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Facts
The assessee claimed a deduction under Section 35AC for donations made to Navjeevan Charitable Trust. The Assessing Officer (AO) disallowed this deduction, alleging that the trust was providing accommodation entries and the donations were not genuine. The CIT(A) confirmed the AO's order.
Held
The Tribunal held that the assessee could not be denied the deduction claimed under Section 35AC if the trust had a valid approval at the time of donation, even if the approval was subsequently withdrawn. The Tribunal noted that the amendment to Section 35AC, which taxes the withdrawn amount in the hands of the donee, is not applicable to the donor in such cases. It also found that the AO had not established the donation was bogus.
Key Issues
Whether the disallowance of deduction under Section 35AC is justified when the trust's approval was subsequently withdrawn, and whether the assessee was provided a fair opportunity to cross-examine witnesses and present evidence.
Sections Cited
35AC, 143(3), 148, 131, 132, 133A, 12AA, 80G
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH
Before: SHRI. RAHUL CHAUDHARY & SMT. RENU JAUHRI & Shri. Dharan Gandhi, Adv. Shri R. R. Makwana SR. DR
Date of Hearing 23.07.2025 Date of Pronouncement 17.10.2025 आदेश/O R D E R PER RENU JAUHRI [A.M]: This appeal is filed by the assessee against the order of the National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as "CIT(A)"] dated 08.10.2024& 25.10.2024 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as "Act"] for Assessment Year [A.Y.] 2012-13& 2013- 14.
& 6265/Mum/2024 AY 2012-13 & 2013-14 Raman and Weil Private Limited
In doing so basis statements made by some trustees of Navjeevan Charitable without giving the appellant an opportunity to cross examine them and without considering the evidence adduced by the appellant.
3. In not adjudicating on the issue of the assessment order being passed without any date or DIN. The appellant retains the right to add, alter or amend the grounds as may be advised from time to time.
1. In confirming the disallowance u/s 35AC of donation given of Rs. 10,00,000 to Navjeevan Charitable Trust. 2. In doing so basis statements made by some trustees of Navjeevan Charitable Trust without giving the appellant an opportunity to cross examine them and without considering the evidence adduced by the appellant. 3. In not adjudicating on the issue of the assessment order being passed without any date or DIN.”
As identical issues are involved in both the appeals, these are being disposed off by a common order.
Brief facts of the case are that the assessee company filed its return for A.Y. 2012-13 on 28.09.2012 declaring total income of Rs. 6,94,59,246/-.
The case was selected for scrutiny and assessment u/s. 143(3) was completed at an income of Rs. 7,19,10,030/-. Subsequently the case was reopened based on the information received from the Investigation wing that the assessee had given donation of Rs. 25,00,000/- during the year to M/s. Navjeevan Charitable Trust for the purpose of deduction u/s. 35AC of the Act which was not a genuine transaction.
3.2 Accordingly, notice u/s. 148 was issued in response to which the assessee file return declaring same income as in the original return.
& 6265/Mum/2024 AY 2012-13 & 2013-14 Raman and Weil Private Limited
During the reassessment proceedings, the assessee was questioned about the impugned transaction and statement of Shri. Devdas
Prabhakaran Nair, Advisor of the assessee company was also recorded u/s. 131 of the Acct. In his statement, he accepted that donation had been given to Navjeevan Charitable Trust but claimed that he was not awre about the bogus activities of the Trust. Ld. AO noted that during search conducted on 27.10.2014 u/s. 132 of the Act on Navjeevan Charitable Trust, it had been found that it was in receipt of donation from various parties through banking channel and the donation was returned back to the parties as payment of expenses. The trustees of the Trust accepted that the donors gave cheques to the trust so that they claim deduction u/s. 35AC and received back the amount in cash. Further the recognition of the Trust was withdrawn by the National Committee vide notification dated 30/11/2016 and the registration u/s. 12AA (3) was also cancelled vide order dated 20/12/2016 by the PCIT (Central)-I,
Mumbai. 3.3 In the background of these facts and circumstances ld. AO did not find the submission of the assessee tenable and disallowed the donation of Rs. 25,00,000/- claimed b y the assessee.
