The Hon'ble Income Tax Appellate Tribunal, Ahmedabad Bench in C K Zipper (P.) Ltd. v. ACIT [IT APPEAL NO. 4 (AHD.) OF 2023 dated January 25, 2024] held that since the entity to which the assessee had made a donation was not recognized for the purpose of Section 35(1)(ii) of the Income Tax Act, 1961, and was not eligible to raise donations for undertaking scientific research, the impugned order disallowing the assessee's claim for deduction under Section 35(1)(ii) did not require any interference.
Facts:
M/s C.K. Zipper (P.) Ltd. (“the Petitioner”), claimed deduction under Section 35(1)(ii) of the Income Tax Act, 1961 (“the Act”), on account of a donation made to a trust for the Assessment Year 2016-17. During the scrutiny assessment proceedings, the Assessing Officer completed the assessment on August 2, 2018, and allowed the Petitioner's claim for deduction.
Subsequently, the Assessing Officer observed that the trust, M/s Shri Arvindo Institute of Applied Scientific Research Trust, had raised donations based on forged documents, and the Petitioner was one of the beneficiaries of such bogus donations. Consequently, the Assessing Officer reopened the assessment on July 12, 2019, and issued a notice under Section 148 of the Act on the ground that the trust did not have the requisite recognition duly approved by the Central Board of Direct Taxes (CBDT). Thus, the deduction claimed by the Petitioner was not allowable. A notice under Section 143(2) was also issued and served on September 27, 2019.
The Assessing Officer disallowed the Petitioner's claim for deduction under Section 35(1)(ii) amounting to Rs. 35,00,000/- and made the following additions to the Petitioner's total income:
The expenditure of Rs. 20,00,000/- was disallowed as an unexplained expenditure under Section 69C of the Act and added back to the Petitioner's total income.
The weighted deduction of Rs. 15,00,000/- claimed on the above expenditure was disallowed and added back to the Petitioner's total income.
The Petitioner filed objections under Section 292BB of the Act, which were rejected by the Assessing Officer vide a speaking order dated January 10, 2020 (“the Impugned Order”).
Aggrieved by the Assessing Officer's order dated September 1, 2021, the Assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A), vide order dated December 16, 2022, partly allowed the appeal to the extent that Section 69C was wrongly invoked by the Assessing Officer. However, the CIT(A) upheld the disallowance of the deduction claimed by the Petitioner under Section 35(1)(ii).
Aggrieved by the CIT(A)'s order, the Assessee filed an appeal before the Hon'ble Income Tax Appellate Tribunal
Issue:
Whether the impugned order disallowing the Petitioner's claim for deduction under Section 35(1)(ii) of the Income Tax Act, 1961, required any interference.
Held:
The Hon'ble Income Tax Appellate Tribunal, Ahmedabad Bench, in IT APPEAL NO. 4 (AHD.) OF 2023, held as under:
· Observed that the entity, M/s Shri Arvindo Institute of Applied Scientific Research Trust, to which the Petitioner made the donation and claimed a weighted average deduction under Section 35(1)(ii) for the Assessment Year 2016-17, was earlier approved under Section 35(1)(ii). However, the same had expired on March 31, 2006.
· Opined that the entity was not recognized for the purpose of Section 35(1)(ii) and was neither eligible to raise donations for undertaking scientific research. The Commissioner (Appeals) upheld the order disallowing the claim made by the Petitioner. However, the expenditure was disallowed as an unexplained expenditure under Section 69C. In this regard, the Commissioner (Appeals) observed that the Assessing Officer had not specified how the expenditure was unexplained and how the source of the same was unexplained while invoking Section 69C while rejecting the Petitioner's claim.
· However, keeping in view the entire aspect of the matter, the claim made by the Petitioner on a wrong footing, particularly when the donation was made to an entity that was not eligible to raise donations under Section 35(1)(ii), the Commissioner (Appeals) rightly upheld the order of disallowance of the claim made by the Petitioner.
· The Hon'ble Tribunal did not find any infirmity in the Commissioner (Appeals)'s order upholding the disallowance of the Petitioner's claim for deduction under Section 35(1)(ii).
· Held that the Hon'ble Tribunal dismissed the Petitioner's appeal, observing that the Commissioner (Appeals)'s order was just and proper.
Relevant Sections:
Section 35(1)(ii) of the Income Tax Act, 1961
Section 69C of the Income Tax Act, 1961
Section 147 of the Income Tax Act, 1961
Section 148 of the Income Tax Act, 1961
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