In an important ruling reiterating the principle that substantive tax benefits should not be denied due to technical errors, the Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has restored a donation deduction claim relating to the Gujarat Cancer Society back to the Assessing Officer (AO) for fresh examination for Assessment Year (AY) 2021-22.
The Tribunal allowed the appeal for statistical purposes, holding that the tax authorities were required to examine the assessee’s entitlement to deduction under the correct statutory provision, rather than rejecting the claim outright due to an incorrect section being quoted.
Facts of the Case
The assessee had made a donation of ₹2.15 lakh to the Gujarat Cancer Society during AY 2021-22. In the return of income, the assessee claimed deduction of this amount under section 80GGA of the Income-tax Act, 1961. During assessment proceedings, the Assessing Officer disallowed the deduction, observing that:
- Section 80GGA applies only where the assessee does not have business income, and
- Since the assessee admittedly had business income, the claim under section 80GGA was not maintainable.
The disallowance was upheld by the lower appellate authority.
Alternative Claim Under Section 35(1)(ii)
Before the appellate authorities, the assessee raised an alternative plea, contending that the donation was in fact eligible for deduction under section 35(1)(ii) of the Act. The assessee’s contention was that:
- The Gujarat Cancer Society is a notified institution, and
- It is engaged in scientific research, making donations to it eligible for deduction under section 35(1)(ii), subject to fulfilment of statutory conditions.
However, this alternative claim was rejected by the lower authorities, primarily on the ground that the original claim had been made under section 80GGA and not under section 35(1)(ii), without examining whether the donation otherwise satisfied the conditions of section 35(1)(ii).
Tribunal’s Analysis and Observations
The ITAT took a taxpayer-friendly view and made several significant observations:
- Tax authorities are duty-bound to assist taxpayers in claiming deductions that are otherwise legally admissible
- A bona fide error in mentioning an incorrect section should not result in denial of a legitimate deduction
- When all material facts are already available on record, the claim should be examined on merits rather than rejected on technical grounds
The Tribunal emphasised that substance must prevail over form, especially in cases involving charitable or research-related donations.
Direction to the Assessing Officer
In light of the above, the ITAT set aside the orders of the lower authorities and restored the matter to the file of the Assessing Officer with specific directions to:
- Verify whether the Gujarat Cancer Society was duly notified for the purposes of section 35(1)(ii) during the relevant period
- Examine whether the conditions prescribed under section 35(1)(ii) were fulfilled
- Grant the deduction in accordance with law, if the statutory requirements are satisfied
Accordingly, the appeal was allowed for statistical purposes.
Key Legal Takeaways
- An incorrect reference to a deduction provision does not automatically disentitle a taxpayer from relief
- Authorities must consider alternative claims if they are otherwise permissible under law
- Donations to institutions engaged in scientific research require careful examination under section 35(1)(ii)
- Procedural lapses should not defeat substantive tax rights
Comparison: Section 80GGA vs Section 35(1)(ii)
In the present ITAT ruling, the Tribunal held that a mistaken claim under section 80GGA should not bar examination of eligibility under section 35(1)(ii), reinforcing the principle that legitimate deductions should not be denied due to technical errors.
| Particulars | Section 80GGA | Section 35(1)(ii) |
| Nature of Deduction | Deduction for donations made for scientific research or rural development | Deduction for donations to approved institutions engaged in scientific research |
| Eligible Assessee | Assessees not having business income | Assessees having business income, including companies and firms |
| Applicability to Business Income | ❌ Not applicable if the assessee has business income | ✅ Specifically available to assessees with business income |
| Eligible Recipient | Approved institutions or associations engaged in scientific research or rural development | Notified scientific research institutions approved by the Central Government |
| Requirement of Notification | Approval required, but not necessarily notified under section 35 | Mandatory notification under section 35(1)(ii) |
| Quantum of Deduction | 100% of the amount donated (subject to conditions) | Deduction as prescribed under section 35(1)(ii), subject to fulfilment of statutory conditions |
| Relevance in the Present Case | Claim disallowed as assessee had business income | Matter restored to AO to verify eligibility under this section |
| Key Compliance Risk | Claim fails if business income exists | Claim fails if institution is not properly notified or conditions are not met |
| Judicial Emphasis | Strict applicability based on nature of income | Substance of eligibility to be examined even if wrongly claimed earlier |
Why This Ruling Matters
This decision reinforces the long-standing judicial principle that tax administration should be facilitative rather than adversarial. It provides reassurance to taxpayers that genuine claims will not be rejected merely because of technical or clerical mistakes, so long as the underlying legal conditions are met. For practitioners, the ruling highlights the importance of:
- Evaluating all possible deduction provisions, and
Raising alternative claims during appellate proceedings wherever justified.
Source: TaxGuru