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PARAG DAVE,AHMEDABAD vs THE DCIT, CIRCLE-3(1)(1) (PREVIOUSLY CIRCLE-3(3)), AHMEDABAD | BharatTax

PARAG DAVE,AHMEDABAD vs. THE DCIT, CIRCLE-3(1)(1) (PREVIOUSLY CIRCLE-3(3)), AHMEDABAD

ITA 894/AHD/2024Status: DisposedITAT Ahmedabad23 September 2025AY 2016-17Bench: Ms. Suchitra Kamble, Judicial Member And Makarand V. Mahadeokar (Accountant Member)1 pages

AI SummaryDismissed

Facts

The assessee claimed a deduction of Rs. 26,25,000 under Section 35(1)(ii) for a donation made to Shri Arvindo Institute of Applied Scientific Research Trust. The Assessing Officer disallowed the deduction, holding the trust was not an approved entity and the donation was bogus. The CIT(A) upheld this disallowance.

Held

The Tribunal held that the Shri Arvindo Institute of Applied Scientific Research Trust's approval under Section 35(1)(ii) had expired on March 31, 2006. As the assessee is a science graduate and aware of financial updates, they should have known the trust was not recognized for receiving donations for scientific research after the expiry date. Therefore, the disallowance and dismissal of the appeal were upheld.

Key Issues

Whether the donation made to Shri Arvindo Institute of Applied Scientific Research Trust was eligible for deduction under Section 35(1)(ii) when the trust's approval had expired, and if the assessee was aware of this.

Sections Cited

35(1)(ii), 36(1)(va), 143(2), 142(1), 80GGC, 80G, 37(2B), 271(1)(c), 12AA(3), 13(3)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH

Before: Ms. Suchitra Kamble & Makarand V. Mahadeokar

For Appellant: Shri Vipul Khandhar, A.R

For Respondent: Shri Amit Pratap Singh, Sr. D.R

Date of hearing : 28-07-2025 Date of pronouncement : 23-09-2025 आदेश/ORDER Per Suchitra Kamble, Judicial Member:

This is an appeal filed against the order dated 12-01- 2024 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2018-19.

2.

The grounds of appeal

are as under:-

1. The CIT(A) erred both in law and on facts in rejecting the claim of deduction u/s 35(1)(ii) of Rs. 26,25,000.00 in respect of amount of Rs. 15,00,000.00 contributed by the appellant through RTGS merely on irrelevant and untenable grounds ignoring the documents received by the appellant produced before him. On the facts and in the circumstances of the case and the legal inference, Parag Dave, A.Y. 2016-17 the disallowance is patently wrong. It be so held now and deduction be granted as claimed.

2. The CIT(A) further erred both in law and on facts in observing that appellant made a bogus claim merely on the basis that as per letter received from CBDT no certificate under section 35(1)(ii) was issued. The CIT(A) erred in not accepting the reply of appellant in toto. It be so held now and disallowance made be deleted.

3. The CIT(A) further erred both in law and on facts in confirming the addition of Rs. 51731/- being PF & ESIC contribution paid after stipulated time.

4. The CIT(A) erred in law and on facts in making various observations in the assessment order which are irrelevant and untenable when appellant had cooperated with AO by furnishing all the evidences and answers on facts which ought to be considered which AO has failed to consider. It be so held now and deduction rejected for no fault of appellant be allowed as claimed.

6.

