2016 (7) TMI 839 - AT - Income Tax

Penalty u/s 271(1)(c) - assessee donated to three charitable institutions and claimed exemption u/s 35AC - non opportunity to the assessee for cross examination - essee-company was in the process of winding up - Held that - It needs to be clarified who is looking after the affairs of the assessee-company on day today basis at the relevant point of time. Whether Shri Balasubramanian or Shri Vijaysadarangani was looking after the affairs of the assessee-company at the relevant point of time. If Shri Balasubramanian was looking after the affairs of the assessee-company, then it has to be clarified whether the enquiry report filed by the Income Tax Inspector and the communication said to be received by the Dy. Commissioner of Income Tax, Chennai from the Dy. Director of Income Tax(Investigation), Jamshedpur, was communicated to the assessee. The assessee claims before this Tribunal that no opportunity was given to it to cross examine the Secretary and Treasurer of the Trust who denied the receipt of money. This Tribunal is of the considered opinion that when the Assessing Officer examined the Secretary and Treasurer of the Trust, an opportunity shall be given to the assessee to cross examine them to find out whether actually the Trust received the money or not. It is also necessary to find out who actually opened the bank account in Axis Bank at Kolkata and operated the same. If the trustees of the so called three Trusts opened the bank account in the name of some other persons with connivance of the officials of Axis Bank, the Assessing Officer has to find out what kind of action was taken against the Axis Bank officials and the trustees who are responsible for opening the bank account. Since these details are not available on record, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer. Coming to the penalty levied by the Assessing Officer u/s 271(1)(c) of the Act, as observed earlier, the assessee was not given any opportunity to cross examine the Secretary and Treasurer of the Trust. Admittedly, as observed earlier, the Secretary and the Treasurer of the Trust were examined and the copies of the statement was not furnished to the assessee and what was available on record is only enquiry report and the letter said to be received by the Dy. Commissioner of Income Tax, Chennai, from Dy. Director of Income Tax (Investigation), Jamshedpur. In those circumstances, penalty being different and distinct from assessment proceedings, the Assessing Officer ought to have given an opportunity to the assessee to cross examine the Secretary and Treasurer of the so called Trust. Since such an opportunity was not given, the matter needs to be reconsidered by the Assessing Officer by giving an opportunity to the assessee for cross examination. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Legitimacy of donations claimed under Section 35AC of the Income Tax Act.
2. Validity of penalty proceedings under Section 271(1)(c) of the Income Tax Act.
3. Delay in filing the appeal and its condonation.
4. Opportunity for cross-examination of witnesses.

Detailed Analysis:

1. Legitimacy of Donations Claimed under Section 35AC:
The assessee claimed exemptions for donations amounting to ?2,25,00,000/- made to three charitable institutions, asserting that the donations were transferred through banking channels and credited to the respective Trusts' bank accounts. However, the Assessing Officer (AO) conducted an enquiry and concluded that the Trusts did not receive the donations. The enquiry involved examining the Secretary and Treasurer of Aadivasi Mahila Vikas Samidhi, who denied receipt of any such donations and disclaimed the signatures on Form 58A. The AO's findings were based on these statements and the fact that the bank accounts purportedly used for these transactions were fraudulently opened. The Tribunal noted that the CIT(A) dismissed the appeal without examining the merits, as the assessee had not pressed the issue, intending to avoid further legal proceedings. The Tribunal emphasized that the CIT(A) should have examined the matter on merit, given the power to enhance the assessment.

2. Validity of Penalty Proceedings under Section 271(1)(c):
The AO initiated penalty proceedings just before the expiry of the limitation period, alleging that the assessee concealed particulars of income and furnished inaccurate details. The assessee contended that the penalty proceedings were distinct from the assessment proceedings and required independent examination of facts. The Tribunal observed that the assessee was not provided an opportunity to cross-examine the Secretary and Treasurer of the Trusts, whose statements were pivotal to the AO's findings. The Tribunal ruled that the penalty proceedings should be reconsidered, allowing the assessee to cross-examine the witnesses and the AO to furnish all relevant documents and investigation reports.

3. Delay in Filing the Appeal and Its Condonation:
The assessee delayed filing the appeal by 683 days, attributing it to the initial decision not to press the donation issue before the CIT(A). The Tribunal acknowledged the assessee's explanation that the initiation of penalty proceedings compelled the filing of the appeal. Recognizing a reasonable cause for the delay, the Tribunal condoned the delay and admitted the appeal.

4. Opportunity for Cross-Examination of Witnesses:
The Tribunal highlighted the necessity of providing the assessee an opportunity to cross-examine the Secretary and Treasurer of the Trusts, whose statements were critical to the AO's conclusions. The Tribunal directed the AO to furnish the statements and other relevant documents to the assessee and allow cross-examination, ensuring a fair reassessment of the facts.

Conclusion:
The Tribunal set aside the orders of the lower authorities and remitted the issues back to the AO for reconsideration. The AO was instructed to provide the assessee with all relevant documents and an opportunity for cross-examination before passing a fresh order in accordance with the law. The appeals were allowed for statistical purposes, emphasizing the need for a thorough and fair examination of the claims and penalties involved.