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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI KULDIP SINGH, HONBLE & SHRI S. RIFAUR RAHMAN, HONBLE
ORDER PER S. RIFAUR RAHMAN (AM) 1. Both these appeals are filed by the assessee against different orders of Learned Commissioner of Income Tax (Appeals)–16, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 30.09.2019 for the A.Y. 2014-15 and 2015-16 respectively.
2 & 7849/MUM/2019 (A.Ys. 2014-15 & 2015-16) Arrow Genentech Limited 2. Since the issues raised in both these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal in ITA.No. 7848/MUM/2019 for Assessment Year 2014-15 as a lead appeal.
ITA No. 7848/MUM/2019 (A.Y. 2014-15)
Brief facts of the case are, assessee company has e-filed its Return of Income on 30.11.2014 declaring total income at ₹.4,43,75,636 and book profits under section 115JB at ₹.5,89,02,186. The case was selected for scrutiny under CASS and notices u/s. 143(2) and 142(1) of Income-tax Act, 1961 (in short “Act”) were issued and served on the assessee. In response AR of the assessee attended and submitted the relevant information as called for.
During the course of assessment proceedings Assessing Officer noticed from the Profit & Loss Account for the year, the assessee company has debited a sum of 1,00,00,000/- under the head 'Donation'. The payments were made to the entities named i) Herbicure Healthcare Bio- Herbal Research Foundation, Kolkata at 50,00,000/- and ii) Human Gentics and population Health, Kolkata at 50,00,000/-. Further, it is seen from 3 & 7849/MUM/2019 (A.Ys. 2014-15 & 2015-16) Arrow Genentech Limited computation of Income in Schedule-5 that an amount of ₹.50,00,000/- has also been deducted from total income in accordance with Sections 35(1)(ii) of the Act amounting to total deduction of ₹.1,75,00,000/- being @ 175% of 1,00,00,000/- from business income. Assessing Officer asked to assessee why the above said donation should not be disallowed particularly in view of Ministry of Finance, CBDT, New Delhi had revoked the deduction under section 35(i)(ii) of the Act on 06 09 2016.
In response, assessee submitted that assessee had during the year under review made the following contributions eligible for deductions under section 35(i)(ii) of the Act. a. Herbicure Healthcare Bio herbal Research Foundation Kolkata Rs. 5000000 b. School of Human Genetics and Population Health Kolkata Rs.5000000 and claimed deduction under section 35(i)(ii) aggregating to Rs. 1,75,00,000 as deduction from the taxable income.
Assessee submitted that the Ministry of Finance CBDT New Delhi had revoked the deduction under section 35(i)(ii) of the Act on 06 09 2016 for Herbicure Healthcare Bioherbal Research Foundation Kolkata and on 15.09.2016 for School of Human Genetics and Population Health Kolkata. The Donee Foundation institution has been granted approval and was 4 & 7849/MUM/2019 (A.Ys. 2014-15 & 2015-16) Arrow Genentech Limited engaged Scientific Research and the assessee made the Donation for a good and genuine cause. The Registration granted by the Ministry of Finance CBDT was valid at the time of making the Donation & even after the date of filing the Return and thereafter. The recognition was withdrawn on 6th September 2016 & 15th September 2016 respectively and the assessee was not aware of the same and had no reason to believe the Foundation was involved in facilitating bogus donation as mentioned by the Assessing Officer in his assessment order. Assessing Officer rejected submissions of the assessee and proceeded to make the assessment by disallowing the deduction claimed under section 35(1)(ii) of the Act.
Aggrieved, assessee preferred an appeal before the Ld.CIT(A) and filed detailed submissions before him. Ld.CIT(A) after considering the detailed submissions filed by the assessee, sustained the action of the Assessing Officer in respect of disallowance of expenditure on scientific research and allowed the other grounds raised by the assessee.
