AAKASH VALUE REALTY PRIVATE LIMITED,MUMBAI vs. DCIT CC-1(2), MUMBAI

Notice under section 148 dated 30 March 2021 was issued and served. The assessee filed return in response declaring the same income. Notices under sections 143(2) and 142(1) were issued. The Assessing Officer recorded that the reopening was premised on specific information from ACIT (Exemptions), Coimbatore, and that during assessment proceedings in the case of VYASA, the receipts through the disputed Axis Bank account had been treated as income and brought to tax, as the trust’s explanation had not been accepted owing to want of finality of investigation into the FIR.

The Assessing Officer further recorded that the assessee had claimed total deduction of ₹1,79,37,500/- under section 35(1)(ii), which included donation of ₹1,00,00,000/- dated 31 March 2016 and ₹2,50,000/- dated 18 November 2015 to VYASA. The assessee submitted that VYASA is a reputed institution in the field of yoga and scientific research, operating offices in Bengaluru, Hyderabad and Mumbai, functioning under the leadership of Padma Shri Dr. H.R. Nagendra, and visited by several dignitaries including the Prime Minister and the Aakash Value Realty Pvt. Ltd., President of India. It was stated that the trust is registered under section 12A and duly approved under section 35(1)(ii), and that the assessee had made donations bona fide for scientific research purposes.

The assessee furnished donation receipts, exemption certificates, Gazette notifications granting approval under section 35(1)(ii), PAN of the trust and supporting documents. It was contended that the assessee had no control over utilization of funds by the trust and that alleged misconduct of an employee of the trust could not invalidate its claim when the assessee had acted in good faith. It was also contended that the donations were genuinely made for scientific research and that past additions in earlier years could not ipso facto justify disallowance in the present year.

The Assessing Officer rejected the assessee’s explanation. He held that for claiming deduction under section 35(1)(ii), the assessee was required not merely to establish payment to an approved institution but also to demonstrate that the payment was in fact utilized for scientific research. 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.

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.

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 to a newly opened bank account in Hyderabad; that the bank account was not the regular account of the trust; that the trust had confirmed that the said account did not pertain to it; that the assessee had not made donations to any other institution; that the assessee had failed to explain how and why such a large donation exceeding ₹1 crore was routed through a newly opened account rather than established channels; and that the assessee had failed to demonstrate due diligence.

The learned CIT(A) concluded that the donation was not received in the bank account of the legitimate donee and that the onus lay on the assessee to establish authenticity and utilization, which it failed to discharge. He relied upon the ITAT Aakash Value Realty Pvt. Ltd., Kolkata decision dated 7 March 2023 in a batch of appeals involving similar donations and reiterated the principle that fraud vitiates all. Accordingly, he upheld the disallowance of ₹1,79,37,500/-.

We have heard both the parties at considerable length and have carefully perused the entire material placed on record, including the detailed observations of the Assessing Officer and the learned CIT(A), the documentary evidence furnished by the assessee, and the factual narration emerging from the recorded reasons and assessment proceedings. The controversy before us, though couched in the language of fraud, impropriety, and alleged misuse of statutory benefit, in substance resolves into a far more foundational judicial inquiry, namely, whether the Revenue has discharged its burden of establishing, by cogent and tangible material, that the assessee’s donation was not a genuine payment to a duly approved institution under section 35(1)(ii), or that the assessee was in any manner complicit in, or a beneficiary of, any alleged fraudulent arrangement at the level of the donee trust. The answer to this inquiry must necessarily be tested not on conjecture or inference, but on the hard anvil of evidentiary material actually brought on record.

At the very threshold, it must be emphasized that the entire edifice of the disallowance rests upon third-party information received from the office of the ACIT (Exemptions), Coimbatore, alleging that one employee of Vivekananda Yoga Anusandhana Samsthana (VYASA) had misused his position as an authorized Aakash Value Realty Pvt. Ltd., signatory, opened and operated a bank account in Axis Bank, Hyderabad, and received donations 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 wrongdoing.

