TaxTMI 
TaxTMI 
2026 (4) TMI 1170
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....ompany engaged in the business of builders and property developers and following the percentage completion method, filed its original return of income on 17 October 2016 declaring total income of Rs. 33,45,59,140/-. The assessee's case was reopened after recording reasons to believe that income chargeable to tax had escaped assessment. 4. The recorded reasons stated that during the assessment proceedings for assessment year 2016-17 in the case of VYASA, it was claimed that one of its employees had opened and operated a bank account in Axis Bank, Hyderabad, by misusing his position as an employee and authorized signatory, and had received donations in the name of the trust while issuing receipts certifying eligibility under section 35(1)(ii). It was further stated that the funds so received were diverted and allegedly repaid to donors through other means without the knowledge of the trust, and that the trust itself had denied any connection with the said bank account. It was also stated that complaints had been lodged by the trust against the said employee before the Superintendent of Police, Bengaluru and the Directorate of Income-tax (Investigation), Bengaluru. In this backdrop....
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....He observed that information from ACIT (Exemptions), Coimbatore was categorical to the effect that donations received through the disputed Axis Bank account were not genuinely received by the trust and that receipts issued by the errant employee were not valid. He further observed that the assessee failed to establish where such substantial donations were utilized and failed to demonstrate nexus between donation and actual research activities. Accordingly, the entire deduction of Rs. 1,79,37,500/- was disallowed and penalty proceedings under section 271(1)(c) were initiated. 9. The learned CIT(A) affirmed the disallowance. He recorded that one of the employees of VYASA had opened and operated a new bank account in Axis Bank, Hyderabad, through which donations were received and diverted for personal benefit without the knowledge of the trust. He noted that the trust itself had denied having issued valid receipts in respect of donations received in that account and had lodged complaints against the employee for fraud. 10. The learned CIT(A) observed that the assessee is a real estate company operating in Mumbai whereas the trust is based in Bengaluru, yet the donation was made ....
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....ons therein while issuing receipts certifying eligibility under section 35(1)(ii), and that such funds were allegedly diverted and repaid to donors without the knowledge of the trust. The Assessing Officer and the learned CIT(A) have both proceeded on the premise that the said employee misconduct ipso facto taints every donation purportedly routed through that account, including the donation made by the assessee. However, beyond this generalized allegation, no material whatsoever has been brought on record to establish any factual nexus between the assessee and the said employee. There is no statement of the said employee implicating the assessee. There is no diary, no seized record, no incriminating document, and no contemporaneous material found from the possession or control of the said employee suggesting that he had provided any accommodation entry to the assessee company, or that he had received any cheque or RTGS from the assessee for deposit into the disputed account, or that he had thereafter returned any cash to the assessee. The Revenue's case, therefore, begins and ends with a third-party allegation, uncorroborated by any direct evidence linking the assessee to any wron....
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....at the assessee was aware of, or participated in, any internal misconduct at the level of the trust. The allegation that funds received through the disputed account were diverted and repaid to donors remains a sweeping generality. No evidence has been brought on record to show that any amount was repaid to this assessee. No bank statement of the assessee evidences any inflow corresponding to any alleged refund of donation. No cash seizure, no incriminating ledger, no corroborative trail has been unearthed. The Department has not even brought on record any inquiry conducted from the trust itself or from its bankers to verify whether the assessee had, in fact, not paid any such donation and whether the amount was merely camouflaged through some different bank account and thereafter returned in cash. These trails and linkages are not peripheral formalities; they are the very sinews of proof in a case alleging fraud. In the absence of such material, it is judicially impermissible to draw an adverse inference against the assessee. 17. The Revenue's case thus rests not on proof, but on suspicion. The Assessing Officer, without conducting any independent inquiry, without calling for th....