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TMI Blog2024 (9) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property to the purchasing party. Since assessee has not claimed any freight inward expenses or factory insurance expenses or advertisement expenses etc., the continuation of business was not established. The assessee incurred business loss in the first quarter of the previous year but made donation of Rs. 1.30 core in the last month of the year i.e., after nine months from close of business. It claimed deduction u/s 35(1)(ii) of the Act on the said donation. The assessee was non-co-operative and did not furnish require details for a long time. It finally submitted some details without any supporting primary documents in December, 2017. The assessee claimed weighted deduction of Rs. 2,27,50,000/- on donation which was made to M/s Shri Arvindo Institute of Applied Scientific Research Trust, Andhari Mumbai. The investment / donation was made out of income earned as LTCG of factory land sale. Since the capital gains was the source of deduction u/s 35(1)(ii), AO asked why it should not be disallowed. After considerable delay, assessee furnished copy of approval granted to the above trust. It also submitted a letter from the buyer that possession was given on 07.04.2015. Assessee claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he donation was clearly made from the LTCG earned out of sale of factory land, which is ab initio a non-maintainable claim. Deduction u/s 35(1)(ii) is part of computation of business income and cannot be allowed from capital gain income. Therefore, the disallowance of claim by AO was upheld. Aggrieved by this order of Ld.CIT(A), assessee has filed present appeal before the Tribunal. 5. The Ld. AR of the assessee has filed paper book containing 335 pages and submitted that assessee has fully complied with the notices issued by the AO. The issue of deduction u/s 35(1)(ii) of the Act was raised in the notice dated 06.11.2017 and the appellant submitted its reply on 05.12.2017 giving ample time of 25 days for the AO to examine the details. The Ld.AR submitted that though the factory was sold on 07.07.2014, assessee continued its operation on the said land till February, 2015. It vacated the land thereafter and shifted to its new place at Palej, GIDC Bharuch. The appellant has not discontinued its business but it had merely sold its factory land and shifted to another place. However, without any evidence, the AO made an extraneous assumption that since the factory land was sold, assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of donation to lower authorities. The assessee has also not produced any evidence such as freight / transportation bills etc., to support claim of purchase and sale of goods. He further submitted that affidavits given by the assessee are self-serving. 7. We have heard both parties and perused the records carefully. We have also deliberated the case law relied by Ld.AR of the assessee. It is an undisputed fact that the assessee sold its factory land to TBEA Energy (India) Pvt. Ltd. on 07.07.2014 through a registered sale deed for a consideration of Rs. 10,92,98,692/-. There was capital gain of Rs. 10,75,62,234/- on sale of the above property. Assessee had invested Rs. 50,00,000/- on REC Bond and claimed deduction u/s 54EC of the Act. After claiming deduction as above, the assessee was still liable to pay tax on the capital gain of Rs. 10,25,67,234/-. On the other hand, the assessee had loss of Rs. 2,28,87,566/- under the head income from business or profession . The assessee has also shown interest income of Rs. 31,56,415/- under the head income from other sources . However, the assessee has made donation of Rs. 1,30,00,000/- at the fag-end of the year to M/s Shri Arvindo Institute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sly, it was intended to reduce the tax liability by irregularly claiming weighted deduction @ 175 per cent of the donation. The assessee was having huge capital gains of Rs. 10,75,67,234/- on which there would have been substantial outgo by way of tax. To reduce the tax liability, assessee has donated to M/s Shri Arvindo Institute of Applied Scientific Research Trust and claimed deduction u/s 35(1)(ii) of the Act. It may be stated that section 35(1)(ii) is not a stand-alone section, rather it is continuation of the provisions relating to Profits and gains of business or profession under Chapter IV D of the Act. It covers sections 28 to 44DB of the Act. Income under the head Profits and gains of business or profession would include the income mentioned in section 28 of the Act. As per section 29 of the Act, the income referred to in section 28 shall be computed in accordance with provisions contained in sections 30 to 43D of the Act. Therefore, the deduction u/s 35(1)(ii) can be claimed only from the income falling under the head Profits and gains of business or profession u/s 28 of the Act. The condition precedent for claiming deduction u/s 35(1)(ii) of the Act is that there should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 7.1 The Ld.AR of the assessee has relied upon the decision in case of Dr.M.S. Swaminathan (supra). The decision is not applicable because the facts of the said case are different. In the case relied upon the assessee was having professional income brought to charge under the head Profit and gains of the business or profession . Hence, the Tribunal held that he could not be faulted for having made his claim u/s 35(1)(ii) of the Act. It also held that conceptually speaking, it would be wrong to insist that the sum paid by the assessee to the research foundation must necessarily be out of the current income of the assessee. In the present case, the assessee has claimed the deduction not out of its business income but from capital gains, as discussed earlier. In fact, assessee had discontinued its business after selling factory land. The irregular donation was also made at the fag-end of the year only to reduce its tax liability. Hence, the decision relied upon is of no help to the instant case. 7.2 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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