Core Issue Whether:

1.  Reopening of assessment under sections 147 / 148A, based on Investigation Wing inputs, with sanction u/s 151, was valid in law; and

2.  Disallowance of deduction u/s 80GGC for political donations could be sustained when the addition was made solely on the basis of unverified third-party statements, without furnishing copies or granting cross-examination, thereby violating the principles of Audi Alteram Partem and amounting to borrowed satisfaction.

Facts of the Case The assessee, an individual, filed his return of income for A.Y. 2019-20 declaring total income of ₹36,07,440.He claimed deduction u/s 80GGC for political donations aggregating to ₹10,00,000, made through banking channels.

Based on a search and seizure action dated 07.04.2022 conducted on 23 Ahmedabad-based registered unrecognised political parties, the Investigation Wing alleged that donations were bogus and accommodation entries.

The Assessing Officer issued notice u/s 148A(b), followed by notice u/s 148, and completed reassessment disallowing the entire deduction of ₹10,00,000.The additions were primarily based on extracts of third-party statements recorded u/s 132(4), without supplying copies to the assessee.

The CIT(A) confirmed the reassessment and disallowance.The assessee appealed before the Tribunal challenging:

(i) validity of reopening and sanction u/s 151; and

(ii) merits of disallowance u/s 80GGC.

 Findings

On Reopening and Sanction (Sections 147, 148A & 151)-The Tribunal held that:

(i) The show cause notice u/s 148A(b) clearly referred to information arising from search on registered unrecognised political parties.

(ii)  The assessee’s name appeared in the search-related information.

(iii)  The Assessing Officer did not travel beyond the scope of the show cause notice.

 

Objections regarding: borrowed satisfaction at reopening stage,

change in quantum of escapement, and invalid sanction u/s 151, were rejected.. Reopening of assessment was held to be valid in law.

Observations of the Tribunal (On Merits – Section 80GGC) The Tribunal recorded that:

(i) The assessee had furnished donation receipts, bank statements, and registration details of political parties.

(ii) The Assessing Officer mechanically relied on the Investigation Wing report without independent verification.

(iii) No copies of third-party statements were provided to the assessee.

(iv) No opportunity of cross-examination was granted.

(v) The Tribunal observed that:

(a)    Additions based solely on unverified and uncorroborated third-party statements violate natural justice.

(b)   Disallowance of donation to Apna Desh Party was made without any material, as the Investigation Wing report pertained only to Rashtriya Samajwadi Party (Secular).

(c)    The approach of the Assessing Officer was found to be mechanical and based on borrowed satisfaction.

Case Law Relied Upon

Andaman Timber Industries v. CCE – denial of cross-examination violates principles of natural justice.

Kishinchand Chellaram v. CIT – third-party material cannot be used without confronting the assessee.

ITO v. Lakhmani Mewal Das – reassessment cannot be based on vague or borrowed satisfaction.

PCIT v. G&G Pharma India Ltd. – mechanical reliance on investigation reports is impermissible.

Outcome

(i) Challenges to reopening and sanction u/s 151 – Dismissed.

(ii) Disallowance of deduction u/s 80GGC – Set aside.

(iii) Matter remanded to the Assessing Officer for fresh adjudication after considering evidence furnished by the assessee, and

(iv) granting proper opportunity of hearing.

 Appeal partly allowed for statistical purposes.

Link to Download the order

https://www.mytaxexpert.co.in/uploads/1768991139_TUSHARVIPINCHANDRASHUKLAAHMEDABADVSTHEITOWARD532AHMEDABAD1.pdf