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Facts
The assessee, a firm dealing in building and development, filed its return of income and claimed a deduction for a donation of Rs. 1.75 Crores to a school under Section 35AC of the Act. The AO disallowed the deduction, considering the Trust to be bogus. The CIT(A) upheld the disallowance.
Held
The Tribunal held that the donation was made when the institution had a valid approval. The subsequent withdrawal of approval with retrospective effect would not invalidate the assessee's claim for deduction, as per the Explanation to Section 35(1)(ii) of the Act and various judicial precedents.
Key Issues
Whether a deduction under Section 35AC can be denied when the institution's approval is withdrawn retrospectively after the donation was made?
Sections Cited
35AC, 35(1)(ii), 35CCA
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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, HON’BLE & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE
Assessee by : Shri N.R. Agrawal and Ms. Jinesha Mehta, A/Rs Revenue by : Shri Leyaqat Ali Aafaqui, Sr. A/R सुनवाई की तारीख/Date of Hearing : 17/09/2025 घोषणा की तारीख /Date of Pronouncement: 22/09/2025 आदेश/O R D E R
PER NARENDRA KUMAR BILLAIYA, AM:
This appeal by the assessee is preferred against the order of the ld. CIT(A) - 51, Mumbai [hereinafter the ‘ld. CIT(A)’] dated 22/11/2024 pertaining to AY 2014-15.
The solitary grievance of the assessee is that the ld. CIT(A) erred in sustaining the disallowance of Rs. 1.75 Crores made by the AO on account of donation given to the school of human genetics and population held scheme u/s 35AC of the Act. 3. There is a delay in filing this appeal by the assessee. The assessee has furnished an affidavit showing the cause of delay. Considering the cause, we are convinced that the assessee was prevented by sufficient cause for not filing the appeal in time. Delay is condoned.
I.T.A. No. 4512/Mum/2025 2 4. Heard the parties. Orders of the authorities below carefully perused.
Facts of the case are that the assessee filed its return of income on 26/11/2014 declaring total income at Rs. 22,02,27,560/-. The return was selected for scrutiny and accordingly statutory notices were issued and served upon the assessee. The assessee is a firm doing business of builders and developers. During the year under consideration while scrutinizing the return of income, the AO noticed that the assessee has debited donation paid to School of Human Genetics and Population Health amounting to Rs.1.75 Crores and claimed deduction u/s 35(1)(iii) of the Act. As per the information available with the AO, he came to know that the said Trust is a bogus Trust providing accommodation entries to the donors. Basis the information available with him, the AO added Rs. 1.75 Crores to the income of the assessee. 5.1. The assesse challenged the addition before the ld. CIT(A) but without any success. Findings of the ld. CIT(A) are also based upon the information available with AO.
We have carefully considered the orders of the authorities below. The impugned donation was given on 21/03/2014 which is evident from the money receipt exhibited at page 42 of the paper book. The order of withdrawal of notification u/s 35(1)(iii) of the Act is dated 15/09/2016, as per the order exhibited at pages 73 to 77 of the paper book. 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 3 association or institution has been withdrawn. A similar view has been taken by the Co-ordinate Bench in ITA No. 1583/Mum/2019 vide order dated 22/05/2019. The relevant findings read as under:- “7. We have considered rival submissions and perused the material on record. Undisputed facts are, in the previous year relevant to the assessment year under dispute, the assessee had donated an amount of ` 10 lakh to SHG&PH. In the return of income filed for the impugned assessment year, assessee had claimed deduction of ` 17,50,000, being one and on half times of the amount of ` 10 lakh, in terms of section 35(1)(ii) of the Act. It is also not disputed that at the time of making such donation, SHG&PH was having a valid approval granted under the Act by the CBDT. In the aforesaid factual position, we have to examine whether the subsequent cancellation of registration to SHG&PH vide CBDT order dated 15th September 2016, with retrospective effect can invalidate assessee’s claim of deduction under section 35(1)(ii) of the Act. In this context, Explanation to section 35(1)(ii) of the Act has a significant bearing. The said provision reads as under:–
―Explanation.—The deduction, to which the assessee is entitled in respect of any sum paid to a 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;
A reading of the aforesaid provision makes it clear that if at the time of giving the donation to the research Institute it had a valid registration granted under the Act, subsequent withdrawal of such approval would not be a reason to deny deduction claimed by the donor. In case of Chotatingrai Tea (supra), the Hon'ble Supreme Court while dealing with the deduction claimed under section 35CCA of the Act, held that retrospective withdrawal of approval granted by the prescribed authority would not invalidate assessee’s claim of deduction. Similar view was expressed by the Hon'ble Supreme Court in Suresh Trading Co. (supra) while dealing with the issue of effect of retrospective cancellation of registration certificate. In fact, in case of National Leather Cloth Mag. Co. (supra), the Hon'ble Jurisdictional High Court while dealing with identical issue of denial of deduction claimed under section 35(1)(ii) of the Act due to subsequent withdrawal of approval with retrospective effect, held that retrospective cancellation of registration will have no effect upon the deduction claimed by the donor since such donation was given acting upon registration when it was valid and operative. In case of MotilalDahya Bhai Jhaveri & Sons (supra), the Co–ordinate Bench while dealing with identical issue of denial of deduction claimed under section 35(1)(ii) of the Act, in respect of donation given to the very same Institution i.e., SHG&PH held that, since, at the time of giving donation the assessee had acted on the strength of a valid registration/approval, which was subsequently cancelled with retrospective effect, assessee’s claim of 4