Arvindo Trust Scam Fallout: ITAT Dismisses Appeal Against Disallowance of Bogus Research Donation [Read order]

The Income Tax Appellate Tribunal (ITAT) Ahmedabad Bench “SMC” has dismissed the appeal filed against the disallowance of a deduction claimed on a donation made to the Arvindo Institute of Applied Scientific Research, citing that the donation was part of a bogus transaction.

The appellant, Brightech Valves & Controls Pvt. Ltd., had filed its return of income for Assessment Year 2012-13 declaring a total income of Rs.28,22,430. The Assessing Officer reopened the assessment after receiving information that Arvindo Institute of Applied Scientific Research was found not to be engaged in genuine research activities. The trustee of the institute, Umesh C. Nagda, during a statement recorded under Section 131 of the Income Tax Act, admitted that the trust was issuing false donation receipts and was not recognized as an approved research institution under Section 35(1)(ii). The appellant had donated Rs.5,00,000 to the said trust and claimed a weighted deduction of Rs.8,75,000 under Section 35(1)(ii), which was disallowed by the Assessing Officer during the reassessment proceedings.

Want a deeper insight into the Income Tax Bill, 2025? Click here

Before the CIT(A), the appellant contended that it was not given an opportunity to cross-examine Umesh C. Nagda and relied on the judgment in Andaman Timber Industries v. Commissioner of Central Excise to assert violation of principles of natural justice. However, the CIT(A) dismissed the appeal, relying on the decision of the Calcutta High Court in Swati Bajaj & Others v. Principal Commissioner of Income Tax, which held that the absence of cross-examination does not vitiate proceedings where the statement was not directly against the assessee but only described the modus operandi of the scam.

The ITAT noted that the withdrawal of approval to the Arvindo Institute was based on confirmation from the Department of Scientific and Industrial Research, which clarified that the trust was never a recognized research institution. The Tribunal also referred to the decision of the Coordinate Bench in Joshi Technologies International Inc. v. CIT, where it was held that when the trust's approval had expired, donations made thereafter could not be allowed as deductions, regardless of whether the assessee was aware of the trust's status.

How to Audit Public Charitable Trusts under the Income Tax Act Click Here

The ITAT Bench comprising Dr. BRR Kumar (Vice President) and Suchitra Kamble (Judicial Member) upheld the findings of the lower authorities, observing that the claim for deduction was not sustainable as it was based on donations made to an unapproved and bogus institution.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates