Facts of the Case

The assessee, an educational trust registered under Section 12AA and enjoying exemption under Section 80G, filed nil income returns for AY 2006-07 and AY 2007-08. Initially, assessments were completed under Section 143(3) accepting the declared income.

Subsequently, based on information received from the Investigation Wing and a CBI report, the Assessing Officer (AO) reopened the assessments under Section 147. The report indicated that the trust had received bogus donations through accommodation entries facilitated by intermediaries, including one Mahesh Garg.

During reassessment:

  • ₹40 lakhs and ₹35 lakhs (AY 2006-07) and
  • ₹95 lakhs (AY 2007-08)

were treated as unexplained donations under Section 68. The CIT(A) and ITAT upheld the additions and validity of reopening.

The assessee appealed before the Delhi High Court.

 

Issues Involved

  1. Whether reopening of assessment under Sections 147/148 was valid without independent inquiry by AO?
  2. Whether there existed “reason to believe” based on tangible material?
  3. Whether additions under Section 68 for alleged bogus donations were justified despite documents furnished by assessee?

 Petitioner’s Arguments

  • Donations were genuine and supported by confirmations, bank statements, and donor details.
  • AO relied solely on CBI report without independent verification.
  • Reopening was based on mere suspicion and change of opinion.
  • Earlier ITAT order had accepted donations as genuine.
  • No nexus between assessee and alleged accommodation entries.

 Respondent’s Arguments


  • Reopening was based on credible information from CBI investigation.
  • Statements of donors revealed that no actual donations were made.
  • Assessee failed to prove genuineness, identity, and creditworthiness.
  • Donations were routed as accommodation entries through cash deposits.
  • Assessee suppressed material facts during original assessment.

    • The Delhi High Court dismissed the appeals and held:

    1. Validity of Reopening

    • AO had tangible material (CBI report, witness statements, investigation findings).
    • There was a live nexus between information and belief of escaped income.
    • Reopening after four years was justified as assessee failed to disclose true facts.

    2. No Requirement of Independent Inquiry at Notice Stage

    • “Reason to believe” does not require conclusive proof.
    • Information from investigation agencies is sufficient basis.

    3. Bogus Donations – Section 68

    • Donors denied making donations during CBI inquiry.
    • Evidence submitted earlier was found to be false.
    • Assessee failed to discharge burden of proof regarding:
      • Identity
      • Genuineness
      • Creditworthiness

    4. Earlier Assessment Not Binding

    • Once reassessment is validly initiated, earlier findings lose relevance.
    • Fresh proceedings allow re-examination of facts.

    5. No Substantial Question of Law

    • Issues were factual in nature.
    • Findings of ITAT and CIT(A) were upheld.

     

    Important Clarification by Court

    • Reopening is valid where subsequent investigation reveals falsity of earlier disclosures.
    • Accommodation entries through bogus donations attract Section 68 even for charitable trusts.
    • Mere filing of documents is insufficient unless substantiated by credible evidence.

    Sections Involved

    • Section 147 – Income Escaping Assessment
    • Section 148 – Issue of Notice for Reassessment
    • Section 68 – Unexplained Cash Credits
    • Section 143(3) – Assessment
    • Section 254 – Orders of ITAT
    • Section 260A – Appeal to High Court
    • Section 151 – Sanction for Reopening

     

    Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:3701-DB/SVN22122020ITA1542020_155446.pdf

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