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Facts
The Revenue appealed against the CIT(A)'s order, which deleted additions made on account of unverified expenses and loans. The assessee claimed exemption under Section 11 of the Income Tax Act, 1961. The assessment was framed ex-parte as the assessee's representative was not authorized and details were not provided.
Held
The Tribunal held that the CIT(A) was correct in allowing the exemption under Section 11 as the assessee had consistently received it in past and subsequent years, and the AO had not provided sufficient grounds for denial. The addition on account of loans was also deleted as it was confirmed to be from the bank and tallied with bank statements.
Key Issues
Whether the CIT(A) was justified in allowing exemption under Section 11 and deleting additions of expenses and loans, when the assessment was ex-parte due to lack of proper representation and documentation by the assessee.
Sections Cited
144, 271(1)(c), 250(6), 11, 68, 143(3), 147, 13(3), 46A, 11, 12
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “F” BENCH, NEW DELHI
PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER:
These two appeals relate to the same assessee and have been filed by the Revenue - one challenging the deletion of addition by the Ld. CIT(A) in the quantum assessment proceedings under Section 144 of the Income-tax Act, 1961 (“the Act”), and the other challenging the deletion of penalty under Section 271(1)(c) of the Act.Both impugned orders were passed by the Ld. Commissioner of Income-tax (Appeals)-36, New Delhi (“CIT(A)”), u/s 250(6) of the Act, pertaining to the Assessment Year (AY) 2006–07.
This is the second round of litigation before this Tribunal. In the first round, the quantum appeal was dismissed as withdrawn vide order dated 24.12.2020 on account of tax effect being below the limit specified by CBDT for filing appeals before ITAT by Revenue, and the corresponding penalty appeal was accordingly also dismissed. However, pursuant to Miscellaneous Applications (MAs) filed by the Department highlighting that the tax effect had been incorrectly computed and actually exceeded the monetary threshold prescribed by the CBDT, both appeals were recalled for fresh adjudication.
We shall first take up the appeal filed by the Revenue in quantum proceedings in ITA No. 3633/Del/2017.
None has appeared on behalf of the assessee before us. We have noted that, on all the previous occasions when the appeal has been fixed for hearing after recall, the assessee has remained unrepresented throughout. It is, therefore, clear that the assessee is not interested in participating in the appellate proceedings before us. Accordingly, we proceed to hear and decide the appeal ex-parte, based on the material available on record and with the assistance of the Ld. Sr. DR before us.
Brief facts relating to the case are that the assessee had filed return of income declaring Nil income,claiming its income exempt u/s 11 of the Act. The case was picked up for scrutiny assessment during which none appeared for the assessee. In the absence of any information and details furnished by the assessee, the Assessing Officer noted that the activities carried out by the assessee were not verifiable and it could not be determined whether the expenses incurred were for the purpose of its stated objects of charitable activity carried out by it. Accordingly, he disallowed the assessee the benefit of exemption u/s 11 of the Act andnoting that the assessee had returned gross receipts of Rs.47,74,912/- and expenditure against the same to the tune of Rs.46,88,867/-, he held the entire gross receipts liable to tax subject to allowances of expenditure against the same to the tune of Rs.1,20,000/-. Further, the Assessing Officer noted that the assessee had received loans amounting to Rs.5,33,60,878/- which constituted loan amounting to Rs.1,53,60,878/- as other loans, and Rs.3,80,00,000/- as Term Loan. In the absence of any evidences furnished by the assessee establishing the genuineness of the same, the entire loans of Rs.5,33,60,878/- was added to the income of the assessee u/s 68 of the Act. Thus, the assessment was framed ex- parte assessing income of the assessee at Rs.5,80,15, 790/- as against Nil income returned by the assessee.
