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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI VIKRAM SINGH YADAV & SHRI RAJ KUMAR CHAUHAN
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is filed by the appellant/assessee against the order of National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] dated 20.09.2024 for the A.Y. 2012-13 Page | 1 wherein disallowance u/s 35(1)(ii) of the Act of Rs. 35 lakh was confirmed and appeal was dismissed.
The brief facts as culled out from proceedings before the lower authorities are that the appellant is a private limited company incorporated on 26th Feb 1980 and engaged in manufacture, supply and export of Guargum derivative and powder, etc. The appellant filed return of income for AY 2012-13 on 31.10.12 declaring assessable income of Rs. 8,34,63,358/- and the same was processed u/s 143(1) of the Act. The case was selected for scrutiny vide notice u/s 143(2) dated 13.08.13 and subsequently, details were called through notice u/s 142(1) dated 20.03.14. The order of assessment u/s 143(3) was passed on 19.02.15 after due verification of particulars and expenses.
A notice u/s 147 of the Act was issued on 30.03.16 for reopening of assessment where upon vide letter dated 18.04.16, the assesses asked copy of reasons for reopening and formation of belief by the AO and the AO provided the details of reopening on 25.07.16. From the said information, it is reveled that a survey action u/s 133A of the Act was conducted by the Kolkata Collectorate on 3 institutions and one of them was School of Human Being Genetics and Population Health (SHGPH). It was found by the investigation wing that the donor /beneficiaries in connivance with these institutes, with the help of broker, entry operator were engaged in bogus donation syndicate and the donations were being returned to the donor after taking some commission. The donation received in cheques were returned in cash to the donor after deducting nominal commission. The assessee has claimed deduction of Rs. 20 lakhs u/s 35(1)(ii) of the Act for AY 2012-13 on the ground that the said amount was given as donation to SHGPH. The donor/assessee availed deduction of 75% of the donation given which works out Rs. 17.15 lakhs. It is noticed during the reassessment proceedings that all the expenses of the Donee Trust were mere book entries for the purpose of claiming deduction u/s. 35(1)(ii) and no genuine expenses were made by the Trust. It is further observed that one of the Trustee has accepted on oath that all the expenses were bogus and the donation received in cheque were returned in cash to all the donors after deducting nominal commission of 3%. Vide order dated 09.12.2016 and the assessee was asked to provide the details of all donations and show-cause as to why the donation amount of Rs. 35 lakhs being 175% of the actual donation of Rs.20,00,000/- not be treated as bogus in light of statement obtained during investigation. The AO issued notice u/s. 142(1) to the assessee with specific questioners regarding the donation like 1.What made the assessee to give donation to a Trust which does not have any credentials available on any website.
2. How could the assessee trace the Trust when the Trust did not have even a name board outside its office.
3. Have they ever met the Trustees of Navjheevan Charitable Trust? If yes, then their names and credentials on the basis of which donations were made.
What are the projects of the trust which influenced the assessee to donate money to the trust? 5. Have you ever went to the office of the trust? 6. Names of the person through which the Trust was introduced and donation made to the Trust.
7. What is the quantum of donation given to School of Human Genetics & Population Health (SHGPH)? 8. Has the assessee ever went to the office of the Trust after donation to verify the utilization of donation? Does the assessee has Trust managed by family of group Company? If Yes, then why assessee preferred to give donation to other Trust instead of his own trust? 4. In response to the above questionnaire, the assessee submitted its detailed reply vide letter dated 04.11.2016, but the same was not acceptable on the ground that regarding the credential of the trust, it was simply stated by the assessee that the trust has website and mere providing the website of the trust do not authenticate the credentials of the trust. Secondly, it was alleged that the trust was approved scientific research institution hence Page | 4 falls under deduction on donation u/s. 35(1)(ii) of the Act. Thirdly, the assessee did not submit anything about the trust providing home for senior citizens. Fourthly, assessee has admitted that no one had visited the trust and made the donation through the person who has introduced the trust, but the name of the said person has not been disclosed. Lastly, it is observed that in response to question no. 6, the assessee once again submitted that the trust was not introduced by anyone and it is observed that the assessee neither gave any specific reply to the questionnaire nor justified any of the questions. For these reasons, the deduction of Rs. 35 lakhs is disallowed and added back to the total income of the assessee. Penalty proceedings were also initiated.