It is an admitted and undisputed position that the assessee made the donation through banking channels and that the donation amount stood debited from its bank account. It is equally undisputed that the assessee was in possession of contemporaneous donation receipts and exemption certificates Aakash Value Realty Pvt. Ltd., issued by VYASA, which, at the relevant time, stood duly approved under section 35(1)(ii) of the Act. These foundational facts, which constitute the statutory bedrock of a valid claim under section 35(1)(ii), have not been controverted by any direct or cogent evidence brought on record by the Revenue. The Assessing Officer has not disputed the debit from the assessee’s bank account. The Assessing Officer has not recorded any finding that the receipts furnished by the assessee were fabricated or forged. The approvals granted to VYASA under section 35(1)(ii) were in force at the relevant time and have not been shown to have been withdrawn or cancelled with retrospective effect. These undisputed factual anchors cannot be wished away merely on the strength of an unsubstantiated suspicion arising from internal irregularities at the level of the trust.

What is conspicuously absent from both the assessment order and the appellate order is any concrete finding that the specific donation made by the assessee was, in fact, credited into the disputed Axis Bank account at Hyderabad, as opposed to being credited into any of the regular and legitimate bank accounts of the trust. There is not even a whisper in either of the impugned orders as to the actual banking destination of the assessee’s remittance. More significantly, no bank statement of the trust has been brought on record to show that the assessee’s donation amount was ever credited into any account, much less into the disputed account, and thereafter withdrawn in cash to be dispersed back to the assessee. There is no cash-withdrawal Aakash Value Realty Pvt. Ltd., trail. There is no ledger entry. There is no banking correlation. This omission is not a peripheral lacuna; it strikes at the very root of the Revenue’s case. Without establishing that the assessee’s funds were routed through the allegedly tainted account and thereafter withdrawn in cash, the allegation that the assessee’s donation is ingenuine remains a hypothesis devoid of factual anchor.

Equally significant is the complete absence of any material to demonstrate that 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.

The Assessing Officer’s premise that the assessee must demonstrate actual utilization of the donation for scientific research betrays a fundamental misapprehension of the statutory architecture of section 35(1)(ii). The legislative scheme is unambiguous: the donor is required to establish payment to an institution approved at the relevant time. The statute does not impose upon the donor an obligation to audit, monitor, or prove the end-use of funds by the donee, for to judicially engraft such an onerous burden would be to render the statutory incentive illusory and unworkable. Once payment to a duly approved institution is demonstrated through contemporaneous documentary evidence, the statutory conditions stand fulfilled.

The oft-invoked maxim that “fraud vitiates all”, though undoubtedly a salutary principle, cannot be elevated into an evidentiary substitute. Fraud must be pleaded with specificity and proved with particularity. In the present case, fraud, if any, is alleged against an employee of the trust, and there is not a shred of material to establish fraud on the part of the assessee or to demonstrate that the assessee’s transaction was anything other than a bona fide donation to a duly approved institution. The learned CIT(A)’s observations regarding geographical incongruity, routing through a newly opened account, and lack of due diligence are inferential and speculative, and none of these factors, either singly or cumulatively, displace the concrete documentary evidence produced by the assessee. It is also of considerable significance that the trust has not denied receipt of Aakash Value Realty Pvt. Ltd., donation from the assessee; what has been alleged is denial of ownership of one particular bank account, and in the absence of any finding that the assessee’s donation was routed through that account, the disallowance lacks factual foundation. A donor cannot be penalized on the basis of internal irregularities of the donee institution, absent proof of nexus, complicity, or benefit.

Viewed thus, the impugned disallowance rests on surmise, presumption, and third-party allegations, unbacked by any direct or credible evidence linking the assessee to any alleged fraudulent activity. The statutory conditions of section 35(1)(ii) stand fulfilled. The assessee has discharged its burden. The Revenue has failed to rebut the same by any cogent or tangible material.

Accordingly, in our considered opinion, the disallowance of ₹1,79,37,500/- made by the Assessing Officer and sustained by the learned CIT(A) is unsustainable both in law and on facts and is hereby deleted.

In the result, the appeal of the assessee is allowed.