Aggrieved, the assessee preferred an appeal before ld. CIT(A).
& 6265/Mum/2024 AY 2012-13 & 2013-14 Raman and Weil Private Limited 3.4 Ld. CIT(A) confirmed the order of the ld. AO after noting that the facts of this case were distinguishable from those of the following two decisions relied upon by the assessee: i. Ravindra K. Reshamwala V DCIT in ITA No.
2648/Mum/2022. ii. Mrunal H Shah Vs. ACIT in ITA No. 4878/Mum/2019.
Aggrieved, the assessee is now in appeal before the Tribunal.
Before us ld. AR has argued that the addition was made by the ld. AO on the basis of statements made by trustees of Navjeevan Charitable Trust without giving the assessee an opportunity to cross examine them.
It has been submitted that at the time of making the donation, the trust had a valid approval u/s. 35AC which was subsequently withdrawn on 30.11.2016. Ld. AR pointed out that the assessee could not be denied the claim of deduction in view of specific provision in section 35AC, whereas an explanation has been inserted by the Taxation Laws (Amendment) Act, 2006 w.e.f 01.04.2006 relevant provisions are as under:
“Section 35AC Expenditure on eligible projects or schemes 35AC. (1) Where an assessee incurs any expenditure by way of payment of any sum to a public sector company or a local authority or to an association or institution approved by the National Committee for carrying out any eligible project or scheme, the assessee shall, subject to the provisions of this section, be allowed a deduction of the amount of such expenditure incurred during the previous year : Provided that a company may, for claiming the deduction under this sub- section, incur expenditure either by way of payment of any sum as aforesaid or directly on the eligible project or scheme. (2) The deduction under sub-section (1) shall not be allowed unless the assessee furnishes along with his return of income a certificate— & 6265/Mum/2024 AY 2012-13 & 2013-14 Raman and Weil Private Limited
(a) where the payment is to a public sector company or a local authority or an association or institution referred to in sub-section (1), from such public sector company or local authority or, as the case may be, association or institution; (b) in any other case, from an accountant, as defined in the Explanation below sub-section (2) of section-288, in such form, manner and containing such particulars (including particulars relating to the progress in the work relating to the eligible project or scheme during the previous year) as may be prescribed. Explanation.—The deduction, to which the assessee is entitled in respect of any sum paid to a public sector company or a local authority or to an association or institution for carrying out the eligible project or scheme referred to in this section applies, shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee,— (a) the approval granted to such association or institution has been withdrawn; or (b) the notification notifying the eligible project or scheme carried out by the public sector company or local authority or association or institution has been withdrawn. (3) Where a deduction under this section is claimed and allowed for any assessment year in respect of any expenditure referred to in sub-section (1), deduction shall not be allowed in respect of such expenditure under any other provision of this Act for the same or any other assessment year. (4) Where an association or institution is approved by the National Committee under sub-section (1), and subsequently— (i) that [the Principal Chief Commissioner of Income-tax (Exemption) or the Chief Commissioner of Income-tax (Exemption)] is satisfied that the project or the scheme is not being carried on in accordance with all or any of the conditions subject to which approval was granted; or (ii) such association or institution, to which approval has been granted, has not furnished to the [Principal Chief Commissioner of Income-tax (Exemption) or the Chief Commissioner of Income-tax (Exemption)], after the end of each financial year, a report in such form and setting forth such particulars and within such time as may be prescribed, the [Principal Chief Commissioner of Income-tax (Exemption) or the Chief Commissioner of Income-tax (Exemption)] may, at any time, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the concerned association or institution, withdraw the approval: Provided that a copy of the order withdrawing the approval shall be forwarded by the [Principal Chief Commissioner of Income-tax (Exemption) or the Chief Commissioner of Income-tax (Exemption)] to the Assessing Officer having jurisdiction over the concerned association or institution. (5) Where any project or scheme has been notified as an eligible project or scheme under clause (b) of the Explanation, and subsequently— (i) the [Principal Chief Commissioner of Income-tax (Exemption) or the Chief Commissioner of Income-tax (Exemption)] is satisfied that the project or the scheme is not being carried on in accordance with all or any of the conditions subject to which such project or scheme was notified; or (ii) a report in respect of such eligible project or scheme has not been furnished after the end of each financial year, in such form and setting forth such particulars and within such time as may be prescribed, such notification may be withdrawn in the same manner in which it was issued:
& 6265/Mum/2024 AY 2012-13 & 2013-14 Raman and Weil Private Limited
