Subsequent Withdrawal Of Registration Is No Impediment In Denying Deduction U/s 35-AC On Donation Received By Charitable Trust: Mumbai ITAT

While relying on the previous order passed by the Co-ordinate Bench under Ravindra K. Reshamwala v/s DCIT in ITA No.2648/Mum/2022, the Mumbai ITAT directed Assessing Officer to allow the claim under Section 35-AC of the Income tax Act, 1961.

The Member of the ITAT comprising Sandeep Singh Karhail (Judicial Member) and B.R. Baskaran (Accountant Member) observed that “except for statement of trustee of the society, we find that there is no positive evidence on record to substantiate the same. There is nothing on record which would show that on the date of donation, the trust did not have valid registration or its registration stood withdrawn. It was only subsequently that the approval was withdrawn. This being so, the deduction could not be denied to the assessee since AO failed to conduct any inquiry before making disallowance and except for mere allegations, he did not brought on record any fact to establish that donation given by the assessee was subsequently returned back in cash”. (Para 6)

As per the brief facts of the case, Assessee filed its return claiming exemption under Section 35-AC, which was processed under Section 143(1). Subsequently, on the basis of information received from the DCIT that Navjeevan Charitable Trust has accepted donations in cheque, which was later on returned in cash to the donor after deducting the commission and the assessee is one of the beneficiaries who has claimed deduction of the donation made to Navjeevan Charitable Trust, proceedings under section 147 of the Act were initiated and notice under section 148 of the Act was issued. In response, the assessee submitted that there is no material available on record that the donation was received by the trust and after deduction of commission the cash was given to the assessee. Moreover, nowhere assessee's name has been mentioned. The assessee also submitted that the grant of income tax exemption certificate and time-to-time renewal of the same makes the assessee to believe that the trust activities are being carried out for the purpose for which the approval was granted. The Assessing Officer did not agree with the submission and disallowed the deduction claim by the assessee under section 35-AC of the Act and added the same to the total income of the assessee.

The CIT(A) upheld the initiation of reassessment proceedings under section 147 of the Act and also dismissed the appeal filed by the assessee against disallowance of deduction claimed under section 35-AC of the Act.

The Bench noted that a similar issue came up for consideration before the Co-ordinate Bench of the Tribunal in assessee's own case, wherein assessee has made the donation and has submitted all the relevant information with regard to payment of donation and all these donations were made through banking channels.

The Bench mentioned that the assessee submitted that the trustee had not named the assessee as recipient of cash and there was no substantiated statement that the appellant received the cash back from the trust.

The Bench further stated that “it is evident from the assessment order that the deduction has been denied to the assessee only in the basis of allegations that the donations were bogus donations and the amount so donated has flown back to the assessee”.

Therefore, on finding the deduction claimed under section 35-AC of the Act in respect of the donation made to Navjeevan Charitable Trust was denied, the ITAT directed the AO to allow the claim of deduction under section 35-AC of the Act.

Counsel for Appellant/ Taxpayer: Piyush Chhajed

Counsel for Respondent/ Department: Mahita Nair

Case Title: Ravindra K. Reshamwala verses Income Tax Officer

Case Number: ITA no.2925/Mum/2023

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