KAPADIA MARKETING INC.,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-5(3)(1), AHMEDABAD

The demand of Rs. 6,09,507 is wrongly charged the under Section 115BBE”

The brief facts of the case are that during the impugned assessment year, the assessee had claimed a sum of Rs. 1,05,00,000/- as deduction under Section 35(1)(ii) of the Act, being 150% of deduction made to specified scientific research institution. On perusal of the records, the Assessing Officer observed that the assessee had claimed to have donated a sum of Rs. 70,00,000/- to Shri Arvindo Institute of Applied Science and Research Institute Trust. The Assessing Officer observed that the said trust was found to have indulged in large scale scam of issuing bogus donation received for the purpose of claiming weighted deduction under Section 35(1)(ii) of the Act and many assessee’s had benefitted by claiming such bogus donation through this scam. The CBDT had issued advisory regarding this scam and directed the concerned officers for making necessary enquiries in such cases. On the basis of these facts, the Assessing Officer denied weighted deduction of Rs. 1,05,00,000/- claimed by the assessee, with the following observations:

3 In response to aforesaid notice, assessee uploaded following documents in support of their contention.

4 Under Secretary ITA.II CBDT vide letter F. No. 225/351/2018-ITA (II) dated 14.12.2018, in para 3 has communicated as under:

5 In view of specific findings of CBDT that M/s Shri Arvindo Institute of Applied Scientific Research Trust don't have recognition from CBDT after 1.4.2006, whereas assessee has paid Rs 70,00,000 to Shri Arvindo Institute of Applied Scientific Research Trust u/s 35(1)(ii) of the IT Act and claimed weighed deduction of Rs 1,75,00,000/- during FY 2017-18 relevant to AY 2018-19 on the basis of wrong facts and documents. In view of Under Secretary ITA.II CBDT vide letter F. No. 225/351/2018-ITA (II) dated 14.12.2018, It is clear that M/s Shri Arvindo Institute of Applied Scientific Research Trust don't have recognition to accept donation u/s 35(1)(ii). Accordingly, I disallow a sum of Rs 1,05,00,000 claimed as weighted deduction and same is added back to the income of the assessee.”

In appeal, the Ld. CIT(A) observed that Shri Arvindo Institute of Applied Science and Research Institute did not have requisite registration under Section 35(1)(ii) of the Act and hence, the claim of weighted deduction under Section 35(1)(ii) was prima facie inadmissible. Ld. Asst.Year –2018-19 - 4–

Shri S. Sridhar, the Ld.counsel for the assessee, submitted that the assessee has filed an application under Rule 27 of Income-Tax (Appellate Tribunal) Rules, 1963. The Ld.counsel submitted that the assessee claimed weighted deduction under Section 35(1)(ii) of the Act before the Assessing Officer in respect of the donation made to Shri Arvindo Institute of Applied Scientific Research Trust. According to the Ld. counsel, the assessee was misrepresented by the Trust saying that the approval granted for deduction under Section 35(1)(ii) of the Act was renewed. A forged gazette notification was also said to be obtained by the Trust. According to the Ld. counsel, the Assessing Officer subsequently found that the Trust was not approved by the Government of India as scientific and industrial organization under Section 35(1)(ii) of the Act. The Assessing Officer has also found that the said Trust was not doing any research activity in the field of medical science. The Ld.counsel further submitted that the Assessing Officer had not controverted that the Trust was not approved under Section 35(1)(ii) of the Act. However, the appellate authority found that genuineness of payment cannot be questioned on the basis of the statement recorded in the absence of any material evidence. Even, in case, the Trust to whom the donation was made was not an approved Trust, still according to the Ld. counsel, it has to be allowed under Section 37(1) of the Act as business loss. According to the Ld. counsel, the assessee is a science graduate and operating in the field of medical sciences / pharmaceuticals for the last 15 years in different capacities including research / consultant, etc. Asst.Year –2018-19 - 6–

On the contrary, Shri Sridhar Dora, the Ld. D.R. submitted that the Assessing Officer disallowed the claim of the assessee on the ground that the recipient Trust is not doing any research activity. According to the Ld. D.R., the Assessing Officer has also found on enquiry that no such Trust was functioning in the address given by the assessee. Referring to the CBDT circular dated 14th December, 2018, the Ld. D.R. found that Shri Arvindo Institute of Applied Scientific Research Trust was approved till 31.03.2006. Thereafter the said Trust was not recognized for the purpose of Section 35(1)(ii) of the Act. According to the Ld. D.R., a forged gazette notification is also available at the paper-book filed by the assessee. This forged gazette notification, according to the Ld. D.R., was produced by the assessee. Whatever it may be, according to the Ld. D.R., for the purpose of deduction under Section 35(1)(ii) of the Act, both the assessee and Trust placed their reliance on the forged document, hence, the CIT(Appeals) ought not to have allowed the claim of the assessee.