5. Aggrieved by the order of AO, assessee challenged the order before the Ld. CIT(A) who observed that the assessee could not answer even simple issues like how it came to know about SHGPH, its activities and how it has ensured credentials of above institute etc. Admittedly, no one has visited the donee trust on behalf of the assessee and with regard to activity of the institute, the appellant stated that it was providing home to senior citizens and how providing home to senior citizens can be said to be as scientific research within the meaning of section 35(1)(ii) of the Act. It is also observed that the assessee has not disputed the statement given by the trustee vide question no. 8 of his sworn statement which is reproduced as under:-
Q.8 In the above questions you have stated that you never purchased goods for any amount and accommodation entries were obtained to book bogus purchases in consequence of which cash was received back from various parties/brokers. What happened to the cash so received?
Ans. Sir, we return all the cash to the donors from time to time as and whion the donations were received. A commission amount of 3% was deducted before returning back the cash. Out of the 3% commission which we used to receive, a small portion of the amount was spent to purchase food grains for the distribution amount the poor for record purpose.
6. Ld. CIT(A) further observed that the appellant has never asked for cross examination of trustee of SHGPH during assessment proceedings. It is further observed that since the statement of trustee was not specifically directed at appellant or do not mention the name of appellant, therefore, the appellant is not entitled to claim any right of cross examination whose statement was recorded during the investigation. It is further mentioned in the order of Ld. CIT(A) that CBDT has withdrawn the approval given to SHGPH vide notification dated 06.09.2016 w.e.f. 01.04.2007 retrospectively; that the assessment is finalized on 22.12.2016 and CBDT has already withdrawn approval given to the institute by the date of finalizing assessment under consideration, hence there can be no fault found with AO for disallowing the deduction u/s 35(1)(ii) of the Act.
7. The appellant has challenged the impugned order before us and has raised the following grounds:-
Ground No. 1:
1.1 Appellant submits that the Ld. CIT(A) has erred in holding that the Ld. AO has rightly disallowed deduction of donation of Rs. 35,00,000/-under Section 35(1)(ii) of the Income-tax Act. Appellant prays that disallowance of donation under Section 35(1)(ii) be deleted.
1.2 Without prejudice to the above, Appellant submits that the Ld. CIT(A) has relied on general statement of one of the Trustees that cash was returned back to the donor after deducting commission at 3%. Hence, the disallowance of deduction under Section 35(1)(ii) of the Income-tax Act be deleted.
1.3 Without prejudice to the above, the Appellant submits that the Ld. AO has not specifically referred to the name of the Appellant that the cash was returned back to the Appellant. Hence, re-opening is based on conjectures and surmises and therefore, reopening is bad in law.
1.4 Without prejudice to the above, Appellant submits that a donation of Rs. 20,00,000/- was given to approved institution scientific research association and the said approval was not rejected by the Commissioner at the time when donation was made.
1.5 Without prejudice to the above, the Appellant submits that allegation by the AO of return of donation money is without concrete evidence. Hence, in the absence of concrete evidence, the said disallowance cannot survive. Further, the Ld. CIT(A) upheld the allegations that the Appellant had received certain commission is baseless and without any tangible evidence. Hence, the Order of the CIT(A) is non-est.
1.6 Without prejudice to the above, the Appellant submits that the Ld. CIT(A) has not considered the letter ref. no. SHR/350/16-17 dated 4th November, 2010 acknowledged by the AO on 7th November, 2016. Hence, the disallowance of genuine donation under Section 35(1)(ii) was wrongly rejected.
1.7 Without prejudice to the above, the Appellant submits that it had given donation of Rs. 20,00,000/- to a School of Human Genetics & Population Health (SHGPH) for which the Appellant has received a receipt. Hence, the said disallowance by CIT(A) is baseless and without any substance.
1.8 Appellant submits that the case cited by the Ld. CIT(A) for re-opening of case is not applicable to the facts of the case. Hence, the disallowance is bad in law.
