IT: Merely because recipient of donation had offered unaccounted money to tax would not mean that same was undisclosed income of donor that had escaped assessment when bank withdrawals substantiate donation made 
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[2017] 82 taxmann.com 35 (Delhi) 
HIGH COURT OF DELHI
Shamshad Khan
v.
Assistant Commissioner of Income-tax*
S. MURALIDHAR AND Najmi Waziri, JJ. 
WP (C) No. 11504 of 2016
APRIL  11, 2017 
Section 69A, read with sections 147 and 151, of the Income-tax Act, 1961 - Unexplained moneys (Donations) - Assessment year 2010-11 - Assessee-donor made donation to educational institution and such donation amount was duly accounted and disclosed in its return - After four years, revenue issued impugned notice to reopen assessment on ground that recipient of donation had also offered this unaccounted money for taxation meaning that assessee too had undisclosed income that had escaped assessment - Whether since, Assessing Officer had not examined return filed by assessee-donor, which, if he had examined, would reveal that assessee had sufficient opening balance in bank account as also sufficient withdrawals therefrom substantiating donation made, impugned notice for reassessment was without application of mind - Held, yes [Para 10] [In favour of assessee] 
Words & Phrase: Term 'reasons to believe' as occurring in section 147 of the Income-tax Act, 1961
FACTS
 
■ | | The assessee-donor was a civil engineer and made donation to an educational institution. He had disclosed these donation amount in its return for which tax was paid.
■ | | The revenue issued impugned notice to the assessee under section 147 to reopen assessment on the ground that the Chairman of the trust running the educational institution had accepted the receipt of donation from the assessee and also offered this unaccounted money for taxation which means that the assessee too had undisclosed income that had escaped assessment.
■ | | In the instant writ before the High Court, the assessee contended that for reopening of case after the expiry of four years requires approval of appropriate authority but in sanction letter approval of joint Commissioner was taken, who was not a competent authority. Later on, the revenue had added sanction of the Commissioner which was obtained ex post facto.
■ | | The assessee further contended that withdrawal from his bank account and donation was duly accounted for and there was due payment of tax.
HELD
 
■ | | The Court is 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, etc. 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 to the tune of Rs. 69,74,191, i.e., far in excess of the amount donated and had paid a tax thereon of Rs. 2,07,608 and it could otherwise be gleaned from the record that the capitation fees of Rs. 28,75,000 was made from withdrawals from the said amount. [Para 6]
■ | | 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. The Form for recording the reasons for initiating the proceedings under section 148 for obtaining approval of the Commissioner/Additional Commissioner itself proceeds on the erroneous basis that the quantum of income which had escaped assessment was Rs. 28,75,000 whereas the assessee had filed income returns of merely Rs. 20,56,145 and it is on this basis that the Additional Commissioner and the Commissioner granted their approval. However, the Commissioner's date of approval is not recorded in the Form even though it is mentioned in the letter dated 28-1-2016. The assessee had highlighted this fundamental error at the initiation of the case by stating that his income was mentioned as Rs. 20,56,145 instead of Rs. 69,71,191. This was summarily rejected by the respondent by an order dated 14-10-2016 stating that the amount of Rs. 20,56,145 instead of Rs. 69,71,191 being mentioned as the income of the assessee was a clerical mistake and that the latter figure would be treated as his income. [Para 7]
■ | | Interestingly, the document supplied to the assessee pursuant to his RTI application shows the approval of the Commissioner. [Para 8]
■ | | From the above, it is evident that the sanction of the Principal Commissioner as disclosed with the letter dated 25-5-2016 was obtained ex post facto. [Para 9]
■ | | The Court is, however, of the view that if the correct income, i.e., Rs. 69,71,191 had been put before the Commissioner at the time of seeking his approval, he might perhaps have taken a different view. There is nothing on record to show that the clerical mistake of substituting Rs. 20,56,145 for Rs. 69,71,191 was ever brought to the notice of the Commissioner either before or after the so called approval/sanction under section 151(1). The initiation of the case for reopening of the assessment was erroneous and without application of mind especially since the Assessing Officer 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. [Para 10]
■ | | The impugned notice issued under section 147 seeking to reopen the assessee's assessment is held unsustainable in law and is accordingly quashed. [Para 11]
Ms.  Raji Nathani, Adv.  for the Petitioner. Rahul Kaushik, Sr. Standing Counsel  for the Respondent.
ORDER
 
