Case Law Details
C K Zipper Private Limited Vs ACIT (ITAT Ahmedabad)
Introduction: In a recent case, C K Zipper Private Limited contested a decision by the ACIT, challenging the disallowance of a deduction claimed under Section 35(1)(ii) of the Income Tax Act. Let’s delve into the details of the case and the subsequent ruling by the Income Tax Appellate Tribunal (ITAT) Ahmedabad.
Detailed Analysis: The crux of the matter lies in the appellant’s claim for deduction under Section 35(1)(ii) of the Income Tax Act, amounting to Rs. 35,00,000/-, towards donations made to M/s. Shri Arvindo Institute of Applied Scientific Research Trust. However, it was revealed that the trust, which had expired on March 31, 2006, was not eligible for such donations. The appellant’s claim was based on falsified documents, leading to the disallowance of the deduction by the Assessing Officer.
Despite the appellant’s denial of the allegations, no substantial evidence was presented to substantiate the claimed deduction during the reassessment proceedings. Consequently, the AO disallowed Rs. 20,00,000/- as unexplained expenditure under Section 69C of the Act, adding it back to the total income. Additionally, the weighted deduction of Rs. 15,00,000/- claimed on the above expenditure was also disallowed.
Upon appeal, the CIT(A) upheld the AO’s decision, emphasizing the ineligible nature of the donation recipient and the lack of substantiated evidence from the appellant. The disallowance of the deduction was affirmed, albeit with a clarification regarding the incorrect invocation of Section 69C.
Conclusion: In light of the above analysis, the ITAT Ahmedabad dismissed the appellant’s appeal, affirming the decision to disallow the deduction claimed under Section 35(1)(ii) of the Income Tax Act. The case underscores the importance of adhering to statutory provisions and providing verifiable evidence to support tax claims.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
The instant appeal has been filed at the instance of the assessee is directed against the order dated 16.12.2022 passed by National Faceless Appeal Centre (NFAC), Delhi arising out of the order dated 01.09.2021 passed by the Assessing Officer (AO), NFAC, Delhi under Section 147 of the Income Tax Act, 1961, (hereinafter referred to as ‘the Act’), whereby and whereunder disallowance of deduction under Section 35(1)(ii) of the Act to the tune of Rs.35,00,000/- claimed by the appellant has been upheld for Assessment Year 2016-17.
2. We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record.
3. The brief facts leading to this case is this that the appellant initially filed its return of income for the year under consideration on 16.08.2016 declaring total income of Rs.66,15,430/- which was processed under Section 143(1) of the Act on 02.10.2016. Upon scrutiny the assessment was completed under Section 143(3) of the Act on 02.08.2018 declaring total income at Rs.66,15,430/-. Subsequently, it was further found that the claim of the assessee in respect of deduction under Section 35(1)(ii) of the Act has been allowed by the Ld. AO though on the basis of the false documents in respect of making donation to one M/s. Shri Arvindo Institute of Applied Scientific Research Trust, which was earlier approved under Section 35(1)(ii) of the Act, but, subsequently, the same was expired on 31.03.2006. As the said entity being not recognized for the purpose of Section 35(1)(ii) of the Act, it was not found to be eligible to raise donations for undertaking scientific research. On this factual matrix, the Trust has raised substantial donations over the last six years on the basis of forged document, since obtained, wherein the appellant was found to be one of the beneficiaries, claim of deduction whereof amounting to Rs.35,00,000/- was made. Keeping in view the CBDT Circular vide letter F No. 225/351/2018-ITA(II) dated 14.12.2018, the case was reopened.
4. Allegation levelled against the assessee as mentioned hereinabove has been denied by the assessee but no documents and/or corroborative evidence in respect of the deduction claimed under Section 35(1)(ii) of the Act has been filed before the Ld. AO in the re-assessment proceeding. Thus, the expenditure of Rs. 20,00,000/- has been disallowed as unexplained expenditure under Section 69C of the Act and added back to the total income of the assessee followed by the disallowance of weighted deduction to the tune of Rs.15,00,000/- claimed on the above expenditure and added back to the total income of the appellant which was further confirmed by the First Appellate Authority. Hence, the instant appeal before us.
5. We have carefully considered the entire aspect of the matter and we find that it appears practically and factually the entity, namely, M/s. Shri Arvindo Institute of Applied Scientific Research Trust having PAN No. AAFTS7349D with whom the donation to the tune of Rs.20,00,000/- was made by the appellant and claimed weighted average deduction of Rs.15,00,000/- under Section 35(1)(ii) of the Act for A.Y. 2016-17, though earlier was approved under Section 35(1)(ii) of the Act, the same was expired on 31.03.2006. Thus, the entity is not recognized for the purpose of Section 35(1)(ii) of the Act and neither eligible to raise donations for undertaking scientific research. In that view of the matter, the Ld. CIT(A) passed the following order:
“4.1 I have gone through the facts of the case, grounds of appeal and submissions made in this regard Briefly, the facts of the case are that the appellant M/s. C.K. Zipper Private Limited (PANAADCC7700M) filed its return of income for A.Y. 2016-17 an 16/08/2016 declaring total income of Rs.66,15,430/-. The return was processed us. 143(1) of I. T. Act, 1961 on 02/10/2016. The case was selected for limited scrutiny and assessment was completed u/s. 143(3) of I.T. Act on 02/08/2018 determining income at Rs.66, 15,430/- Subsequently, it was found that the claim of the assessee towards deduction u/s 35(1)(ii) has been allowed on the basis of document given by an entity not authorized to issue the same. Apparently the documents were forged. Section 35(1)(ii) of the Income Tax Act, prescribes a weighted deduction @150% (175% before 01-04-2018) to a donor for any sum paid to an approved research association’ having its sole object the undertaking of scientific research or to a university college or other institution for carrying out scientific research. This came to light when CBDT provided information Vide Letter F. No. 225/351/2018-ITA(II) dated 14-12-2018 issued to all field offices regarding bogus donation racket under section 35(1)(ii) of the I.T. Act, 1961. An entity namely M/s Shri Arvindo Institute of Applied Scientific Research Trust (PAN AAFTS7349D) was earlier approved under section 35(1) (ii) of the Act which expired on 31-03-2006. Thereafter, this entity, being not recognized for purpose of section 35(1) (ii) of the Act, is not eligible to raise donations for undertaking scientific research. However, the Trust has raised substantial donations over the last six years on the basis of a forged certificate. It was seen that one of the beneficiaries of such bogus donation is the assessee i.e. M/s. C.K. Zipper Private Limited (PAN-AADCC7700M).
4.2 Accordingly, the claim of the assessee to allow deduction u/s.35(1)(i) of Rs.35,00,000/- was not accepted and disallowed by AO as narrated under.
1. The expenditure of Rs.20,00,000/- is disallowed as unexplained expenditure u/s.69C of the I.T. Act and added back to the total income of the assessee.
(Addition: Rs.20,00,000/-)
4.2 Accordingly, the claim of the assessee to allow deduction u/s 35(1) (ii) of Rs 35,00,000/- was not accepted and disallowed by AO as narrated under.
1. The expenditure of Rs. 20,00,000/- is disallowed as unexplained expenditure us BC of the LT Act and added back to the total income of the assessee.
(Addition Rs.20,00,000/-)
2. The weighted deduction of Rs.15,00,000/- claimed on above expenditure is disallowed and added back to the total income of the assessee.
(Addition Rs 25,00,000/-)
4.3 A show cause notice along with draft assessment order intimating the above additions was issued and served on the assessee on 27.08.2021 by the assessing officer. In response the assessee filed its reply on 31.08.2021 stating therein that it will provide bank statements relating to the above payment of Rs.20,00,000. The AO found the reply to be not satisfactory and made the additions
discussed above.
4.4 The assessing officer had reasons to believe that the income had escaped assessment and he had recorded the same as follows-
“On perusal of case records, it is observed that assessee M/s. C.K Zipper Private Limited (PAN-AADCC7700M) has claimed deduction amounting to Rs 35,00,000/- on account of donation made to the entity namely M/s Shri Arvindo Institute of Applied Scientific Research Trust (PAN AAFTS 73490) It is also observed that the said entity M/s. Shri Arvindo Institute of Applied Scientific Research Trust (PAN: AAFTS 7349D) do not have requisite recognition duly approved by CBDT. Thus in light of letter issued by CBDT, the deduction so claimed by assessee M/s C.K. Zipper Private Limited (PAN:AADCC7700M) is not allowable deduction.”