Provided that a reasonable opportunity of showing cause against the proposed withdrawal shall be given by the 30a[Principal Chief Commissioner of Income-tax (Exemption) or the Chief Commissioner of Income-tax (Exemption)] to the concerned association, institution, public sector company or local authority, as the case may be: Provided further that a copy of the notification by which the notification of the eligible project or scheme is withdrawn shall be forwarded to the Assessing Officer having jurisdiction over the concerned association, institution, public sector company or local authority, as the case may be, carrying on such eligible project or scheme. (6) Notwithstanding anything contained in any other provision of this Act, where— (i) the approval of the National Committee, granted to an association or institution, is withdrawn under sub-section (4) or the notification in respect of eligible project or scheme is withdrawn in the case of a public sector company or local authority or an association or institution under sub- section (5); or (ii) a company has claimed deduction under the proviso to sub-section (1) in respect of any expenditure incurred directly on the eligible project or scheme and the approval for such project or scheme is withdrawn by the National Committee 31[or the Principal Chief Commissioner of Income-tax (Exemption) or the Chief Commissioner of Income-tax (Exemption), as the case may be,] under sub-section (5), the total amount of the payment received by the public sector company or the local authority or the association or the institution, as the case may be, in respect of which such company or authority or association or institution has furnished a certificate referred to in clause (a) of sub-section (2) or the deduction claimed by a company under the proviso to sub-section (1) shall be deemed to be the income of such company or authority or association or institution, as the case may be, for the previous year in which such approval or notification is withdrawn and tax shall be charged on such income at the maximum marginal rate in force for that year. (7) No deduction under this section shall be allowed in respect of any assessment year commencing on or after the 1st day of April, 2018. Explanation.—For the purposes of this section,— (a) "National Committee" means the Committee constituted by the Central Government, from amongst persons of eminence in public life, in accordance with the rules made under this Act; (b) "eligible project or scheme" means such project or scheme for promoting the social and economic welfare of, or the uplift of, the public as the Central Government may, by notification in the Official Gazette, specify in this behalf on the recommendations of the National Committee.”
Ld. AR has further placed reliance on the explanatory memorandum to the Finance Act 2003 which explains as under:
“Amounts/donations received to be taxed as income in cases of withdrawal of approval to associations/institutions or withdrawal of notification in respect of eligible projects or schemes Under the existing provisions of section 35AC a deduction of the amount of expenditure incurred during the previous year by way of & 6265/Mum/2024 AY 2012-13 & 2013-14 Raman and Weil Private Limited payment of any sum to a public sector company or a local authority or to an association or institution approved by the National Committee for carrying out any eligible project or scheme is allowed. Eligible project or scheme means a project or a scheme for promoting the social and economic welfare of, or upliftment of, the public as the Central Government may, by notification in the Official Gazette, specify in this behalf on the recommendations of the National Committee. Correspondingly, section 80GGA provides for a deduction in the case of assessees not carrying on any business or profession. Sub-section (4) of the said section provides that where National Committee is satisfied that the project or scheme is not being carried on in accordance with all or any of the conditions, it may withdraw the approval earlier granted to the association or institution. Sub-section (5) also provides for withdrawal of the notification where the project or scheme is not being carried out in accordance with all or any of the conditions on the basis of which such project or scheme was notified. It is proposed to amend section 35AC to provide that in cases where the National Committee withdraws the approval granted by it to an association or institution on the ground that the project or scheme is not being carried out in accordance with all or any of the conditions subject to which the approval was granted or the notification through which a project or scheme was notified is withdrawn, the entire amount of contribution or donation received by the company or authority or association or institution, as the case may be, or the deduction claimed by a company in respect of any expenditure incurred directly on the eligible project or scheme, the approval for which is withdrawn by the National Committee, shall be deemed to be the income of the company or authority or association or institution, as the case may be, of the year in which such approval or notification is withdrawn. Such income will be taxed at the maximum marginal rate as if such income was not exempt under any provision of the Income-tax Act. This will be notwithstanding to the exemption otherwise available to such company or authority or association or institution under any provision of this Act The proposed amendment will take effect from 1st April, 2003 and will, accordingly, apply in relation to the assessment year 2003-2004 and subsequent years.” In view of above legal provisions and the decisions of the co-ordinate benches in the case of Ravindra K. Reshamvala
(supra) & other cases, it was argued that the assessee could not be deemed the deduction claimed u/s. 35AC of the Act.