As regards ground nos. 1 and 2, the ld. A.R. submitted that the CIT(A) was not right in rejecting the claim of deduction u/s. 35(1)(ii) of Rs. 26,25,000/- in respect of amount of Rs. 15,00,000/- contributed by the assessee through RTGS and the same is based on irrelevant and untenable grounds despite the evidences produced by the assessee before the Assessing Officer as well as before the CIT(A). The ld. A.R. submitted the letter dated 14-05-2012 issued by the CBDT which has categorically stated that the exemption u/s. 35(1)(ii) is valid. The assessee has also submitted letter from Secretary, Ministry of Science and Technology dated 05-06-2015 which was not correct to say that the said letter does not have the signature of former head RDI. The A.R. submitted that “1 The ITO observed that donation given to scientific research institute namely "Shree Arvindo Institute of Applied Scientific Research Trust is found to be non-genuine on the basis of data obtained from detailed inquiry conducted for genuineness of trust and whereby it is mentioned that as per records letter dated 14.05.2012, 02.07.2012 and 04.04.2016 claimed to be issued by CBDT. renewing the approval to Shree Arvindo Institute of Applied Scientific Research Trust, Pondichery had not been issued by CBDT. It is further stated that as per records Shree Arvindo Institute of Applied Scientific Research Trust is not approved entity u/s 35(1)(z)(0) of Income Tax Act 1961. The appellant wants to state that the above scientific research institute has also been approved under Section 35(1)(8) of IT Act, 1961 also. The appellant further states that the recognition of donee as scientific & industrial research organisation was also approved. The retrospective withdrawal and cancellation of the certificate will not have any impact upon us, who has acted upon it when it was valid and operative. Therefore, the appellant wants to 4 Parag Dave, A.Y. 2016-17 submit that the contention of the lower authorities in denying the deduction claimed by us under Section 35(1)(ii) of Rs. 2650000/- being 175% of donation of Rs.1500000/- made to Shree Arvindo Institute of Applied Scientific Research Trust, Pondichery is not sustainable. 1.2 The appellant has given contribution of Rs. 15,00,000/- to Shree Arvindo Institute of Applied Scientific Research Trust, which is a scientific research organization duly registered with the Ministry of Science And Technology of India. The necessary documentary evidence in the form of copy of the receipt of the donation given is enclosed herewith. The ITO's contention regarding the said scientific research organization is non-existent & non-genuine will not disentille our claim for deduction on account of contribution to the scientific research organisation, when all the conditions prescribed in section 35(1)(o) are duly satisfied. The donation has been made through RTGS to a scientific research organisation approved by Ministry of Science And Technology of India; therefore, the conditions to claim deduction u/s 35(1)(ii) are fully complied. 1.3 The appellant wants to produce the extract of the sec-35(1)(ii) under: 35. Expenditure on scientific research. "(1) In respect of expenditure on scientific research, the following deductions shall be allowed- (i) any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business. [Explanation. - Where any such expenditure has been laid out or expended before the commencement of the business (not being expenditure laid out or expended before the 1st day of April, 1973) on payment of any salary (as defined in Explanation 2 below sub-section (5) of section 40A to an employee engaged in such scientific research or on the purchase of materials used in such scientific research, the aggregate of the expenditure so laid out or expended within the three years immediately preceding the commencement of the business shall to the extent it is certified by the prescribed authority (See rule 6(1). The prescribed authority under rule 6(1) is Director General (Income-tax Exemptions) in concurrence with Secretary Department of Scientific and Industrial Research, Government of India) to have been laid out or expended on such scientific research, be deemed to have been laid out or expended in the previous year in which the business is commenced;] (ii) an amount equal to one and one-fourth times of any sum paid | Substituted by Act 27 of 1999, Section 15, for any sum paid" (w.e.f. 1.4.2000)to a scientific research association which has as its object the undertaking of scientific research or to a university, college or other institution to be used for scientific research (See 5 Parag Dave, A.Y. 2016-17 rules 5C [Guidelines, form and manner in respect of approval u/s 35( 50 [Conditions subject to which approval is to be granted us 35(1) to research association] and 5E [Conditions subject to which approval is to be granted us 35(1)(ii)(i) to University, college or other institution and Form Nos. 3CF-1 and 3CF- [Provided that such association, university, college or other institution for the purposes of this clause- (A) is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed, and (B) such association, university, college or other institution is specified as such by notification in the Official Gazette, by the Central Government Provided further that where any sum is paid to such association, university, college or other institution in a previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, the deduction under this cause shall be equal to the sum so paid; A perusal of the above section would reveal that it provides deduction of 175% of contribution made by an assesses in the previous year to a scientific research organization........” The appellant is producing the details of payment made through account payee cheques as well as registration certificate of these scientific research organisation They have been granted registration under section 35(1)() of the Act for soliciting donation from the assessee, which will be allowed as deduction in the hands of donors. In view of the above provisions, it is clearly evident that for claiming the exemption under section 35(1)(ii), assessee has to fulfil two conditions which are as under (1) Donation should be made to a scientific research association which has as is object the undertaking of scientific research or to a university, college or other institution to be used for scientific research. (ii) such association, university, college or other institution for the purposes of this clause is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed. In the instant case, the appellant has fulfilled both the above conditions as mentioned by the section 35(1)(ii) of the Income tax Act 1961. The appellant has made the donation through banking channel via RTGS transaction on 03.02.2016 on 21.03.2016 (Copy of the relevant bank statement is enclosed for your kind Parag Dave, A.Y. 2016-17 perusal) and to a scientific research organisation approved by Ministry of Science And Technology of India. 1.4 It is neither submitted nor any corroborative evidence has been produced which evident that how our contribution made to Shree Arvindo Institute of Applied Scientific Research Trust has been considered bogus. In the captioned notice, it's a generalized statement that during the course of pre as well as post search it has been established that these RUPPs were involved in the activity of providing accommodation entry by way of bogus donation. Since appellant has made the contribution to the said party hence it is considered as bogus scientific donation without any corroborative evidence. Moreover, the captioned notice has spoken about the modus operandi of the bogus transaction detected in the course of the inquiry conducted which revealed that the donation is received through cheque/RTGS/NEFT in the RUPP's bank account. Based on the prescribed modus operandi, appellant should have been received the cash after deduction of the commission but no corroborative evidence has been produced in the captioned notice which evident that appellant has received the cash The captioned notice has a generalized statement related to bogus political donation which has no concurrence in the eyes of law. 1.5 Further, appellant wants to state that the donees are taxable entities in themselves. If they misused their position and failed to conduct themselves in regard with requirement of law, then this amount could be taxable in his hands. Act nowhere put obligation upon the donor to ensure how the funds are utilized by the donee towards their objects. Due to this reason, appellant is of the view that whole angle of inquiry at the end of the ITO is misdirected. It is for the ITO to verify whether these scientific organisations have utilized funds for scientific research or not, in their own cases, and if they failed to utilize funds for their objects, then their scientific research status could be cancelled. Registration under section 35(1)(i) could be cancelled as per the procedure contemplated in Income Tax Act. The funds which were not used for objects of the trust that can be brought to tax in hands of the said scientific research institute. A perusal of the scheme of Income Tax Act, it would reveal that once the donation has been made, the donee is not under obligation to keep a track of the donation, and nothing left in his hand which can ask for return of these amounts. There is no such provision provided in the Act. If a duly recognized institution, for the purpose of receiving donation, somebody makes donation and then how the donation would be bogus, if the donee failed to use it for the object which has been made eligible to receive the donation. How the donor could dictate terms after donations are made? No donee will be under influence of the donor for arranging its affairs. 7 The appellant has to further submit that the donors are least concerned about what the scientific research institute is doing with the donation received, as it is none of them business. It is the sole responsibility of the party to make good use of it for the defined object provided in its constitution as held by various ITATs and High Courts in their decisions. Appellant relies on the following case laws; (1) In the Income Tax Appellate Tribunal, Ahmedabad, Bench-A, A.Y.2011-12, Anjali Neeraj Hardikar vs NFAC, Delhi 8. After hearing both the parties and on perusal of the impugned material on record and the explanation and submissions given by the assessee on this issue during the course of the quantum proceedings as well as penalty proceedings, as noted above, in the first round the disallowance made by the Id. AO has been deleted by the Id. CIT (A) after observing and holding as noted above (supra). Though the deduction is not allowable for the reasons given by the Id. AO however, for the purpose of charging assessee for furnishing of inaccurate particulars of income, what has to be seen is, whether at the time of making the claim for deduction, there was any bonafide belief and explanation for making such a claim in the return of income. From the records, it appears that the claim was made on the basis of auditor's note who had given the detailed reasoning for making such a claim that it is allowable u/s 80GGC The explanation given to this effect reads as under- "It is submitted that the auditor in notes to accounts at point no. 2.2 has specifically stated that "during the year the assessee has debited in the books of accounts of A.N Enterprises Rs. 10,50,000/- under the head "Advertisement Expenses being Advertisements in monthly Magazines These are treated as disallowable u/s. 37(28) but are allowable u/s 80GGC of the Income-tax Act, 1961" which is verifiable from page no. 14 of the paper book. Further the auditor in clause 17 of Form No. 3CD has quantified the amount disallowable u/s 37(2B) and also quantified the deduction admissible u/s 80GGC at Rs. 10,50,000/- and u/s. 80G at Rs. 1,14,911/-in clause 26 of Form No. 3CD."