Satisfaction of this office:
In view of the above facts, the provisions of clause(c) of explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax escaped assessment. The office of undersigned is satisfied that in the case of assessee M/s C.K Zipper Private Limited (PAN AADCG7700M) income chargeable to fax has escaped assessment for A. Y. 2016-17.
4.5. It is observed that in this case, assessment u/s. 143(3) was made and the only requirement to initiate proceeding u/s 147 is reason to believe which has been recorded above. The provisions of clause(c) of Explanation (2) to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. The present case is definitely a case of underassessment and excess relief. This case is within four years from the end of the assessment year under consideration. The necessary sanction to issue the notice u/s. 148 was obtained separately from Additional Commissioner of Income Tax as per the provisions of section 151 of the Act. Therefore there is no infirmity in the reopening of the case. Hence the ground against reopening of assessment is rejected.
4.6 The issue under question concerns donations. Any donation constitutes application of income and is normally not a deductible expenditure. It is only when certain donations are to be encouraged on the basis of the nature of activity or the goals of the entity undertaking certain specific tasks that government at times allows certain donations to such entities to be claimed as deductible expenditure. These donations remain deductible expenditure till the same have the sanction as per the statute. In the present case the appellant claims to have made the donation but in the absence of statutory approval it is not a deductible expenditure
4.7 However it is observed that the assessing officer has invoked the provisions of section that is unexplained expenditure. Though nowhere in the order it is mentioned or stated as to how the expenditure is unexplained or how the source of the same is unexplained. It is clear the donation is made to an entity not eligible for allowing deduction under the Income tax Act but it nowhere emerges from the assessment order that the donation is from unexplained sources. The AO in his show cause stated as under:
“In connection with the assessment proceeding for the AY 2016-17, you have claimed deduction u/s 35(1) (ii) of the IT Act amounting to Rs 35,00,000 on account of donation made to the entity namely M/s Shri Arvindo Institute of Applied Scientific Research Trust (PAN AAFTS 73490) As intimated to you earlier, M/s. Shri Arvindo Institute of Applied Scientific Research Trust is not recognised for the purpose of section 35(1) (ii) of the Act after 31.03.2006 and therefore not eligible to raise donations for undertaking scientific research
Hence notice u/s 148 was issued to you on 12.07. 2019 and thereafter notice u/s 143(2) was also issued and served on 27.09.2019 against which you had raised objection u/s 292(BB) Your objection has been countered and rebutted point wise vide letter dated: 10/01/2020 DIN & Letter No. ITBA/AST/F/1 7/2019-20/1023780691(1) through a speaking order. Therefore, your objection regarding the disallowance of claim of deduction is rejected and the sum of Rs. 35,00,000 is liable to be added back to your total income.
You are requested to furnish any other evidence in support of your claim now except the documents provided eartier during the reassessment proceedings.”
4.8 Thus the section 69C is wrongly invoked, But in any case the deduction claimed on the donation is correctly disallowed and the same is sustained.
5. In nutshell the appeal of the assessee appellant is partly allowed to the extent that section 69C is wrongly quoted by the AO in the assessment order. But disallowance of the deduction is rightly made.”
6. The Ld. CIT(A) upheld the order disallowing the claim made by the appellant. However, the expenditure was disallowed as unexplained expenditure under Section 69C of the Act. In this regard, the Ld. CIT(A) observed that the same expenditure is unexplained and how the source of the same is unexplained, has not been able to be specified by the Ld. AO while invoking Section 69C of the Act while rejecting the claim of the appellant. However, keeping in view the entire aspect of the matter, the claim made by the appellant on a wrong footing, particularly, when the donation made to the entity which is not eligible to raise donation under Section 35(1)(ii) of the Act, the Ld. CIT(A) upheld the order of disallowance of the claim made by the appellant by the Ld. AO which, in our considered opinion is just and proper.
We, therefore, decline to interfere with the same. With the aforesaid observation, we dismiss the appeal preferred by the appellant as the same is found to be devoid of any merit.
7. In the result, the appeal preferred by the appellant is dismissed.
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