Aggrieved with the above order, assessee filed an appeal before us raising following grounds in its appeal: - “On the facts and in the circumstances of the case the learned Commissioner of Income Tax [Appeals) has erred in confirming & upholding the order passed by the learned Commissioner 9(1) (2)
5 & 7849/MUM/2019 (A.Ys. 2014-15 & 2015-16) Arrow Genentech Limited DCIT disallowing expenditure on Scientific Research 35(i) (ii) of the IT Act, 1961 Rs. 1,75,00,000/- on the ground that Ministry of Finance CBDT New Delhi has withdrawn The Appellant had during the year under review made the following contributions of Rs. 1,00,00,000/- donation eligible for deductions u/s 35 (i)(ii) of the IT Act, 1961 (i) Herbicure Healthcare Bio-herbal Research Foundation - Kolkata Rs. 50,00,000/ (ii) School of Human genetics and Population Health Kolkata Rs. 50,00,000/ and claimed deduction u/s 35(i)(ii) aggregating to Rs. 1,75,00,000/- as deduction from the taxable income. The Ministry of Finance - CBDT New Delhi had revoked the deduction u/s 35(1)(ii) of the IT Act on 06.09.2016 for Herbi-cure Healthcare Bio herbal Research Foundation - Kolkata and on 15.09.2016 for School of Human Genetics and Population Health Kolkata. The Donor Foundation/institution has been granted approval and was engaged Scientific Research and the Appellant made the Donation for a good and genuine cause. The Registration granted by the Ministry of Finance CBDT was valid at the time of making the donation and even after the date of filing the Return thereafter. The recognition was withdrawn on 6th September, 2016 & 15th September 2016 respectively and the Appellant were not aware of the same and had no reason to believe the Foundation was involved in facilitating bogus donation as mentioned by the Ld. A.O. in the assessment order. The moot question is whether an approval granted and valid and substantiating at the time of making donation and filing on Return can be made a basis by the Learned Dy.Commissioner of the Income Tax (A.O.) as the basis for making additions to the returned income. The Ld. Commissioner of Income Tax has observed that the recent institution has been registered in Kolkata and whereas the Appellant in Maharashtra is not a ground for disallowing the expenses & the allegation that the Appellant has received cash is not valid. No opportunity to cross examine the opposite party was
At the time of hearing, Ld. AR of the assessee submitted that at the time when the assessee gave donation to the institution, it had a valid registration certificate granted under the Act. Ld. AR submitted, the subsequent cancellation of the registration certificate with retrospective effect cannot invalidate assessee’s claim of deduction under section 35(1)(ii) of the Act. Drawing our attention to the Explanation to section 35(1)(ii) of the Act, learned Authorised Representative submitted, the statute has also made it clear that the benefit of deduction under section 35(1)(ii) of the Act cannot be denied on account of subsequent withdrawal of approval granted to the Institution. Thus, Ld. AR submitted, assessee’s claim of deduction should be allowed. In support of the above contention, he relied upon the following decisions:– (i). Urnish Jewellers v. ACIT in ITA.No. 1583/Mum/2019 dated 22.05.2019. (ii). ACIT v. shirish Lakhamshi Keniya (HUF) in ITA.No. 5385/Mum/2018 dated 29.01.2020 (iii). MRC Transolution Pvt. Ltd., v. ACIT inita 528/PUN/2017 dated 29.01.2021 (iv). Tushar chawda v. ITO in ITA.No. 2362/8KOL/2017 dated 21.03.2018.
Considered the rival submissions and material placed on record, the sole issue for adjudication is whether the subsequent cancellation of registration vide CBDT order dated 15.09.2016 with retrospective effect can invalidate assessee’s claim of deduction u/s. 35(1)(ii) of the Act. This issue has been considered by the Coordinate Bench in the case of Urnish Jewellers v. ACIT (supra) and held that 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. While holding so, Coordinate Bench observed 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:–
8 & 7849/MUM/2019 (A.Ys. 2014-15 & 2015-16) Arrow Genentech Limited ―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;‖ 8. 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 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 ` 17.50 lakh. As 9 & 7849/MUM/2019 (A.Ys. 2014-15 & 2015-16) Arrow Genentech Limited 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.”
Respectfully following the above said decision, since the issue is exactly similar and the facts are also identical, we find merit in the submissions of the Ld. AR and accordingly allow the ground raised by the assessee. We direct the Assessing Officer to allow the claim of deduction u/s. 35(1)(ii) of the Act.
ITA.No. 7849/MUM/2019 (A.Y. 2015-16)
Coming to the appeal relating to A.Y.2015-16 in ITA.No. 7849/Mum/2019, since facts in this appeal is mutatis mutandis, therefore the decision taken in A.Y. 2014-15 is applicable to this assessment year also. Accordingly, we allow the grounds raised by the assessee.
In the result, appeals filed by the assessee are allowed.
Order pronounced in the open court on 20th September, 2022.