2024 (9) TMI 734 - AT - Income Tax

Deduction claimed u/s 35(1)(ii) - assessee has made donation at the fag-end of the year to M/s Shri Arvindo Institute of Applied Scientific Research Trust and claimed weighted deduction - AO disallowed the deduction by stating that there was business loss and assessee had not carried out any business after selling the factory land/ - HELD THAT - The mode of computation of income chargeable under head Capital gain is as per provisions of Section 48 of the Act. The following deductions can be allowed from the capital gains (i) expenditure incurred wholly and exclusively in connection with transfer of a capital asset and (ii) cost of acquisition of asset and cost of any improvement thereto. Some other instances covered under clause-(iii) need not be discussed here because the same is not relevant to the fact of the instant case. Hence, only expenditure in connection with transfer of the capital asset and cost of acquisition and improvement can be allowed in respect of the capital gain earned by the assessee. The assessee has already claimed such permissible deduction from the sale consideration of Rs. 10,92,98,692/- and has earned net capital gain of Rs. 10,75,67,234/-. He has also claimed deduction of Rs. 50,00,000/- u/s 54EC, which has been allowed to it. There is no provisions u/s 48 to allow deduction u/s 35(1)(ii) of the Act. Hence, allowing such deduction would be against the provisions of the Act. If due to clear operation of the provisions of the Act, any hardship is caused to the assessee, the same can be redressed only by the Legislature and not by any appellate authority. In view of the above discussion, the AO and CIT(A) have rightly disallowed the deduction claimed u/s 35(1)(ii) of the Act. Be that as it may, the CBDT in F.No.225/351/2018-ITA(II) dated 14.12.2018 has clarified that M/s Shri Arvindo Institute of Applied Scientific Research Trust was earlier approved u/s 35(1)(ii) which expired on 31.03.2006. Thereafter, this entity being not recognized for the purpose of Section 35(1)(ii) is not eligible to raise donation for undertaking scientific research. Trust has raised substantial donation over the last six years on the basis of a forged certificate while the doners have claimed weighted deduction u/s 35(1)(ii) of the Act on donation made to the trust. This makes it clear that the Trust was not approved u/s 35(1)(ii) of the Act after 31.03.2006. Hence, the donation made by the appellant to the said Trust is not eligible for deduction u/s 35(1)(ii) of the Act. Appeal filed by the assessee is dismissed.

Summary

Issues Involved:
1. Justification of the addition of Rs. 2,27,50,000/- claimed as deduction under Section 35(1)(ii) of the Income-tax Act, 1961.
2. Continuation of business after the sale of factory land.
3. Eligibility of the donation made to M/s Shri Arvindo Institute of Applied Scientific Research Trust for deduction under Section 35(1)(ii).

Detailed Analysis:

1. Justification of the Addition of Rs. 2,27,50,000/- Claimed as Deduction under Section 35(1)(ii):
The assessee claimed a deduction of Rs. 2,27,50,000/- under Section 35(1)(ii) of the Income-tax Act, 1961, on a donation made to M/s Shri Arvindo Institute of Applied Scientific Research Trust. The Assessing Officer (AO) disallowed this deduction, stating that the donation was made out of long-term capital gains (LTCG) from the sale of factory land, and not from business income. The AO observed that the business had been discontinued after the sale of the factory land on 07.07.2014, hence the deduction under Section 35(1)(ii) could not be claimed. The CIT(A) upheld this disallowance, noting that the deduction under Section 35(1)(ii) could only be claimed from business income and not from capital gains.

2. Continuation of Business After the Sale of Factory Land:
The assessee argued that the business continued after the sale of the factory land, as the operations were shifted to a new location at Palej, GIDC, Bharuch, Gujarat. The assessee provided evidence such as closing stock, electricity bills, and sales registers to support this claim. However, the AO and CIT(A) found these claims unconvincing, noting the absence of a lease agreement or confirmation from the buyer, TBEA Energy (India) Pvt. Ltd., to substantiate the continued business operations. The Tribunal agreed with the lower authorities, stating that the sale of the factory land indicated the discontinuation of business and that the subsequent sale of closing stock did not establish the continuation of business.

3. Eligibility of the Donation Made to M/s Shri Arvindo Institute of Applied Scientific Research Trust for Deduction under Section 35(1)(ii):
The Tribunal noted that M/s Shri Arvindo Institute of Applied Scientific Research Trust was not approved under Section 35(1)(ii) after 31.03.2006, as clarified by the CBDT. The trust had raised substantial donations based on a "forged certificate," making the donation ineligible for deduction under Section 35(1)(ii). The Tribunal upheld the disallowance of Rs. 2,27,50,000/- made by the AO, stating that the donation was not eligible for deduction as the trust was not recognized for the purpose of Section 35(1)(ii).

Conclusion:
The Tribunal dismissed the appeal filed by the assessee, upholding the disallowance of the deduction claimed under Section 35(1)(ii) of the Act. The Tribunal found that the business had been discontinued after the sale of the factory land and that the donation made to M/s Shri Arvindo Institute of Applied Scientific Research Trust was not eligible for deduction. The order was pronounced on 06/09/2024 in the open court.