2025 (7) TMI 1101 - AT - Income Tax

Assessment reopening upheld for bogus donation deduction under section 35(1) to unnotified foundation

The ITAT Chandigarh upheld the CIT(A)'s decision allowing reopening of assessment based on 'reasons to believe' rather than mere 'reasons to suspect.' The ... Reopening of assessment - reasons to believe or reasons to suspect - deduction u/s 35(1) on the basis of donation made to Indian Medical Scientific & Research Foundation (‘IMSRF’) which was engaged in giving bogus donation entries - HELD THAT:- CIT(A) has clearly and categorically brought it on record that the AO had a definite information that the Assessee was claiming deduction u/s 35(1) on the basis of donation made to Indian Medical Scientific & Research Foundation (‘IMSRF’) which was engaged in giving bogus donation entries to the so-called donors in order to claim deduction u/s 35(1) of the I.T. Act. In our view, the findings given by the ld. CIT( A) on this issue, is very clear and that it was a’ reasons to believe’ and not ‘reasons to suspect’ for the Assessing Officer on the basis of information he had received from the DDIT (Inv.) regarding false claim of deduction by the Assessee u/s 35(1) of the I.T. Act. Therefore, in our considered view there is no need to interfere in the findings given by the ld. CIT(A) on this issue. Accordingly, Assessee’s appeal on these grounds is dismissed. Disallowance of deduction u/s 35(1) which was already allowed in the original assessment - Indian Medical Scientific Research Foundation (IMSRF), Sanjay Place, Agra has not been notified u/s 35(1). Charging of interest under the different provisions of the Act - CIT(A) has given findings in his order on this issue in which he has mentioned that charging of interest under different provisions of the Act is mandatory in nature, therefore, he has simply directed the AO to charge interest after verification as per law. In our considered view, there is nothing wrong in it, if the verification is made by the Assessing Officer, whether any interest is chargeable or not. In case, as per law, if some interest is chartable which is mandatory in nature, then there is no way / no escape from charging of such interest. Accordingly, Assessee’ s appeal on this ground is also dismissed. ISSUES: Whether reopening of assessment under sections 147/148 of the Income Tax Act, 1961 was justified based on the reasons recorded by the Assessing Officer (AO).Whether the reopening was based on 'reasons to believe' or merely 'reasons to suspect.'Whether the disallowance of deduction claimed under section 35(1)(ii) of the Income Tax Act, 1961 on donations to a charitable trust was justified.Whether the institution receiving the donation was duly recognized and eligible for deduction under section 35(1)(ii).Whether the levy of interest under various provisions of the Income Tax Act was proper and mandatory. RULINGS / HOLDINGS: The reopening of assessment under sections 147/148 was upheld as the AO had 'reasons to believe' based on information from DDIT (Inv.) that the assessee had claimed deduction on donations to a trust engaged in giving bogus donation entries, and the reopening was within the prescribed time limit; hence, reopening was not based on mere 'change of opinion.'The disallowance of deduction under section 35(1)(ii) was confirmed because the institution to which donation was made was not notified or recognized under section 35(1)(ii) of the Income Tax Act, as supported by a CBDT letter indicating no such notification.The charging of interest under different provisions of the Act was held to be mandatory, subject to verification by the AO, and thus the confirmation of interest levy was proper. RATIONALE: The Court applied the legal framework under sections 147 and 148 of the Income Tax Act, emphasizing that reopening requires 'reasons to believe' that income has escaped assessment, not mere suspicion or change of opinion, and that reopening within four years does not require failure to disclose material facts.Reliance was placed on the information received from the DDIT (Inv.) and the report of the AO indicating that the charitable trust was involved in issuing bogus donation entries, thus providing relevant material for reopening.Regarding section 35(1)(ii), the Court referred to the statutory requirement that the institution must be notified by the CBDT to qualify for deduction; absence of such notification justified disallowance.The mandatory nature of interest under the Income Tax Act was noted, with the AO directed to verify applicability before charging interest, consistent with statutory provisions.