Revision u/s 263 upheld for bogus 80G donations allowed without proper inquiry; assessee's appeal dismissed

ITAT upheld the revisionary jurisdiction exercised u/s 263 by the PCIT, holding the original assessment order to be erroneous and prejudicial to the interests of Revenue. The AO had allowed deduction u/s 80G on donations to a trust later found to be involved in providing bogus donations, despite the Department having such information during the assessment proceedings. As the AO failed to conduct any specific enquiry into the allowability of the 80G claim in light of this adverse information, the assessment was held to suffer from lack of proper inquiry. The order u/s 263 was sustained and the assessee's appeal was dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the assessment orders allowing deduction under Section 80G on donations made to a charitable organization subsequently found to be engaged in a bogus donation racket, without specific enquiry by the Assessing Officer in light of available adverse information, were "erroneous in so far as they are prejudicial to the interests of the Revenue" so as to justify revision under Section 263.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of revision under Section 263 in respect of deduction under Section 80G on donations to an entity found providing bogus donations

(a) Legal framework (as discussed)

2.1 The Tribunal proceeded on the settled requirement that for invoking Section 263, the order of the Assessing Officer must be both "erroneous" and "prejudicial to the interests of the Revenue". An order is erroneous where the Assessing Officer fails to make a conscious attempt to examine a relevant issue on the basis of material on record and does not consider a relevant point, thereby committing a mistake.

(b) Interpretation and reasoning

2.2 The Tribunal recorded that the Principal Commissioner had specific information, emanating from a search and seizure action under Section 132 in the case of "Political Parties and Charitable Organizations Group", that the concerned charitable organization (Aadhar Foundation) was engaged in a bogus donation racket. Incriminating material showed that bank accounts were used only to receive "donations" and route them back to the so-called donors (after retaining a commission), enabling them to claim bogus deductions under Section 80G/80GGB/80GGC.

2.3 It was undisputed that the assessee made donations to this organization in both assessment years and claimed deduction under Section 80G, and that this deduction was allowed in scrutiny assessments under Section 143(3).

2.4 It was also undisputed, and expressly admitted by the assessee's counsel, that no specific enquiry was made by the Assessing Officer regarding the allowability of the Section 80G claim in the light of the search information that the donee organization was involved in providing bogus donations, though this information was already available with the Department when the assessments were framed.

2.5 The Principal Commissioner noted that the case had been selected for scrutiny with the reason "deduction under Chapter VIA", and yet the Assessing Officer did not examine the 80G claim against the background of the adverse material regarding the donee. The Principal Commissioner characterized this as failure of the Assessing Officer to apply his mind to a relevant and material aspect.

2.6 The assessee's main defence before the Principal Commissioner and the Tribunal was that the donation was actually paid and was genuine from its perspective, and that it was ignorant of any wrongdoing by the trust. The Tribunal noted that the Principal Commissioner had rejected this contention, holding that ignorance of the trust's wrongdoing did not alter the fact that the donation was part of a bogus donation racket; as the donation was not genuine in substance, deduction under Section 80G was not allowable.

2.7 The Tribunal rejected the argument that, merely because the adverse information existed with the Department during assessment, it should be "presumed" that the Assessing Officer considered it while allowing the deduction. Given the admitted lack of any enquiry by the Assessing Officer on the 80G claim vis-à-vis the adverse material, the Tribunal held that no such presumption could be drawn.

2.8 The Tribunal endorsed the Principal Commissioner's finding that the Assessing Officer had not made any conscious attempt to examine the allowability of the 80G deduction in light of the material showing the donee's involvement in bogus donations. This non-examination was treated as a clear mistake resulting in an erroneous order and prejudice to the Revenue.

(c) Conclusions

2.9 The Tribunal concluded that:

* The assessment orders were erroneous because the Assessing Officer failed to examine a material issue-the genuineness and allowability of the Section 80G deduction to the specific donee-despite the existence of adverse information from a search indicating bogus donations.

* The orders were prejudicial to the interests of the Revenue because the omission resulted in allowance of a deduction which, in the circumstances, was prima facie not allowable.

* The Principal Commissioner was justified in invoking Section 263 and setting aside the assessments on this issue for fresh verification.

2.10 Accordingly, the Tribunal upheld the Section 263 orders for both assessment years and dismissed the assessee's appeals.

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