Reassessment Invalid Where Income Reopened Under Section 68 but Taxed as Anonymous Donations Under Section 115BBC: ITAT
Pranav B Prem
The Pune Bench of the Income Tax Appellate Tribunal has held that reassessment proceedings initiated on the basis of unexplained cash credits under Section 68 of the Income-tax Act, 1961 cannot be sustained where the final addition is made under Section 115BBC relating to anonymous donations. Holding that Sections 68 and 115BBC operate in distinct and mutually exclusive fields, the Tribunal ruled that the assumption of jurisdiction under Section 147 itself was invalid, rendering the entire reassessment proceedings unsustainable in law.
The Bench, comprising Dr. Manish Borad (Accountant Member) and Vinay Bhamore (Judicial Member), allowed the appeals filed by Rajarshi Shahu Shikshan Sanstha, a Maharashtra-based charitable trust engaged in imparting education through schools and colleges in Miraj and surrounding districts of Sangli. The Tribunal set aside the additions made towards alleged anonymous donations for Assessment Year 2012–13 and connected years.
For Assessment Year 2012–13, the assessee had filed its return of income on 26 February 2013 declaring nil income after claiming exemption available to charitable institutions. The return was selected for scrutiny, and a regular assessment under Section 143(3) was completed on 25 March 2015, accepting the returned income. Similar returns were filed for subsequent years declaring either nil income or marginal surplus.
Subsequently, the Income Tax Department conducted a survey under Section 133A on 13 February 2019 at various premises of the trust. Based on statements recorded during the survey and replies received from certain persons who allegedly denied having made donations, the Assessing Officer formed a view that donations received by the trust were not genuine.
In the reasons recorded for reopening the completed assessment, the Assessing Officer alleged that the assessee had failed to satisfactorily explain the nature and source of donations aggregating to ₹1.36 crore for AY 2012–13. The reasons specifically recorded that the donations were required to be taxed as unexplained cash credits under Section 68 of the Act. Approval under Section 151 for reopening was also obtained on this very footing. However, while completing the reassessment proceedings on 24 December 2019, the Assessing Officer did not make any addition under Section 68. Instead, the entire amount of ₹1.36 crore was treated as “anonymous donations” and taxed under Section 115BBC, which provides for a special rate of tax on donations received by charitable institutions without maintaining prescribed donor particulars.
Aggrieved by the reassessment, the assessee approached the Commissioner of Income Tax (Appeals), contending that the reassessment itself was invalid as the final addition was made under a provision entirely different from the one forming the basis of reopening. The appellate authority, however, upheld the reassessment as well as the addition, leading the assessee to approach the Tribunal.
Before the ITAT, the core issue was whether a reassessment initiated on the allegation of unexplained cash credits under Section 68 could be legally sustained when the final addition was made under Section 115BBC, without recording fresh reasons or issuing a fresh notice.
The Tribunal undertook a detailed comparison of Sections 68 and 115BBC and noted that the two provisions operate in entirely different spheres. Section 68 deals with unexplained credits in the books of accounts and requires the assessee to establish identity, creditworthiness, and genuineness. In contrast, Section 115BBC applies only to charitable institutions and merely taxes donations as “anonymous” where prescribed donor details are not maintained, without requiring proof of source or genuineness in the same manner.
The Bench observed that the Assessing Officer’s “reason to believe” was expressly confined to Section 68, yet the final reassessment order completely abandoned that foundation and invoked Section 115BBC instead. It held that a reassessment cannot travel beyond the very reason for which jurisdiction was assumed.
Relying heavily on the Bombay High Court’s decision in CIT v. Jet Airways (I) Ltd., the Tribunal reiterated that if no addition is ultimately made on the issue which formed the basis for reopening, the reassessment itself becomes invalid. The Tribunal also referred to Lark Chemicals Pvt. Ltd., where the Supreme Court declined to interfere with a similar view taken by the Bombay High Court.
Rejecting the Revenue’s reliance on Explanation 3 to Section 147, the Tribunal held that the said Explanation does not permit the Assessing Officer to completely substitute the original ground of reopening with a new and unrelated charging provision. It only enables assessment of other income once the original reason survives, which was not the case here.
The Tribunal further noted that no show-cause notice was issued proposing taxation under Section 115BBC and that approval under Section 151 was obtained only for reopening based on Section 68. It also observed that the reassessment was initiated beyond four years from the end of the assessment year without establishing any failure on the part of the assessee to disclose fully and truly all material facts. Holding that these defects went to the very root of jurisdiction, the ITAT quashed the reassessment proceedings for AY 2012–13. Since the reopening itself was held to be invalid, the Tribunal did not examine the merits of the addition under Section 115BBC. The appeals filed by the assessee were allowed, and the impugned additions were set aside in full.
Case Title: Rajarshi Shahu Shikshan Sanstha Versus ITO
Case No.: ITA Nos.1121 to 1126/PUN/2024
Coram: Dr. Manish Borad (Accountant Member) and Vinay Bhamore (Judicial Member)
