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2025 (6) TMI 1551 - AT - Income TaxD enial of exemption u/s 11 - non-furnishing of details during assessment proceedings - HELD THAT - 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 AO was merely on account of non-furnishing of any details by the assessee during assessment proceedings. We find no infirmity in the order of the 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. Admission of additional evidences by the CIT(A) under Rule 46A of the Act - order of the CIT(A) reveals that the assessee had contended before him that he was unaware of the assessment proceedings - HELD THAT - In the light of these facts CIT(A) has noted that the assessee had sufficient cause for not appearing before the AO and accordingly he admitted the additional evidences filed by the assessee before him. 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. We hold that there is no case made out by the 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. 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 CIT(A) - DR before us was unable to controvert the fact noted by the CIT(A) that the AO had reported in his remand report that the final balance-sheet reflected the correct bank balances therein - HELD THAT - 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. Addition made of loans by AO finding them to be not genuine - HELD THAT - 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. CIT(A) noted this fact to have been confirmed by the AO in his remand report also. Before us DR was unable to controvert the factual finding of the 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. Ground of appeal No. 4 raised by the Revenue is therefore dismissed. Penalty u/s 271(1)(c) - Since the order of the CIT(A) deleting all the additions made by the AO 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.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are: - Whether the assessee was entitled to exemption under Section 11 of the Income-tax Act, 1961, despite the Assessing Officer's denial based on non-furnishing of details during assessment proceedings; - Whether the Commissioner of Income-tax (Appeals) was justified in admitting additional evidence under Rule 46A of the Income-tax Rules, 1962, when the assessee claimed ignorance of the assessment proceedings and challenged the authority of the auditor who had represented it; - Whether the final balance-sheet and Income & Expenditure account submitted by the assessee, after multiple revisions, could be accepted as the true and correct statement of affairs, particularly when the Assessing Officer's remand report confirmed bank balances; - Whether the addition made by the Assessing Officer of Rs. 5.33 crores as income from undisclosed sources under Section 68 of the Act was justified, given the assessee's claim that these were genuine loans from banks; - Whether penalty under Section 271(1)(c) of the Act was rightly deleted by the CIT(A) following deletion of additions. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement to Exemption under Section 11 of the Income-tax Act Relevant Legal Framework and Precedents: Section 11 provides exemption for income derived from property held for charitable or religious purposes, subject to conditions. The burden lies on the assessee to establish entitlement. However, prior consistent recognition of exemption in scrutiny assessments may weigh in favour of the assessee. Court's Interpretation and Reasoning: The Assessing Officer disallowed exemption solely because the assessee failed to furnish details during assessment, resulting in an ex-parte order. The CIT(A) noted that in earlier and subsequent years, the assessee was granted exemption under Section 11 in scrutiny assessments, and no specific adverse finding was made for the year under consideration. The CIT(A) held that mere non-furnishing of details in the assessment proceedings was insufficient ground to deny exemption. Key Evidence and Findings: The record showed that the assessee had never been denied exemption in scrutiny assessments for the relevant and adjacent years. The Assessing Officer did not raise any substantive objection to the charitable activities of the assessee. Application of Law to Facts: Given the absence of any critical adverse finding and the historical acceptance of exemption, the CIT(A) allowed the exemption under Section 11. The Tribunal upheld this, finding no infirmity in the CIT(A)'s approach. Treatment of Competing Arguments: The Revenue argued that exemption was rightly denied due to non-furnishing of details. The Tribunal rejected this, emphasizing the lack of substantive adverse findings and past acceptance of exemption. Conclusion: The assessee was entitled to exemption under Section 11 for the assessment year 2006-07. Issue 2: Admission of Additional Evidence under Rule 46A Relevant Legal Framework: Rule 46A permits admission of additional evidence at the appellate stage if the appellant satisfies the appellate authority that such evidence was not available despite due diligence at the assessment stage. Court's Interpretation and Reasoning: The CIT(A) admitted additional evidence filed by the assessee on the ground that the assessee was unaware of the assessment proceedings and that the auditor who sought adjournments was not authorized to represent the assessee. The Assessing Officer could not produce any letter of authority for the auditor's representation. This constituted sufficient cause for the