2021 (10) TMI 1047 - AT - Income Tax

Appellate Tribunal directs reassessment for deduction under Income Tax Act

The Income Tax Appellate Tribunal (ITAT) allowed the appeal for statistical purposes, directing the Assessing Officer (AO) to re-examine the claim of the ... Allowability of deduction under section 36(1)(viia) - power of appellate authority to entertain additional claims or grounds - assessing officer cannot entertain a fresh claim without a revised return - remand for factual verification and opportunity of hearingAllowability of deduction under section 36(1)(viia) - power of appellate authority to admit additional claim - revised return principle (Goetze India Ltd.) - remand for factual verification - Admission of assessee's enhanced claim for deduction under section 36(1)(viia) and the appropriate course of action where the assessing officer rejected the enhanced claim for lack of a revised return. - HELD THAT: - The Tribunal held that while an assessing officer is not empowered to entertain a fresh claim in the absence of a revised return (as recognised in Goetze (India) Ltd.), the restriction does not bind the first appellate authority or the Tribunal. Where the material necessary to examine the claim is on record or the claim arises from a mistake in calculation, the appellate authority has discretion to admit the additional claim. The Assessing Officer wrongly rejected the enhanced deduction as a legal objection without examining the factual position; the claim for deduction @7.5% of interest earned on advances flowed from the assessee's assertion of a calculation error and was not a fresh claim beyond the scope of the appeal. Accordingly, the Tribunal admitted the additional claim and remitted the matter to the Assessing Officer to ascertain, on evidence and after giving the assessee an opportunity of hearing, the quantum of interest attributable to rural advances and to allow the deduction in accordance with law. [Paras 6, 7, 8, 9]Additional claim for deduction under section 36(1)(viia) admitted; matter remanded to the Assessing Officer for factual examination and grant of relief in accordance with law after affording hearing.Final Conclusion: The Tribunal allowed the assessee's ground (for statistical purposes), admitted the enhanced deduction claim under section 36(1)(viia) and remanded the matter to the Assessing Officer to verify the interest on rural advances and grant relief as per law after an opportunity of hearing. Issues Involved:1. Deduction under section 36(1)(viia) of the Income Tax Act.2. The authority of the Assessing Officer (AO) to accept revised claims without a revised return.3. The appellate powers of the Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT).Issue-wise Detailed Analysis:1. Deduction under section 36(1)(viia) of the Income Tax Act:The assessee, a Regional Rural Bank, claimed a deduction of Rs. 1.18 crore under section 36(1)(viia) of the Income Tax Act for the assessment year 2012-13. The AO disallowed this deduction, stating that the assessee failed to furnish supporting evidence for the enhanced claim and did not file a revised return. The assessee argued that they were entitled to a deduction of Rs. 4.35 crore, which is 7.5% of the interest earned on advances amounting to Rs. 58.09 crore. The CIT(A) allowed the original claim of Rs. 1.18 crore but rejected the enhanced claim, stating that it would create a large Non-Performing Asset (NPA) without justification. The ITAT found that the AO should have examined the facts instead of rejecting the claim based on a legal objection. The Tribunal admitted the additional claim and restored the issue to the AO for examination, directing that relief be granted in accordance with the law.2. The authority of the Assessing Officer (AO) to accept revised claims without a revised return:The AO disallowed the revised claim of Rs. 4.35 crore on the grounds that the assessee did not file a revised return, citing the Supreme Court decision in Goetze India Ltd. vs. CIT, which restricts the AO from accepting new claims without a revised return. However, the ITAT noted that this restriction does not apply to appellate authorities, which have broader powers to entertain new claims.3. The appellate powers of the Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT):The ITAT referenced several judgments, including those from the Supreme Court and High Courts, to establish that appellate authorities like the CIT(A) and ITAT have plenary powers to entertain new grounds, legal contentions, or claims even if they were not raised before the AO. The Tribunal emphasized that the appellate authorities are vested with the same powers as the AO and can modify assessment orders based on additional grounds or claims, provided the necessary facts are on record.Conclusion:The ITAT concluded that the AO should have examined the revised claim of the assessee instead of rejecting it on legal grounds. The Tribunal restored the issue to the AO to verify the interest earned on rural advances and grant relief according to the law. The ITAT also highlighted the broad powers of appellate authorities to entertain new claims, ensuring that the real income is taxed.Order:The appeal by the assessee was allowed for statistical purposes, and the AO was directed to re-examine the claim with an opportunity for the assessee to be heard. The order was announced on October 1, 2021, during a virtual court hearing.