Section 40A(2)(b) Disallowance not valid if AO not formed opinion on excessive or unreasonable deduction

ACIT Vs Praveen Sushil Kanda (ITAT Raipur)

ACIT-1(1) vs. Praveen Sushil Kanda ITA No.188/RPR/2018 (Date of Order : 27.05.2022) relating to disallowance of bogus donation u/s.35(1)(ii) and disallowance out of salary to relatives u/s.40A(2)(b). Entire disallowances deleted.

Disallowance of bogus donation u/s.35(1)

SHG&PH as on the date of giving of donation by the assessee was having a valid approval granted under the Act. On a perusal of the aforesaid ‘Explanation’ to Sec. 35(1)(ii) of the Act, it can safely be gathered that a subsequent withdrawal of such approval cannot form a reason to deny deduction claimed by the donor. By way of an analogy, we may herein observe that the Hon’ble Supreme Court in the case of CIT Vs. Chotatingrai Tea (2003) 126 taxman 399 (SC) while dealing with Sec. 35CCA of the Act, had concluded, that a retrospective withdrawal of an approval granted by a prescribed authority would not lead to invalidation of the assessee’s claim of deduction. On a similar footing the Hon’ble High Court of Bombay in the case of National Leather Cloth Mfg. Co. Vs. Indian Council of Agricultural Research (2000) 100 Taxman 511 (Bom), while dealing with an identical issue of denial of deduction under Sec.35(1)(ii) of the Act due to a subsequent withdrawal of approval with retrospective effect, had observed, that such retrospective cancellation of registration will have no effect upon the deduction claimed by the donor, since such donation was given acting upon the registration when it was valid and operative. On a perusal of the aforesaid statutory provision i.e, Sec. 35(1)(ii) of the Act, as well as the ratio laid down in the aforesaid judicial pronouncements, it can safely be concluded that if an assessee acting upon a valid registration/approval granted to an institution had donated certain amount for which deduction is claimed, then, such deduction cannot be disallowed if at a later point of time the same is cancelled with retrospective effect. We have perused the aforesaid judicial pronouncements relied upon by the ld. A.R and are persuaded to accept his claim that the issue involved in the present appeal is squarely covered by the view taken by the co-ordinate benches of the Tribunal. Recently, a co-ordinate bench of Tribunal i.e ITAT Mumbai Bench “C”, Mumbai in the case of M/s Pooja Hardware Pvt. Ltd. Vs. The Assistant Commissioner of Income Tax-13(1)(1), Mumbai [ITA No. 3712/Mum/2018 dated 28.10.2019] had after relying on the earlier orders of the co-ordinate benches of the Tribunal on the issue pertaining to the allowability of deduction under Sec. 35(1)(ii) of the Act in respect of a donation given to SHG&PH by the assessee’s before them had vacated the disallowance of the assessee’s claim for deduction under Sec.35(1)(ii) of the Act.

Considering the fact that the issue involved in the present appeal is squarely covered by the aforesaid orders of the co-ordinate benches of the Tribunal, we, thus, finding no justifiable reason to take a different view respectfully follow the same. Accordingly, we uphold the order of the CIT(A) who had vacated the disallowance of the assessee’s claim for deduction of Rs. 70 lac under Sec.35(1)(ii) of the Act.

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