ITAT upholds s.263 revision for bogus s.80G donation; AO's lack of enquiry hit by Explanation 2

ITAT Ahmedabad upheld the revisionary jurisdiction exercised u/s 263, affirming that the assessment order was erroneous and prejudicial to the interests of the Revenue. The AO had allowed deduction u/s 80G on a donation to a trust subsequently found, pursuant to a search u/s 132, to be involved in providing bogus donation entries. Given the specific information available regarding the trust's involvement in a tax-evasion scam, the AO's failure to conduct requisite enquiry triggered Explanation 2 to s.263. The PCIT's revision was sustained and the assessee's appeal was dismissed.

---

---

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the revisionary jurisdiction under Section 263 was validly invoked on the ground that the assessment order allowing deduction under Section 80G in respect of donation to a particular trust was "erroneous and prejudicial to the interest of the revenue" in view of specific information with the Department about bogus donations.

1.2 Whether mere furnishing of donation receipts and general enquiry by the Assessing Officer was sufficient to preclude action under Section 263 when specific adverse information regarding the donee entity was available but not examined.

1.3 Whether Explanation 2 to Section 263 applied in treating the assessment order as erroneous due to lack of requisite enquiry or verification by the Assessing Officer.

1.4 Whether reliance placed by the assessee on a prior Tribunal decision concerning deduction under Section 80GGC was applicable to the present facts involving deduction under Section 80G to the concerned trust.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Validity of Section 263 revision where AO allowed Section 80G deduction on donation to a trust alleged to provide bogus donations

(a) Legal framework (as discussed)

2.1.1 The Court referred to Section 263 governing revisionary powers of the Principal Commissioner where an order is "erroneous in so far as it is prejudicial to the interests of the revenue".

2.1.2 Explanation 2 to Section 263 was specifically invoked, which deems an order to be erroneous and prejudicial if it is passed without making enquiries or verifications which should have been made.

(b) Interpretation and reasoning

2.1.3 The assessee had claimed deduction under Section 80G in respect of donation of Rs. 12,00,000/- to a trust, and furnished evidence/receipts before the Assessing Officer. The Assessing Officer accepted the claim and completed assessment under Section 143(3) without making any further enquiry regarding the genuineness of the donation in light of adverse information.

2.1.4 The Department was already in possession of information, emanating from a search and seizure action under Section 132 conducted on 02.02.2021 on political parties and charitable organizations including the said trust, that the trust was involved in a scam related to bogus donations and tax evasion.

2.1.5 The Court held that mere furnishing of receipts does not establish genuineness of the donation and corresponding deduction; in the presence of specific incriminating information about the donee's involvement in bogus donations, further enquiry by the Assessing Officer was mandated.

2.1.6 It was noted that, despite such information being available during the pendency of assessment proceedings, the Assessing Officer did not conduct any enquiry or verification regarding the genuineness of the donation or the correctness of the deduction claimed under Section 80G.

2.1.7 Applying Explanation 2 to Section 263, the Court interpreted that where the Assessing Officer fails to make enquiries or verifications which he ought to have made in the given factual context, the assessment order is deemed to be erroneous and prejudicial to the interests of the revenue.

2.1.8 The contention of the assessee that the Assessing Officer had taken a "plausible view" after due verification was rejected, as the record showed only acceptance of receipts without any enquiry in the backdrop of the specific information on bogus donations.

(c) Conclusions

2.1.9 The Court held that, given the information on record about the trust's involvement in providing bogus donations and the admitted absence of enquiry by the Assessing Officer in that backdrop, the assessment order allowing deduction under Section 80G was erroneous and prejudicial to the interest of the revenue.

2.1.10 The invocation of Section 263 and the setting aside of the assessment with directions to reframe the assessment after proper enquiry into the donation and the Section 80G claim were upheld as valid.

2.2 Application of Explanation 2 to Section 263 and adequacy of AO's enquiry

(a) Interpretation and reasoning

2.2.1 The assessee argued that the assessment under Section 143(3) was framed after detailed scrutiny and necessary enquiry, and that Section 263 could not be invoked merely because the Principal Commissioner opined that further enquiry was warranted.

2.2.2 The Court distinguished between a case where an Assessing Officer has taken a possible view after enquiry and a case where he has not conducted the enquiry that was clearly called for in light of available information.

2.2.3 The Court emphasized that Explanation 2 to Section 263 expressly deems an order to be erroneous and prejudicial if passed without making enquiries or verifications that should have been made, and that this applied squarely where known adverse information about the donee existed but was not examined.

2.2.4 The Court accepted the Revenue's stand that the Assessing Officer had merely accepted the assessee's submission without meaningful verification or application of mind to the specific risk of bogus donations from the trust in question.

(b) Conclusions

2.2.5 The Court concluded that the failure of the Assessing Officer to make required enquiry in light of specific incriminating information attracted Explanation 2 to Section 263, thereby justifying the Principal Commissioner's assumption of jurisdiction and revision of the assessment order.

2.3 Relevance of prior Tribunal decisions and distinction between cases

(a) Interpretation and reasoning

2.3.1 The assessee relied on a decision of a Co-ordinate Bench involving deduction under Section 80GGC in respect of donations to a political party, contending that once the Assessing Officer had examined the claim and taken a view, Section 263 could not be invoked.

2.3.2 The Court held that the facts of that case were distinguishable, as the deduction there was under Section 80GGC and did not involve the same entity or the same pattern of information regarding bogus donations as in the present case.

2.3.3 The Court instead followed another Co-ordinate Bench decision involving the same trust and deduction under Section 80G, where identical circumstances existed: information from a search demonstrating the trust's involvement in bogus donations, and absence of specific enquiry by the Assessing Officer despite such information being available.

2.3.4 In that earlier decision involving the same trust, it was held that failure to examine the Section 80G claim in the light of the adverse information rendered the assessment order erroneous and prejudicial, warranting revision under Section 263; the Court considered itself bound to follow that reasoning on materially identical facts.

(b) Conclusions

2.3.5 The Court rejected the assessee's reliance on the decision relating to Section 80GGC as inapplicable to the present factual matrix, and instead adopted the reasoning of the Co-ordinate Bench decision concerning the same donee trust and Section 80G deduction.

2.3.6 Consequently, all grounds raised by the assessee against the assumption of jurisdiction and order under Section 263 were dismissed, and the revisionary order was upheld in full.

---