assessee's non-participation and justified admission of evidence at the appellate stage. Key Evidence and Findings: The absence of authorization for the auditor, coupled with the assessee's unawareness of assessment proceedings, supported the exceptional circumstances for admitting evidence. Application of Law to Facts: The Tribunal found no violation of Rule 46A in admitting additional evidence, given the exceptional circumstances and lack of contestation by the Revenue. Treatment of Competing Arguments: The Revenue contended that admission of additional evidence was improper. The Tribunal rejected this, emphasizing the assessee's sufficient cause and the Assessing Officer's inability to prove authorized representation. Conclusion: Admission of additional evidence by the CIT(A) was valid and justified. Issue 3: Acceptance of Final Balance-sheet and Income & Expenditure Account Relevant Legal Framework: The balance-sheet and Income & Expenditure account form the basis for determining income and verifying transactions. Consistency and correctness are essential for acceptance. Court's Interpretation and Reasoning: The assessee had submitted three different sets of audited financial statements, causing confusion. The CIT(A) relied on the Assessing Officer's remand report confirming that the final balance-sheet's bank balances matched the bank statements, indicating correctness. Thus, the final statements were accepted as the true and correct representation of the assessee's financial position. Key Evidence and Findings: The Assessing Officer's remand report dated 27.09.2012 confirmed bank balances and term loans as reflected in the final balance-sheet. No rejection of books of accounts was recorded in any assessment year. Application of Law to Facts: The Tribunal upheld the CIT(A)'s acceptance of the final financial statements as they were corroborated by bank records and consistent with ongoing accounting treatment. Treatment of Competing Arguments: The Revenue challenged acceptance due to multiple versions submitted. The Tribunal found that the final version was substantiated and accepted by the Assessing Officer, negating the Revenue's contention. Conclusion: The final balance-sheet and Income & Expenditure account were rightly accepted as true and correct. Issue 4: Addition of Rs. 5.33 Crores as Income from Undisclosed Sources under Section 68 Relevant Legal Framework: Section 68 mandates that unexplained cash credits or loans are taxable as income from undisclosed sources unless the assessee satisfactorily proves the genuineness and source. Court's Interpretation and Reasoning: The Assessing Officer added Rs. 5.33 crores as income from undisclosed sources due to failure of the assessee to provide evidence during assessment. However, the CIT(A) noted that the loans represented bank advances, confirmed by bank statements and the final balance-sheet. The Assessing Officer's remand report corroborated this. The CIT(A) concluded that the addition could not be sustained as the amounts were genuine bank loans and overdraft facilities, not undisclosed income. Key Evidence and Findings: The final audited financials, bank statements, and remand report confirmed that the loans were genuine and outstanding since FY 2005-06. The Assessing Officer admitted that the final balance-sheet reflected correct bank balances. Application of Law to Facts: Since the assessee discharged the onus of proving genuineness at the appellate stage with corroborative evidence, the addition under Section 68 was rightly deleted. Treatment of Competing Arguments: The Revenue argued that the assessee failed to prove genuineness during assessment and that multiple balance-sheets indicated attempts to mislead. The Tribunal rejected this, emphasizing acceptance of the final balance-sheet and bank confirmations. Conclusion: The addition of Rs. 5.33 crores as income from undisclosed sources was rightly deleted. Issue 5: Levy of Penalty under Section 271(1)(c) Relevant Legal Framework: Penalty under Section 271(1)(c) is leviable for concealment of income or furnishing inaccurate particulars. If additions are deleted, penalty generally cannot be sustained. Court's Interpretation and Reasoning: Since all additions made by the Assessing Officer were deleted by the CIT(A) and confirmed by the Tribunal, there was no basis for levy of penalty. The CIT(A) deleted the penalty accordingly. Application of Law to Facts: The Tribunal concurred that with deletion of additions, penalty could not be sustained. Conclusion: Penalty under Section 271(1)(c) was rightly deleted. 3. SIGNIFICANT HOLDINGS - "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." - "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 last balance sheet and I & E a/c, may be considered as the right one." - "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." - "Since the additions made by the Assessing Officer have been deleted, there is no case for levy of any penalty on the assessee u/s 271(1)(c) of the Act." The Tribunal conclusively held that the assessee was entitled to exemption under Section 11, the final financial statements submitted were accepted as true and correct, the loans of Rs. 5.33 crores were genuine bank loans and not undisclosed income, the admission of additional evidence was justified due to exceptional circumstances, and consequently, penalty under Section 271(1)(c) was rightly deleted. All appeals filed by the Revenue were dismissed.
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