Najmi Waziri, J. - The petitioner has impugned a notice dated 28th January, 2016 issued under Section 147 of the Income Tax Act, 1961 ('the Act') seeking to reopen his assessment for the Assessment Year ('AY') 2010-11. By his reply dated 9th February, 2016, the petitioner had intimated the Respondent that the returns for the said period had already been filed in time and there was no occasion for reopening of the same after a lapse of four years from the said AY.
2. Upon the Petitioner's request, he was supplied the following reasons for reopening the assessment:
"Circle 62(1), New Delhi
Case is reopened u/s 147 in the case of Md. Shamshad Khan S/o Md.Chand Khan, R/o (i) 23/3, New Rohtak Road, New Delhi- 110005 (ii) U-24A/2, G. F., Phase-Ill, DLF City, Gurgaon -PAN- ACUPK8807F, A.Y. 2010-11.
Reasons for reopening the case u/s 147
The assessee has filed its return of income on 01.10.2010 at an income of Rs. 20,56,145/-. Information was received from the Income-tax Officer Ward-4(5), Gurgaon, that search and seizure operation u/s 132 of the I.T. Act, was carried out on 27.06.2013 in the Santosh Group of Institutions. During the course of recording the statement u/s 132(4) of the I.T. Act, relevant seized documents were confronted to Dr. Mahalingam, Chairman of the Trusts in which he has categorically admitted that of accepting the donation/capitation fees in cash from Sh. Shamshad Khan of Rs. 28,75,000/- and offered the unaccounted money received for taxation in the relevant assessment years.
In view of the above I have reason to believe that Rs. 28,75,000/- paid by Md. Shamshad Khan to Santosh Medical College as regular course fees for A.Y. 2010-11 on account of undisclosed income has escaped assessment. The same should be brought to tax by invoking provisions of section 147 of the I.T. Act.
In view of these facts and after due application of mind, I have reason to believe that income chargeable to tax has escaped assessment for the A.Y. 2010-11 for the reason of failure on the part of the assessee to disclose fully and truly all mentioned facts necessary for his assessment. Therefore, the case is fit for reopening the assessment u/s 147/148 of IT Act.
(SHIKHA SEMWAL)
ACIT CIRCLE-62(1), NEW DELHI"
3. The petitioner contends that merely because a donation of Rs.28,75,000/- was made to an educational institution could not by itself lead to the conclusion that income had escaped assessment or that there was any undisclosed income. The petitioner's case is that he had filed a return disclosing an income of Rs.69,74,191/- on which tax of Rs.2,07,608/- was paid; that the petitioner, who is a civil engineer, had been filing regular tax returns; that his opening balance in the relevant assessment year showed a credit of about Rs.2 crores; that he was a man of means and that the donation amount was duly accounted for and disclosed in the return already filed. Therefore, he had sufficient monies to make the donation, which fact he was not resiling from. He contends that if the Assessing Officer ('AO') had examined the return filed, it would have become evident that the withdrawals and the donation of Rs.28,75,000/- were duly accounted for.
4. The petitioner contends that under Section 151 (1) of the Act for reopening of a case after the expiry of four years from the end of the relevant AY, prior approval of the Commissioner/Principal CIT is essential. However, in the impugned sanction letter, such satisfaction has not been recorded. Instead the space to specify the same has been left blank. The reasons for reopening the case were supplied to the petitioner on 3rd March, 2016 which showed the approval of the JCIT, who is not a competent authority to grant such sanction. The petitioner filed a RTI application dated 10th March, 2016 seeking reasons for the reopening of the assessment. In response, he was supplied a copy of the "sanction letter" through a communication dated 25th May 2016, which showed an added sanction of the CIT dated 28th January, 2016 on the same document supplied to the petitioner earlier. This added sanction of the CIT was not reflected in the copy of the letter that had been supplied to the petitioner earlier. The petitioner contends that the sanction under Section 151(1) of the Act is not a mere formality. It had to be a sanction in substance i.e. the competent authority ought to have applied his mind to the facts of the case and then given his approval. He could not have given it ex post facto on the basis of a borrowed satisfaction.
5. On the other hand, the learned counsel for the Respondent submits that the sanction was rightly accorded in the facts of the case. He submits that Dr. Mahalingam, Chairman of the Trust in the Santosh Group of Institutions, during recording of statement under Section 132(4) of the Act, when confronted with the relevant seized documents had categorically admitted the acceptance of donation/capitation fees in cash, to the tune of Rs.28,75,000/- from the petitioner. He also offered this unaccounted money for taxation in the relevant AY. In the circumstances, the petitioner too was thought to have undisclosed income that had escaped assessment.
6. Having considered the aforesaid contentions, the Court is 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, etc. 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, had a substantial opening balance in his bank account, had filed returns to the tune of Rs.69,74,191/- i.e. far in excess of the amount donated and had paid a tax thereon of Rs.2,07,608/- and it could otherwise be gleaned from the record that the capitation fees of Rs.28,75,000/- was made from withdrawals from the said account.
7. It is settled law that 'reasons to believe' have to be substantive and cogent. They cannot merely be reasons to suspect. The Petitioner's returns for the relevant AY and the earlier AYs were available for examination before the issuance of the impugned notice. The Form for recording the reasons for initiating the proceedings under Section 148 of the Act for obtaining approval of the CIT/Additional CIT itself proceeds on the erroneous basis that the quantum of income which had escaped assessment was Rs.28,75,000/- whereas the assessee had filed income returns of merely Rs.20,56,145/- and it is on this basis that the Additional CIT and the CIT granted their approval. However, the CIT's date of approval is not recorded in the Form even though it is mentioned in the letter dated 28th January, 2016. The Petitioner had highlighted this fundamental error at the initiation of the case by stating that his income was mentioned as Rs.20,56,145/- instead of Rs.69,71,191/-. This was summarily rejected by the Respondent by an order dated 14th October, 2016 stating that the amount of Rs.20,56,145/- instead of Rs.69,71,191/- being mentioned as the income of the Petitioner was a clerical mistake and that the latter figure would be treated as his income.
8. Interestingly, the document supplied to the Petitioner pursuant to his RTI application shows the following portion evidencing the approval of the CIT:
image 
9. From the above, it is evident that the sanction of the Principal CIT as disclosed with the letter dated 25th May 2016 was obtained ex post facto.
10. The Court is, however, of the view that if the correct income i.e. Rs.69,71,191/- had been put before the CIT at the time of seeking his approval, he might perhaps have taken a different view. There is nothing on record to show that the clerical mistake of substituting Rs.20,56,145/- for Rs.69,71,191/- was ever brought to the notice of the CIT either before or after the so called approval/sanction under Section 151(1) of the Act. 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.
11. For the above reasons, the impugned notice dated 28th January, 2016 issued under Section 147 of the Act seeking to reopen the Petitioner's assessment for AY 2010-11 is held unsustainable in law and is accordingly quashed.
12. The writ petition is allowed.
sb 

*In favour of assessee.