ITAT disallows Tax Deduction claimed u/s 35(1)(ii)  for Donation to Unapproved Scientific Research Trust [Read Order]

In a recent judgment, the Ahmedabad bench of the Income Tax Appellate Authority (ITAT) set aside the deduction claim of an assessee for the donation made by him to an unapproved scientific authority.

The assessee, Parag Dave, was engaged in testing of  soil, building materials, conducting survey work, etc.

On 26.09.2017, the assessee filed his return declaring a total income of ₹56,55,070. During the scrutiny assessment, it was observed that he claimed a weighted deduction of ₹54,25,000 under Section 35(1)(ii) of the Income Tax Act, 1961, for a donation of ₹31,00,000 made to Shri Arvindo Institute of Applied Scientific Research Trust.

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The Assessing Officer (AO) issued a show cause notice regarding the donation, but the assessee did not respond. AO then disallowed the claim, citing  that the trust’s approval under Section 35(1)(ii) had expired on 31.03.2006 and no valid certificate existed for the relevant year.

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Aggrieved by the order, the assessee approached the Commissioner of Income Tax (Appeal) (CIT(A)) and then the tribunal.

Rachna Khandhar, counsel for the assessee,  submitted that the donation was made in good faith based on documents received from the trust. She contended that the assessee should not be penalized solely because the Central Board of Direct Taxes (CBDT) had not issued a fresh certificate under Section 35(1)(ii) of the Act.

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Meanwhile, the counsel on behalf of the department objected to the claims of the assessee.

He argued that the trust’s approval had expired in 2006 and that the assessee made the donation without due diligence, apparently to avail of a weighted deduction benefit.

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After hearing both sides, the bench  comprising Dr. BRR Kumar (Vice President) and Suchitra Kamble (Judicial Member) acknowledged that the trust's approval had expired on March 31, 2006, and that it is not eligible to raise donations for scientific research under Section 35(1)(ii) of the Income Tax Act of 1961.

The tribunal also pointed out that the assessee, being a science graduate with financial knowledge, could not plead ignorance of such regulatory matters and also pointed out the absence of a recognition letter from the Bureau of Scientific and Industrial Research (BSIR).

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The tribunal thus concluded that the assessee knowingly contributed to an unapproved institution and thus proceeded to uphold the disallowance of the deduction made by AO and CIT(A).

To Read the full text of the Order CLICK HERE

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