1.9 Without prejudice to the above, the Appellant submits that the Ld. CIT(A) has erred in not bringing any direct evidence against the Appellant to show that they have received cash back and there was no evidence to show the name of the Applicants who have received the cash. Hence, the addition is illegal, unwarranted and non-est and deserves to be set aside.
1.10 Without prejudice to the above, the Appellant submits that the registration under Section 35(1)(ii) to School of Human Genetics and Population Health was not cancelled and was in existence when donation was given, hence, the said order deserves to be set aside.
Ground No. 2:
Without prejudice to the above, the Appellant submits that the donation was given to the approved Trust under Section 35(1)(ii) based on the certificate issued by the Income-tax authority. The said donations were given after verifying the certificate issued under Section 35(1)(ii) of the Income-tax Act, 1961. Hence, the disallowance cannot survive.
Ground No. 3 Without prejudice to the above, the Appellant submits that there is no direct evidence against the Appellant to show that they have received back the donation paid and there was no evidence to show that the Trustees have particularly mentioned the name of the Appellant Company as beneficiary towards cash paid. Hence, the disallowance under Section 35(1)(ii) deserves to be set aside.
Ground No. 4 The appellant craves leave to add, alter or amend or omit any of the aforesaid grounds of appeal as the occasion may arise or demand.
8. On summarizing the grounds, the following points of determination arises for consideration i.e. 1) Whether the donation was given to approved institute u/s 35(1)(ii) of the Act and 2) Whether the donation given to approved trust can been disallowed u/s. 35(1)(ii) of the Act where the CBDT has withdrawn approval with respective effect from the date of approval i.e. 01.04.2007?
We have heard Ld. AR and Ld. DR and examined the record. Ld. AR has submitted that certain documents during the hearing with respect to the institute /donee which included request for substantial contribution dated 02.03.2012, donation letter date 30.03.2012 of Rs. 20 lakhs as per notification of registration of institute /trust dated 28th January 2010 specifically mentioned as under:-
―Depart of Revenue Central Board of Direct Taxes New Delhi, the 28th January, 2010 S.O. 348.-It is hereby notified for general information that the organization M/s. School of Human Genetics and Population Health, Kolkata, has been approved by the Central Government for the purpose of clause (li) of sub-section (1) of Section 35 of the Income-lax Act, 1961 (sald Act), road with Rules SC and SE of the Income-tax Rules, 1962 (sald Rules), from Assessment Year 2008-2009 onwards in the category of 'Other Institution', partly engaged in research activities…..‖ 10. It is argued by Ld. AR that the CBDT notification dated 28th January 2010 shows that the necessary approval u/s 35(1)(ii) was granted by CBDT stating objectives of the done trust and therefore assessee cannot be penalized by the disallowance of donation amount on the ground that the said approval has been cancelled with retrospective effect. It is an admitted fact that the donee trust was duly approved by the CBDT and there was no illegality on the part of the assessee to make donation to the trust which was duly approved by the CBDT. Ld. AR further argued that the assessee was legally entitled to the allowance/deduction made on account of donation having been made to the trust, duly approved u/s 35(1)(ii) of the Act. Regarding the statement of the trustee, it is stated that the assessee has denied the said statement and further the statement was not relevant and it is a settled law that the statement of third person cannot be read or used against the assessee unless the cross examination of the said person is done by the assessee. The stand of the revenue in that regard is that there was no need of cross examination of trustee of donee by the assessee because the statement was not directed against the assessee and the assessee was not named in the statement. It is also argued that the donation was made by the assessee during the period when the donee trust was legally approved u/s 35(1)(ii) of the Act and the subsequent withdrawal of the approval by CBDT shall have no affect on the case of the assessee. Ld. AR further relied on the following judgments and argued that ratio of these cases are squarely applicable to the fact of the case of the assessee:- i) Shri Ravindra K. Reshamawala vs. DCIT (ITA No. 2649/Mum/2022 dated 21.02.2023 ii) CIT vs. Balaram Hanumandas Charitable Trust (2022) 138 taxmann.com 13 (Calcutta HC) dated 16.02.2022. iii) Urnish Jewellers vs. ACIT (2019) 107 taxmann.com 10 (Mumbai Trib) dated 22.05.2019.