On the other hand, ld. DR argued that the Trust was only providing accommodation entries by taking bogus donations in cheque which were & 6265/Mum/2024 AY 2012-13 & 2013-14 Raman and Weil Private Limited returned in cash on commission basis. The trust had accordingly been assessed on the commission income.
Ld. DR further placed reliance on the decision of the co-ordinate bench in the case of M/s. Govindram & Co. V ACIT in & 1475/Mum/2019 wherein it has been held as under:
The facts remain uncontroverted are i. M/s. Navjeevan Charitable Trust is a bogus trust only run for the purpose of accommodation entry for interested parties who want to obtain the certificate for non-genuine donation for claiming deduction u/s.35AC of the Act. ii. Neither M/s. Navjeevan Charitable Trust, nor by any of the beneficiary or broker has been able to lay down an iota of evidence to show that the trust has carried out any charitable activity during its entire existence. iii. During Search and Seizure operation u/s. 132 and Survey operation u/s. 133A covering the main player of the scam, no trace of any documents, no books of accounts has been found which can indicate any actual charitable activity by the Trust. iv. The crucial finding of the investigation wing, that so-called donation deposited by cheque has ultimately been withdrawn in cash, has not at all been rebutted. V. The specifics given by the associates explaining how the cheque was given, cash was accepted and its subsequent utilization has not been retracted either during the investigation carried out by the Investigation wing, Mumbai or during the assessment proceeding or during the appellate proceeding. In view of the above, it is held that the appellant is part and parcel of scam of non-genuine donation in order to claim deduction u/s.35AC of the Act. The candid confession by Mr.Manish M.Shah and ultimate withdrawal of deduction under section 35AC for the year under consideration, have not been disapproved then, I have no reasons to interfere with the findings of the AO. The denial of deduction u/s.35AC of the Act is upheld and an amount of Rs. 15,00,000/-claimed as deduction and added to the total income is confirmed. The ground of appeal filed on this issue is therefore dismissed.
We find that all the judicial precedents available were prior to the decision of Honourable supreme court in case CIT V Batanagar Education trust [2021] 129 taxmann.com
30. (sc) where cancellation of registration of The Trust u/s 12. A as well as 80. G were upheld. When the recipient of donation has confirmed that donation were taken in lieu of cash and no & 6265/Mum/2024 AY 2012-13 & 2013-14 Raman and Weil Private Limited activity is done, it would be too naïve to believe that assessee has donated sum in / good faith. 013. We do not find any infirmity in the order of the learned CIT(A) and accordingly, we do not find merit in this appeal.”
We have heard the rival submissions and considered the material placed on record as well as judicial pronouncements relied upon by both the parties.
(i) Admittedly, the donee, M/s. Navjeevan Charitable Trust enjoyed the approval u/s. 35AC w.e.f F.Y. 2010-11 onwards till withdrawal of the same by the notification dated 30.11.2016 issued by the Department of Revenue, Ministry of Finance, Government of India.
(ii) The donation by the assessee was made in F.Y. 2011-12 [& F.Y. 2012-13] and at the relevant time, the trust was having requisite valid approval.
