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

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 SHGPH provided bogus donation entries through brokers and CIT(A) dismissing the appeal, ITAT held that the assessee conducted proper due diligence, made genuine payment through banking channels to a government-approved organization, and acted with ordinary prudence. Following Calcutta HC precedent, retrospective withdrawal of approval does not affect deduction rights for genuine donations made to approved societies when approval was valid at payment time.

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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).

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