11. Ld. DR on the other hand relied upon the judgment of lower authorities and stated that the donation was made to the trust which was not carrying the approved activity, for which the donation could have been made, and admittedly the donation was made without visiting the institution and without having any specific information about the same and the amount has been returned to the assessee after deducting 3% of commission which shows that the donee institute was indulged in providing accommodation entries as fictitious donation.
We have considered the rival submission and examined the record. It is strongly contended on behalf of the assessee that the subsequent withdrawal of approval with retrospective effect of the done trust shall have no bearing on the donations given by the assessee to an approved trust during the relevant assessment year, when the deduction were claimed u/s 35(1)(ii) of the Act. Ld. AR placed reliance on the judgment of Coordinated Bench of ITAT in the case of Urnish Jewellers vs. ACIT (2019) 107 taxmann.com 10 (Mumbai Trib dated 22.05.2019 AY 2012-13) wherein the Coordinate Bench has held as under:-
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 Rs. 10 lakh to SHG&PH. In the return of income filed for the impugned assessment year, assessee had claimed deduction of Rs. 17,50,000, being one and on half times of the amount of Rs 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 Page | 13 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 Motilal Dahya 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 deduction cannot be disallowed. Thus, 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 under section 35(1)(ii) of the Act. Accordingly, we delete the disallowance of Rs 17.50 lakh. As regards the decisions cited by the learned Departmental Representative, on a careful perusal of these decisions, we find them decisions to be factually distinguishable as they are not on the issue of denial of deduction under section 35(1)(ii) of the Act due to cancellation of registration with retrospective effect. Grounds are allowed. Page | 14
9. In view of our decision herein above, the issue raised in grounds no.1 and 2, having become academic, hence, do not require adjudication.
Ground no.9, being consequential does not require adjudication.
In the result, appeal is partly allowed
Ld. AR further placed reliance on the judgment of Coordinated Bench of ITAT in the case of Shri Ravindra K. Reshamawala vs. DCIT (ITA No. 2649/Mum/2022 dated 21.02.2023) wherein the Coordinate Bench has held as under:-
4. Without reiterating the facts as elaborated above, the Assessing Officer has disallowed the claim of deduction under section 35(1)(ii) to the amount of Rs.1,92,50,000/- as donation provided to School of Human Genetics and Population Health on the ground that said concern was engaged in providing accommodation entries of donations.
During the course of appellate proceedings before us, the Ld.Counsel filed paper book comprising copies of various documents filed before the lower authorities, i.e. donation receipt, copy of registration certificate issued under section 12A, copy of notification of approval issued under section 35(1)(ii) of the Act by the CBDT in the name of School of Human Genetics and Population Health. It is further noticed that CBDT vide its notification No.82/2016 F.No.2003/64/2009/ITA-II has withdrawn notification granting approval under section 35(1)(ii) on 15/09/2016 which showed that notification was valid at the time the donation was made. In this regard, we have perused the decision of ITAT, Mumbai Bench ―H‖ in order dated 15/09/2022 wherein it was held that at the time of making donation to School of Human Genetics and Population Health the concern was having valid approval granted under the Act by the CBDT, therefore, subsequent cancellation of such approval retrospectively, vide CBDT order dated 16/12/2016 cannot invalidate the assessee’s claim of deduction under section 35(1)(ii) of the Act. The relevant part of the operating portion of the order is reproduced as under:-
