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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN, VICE- & SHRI ARUN KUMAR GARODIA
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee and the same is directed against the order of ld. CIT(A)-6, Bangalore dated 31.07.2019 for Assessment Year 2014-15.
The grounds raised
by the assessee are as under. “1. The order of the learned Commissioner of Income Tax (Appeal) confirming the order of Assessing officer is opposed to law and facts of the case.
2. The appellant company has given donation of Rs.15,00,000/- and claimed weighted deduction of Rs. 26,25,000/- U/s 35(1)(ii) on 20.01.2014 to approved Herbicure Society by CBDT vide notification dated 14.03.2008. The learned Assessing Officer has disallowed Rs 26,25,000/- .
3. The Learned Commissioner of Income Tax (Appeal) has erred in upholding the reopening of assessment 2014-15 by the assessing officer on the basis of report from investigation department of Kolkata and no enquiry was made by him about the escapement of income.
4. The deduction was allowed by the assessing officer in original assessment and subsequently re opened the assessment on the basis of survey report received from Kolkata investigation department. The assessing officer has not made any independent enquiry about the escape income. The learned commissioner of income tax (Appeals) has erred in confirming the action of assessing officer.
5. The Commissioner of Income tax (Appeals) has confirmed the Page 2 of 7 disallowance of donations given by the appellant company to a society which was approved and notified by the CBDT on 14.03.2008, the appellant company had given donation to the society on 20.01.2014 and the CBDT has cancelled the approval vide notification dated 06.09.2016. The donation given by appellant company was much before the withdrawal notification by the government.
6. The assessing officer has disallowed the claim on the ground that the approval granted to the society was cancelled by the CBDT with retrospective effect and hence any donation given to such society cannot be considered has donation given U/s 35(1)(ii). The commissioner of income tax (Appeals) has affirmed the disallowance that the action of the assessing officer to disallow the deduction on the ground that the approval granted was retrospectively withdrawn. The learned Commissioner of Income tax (Appeals) has affirmed the action of the assessing officer without looking into the specific provisions contained in explanation to proviso U/s35(1)( ii) providing that the deduction to which assessee is entitled in respect of any sum paid to research association to which clause 2 and 3 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 referred has been withdrawn by the Government.
With these and such other grounds that may be urged at the time of hearing the appellant prays for the relief sought for.”
Both sides were heard on merit as well as regarding the validity of reopening of the assessment. But first we decide the issue on merit. On merit, the ld. AR of assessee placed reliance on the Tribunal order rendered in the case of DCIT Vs. Maco Corporation (India) Pvt. Ltd. in dated 14.03.2018, copy available on pages 8 to 24 of the paper book. It was also submitted that the issue in dispute is regarding the assessee’s claim u/s. 35(1)(ii) of the IT Act. He submitted that an explanation was inserted below section 35(1)(iii) of the IT Act by the Taxation Laws (Amendment) Act, 2006 with retrospective effect from 01.04.2006 and as per this explanation, the assessee’s claim for deduction under clause (ii) or clause (iii) to section 35(1) 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. He pointed out that in the present case, amount was given by the assessee to M/s. Herbicure Healthcare Bio-Herbal Research Foundation (HHBRF) on 28.10.2014 as per the voucher available on page no. 2 of the paper book by way of cheque no. 267349 dated 28.10.2014. He also submitted Page 3 of 7 that approval was granted by CBDT to this institution on 14.03.2008 as per copy of notification available on page no. 5 of the paper book. Thereafter he pointed out that this notification was withdrawn by CBDT as per another notification dated 06.09.2016 of which copy is available on page nos. 6 and 7 of the paper book. He submitted that hence, approval was very much there on 28.10.2014 when the amount was given by the assessee as donation and hence, merely on this basis that subsequently the approval was withdrawn, deduction cannot be denied to the assessee as per this explanation below section 35(1)(iii) of the IT Act.
As against this, it was submitted by ld. DR of revenue that although the approval was there on the date of donation by the assessee but in view of this finding of the department that M/s. Herbicure Healthcare Bio-Herbal Research Foundation (HHBRF) was engaged in a racket of obtaining bogus donation through various brokers on commission, deduction should not be allowed. In the rejoinder, it was submitted by ld. AR of assessee that the assessee has taken proper care and given donation to such an institution which was approved by CBDT and hence, it cannot be said that the assessee was at fault and therefore, deduction should not be denied.
