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2022 (11) TMI 357 - AT - Income TaxReopening of assessment u/s 147 - weighted deduction u/s 35(1)(ii) - HELD THAT - In order to be eligible for such weighted deduction u/s 35(1)(ii) assessee had given donation of Rs.1.00 Crore to School of Human Genetics and Population Health concern which is registered u/s 35 - As regards School of Human Genetics and Population Health (Research Organisation), a report was received by the investigation Wing, Kolkata to the AO that a survey action u/s 133A of the Act was conducted which had approval u/s 35(1)(ii). As further observed that during the course of survey proceedings conducted on 27-01-2015 in the case of School of Human Genetics and Population Health (Research Organisation), it came to the light that the donors in connivance with various brokers, entry operators, donees etc. misued the benefit conferred u/s 35(1)(ii) of the Act by undertaking bogus donations. The AO elaborately discussed the modus operandi of misusing the amount in the garb of donations to the School of Human Genetics and Population Health (Research Organisation) who subsequently disallowed the deduction and Rs.1.75 crore was added back to the income of the assessee. In first appeal, the assessee took the resort of ITAT, Jaipur Bench, Jaipur order dated 05-07-2018 whereby the appeal of the assessee for the assessment year 2012-13 was allowed by ld. CIT(A). It is noteworthy to mention when School of Human Genetics and Population Health (Research Organisation) before the Settlement Commission for the assessment year 2012-13, 2013-14 and 2014-15 had accepted that it did not carry out significant research work in the fields for which it was granted exemption/ approvals and the alleged donations received from the donors were refunded. All the judicial precedents available were even in the case of the assessee s own case and other relied upon judgments are prior to the decision of the settlement commission in the case of the party to whom the donation were given and also prior to the judgement of Honourable supreme court in case of CIT V Batanagar Education trust 2021 (8) TMI 139 - SUPREME COURT where cancellation of registration of The Trust u/s 12 A as well as 80 G were upheld and this trust has also connection to the same society where the assessee has. Thus, when the recipient of donation has confirmed that donation were taken in lieu of cash and no activity is done, it would be too na ve to believe that assessee has donated sum in good faith. The Bench feels that the assessee has adopted the unfair means to take the benefit under the garb of Section 35(1)(ii) amounting to Rs.1.75 Crore. Hence, taking into consideration the above facts, circumstances of the case as well as the order of the Hon ble Settlement Commission, we do not concur with decisions of the ld. CIT(A). Thus, the appeal of the Department for the assessment 2012-13 is allowed. It is not imperative to repeat the facts of the Departmental appeal for the assessment year 2013-14 being similar issue, therefore, the decision taken by us in the appeal of the Department for the 2012-13 shall apply mutatis mutandis. Thus, both the appeals of the Department are allowed.
Issues Involved:
1. Justification for allowing the assessee's claim of deduction under Section 35(1)(ii) of the Income Tax Act. 2. Validity of the deduction claimed under Section 35(1)(ii) despite the alleged misuse of donations by the recipient institution. Issue-Wise Detailed Analysis: 1. Justification for Allowing the Assessee's Claim of Deduction under Section 35(1)(ii): The Revenue challenged the decision of the CIT(A) allowing the assessee's claim of deduction of Rs. 1,75,00,000/- under Section 35(1)(ii) of the Income Tax Act. The Revenue contended that the deduction was based on an accommodation entry from M/s School of Human Genetics and Population Health (SHGPH), which was confirmed during a survey action under Section 133A by the Investigation Wing of Kolkata. The assessee had donated Rs. 1,00,00,000/- to SHGPH and claimed a weighted deduction of Rs. 1,75,00,000/-. The AO disallowed this deduction, stating that the approval granted to SHGPH under Section 35(1)(ii) was misused, and the assessee was part of this scheme. The AO concluded that the assessee took benefit of the racket by claiming a 175% deduction on a mere 3% commission of the donation amount, thereby reducing its taxable income and tax liability. The CIT(A), however, allowed the deduction, relying on the ITAT's decision in the assessee's own case for the assessment year 2014-15, where it was held that the deduction claimed under Section 35(1)(ii) was justified as the approval granted to the institute was in force at the time of donation. The CIT(A) also referenced the explanation to Section 35(1), stating that the deduction should not be denied merely because the approval was withdrawn subsequently. 2. Validity of the Deduction Claimed under Section 35(1)(ii) Despite the Alleged Misuse of Donations: The Revenue argued that the CIT(A) ignored the fact that SHGPH admitted to providing accommodation entries on a commission basis and that the donations were not used for scientific research. The Settlement Commission had also observed that SHGPH did not carry out significant research and refunded donations through middlemen/brokers. The ITAT noted that the assessee made the donation when SHGPH had a valid approval from the CBDT. However, the Settlement Commission's findings and the Supreme Court's decision in CIT v. Batanagar Education Trust, which upheld the cancellation of the trust's registration, indicated that SHGPH was involved in providing bogus donations. The ITAT concluded that the assessee adopted unfair means to claim the deduction, and the donation was not genuine. Conclusion: The ITAT allowed the Revenue's appeal, disallowing the deduction claimed by the assessee under Section 35(1)(ii) for both assessment years 2012-13 and 2013-14. The ITAT held that the assessee was part of a scheme to misuse the benefit conferred under Section 35(1)(ii) and that the donation was not genuine. The appeal of the Department was allowed, and the deduction of Rs. 1,75,00,000/- was added back to the total income of the assessee. Order Pronounced: The appeals of the Department were allowed, and the order was pronounced in the open court on 04/10/2022.
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