9. Apart from that, the Id. CIT (A) in the first round too has held to be a bonafide claim of deduction. Though in the quantum proceedings finally the matter has been decided against assessee, but that alone is not sufficient for the penalty proceedings u/s 271(1)(c). For the purpose of penalty proceedings one has to see, whether assessee has furnished any inaccurate particulars by making a false claim or it is a claim which has not 8 Parag Dave, A.Y. 2016-17 been found to be admissible by the Id. AO. Here the claim was made on the basis of an opinion of the auditor who has given his opinion which too has been found to be acceptable by the Id. CIT (A). Though such an order has been set aside subsequently and AD has made the disallowance after verification, but cannot be held that the claim at the time of filing of return of income based on opinion of an auditor was not bonafide. Accordingly, following principles laid down by the Hon’ble Supreme Court in the case of Reliance Petro Products Ltd. reported in 222 (ITR 158, it cannot be held that the claim of deduction by the assessee tantamount to furnishing of inaccurate particulars of income. Accordingly, the penalty levied by the id AO and confirmed by the Id. CIT (A) is deleted. (ii) In the Income Tax Appellate Tribunal, Ahmedabad, Bench-C A.Y.2012-13, ACIT, Cr. 6(1), Ahmedabad vs Armee Infotech 32. The case of the Revenue in the Asstt. Year 2014-15 is that the assessee failed to prove, whether ultimately, the donees have used these monies? The AO has devoted a lot of energy in conducting such inquiry as to how these monies have been incurred by the recipients. To our mind, the authorities below have misdirected themselves. The donees are taxable entities in themselves. If they misused their position and failed to conduct themselves in regard with requirement of law, then this amount could be taxable in his hands. Act nowhere put obligation upon the donor to ensure to the funds are utilized by the donee towards their objects. Due to this reason, we are of the view that whole angle of inquiry at the end of the AO is misdirected, it is for the AO to verify whether these charitable institutions have utilized funds for charitable objects in not, in their own cases, and if they failed to utilize funds for their objects, then their charitable status could be cancelled. Registration under section 1244 could be cancelled as per the procedure contemplated in section 12AA(3) of the Act. The funds which were not used for objects of the Trust that can be brought to tax under section 13(3) of the Act. A perusal of the scheme of Income Tax Act would that once the donation has been made the donee is not under colligation to keep a tack of the donation, and nothing left in his hand which can ask for return of these amounts. There is no such provision provided in the Act. If a duly recognized institution, for the purpose of receiving donation, somebody makes donation and then how the donation would be bogus, if the done failed to use it for the object which has been made eligible to receive the donation. How the donor could dictate terms after donations are made? No donee will be under influence of the donor for its affairs. Therefore, there is fallacy in the approach of the ld.AO as well as the ld. CIT(A) for disallowing the donations made by the assessee. We do not find merit in the grounds of Revenue raised in the Asst Year 2012-13. The ld. CIT (A) has rightly deleted the 9 Parag Dave, A.Y. 2016-17 disallowance of Rs.55.00 lakhs. This ground of appeal

