DISHA RESOURCES LTD. (FORMERLY KNOWN AS ARIHANT AVENUES AND CREDIT LIMITED.),AHMEDABAD vs. THE ACIT, CENTRAL CIRCLE-2(1), AHMEDABAD

We have heard the rival contentions. We have perused all the documents placed before us and also carefully gone through the orders as well as the decisions referred to before us and also the relevant provision of law on the issue raised before us. As noted above, the Ld.CIT’s finding of error in the assessment order, for exercising revisionary jurisdiction, is with respect to wrong allowance by AO of assesses claim to weighted deduction u/s 35(1)(ii) of the Act on donation made to an Institute, i.e. M/s. Shri Arvindo Institute of Applied Scientific Research Trust ,in the absence of approval to the said institute for receiving donations under the said section in the impugned year. The quantum of donation made is of Rs.70 Lakhs and the deduction claimed by the assessee and allowed by the Assessing Officer is of Rs.1,22,50,000/- i.e. @ 175% of the donation as allowed by section 35(1)(ii) of the Act.

During the course of hearing before us, the Ld.counsel for the assessee had pointed out that this claim was duly examined during assessment proceedings when the assessee had placed relevant documents proving its eligibility to the claim of and even the genuineness of the claim by furnishing documents pointing out that the donation had been made through banking channels and the donee Institute had furnished receipts and certificates issued by CBDT showing that it was approved for receiving donations u/s.35(1)(ii) of the Act. Our attention was drawn to the documents so produced to the Assessing Officer which are reproduced in the Ld.CIT’s order also at paragraph Nos.2.1 & 2.2 read as under: “2.1 During the course of assessment proceedings, the Assessing Officer had asked for the details for the deduction u/s 35(1)(ii) of the Act at 175% claimed by the assessee. The assessee had duly submitted the copy of the receipt for payment made to the said institution. Therefore, the AO made an inquiry with the assessee in response to which the assessee has submitted the details to the AO as mentioned below: i. Assessee made payment of Rs. 70,00,000 to donee trust on 09.10.2014 ii. Payment was made by way of account payee cheque iii. Payment made was for donation towards Thalassemia Project iv. PAN of done trust was AAFTS7349D -535/Ahd/2025 Disha Resources Ltd. Vs. ACIT Asst. Years : 2013-14 & 2014-15 - 6– v. Trust Registration number vi. Main office vii. Registered office viii. Project for which donation is to be applied ix. Eligibility under section 35(1)(ii) of the Income Tax Act. 2.2 After necessary review of the details called for, the AO was satisfied and accordingly allowed the claim of the assessee. The donation was made in the year 2014 and the assessment was completed in the year 2018. As per the notice issued u/s 263 of the Act, the approval of the trust has already expired on 31.03.2006. Accordingly, it is possible that the fact of approval having expired was not available when the donation was made and the assessment order was passed by the AO. Just because there is no mention in the assessment order regarding the reasons for allowing the deduction, it cannot be concluded that the AO has not made necessary enquiry regarding the applicability of section 35 of the Act. While making the payment to the trust, it has issued a receipt which clearly demonstrated that the said trust is eligible for donation u/s 35(1)(ii) of the Act. The trust has also provided the following documents to the assessee regarding approval u/s 35(1)(ii) of the Act: *Notarized copy of CBDT notification SO No. 1856(E) dated 30th October 2006 stating that Shri Arvindo Institute of Applied Scientific Research Puduchery (registration granted earlier under F. N. 0.203/107 / 2000 – ITA II) is one time registration and renewal is necessary *Renewal letter by CBDT dated 14/05/2012 stating that validity period for exemption to trust is forever unless and until it is withdrawn and *Letter of CBDT dated 2/7 / 2012 stating that the validity of project expires on 31/3 / 2015 and is subject to further renewal. Based on the documents submitted by the assessee, the AO was satisfied regarding the claim of the assessee and therefore, the deduction has rightly been allowed. Therefore, it was requested by the assessee to withdraw the notice issued u / s 263 of the I.T. Act, 1961.”

