2022 (3) TMI 888 - AT - Income Tax

Exemption u/s 11 - estimated disallowance @ 10% of the expenses under section 13(1)(c) read with section 13(3) on the ground that the estimated amount of disallowance pertained to utilization of income for the benefit of specified persons referred to in Section 13(3) - CIT(A) deleted these disallowances, holding that there was no evidence of any bogus bill or voucher, and that there was no finding that bills and vouchers were not verifiable - HELD THAT - It is not in dispute, that the Assessee failed to furnish full information to the AO, during assessment proceedings, in respect of application or use of income or property for use of specified persons referred to in section 13(3) of IT Act - assessee had failed to make full compliance with the requirements made by the AO, to produce the books of accounts, relevant supporting documents and other information/documents as prescribed by the AO during assessment proceedings; though the assessee did, without dispute on this fact, produce books of accounts before the AO on sample basis - there is no dispute, that the assessee did not claim during assessment proceedings that prior period expenses crystallized during the current period relevant to Assessment Year 2010-11; and, that the AO did not get any opportunity to examine the assessee's claim - CIT(A) did not provide any opportunity to the AO, to rebut this claim made by the assessee for the first time during appellate proceedings before Ld. CIT(A) - CIT(A) has not passed a speaking order on how he came to the conclusion, that the aforesaid prior period expenses had crystallized during the year relevant to Assessment Year 2010-11. Assessee faced genuine difficulties in fully complying with all the requirements prescribed by the AO during assessment proceedings. Regarding the claim of the assessee (in Assessment Year 2010-11) that prior period expenses crystallized during the period relevant to Assessment Year 2010-11; we find that this claim was not scrutinized properly either during assessment proceedings (because this claim was not made by the assessee during assessment proceedings) before the AO, or during appellate proceedings before the Ld. CIT(A). We set aside the impugned appellate orders of the Ld. CIT(A), and restore all issues in dispute in the present appeals before us, to the file of the Assessing Officer, for fresh order in accordance with law- Appeal allowed for statistical purposes.

Issues Involved:

1. Deletion of additions made under Section 13(3) of the Income Tax Act.
2. Disallowance of expenses due to non-compliance in producing books of accounts and supporting documents.
3. Disallowance of prior period adjustments in Assessment Year 2010-11.

Issue-wise Detailed Analysis:

1. Deletion of Additions Made Under Section 13(3) of the Income Tax Act:

The primary issue in these appeals revolves around the deletion of additions made by the Assessing Officer (AO) under Section 13(3) of the Income Tax Act. The AO had invoked Section 13(1)(c) read with Section 13(3) to disallow 10% of the expenses on the grounds of non-cooperation from the assessee in providing requisite information regarding the application or use of income or property for specified persons. The Learned Commissioner of Income Tax (Appeals) [Ld. CIT(A)] deleted these additions, observing that members of the governing council were government servants, and there was no specific finding regarding any payments to specified persons.

During the appellate proceedings, the Revenue's Special Counsel argued that the misuse of funds in a charitable organization could not be verified without the desired information, which was in the exclusive knowledge of the assessee. The Special Counsel contended that the Ld. CIT(A) had erred in shifting the burden to the Revenue and had ignored the AO's observations regarding non-cooperation by the assessee. The assessee's Authorized Representative (AR) relied on the Ld. CIT(A)'s orders.

2. Disallowance of Expenses Due to Non-compliance in Producing Books of Accounts and Supporting Documents:

The second issue concerns the disallowance of expenses by the AO due to the assessee's failure to produce books of accounts, relevant supporting documents, and other prescribed information. The AO estimated the disallowance at 10% of net expenditure for Assessment Years 2003-04 and 2010-11, and at 30% for Assessment Years 2004-05 to 2009-10. The Ld. CIT(A) deleted these disallowances, holding that there was no evidence of any bogus bill or voucher and that bills and vouchers were verifiable.

The Revenue's Special Counsel submitted that the Ld. CIT(A) had ignored the AO's observations regarding non-compliance by the assessee and had wrongly concluded that relevant documents were produced before the AO. The Special Counsel argued that the mere production of sample books of accounts could not form the basis for effective enquiry by the AO. The assessee's AR contended that the books of accounts were produced on a sample basis and that making ad hoc additions was untenable.

3. Disallowance of Prior Period Adjustments in Assessment Year 2010-11:

The third issue pertains to the disallowance of prior period adjustments amounting to ?48,76,412/- in Assessment Year 2010-11. The AO disallowed this amount on the grounds that it did not pertain to the relevant assessment year. The Ld. CIT(A) deleted this addition, stating that the prior period expenses had crystallized in the current year.

The Revenue's Special Counsel argued that this claim was raised for the first time before the Ld. CIT(A) and that no evidence was provided to the AO to show that the expenses had crystallized in the relevant year. The Special Counsel contended that the AO was not given an opportunity to examine this claim, and the Ld. CIT(A) had not provided any reasoning for his conclusion. The assessee's AR relied on the Ld. CIT(A)'s order.

Conclusion:

After hearing the submissions from both sides, it was acknowledged that the assessee faced genuine difficulties in fully complying with the AO's requirements during the assessment proceedings. Both parties agreed that all issues should be remanded back to the AO for a fresh order in accordance with the law, after providing a reasonable opportunity to the assessee.

The Tribunal noted that the assessee had failed to furnish full information during the assessment proceedings and that the AO did not get an opportunity to examine the claim regarding prior period expenses. The Ld. CIT(A) had also not passed a speaking order on this issue.

In view of the above, the Tribunal set aside the impugned appellate orders of the Ld. CIT(A) and restored all issues to the file of the AO for a fresh order. Both parties were granted the opportunity to take all legal courses of action during the fresh assessment proceedings.

Disposition:

For statistical purposes, all eight appeals were partly allowed. The order was pronounced orally on 03.03.2022 in Open Court and signed on 10.03.2022.

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