INCOME TAX ACT, 1961

Section 35AC

Business deduction under section 35AC - Denial of deduction under section 35AC on basis of statement of trustee - Opportunity to cross-examine the Trustee was not provided to assessee -

Assessee was engaged in the business of commission, Forex broking, etc., and made donations to a charitable trust and had claimed deduction of the same under section 35AC. On the basis of information received from Dy. CIT, AO reopened assessment on the ground that assessee had obtained accommodation entry from the said charitable trust and hence, the donation was non-genuine. AO disallowed assessee's claim of deduction under section 35AC. CIT(A) rejected the objection of the assessee and dismissed the appeal. Held: Apex Court in the case of ICDS Ltd. [(2020) 273 Taxman 12 (SC) : 2020 TaxPub(DT) 4215 (SC)] held that where opportunity to cross-examine witness relied upon by AO was not extended to the assessee, the entire issue had to be adjudicated afresh by giving fair opportunity to both the sides. Nowhere, it was emanating from perusal of assessment order that the statement recorded by the Department, that was used to disallow assessee's claim was provided to the assessee or the opportunity to cross- examine the person whose statement was used against the assessee was afforded to assessee. AO ought to have provided material used against assessee, apart from providing an opportunity to cross-examine deponent whose statement was used against the assessee. Therefore, matter was remanded back to AO for fresh adjudication after affording opportunity of cross-examination to the assessee.