Money laundering in garb of donations; govt denies tax benefit to Bioved research society donors

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Published: March 12, 2019 5:31:26 AM

The denial of the benefit to donors is on the ground that they were in connivance with Bioved, which was found to be at fault.

tax, income tax, cbdt, money launderingTax experts say the move is in contravention of the guidelines under the income tax law.

The Central Board of Direct Taxes (CBDT) has denied the benefit of deductions to donors to a Uttar Pradesh-based scientific research society, Bioved, whose certification was withdrawn after a departmental inquiry showed that it had indulged in money laundering under the garb of receiving donations.

The denial of the benefit to donors is on the ground that they were in connivance with Bioved, which was found to be at fault.

Tax experts, however, say the move is in contravention of the guidelines under the income tax law.

Institutions that are recognised under Section 35(1) of the IT Act are allowed deductions of certain expenditure on their income tax liability. Similarly, their donors are allowed 150% weighted deductions.
The CBDT has clarified that although the law provides protection to donors of the institute even after its status is withdrawn, it will not extend deduction benefits as the institute lost its standing due to fraud, and not because of technical grounds.

Rakesh Nangia, managing partner, Nangia Advisors (Andersen Global), said: “This direction to take action against the donor is in contravention of the explanation given under the Section 35(1) which provides that any subsequent withdrawal of approval cannot result in denial of deduction in the hands of the donor. CBDT’s plea for this deviation from the law is its peculiar observation that in this case the donors have defrauded the tax authorities in connivance with Bioved.”

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Earlier this year, the CBDT issued a notification saying that investigations into the institute revealed that it had grossly misused the provisions by providing accommodation entries to donors in the name of research activities which enabled them to claim a false weighted deduction. The board said since donors defrauded the revenue department in connivance with the ‘research society’, the department would have to take appropriate remedial action to safeguard the interest of revenue.

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