Donation deduction upheld where approval existed at payment date and no evidence showed the contribution was sham.

Deduction under section 35(1)(ii) was held allowable where the assessee donated to an institution whose approval was in force at the time of payment. The Tribunal found that payment through banking channels, supported by receipts and bank statements, established the contribution, and the Revenue produced no cogent evidence that the donation was routed back or otherwise sham. A later withdrawal of the institution's approval, even if retrospective, could not by itself defeat a claim that was valid when the payment was made because the statutory framework did not permit retrospective unsettlement of such vested compliance. The disallowance was therefore unsustainable and the deduction was allowed.

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Issues: Whether the assessee was entitled to deduction under section 35(1)(ii) of the Income-tax Act on donations made to an approved research institution, despite the Revenue's reliance on a later retrospective withdrawal of approval and allegations that the donation was bogus.

Analysis: The assessee had made the donation during the period when the institution's approval was in force, and the record showed payment through banking channels supported by donation receipts and bank statements. The earlier withdrawal of recognition could not defeat the assessee's claim because the relevant legal framework contains no provision authorising retrospective withdrawal of approval so as to unsettle a claim validly made at the time of payment. The Revenue also failed to place reliable evidence on record to establish that the donation was routed back to the assessee or that the transaction was sham. The Tribunal followed the binding view that subsequent withdrawal of approval does not, by itself, invalidate the donor's deduction when the statutory conditions were satisfied at the time of contribution.

Conclusion: The disallowance under section 35(1)(ii) was unsustainable and the assessee's claim for deduction was allowed.

Ratio Decidendi: A deduction for donation to an approved institution cannot be denied merely because the institution's approval is withdrawn later, including with retrospective effect, if the assessee had made the payment while the approval was subsisting and no cogent evidence shows the donation to be sham.

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