―5. Heard both the sides and perused the material on record. During the course of assessment on the basis of information received from DDIT(Investigation), Kolkata, the A.O has disallowed the claim of deduction u/s 35(1)(ii) of the Act to the amount of Rs.19,25,000/- as donation provided to School of Human Genetics & Population Health (SHG& PH) on the ground that said concern was engaged in providing accommodation entries of donations. During the course of appellate proceedings before us the ld. Counsel filed paper book comprising copies of various document filed before the lower authorities i.e donation receipt, copy of registration certificate issue du/s 12A, copy of notification of approval issued u/s 35(1)(ii) of the Act by the CBDT in the name of School of Human Genetics & Population Health (SHG& PH) etc. During the year under consideration the assessee has claimed deduction u/s 35(1)(ii) amounting to Rs.19,25,000/- on account of donation of Rs.11 lac made to School of Human Genetics & Population Health (SHG& PH) in F.Y. 2013-14. It is further noticed that CBDT vide its notification no. 82/2016 F. No. 2003/64/2009/ITA-II has withdrawn notification for granting approval u/s 35(1)(ii) on 15.09.2016 which showed that notification was valid at the time the donation was made. In this regard we have perused the decision of Hon’ble Jurisdictional High Court in the case of National Leather Cloth Manufacturing Company Vs. Indian Council Agricultural Research & Others, 241 ITR 482 (Bom) wherein held that the assessee was entitled to relief on the certificate granted by the prescribed authority u/s 35(1)(ii) of the Act to the institution to which it donated the 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 or cancellation of the certificate would have no effect upon the assessee who had acted upon it when it was valid and operative. On similar facts and identical issue the coordinate bench of the ITAT, Mumbai in the case of Motilal Dahyabhai Jhaveri & Sons Vs. ACIT vide and 1584/Mum/2019 dated 24.04.2019 held that donor cannot be affected due to subsequent withdrawal of recognition with retrospective effect. Similarly, the ITAT, Mumbai in the case Unish Jewellers Vs. ACIT (2019) 107 taxman.com 19 (Mumbai Tribunal) held that where approval granted u/s 35(1)(ii) to Scientific Search Society was cancelled subsequently with retrospective effect, weighted deduction claimed by the assessee donor u/s 35(1)(ii) could not be denied , if there was valid and subsisting approval when donation was given. It is undisputed fact that at the time of making donation to School of Human Genetics & Population Health (SHG& PH) that concern was having valid approval granted under the act by the CBDT, therefore, subsequent cancellation of such approval retrospectively vide CBDT order dated 15.12.2016 cannot invalidate the assessee’s claim of deduction u/s 35(1)(ii) of the Act. Following the decision of the Hon’ble jurisdictional High Court and the decisions of coordinate benches of the ITAT Mumbai as supra we direct the A.O to allow the claim of deduction u/s 35(1)(ii) of the Act to the assessee. Accordingly, ground of appeal no. 2 of the assessee is allowed.‖
Since in the case of the assessee, the donation was given as per the copy of the receipt enclosed on 21/11/2013 and 31/03/2014, respectively, therefore, following the decision of the ITAT, Mumbai as referred above, we direct the Assessing Officer to allow the claim of deduction under section 35(1)(ii) of the Act. Therefore, grounds of appeal
of the assessee are allowed.
7. In the result, appeal filed by the assessee is allowed.
14. Ld. AR further relied on the judgment of Honble Calcutta High court in the case of CIT vs. Balaram Hanumandas Charitable Trust (2022) 138 taxmann.com 13 (Calcutta HC) dated 16.02.2022 wherein the Hon’ble High Court referred the Hon’ble Supreme Court case of CIT vs. S. Khader Khan Son (2012)25 taxmnann.com 413 wherein it was held that section 133A of the Act does not empower the income tax authorities to examine any person on oath, hence any such statement has no evidentiary value and any admission made during such statement cannot, by itself be made on the basis of addition.
15. On perusal of the judgment of Coordinate Bench of ITAT in 2019 (supra). It is noticed that in the case of Motilal Dahya Bhai Jhaveri & Sons (ITA No. 3453/Mum/2018, 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 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 deduction cannot be disallowed. Similar view was taken in the decision of the Coordinate Bench in (supra) wherein the same donee was involved.
16. Respectfully following the above decisions of Coordinate Benches, we are of the considered opinion that the assessee has acted upon a valid registration /approval granted to an institution and has donated the amount for which deduction is claimed, therefore 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 under section 35(1)(ii) of the Act. Accordingly, we direct the AO to allow the deduction claimed by the assessee. The point no. 1 for determination on the basis of summarized ground as noted by us in para no. 8 of this order is answered in affirmative. The point no. 2 is accordingly answered negative. Hence the impugned order is set aside and the grounds raised by the assessee are allowed accordingly in above terms.
In the result, the appeal is accordingly allowed in above terms.