2025 (10) TMI 89 - AT - Income Tax

Donation to school of human genetics deductible under s.35AC despite later withdrawal of approval; prior valid approval governs

ITAT MUMBAI allowed the appeal, holding that a donation made to a school of human genetics and population was deductible under the Act despite later ... Disallowance on account of donation given to the school of human genetics and population held scheme u/s 35AC - HELD THAT:- Explanation to Section 35AC of the Act states that the deduction shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee, the approval granted to such association or institution has been withdrawn. A similar view has been taken in [2019 (5) TMI 1323 - ITAT MUMBAI] held a reading of Explanation to section 35(1)(ii) of the Act as well as the ratio laid down in the aforesaid decisions would make it clear that if the assessee acting upon a valid registration/approval granted to an Institution has donated the amount for which deduction is claimed, such deduction cannot be disallowed if at a later point of time such registration is cancelled with retrospective effect. Thus, keeping in view the relevant statutory provisions and the ratio laid down in the decisions discussed above, we have no hesitation in holding that assessee is entitled to claim deduction u/s 35(1)(ii) of the Act. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether deduction claimed under section 35(1)(iii) of the Income-tax Act for a donation made to an institution is liable to be disallowed where, after the donation, the approving authority withdrew approval (including with retrospective effect) of that institution. 2. Whether the appellate delay in filing the appeal by the assessee should be condoned where an affidavit explaining the cause of delay is furnished. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Deduction under section 35(1)(iii) and subsequent withdrawal/retrospective cancellation of approval Legal framework: Section 35(1)(iii) permits deduction for sums paid to certain institutions subject to statutory approval; the Explanation to section 35 (specifically to clause (ii)/(iii) as applicable) provides that deduction 'shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to the association or institution has been withdrawn'. Precedent treatment: The Court expressly follows coordinate-bench decisions and higher-court precedents that hold retrospective or subsequent cancellation of approval does not vitiate a donor's entitlement to deduction where the donation was made when approval was valid. Decisions referenced include Supreme Court authority on section-wise analogues and jurisdictional High Court and coordinate-bench rulings dealing with section 35(1)(ii)/(iii) and section 35CCA - these authorities were followed, not distinguished or overruled. Interpretation and reasoning: The Court reasons that the statutory Explanation embodies a clear legislative intent to protect a donor who acted upon a valid approval at the time of donation. Where the institution had valid approval on the date of payment (evidence here: money receipt dated 21/03/2014), subsequent withdrawal of approval (even with retrospective effect) cannot be a ground to deny deduction. The Court notes that the AO's reliance on information that the recipient institution was a 'bogus Trust' providing accommodation entries does not override the statutory protection afforded by the Explanation when approval was operative at the time of donation. The Court therefore places determinative weight on the temporal fact of valid approval at the time of payment and the statutory non-denial provision. Ratio vs. Obiter: The pronouncement that deduction cannot be denied when approval was valid at time of donation and later cancelled (even retrospectively) is treated as ratio decidendi in resolving the present controversy and is explicitly applied to direct deletion of the disallowance. Observations about the AO's information regarding suspected accommodation entries are incidental and do not form the basis of the Court's holding. Conclusions: Following the statutory Explanation and binding/co-ordinate precedents, The Court holds that the disallowance of the donation under section 35(1)(iii) is not sustainable where the donation was made while the recipient institution held valid approval; consequently, the disallowance of Rs. 1.75 Crores is to be deleted and the deduction allowed. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Condonation of delay in filing appeal Legal framework: Procedural discretion exists to condone delay where sufficient cause is shown; the appellate forum examines the affidavit and grounds offered for delay. Precedent treatment: The Court applies established principles governing condonation of delay (sufficiency of cause, material explanation) - no adverse precedent was distinguished or overruled. Interpretation and reasoning: The assessee filed an affidavit explaining the cause of delay. On consideration of that affidavit and the reasons given, The Court was 'convinced that the assessee was prevented by sufficient cause' from filing timely appeal. The Court therefore exercised discretion to condone delay prior to deciding the substantive issue. Ratio vs. Obiter: The condonation ruling is a procedural determination confined to the facts and affidavit before The Court; it is ratio in respect of the ability of the assessee to have the substantive appeal heard, but not a general pronouncement on condonation jurisprudence beyond application of existing standards. Conclusions: Delay in filing the appeal is condoned and the appeal is admitted for hearing on merits. CROSS-REFERENCES AND APPLICATION All conclusions on the substantive deduction invoke and rely upon the Explanation to section 35 and the line of authority holding that retrospective withdrawal/cancellation of approval does not invalidate claims where the donor relied on valid approval at the time of payment; the procedural condonation enabled these substantive conclusions to be reached. The Court directs the assessing officer to delete the impugned disallowance consistent with these findings.