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Facts
The assessee, an individual, did not file a return for AY 2013-14, claiming nil taxable income due to exemption under Section 10(26)AAA. The Assessing Officer (AO) reopened the case and made additions for cash deposits and other credits, which were upheld by the CIT(A).
Held
The Tribunal held that the assessee, being a Sikkim old settler and proven by a residential certificate, is entitled to the exemption under Section 10(26)AAA of the Act, especially in light of the Supreme Court's decision. The additions made by the AO were set aside.
Key Issues
Whether the assessee, as a Sikkim old settler, is entitled to exemption under Section 10(26)AAA of the Income Tax Act for AY 2013-14, and if the additions made by the AO are justified.
Sections Cited
147, 142(1), 68, 10(26)AAA, 139(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM:
This is the appeal preferred by the assessee against order of Commissioner of Income Tax (Appeal)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)] dated 31.07.2024 for AY 2013-14.
Brief facts of the case of the assessee is that the assessee being an individual did not file any return of income for the AY 2013-14 despite having credit of total amount Assessment Year: 2013-14 Ajay Kumar Agarwal of Rs. 43939860/- which included the cash deposit amounting to Rs. 38952038/- through its bank accounts maintained with Union Bank of India, Gangtok Branch. On the basis of information available the case of the assessee was reopened u/s 147 of the Act and notices were issued to the assessee requesting to file a return of income. No response was received from the assessee and when notice u/s 142(1) was again issued the assessee vide its letter dated 05.02.2021 and 10.02.2021 submitted that he is a franchise holder of BSNL at Gangtok, Sikkim and by enclosing a copy of writ petition filed by Association of Old Settlers of Sikkim and others wherein the assessee claims to be a member of above association and the petition relates to grant benefit u/s 10(26)AAA of the Act. The AO after considering the facts of the case and submission of the assessee asked the assessee to submit the details with regard to the cash deposit amount of Rs. 438952038/- during FY 2012-13 in its bank account. No response has been received as a result of which the total income is computed by considering the cash deposit of Rs. 38952038/- in the bank account as unexplained cash credit and added back to the total income of the assessee. Further the estimated profit rate of 8% of the other credit in the bank is also added back to the assessee’s total income.
The assessee has preferred the appeal before the Ld. CIT(A) wherein the appeal of the assessee has been dismissed by holding that the assessee had failed to discharge his onus u/s 68 of the Act.
Being aggrieved and dissatisfied the present appeal has been preferred by the assessee.
The Ld. Counsel for the assessee challenges the impugned order there was submitting that the AO as well as the Ld. CIT(A) has erred by rejecting the claim of the assessee to grant the benefit of exemption u/s 10(26)AAA of the Act and further the Ld. CIT(A) was not justified in upholding the action of AO in making the addition of Rs. 399025/- being 8% of Rs. 4987822/- being the other credit of the bank ignoring the fact that the assessee was entitled to benefit of exemption u/s 10(26)AAA of the Act. The Ld. Counsel further submits that the assessee is a Sikkim old settler to be assessed as Assessment Year: 2013-14 Ajay Kumar Agarwal Sikkimese as because he is engaged in the activities earning his income from the State of Sikkim. The return of income in AY 2013-14 was not filed as because his total taxable income of Rs. Nil by claiming exemption u/s 10(26)AAA of the Act. The Ld. Counsel cited a decision of Hon’ble Supreme Court in the case of Association of Old Settlers of Sikkim vs. Union of India reported in [2023] 146 taxman.com 271(SC) and submit that all the individuals domiciled in Sikkim up to 26th April, 1975 shall be entitled to exemption under the said provision from the current financial year i.e. 1st April, 2022 onwards. The Ld. Counsel also cited the order passed by the ITAT, Kolkata Bench in to 1349/Kol/2024 for AY 2014-15 dated 13.09.2024. The prayer of the assessee is that the assessee is entitled to claim exemption u/s 10(26)AAA of the Act, hence the order passed by the AO confirmed by the Ld. CIT(A) is to be set aside.
Contrary to that the ld. DR supports the impugned order.
We have perused the order of AO as well as Ld. CIT(A). The main issue is the rejection of claim of benefit of exemption u/s 10(26)AAA of the Act. As per the assessee that he is a Sikkim Old Settler to be assessed as Sikkimese as because is engaged in the activities earning his income from the State of Sikkim. The assessee has also stated that he did not file any return of income for AY 2013-14 because his total taxable income was Rs. Nil by claiming exemption u/s 10(26)AAA of the Act. At the time of assessment proceedings there is no dispute that the assessee has enclosed a copy of writ petition filed by the Association of old Settler of Sikkim and others vs. Union of India before the Hon’ble Supreme Court where in the assessee claims to be a member of above association and the petition relates to grant benefit u/s 10(26) AAA of the Act. Now the judgement of the Apex Court has come into fore. Going over the Hon’ble Apex Court judgment, we find that the Hon’ble Apex Court has held thus:
“77. This Court has on previous occasions, sought to enforce rights of citizens even in areas of legislative vacuum. [for instance, in Vishaka vs. State of Rajasthan AIR 1997 SC 3011]. To this end, article 142 of the Act Constitution of India has been invoked and the law so declared in order to fill the vacuum has been treated as law declared by this Court under Article 141 untill a proper legislation is made.
