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2018 (7) TMI 737 - AT - Income TaxDisallowance of deduction u/s 35 - assessee had made donation to a institute engaged in Scientific Research - rescinded notification effect - Held that - The institute, whom the donation was made was in existence and notified during the F.Y. 2013-14 when the assessee has made donations. The CBDT has rescinded notification on 15/9/2016. Although, it has been made retrospective effect from 01/4/2007. This institute was validly recognized by the CBDT on the date of donation made by the assessee. The approval granted to the institute was very much in force at the time of donation made by the assessee. The assessee had no reason to disbelieve the operation of approval and notification of the institute. In such a situation, the deduction claimed by the assessee is justified. The subsequent notification by the CBDT rescinding the approval retrospectively shall not or should not affect the claim of the assessee. There was no information with the assessee regarding non-genuinity or not observing the standard fixed by the CBDT for making eligible itself for deduction U/s 35 of the Act. The assessee s act was in a bonafide manner. It is well settled proposition of law that no additional tax burden can be put on the assessee by making retrospective operations of certain notifications or withdrawal of notifications. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of deduction under Section 35(1)(ii) of the Income Tax Act, 1961. 2. Validity of the retrospective rescission of approval granted to the scientific research institution. 3. Opportunity for cross-examination and principles of natural justice. Issue-wise Detailed Analysis: 1. Disallowance of Deduction under Section 35(1)(ii): The primary issue revolves around the disallowance of a deduction of ?1.75 Crore claimed by the assessee under Section 35(1)(ii) of the Income Tax Act. The assessee made a donation of ?1 Crore to the "School of Human Genetics & Population Health" (SHG & PH), which was initially approved for deductions under Section 35(1)(ii). The Assessing Officer (AO) disallowed this deduction based on findings from a survey conducted at SHG & PH, indicating that the institution was providing accommodation entries for donations. The AO's decision was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. 2. Validity of the Retrospective Rescission of Approval: The assessee argued that the approval granted to SHG & PH under Section 35(1)(ii) was valid at the time of the donation. The approval was rescinded by the Central Board of Direct Taxes (CBDT) in September 2016, with retrospective effect from April 2007. The assessee contended that the deduction should not be disallowed based on a subsequent rescission of approval. The Tribunal noted that the approval was valid at the time of donation and that the assessee acted under a bona fide belief. The Tribunal cited the Explanation to Section 35(ii), which states that a deduction should not be denied merely because the approval was withdrawn after the donation was made. 3. Opportunity for Cross-Examination and Principles of Natural Justice: The assessee raised the issue of not being given the opportunity to cross-examine the individuals whose statements were used against them. The Tribunal acknowledged that the AO had provided copies of the statements to the assessee but did not grant the opportunity for cross-examination. The Tribunal emphasized that the right to cross-examine is a cornerstone of natural justice. The Tribunal referred to multiple judicial precedents, including the Supreme Court's decision in Andaman Timber Industries, which underscored the necessity of cross-examination for a fair assessment. Conclusion: The Tribunal concluded that the authorities below were not justified in denying the deduction under Section 35(1)(ii). The deduction was claimed in accordance with the law, and the approval was valid at the time of the donation. The Tribunal also highlighted the importance of adhering to principles of natural justice, including the right to cross-examine. Consequently, the Tribunal set aside the orders of the lower authorities and allowed the appeal in favor of the assessee.
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