The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that disallowance of donations made to the trust under section 35 AC of the Income Tax Act, 1961 without conducting enquiry is invalid.
Ravindra K. Reshamwala, the assessee challenged the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [CIT(A)]. The assessee filed its Return of Income and the return was processed under section 143(1) of the Income Tax Act, 1961 (Act).
The case was re-opened under section 147 of the Income Tax Act by the issue of notice under section 148 after recording the reasons and with prior approval. During the search action, it was found that all the expenses of the Trust were mere book entries and no genuine expenses were made by the trust for Section 35AC.
The Trustee accepted that all the expenses were bogus and the donations received in cheques were returned in cash to all the donors after deducting nominal commission. Consequently, Survey Action conducted by the Investigation wing on some of the donors has conclusively proved that the Trust indeed returned by donations in cash.
The assessee submitted the copy of the receipt issued by M/s Navjeevan Charitable Trust towards the receipt of a donation amounting to ₹.15,00,000/- along with the Copy of Certificate in Form No.58A of the Act certifying that a sum of ₹.15,00,000/- has been received under section 35A(1) and a copy of the bank statements containing the details of payments to the trust.
The Assessing Officer rejected the same and held that the donation made by the assessee was non-genuine accordingly, he disallowed the same. On appeal, the CIT(A) also treated the above donation as non-genuine and dismissed the ground raised by the assessee.
It was contended that the assessee has made the donation and has submitted all the relevant information regarding payment of the donation and all these donations were made through banking channels. It was a fact that the trust was searched on 27.10.2014 and subsequently registration of the trust was cancelled on 01.11.2016.
It was evident that the assessee had donated on 21/06/2004 against a valid receipt issued by the Trust. The donation was made through a cheque which got cleared from the assessee’s bank account. The assessee was issued requisite Form No.58A by the trust. The trust had valid registration at the time of the making of the donation.
A two-member bench comprising of Shri Kuldip Singh, (Judicial) and Shri S Rifaur Rahman, (Accountant) observed that except for the statement of the trustee of the society, there was no positive evidence on record to substantiate that on the date of donation, the trust did not have a valid registration or its registration stood withdrawn
It was observed that the deduction could not be denied to the assessee since AO failed to conduct any inquiry before making disallowance and except for mere allegations, he did not bring on record any fact to establish that the donation given by the assessee was subsequently returned in cash.
The assessee has duly discharged the onus cast upon him and it was incumbent upon AO to refute the same. The Tribunal directed to delete the disallowance as made by AO and to grant the deduction under section 80GGA of the Income Tax Act.
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