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Income Tax Appellate Tribunal, ‘’ SMC’’BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals), Ahemdabad dated 13/12/2017( in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s.143(3) r.w.s 147 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dt.05/10/2016 relevant to the Assessment Year 2013-2014.
The assessee has raised the following grounds of appeal;
1) The Order passed by Learned A.O. and confirmed by Learned CIT(A) is bad in law and on facts and hence requires to be quashed. 2) The A.O, is injustified in reopening the validly completed assessment U/s. 143(3) of the I.T. Act and hence requires to be withdrawn. 3) The Learned A.O. and C.I.T. (A) has erred in disallowing the deduction claimed U/s. 35(1)(iii) of the I.T. Act amounting to Rs. 17,50,0007- mainly on the unsustainable grounds that; a) In Tax Audit report, amount of admissibility of claim made U/s. 35 was not reported by Auditors. b) Copy of Application in Form 3CF made to DGIT(Exernpt) for approval by School of Human Genetics & Population Health (SHG&PH) has not been submitted by appellant during assessment proceedings. 4) The A.O. and CIT(A) ought to have appreciated submission made before A.O. and CIT(A) wherein appellant has requested for providing (i) confirmation of the Institution that they have accepted the donation from me in lieu of commission and(ii) an opportunity of Cross examine the person or persons who on behalf of the said institution have accepted the facts and which has been the reason for reopening of assessment and whose statements, have been relied upon by A.O.
5. The A.O. and C.I.T.(A) ought to have allowed me the opportunity of Cross examination of the persons whose statement have been relied upon, in view of various judicial decision including Jurisdictional Gujarat High Court.
6. Appellant prays that appeals be allowed and deduction of Rs.17,50,000/- made u/s.35(1)(ii) be allowed. 7. Your appellant reserves the right to add, alter or amend any of the grounds of Appeal.
The assessee has raised as many as 6 effective grounds of appeal but the effective issue relates to the confirmation of the disallowance of the deduction under section 35(1)(iii) of the Act on account of the donation made to the eligible institution.
Briefly stated facts are that the assessee in the present case is an individual and wholesale distributor of Ultratech cement. She is running her business under the name and style of M/s Parshwa enterprise. The assessee in the year under consideration has made a donation to one institution namely School of Human Genetics and the Population Health (in short SHG & PH) registered under section 35 of the Act, as scientific research organization, amounting to Rs. 10 lakhs only. Accordingly the assessee claimed the deduction under section 35(1)(iii) of the Act on account of the donation made by her.
2.1 However, the AO during the assessment proceedings noticed that there was no detail furnished by the tax auditor of the assessee in the tax audit report qua the donation made to the institution registered under section 35 of the Act. Accordingly, he inferred that there was no deduction claimed in the tax audit report.
2.2 Similarly, the AO required the assessee to furnish a copy of form 3CF filed by SHG & PH to the Director General of Income Tax for the registration under section 35 of the Act. But the assessee failed to furnish the same.
2.3 The AO also noted that SHG & PH was engaged in providing bogus donation through the syndicate of various brokers/ middlemen.
In view of the above, AO denied the deduction claimed by the assessee under section 35 of the Act by disallowing the sum of Rs. 17.50 which resulted in total income being inflated accordingly.
Aggrieved assessee preferred an appeal to the Ld.CIT (A). Page 3 of 7
The assessee before the Ld.CIT (A) challenges the reopening of the proceedings under section 147 of the Act on the ground that the reassessment proceedings cannot be initiated under section 147 of the Act merely on the report received from the investigation wing of the income tax Department.
3.1 The assessee before the Ld. CIT (A) also submitted that the donation made by her to SHG & PH is eligible for exemption under section 35(1)(iii) of the Act vide notification No. 4/2010 and file No. 203/64/2009/ITA-II dated 28th January 2010. The registration certificate of SHG & PH under section 35(1)(iii) of the Act was valid at the relevant time when the donation was made.
3.2 The assessee also submitted that the tax auditor omitted to incorporate the relevant details of the donation in his report. But non-mentioning the details in the tax audit report furnished by the tax auditor does not debar the assessee from claiming the exemption under section 35 of the Act.
3.3 The assessee also claimed that the AO was empowered to collect the necessary details regarding the registration application in form 3CF under section 35 of the Act from the SHG & PH. But he failed to do so.