We have considered the rival submissions on either side and perused the relevant material available on record. The CIT(Appeals) proceeded on the presumption that the CBDT approval was extended upto 31st March, 2019. In fact, the CBDT clarified by notification dated 14th December, 2018 that the approval was not extended beyond 31.03.2006. It is not known from where the CIT(Appeals) found that the CBDT’s approval was extended upto 31st March, 2019. It is also not the case of the assessee that Shri Arvindo Institute of Applied Scientific Research Trust was recognized beyond 31.03.2006. The assessee claims that on the basis of forged document, the Trust misrepresented, therefore, now making an alternative claim by making application under Rule 27 of Income-Tax (Appellate Tribunal) Rules, 1963. 10. We have carefully gone through the circular of the CBDT dated 14.12.2018. For the purpose of convenience, we are reproducing the same as follows:-

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.

This issues with approval of Member (IT&C), CBDT. Yours faithfully , (Rajarajeswari R.) Under Secretary (ITA.II)

In view of the above, it is obvious that Shri Arvindo Institute of Applied Asst.Year –2018-19 - 8–

The assessee now claims that he is a science graduate connected with pharmaceutical research and consultancy, therefore, it has to be allowed as business loss / expenditure under Section 37(1) of the Act. This Tribunal is of the considered opinion that the claim of the assessee cannot be allowed under Section 37(1) of the Act also. The payment was admittedly said to be made as donation for scientific research and not for any business expenditure. When the approval was not available on the date of payment and admittedly forged document has been produced before the authorities below to claim that Shri Arvindo Institute of Applied Scientific Research Trust was approved under Section 35(1)(ii) of the Act, this Tribunal is of the considered opinion that this kind of claim cannot be appreciated. Once the recognition was not granted and the claim was made on the basis of forged and false document, including one of gazette notification, this Tribunal is of the considered opinion that the CIT(Appeals) ought not to have allowed the claim of the assessee. Since it is not a business expenditure and the claim is one of donation, it cannot be allowed under Section 37(1) of the Act also. Therefore, this Tribunal is unable to uphold the order of the CIT(Appeals). Accordingly, the order of the CIT(Appeals) is set aside and that of the Assessing Officer is restored.

In the result, the appeal filed by the Revenue is allowed.”

In the case of C K Zipper Private Limited vs. ACIT in ITA No. 4/Ahd/2023, the ITAT Ahmedabad also disallowed the claim of weighted donation for A.Y. 2016-17 under Section 35(1)(ii) of the Act to Arvindo Institute of Applied Science and Research Institute on the ground that at the time of grant of registration, it did not have a valid registration. While passing the order the ITAT made the following observations:

2 Accordingly, the claim of the assessee to allow deduction u/s.35(1)(i) of Rs.35,00,000/- was not accepted and disallowed by AO as narrated under.

The expenditure of Rs.20,00,000/- is disallowed as unexplained expenditure u/s.69C of the I.T. Act and added back to the total income of the assessee.

2 Accordingly, the claim of the assessee to allow deduction u/s 35(1)(ii) of Rs 35,00,000/- was not accepted and disallowed by AO as narrated under.

The expenditure of Rs. 20,00,000/- is disallowed as unexplained expenditure us BC of the LT Act and added back to the total income of the assessee.

The weighted deduction of Rs.15,00,000/- claimed on above expenditure is disallowed and added back to the total income of the assessee.

3 Asst.Year –2018-19 - 10–

The assessing officer had reasons to believe that the income had escaped assessment and he had recorded the same as follows-

6 Asst.Year –2018-19 - 11–

8 Thus the section 69C is wrongly invoked, But in any case the deduction claimed on the donation is correctly disallowed and the same is sustained.

In nutshell the appeal of the assessee appellant is partly allowed to the extent that section 69C is wrongly quoted by the AO in the assessment order. But disallowance of the deduction is rightly made.”

The Ld. CIT(A) upheld the order disallowing the claim made by the appellant. However, the expenditure was disallowed as unexplained expenditure under Section 69C of the Act. In this regard, the Ld. CIT(A) observed that the same expenditure is unexplained and how the source of the same is unexplained, has not been able to be specified by the Ld. AO while invoking Section 69C of the Act while rejecting the claim of the appellant. However, keeping in view the entire aspect of the matter, the claim made by the appellant on a wrong footing, particularly, when the donation made to the entity which is not eligible to raise donation under Section 35(1)(ii) of the Act, the Ld. CIT(A) upheld the order of disallowance of the claim made by the appellant by the Ld. AO which, in our considered opinion is just and proper. We, therefore, decline to interfere with the same. With the aforesaid observation, we dismiss the appeal preferred by the appellant as the same is found to be devoid of any merit.

In the result, the appeal preferred by the appellant is dismissed.” Asst.Year –2018-19 - 12–

In view of the above observations, we find no infirmity in the order of Ld. CIT(A), so as to call for any interference.

In the result, the appeal of the assessee is dismissed. This Order is pronounced in the Open Court on 17/01/2025 (DR. BRR KUMAR) JUDICIAL MEMBER Ahmedabad; Dated 17/01/2025