ITAT deletes proportionate disallowance under Section 35AC and 50% guarantee commission disallowance for lack of evidence

ITAT Ahmedabad remanded the matter to AO for re-examination of differences between Form 26AS and books of accounts, directing proper enquiry from third parties. The tribunal deleted proportionate disallowance under Section 35AC, holding that donor's deduction cannot be denied for approved institute's misapplication of funds. The 50% disallowance of guarantee commission was deleted as AO failed to establish excessiveness without comparable cases or invoking Section 40A(2)(b). TDS credit issue was remanded for verification with reconciliation statement. Interest under Section 234A was set aside following Gujarat HC precedent where entire tax was paid before original due date despite extended filing deadline.

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Issues Involved:
1. Addition of income based on Form 26AS.
2. Acting beyond powers vested u/s 251 of the Act.
3. Proportionate disallowance of deduction claimed u/s 35AC.
4. Denial of deduction u/s 80G.
5. Disallowance of guarantee commission.
6. Grant of short credit of TDS.
7. Levy of interest u/s 234A.

Summary:

1. Addition of Income Based on Form 26AS:
The assessee contested the addition of Rs. 14,00,285/- based on a mismatch in Form 26AS. The Tribunal noted that the assessee failed to reconcile the difference and did not provide a confirmation from Urbanize Developers India Pvt. Ltd. The matter was remanded to the AO for re-examination and proper enquiry. The direction of the CIT(A) to verify the transaction with Vijaya Bank was upheld as proper.

2. Acting Beyond Powers Vested u/s 251:
The CIT(A)'s direction to the AO to make enquiries regarding the alleged receipt of Rs. 1,35,694/- from Vijaya Bank was challenged. The Tribunal found the direction appropriate and dismissed this ground, emphasizing the need for proper explanation and enquiry into any mismatch between the accounts and Form 26AS.

3. Proportionate Disallowance of Deduction u/s 35AC:
The AO disallowed Rs. 2,36,08,173/- of the deduction claimed u/s 35AC, citing that the contribution was spent on non-eligible projects. The Tribunal ruled that the deduction should not be denied to the donor for the recipient's misapplication of funds, referencing Section 35AC(6) and the Gujarat High Court's decision in CIT vs. Gujarat Co-op Milk Marketing Federation Ltd. The disallowance was deleted.

4. Denial of Deduction u/s 80G:
This ground was an alternate claim in case the deduction u/s 35AC was not allowed. Since the Tribunal allowed the deduction u/s 35AC, this ground became infructuous and was dismissed.

5. Disallowance of Guarantee Commission:
The AO disallowed 50% of the guarantee commission paid to Piramal Enterprises Ltd., deeming it excessive. The Tribunal found no basis for the disallowance, noting the AO's failure to provide comparable cases or invoke Section 40A(2)(b). The disallowance was deleted.

6. Grant of Short Credit of TDS:
The assessee claimed short credit of TDS amounting to Rs. 1,57,78,615/-. The Tribunal directed the AO to verify the TDS claim and the reconciliation statement filed by the assessee, allowing the ground for statistical purposes.

7. Levy of Interest u/s 234A:
The assessee argued that no interest u/s 234A should be charged as all taxes were paid before the original due date, referencing the Gujarat High Court's decision in All Gujarat Federation of Tax Consultants vs. CBDT. The Tribunal directed the department to verify if taxes were paid by the due date and follow the High Court's direction, allowing the ground for statistical purposes.

Conclusion:
The appeal was partly allowed, with specific grounds remanded for re-examination and others decided in favor of the assessee.

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