2018 (11) TMI 628 - AT - Income Tax

Deduction u/s. 80G - donation has been made otherwise by way of money which is not allowable as per provisions of Section 80G(5D) - determination of the finer distinction between the cash donation and donation in kind - Held that - As submitted that all works including placing of order of medical equipments required by hospital authorities, taking of delivery of goods, checking of quality and quantity of the medical equipments and getting installed these medical equipments in the hospitals are under direct supervision of the medical superintendent and at no stage assessee comes into picture nor it has any say in the supply of the equipments and installation thereof. As submitted that so far as assessee is concerned, it has paid the donation in money i.e. by way of issuing cheque from his bank account in favour of suppliers of medical equipments and in such a situation by no canon of law, can it be said that donation is in kind or nor in cash. The above contentions of the AR need to be tested in terms of actual verifiable documentation right from placing the order by the Hospital authorities, raising of invoices by the supplier on the hospital authorities, delivery/supply/installation at the hospital premises and payment by cheque by the assessee equivalent to the invoice value directly to the suppliers. However, we find that there is nothing on record in terms of verifiable evidence/documentation in support of aforesaid contentions so raised by the AR. Further, we find that there is no finding recorded by the AO or the CIT(A) examining the aforesaid contentions so raised by the AR. In absence of the same, we are unable to take a view in the matter and the matter deserves to be set-aside. Addition u/s.40(a)(ia) - certificate of accountants furnished by the assessee have not been furnished in accordance with rule 31ACB as amended w.e.f. 19.02.2013 in relation to interest payment made by it to a Non-Banking Finance Company namely S.E. Investment Ltd without deduction of tax at source - Held that - As we have already set-aside the matter relation to deduction u/s 80G, in the interest of justice, this matter is also set-aside to the file of the AO to examine the same afresh after providing reasonable opportunity to the assessee. In the result, the ground is allowed for statistical purposes.

Summary

Issues Involved:
1. Disallowance of deduction claimed by the assessee under Section 80G of the Income Tax Act.
2. Sustenance of disallowance of deduction under Section 40(a)(ia) of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Disallowance of Deduction Claimed by the Assessee under Section 80G of the Income Tax Act:

The primary contention revolves around whether the donation made by the assessee qualifies for deduction under Section 80G, which permits deductions for donations made in cash. The Assessing Officer (AO) disallowed the deduction of ?1,27,67,676/- claimed by the assessee, arguing that the donation was made in kind, not in cash, as per Explanation 5 to Section 80G. The AO referenced the Supreme Court's pending decision, suggesting the matter wasn't resolved definitively.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the donation was not in cash but in kind, referring to the Supreme Court's judgment in H.H. Sri Rama Verma vs. CIT, which clarified that only cash donations qualify for deductions under Section 80G. The CIT(A) also cited other High Court decisions supporting this view.

The assessee argued that the donation was effectively in cash, as payments were made via cheques directly to suppliers of medical equipment on behalf of the hospitals. The assessee provided certificates from the hospitals confirming the receipt of equipment. The assessee cited previous ITAT and High Court rulings in its favor, arguing that the substance of the transaction should be considered, which indicated a cash donation.

The Tribunal noted the necessity to distinguish between donations in cash and kind. It highlighted scenarios where the donor directly funds the acquisition of assets for the donee, which could still be considered a cash donation. However, the Tribunal found insufficient documentation to verify the assessee's claims and set aside the matter to the AO for a fresh examination, emphasizing the need for verifiable evidence.

2. Sustenance of Disallowance of Deduction under Section 40(a)(ia) of the Income Tax Act:

The issue here concerns the disallowance of ?36,00,008/- under Section 40(a)(ia) due to non-deduction of tax at source on interest payments made to a Non-Banking Finance Company (NBFC), S.E. Investment Ltd. The AO disallowed the deduction as the assessee failed to furnish the required certificate from an accountant as per Rule 31ACB.

The assessee argued that the AO did not provide adequate opportunity to present its case and that the NBFC had likely included the interest in its income and paid the due taxes. The assessee requested an opportunity to submit the necessary certificate from the NBFC.

The Tribunal agreed with the assessee's contention that the AO should have provided a reasonable opportunity to furnish the required certificate. It set aside the matter to the AO for a fresh examination, allowing the assessee to produce the necessary documentation.

Conclusion:

The Tribunal directed the AO to re-examine both issues, providing the assessee an opportunity to submit the required evidence. The appeal was allowed for statistical purposes, emphasizing the need for a thorough review based on verifiable documentation.