2019 (6) TMI 1684 - AT - Income Tax

Deduction u/s 35(1)(iii) - undisclosed expenditure for acquiring accommodation entry in the name of donation - donation made to M/s School of Human Genetics Population Health, Kolkata when the said donation was bogus and the whole transaction a SHAM transaction - commission paid for obtaining entry of donation - HELD THAT - CIT(A) found that he has considered the facts and circumstances of the instant case, which are pari materia to the decision of the Coordinate Bench in the case of M/s P.R. Rolling Mills P. Ltd. 2018 (7) TMI 737 - ITAT JAIPUR and allowed the assessee s claim of deduction U/s 35(1)(iii) of the Act and also deleted the addition made by the A.O. on account of alleged commission paid for obtaining entry of donation. As the facts and circumstances of the instant case are pari materia to the facts dealt with by the Tribunal in the great deal with respect to the donation given to the very same institution i.e. M/s School of Human Genetics Population Health, Kolkata after considering the CBDT notification No. 4/2010 dated 28/01/2010. We do not find any infirmity in the order of the ld. CIT(A) in deleting the disallowance of donation claimed U/s 35(1)(iii) of the Act in respect of donation to M/s School of Human Genetics Population Health, Kolkata. Appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Justification of deduction under Section 35(1)(iii) of the Income Tax Act for a donation of Rs. 87,50,000/- to M/s School of Human Genetics & Population Health, Kolkata.
2. Deletion of addition of Rs. 7,00,000/- treated as undisclosed expenditure for acquiring accommodation entry in the name of donation.

Detailed Analysis:

Issue 1: Justification of Deduction under Section 35(1)(iii)
The primary issue is whether the deduction under Section 35(1)(iii) of the Income Tax Act for the donation of Rs. 87,50,000/- to M/s School of Human Genetics & Population Health, Kolkata, was justified. The Assessing Officer (A.O.) had disallowed this deduction, deeming the donation bogus and the transaction a sham. However, the Commissioner of Income Tax (Appeals) [CIT(A)] allowed the deduction, following the precedent set by a Coordinate Bench dated 05/07/2018, which had allowed similar deductions under analogous circumstances.

The Tribunal analyzed the case, considering the institution's status as a scientific research entity notified by the Central Board of Direct Taxes (CBDT) via notification No. 4/2010 dated 28/01/2010. The Tribunal noted that the institution was validly recognized at the time of the donation in the Financial Year 2013-14, and the subsequent rescinding of the notification by the CBDT on 15/09/2016 with retrospective effect from 01/04/2007 should not affect the assessee’s claim. The Tribunal referenced the explanation to Section 35(1) of the Act, which states that deduction should not be denied merely because the approval was withdrawn after the donation.

The Tribunal cited several judicial precedents, including decisions from the Hon'ble Supreme Court and other High Courts, which supported the view that retrospective withdrawal of approval should not impose additional tax burdens on the assessee. The Tribunal concluded that the assessee's claim for deduction was justified as the donation was made in good faith to a validly recognized institution at the time.

Issue 2: Deletion of Addition of Rs. 7,00,000/- as Undisclosed Expenditure
The second issue concerned the addition of Rs. 7,00,000/- treated as undisclosed expenditure for acquiring accommodation entry in the name of donation. The A.O. had made this addition, suspecting that the donation was a means to obtain an accommodation entry. The CIT(A) deleted this addition, again following the precedent set by the Coordinate Bench.

The Tribunal upheld the CIT(A)'s decision, referencing the Coordinate Bench's findings that under similar facts and circumstances, the authorities were not justified in denying the claim of deduction under Section 35(1)(ii) of the Act. The Tribunal emphasized that the assessee had no reason to doubt the legitimacy of the institution's approval at the time of the donation and that the subsequent withdrawal of approval should not affect the assessee's claim.

The Tribunal also referenced the explanation to Section 35(1) and various judicial precedents, including the Hon'ble Supreme Court's decision in Industrial Infrastructure Development Corporation (Gwalior) M.P. Ltd vs. CIT Gwalior, which underscored that no additional tax burden should be imposed retrospectively.

Conclusion:
In conclusion, the Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s order to allow the deduction under Section 35(1)(iii) and delete the addition of Rs. 7,00,000/-. The Tribunal found no infirmity in the CIT(A)'s decisions, which were consistent with the established judicial precedents and statutory provisions. The order was pronounced in the open court on 06th June 2019.