is rejected. On the same analogy, the grounds appeal raised by the assessee in the Asstt. Year 2014-15 for disallowance of Rs.5,86,32,892/- is allowed. (iii) Hon'ble Gujarat High Court in case of THE PRINCIPAL COMMISSIONER OF INCOME TAX-3 Versus M/S THAKKAR GOVINDBHAI GANPATLAL HUF R/TAX APPEAL NO 881 of 2019 "6. We have duly considered rival The AO is harping upon an information supplied by the survey tern of Calcutta. He has not specifically recorded statement of representative of the donee. He has not brought on record a specific evidence where donee has deposed that donations received from the assessee was paid back in cash after deducting commission. On the basis of general information collected from the donee, the donation made by the assessee cannot be doubted Neither representatives of the donee have been put to cross-examination, nor any specific reply deposing that such donation was not received, or if received C/ТАХАР/881/2019 ORDER the same was repaid in cash, has been brought on record. In the absence of such circumstances, donation given by the assessee to the donee, on which the assessee no mechanism to check the veraci, can be doubted, more particularly, when certificate to obtain donation has been cancelled after two years of the payment of donation. It is fact which has been unearthed subsequent to the donations. Therefore there cannot be any disallowance on this issue. We allow this ground 8. In the facts of the present case, the CIT(Appeals) has given the finding of the fact that the amount of donation was transferred to the Herbicure through Bank channel and there is no evidence that the same is returned back in cash.” The appellant is herewith also enclosing the donation receipt copy, registration certificate of scientific research organisation. Thus, in view of above submission, appellant request you to drop the proceedings by dispose-off the objections raised in pursuance to above referred notice. 1.6 The appellant wants to further state that kindly provide me specific evidence showing appellant's involvement and proving donation made by me as bogus, may be in any form such as statement recorded or any other material or documentary evidences on which you are relied upon and from which you have formed an opinion that the donation made by appellant to scientific research organission is bogus and accordingly, there is an escapement of income. Until, the ITO is not providing such concrete basis or evidences, there is no question of treating the donation mate by appellant as bogus and there is no question of escapment of income merely on basis of general information received by you. Therefore, the addition made by the ITO is bad in law. 10 In fact, the ITO has even not provided the appellant a single piece of paper or any specific documentary evidence till the date showing that- i) How scientific research organisation was involved in taking bogus donation, ii) How appellant was involved in making the bogus donation, How the donation made by appellant to scientific research organisation during the year is bogus and on what grounds, iv) bow and on what basis, you are alleging that the donation made by appellant during the year is returned back to appellant. All these questions are still remains unanswered at your end. GROUND OF APPEAL

