Trust appeal allowed: Registered u/s 12A, donation taxed under IDS already; cannot be reassessed under s.148

ITAT allowed the trust's appeal, finding the trust was registered u/s 12A and its assessment reopened under s.148 based on a donor's statement. The trustee admitted financing the donation and separately offered that amount to tax under the IDS, paying the liability. As the amount has already suffered tax, the Tribunal held it cannot be assessed twice and set aside the lower authority's disallowance, allowing the appeal.

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ISSUES PRESENTED AND CONSIDERED

1. Whether a corpus donation received by a trust can be brought to tax where the donor's statement and subsequent enquiries cast doubt on its genuineness, justifying reopening of assessment under section 147/148.

2. Whether an addition of the same amount to the income of a trust can be sustained where the trustee has already offered that amount to tax under the income disclosure scheme (IDS) and tax has been paid.

3. Whether proceedings to cancel the trust's registration under section 12A affect the above conclusions and the applicable remedy.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of reopening assessment under section 147/148 on basis of third-party statement

Legal framework: Reopening of assessment under section 147/148 requires formation of a belief that income has escaped assessment, supported by material. Questioning genuineness of a receipt is a recognized basis for reopening if supported by credible material gathered subsequently.

Precedent Treatment: The Tribunal treated the donor's statement recorded during survey under section 133A as the triggering material for reopening; this treatment was accepted by the Court as a legitimate ground for formation of belief to reopen.

Interpretation and reasoning: The Court noted that the director of the donor during survey stated that the corpus donation was not genuine and was an accommodation entry; that statement constituted fresh material capable of giving rise to a belief that income had escaped assessment. The trustee's subsequent admission in a statutory declaration further reinforced that material. Therefore, the reopening was factually and legally grounded.

Ratio vs. Obiter: Ratio - reopening based on credible third-party statement during survey is valid when it constitutes material pointing to escapement of income.

Conclusion: The reopening under section 147/148 was properly initiated on the basis of the donor's statement and associated material.

Issue 2 - Whether the addition can be sustained where the trustee already offered the amount to tax under IDS and paid tax (prohibition on double assessment)

Legal framework: The principle that the same income cannot be taxed twice, and that an assessment cannot be made upon income which has already been included in a taxpayer's taxable income, governs whether further additions are sustainable. Relief under law for amounts already taxed elsewhere may bar tax levied again.

Precedent Treatment: The Tribunal applied the settled principle from higher authority that once income is assessed and taxed, it cannot be subjected to a second assessment; the Court affirmed that principle as controlling here.

Interpretation and reasoning: The AO added the corpus donation to the trust's income notwithstanding the trustee's disclosure and taxation under IDS. The Tribunal observed that the trustee (a connected person) admitted financing the donation and had offered and paid tax on that amount under IDS. As the amount had already suffered tax in the hands of the trustee, treating the same amount as assessable income of the trust would amount to double taxation. The Tribunal concluded there was no justification to uphold an addition that would tax the same economic receipt twice. The pending administrative step to cancel registration did not negate the fact that the amount had been taxed once.

Ratio vs. Obiter: Ratio - where an amount has been offered and taxed under a valid disclosure (IDS) by a connected person, the revenue cannot validly tax the same amount again in the hands of the recipient trust; double assessment is impermissible.

Conclusion: Addition of the Rs.20.00 lakhs to the trust's income was to be deleted because the amount had already been subjected to tax when offered under IDS by the trustee, invoking the prohibition on double taxation.

Issue 3 - Effect of cancellation proceedings under section 12A on taxability and remedial orders

Legal framework: Cancellation of registration under section 12A may affect future exemption claims but does not automatically determine tax liability for amounts already assessed and taxed, nor justify double assessment for the same monetary receipt.

Precedent Treatment: The Court considered the administrative action to cancel registration as a separate process and not determinative of whether an addition should stand where taxation had already occurred in another person's hands.

Interpretation and reasoning: The AO noted cancellation proceedings before the jurisdictional authority; however, the Tribunal held that such proceedings did not cure the vice of double assessment. Even if registration cancellation were to be completed, it would not retroactively validate taxing an amount already subjected to tax elsewhere. The Tribunal therefore directed deletion of the addition independent of the cancellation process.

Ratio vs. Obiter: Ratio - pending or contemplated cancellation of registration under section 12A does not authorize reassessment that results in double taxation of the same amount already taxed in the hands of another person.

Conclusion: Cancellation proceedings did not operate to sustain the impugned addition; the addition must be deleted notwithstanding those proceedings.

Cross-references and final directive

The Tribunal reconciled the validity of reopening (Issue 1) with the prohibition on double taxation (Issue 2): while the reopening was valid on the stated material, the subsequent addition could not be sustained because the same amount had already been offered and taxed under IDS by a connected person. Consequently, the Tribunal set aside the appellate authority's order upholding the addition and directed the assessing officer to delete the addition. The order allowing the appeal is a decision on merits applying the non-double taxation principle.

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