ACIT - 14(1)(2), MUMBAI, MUMBAI vs. D THAKKAR DEVELOPERS PVT. LTD., MUMBAI

Brief facts of the case are that the return declaring income of Rs. 4,79,05,930/- was filed by the assessee on 28.11.2014. The case was selected for scrutiny and the original assessment was completed on 28.12.2016 at returned income. Subsequently, on receipt of information regarding bogus claim of donation given to M/s. School of Human Genetics and Population Health (SHG&PH) in respect of which weighted deduction of Rs. 5,25,00,000/- was claimed u/s 35(1)(2) by the assessee, the case was reopened. A notice u/s 148 was issued on 02.03.2017 in response to which the assessee requested that the original return filed on 28.11.2014 should be treated as return in response to notice u/s 148 of the Act. The assessee also sought reasons for reopening which were duly supplied. Subsequently, Ld. AO proceeded to make the assessment u/s 143(3) r.w.s. 147 of the Act in which Rs. 5,25,00,000/- was added on account of disallowance of claim u/s 35(1)(ii), after detailed discussion in respect of bogus donation made by the assessee.

Aggrieved with the order of the Ld. AO, the assessee filed an appeal before Ld. CIT(A). Vide order dated 02.08.2023, Ld. CIT(A) upheld the disallowance to the extent of 3,75,000/-.

Aggrieved with the order of the Ld. CIT(A), both the revenue and the assessee are in appeal before us.

The assessee’s first ground pertains to reopening of the assessment. It has been stated by the assessee that even though no objection was raised before AO against the issue of notice, the validity of notice u/s 148 is being challenged on legal grounds. The assessee has made following written submissions/statement in this regard: “[(a) The recorded reasons refer to information received from Directorate of Investigation (Kolkata) alleging some wrongdoing by the donee institution namely School of Human Geneties and Population Health. The alleged wrongdoing resulted in retrospective withdrawal of approval u/s. 35 (1) (ii) granted to the donee institution. The Id. AO has not made any enquiry of his own before issuing the notice u/s.

In any case, in the recorded reasons, there is neither any allegation of repayment of donated amount to the appellant in cash, or in some other form, nor any reference to some negative material specific to the appellant. Explanation below section 35 (1) (iii) prohibits denial of deduction w/s. 35 (1) (ii) only on the ground that approval granted to the donee institution was subsequently withdrawn. Thus, withdrawal of approval can not be considered as a fresh tangible material for formation of opinion, as regards the escapement of income, before the issue of notice u/s.

Even otherwise, withdrawal notification was issued prior to the completion of original assessment vide order u/s. 143 (3) dated 28th December 2016 and hence can not be considered as a fresh tangible material. Further, the information received from Directorate of Investigation (Kolkata) can also not be considered as a fresh material since the unearthing of negative information about the donee institution preceded the withdrawal of approval and in fact the said negative information was the apparent reason for withdrawal of approval. (b) H'ble Bombay Court in the case of National Leather Cloth Manufacturing Co (copy of judgement already furnished) has held that notice u/s. 148, issued on the basis of subsequent withdrawal of approval, is invalid (c) H'ble Supreme Court in the case of Chotatingrai Tea (copy of judgement already furnished) has held that deduction u/s. 35 (1) (ii) can not be denied in absence of any evidence to demonstrate that the donor had received back the donated amount”

On the other hand, Ld. DR has made following submissions with regard to the reopening of the assessment: i. The assessee has not objected to the re-opening during the course of re- assessment proceedings.

We have carefully considered the rival submissions in this regard. It is noted that the reopening was triggered by the information received from the Investigation Wing of the I.T. department. There was, accordingly, sufficient prima facie evidence to justify of the reopening of the assessment. The assessee has submitted that subsequent withdrawal of the notification u/s 35(1)(ii) cannot be a ground for reopening. However, it is noticed that the main reason for reopening was the information received through the DDIT Investigation Wing, Mumbai regarding bogus donation of Rs. 3,00,00,000/- made to M/s. SHG&PH. In this regard, enquiries had been conducted by the Directorate of Investigation, Kolkata and it was discovered, during the course of survey action u/s 133A, that M/s. SHG&PH had shown bogus donations in connivance with a & 3477/Mum/2023 A.Y. 2014-15 D. Thakkar Developers Pvt. Ltd. network of brokers and accommodation entry providers and the assessee was one of the donors involved in it.