Before the Ld. CIT(A), the assessee contended that it was unaware of the assessment proceedings completely and, therefore, resulted in ex-parteorder being passed. The assessee was pointed out that on two occasions, one Mr. Sanjay Garg has sought adjournments on behalf of the assessee who was noted to be the auditor of the assessee-trust. The assessee contended that though Mr. Sanjay Garg was the auditor of the assessee-trust, but he was not authorized to represent the assessee before the Assessing Officer. When a report of the Assessing Officer was sought with regard to the same, he was unable to submit any evidence of Mr. Sanjay Garg being given authority to represent the assessee. The assessee, thereafter, submitted evidence before the Ld. CIT(A) to substantiate its claim of being entitled to exemption u/s 11 of the Act and also with respect to the addition made of loans of Rs.5.33 crores. The assessee filed two revised balance-sheets and submitted the last balance-sheet to be the correct balance-sheet depicting the true and correct state of affairs of the assessee-trust. From the same, he pointed out that the loans represented amounts received by the assessee from the banks and were outstanding since very long. It was, therefore, contended by the assessee that there was no question of treating the same as ingenuine. All the evidences so furnished by the assessee were submitted to the Assessing Officer for his report. The Assessing Officer pointed out that the assessee was attempting to mislead the Department by filing different balance-sheets – three in all – all signed by the same auditor. However, with respect to the last balance-sheet filed before him, he agreed with the contention of the assessee that the loans represented amounts advanced by the bank to the assessee. The Ld. CIT(A), after considering the submissions of both the sides, held that, in view of the fact that the assessee was never denied exemption in scrutiny assessment in the past and even in the subsequent assessment years, there was no case at all for denying the assessee the benefit of exemption u/s 11 of the Act. Accordingly, the act of the Assessing Officer of denying the assessee the benefit of exemption u/s 11 of the Act was set aside by the Ld. CIT(A). With respect to addition made on account of loans remaining unverified amounting to Rs.5.33 crores, he noted the admission of the Assessing Officer that the last balance-sheet furnished by the assessee reflected bank balances which tallied with the bank statements of the assessee and the loans represented the amounts given by the bank to the assessee. Taking note of the same, he agreed with the Ld. Counsel for the assessee that since admittedly the loans were amounts given by the bank to the assessee which tallied with the bank statements, there was no question of treating the same as ingenuine and accordingly he deleted the addition made on account of loans amounting to Rs.5.33 crores. Thus, on quantum, the assessee was granted complete relief by the Ld. CIT(A). His findings in this regard are contained at paragraph nos. 8.2 to 8.4 of his order as under:-
“8.2. Regarding the exemption u/s. 11 and 12, it is seen from the assessment order that the AD has merely mentioned that the assessee is not entitled for exemption u/s. 11 and disallowed the exemption. It appears that he had no other choice as no documents at all were furnished by the AR of the assessee. A chart of the status of assessments in the case was called for, by me, which was presented on 30.01.2017. The chart shows that regular assessment u/s. 143(3) or u/s. 147 has been made for AY 2005-06 up to 2011-12 (except 2010-11). In AY 2007-08 and2008-09, the exemption u/s. 11 was denied for misuse of section 13(3) or other grounds. In AY 2009-10 and 2011-12, the exemption was allowed to the assessee. Also, the AO has not raised any objection to the educational activities of the assessee. It is therefore held that the exemption may be allowed for AY 2006-07 as no specific ground has been brought up by the AO for disallowance for the same.
8.3. The third issue is regarding the addition of 5,33,60,878/- as income from undisclosed sources. After going through all the records carefully the facts that emerges are as under: a. The assessee could not give any details as asked for due to wrong representation by the AR Mr. Sanjay Garg. b. There were 3 sets of balance sheet and I & E a/c. submitted at various time which were all audited by Mr. Sanjay Garg and reflected different figures of secured loans/OD etc, due to which there was a lot of confusion and incoherency. c. It also appears that the assessee had filed the revised balance sheet showing correct figures on 24.10.2007 whereas the order u/s. 144 was passed on 08.12.2008 and does not mention anything about the revised balance sheet. During the assessment, the first balance sheet and I & E a/c. submitted was considered and the addition was made as income from undisclosed sources in absence of any explanation. d. The remand report of the AO dated 27.09.2012 in the end clearly says that the bank account statements were seen by the AO and the bank balance reflected the term loans correctly as per the balance sheet submitted for the third time.
8.4. The picture that emerges is that the assessee was misrepresented by the statutory auditor Mr. Sanjay Garg and might have been ignorant about the details filed by him, though ignorance of law cannot be an excuse. From the details of other AYs, it is seen that in those years also, the balance sheet and I & E a/c. has been revised as in AY 2006-07. The revised details were accepted in the other years and as per the remand report given by the AO, it is held that the last balance sheet and I & E a/c, may be considered as the right one. Further, it is seen that the loan has been shown as outstanding since FY 2005-06 and is still continuing. It is also seen that the books of accounts have never been rejected in any of the AY despite disallowances made on other issues in 2 AYs. The additions made on account of income from undisclosed sources can therefore not be sustained as the amount added is actually loan taken from Punjab National Bank and over draft amount and not from undisclosed sources. The outstanding loan amount including the OD may be taken as the figure from the last balance sheet and shown by the assessee as 4,60,44,833/- (outstanding loan of Rs. 4,04,74,359/- and OD of Rs. 53,70.494/-). The ground of the assessee is allowed.”
Aggrieved by the order of the Ld. CIT(A), the Department has come up in appeal before us raising following grounds:-
“1. On the facts and in the circumstances of the cave and in law, the Ld. CIT(A) has erred in law is allowing exemption u/s 11 & 12 of the IT Act and deleting addition made on account of unverified expenses amounting to Rs.47,74,912/
2. On the facts and in the circumstances of the case and in law, the Id. CITA) has erred in facts and law by allowing additional evidence under Rule 46A.
3. On the facts and in the circumstances ofthe case and in law, the Ld. CIT(A) has erred in law mentioning in order that as per Remand Report given by the AO, it is held that the last Balance Sheet and Income & Expenditure A/c may be considered as the right one. Whereas the Assessing Officer requested notto accept additional evidence vide his letter dated 27.09.2012 of Remand Report.
4. On the facts and circumstances of the case and in law, the Ld. CITA) has erred in facts and in law in allowing income earned by undisclosed sources amounting to Rs.5,33,60,878/-.
