2016 (8) TMI 818 - AT - Income Tax

Denial of deduction u/s 80G - assessee has claimed deduction on the ground that it had made payment as donation to South Indian Education Society (SIES) - AO has disallowed the claim of the assessee on the basis of report dated 22.12.2010 of the investigation wing of the department which revealed that during the relevant period SIES used to issue bogus certificates u/s 80G - Held that - Since SIES had disclosed the said modus operandi during investigation before the investigation wing the AO during assessment proceeding summoned SIES. In response thereof SIES vide letter dated 23.10.2010 confirmed having received donation from the appellant/assessee. The Ld. Counsel for the assessee has contended that a general statement made by SIES before the investigating officer is not sufficient to hold that the appellant/assessee has received back the amount paid to SIES as donation. In our considered view there is force in the contention of the assessee. Since SIES has not specifically stated that the amount received from the assessee was returned back as per the aforesaid modus operandi it cannot be held conclusively that either no donation was paid by the assessee to SIES or the amount paid by the assessee was returned by SIES. Hence the Ld. CIT(A) has wrongly confirmed the disallowance in question made by the AO based on wrong assumption. We therefore set aside the finding of the Ld. CIT(A) and allow this ground of appeal of the assessee.

Summary

Issues:
1. Disallowance under section 14A read with Rule 8D
2. Denial of deduction under section 80G

Issue 1: Disallowance under section 14A read with Rule 8D

The appellant/assessee challenged the disallowance made by the Assessing Officer (AO) under section 14A read with Rule 8D of the Income Tax Act, 1961. The appellant argued that since they were engaged in share trading and not investments, the disallowance should not apply. The appellant relied on a decision by the Mumbai ITAT in a similar case. The Departmental Representative (DR) supported the AO's decision, emphasizing that each case should be evaluated on its own merits. The ITAT examined the case and referred to the decision by the Karnataka High Court in CCL Ltd. vs. JCIT, where it was held that expenses related to earning dividend income, even incidental to trading shares, should not be disallowed under section 14A. The ITAT upheld the appellant's argument based on the High Court's decision and allowed the appeal.

Issue 2: Denial of deduction under section 80G

The appellant claimed a deduction of &8377; 47,50,000 under section 80G for a donation made to South Indian Education Society (SIES). The AO disallowed the deduction based on an investigation report revealing that SIES issued bogus certificates for donations. The appellant argued that the investigation report was not conclusive evidence. The ITAT agreed with the appellant, noting that the report did not definitively prove that the donation was returned by SIES. Therefore, the ITAT set aside the AO's decision and allowed the deduction under section 80G. The appeal for the assessment year 2008-09 was allowed in favor of the assessee.

In conclusion, the ITAT ruled in favor of the appellant/assessee on both issues, setting aside the disallowance under section 14A read with Rule 8D and allowing the deduction under section 80G. The judgment provided a detailed analysis of the legal principles involved, referencing relevant case law and emphasizing the need for conclusive evidence in tax matters.