TMI Blog2022 (6) TMI 470X X X X Extracts X X X X X X X X Extracts X X X X ..... ith 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. Also see M/S POOJA HARDWARE PVT. LTD. VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX 13 (1) (1) , MUMBAI [ 2019 (10) TMI 1281 - ITAT MUMBAI] .Thus we uphold the order of the CIT(A) who had vacated the disallowance of the assessee's claim for deduction u/s 35(1)(ii) - Decided in favour of assessee. Disallowance u/s.40A(2)(b) - payment of salary made to related party - HELD THAT:- A.O while working out the disallowance under the aforesaid statutory provision, had though observed that the pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter due verification of material found during such action? 3. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in holding that if there were any allegations or reports against the assessee, the same ought to have been shared and provided to the assessee for his explanation, in spite of the fact that the A.O. had provided copy of notification vide which approval was withdrawn, to the assessee for his explanation? 4. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified by not considering the CBDT's Notification dated 15-09-2016, which categorically specified that ....Shall be deemed that the said notification has not been issued for any tax benefits under the Income Tax Act, 1961 or any other law for the time being in force? 5. Whether on the facts and in the circumstances of the case, the Ld. CIT(A) was justified in restricting the disallowance made u/s. 40A(2)(b) on the basis of comparison of NP rate of previous year? 6. The Order of the Ld. CIT(A) is erroneous both in law and on fact. 7. Any other ground that may be adduced at the time of hearing. Also, the assessee is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to M/s. School of Genetics and Population Health (SHG PH) Rs. 70 lakhs 2. Disallowance u/s.40A(2)(b) Rs.5 lakhs 3. Aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). Observing, that as on the date on which the assessee had given donation to a society, viz. School of Human Genetics and Pollution Health ( SHG PH , for short) which as on the date of making of such donation by the assessee had the exemption from the prescribed authority; and no material/evidence had surfaced in the course of the survey proceedings conducted against the aforesaid society which would justify drawing of adverse inferences as regards the authenticity of the assessee's claim of having donated aforementioned amount, the CIT(Appeals) vacated the disallowance by the AO of the assessee's claim for deduction of Rs. 70 lac u/s. 35(1)(ii) of the Act. Apropos the assessee's claim of having paid a salary of Rs. 6 lac each to Smt. Parul Kanda and Smt. Shruti Kanda i.e., related parties, it was observed by the CIT(Appeals) that the AO had after making an aggregate disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in cull out the 'Explanation' to Sec. 35(1)(ii) of the Act which will have a strong bearing on the adjudication of the issue under consideration, and reads as under: Explanation.-The deduction, to which the assessee is entitled in respect of any sum paid to a research association, university, college or other institution to which clause (ii) or clause (iii) applies, shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to the association, university, college or other institution referred to in clause (ii) or clause (iii) has been withdrawn; Now, in the case before us, we find that the aforesaid research institution i.e, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that exactly on identical issues the co-ordinate Bench of this Tribunal 'B' Bench Kolkata in the case of DCIT vs. Maco Corporation (India) Pvt. Ltd. in ITA No. 16/Kol/2017 vide order dated 14.03.2018 for AY 2013-14 has considered the issue in regard to very same trust i.e. SGHPH and holds that prior to the date of donation under cancellation of registration has happened and there is absolutely no provision of withdrawal of recognition under section 35(1)(ii) of the Act. Hence, allowed the claim of the assessee by observing in Para 8.1 and 8.5 as under:- 8.1. The brief fact pertaining to SGHPH are as under:- a) SGHPH was recognized vide Gazette Notification dated 28.1.2009 issued by the Central Board of Direct Taxes (CBDT in short), Ministry of Finance (Department of Revenue), Government of India, u/s. 35(1)(ii) of the Act. b) SGHPH was also recognized as a scientific industrial research organization (SIRO) by Ministry of Science Technology, Government of India. The renewal of recognition as SIRO by the Department of Scientific and Industrial Research under the Scheme on Recognition of Scientific and Industrial Research Organisation, 1988 was made for the period f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed 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. The Grounds of appeal No(s). 1 to 4 raised by the revenue are dismissed. 7. We shall now deal with the claim of the revenue and also the grievance of the assessee, both of which hinges around the disallowance u/s. 40A(2)(a) of Rs. 5 lac (i.e @ Rs. 2,50,000/- per person) out of the assessee's claim for deduction of salary of Rs. 12 lac (i.e @ Rs. 6 lac each per person) that was claimed by the assessee to have been paid to Smt. Parul Kanda and Smt. Shruti Kanda, i.e related parties, which disallowance as observed by us hereinabove was restricted by the CIT(Appeals) to an amount of Rs. 3 lac (i.e @ Rs. 1,50,000/- each per person). 8. As observed by us hereinabove, the AO taking cognizance of the fact that the assessee had claimed to have paid a salary of Rs. 6 lac each to Smt. Parul Kanda and Smt. Shruti Kanda, i.e. related parties, had after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om, then, so much of the expenditure as is so considered by him to be excessive or unreasonable shall not be allowed as a deduction. However, in the case before us, we find that though the A.O while working out the disallowance under the aforesaid statutory provision, had though observed that the payment of salary to the aforementioned two related parties in question was found to be excessive, but had fundamentally erred by not opining as to what as per him was the fair market value of the service which were being rendered by the aforementioned related persons, considering which the payments made to them by the assessee were to held as excessive. Before the CIT(Appeals) the state of affairs we find was no better, as he too without addressing the aforesaid fundamental and material requirement contemplated under Sec. 40A(2)(a) of the Act had though on an ad-hoc basis allowed some relief to the assessee, but had allowed the mistake of the AO to perpetuate. On the basis of our aforesaid observations, we are unable to concur with the view taken by either of lower authorities and holding a conviction that both of them had fundamentally erred in not appreciating the mandate of Section 40A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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