2023 (8) TMI 1576 - HC - Income Tax

Deductions claimed u/s 35(1)(ii) for bogus donations - donation to a organization who initially enjoyed a registration u/s 35(1) which was subsequently withdrawn with retrospective effect - Whether the Tribunal was right in allowing the deductions claimed by the assessee under Section 35(1)(ii) for the donation to a organization who initially enjoyed a registration u/s 35(1) which was subsequently withdrawn with retrospective effect? - HELD THAT - Tribunal followed the decision in case of Narbheram Vishram 2018 (11) TMI 1314 - ITAT KOLKATA Apart from certain factual similarities the Tribunal in the said decision has also taken note of the decisions of the Hon ble Supreme Court holding that there is no provision for withdrawal of recognition under Section 35(1)(ii) of the Act. The view taken by the learned Tribunal in the impugned order is supported by the decision of General Magnets Ltd. 2001 (7) TMI 23 - CALCUTTA HIGH COURT wherein the Court after taking note of various decisions namely CIT v. Ethelbari Tea Co. 2000 (6) TMI 3 - CALCUTTA HIGH COURT B.P. Agarwalla and Sons Ltd. 1993 (7) TMI 36 - CALCUTTA HIGH COURT K.M. Scientific Research Centre v. Lakshman Prasad 1996 (9) TMI 34 - ALLAHABAD HIGH COURT Seksaria Biswan Sugar Factory Ltd. v. IAC 1990 (3) TMI 47 - BOMBAY HIGH COURT CIT v. Bhartia Cutler Hammer Co. 1997 (12) TMI 91 - CALCUTTA HIGH COURT Chotatingrai Tea Estate Pvt. Ltd. v. CIT 1998 (12) TMI 81 - GAUHATI HIGH COURT held that for the mistake committed by the department the assessee should not suffer. The withdrawal of approval to the society for retrospective effect is itself bad and no assessee should suffer for the mistake of the department. The department has power of withdrawal but in such cases withdrawal can be only with prospective effect. Further it was held that if the donation to the approved society is genuine in that case withdrawal with retrospective effect does not affect the right of the assessee for deduction of the amount which has accrued to the assessee on the basis of the payment to an approved society u/s 35CCA of the Act. Decided against revenue.

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal erred in allowing deductions claimed under Section 35(1)(ii) for alleged bogus donations.
2. Whether the Tribunal erred in granting relief to the assessee for the claimed deductions despite withdrawal of recognition of the donee organization.
3. Whether the Tribunal's decision aligns with legal precedents regarding withdrawal of recognition under Section 35(1)(ii) of the Income Tax Act.

Analysis:
The High Court of Calcutta heard an appeal by the revenue challenging the Tribunal's decision on deductions claimed under Section 35(1)(ii) of the Income Tax Act for donations made to a specific organization. The revenue contended that the donations were bogus and made to evade taxes. The Court noted that the Tribunal had allowed the deductions based on the organization's initial registration under Section 35(1), which was later withdrawn retrospectively. The Court referenced a previous Tribunal decision and Supreme Court rulings, emphasizing that there is no provision for withdrawal of recognition under Section 35(1)(ii). The Court also cited a Division Bench decision that highlighted the principle that an assessee should not suffer due to the department's mistakes. It was held that withdrawal of approval with retrospective effect is unjust, and genuine donations should not lose their deduction eligibility due to retrospective withdrawal of recognition.

The Court found that the Tribunal's decision was in line with legal principles and precedents, thus dismissing the revenue's appeal. The Court emphasized that if donations to an approved society are genuine, withdrawal of recognition with retrospective effect should not impact the assessee's right to claim deductions under Section 35(1)(ii) of the Act. Consequently, the appeal was dismissed, and the substantial questions of law were answered against the revenue. Additionally, the stay application related to the case was also dismissed by the Court.