealed to the ITAT, arguing that the issue was covered in its favor by several judicial precedents. The ITAT noted that the reopening of the assessment was based on general information without any specific evidence against the assessee. The ITAT observed that the payment was made through banking channels and that the entity was eligible for the deduction at the time of payment. The ITAT also referred to several decisions where similar disallowances were overturned, emphasizing that the withdrawal of approval to the payee institution does not affect the assessee's right to claim the deduction if the payment was made when the approval was valid.The ITAT concluded that the assessee was eligible for the deduction under section 35(1)(ii) and set aside the orders of the lower authorities. The ITAT also noted that since the issue was decided on merits, the adjudication on the reopening of the assessment was of academic interest and did not need to be addressed.Conclusion:The ITAT allowed the appeal filed by the assessee, holding that the assessee was entitled to the deduction under section 35(1)(ii) and that the reopening of the assessment was not justified based on the available evidence. The decision was pronounced in the open court on 5.10.2021.