2022 (12) TMI 1545 - AT - Income Tax

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 ... Reopening of assessment u/s 147 - Disallowances of deduction claimed by the assessee u/s 35(1)(ii) for grant of donation to SHG&PH i.e. School of Human Genetics and Population Health - whether the appellants are entitled to weighted deduction @ 175% of the donations given by them to allege Research Institute namely SHG&PH u/s 35(1)(ii) - HELD THAT:- The reasons for reopening are available as perused these reasons. AO has observed that he has received the information from the DIT (Investigation), Kolkata and he formed a belief that income has escaped assessment with regard to the bogus claim of donation under section 35(1)(ii) - Assessee has filed objections to these reasons and AO has disposed of them. The stand of the assessee is that in the reasons, AO has not observed that these are bogus donations. There is no application of mind at his own, rather he treated the letter of the DIT(Investigation), Kolkata as gospel truth. On due consideration of the above, we are of the view that AO did not commit any error in reopening the assessment. The information supplied by the Principal DIT(Investigation), Kolkata was sufficient to harbour belief that income in the shape of alleged claim of donation to Herbicure is a bogus one, because the Department was able to lay its hand on a large number of material, which was available with the Revenue and it was intimated to all the AO. AO has made reference to the statements of the Founder and Director Shri Dasgupta as well as other persons, who have deposed during the survey and post-survey inquiries. Thus we are of the view that sufficient material was available with the ld. AO for forming an opinion that income has escaped assessment. We do not find any merit in this ground of appeal. It is rejected in both the years. Determination of taxable income by the ld. Deputy Commissioner - On distribution of work amongst the ITOs, vis-a-vis Addl. Commissioner/Deputy Commissioner even no order for transfer of jurisdiction u/s 127 is required to be passed. This is an exercise after the process of selection of the case for scrutiny. Once computer identifies a particular case for selection of scrutiny, then on the basis of PAN data, notice is to be issued upon the assessee providing an opportunity to the assessee that its case has been selected for scrutiny assessment and kindly submit what the assessee wants to submit in support of the return. As observed earlier, the process of selection for scrutiny does not contemplate any discretion in the Assessing Officer. He is bound to follow the CBDT guidelines issued for the purpose of selection of the cases for scrutiny. Thus in this case also, AO has issued the notice on the basis of PAN Data, which infuses jurisdiction in ITO, Ward-10 and thereafter following the Instruction No. 1 of 2011, the case was taken up for determination of taxable income by the ld. Deputy Commissioner. There is no violation in the procedure. Hence, additional ground of appeal is rejected. 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).