2024 (6) TMI 1349 - AT - Income Tax

Disallowance of deduction u/s 35(1)(ii) - donations for undertaking scientific research - Trust has raised substantial donations over the last six years on the basis of forged document since obtained wherein the appellant was found to be one of the beneficiaries - assessee as mentioned hereinabove has been denied by the assessee but no documents and/or corroborative evidence in respect of the deduction claimed u/s 35(1)(ii) has been filed before the Ld. AO in the re-assessment proceeding. Thus the expenditure has been disallowed as unexplained expenditure u/s 69C HELD THAT - We have carefully considered the entire aspect of the matter and we find that it appears practically and factually the entity namely M/s. Shri Arvindo Institute of Applied Scientific Research Trust having PAN No. AAFTS7349D with whom the donation to the tune of Rs.20, 00, 000/- was made by the appellant and claimed weighted average deduction u/s 35(1)(ii) of the Act for A.Y. 2016-17 though earlier was approved u/s 35(1)(ii) the same was expired on 31.03.2006. Thus the entity is not recognized for the purpose of Section 35(1)(ii) and neither eligible to raise donations for undertaking scientific research. Expenditure was disallowed as unexplained expenditure u/s 69C - In this regard CIT(A) observed that the same expenditure is unexplained and how the source of the same is unexplained has not been able to be specified by the Ld. AO while invoking Section 69C of the Act while rejecting the claim of the appellant. Keeping in view the entire aspect of the matter the claim made by the appellant on a wrong footing particularly when the donation made to the entity which is not eligible to raise donation u/s 35(1)(ii) CIT(A) upheld the order of disallowance of the claim made by the appellant by the AO which in our considered opinion is just and proper. Appeal preferred by the appellant is dismissed.

Summary

Issues:
- Disallowance of deduction under Section 35(1)(ii) of the Income Tax Act, 1961 for Assessment Year 2016-17 based on false documents.
- Disallowance of expenditure as unexplained under Section 69C of the Act and addition back to total income.
- Reopening of assessment under Section 147 due to income escaping assessment.

Analysis:
1. Disallowed Deduction under Section 35(1)(ii): The appellant's claim for deduction under Section 35(1)(ii) was disallowed as the entity to which the donation was made was not recognized for scientific research purposes. The CBDT circular highlighted a bogus donation racket, leading to the disallowance. The assessing officer disallowed the expenditure of Rs. 20,00,000 as unexplained under Section 69C, with an additional Rs. 15,00,000 for weighted deduction, confirmed by the First Appellate Authority. The Ld. CIT(A) upheld the disallowance, emphasizing the lack of statutory approval for the donation, rendering it non-deductible.

2. Disallowed Expenditure under Section 69C: The assessing officer invoked Section 69C for unexplained expenditure, adding back Rs. 20,00,000 to the total income. However, it was noted that the source of the expenditure being unexplained was not specified. The Ld. CIT(A) acknowledged the incorrect invocation of Section 69C but upheld the disallowance of the deduction due to the donation being made to an ineligible entity under Section 35(1)(ii), leading to the sustained disallowance.

3. Reopening of Assessment under Section 147: The assessing officer reopened the assessment under Section 147 due to income escaping assessment, citing the lack of recognition for the entity receiving the donation. The office was satisfied that income had escaped assessment for the appellant, leading to the initiation of proceedings. The assessing officer's reasons for reopening were deemed valid, as the case was within four years from the end of the assessment year, with the necessary sanction obtained. The grounds against the reopening were rejected, affirming the correctness of the reassessment.

In conclusion, the appeal was dismissed as the disallowance of the deduction and expenditure was upheld due to the donation being made to an entity not eligible for scientific research donations. The Ld. CIT(A)'s decision was found just and proper, leading to the dismissal of the appellant's appeal.