Based on the above facts, the arguments of the Ld. counsel for the assessee are that since the documents fairly exhibited the genuineness and the eligibility of the claim of the assessee to weighted deduction u/s.35(1)(ii) of the Act, the Assessing Officer had committed no error allowing the said claim to the assessee. The case of the assessee is that the CBDT Notification dated 30/10/2006 ,stating that the registration granted to the impugned Trust was one-time registration and the -535/Ahd/2025 Disha Resources Ltd. Vs. ACIT Asst. Years : 2013-14 & 2014-15 - 7– subsequent renewal letter by the CBDT Notification dated 14/05/2012 stating that the validity period for exemption to the Trust forever along with the letter of the CBDT dated 02/07/20212 stating that the validity expired on 31/03/2015 ,sufficiently exhibited the fact that the assessee was eligible to claim weighted deduction on the donation made to the Trust during the impugned year, i.e. Financial Year 2014-15 relevant to Assessment Year 2015-16. It was pointed out that the letter of the CBDT dated 02/07/2012 categorically stated that the validity of the project expired on 31/03/2015 and was subject to further renewal and, therefore, it was contended that upto 31/03/2015 all donations made to the said Institute, as per the CBDT notifications filed by the assessee to the Assessing Officer, were eligible for weighted deduction u/s.35(1)(ii) of the Act. The contention of the Ld. Counsel for the assessee is that all these notifications/ documents were given to it by the said Institute, therefore the assessee harboured a bonafide belief based on them that it was eligible to claim weighted deduction and so also the Assessing Officer believed these documents and allowed the assessee’s claim to weighted deduction u/s.35(1)(ii) of the Act. Based on these documents, the contention of the Ld.counsel for the assessee is that, there was no occasion at all to doubt these documents either by the assessee or by the Assessing Officer and, therefore, there was no occasion for making any further enquiry also. That, accordingly, the allowance of claim of weighted deduction by the Assessing Officer based on the above documents was a probable and bonafide view taken by him which could not be termed as erroneous for the purposes of exercising revisionary jurisdiction u/s.263 of the Act.

The Ld.DR, on the other hand, has pointed out that in the year 2018, the CBDT issued an Advisory to its Field Officers pointing out that the said Trust, M/s.Shri Arvindo Institute of Applied Scientific Research Trust had been granted approval u/s.35(1)(ii) of the Act only upto 31/03/2006 and that subsequently it was fraudulently receiving donations from various donors by issuing forged certificates. The relevant Instruction is reproduced hereunder:- “F.No. 225/351/2018-ITA (II) Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes Room N0. 245A, North Block New Delhi, the 14th December, 2018 To All Principal Chief Commissioners of Income Tax All Director Generals of Income Tax (Investigation) Sir/Madam Subject: Information regarding bogus donation racket under section 35(1)(ii) of Income-tax Act, 1961-reg.- -535/Ahd/2025 Disha Resources Ltd. Vs. ACIT Asst. Years : 2013-14 & 2014-15 - 8– Kindly refer to the subject mentioned above.

In this connection, I am directed to state that Section 35(1)(ii) of the Income-tax Act,1961 (‘Act’) prescribes a weighted deduction @ 150% (175% before 01.04.2018) to a donor for any sum paid to an approved ‘research association having as its sole object the undertaking of scientific research or to a ‘university, college or other institution’ for carrying out scientific research. Very recently, Board has received several references from the field authorities for clarifying whether a Trust namely M/s Shri Arvindo Institute of Applied Scientific Research Trust (PAN:AAFTS7349D) (Hereinafter ‘the Trust’) having offices at Mumbai & Puducherry is an entity specified by the Central Government through a Notification for purposes of section 35(l)(ii} of the Act or not. Presently, the trust is assessed with CIT(Exemption), Mumbai.

