2025 (7) TMI 1680 - AT - Income Tax

Revision allowed under Section 263 for donation claim under Section 80GGC due to lack of AO inquiry

ITAT Ahmedabad allowed the revision under section 263 regarding the allowability of donation claimed under section 80GGC. The tribunal held that the ... Revision u/s 263 - allowability of Donation claimed u/s 80GGC - HELD THAT:- Case law relied by the CIT.DR namely Milind Pankajbhai Shroff [2024 (5) TMI 1598 - ITAT RAJKOT] is against the claim of deduction u/s.80GGC wherein donation made to political parties as held assessee had contributed donation of a sum u/s 80GGC of the Act to the 'Rashtriya Samajwadi Party (Secular), a political party. which remain unexamined and unattended on the part of the assessing officer - Hence, it is a case of no enquiry, on the part of the assessing officer, so far deduction u/s 80GGC of the Act, is concerned. AO has not conducted any enquiry in respect of said donation by issuing notices under section 142(1). The grounds raised by the assessee are devoid of merits and liable to be dismissed. ISSUES: Whether the revisionary powers under section 263 of the Income Tax Act, 1961 can be invoked to set aside an assessment order where the Assessing Officer has not made any enquiry into the genuineness of donations claimed as deduction under section 80GGC.Whether the Assessing Officer's order can be held erroneous and prejudicial to the interest of revenue for failure to investigate claims of donation to political parties alleged to be bogus.Whether the principle of 'fraud vitiates everything' applies to disallow deductions claimed on donations to political parties found to be involved in bogus donation schemes.Whether the assessee was given a fair opportunity of hearing and access to relevant material relied upon by the revisional authority before invoking revisionary jurisdiction under section 263.Whether reliance on statements recorded during search proceedings against political parties, implicating them in bogus donation schemes, justifies reopening or revision of assessment orders. RULINGS / HOLDINGS: The revisionary powers under section 263 can be invoked where the Assessing Officer has failed to make any enquiry or investigation into the claim of deduction, rendering the assessment order 'erroneous and prejudicial to the interests of Revenue.'The Assessing Officer's order was found erroneous and prejudicial because 'there is no enquiry on the part of the assessing officer' regarding the donations claimed under section 80GGC, thus justifying the Principal Commissioner's revision under section 263.The principle that 'fraud vitiates everything' applies, and where donations are found to be part of an elaborate scheme of bogus donations, the claim for deduction is void ab initio and cannot be sustained despite any documents produced before the Assessing Officer.The assessee was provided copies of statements relied upon by the revisional authority and given opportunity to respond; thus, the revision proceedings did not violate principles of natural justice.Statements recorded under section 132(4) during search proceedings, admitting that political parties involved in the case operated bogus donation schemes, constitute valid material to initiate revision proceedings and direct fresh assessment. RATIONALE: The Court applied the statutory framework of section 263 of the Income Tax Act, 1961, which empowers the Principal Commissioner to revise an order if it is 'erroneous in so far as it is prejudicial to the interests of the Revenue.'The Court relied on the Supreme Court precedent in Malabar Industries Ltd. vs. CIT, emphasizing the twin conditions for invoking section 263: (i) the order must be erroneous, and (ii) prejudicial to the Revenue's interest, including failure by the Assessing Officer to investigate or apply mind.The Court distinguished the facts from precedents where information was not furnished to the assessee during revision proceedings, noting that in the present case, relevant statements were provided and considered.The Court endorsed the principle that an Assessing Officer has a dual role as investigator and adjudicator, and failure to conduct enquiry on suspicious claims amounts to an erroneous order.The Court recognized the binding effect of statements recorded during search actions under section 132(4), which revealed the modus operandi of bogus donations involving refunding donations after deducting commissions, thereby invalidating the deduction claims.The Court invoked the doctrine that 'fraud vitiates everything,' supported by Supreme Court decisions, holding that transactions tainted by fraud are void ab initio and cannot be protected by principles of natural justice or procedural safeguards.The Court relied on coordinate bench decisions on identical facts, reinforcing the principle that non-enquiry by the Assessing Officer on suspicious donations justifies revision and fresh assessment.No dissent or doctrinal shift was noted; the decision follows established jurisprudence on the scope and limits of revisionary powers under section 263 and the treatment of fraudulent transactions under tax law.