AO justified in reopening assessment under section 147 for bogus donation claims under section 35(1)(ii)

The ITAT Kolkata upheld the AO's decision to reopen assessment under section 147 regarding bogus donation claims under section 35(1)(ii) to a research institute. The appellant challenged the reopening and jurisdictional transfer to Deputy Commissioner. The tribunal found sufficient material from DIT(Investigation) Kolkata, including statements from the institute's founder and director, justified the AO's belief that income escaped assessment through fraudulent donation claims. The jurisdictional transfer was deemed procedurally valid under CBDT guidelines without requiring a formal transfer order under section 127. Both grounds of appeal were rejected for the relevant assessment years.

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Issues Involved:

1. Disallowance of deduction claimed under section 35(1)(ii) of the Income Tax Act.
2. Reopening of assessment under section 147 of the Income Tax Act.
3. Jurisdictional issue regarding the issuance of notice under section 143(2) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Disallowance of Deduction Claimed Under Section 35(1)(ii):

The primary issue in all the appeals was whether the appellants were entitled to a weighted deduction of 175% on donations made to the School of Human Genetics and Population Health (SHG&PH) under section 35(1)(ii) of the Income Tax Act. The Revenue argued that the donations were bogus, as SHG&PH was involved in providing accommodation entries for donations, a fact admitted by SHG&PH before the Settlement Commission. The Revenue presented substantial evidence, including statements from brokers and the institution's representatives, indicating that the donations were returned in cash after deducting a commission. The Tribunal found that the appellants failed to demonstrate the genuineness of their donations beyond the institution's approval status and that the Revenue had effectively dispelled the appellants' claims with credible material. Consequently, the Tribunal upheld the disallowance of the deduction, emphasizing the organized fraud involved in the transactions.

2. Reopening of Assessment Under Section 147:

In the cases of Abhilasha Tradecom Pvt. Limited, the issue of reopening the assessment under section 147 was raised. The Tribunal reviewed the reasons for reopening and found that the Assessing Officer had received credible information from the Director (Investigation) about the bogus nature of the donations. The Tribunal concluded that the Assessing Officer had sufficient material to form a belief that income had escaped assessment, thereby justifying the reopening of the assessments. The objections raised by the assessee regarding lack of application of mind by the Assessing Officer were dismissed, and the reopening of the assessments was upheld.

3. Jurisdictional Issue Regarding Notice Under Section 143(2):

In the case of Tarasafe International Pvt. Limited, the appellant raised an additional ground challenging the jurisdiction of the Income Tax Officer (ITO) to issue a notice under section 143(2), arguing that it should have been issued by a Deputy Commissioner/Assistant Commissioner as per CBDT Instruction No. 1 of 2011. The Tribunal examined the process of selection for scrutiny, which is computerized and based on the Computer Assisted Scrutiny System (CASS), and found that the initial jurisdiction was with the ITO, Ward-10, based on PAN data. The Tribunal concluded that the issuance of the notice by the ITO was procedural and did not involve a jurisdictional error, as the assessment was ultimately conducted by the Deputy Commissioner in accordance with the CBDT instructions. Therefore, the additional ground of appeal was rejected.

Conclusion:

The Tribunal dismissed all the appeals, upholding the Revenue's disallowance of the deductions claimed under section 35(1)(ii) due to the fraudulent nature of the donations, affirming the validity of the reopening of assessments, and rejecting the jurisdictional challenge regarding the issuance of the notice under section 143(2).

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