· The assessee, donor, was a civil engineer and made donation / capitation fees to an educational institution. He had disclosed these donation amounts in its return, for which tax was paid.
· The AO issued impugned notice to the assessee u/s 147 to reopen assessment on the ground that the Chairman of the trust running the educational institution had accepted the receipt of donation from assessee and also offered this unaccounted money for taxation, which means that assessee too had undisclosed income that had escaped assessment.
· The assessee, however, contended that withdrawal from his bank account and the donation were duly accounted for and there was due payment of taxes by the assessee.
· The Court was of the view that where a third party has been proceeded against as a recipient of the donation / capitation fees, insofar as the said amount was not offered for assessment, it would have to undergo the relevant proceedings for appropriate taxation. However, the same could not necessarily be the basis for granting the approval or constitute 'reasons to believe' that this undisclosed income of the recipient had escaped assessment in the case of the donor as well. In particular, if the donor's income-tax returns itself could show that he was a person of means, having a substantial opening balance in his bank account and he had filed return of income far in excess of the amount donated and had paid tax thereon.
· The Court further was of the view that it is settled law that 'reasons to believe' have to be substantive and cogent. They cannot merely be reasons to suspect. The assessee's returns for the relevant assessment year and the earlier assessment years were available for examination before the issuance of the impugned notice.
· Thus, the Court concluded by stating that the initiation of the case for reopening of the assessment was erroneous and without application of mind, especially since the AO had not examined the return filed, which if he had would have, revealed that the assessee had filed regular returns, had sufficient opening balance in his account and the withdrawals therefrom substantiated the donation made.
· Therefore, the impugned notice issued u/s 147 seeking to reopen the assessee's assessment was held unsustainable in law and was accordingly quashed.
For further reading, refer the attachment.
Further Reading