In this regard, upon perusal of records,it emerges that the above Trust was earlier approved under section 35(1}(ii} of the Act which expired on 31.03.2006. Thereafter ,this entity, being not recognized for purpose of section 35(1)(ii) of the Act, is not eligible to raise donations for undertaking scientific research however, the Trust has raised substantial donations over the last six years on the basis of a forged certificate while the donors have irregularly claimed weighted deduction u/s. 35(1)(ii) of the Act on donations made to the Trust.

In view of above, I am directed to state that the pending scrutiny assessment cases of donors who have claimed irregular weighted deduction u/s 35(1)(ii) should be handled in light of above facts. In case of donors whose cases are presently not under scrutiny,the Board desires that a list of donors who had provided funds to the Trust u/s 35(1}(ii) of the Act should be drawn by CIT (Exemption}, Mumbai for the period from A.Y 2012-13 to 2018-19 and circulated to the concerned field authorities expeditiously.

I am further directed to state that while handling investigations/ enquiries in these cases, the concerned Assessing Officer should examine the specific transactions related to the sum donated and cash trail should be clearly identified. Also, various provisions pertaining to enquiry and investigation under the Act should be effectively used and assessment orders should be passed under the monitoring of supervisory authorities.

The Ld. counsel for the assessee, in counter, has stated that this Notification was issued by the CBDT on 14/12/2018 subsequent to the allowance of assesses claim by the AO vide assessment vide order dated 20/02/2018. On consideration of the above contentions a very important fact which emerges is that the Institute, to which donation was made by the assessee during the impugned year and weighted deduction claimed thereon u/s.35(1)(ii) of the Act, was not approved for the said purposes for the impugned year. The fact on record available with the Ld. CIT is that the approval granted to the said Institute expired on 31/03/2006. Impugned year before us is A.Y 2015-16. The Advisory issued by the CBDT in December-2018 brought this fact to the notice of all its Field Officers. Therefore, the fact on record was that the said Institute was not approved for receiving donations u/s.35(1)(ii) of the Act during the impugned year. ….. Even if the assessee and the AO had bonafidely claimed and allowed respectively the deduction based on documents furnished by the said Institute, the fact still remains that the claim was not allowable as per law. What is material for claiming deduction is its eligibility as per law and not the intention with which it is claimed, whether bonafidely or malafidely. Even a bonafidely claimed deduction if found ineligible in law, it cannot be allowed to the assessee. ….. The reliance placed by the Ld.counsel for the assessee on the decision of ITAT Mumbai Bench in the case of M/s.Long Life Reators LLP vs. CIT-17 (supra), also does not help the case of the assessee because it held that the assessment order was not in error noting the fact that it was only subsequently that the CBDT had issued the Advisory in 2018.But as noted by us above, the Advisory was only to the effect to point out the fact of approval to the Institute u/s 35(1)(ii) having expired in 2006 and the Institute fraudulently receiving donations thereafter by forging documents showing- subsistence of approval .This Advisory did not have the effect of withdrawing the approval granted to the Institute subsequently, but it only pointed out the fact that the approval was not inexistence after 31/03/2006 and the said Trust was subsequently receiving donations fraudulently. The subsequently issued advisory of the -535/Ahd/2025 Disha Resources Ltd. Vs. ACIT Asst. Years : 2013-14 & 2014-15 - 10– CBDT only reiterates the fact of donations to the said institute being ineligible for deduction to donors u/s.35(1)(ii) of the Act. In view of the above, we have no hesitation in upholding the order of the Ld.CIT holding the assessment order erroneous for having allowed a patently ineligible claim of weighted deduction to the assessee.

In the result, the appeal of the assessee is dismissed.”

Keeping in view the parity of the material facts and the rescindment of the notification by the CBDT, the donation given by the assessee cannot be held to be allowable u/s 35(1)(ii) of the Act.