NO. 2: Regarding the cross-examination of the statements: The appellant wants to submit that the ITO has not provided us any such document information, material or statement recorded on which you have relied upon and proposed to make addition of donation made by us to the said scientific research organisation. The appellant has to further state that kindly provide me specific evidence showing my involvement and proving donation made by appellant as bogus, may be in any form such as statement recorded or any other material or documentary evidences on which you are relied upon and from which you have formed an opinion that the donation made by me to Party is bogus and accordingly, there is an escapement of income. Until, the ITO is not providing such concrete basis of evidences, there is no question of treating the donation made by us as bogus and there is no question of escapment of income merely on basis of general information received by you. In fact, the ITO has even not provided me a single piece of paper or any specific documentary evidence till the date showing that i) How scientific research organisation was involved in taking bogus donation, ii) How appellant was involved in making the bogus donation, iii) How the donation made by appellant to scientific research organisation during the year is bogus and on what grounds. iv) how and on what basis, you are alleging that the donation made by appellant during the year is returned back to appellant. All these questions are still remains unanswered at your end. It is neither submitted nor any corroborative evidence has been produced which evident that how our contribution made to "Shree Arvindo Institute of Applied Scientific Research Trust has been considered bogus. In the captioned notice, it's a generalized statement that during the course of pre as well as post search it has been established that these RUPPs were involved in the 11. Parag Dave, A.Y. 2016-17 activity of providing accommodation entry by way of bogus donation. Further, the appellant also requests you to give the RUD statements and other information wherein appellant's name has been mentioned for doing bogus transaction. The appellant has not been given any cross examination opportunity and any documentary evidences on which the ITO has relied upon for treating our transaction as bogus transaction. When nowhere our name has been mentioned, there would be no question of such allegation.”