The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has held that weighted deduction under section 35(1)(ii) of the Income Tax Act,1961 is not allowable on Bogus Donations.
M/s. P.R. Rolling Mills Pvt. Ltd., the assessee company engaged in manufacturing Angles Shapes & Sections of Alloy and non-Alloy Steel, mainly profile sections for use in Automotive Industry, Angies TLT sector and general engineering purposes. In response to notice issued u/s. 148 of the act, the assessee filed a return of income on 05.04.2017 declaring total income at Rs. 5,93,16,890/-
The assessing officer has passed a detailed order wherein he has concluded that the approval u/s. 35(1)(ii) of the act granted to M/s. School of Human Genetics & Population Health was being misused and the assessee was part of the such racket. It was observed that the assessee took benefit of such racket by claiming a 175 % of deduction on payment of a meagre 3 % Commission of the so-called donation amount.
It was alleged that the assessee also took accommodation entry of donation u/s 35 with the help of a broker and reduced his taxable income and ultimately reduced legitimate tax liability. This entire manoeuvre was a colourable device to give this sham transaction a colour of genuineness. The deduction was disallowed by the AO and Rs 1,75,00,000/- is added back to the total income of the assessee.
It was noted that the assessee had claimed weighted deduction u/s 35(1)(ii) to the tune of Rs.1.75 Crores out of which Rs.1.Crore had been debited to the P&L Account and the balance of Rs.75,00,000/- had been claimed in the computation of income. To be eligible for such weighted deduction u/s 35(1)(ii) of the Act, the assessee had donated Rs.1.00 Crore to the School of Human Genetics and Population Health concern which is registered u/s 35 of the I.T. Act, 1961.
The ITAT viewed that during the course of survey proceedings conducted in the case of the School of Human Genetics and Population Health (Research Organisation), it came to the light that the donors in connivance with various brokers, entry operators, donees etc. misused the benefit conferred u/s 35(1)(ii) of the Act by undertaking bogus donations.
The ITAT Bench consisting of Shri Sandeep Gosain, JM & Shri Rathod Kamlesh Jayantbhai, AM observed that the assessee has adopted the unfair means to take the benefit under the garb of Section 35(1)(ii) amounting to Rs.1.75 Crore. The appeal of the Department was allowed.
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