2020 (12) TMI 663 - AT - Income Tax

Deduction u/s 35(1)(ii) - claim disallowed as research institution i.e HHBRF to which donation was given by the assessee was found to be a bogus institution that was not doing any research activity but was in fact laundering ill-gotten money of the donors - HELD THAT - in the case before us, we find that the research institution i.e HHBRF, as on the date of giving of donation by the assessee was having a valid approval granted under the Act. On a perusal of the aforesaid Explanation to Sec. 35(1)(ii) of the Act, it can safely be gathered that a subsequent withdrawal of such approval cannot form a reason to deny deduction claimed by the donor. In the case of National Leather Cloth Mfg. Co. 1999 (10) TMI 55 - BOMBAY HIGH COURT while dealing with an identical issue of denial of deduction under Sec.35(1)(ii) of the Act due to a subsequent withdrawal of approval with retrospective effect, had observed, that such retrospective cancellation of registration will have no effect upon the deduction claimed by the donor since such donation was given acting upon the registration when it was valid and operative. On a perusal of the aforesaid statutory provision i.e Sec. 35(1)(ii) of the Act, as well as the ratio laid down in the aforesaid judicial pronouncements it can safely be concluded that if the assessee acting upon a valid registration/approval granted to an institution had donated the amount for which deduction is claimed, then, such deduction cannot be disallowed if at a later point of time the registration is cancelled. - Accordingly, we set aside the order of the CIT(A) and vacate the disallowance of the assesse s claim for deduction under Sec.35(1)(ii) - Decided in favour of assessee.

Issues Involved:

1. Validity of the jurisdiction assumed by the Assessing Officer (A.O.) under Section 147 of the Income Tax Act.
2. Non-provision of Approval Note/Satisfaction from Principal - CIT before issuing Notice under Section 148.
3. Non-provision of copies of Statements Recorded from third parties and denial of cross-examination opportunity.
4. Issuance of notice under Section 143(2) before passing the assessment order under Section 143(3) read with Section 147.
5. Validity of the donation made to Herbicure Healthcare Bio-Herbal Research Foundation (HHBRF) and School of Human Genetics and Population Health (SHG&PH) for claiming deduction under Section 35(1)(ii).
6. Impact of subsequent cancellation of approval under Section 35(1)(ii) on the genuineness of the donation claim.

Detailed Analysis:

1. Validity of the Jurisdiction Assumed by the A.O. under Section 147:

The assessee challenged the reopening of the assessment under Section 147, arguing that all material facts were disclosed during the original assessment, and thus, reopening after four years was not justified. The CIT(A) rejected this contention, but the Tribunal did not address this issue as it allowed the appeal on merits, rendering the jurisdictional challenge academic.

2. Non-provision of Approval Note/Satisfaction from Principal - CIT:

The assessee contended that the A.O. failed to provide the Approval Note from the Principal - CIT before issuing the Notice under Section 148. This issue was not specifically addressed in the Tribunal's decision as the appeal was allowed on other grounds.

3. Non-provision of Copies of Statements Recorded from Third Parties and Denial of Cross-examination Opportunity:

The assessee argued that the A.O. did not provide copies of statements from third parties and denied the opportunity to cross-examine them, violating natural justice principles. The Tribunal did not specifically address this procedural issue, focusing instead on the merits of the donation's genuineness.

4. Issuance of Notice under Section 143(2):

The assessee claimed that the assessment order under Section 143(3) read with Section 147 was passed without issuing a notice under Section 143(2). This procedural issue was not specifically discussed by the Tribunal, as the appeal was decided on the merits of the donation claim.

5. Validity of the Donation Made to HHBRF and SHG&PH for Claiming Deduction under Section 35(1)(ii):

The Tribunal examined whether the subsequent cancellation of approval under Section 35(1)(ii) invalidated the assessee's claim for deduction. It noted that at the time of donation, HHBRF and SHG&PH had valid approvals. The Tribunal referred to the 'Explanation' to Section 35(1)(ii), which states that a deduction cannot be denied merely because the approval was later withdrawn. The Tribunal cited the Supreme Court's decision in CIT v. Chotatingrai Tea, which supports that a subsequent withdrawal of approval does not affect the deduction if the donation was made when the approval was valid.

6. Impact of Subsequent Cancellation of Approval:

The Tribunal emphasized that the subsequent cancellation of approval by the CBDT does not invalidate the assessee's claim for deduction under Section 35(1)(ii). The Tribunal relied on various judicial pronouncements, including the Bombay High Court's decision in National Leather Cloth Mfg. Co. v. Indian Council of Agricultural Research, which held that retrospective cancellation of approval does not affect the deduction claimed based on valid approval at the time of donation.

Conclusion:

The Tribunal allowed the assessee's appeals for both A.Y. 2011-12 and A.Y. 2012-13. It vacated the disallowance of the assessee's claim for deduction under Section 35(1)(ii) for donations made to HHBRF and SHG&PH, emphasizing that the subsequent cancellation of approval does not affect the validity of the deduction claimed when the approval was valid at the time of donation. The procedural issues raised by the assessee were not specifically addressed as the appeals were decided on the merits of the donation claims.

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