2017 (7) TMI 1047 - AT - Income Tax

Disallowance made under section 35(1)(ii) - Held that - When the institution was enjoying the approval within the meaning of section 35(1)(ii) of the Act as on the date of receipt of donation and retrospective cancellation of approval of the concerned institution, the deduction claimed in respect of donation cannot be denied. Under the above facts and circumstances, denial of exemption claimed in respect of donation cannot be sustained. With regard to the donation, M/s. Herbicure confirmed the voluntary donation of ₹.15 lakhs from the assessee. A copy of the trust s Corporation Bank statement in which the donation received was also sent by the trust. Based on the sworn statement of the Founder Director Shri Swapan Ranjan Das Gupta of M/s. Herbicure, wherein, he has admitted that his organization accept the donation and giving back of the same to the donor after deducting a commission @ 5% on the donation amount. However, the Department has not made any effect to get any valid evidence that the organization has given back the donation to the donor after deducting a commission @ 5% on the donation amount. Under the above facts and circumstances, the Assessing Officer is directed to ascertain the means as well as actual amount repaid by the donee to the assessee and decide the issue afresh after giving sufficient opportunities of hearing to the assessee. Thus, the ground raised by the assessee is partly allowed for statistical purposes. Disallowance made under section 14A - Held that - Assessing Officer has observed that the assessee had shown an amount of ₹.20,36,486/- on dividend received from shares and mutual funds and claimed exemption under section 10(38) of the Act. The Assessing Officer disallowed a sum of ₹.58,888/- being the expenses incurred towards earning the exempt income. In the assessment order, the Assessing Officer has not given any basis and details of disallowance made under section 14A of the Act, such as total investment made by the assessee, application of relevant provisions of Income Tax Rules, etc. Under the above facts and circumstances, we direct the Assessing Officer to pass a speaking order with regard to the disallowance under section 14A of the Act. Thus, the ground raised by the assessee is allowed for statistical purposes.

Summary

Issues:
1. Disallowance under section 35(1)(ii) of the Income Tax Act, 1961.
2. Disallowance under section 14A of the Act.

Analysis:

Issue 1: Disallowance under section 35(1)(ii) of the Income Tax Act, 1961:
The appellant contested the disallowance made under section 35(1)(ii) of the Act concerning a donation to M/s. Herbicure Healthcare Bio-Herbal Research Foundation. The appellant claimed exemption for the donation, citing confirmation from the donee and the organization's approval under section 35(1)(ii) at the time of donation. The appellant argued that the withdrawal of approval should not affect the exemption claimed. The Tribunal examined the retrospective withdrawal of approval and cited a Bombay High Court decision to support the appellant's claim. The Tribunal ruled in favor of the appellant, stating that since the institution had approval at the time of donation, the disallowance could not be upheld.

Issue 2: Disallowance under section 14A of the Act:
Regarding the disallowance under section 14A of the Act related to dividend income, the Assessing Officer had disallowed expenses incurred for earning exempt income without providing a detailed basis for the disallowance. The Tribunal directed the Assessing Officer to issue a speaking order with specifics on the disallowance under section 14A. Consequently, the Tribunal allowed the appellant's appeal on this ground for statistical purposes.

In conclusion, the Tribunal partially allowed the appeal filed by the appellant, primarily concerning the disallowances under sections 35(1)(ii) and 14A of the Income Tax Act, 1961. The Tribunal's decision was based on the retrospective withdrawal of approval for the institution receiving the donation and the lack of detailed reasoning for the disallowance under section 14A.