We have considered the rival submissions. First of all, we reproduce the provisions of section 35(1) of the IT Act. The same is as under. “Expenditure on scientific research. 35. (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 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 half times of any sum paid to a 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 :
Page 4 of 7 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 clause shall be equal to the sum so paid; (iia) any sum paid to a company to be used by it for scientific research: Provided that such company— (A) is registered in India, (B) has as its main object the scientific research and development, (C) is, for the purposes of this clause, for the time being approved by the prescribed authority in the prescribed manner, and (D) fulfils such other conditions as may be prescribed; (iii) any sum paid to a research association which has as its object the undertaking of research in social science or statistical research or to a university, college or other institution to be used for research in social science or statistical research : 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. 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; (iv) in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2): Provided that the research association, university, college or other institution referred to in clause (ii) or clause (iii) shall make an application in the prescribed form and manner to the Central Government for the purpose of grant of approval, or continuance thereof, under clause (ii) or, as the case may be, clause (iii) : Provided further that the Central Government may, before granting approval under clause (ii) or clause (iii), call for such documents (including audited annual accounts) or information from the research Page 5 of 7 association, university, college or other institution as it thinks necessary in order to satisfy itself about the genuineness of the activities of the research association, university, college or other institution and that Government may also make such inquiries as it may deem necessary in this behalf : Provided also that any notification issued, by the Central Government under clause (ii) or clause (iii), before the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, shall, at any one time, have effect for such assessment year or years, not exceeding three assessment years (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification: Provided also that where an application under the first proviso is made on or after the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, every notification under clause (ii) or clause (iii) shall be issued or an order rejecting the application shall be passed within the period of twelve months from the end of the month in which such application was received by the Central Government.”
As per explanation below section 35(1)(iii), it is specified that deduction should not be denied to the donor 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. At this juncture, we feel it proper to reproduce para no. 2.1 of the assessment order as per which this disallowance was made by the AO. This para reads as under. “2.1 Disallowance The assessee has paid Rs. 15,00,000/- vide Donation Cheque No. 122172 dated: 18.01.2014 of Bank of India same was acknowledge by M/s. Herbicure Healthcare Boi-Herbal Research Foundation vide No: HHBHRF/20-1-2014/001 dated: 20.01.2014. The acknowledgement was signed by one of the Director of M/s. Herbicure Healthcare Boi-Herbal Research Foundation. Donations were recorded in the Books of account and other document of the assessee vide Voucher No: 1569 dt: 20.01.2014. However the assessee has made Donation of Rs. 15,00,000/- and claimed deduction u/s. 35(1)(ii) of the IT Act as Expenses on Scientific research at 175% [150000*175/100=26.25 lakhs]. The CBDT (ITA DIVISION) have withdrawn the benefit from the M/s. Herbicure Healthcare Boi-Herbal Research Foundation at Research No:House Saral Dighi(E) Post. Boral Kolkata-700154 Retrospectively in effect. In the present situation as per No: Diss/Pr.CIT/BLR-6/2016-17 dt: 22.09.2016 from ITO(HQ)Pr.CIT/BLR-6 Doner (M/s. Stone Impex (India) Pvt Ltd. have lost their claim for weighted deductions u/s. 35(1)(ii) for the donations made. In connection with the deduction u/s 35(1)(ii) for the donations, the notification of CBDT dated 06.09.2016 read with notification of Board dated 14.03.2008 in Notification No. 79/2016/F.No. 203/135/2007/ITA.II is reproduced as under for the reference:
Page 6 of 7 S.O.2882(E)-In exercise of the powers conferred under clause (ii) of sub section (1) of section 35 of the Income tax Act, 1961 read with rules 5C and SE of the Income tax Rules, 1962, the Central Government herby rescinds the notification of the Government of India, Ministry of Finance, Department of revenue Number 35/2008 dated 14 March 2008 published in the Gazette of India, Part II, section 3, subsection (ii) vide s.0. 798 dated 14th March 2008 with effect from 1st April, 2007 and shall be deemed that the said notification has not been issued for any tax benefits under the Income tax Act, 1961 or any other law of the time being in force. Hence, Rs. 26,25,000/- being 175% of Rs. 15,00,000/-added back to the income of the assessee and completed the assessment for A.Y. 2014-15 accordingly.”
7. From this para of the assessment order, it comes out that disallowance was made by the AO merely on this basis that CBDT had withdrawn the benefit from M/s. HHBRF and hence, this explanation becomes applicable and as per this explanation, disallowance cannot be made merely on this basis that subsequent to the payment of sum in question by the assessee, the approval granted to the association, university, college or other institution referred to in clause (ii) or clause (iii) of section 35(1) has been withdrawn. There is no other basis given by the AO for making disallowance. The Tribunal order cited by ld. AR of assessee having been rendered in the case of DCIT Vs. Maco Corporation (India) Pvt. Ltd. (supra) is also applicable in the facts of present case and hence, respectfully following this Tribunal order, we delete the disallowance made by the AO u/s. 35(1)(ii) of the IT Act. Since the issue on merit has been decided by us in favour of the assessee, the second issue being validity of reopening has become academic and hence, we do not adjudicate on the same.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on the date mentioned on the caption page.