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Facts
The assessee, a manufacturer of cotton and blended yarn, claimed a deduction under Section 35(1)(ii) on a donation of Rs. 50,00,000/- to Indian Medical Scientific & Research Foundation (IMSRF). The Assessing Officer (AO) reopened the assessment, alleging the deduction was falsely claimed as IMSRF was engaged in bogus donation entries. The CIT(A) upheld the reopening and disallowed the deduction.
Held
The Tribunal held that the CIT(A) correctly upheld the reopening of the assessment, finding that the AO had reasons to believe, not just reasons to suspect, that income had escaped assessment based on information from DDIT. The Tribunal also upheld the disallowance of the deduction as IMSRF was not notified under Section 35(1) of the Income Tax Act.
Key Issues
Whether the reopening of assessment under Section 147 was valid and whether the disallowance of deduction under Section 35(1)(ii) for donation to IMSRF was justified.
Sections Cited
147, 148, 143(3), 35(1), 35(1)(ii)
AI-generated summary — verify with the full judgment below
( Hybrid Hearing ) �नधा�रती क� ओर से/Assessee by : Shri Ashish Aggarwal, CA (Virtual Mode) राज�व क� ओर से/ Revenue by : Dr. Ranjit Kaur, Addl. CIT, Sr. DR सुनवाई क� तार�ख/Date of Hearing : 22.04.2025 उदघोषणा क� तार�ख/Date of Pronouncement : 01.07.2025 आदेश/Order Per Krinwant Sahay, A.M.:
The appeal in this case has been filed by the Assessee against the order dated 03.03.2011 of the ld. Commissioner of Income Tax (Appeals)-1, Ludhiana [herein referred to as ‘CIT(A)’]
2. The grounds of appeal are as under: -
542-Chd-2011 – M/s Vardhman Polytex Ltd, Ludhiana 2
That the learned CIT(A)-I has erred in upholding the order of the reopening the assessment u/s 147/148 of the Income Tax Act, 1961.
That the reasons recorded by the AO do not justify the reopening the assessment.
3. That the CIT(A)-I was not justified in confirming the order of the AO which was based purely on change of opinion. 4. That in any case the confirmation of the order by CIT(A)-I is against the law and facts of the case. 5. That the learned CIT(A)-I has erred in confirming the disallowance of deduction u/s 35(1) of the Income Tax Act, 1961 already allowed in original assessment on the basis of the evidence produced before the AO. 6. That the learned CIT(A)-I has grossly erred in confirming the disallowance ignoring the fact that the payment made was a bonafide one. 7. That the learned CIT(A)-I has erred in confirming the levy of interest. 8. The appellant craves leave for the permission to add, amend or alter any ground of appeal at the time of hearing.
Brief facts of the case as per the order of the Ld. CIT(A) are as under: -
542-Chd-2011 – M/s Vardhman Polytex Ltd, Ludhiana 3 The Assessee company is a manufacturer of Cotton and blended yarn and over a period of time has been one of the top tax payers of the region. During the year under consideration the assessee company had filed its return of income at a figure of Rs. 3,70,11,050/- wherein a deduction was claimed under section 35(1)(ii) @ 125% on the donation of sum of Rs. 50,00,000/- paid to Indian Medical Scientific & Research Foundation. ('IMSRF' 'In short' herein after) a duly registered public charitable trust. It has been alleged that the said deduction has been falsely claimed and the said allegation (s) has been made the sole reason for framing this Assessment which the assessee claims as bad in law in view of allegations which have been modified & changed at a later stage while framing this Assessment order. A perusal of the copy of reasons recorded in reopening this case, (copy filed at page no.........and page 1 of the Assessment order) reveals that the present case has been reopened on the basis of information received from DDIT (Inv)-I Ldh., and it has been, further alleged in the said reasons that Deduction under section 35(1)(ii) has been wrongly claimed as the said Institution IMSRF is engaged in giving bogus donation entries / accommodation entries and hence on account of this wrong claim, the Income of Rs. 62,50,000/- equivalent to the amount of admissible deduction u/s 35(1)(II) has escaped assessment.
542-Chd-2011 – M/s Vardhman Polytex Ltd, Ludhiana 4 Further perusal of the show cause notice issued by the Assessing Officer (copy enclosed at page no....) dated 14.12.2009 it has been mentioned that some persons named in the CBI Charge sheet have established a bogus / fake trust and are involved in fraudulent activities in connivance with the Bank Officials and Income tax Officials.”
During proceedings before us, as regards to the issues raised in the grounds of appeal No. 1 to 4, the ld. Counsel for the Assessee argued that the Assessee company failed to understand the reasons recorded for reopening of the assessment u/s 147 of the Income Tax Act, 1961 (in short 'the Act'). He further alleged that there was no specific charge or the allegation either in the reasons recorded or in the DDIT letter or in the CBI enquiry against it. Mere mentioning of the allegation by picking up the same facts from the charge sheet filed against the same persons and even without mentioning the outcome of CBI proceedings, it is highly vague and improper to initiate proceedings u/s 147 of the Act.
On the other hand, the ld. DR relied mostly on the order passed by the authorities below. We have considered the arguments of the Counsel of the Assessee and that of ld.
