2025 (2) TMI 580 - AT - Income Tax

Unexplained investment u/s 69 - cash withdrawals made during the financial year 2017-18 - Denial of assessee s claim of exemption u/s 10(26AAA) - HELD THAT - For claiming exemption u/s 10(26AAA) not only the assessee should be a Sikkimese as per the provision specified but the source of income should also be from within the State of Sikkim. CIT(A) accepted the contention of the AO in denying the claim of benefit u/s 10(26AAA) however without allowing an opportunity of being heard to the AO treated the entire deposit as income from contract by admitting additional evidence in violation of Rule 46A of the Income Tax Rules 1962. Some of the documents filed before us were not filed before the Ld. AO and additional evidence has been admitted by the Ld. CIT(A) after examining the facts of the case we deem it appropriate to set aside the orders of the Ld. CIT(A) as well as of the Ld. AO and remit the matter back to the file of the Ld. AO for passing the assessment order de novo as the evidence filed before us along with the grounds of appeal for claiming exemption under section 10(26AAA) of the Act were not filed before the Ld. AO and some of them were admitted by the Ld. CIT(A). Assessee shall be at liberty to make all submissions in support of the claim that the income was exempt u/s 10(26AAA) of the Act as per the provisions thereof. Appeals filed by the assessee as well as the Revenue are allowed for statistical purposes.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this case are as follows:

1. Whether the notices issued under sections 147 and 148 of the Income Tax Act, 1961, were beyond jurisdiction and invalid, thus rendering the assessment order void.

2. Whether the reasons for holding that income escaped assessment and the sanction of the appropriate authority were not disclosed to the assessee, thereby invalidating the assessment process.

3. Whether the assessee's income is exempt under section 10(26AAA) of the Income Tax Act, 1961, as a resident of the state of Sikkim.

4. Whether the addition under section 69 of the Income Tax Act, 1961, based on estimated income, was justified.

5. Whether the Commissioner of Income Tax (Appeals) was justified in accepting additional evidence without a remand report from the Assessing Officer, in contravention of Rule 46A(3) of the Income Tax Rules, 1962.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Notices under Sections 147 and 148

The legal framework under sections 147 and 148 allows the reopening of assessments if the Assessing Officer has reason to believe that income has escaped assessment. The assessee contended that the notices were beyond jurisdiction and invalid. The Tribunal noted that the assessee was not provided with sufficient opportunity to contest the reopening, which is a procedural requirement. However, the Tribunal did not conclusively determine the validity of the notices, instead focusing on the procedural irregularities.

2. Disclosure of Reasons for Income Escaping Assessment

The assessee argued that the reasons for the belief that income had escaped assessment were not disclosed, which is a prerequisite for a valid assessment. The Tribunal acknowledged this procedural lapse but did not provide a detailed analysis, as the case was remanded for a fresh assessment.

3. Exemption under Section 10(26AAA)

The Tribunal considered whether the income was exempt under section 10(26AAA), which exempts income accruing to a Sikkimese individual from sources within Sikkim. The assessee provided evidence of being a Sikkimese resident and claimed exemption. However, the Tribunal noted that the assessee failed to file a return of income to substantiate the exemption claim. The Tribunal emphasized the need for filing a return to claim exemptions and found procedural shortcomings in the assessee's approach.

4. Addition under Section 69

The Assessing Officer added Rs. 1,08,28,180 under section 69 as unexplained investment. The Tribunal found that the CIT(A) directed an 8% estimation on total receipts without proper justification or evidence. The Tribunal noted that the CIT(A) accepted additional evidence without a remand report, violating procedural rules.

5. Acceptance of Additional Evidence

The Tribunal criticized the CIT(A) for accepting additional evidence without a remand report from the Assessing Officer, violating Rule 46A(3). The Tribunal emphasized the importance of procedural compliance in accepting additional evidence.

SIGNIFICANT HOLDINGS

The Tribunal held that both the assessee and the Revenue's appeals were allowed for statistical purposes, remanding the case to the Assessing Officer for a fresh assessment. The Tribunal emphasized procedural compliance, particularly in disclosing reasons for reopening assessments and handling additional evidence. The Tribunal directed the Assessing Officer to provide the assessee with a reasonable opportunity to present evidence supporting the exemption claim under section 10(26AAA).

The Tribunal's decision underscores the importance of procedural compliance in tax assessments, particularly regarding the disclosure of reasons for reopening assessments and the handling of additional evidence. The Tribunal's remand for a fresh assessment highlights the need for thorough procedural adherence to ensure fair and just tax proceedings.

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