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2023 (3) TMI 150 - AT - Income TaxDeduction of weighted deduction u/s 35(1)(iii) and u/s 35AC denied - denial of natural justice - recorded statements of certain persons for denying deduction - not allowing the assessee to cross-examine and providing the material on the basis of which adverse view has been take - allegation of mandatory and statutory procedural requirement before completing the assessment not adhered - HELD THAT - It is noted that evidence filed before the ld. Assessing Officer have not been rebutted by ld. Assessing Officer who had not conducted any examination or enquiry in this regard before arriving at the conclusion. It is noted that ld. Assessing Officer chose to remain silent on these documentary evidence furnished by the assessee and has not found any discrepancy in the details filed by the assessee. It is noted that ld. Assessing Officer is completely guided by the report of the investigation wing and has not made any independent enquiry in this regard by applying his independent mind. AO has relied on the report of investigation wing who had recorded statements of certain persons which have been claimed by the assessee as having no relation with assessee or trust. From the perusal of answers to certain questions noted by the ld. Assessing Officer in the assessment order, we note that the persons mentioned in the answers have no connection with the assessee as claimed by the assessee. Such an aversion in the statements relied upon, leads us to understand that heavy reliance placed by the ld. Assessing Officer on these statements, is misplaced. From the perusal of documentary evidence placed in the paper book, it is evident that the three trusts/societies are eligible entities duly notified by the Central Government/CBDT u/s 35(1)(iii) and u/s 35AC of the Act. It is also noted that approval is granted to an organization u/s 35(1)(iii) and u/s 35AC by the Central Government/CBDT only after strict compliance of law. The approval is granted for after various levels of scrutiny and checks and to the concerns of evident track record and doing research activity. It is also a fact that the three trusts/societies were eligible to receive the contributions from assessee as duly notified by CBDT. Further, assessee had made submission before the Bench which is taken on record as a statement at the Bar that in case of all the three trusts/societies, their registrations have not been cancelled by the Department. We take note of the statement of the ld. Counsel that once assessee has made payments to these trusts/societies, it was neither authorized nor required to check the end use of the funds by these organizations that are independent in their own accord. Thus, if any irregularities have happened, those have happened at the end of the said trusts/societies and the assessee is in no way connected to the scheme of arrangement, if any, alleged to be bogus by the authorities below; more particularly, is absence of any positive material or evidence to prove that cash in lieu of the bank payments made by the assessee was given back either to the assessee or to any of its representatives. As in any assessment, principles of natural justice plays an important role and no addition or disallowance can be made without following such principles. Natural justice is the essence of fair adjudication, deeply rooted in tradition and conscience, to be ranked as fundamental. Further, provisions of Section 142(3) makes it incumbent on AO to give an opportunity of being heard to the assessee in respect of any material gathered on the basis of any enquiry which is proposed to be utilized for the purpose of assessment. This is a mandatory and statutory procedural requirement before completing the assessment in which ld. AO has failed. Thus considering answers to specific questions in the statements recorded referred to in assessment order and the submission made along with corroborative documentary evidence placed on record and the judicial precedence stated above, we find favor with the claim of the assessee to allow the claim of deduction u/s 35(1)(iii) and 35AC of the Act, details of which are already tabulated above. Thus, grounds taken by the assessee in this respect are allowed.
Issues Involved:
1. Disallowance of deduction claimed under Section 35(1)(iii) and Section 35AC of the Income-tax Act, 1961. 2. Credit of Rs.10,00,000/- towards advance tax paid not given in computation of tax as reflected in Form 26AS. Issue-wise Detailed Analysis: 1. Disallowance of Deduction Claimed Under Section 35(1)(iii) and Section 35AC of the Income-tax Act, 1961 The assessee filed its return of income for the Assessment Year 2015-16, reporting a total income of Rs.56,66,010/-. During the scrutiny assessment, the Assessing Officer (AO) noted that the assessee claimed deductions totaling Rs.2,38,25,000/-, which included Rs.1,41,25,000/- under Section 35(1)(iii) and Rs.97,00,000/- under Section 35AC. The AO disallowed these deductions, alleging that the contributions were bogus, based on reports and statements from the Investigation Wing, which indicated that the trusts were engaged in providing bogus donations in exchange for commission income. The assessee appealed to the CIT(A), reiterating that all necessary documents were provided to substantiate the deductions. The CIT(A) upheld the AO's disallowance, leading the assessee to appeal before the Tribunal. Before the Tribunal, the assessee's counsel provided detailed submissions and documentary evidence to demonstrate the genuineness of the transactions with the three trusts/institutions involved: a. Kashba Youth (Section 35(1)(iii)) - Registered under Section 12A and recognized by the Central Government under Section 35(1)(iii). - Donations were made via account payee cheque/RTGS, and necessary documents were provided. - The AO relied on statements from the trust's secretary, alleging involvement of a third party (Shri Raj Kr. Mishra) in providing accommodation entries, without corroborative material or evidence. b. Red Plus Society (Section 35AC) - Registered under the West Bengal Societies Act and approved under Section 35AC. - Donations were made through proper banking channels, and necessary documents were provided. - The AO relied on statements from two individuals (Mr. Praveen Agarwal and Mr. Umesh Singh) alleging bogus transactions, without providing the assessee an opportunity for cross-examination. c. Gohaldiha Jati Upajati Blue Bird Women's Welfare Centre (Section 35AC) - Registered under the West Bengal Societies Act and approved under Section 35AC. - Donations were made through proper banking channels, and necessary documents were provided. - The AO took an adverse view due to the secretary's non-response to summons, without conducting independent enquiries. The Tribunal noted that the AO did not conduct independent enquiries or rebut the documentary evidence provided by the assessee. The reliance on statements and reports from the Investigation Wing without providing the assessee an opportunity for cross-examination was a violation of natural justice. The Tribunal cited the Supreme Court's judgment in CIT vs Andaman Timber Industries Ltd., emphasizing the importance of cross-examination and adherence to principles of natural justice. The Tribunal concluded that the AO's disallowance was based on suspicion and surmise, without independent verification or corroborative evidence. Therefore, the Tribunal allowed the assessee's claim for deductions under Sections 35(1)(iii) and 35AC. 2. Credit of Rs.10,00,000/- Towards Advance Tax Paid The assessee claimed that a credit of Rs.10,00,000/- towards advance tax paid was not given in the computation of tax. The CIT(A) directed the AO to verify the claim from Form 26AS and the bank statement and allow the credit based on verification. The Tribunal upheld this direction, allowing the ground taken by the assessee. Conclusion: The Tribunal allowed the appeal of the assessee, granting the deductions claimed under Sections 35(1)(iii) and 35AC and directing verification and allowance of the advance tax credit. The order was pronounced in the open court on 28.02.2023.
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