Ground of appeal No.1 raised by the Revenue is with respect to the allowance of claim of exemption u/s 11 of the Act to the assessee by Ld. CIT(A) which was disallowed by the Assessing Officer. As noted above, the Assessing Officer has disallowed the claim in the absence of any details furnished by the assessee during assessment proceedings. The Ld. CIT(A), on the other hand, admitted evidences furnished by the assessee, and he noted from the records that the assessee, in the past and in the succeeding assessing years in the scrutiny assessment, had never been denied benefit of exemption u/s 11 of the Act and based on this finding, he held that there was no case, therefore, for the Assessing Officer to deny the benefit of exemption to the assessee in the absence of any critical finding to support the same.
Before us, the Ld. DR was unable to controvert the factual findings of the Ld. CIT(A) that the assessee in the past and in the future had never been denied exemption u/s 11 of the Act in scrutiny assessment undertaken by the Department. It is also a fact on record that in the impugned year, the basis for denying exemption u/s 11 of the Act by the Assessing Officer was merely on account of non-furnishing of any details by the assessee during assessment proceedings. In light of the same, we find no infirmity in the order of the Ld. CIT(A) holding that there is no case at all for denying the assessee the benefit of exemption u/s 11 of the Act in the present case. Ground of appeal No. 1 is, therefore, dismissed.
Ground of Appeal No. 2 relates to the admission of additional evidences by the Ld. CIT(A) under Rule 46A of the Act. The order of the Ld. CIT(A) reveals that the assessee had contended before him that he was unaware of the assessment proceedings. Mr. Sanjay Garg who had sought adjournments on two occasions in the assessment proceedings was never authorized by the assessee to represent the assessee. On the Ld. CIT(A)’s seeking a report from the Assessing Officer regarding Mr. Sanjay Garg having any letter of authority to represent the assessee, the Assessing Officer was unable to confirm the said fact. In the light of these facts, the Ld. CIT(A) has noted that the assessee had sufficient cause for not appearing before the Assessing Officer and accordingly he admitted the additional evidences filed by the assessee before him. The Ld. DR was unable to controvert any of the facts, as noted above, leading to exceptional circumstances on account of which the assessee was unable to participate in the assessment proceedings. In the light of the same, we hold that there is no case made out by the Ld. DR before us that the additional evidences having been admitted by the Ld. CIT(A) in contravention to the Rules prescribed under Rule 46A of the IT Rules, 1962. The ground of appeal No.2 raised by the Revenue is, therefore, dismissed.
Ground of appeal No. 3 relates to the admission of final balance-sheet and Income & Expenditure Account submitted by the assessee as the true and correct statements of affairs of the assessee by the Ld. CIT(A). It is to be noted that there were three varying statements of affairs submitted by the assessee during the assessment proceedings and in appellate proceedings. The Ld. CIT(A) treated the final one as true and correct on the basis of the report of the Assessing Officer that the balances reflected therein of the bank accounts tallied with the balances reflected in the bank statements of the assessee. Thus, he concluded that all transactions undertaken by the assessee,it could be safely presumed,had been accounted for and reflected in the final balance-sheet, and on this basis he treated the last balance-sheet and Income & Expenditure a/c submitted by the assessee as the true and correct statement of affairs of the assessee. The Ld. DR before us was unable to controvert the fact noted by the Ld. CIT(A) that the Assessing Officer had reported in his remand report that the final balance-sheet reflected the correct bank balances therein. In the light of the same, we find no infirmity in the order of the Ld. CIT(A) holding the final balance-sheet to be the true and correct statement of affairs of the assessee- trust. Ground of appeal No. 3 raised by the Revenue is, therefore, dismissed.
The grievance raised by the Revenue in ground of appeal No. 4 relates to the deletion of addition made of loans amounting to Rs.5.33 crores by the Assessing Officer finding them to be not genuine. The Assessing Officer had treated the same as not being genuine since the assessee had failed to discharge its onus of proving the genuineness of the same during the assessment proceedings having not filed a single evidence before the Assessing Officer. The Ld. CIT(A), however, deleted the addition noting the fact that these loans represented outstanding balances of banks which were confirmed by the bank statements also. The Ld. CIT(A) noted this fact to have been confirmed by the Assessing Officer in his remand report also. Before us, the Ld. DR was unable to controvert the factual finding of the Ld. CIT(A) that the loans represented outstanding balances of the banks which was confirmed by their bank statement also. In the light of the same, we find no infirmity in the order of the Ld. CIT(A) deleting the addition made of loans amounting to Rs.5.33 crores. Ground of appeal No. 4 raised by the Revenue is, therefore, dismissed.
In effect, the appeal of the Revenue is dismissed.
14. Since the order of the Ld. CIT(A) deleting all the additions made by the Assessing Officer has been confirmed by us, there is no case for levy of any penalty on the assessee u/s 271(1)(c) of the Act and the order of the Ld. CIT(A) as a consequence deleting penalty levied on the assessee is confirmed by us. The appeal of the Revenue is accordingly dismissed.
In the result, both the appeals of the Revenue are dismissed.
Order pronounced in the open Court on 20.06.2025 at New Delhi .