Telangana High Court Sets Aside Reassessment of Naandi Foundation — Verification Desire Cannot Substitute Income Escapement Finding Under Section 148A

Background and Overview

The Telangana High Court, in a significant ruling on three connected writ petitions filed by Naandi Foundation against the Assistant Commissioner of Income Tax, set aside reassessment proceedings that had been initiated under Section 148A(3) and Section 148 of the Income Tax Act, 1961. The lead matter pertained to Assessment Year 2019-20. The Court's decision reinforces the well-established legal principle that initiation of reassessment proceedings requires tangible, credible material demonstrating actual escapement of income — and not merely a desire to conduct further verification of voluminous transactions.

Who Is Naandi Foundation?

Naandi Foundation is an autonomous public charitable trust established in 1998 and registered under the Indian Trusts Act, 1882. Its principal mission is directed towards the socio-economic upliftment of marginalized, underserved, and underprivileged sections of society, with activities spanning education, healthcare, livelihood improvement, and access to safe drinking water. The Foundation holds registration as a charitable institution under Section 12A of the Income Tax Act, 1961, granted vide an order of the Commissioner of Income Tax, Hyderabad-II, bearing reference H.Qrs.II/12A-80G/112/98-99, dated 31.05.1999, which remained valid and operative for Assessment Year 2019-20.

The Return Filing and Initial Processing

For Assessment Year 2019-20, the Foundation filed its return of income on 26.10.2019, declaring NIL total income after availing the exemption available under Section 11 and Section 12 of the Income Tax Act, 1961, and claiming a refund of Rs.6,37,010/-. The Centralized Processing Centre processed the return and issued an intimation dated 28.04.2020 under Section 143(1) of the Act, bearing DIN: CPC/1920/A7/1970843763, accepting the returned income for the said assessment year without any variation.

Investigation Wing Proceedings and the Summons Under Section 131(1A)

On 05.07.2024, the Investigation Wing (Respondent No. 3) issued summons to the Foundation under Section 131(1A) of the Income Tax Act, 1961, bearing DIN and Notice No. ITBA/INV/S/131/2024-25/1066460264(1). The summons required the Foundation to furnish data pertaining to financial years 2017-18, 2018-19, 2019-20, and 2020-21. Specifically, the information sought included:

  • A detailed note on activities carried out during financial year 2020-21
  • Audited financial statements for financial years 2017-18 through 2020-21
  • Details of credits received from KC Mahindra Educational Trust (KC MET) during financial year 2020-21
  • A detailed note on the utilisation of such funds and their accounting treatment
  • Copies of all bank account statements for financial year 2020-21
  • Contact details of all members and trustees of the Foundation

The Investigation Report and Its Conclusions

Based on the material furnished by the Foundation in response to the summons, the Investigation Wing compiled a report dated 04.01.2025 and submitted it to Respondent No. 4 for approval. The report recorded that the Foundation had received funds in the form of grants and donations from various domestic and foreign parties, including KC MET, but had allegedly failed to produce satisfactory documentary evidence regarding:

  • The actual payments made
  • The list of beneficiaries and their confirmations
  • Copies of bills and invoices against expenses claimed
  • Lists of volunteers and community activists to whom honorarium was paid

On this basis, the report alleged that amounts of Rs.94,23,73,869/- for financial year 2018-19, Rs.92,91,09,404/- for financial year 2019-20, and Rs.90,79,12,093/- for financial year 2020-21, representing expenditure of the Foundation for the respective years, constituted undisclosed income. Approval was thereafter accorded for uploading this information on the Insight Portal.

Note: The Foundation disputed these conclusions as being based entirely on conjectures and surmises without any tangible material indicating that the funds received had not been applied towards its stated charitable objects.

Show-Cause Notices Issued Under Section 148A(1)

Acting on the information uploaded on the Insight Portal based on the investigation report, Respondent No. 1 issued Notice 1 dated 12.03.2025 under Section 148A(1) of the Income Tax Act, 1961 for Assessment Year 2019-20. The notice alleged that:

  • High-value amounts were being credited from KC MET to the Foundation and subsequently transferred across multiple accounts, suggesting possible money laundering
  • Funds granted for specific programmes such as Nanhi Kali, N Star, and Mahindra Pride School were allegedly not being utilised in accordance with the Foundation's aims and objectives