ITAT allows appeal against revision order challenging political party donation deduction under section 80GG inadequate inquiry claim

ITAT Ahmedabad allowed assessee's appeal against CIT's revision order u/s 263. CIT sought to revise AO's assessment accepting political party donation deduction u/s 80GG, claiming inadequate inquiry. ITAT held inadequate inquiry cannot make AO's order erroneous unless law is wrongly applied. AO had made inquiries and accepted donation genuineness based on available material. Search revealing political party's donation scam occurred after assessment, so AO couldn't consider those findings. ITAT distinguished between lack of inquiry and inadequate inquiry, ruling AO's order wasn't erroneous or prejudicial to revenue interest.

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Issues Involved:
1. Whether the assessment order under section 143(3) of the Income Tax Act was erroneous and prejudicial to the interests of the revenue.

Summary:

Issue: Erroneous and Prejudicial Assessment Order

The assessee claimed significant deductions under Chapter VI-A of the Income Tax Act for the Assessment Year 2018-2019, including a Rs. 25 lakh donation to "Rastriya Samajwadi Party" under section 80GG. The AO accepted these claims after scrutiny and verification of the supporting documents. However, the learned Principal Commissioner of Income Tax (PCIT) found that the AO failed to properly verify the source of the Rs. 25 lakh donation, especially considering a subsequent search revealing the political party's involvement in a donation scam. The PCIT invoked section 263 of the Act, deeming the AO's order as erroneous and prejudicial to the interests of the revenue, and directed a fresh assessment.

Arguments by the Assessee:

The assessee contended that the AO had conducted a thorough inquiry, verified all relevant documents, and thus the assessment order could not be considered erroneous. The assessee provided a detailed paper book and argued that the AO's acceptance of the deduction claim was based on adequate inquiry and documentation.

Tribunal's Analysis:

The Tribunal examined the principles regarding the adequacy of inquiry by the AO and the scope of revisionary powers under section 263. It referenced multiple judicial precedents, including decisions by the Delhi High Court, Bombay High Court, and the Supreme Court, which distinguish between "lack of inquiry" and "inadequate inquiry." The Tribunal emphasized that an order cannot be deemed erroneous merely because the PCIT believes further inquiry was needed.

Key Judicial Precedents:

- Delhi High Court (CIT Vs. Sunbeam Auto): Highlighted the distinction between lack and inadequacy of inquiry.
- Bombay High Court (Gabriel India Ltd.): Stressed that the Commissioner's revisionary powers should not be used for fishing and roving inquiries.
- Supreme Court (Shree Gayatri Associates and Canara Bank Securities Ltd.): Affirmed that an AO's plausible view and adequate inquiry should not be overruled by the PCIT's subjective opinion.

Conclusion:

The Tribunal found that the AO had made adequate inquiries and applied his mind to the facts before accepting the deduction claims. The subsequent discovery of the political party's involvement in a scam could not retroactively render the AO's order erroneous, as the search occurred after the assessment was completed. Therefore, the Tribunal quashed the PCIT's revisionary order under section 263, allowing the assessee's appeal.

Order:

The appeal filed by the assessee is allowed, and the Tribunal's decision was pronounced on 30/11/2023 at Ahmedabad.

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