2018 (4) TMI 1268 - AT - Income Tax

Tribunal Grants Revenue Appeal, Remands Case for Reassessment

The Tribunal allowed the Revenue's appeal for statistical purposes, remanding the case back to the Assessing Officer for reassessment. The Tribunal ... Maintainability of the claim for exemption u/s. 11 - best judgment assessment - Held that:- In the present case we abstain from doing so considering that the assessee is a charitable organization. AR would before us assure us that the assessee shall cooperate in the set aside proceedings. Surely, if the assessee could furnish explanation/material(s) before the first appellate authority, what prevents it from doing so before the assessing authority? Where the assessee so does, adducing the relevant materials, AO shall frame a regular assessment on merits in accordance with law. Where not, i.e., despite the assurance before us, the AO may frame a best judgment assessment on some valid basis, both on facts and as well in law, drawing legitimate inferences, i.e., in accordance with law. The law, it may be clarified permits him to draw adverse inferences, as admissible under the circumstances, where the relevant material is not produced before him (refer, inter alia, Metal Box Powder Co. Ltd. v. CIT [2002 (7) TMI 63 - MADRAS High Court] - Appeal of the revenue is allowed for statistical purposes Issues Involved:1. Maintainability of the assessee's claim for exemption under section 11 of the Income Tax Act, 1961.2. Allowability of various sums disallowed as either expenses or as an application of income.Detailed Analysis:1. Maintainability of the Assessee's Claim for Exemption under Section 11:The primary issue raised in the appeal concerns the maintainability of the assessee's claim for exemption under section 11 of the Income Tax Act, 1961. The assessee, an employee welfare society, claimed exemption under section 11, returning nil income for the relevant year. The Assessing Officer (AO) challenged the claim due to the assessee's failure to substantiate various expenses and applications of income. The AO issued multiple notices under section 142(1) and a show-cause notice under section 144, which the assessee did not adequately respond to. Consequently, the AO disallowed significant expenditures, aggregating to Rs. 99.13 lakhs, citing a lack of substantiation.2. Allowability of Various Sums Disallowed as Either Expenses or as Application of Income:The AO disallowed the following expenditures claimed by the assessee:- Society Share: Rs. 21,27,388/-- Bonus to Employees: Rs. 28,57,578/-- Provisions: Rs. 43,57,578/-- Subsistence Allowance: Rs. 5,70,000/-The Commissioner of Income Tax (Appeals) [CIT(A)] partly allowed the assessee's appeal, accepting the claims for 'society share' and 'bonus to employees' but upheld the disallowance for 'provisions' on the grounds that they were neither credited to the members' accounts nor paid during the year, thus not qualifying as real expenditure or application of income. The CIT(A) found the other disallowances to be in line with the assessee-society's objects, thus allowing them.Upon further appeal, the Tribunal observed that the assessee did not contest the best judgment assessment by the AO before the first appellate authority. The Tribunal noted that the merits of a particular expenditure/claim could only be considered once substantiated, which the assessee failed to do despite ample opportunities. The Tribunal emphasized that the first appellate authority should have taken due cognizance of the assessment being framed under section 144 due to non-compliance with section 142(1) notices.The Tribunal highlighted that the AO's objection was not to the charitable status of the assessee-society but to the unsubstantiated nature of the expenditures and their alignment with charitable activities. The Tribunal found that the CIT(A) considered explanations and materials not presented before the AO, in violation of rule 46A of the Income Tax Rules, 1962. The Tribunal also clarified that the AO's findings regarding the nature of payments under 'society share' and 'bonus to employees' were not adequately addressed by the CIT(A).The Tribunal concluded that the assessment should be remanded back to the AO for a fresh assessment, allowing the assessee to present the relevant materials. The Tribunal emphasized that the AO should frame a regular assessment on merits if the assessee cooperates, or a best judgment assessment on a valid basis if the assessee fails to provide the necessary documentation.Conclusion:The Tribunal allowed the Revenue's appeal for statistical purposes, remanding the case back to the AO for reassessment. The Tribunal stressed the importance of substantiating claims and complying with procedural requirements, ensuring a fair and just assessment process.