2025 (5) TMI 187 - AT - Income Tax

Reopening of assessment u/s 147 - Disallowance of the weighted deduction u/s 35(1)(ii) - HELD THAT - Case of the assessee has been rightly re-opened based on the tangible information of the donee providing accommodation entries and also keeping in view the fact that the approval given by the Central Government stands rescinded the issue of cross examination does not arise. Hence we declined to interfere with the reasoned order of the Ld.CIT(A) on this issue. Appeal filed by the assessee is dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the reassessment order passed under section 147 of the Income Tax Act was valid and based on sufficient reasons to believe that income had escaped assessment;

(b) Whether the weighted deduction claimed under section 35(1)(ii) of the Income Tax Act for a donation of Rs. 17,50,000/- to M/s Bioved Research Society, Allahabad, was rightly disallowed on the ground that the donee institution's approval was retrospectively withdrawn;

(c) Whether the assessee was entitled to cross-examination of persons whose statements led to allegations of accommodation entries and misuse of the donation provisions;

(d) Whether the CIT(Appeals)/National Faceless Appeal Centre (NFAC) erred in law and on facts by dismissing the appeal without proper consideration of submissions and judicial precedents cited by the assessee;

(e) Whether principles of natural justice, including audi alteram partem, were violated in the appellate proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of Reassessment under Section 147

Relevant legal framework and precedents: Section 147 of the Income Tax Act permits reopening of assessment if the Assessing Officer (AO) has reason to believe that income chargeable to tax has escaped assessment. The reopening must be based on tangible material and valid reasons.

Court's interpretation and reasoning: The Tribunal examined the order of the CIT(A) which upheld the reopening on the basis of a Circular issued by the CBDT dated 28.02.2019. This Circular clarified that the Central Government had withdrawn the approval granted to M/s Bioved Research Society, Allahabad, under Notification No. 5 of 2008 w.e.f. 01.04.2011 due to gross misuse of the provision of section 35(1)(ii) by allegedly providing accommodation entries to donors. The AO had tangible information that the institution was no longer eligible for approval, and therefore, the donation claimed for the Assessment Year 2013-14 was not eligible for deduction.

Key evidence and findings: The AO relied on the rescission notification dated 02.01.2019 and the CBDT Circular, which were sufficient to form a reason to believe that income had escaped assessment. The assessee had claimed deduction for a donation made in FY 2012-13, when the institution was not approved.

Application of law to facts: The Tribunal found that the AO had sufficient material, including the rescission of approval and the nature of misuse, to validly reopen the assessment under section 147. The reopening was not arbitrary but founded on credible information.

Treatment of competing arguments: The assessee contended that the reassessment was invalid and challenged the reopening. However, the Tribunal noted the factual basis for reopening and dismissed the ground.

Conclusions: The reopening under section 147 was held valid and justified.

Issue (b): Disallowance of Weighted Deduction under Section 35(1)(ii)

Relevant legal framework and precedents: Section 35(1)(ii) provides weighted deduction (175%) for donations made to approved scientific research associations or institutions. The approval must be valid at the time of donation.

Court's interpretation and reasoning: The Tribunal noted that the approval granted to M/s Bioved Research Society was rescinded w.e.f. 01.04.2011 due to misuse, as per the Central Government's notification and CBDT Circular. Since the donation was made in FY 2012-13 (Assessment Year 2013-14), after the approval was withdrawn, the deduction was not available.

Key evidence and findings: The rescission notification and CBDT Circular were conclusive evidence that the institution was not eligible to receive donations qualifying for weighted deduction during the relevant period. The AO disallowed the deduction accordingly.

Application of law to facts: The law mandates approval for weighted deduction. Since approval was withdrawn before the donation, the deduction claim was rightly disallowed.

Treatment of competing arguments: The assessee argued that the donation was genuine and all conditions were satisfied at the time of donation, and relied on judicial precedents where disallowance was set aside due to lack of opportunity for cross-examination of witnesses or absence of material. The Tribunal distinguished these precedents, noting that in the present case, disallowance was based on the rescission of approval by the Central Government, not merely on investigation reports or statements.

Conclusions: The disallowance of the weighted deduction was upheld.

Issue (c): Right to Cross-Examination

Relevant legal framework and precedents: The assessee cited a precedent where disallowance based on investigation reports was set aside due to denial of opportunity to cross-examine persons whose statements formed the basis of the addition.

Court's interpretation and reasoning: The Tribunal observed that in the present case, the disallowance was not based on investigation reports or statements but on the official rescission of approval by the Central Government. Therefore, the issue of cross-examination of witnesses did not arise.

Conclusions: No violation of natural justice occurred on this ground.

Issue (d): Alleged Non-Consideration of Submissions and Precedents by CIT(A)/NFAC

Relevant legal framework and precedents: The principles of natural justice require that the appellate authority consider all relevant submissions and precedents.

Court's interpretation and reasoning: The Tribunal reviewed the order of the CIT(A) and found that the grounds challenging the reassessment and disallowance were considered in detail. The CIT(A) also referred to the CBDT Circular and the rescission notification and gave reasoned findings. The Tribunal found no merit in the contention that the CIT(A) failed to consider judicial precedents or submissions.

Conclusions: The appellate order was reasoned and in accordance with law.

Issue (e): Alleged Violation of Principles of Natural Justice

Court's interpretation and reasoning: The Tribunal found no evidence that the principles of natural justice or audi alteram partem were violated. The assessee was given opportunity to present submissions, and the reasons for disallowance were communicated.

Conclusions: No violation of natural justice was found.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The Central Government had rescinded the approval given to the donee institution w.e.f 01.04.2011. The appellant has claimed to have given the donation to the said institution in the FY 2012-13. In the said FY, the institution in question was not approved u/s 35(1) of the Act. Thus, the information in possession of the AO was sufficient to harbour the belief that the income in the shape of alleged claim of donation to the unapproved institution was the income escaping assessment."

"The action of the Central Government to rescind the approval was after due investigation of gross misuse of the donations by returning the money in cash after deducting a particular amount of commission. The findings showed that the amount of donation was never utilized for carrying out the research activities."

"The disallowance has not been made on the basis of the report of the Investigation Wing or on the basis of statements of any persons. The disallowance has been made on the basis of notification issued by the Central Government that the approval given to the institution in question has been rescinded w.e.f. 01.04.2011. As a result of the said notification, there was no deduction available to the appellant during the impugned AY."

"The issue of cross examination does not arise."

"The appeal filed by the assessee is dismissed."