2024 (12) TMI 189 - AT - Income Tax

Assessee gets weighted deduction under Section 35(1)(ii) for donation to approved organization despite retrospective approval withdrawal

JG Engineers Pvt. Ltd. Versus ITO, Ward-1 (2), Kolkata

The ITAT Kolkata allowed the assessee's appeal regarding weighted deduction under Section 35(1)(ii) for donation made to SHGPH. Despite AO's finding that ... Weighted deduction u/s 35(1)(ii) - donation made to the School of Human Genetics and Population Health (SHGPH) - as per AO SHG&PH was indulge in providing bogus donation entries u/s 35 of the Act through various brokers in lieu of the commission - CIT(A) in its order has dismissed the appeal of the assessee in view of the notification that Section 35(i)(iii) of the Act shall not come to rescue the appellant as it relates only to approvals which have been withdrawn subsequent to the payments made to the institutions to which Clause 'ii' or Clause 'iii' applies. HELD THAT:- By submitting all the documentary evidences during assessment, the assessee had shown that it had examined the credentials of M/s SHGPG. The assessee also explained about its objective for association with the Institute. The assessee had gone through the annual report provided by the Institute and relied on the information regarding the projects undertaken by the Institution. The assessee had examined the status of the board members of SHGPG. Assessee had taken information about the on-going projects of SHGPG. Thus, the assessee had all along acted as a man of ordinary prudence, examined the documents as are generally asked for, gathered facts from the Institution's website and thus completed its due-diligence about the Institution. The payment was not made by the assessee to an unknown person but to an organization approved by the Central Government which was valid till the date of payment. The payment was made through banking channels i.e. through RTGS so that the donee only gets the fund for carrying out its declared objectives. All the payments were duly covered by the money receipts of the donor. The claim was duly made in the return. Even during assessment, in respect of the AO's specific query about the investigation carried on by the DDIT(Inv), Kolkata and the statement of the Institute's director & treasurers before the investigation agencies about receipt fund for commission through bogus donation, the assessee explained that the company was not aware of any incident and the donation was given under bona fide belief. In the same context, the assessee requested the AO to supply the adverse material which however was not provided.' As decided in case of Calcutta High Court [2023 (8) TMI 1576 - CALCUTTA HIGH COURT] if the donation to the approved society is genuine, in that case withdrawal with retrospective effect does not affect the right of the assessee for deduction of the amount which has accrued to the assessee on the basis of the payment to an approved society under Section 35CCA In the present case also the approval of the assessee was subsequently withdrawn. Donation to the approved society is genuine. The present case is entirely covered with the said decision of the Hon'ble Calcutta High Court. Accordingly, appeal of the assessee is hereby allowed and the Ld. AO is directed to delete the amount. Appeal filed by the assessee is allowed. Issues Involved:1. Disallowance of deduction claimed under Section 35(1)(ii) of the Income Tax Act for a donation made to a research institution.2. Non-deduction of tax at source on certain expenses leading to disallowance under Section 40(a)(ia) of the Income Tax Act.Detailed Analysis:1. Disallowance of Deduction under Section 35(1)(ii):The primary issue in this case revolves around the disallowance of a deduction claimed by the assessee under Section 35(1)(ii) of the Income Tax Act. The assessee had made a donation of Rs. 1.25 Crore to the School of Human Genetics and Population Health (SHGPH) and claimed a weighted deduction of Rs. 2,18,75,000. The Assessing Officer (AO) treated the donation as bogus based on a survey operation and subsequent inquiries, leading to the disallowance of the claimed deduction. The AO's decision was upheld by the Commissioner of Income-tax (Appeals) [CIT(A)], who noted that the notification allowing tax benefits for donations to SHGPH was deemed not to have been issued.The assessee challenged this decision by citing a precedent where the Hon'ble Calcutta High Court ruled in favor of the assessee in a similar situation. The High Court had held that the withdrawal of approval with retrospective effect was not permissible, and genuine donations to approved institutions should not be penalized for departmental errors. The Tribunal, after reviewing the facts and the precedent, found that the issues in the present case were identical to those addressed by the High Court. Consequently, the Tribunal allowed the appeal by the assessee, directing the AO to delete the disallowed amount of Rs. 2,18,75,000.2. Non-deduction of Tax at Source:The second issue pertains to the non-deduction of tax at source on certain expenses, leading to disallowance under Section 40(a)(ia) of the Income Tax Act. The AO identified that payments exceeding Rs. 70,000 were made without deducting tax at source, resulting in a disallowance of Rs. 4,61,304. However, the judgment primarily focused on the first issue of deduction under Section 35(1)(ii), and the Tribunal's decision did not explicitly address or alter the AO's findings on this matter.Conclusion:The Tribunal allowed the appeal concerning the disallowance of the deduction under Section 35(1)(ii), aligning with the precedent set by the Calcutta High Court, which emphasized that retrospective withdrawal of approval should not adversely affect the assessee's right to claim deductions for genuine donations. The order directed the AO to delete the disallowed amount, thereby providing relief to the assessee. The judgment did not provide specific relief or commentary on the issue of non-deduction of tax at source under Section 40(a)(ia).