AO Disallows ₹1.75 Crore Donation u/s 35AC: ITAT Allows Deduction, Citing Valid Approval at Time of Donation [Read Order]
Relying on section 35AC’s explanation and earlier judicial precedents, the ITAT held that retrospective withdrawal of approval does not affect the validity of the deduction if the donation was made when approval was valid, and directed the AO to delete the disallowance
Deduction
Deduction
The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) allowed a deduction of ₹1.75 crore under section 35AC of Income Tax Act,1961, for a donation to the School of Human Genetics and Population Health, citing a valid approval at the time of donation, which was earlier disallowed by the Assessing Officer (AO).
NND Ambernath LLP, appellant-assessee, filed its return for AY 2014-15 on 26/11/2014, declaring a total income of Rs. 22.02 crore. During scrutiny, the AO observed that the assessee had claimed a deduction of Rs. 1.75 crore for a donation to the School of Human Genetics and Population Health under section 35(1)(iii) of the Act.
Based on information that the Trust was allegedly providing accommodation entries, the AO disallowed the deduction and added Rs. 1.75 crore to the income. The assessee’s appeal before the Commissioner of Income Tax(Appeals)[CIT(A)] was dismissed, as the CIT(A) upheld the AO’s findings relying on the same information.
The two member bench comprising Saktijit Dey (Vice President) and Narendra Kumar Billaiya (Accountant Member) reviewed the lower authorities’ orders and noted that the donation was made on 21/03/2014, as evidenced by the money receipt. The notification under section 35(1)(iii) of the Act was withdrawn later on 15/09/2016. Section 35AC’s explanation clarified that the deduction could not be denied merely because the institution’s approval was withdrawn after the donation was made.
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The Bench held that the subsequent cancellation of SHG&PH’s registration by the Central Board of Direct Taxes (CBDT) on 15/09/2016, even with retrospective effect, did not invalidate the deduction. The Explanation to section 35(1)(ii) clarified that deduction cannot be denied merely because approval was withdrawn after the donation.
Judicial precedents, including Chotatingrai Tea, Suresh Trading Co., National Leather Cloth Mag. Co., and Motilal Dahya Bhai Jhaveri & Sons, supported the view that retrospective cancellation does not affect deduction if the donation was made when the approval was valid.
Following this reasoning, the AO was directed to delete the disallowance and the appeal was allowed.
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