However, the Ld.CIT (A) confirmed the order of the AO by observing that the reopening under section 147 of the Act was made on the basis of 3rd party enquiries. Therefore the proceedings initiated under section 147 of the Act are valid. The Ld.CIT (A) confirmed the order of the AO by observing as under:
“4.1. The facts of the case and the submissions are considered. From the survey proceedings in the case of SHG & PH, Kolkata it is clearly established that the ;neftciaries in connivances with the SHG & PH with the active help of brokers, entry lerators/bogus billers were engaged bogus donation syndicates and the donations were urn back to the donors in lieu of commission. It is also clearly establish that the sessee is one of the beneficiaries of such bogus donation net work syndicate. During ts§essment proceedings the AO has specifically asked assessee tofurnish copy of Form 3CF. However, the assessee has failed to furnish the same. Further in the tax audit report the auditor has specifically certified that no amount is admissible to the assessee u/s.35 of the Act. The assessee has failed to justify her claim of deduct u/s.35 and failed to explain all these irregularities. The findings of I investigations alongwith these irregularities clearly establishes that the claim of the appellant is bogus and non-genuine. Considering the above discussion the AO has rightly disallowed the claim of the appellant and accordingly the addition made by the AO is confirmed. Thus the ground of appeal is dismissed to this extent.”
Being aggrieved by the order of the Ld.CIT (A) the assessee is in appeal before us.
The Ld. AR before us filed a paper book running from pages 1 to 32 and submitted that the assessee cannot be denied the benefit of the exemptions under section 35 of the Act merely on the ground that the institution registered under section 35 of the Act was engaged in the bogus donation.
5.1 The Ld. AR in support of the donation paid by the assessee filed certain details such as letter, receipt issued by SHG & PH, Gazetted notification which are available on record.
On the other hand the Ld.DR vehemently relied on the order of authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the instant case relates to the donation made by the assessee to SPG & PH and consequentially the deduction under section 35(1)(iii) of the Act was claimed. As per the AO, M/s SPG & PH was engaged in accepting the bogus donation from the assessee’s through the network of brokers and middlemen. This fact was established in the survey proceedings carried out under section 133A of the Act at the premises of SPG & PH. As the assessee was one of the donor to the above mentioned beneficiary/donee therefore, the AO concluded that the donation made by the assessee is bogus. Accordingly, the AO made the disallowance of the deduction claimed by the assessee on account of such donation made to SPG & PH in the assessment proceedings framed under section 147 of the Act. The Ld. CIT (A) subsequently upheld the order of the AO.
7.1 At this juncture, we are inclined to make a reference to the explanation to section 35(1)(iii) which reads as under:
35[Explanation.—The deduction, to which the assessee is entitled in respect of any sum paid to a 36[research association], university, college or other institution to which clause (ii) or clause (iii) applies, 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, university, college or other institution referred to in clause (ii) or clause (iii) has been withdrawn;] 7.2 The provisions of the Act are clear that the assessee shall not be denied the deduction in the event the approval granted under section 35(1) is withdrawn subsequently. Thus the ground of appeal of the assessee is allowed.
7.3 We also note that the reopening under section 148 of the Act was held invalid in view of the prospective withdrawal of the approval granted under section 35(1) of the Act in the case of National Leather Cloth Manufacturing Company Vs. Indian Council of Agricultural Research reported in 110 Page 6 of 7 Taxman 511 by the Hon’ble Bombay High Court. The relevant extract of the Head note of the order is reproduced as under:
“Law is now well-settled that the assessee is entitled to rely upon the certificate granted by the prescribed authority under section 35(1)(ii ) to the institution or association to which it had donated any sum of money for claiming deduction under that section if it was subsisting and valid at the time the donation was made. The retrospective withdrawal and/or cancellation of the certificate will have no effect upon the assessee who has acted upon it when it was valid and operative. In view of the above, it was clear that there was no escapement of income from tax in the instant case. The impugned notice under section 148 was, therefore, to be quashed and set aside. Writ petition was, accordingly, to be allowed.”
7.4 In view of the above, we hold that there cannot be any initiation of the proceedings under section 148 of the Act in the given facts and circumstances. Accordingly, we reverse the order of respective AO and CIT(A) and direct the AO to allow the deduction to the assessee under section 35(1)(iii) of the Act. Hence the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 10/07/2019 at Ahmedabad.