542-Chd-2011 – M/s Vardhman Polytex Ltd, Ludhiana 5 DR. We have also considered the findings given by the ld. CIT(A) in his appellate order. We find that the ld. CIT(A) has given a very reasoned and detailed findings on the issue of reopening of the case which is reproduced as under: -
“3.4 I have considered the submissions of the AR. In this case original asstt was completed vide order u/s 143(3) dated 28-12-2006. AO on the basis of information received from DDIT (INV), Ludhiana has opened the case u/s 147 and issued the notice u/s 148 on 24-3-2009 which was served on the assessee on 25-3-2009. AR has objected to reopening of assessment for the reason stated by him in written submission dated 15-9-2010 and 23- 2-2011. AR's objections against of reopening of assessment are not acceptable. AR has objected to the reopening of assessment primarily on the grounds that case has been re-opened on the basis of information received from DDIT and there was no independent satisfaction or belief on the basis of material in hand for concluding as to how the income had escaped assessment. However, above contentions of the AR are not acceptable. As already discussed in asstt order and also in the report of the AO, inquires revealed that assessee had claimed deduction of Rs. 62,50,000/- u/s 35 (1) of the Act on the donation made to Indian Medical Scientific Research Foundation (IMSRF) which is engaged in giving bogus donation entries to the so called donors with the modus operandy that after receipt of donation from various private companies which claim deduction under Income Tax and after crediting such receipts in its current account, IMSRF subsequently used to make payment in cash to such parties. The AO vide his letter dated 1-12-2009 has dealt with assessee's objections. In fact as noted
542-Chd-2011 – M/s Vardhman Polytex Ltd, Ludhiana 6 also by the Assessing Officer at the stage of initiation of reassessment proceedings under section 147 of the Act it is not required to be conclusively proven that Income has actually escaped assessment. The only requirement is that whether there was any relevant material on which a reasonable person can form the requisite belief that taxable Income has escaped assessment. Further, as would be noted in the subsequent paragraphs while deciding ground No. 2, the foundation to whom assessee has made donation has not been notified under section 35(1)(II) of the 1.T.Act. Further, in this case AO has reopened the assessment u/s 147 and has issued notice u/s 148 on 24-3-2009 which has been served on the assessee on 25-3-2009 i.e. within four years of relevant asstt year 2004-05 and therefore, condition that there should be failure on the part of assessee to disclose fully and truly all facts material to the assessment to reopen an assessment is not applicable in this case. In view of the above discussion, various contentions of AR against reopening of asstt are rejected and it is held that AO has rightly reopened the assessment u/s 147 of the Act. This ground of appeal is dismissed.”
The ld. Counsel for the Assessee brought it on record the case law of ‘CIT(A) Jalandhar vs Smt. Paramjit Kaur’ reported in [2009] 311 ITR 38 (P&H) wherein, the Hon’ble Jurisdictional High Court has said that the Assessing Officer has to reopen the case u/s 147 of the Act on the basis of a ‘reasons to believe’ and not on ‘reasons to suspect’. In our considered view, the ld. CIT(A) has clearly and categorically
542-Chd-2011 – M/s Vardhman Polytex Ltd, Ludhiana 7 brought it on record that the Assessing Officer 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.
The appeal on ground No.5 is against the confirmation of disallowance of deduction u/s 35(1) of the I.T. Act which was already allowed in the original assessment.
Dring proceedings before us, the ld. Counsel for the Assessee argued that the Institution IMSRF i.e. Indian Medical Science & Research Foundation is a legal entity in the form of a public charitable trust duly registered by 542-Chd-2011 – M/s Vardhman Polytex Ltd, Ludhiana 8 Bombay Public Trust Act, 1950. He further argued that it is also a registered Trust u/s 12A of the Act vide Registration No. CIT(S)/180(10) 92-93/12A(a)/AGR 9785 dated 24.2.1993. The Counsel further stated that at the time of making donation, the said institution was a recognized and duly approved one u/s 35(1)(ii) of the I.T. Act and finally the Counsel argued that the said Institution IMSRF is still an active institution in the field of charity and it is also holding a valid PAN number issued from CIT-1, Agra office. On this issue, the ld. CIT(A) has given his findings on the basis of a remand report submitted by the Assessing Officer. The findings of the ld. CIT(A) are as under:
“4.4 I have considered the submissions of the AR. As already stated assessee has claimed deduction of Rs. 62.50 lacs u/s 35(1) of the Act. However, AO has disallowed the same on the ground that institution to whom the donation was made was not recognized by the CBDT. In fact AO has also submitted copy of a letter No. F. No. 225/153/2006-ITA-II dated 26- 12-2006 of Section Officer, ITA-II, CBDT which shows that Indian Medical Scientific Research Foundation (IMSRF), Sanjay Place, Agra has not been notified u/s 35(1) of the I.T. Act. In view of above discussion and also for the reasons discussed in asstt order, disallowance of deduction of Rs. 62.50 lacs is upheld.
542-Chd-2011 – M/s Vardhman Polytex Ltd, Ludhiana 9 Ground No. 4 is against charging interest under different provisions of Act. Charging of interest is mandatory. Assessing Officer is directed to charge interest after verification as per law.”
We have considered the arguments and facts brought on record by the Counsel for the Assessee during the proceedings before us. We have also considered the arguments of the ld. DR who has relied upon the orders of the authorities below. We find that the findings given by the ld. CIT(A) in his appeal order is very clear on this issue. In our considered opinion, we do not find any reason to make any interference in the findings given by the ld. CIT(A). therefore, on this issue, Assessee’s appeal is dismissed.
The next issue of appeal (ground No. 6 ) is against the charging of interest under the different provisions of the Act.
The ld. 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 Assessing Officer 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 542-Chd-2011 – M/s Vardhman Polytex Ltd, Ludhiana 10 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.
Ground Nos. 7 and 8 are general in nature.
In the result, Assessee’s appeal is dismissed.
Order pronounced on 01.07.2025