Ld. AR has placed reliance on the decision of the Hon’ble Bombay High Court in the case of National Leather Cloth Manufacturing Co. v/ss ICAR (2008) 241 ITR 482. However, in that case, it was held that the claim of deduction u/s 35(i)(ii) in respect of donation made to an institution, relying upon the certificate granted by the prescribed authority, cannot be subsequently rejected simply because the certificate is retrospectively withdrawn/cancelled later on. But in the present case, the facts are entirely different as the donation itself has been held as non-genuine in view of the incriminating evidence, found during the course of survey action undertaken by Investigation Wing, Kolkata in the case of SGH&PH. Thus, the basis of reopening in the instant case was the incriminating material/information received by the AO through Investigation Wing, Mumbai and not the subsequent withdrawal of the notification u/s 35(i)(ii) of the Act.

Similarly, facts in the case of CIT v/s Chotatingrai Tea (2003) 126 Taxman 399 (SC), relied upon by the assessee are also quite different. In that case, the approval granted by the prescribed authority u/s 35CCA was subsequently withdrawn with retrospective effort on the ground that the donations had not been utilized for the prescribed purposes of rural development. In view of this withdrawal, the claim of the assessee donor for deduction u/s 35CCA was denied by the revenue and it was also alleged that the & 3477/Mum/2023 A.Y. 2014-15 D. Thakkar Developers Pvt. Ltd. assessee had received back the donation made to the society. It was, therefore, held by the Hon’ble Apex Court that since the assessee had fulfilled all the conditions for grant of deduction, there was no obligation on the part of the assessee to see that the amount is utilized for the purpose for which it was donated. In that context, it was further observed by the Hon’ble Apex Court that there was no evidence to support the revenue’s case that the assessee had received back the amount donated by them to the society. 11.1 This decision is also from the instant case distinguishable as the facts here are quite different. In this case, the donation itself is stated to have been made as part of an accommodation entry network wherein bogus donations were being taken by M/s. SHG&PH. This fact was also admitted by SHG&PH before the Hon’ble Settlement Commission. Hence, the instant case is clearly distinguishable on facts from the case of Chotatingrai Tea (supra).

In view of above facts and after careful consideration of rival submissions, we are of the view that there was sufficient material before the Ld. AO to justify the reopening of the assessment u/s 148 of the Act which is, accordingly, upheld.

On merits, the assessee has raised ground no.2 stating that part disallowance of deduction u/s 35(i)(ii) upheld by CIT(A) is not justified. On the other hand, revenue, in its appeal, has raised all 3 grounds pertaining to the only part confirmation of disallowance made by AO in respect of 35(i)(ii) claim. All these grounds are accordingly considered together.

Before us, Ld. AR has submitted that the assessee was not provided any opportunity to cross-examine the persons based on whose statement the disallowance was made. He reiterated that the donation had been made through banking channel and was, therefore. ax genuine donation.

On the other hand, Ld. DR pointed out that SHG&PH had itself accepted before the Hon’ble Settlement Commission that they had taken bogus donations as alleged by the revenue. A copy of the order of Hon’ble Settlement Commission has been submitted before us. Moreover, in the assessment order, the Ld. AO has specifically mentioned that the assessee was asked to prove the genuineness of the transaction of donation which it failed to establish. The assessee was also asked, vide a specific ordersheet entry, to furnish details such as frequency of donations made by it in the past and in subsequent years, reasons for making donations, persons contacted etc. to prove the genuineness of the transaction. However, the assessee failed to furnish any of the details sought by the Ld. AO.

We have considered the rival submissions. It is clear that the assessee did not comply with the any of the requirements during the course of assessment proceedings despite being given specific opportunity to do so. On the other hand, a copy of Settlement Commission’s order in the case of M/s. SHG&PH as well as statements of the concerned persons based on which the disallowance was made, have also not been made available to the assessee by the Ld. AO. In this regard, Ld. AR has made the following written submissions:

In view of above facts, we deem it appropriate to remand the matter to the Ld. AO with the directions to examine the issue afresh and to provide documents relied upon by him to the assessee with due opportunity to furnish requisite reply. The assessee is also directed to make necessary compliance before the Ld. AO to substantiate its claim regarding the genuineness of the donation.

In the result, both the appeals are partly allowed for statistical purposes. Order pronounced in the open court on 20.12.2024.