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ITAT allows Deduction u/s 35(1)(ii) on Account of Donation
February, 08th 2021

The Income Tax Appellate Tribunal (ITAT), Pune Bench allowed the deduction under Section 35(1)(ii) of the Income Tax Act on account of donation.

The assessee, MRC Transolutions Pvt. Ltd. made a donation of Rs.1.25 Crores to one organization called the School of Human Genetics and Population Health (hereinafter called SHGPH).

The Assessing Officer in order to verify the genuineness of the claim conducted enquiry with the said organization by issuing notice under section 133(6) of the Act.

In response to the said enquiry notice, the SHGPH responded that the said organization filed a petition under section 245C of the Act before the Settlement Commission, before whom, it was admitted that it was engaged in providing accommodation entries for donations through certain mediators and the donations were refunded to the donors after retaining the service charges.


The donations as well as the refunds were made only through banking channels. It was further submitted that the application was made before the Settlement Commission was admitted. Further, the Assessing Officer received information from the Investigation Unit of the Department from Kolkata that said the organization is engaged in providing accommodation entries of donations.

However, the Assessing Officer disallowed the claim for deduction under section 35(1)(ii) of the Act, drawing adverse inferences against the appellant.

The assessee contended that there is no conclusive proof brought on record by the Department to show that the appellant company received back part of the donations made to the said organization either in cash or in any other form and the appellant was not given an opportunity of cross-examination.

On the other hand, CIT-DR contended that from the very fact that the research organization i.e. SHGPH admitted that the modus operandi before the Hon’ble Settlement Commission is conclusive evidence to show that the donee had been engaged in the fraudulent activities of providing the accommodation entries for donors and the assessee had failed to discharge primarily the onus cast upon it.


The coram of S.S. Vishwanethra Ravi and Inturi Rama Rao noted that the Assessing Officer had failed to enforce the attendance of officers of donee organization for purposes of cross-examination by the appellant by exercising powers vested with him.

“The legislative intent of Parliament to allow the deduction under section 35(1)(ii) in the hands of the donors, notwithstanding the fact that the approval granted earlier to the Research Organization was withdrawn retrospectively,” the ITAT ruled.

Therefore, the ITAT opined that the claim made by the assessee company towards deduction under section 35(1)(ii) of the Act on account of donation made to SHGPH is clearly allowable.

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