Assessment Year: 2013-14 Ajay Kumar Agarwal Hence, it has to be directed that till such amendment is made to the down the Explanation to Section 10(26)AAA of the I.T.Act, 1961, all individuals domiciled in Sikkim up to 26th April, 1975 shall be entitled to the exemption under the said provision from the current financial year i.e. 1st April, 2022 onwards. This direction is being issued in exercise of powers under Article 142 of the Constitution so as to eliminate discrimination and disparity in respect of the aforesaid category of Sikkimese, who subsequently have become citizens of India w.e.f. 26th April, 1975 and to save the Explanation from being rendered unconstitutional vis-à-vis such individuals who form a small percentage of Sikkimese and who are also entitled to such an exemption. Such as approach is being adopted rather than striking down the explanation to section 10(26)AAA of the I.T. Act, 1961 which would have the effect of withdrawing the benefit of exemption even from those categories of persons who are presently eligible for the same.”
It is pertinent to mention here that the assessee has also filed residential certificate issued by the Office of District Collector, Gangtok District which is as follows:
Assessment Year: 2013-14 Ajay Kumar Agarwal 8. Going over the aforesaid documents, there is no issue that the assessee is Sikkim old settler. Since the assessee is a Sikkim Old Settler hence in view of Apex Court decision, he is entitled to get exemption u/s 10(26)AAA of the Act. Now coming to the order passed by the Co-ordinate Bench of Kolkata wherein the issue was the same i.e. whether the assessee is entitled to get the benefit of exemption u/s 10(26)AAA of the Act or not. In the said order also the assessee has claimed deduction in the said section being a Sikkimese by that time order of the Hon’ble Apex Court did not come into force, the Ld. Members of the Co-ordinate Bench has held as under:
“8. We have duty considered the rival contentions and gone through the record carefully. It is pertinent to note that assessment orders are ex-parte in both the years. The Id. CIT(Appeals) has not entertained the plea of the assessee to determine about his status as a Sikkimese. In other words, both the authorities have not recorded any specific finding of fact about the status of the assessee for the purpose of assessment of his income. This Tribunal is not meant for deciding the title of any civil dispute or status of a person. In the absence of any finding at the end of both the revenue authorities, it is quite difficult to decide the status of the assessee being a Sikkirnese as claimed by the assessee. Apart from the above observation, we are of the view that Utpal Dorjee Yongda if a person is identified as a Subject of Sikkim on the appointed date, then, he and his family will be entitled for the benefit of section 10(26)(AAA) of the Income Tax Act. The income of such a subject would be exempted from levy of taxes. As far as the finding of Id. CIT(Appeals) is concerned, that assessee has not filled the return under section 139(1) of the Income Tax Act, we are of the view that the moment taxability of the income is being decided in the hands of any tax payer, then it is naturally to be decided whether such taxes could be recovered from such person or not under the law. If a particular section of the Income Tax Act excludes an individual from a particular source of income from levy a tax, then without deciding that issue, the taxability cannot be determined. It is an incorrect interpretation of the id. CIT(Appeals). In other words, whether an assessee has filed the return or not filed. the moment some taxable income is determined, then, it has to be examined whether within the 'meaning of Section 10(26)AAA, such taxes could be levied from the assessee being a Sikkimese or not. Therefore, we set aside these observations of the id. CIT(Appeals) and remit the issue to the file of ld. Assessing Officer with the following directions: (a) The Id. Assessing Officer shall first determine whether assessee is a Sikkimese and he has earned the income from any source within the State of Sikkim or not. If answer to the above question is in positive, then id. Assessing Officer will decide the Utpal Dorjee Yongda admissibility of exemption under section 10(26)(AAA) of the Income Tax Act, rather he will grant the exemption to the assessee. (b) The id. Assessing Officer shall determine the taxable income because assessee was running a Petrol Pump, then all the cash deposits would not become his income. Assessing Officer has to determine the outflow of the amounts from those bank accounts which must have been travelled towards the Oil companies, who are supplying the Petroleum products to the assessee. Therefore, total cash deposits cannot be added to the income of the assessee. The id. Assessing Officer shall decide this aspect also and determine if any addition could be made or not. (c) The moment taxable income, if any, is determined, then id. Assessing Officer would decide whether exemption under section 10(26)(AAA) is to be provided to the assessee or not?
Assessment Year: 2013-14 Ajay Kumar Agarwal Therefore, both the impugned orders in the quantum appeals are set aside in both the years. The issues are relegated to the file of Ld. Assessing Officer in both the years for deciding in the above terms.”
In the above case, there was an issue of determination of income apart from the deduction claimed on the issue of settler of Sikkim, so the case was remanded back to the AO to determine the taxable income of the assessee as the assessee was running a patrol pump. In the present case, the assessee is an individual and he has stated that after claiming exemption u/s 10(26)AAA of the Act , his income was nil. The assessee being a settler of Sikkim has clearly been proved by the residential certificate by the assessee and further claiming of exemption u/s 10(26)AAA of the Act has been held by the Hon’ble Apex Court decision. Keeping in view, the Hon’ble Apex Court judgment as well as facts of the case, we are in this view that the assessee is entitled to take the benefit of exemption u/s 10(26)AAA of the Act. Accordingly, the addition made by the AO is hereby set aside. The other issues are interlinked to the above issues so need not to be adjudication.
In the result, the appeal filed by the assessee is allowed.
Order is pronounced in the open court on 17th January, 2025
Sd/- Sd/- (Rajesh Kumar/राजेश कुमार) (Pradip Kumar Choubey /�द�प कुमार चौबे) Accountant Member/लेखा सद�य Judicial Member/�या�यक सद�य Dated: 17th January, 2025 SM, Sr. PS Copy of the order forwarded to: 1. Appellant- Ajay Kumar Agarwal, C/o Subash Agarwal & Associates, Advocates, Siddha Gibson, 1, Gibson lane, Suite 213, 2nd Floor, Kolkata-700069 2. Respondent – ITO, Ward-3(1), Gangtok 3. Ld. CIT(A)-NFAC, Delhi 4. Ld. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)