In a recent case related to the allegation of bogus donation, the Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) allowed Income Tax deduction under section 35 (1) (ii) of the Income Tax Act, 1961 as there was no material to prove that the check paid for the donation had been ploughed back by way of cash.
Chemstar International, the appellant/assessee is in the business of exporting dyes and dye intermediates, chemicals, and allied industrial goods. In the financial year relevant to the assessment year 2015-16, the assessee had donated Rs. 55,00,000/- to M/s. Matrivani Institute of Experimental Research & Education, Kolkata, towards scientific research.
The assessee claimed weightage deduction under Section 35(1)(ii) at the rate of 175% of the donation amount, which worked out to Rs. 96,25,000. In the assessment year 2014–15, the assessee donated 75,00,000 to M/s. School of Human Genetics and Population Health, Kolkata, for scientific research and claimed deduction.
The Investigation Wing of Kolkata carried out survey operations in the hands of both of the organizations referred to above, and it was found that both of these organizations were providing bogus donation certificates through various brokers instead of receiving commissions.
The Income Tax assessing officer held that the donations claimed to have been paid by the assessee in both of these years were bogus and the deductions claimed were not to be allowed. The AO disallowed the deduction claimed in both years by the assessee under Section 35(1)(ii).
The Commissioner of Income Tax (Appeals) CIT (A) also confirmed the disallowance made in both years. Hence, the assessee has filed these appeals before the Tribunal.
The assessee contended that the assessee has given donations to both of these organizations through the banking channel. The assessee has duly produced the donation receipts along with the recognition certificate for these institutions under Section 35(1)(ii). The assessee has claimed deductions in both years. The AO has not found fault with any of the documents submitted by the assessee.
The department contended that the Investigation Wing has conducted survey operations in the hands of both institutions and has brought out the modus operandi adopted by these two institutions in issuing bogus donations instead of receiving the commission. Since it is found that both of these institutions are involved in issuing bogus donation receipts, the Income tax appellate commissioner was justified in confirming the disallowance of deductions claimed by the assessee under section 35(1)(ii) of the Act in both years.
The two-member bench of Sunil Kumar Singh (Judicial Member) and B.R. Baskaran (Accountant Member) has observed that the AO has not brought any material to disprove the evidence furnished by the assessee concerning the donations it has made to the institutions. There is also no proof to show that the check paid by the assessee has been ploughed back by way of cash to the assessee. It is a settled proposition that the subsequent withdrawal of recognition granted under Section 35(1)(ii) will not be a bar for granting deductions for the donations paid earlier.
The tribunal allowed the claim made by the assessee under Section 35(1)(ii) and set aside the orders passed by CIT (A). The tribunal directed the AO to allow the deduction claimed by the assessee under Section 35(1)(ii). Ridhisha Jain appeared for the appellant and H M Bhatt appeared for the respondent.
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