(iii) Under the provisions of section 35AC, subsection (6) deals with the situation where the approval granted is subsequently withdrawn, and it states as under:
“(6) Notwithstanding anything contained in any other provision of this Act, where- (1) the approval of the National Committee, granted to an association or institution, is withdrawn under sub-section (4) or the notification in respect of eligible project or scheme is withdrawn in the case of a public sector company or local authority or an association or institu-tion under sub- section (5); or (ii) a company has claimed deduction under the proviso to sub-section (1) in respect of any expenditure incurred directly on the eligible project or scheme and the approval for such project or scheme is withdrawn by the National Committee 29 [or the Principal Chief Commissioner of Income-tax (Exemption) or the Chief Commissioner of Income-tax (Exemption), as the case may be,] under sub-section (5), the total amount of the payment received by the public sector company or the local authority or the association or the institution, as the case may be, in respect of which such company or authority or association or institution has furnished a & 6265/Mum/2024 AY 2012-13 & 2013-14 Raman and Weil Private Limited certificate referred to in clause (a) of sub-section (2) or the deduction claimed by a company under the proviso to sub-section (1) shall be deemed to be the income of such company or authority or association or institution, as the case may be, for the previous year in which such approval or notification is withdrawn and tax shall be charged on such income at the maximum marginal rate in force for that year.”
Thus, in case of withdrawal, the total amount received by the donee is to be charged at the maximum marginal rate in force during the year of withdrawal.
Thus the intent behind inserting this subsection w.e.f 01.04.2003 is to tax the entire donations in the hands of the donee. The donors having claimed deduction u/s. 35AC before the withdrawal of notification are not to be taxed in respect of impugned amount as has been clarified by way of an explanation inserted in subsection (2) of section 35AC w.e.f 01.04.2006, which states as under:
Explanation-The deduction, to which the assessee is entitled in respect of any sum paid to a public sector company or a local authority or to an association or institution for carrying out the eligible project or scheme referred to in this section applies, shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee,- (a) the approval granted to such association or institution has been withdrawn; or (b) the notification notifying the eligible project or scheme carried out by the public sector company or local authority or association or institu-tion has been withdrawn.
We note that in this case, Ld. AO had received information from the Investigation wing in respect of search/survey action conducted against the trust during which the donee trust was found to be providing accommodation entries and the amounts received were returned to the parties after deduction of commission as stated by the trustee in & 6265/Mum/2024 AY 2012-13 & 2013-14 Raman and Weil Private Limited statement recorded on oath. Based on this information, the assessment was reopened and the ld.AO recorded the statement under section 131 of Shri Devdas Prabhakaran Nair, Advisor of assessee company. He reiterated that the assessee had made genuine payment of the impugned donation to M/s. Navjeevan Charitable Trust. However, Ld. AO did not accept the claim of the assessee and relying solely upon the report of Investigation wing and statement of the trustee recorded by the wing, made the impugned addition in the hands of the assessee after disallowing the claim of deduction u/s. 35AC of the Act. The assessee is aggrieved and has objected to the same as no opportunity to cross examine the trustee was given and the evidence filed by assessee was rejected without any cogent reason.
After careful consideration of the facts and circumstances in the light of legal provisions, we are of the considered view that the entire donations received by the trust have to be added in its hands in the year of withdrawal of notification and charged at the maximum marginal rate.
Accordingly, disallowance of the claim of deduction u/s 35 AC in the hands of the assessee could not have been made more so without establishing that it had made a bogus donation and money was received back in cash.
Hence, we hereby delete addition of Rs. 25,00,000/- on account of disallowance of deduction claimed u/s 35 AC of the Act. 9. In the result, assessee’s appeal is allowed.
& 6265/Mum/2024 AY 2012-13 & 2013-14 Raman and Weil Private Limited (Assessment Year: 2013-14)
As fact and issues involved in this year are identical except that the amount claimed u/s. 35AC is Rs. 10,00,000/-, the above decision for A.Y. 2012-13 will apply mutatis mutandis in this year also. Accordingly, the addition of Rs. 10,00,000/- is hereby deleted.
In the result, both the appeals are allowed.