2022 (10) TMI 537 - AT - Income Tax

Tribunal rules on revenue's appeal, assessee's objection, and leave encashment deduction.

The Tribunal partially allowed the revenue's appeal, dismissed the assessee's cross objection, and restored the issue of deduction of leave encashment ... Deduction u/s 35AD - in tax audit report filed, nothing is stated in respect of the said claim - CIT(A) in allowing the claim of 35AD made by the assessee by admitting fresh evidences - Whether there is violation of provisions of Rule 46A of IT Rules? - HELD THAT:- As admitted fact that for the relevant assessment year in the tax audit report, there was no requirement for stating regarding deduction u/s.35AD and the requirement of specifying the deduction u/s.35AD came into existence w.e.f 25.7.2014, much after the relevant assessment year. It is also noticed that in the audit report, the auditors have reduced the value of the assets from the total value of the assets eligible for deduction on the ground that such assets were being claimed against the deduction u/s.35AD. As noticed that the primary evidence being the completion certificate and the commissioning report dated 28.1.2013 certified by the Vice President (Operation & Corporate Planning) and Executive Authorisation dated 5.7.2012 confirming the installation and completion report was not before the AO. Hence, the issue in the appeal is restored to the file of the AO for verification of the said two certificates. If the certificates are found to be correct, then the assessee would be entitled to deduction u/s.35AD. Appeal of the revenue is partly allowed for statistical purposes. Denial of deduction of leave encashment u/s.43B(f) - HELD THAT:- As fairly agreed that this issue is identical to the issue in appeal filed by the assessee [2022 (10) TMI 463 - ITAT CUTTACK] for the assessment year 2012-13. As we have already restored the issue of allowability of leave encashment u/s.43B(f) of the Act in line with the principles laid down by Hon’ble Supreme Court in the case of Exide Industries Ltd [2020 (4) TMI 792 - SUPREME COURT] on identical findings, the issue is restored to the file of the AO for this year also. Appeal of the assessee is partly allowed for statistical purposes. Issues:1. Admission of fresh evidences for claim u/s.35AD without following Rule 46A of IT Rules.2. Denial of deduction u/s.35AD by AO based on lack of certification in Form 3CD.3. Dismissal of cross objection filed by the assessee.4. Disallowance of claim of deduction of leave encashment u/s.43B(f) by AO.Issue 1: Admission of fresh evidences for claim u/s.35AD without following Rule 46A of IT Rules:The Revenue challenged the action of the ld CIT(A) in admitting fresh evidences for the claim of 35AD without following Rule 46A of IT Rules. The Revenue contended that the evidences were accepted without providing the AO an opportunity to verify or refute them, leading to a violation of principles of Natural Justice. The Revenue cited various court decisions to support their argument. The CIT DR highlighted that the fresh evidences, including commissioning and completion reports, were not before the AO, and thus, the order of the ld CIT(A) should be reversed. The AR, on the other hand, argued that the AO disallowed the deduction based on the absence of certification in Form 3CD, which was not required during the relevant assessment year. The AR stated that the information regarding the deduction was available to the AO through the audit report. The Tribunal noted that primary evidence, such as the completion and commissioning reports, was not before the AO and decided to restore the issue to the AO for verification.Issue 2: Denial of deduction u/s.35AD by AO based on lack of certification in Form 3CD:The AO had disallowed the deduction u/s.35AD due to the absence of certification in Form 3CD regarding the claim. The AR argued that the certification requirement came into effect after the relevant assessment year and that the auditors had excluded assets eligible for deduction u/s.35AD in the audit report. The Tribunal observed that the auditors had reduced the value of assets claimed under 35AD in the audit report. However, since the primary evidence was not before the AO, the issue was sent back to the AO for verification of the certificates. If found correct, the assessee would be entitled to the deduction u/s.35AD.Issue 3: Dismissal of cross objection filed by the assessee:During the hearing, the AR representing the assessee decided not to press the cross objection filed by the assessee. Consequently, the cross objection was dismissed as withdrawn. The AR endorsed this decision in the appeal.Issue 4: Disallowance of claim of deduction of leave encashment u/s.43B(f) by AO:The assessee's appeal contested the denial of the claim of deduction of leave encashment u/s.43B(f) by the ld CIT(A). The issue was found to be identical to the one in the appeal for the previous assessment year. Following the principles established by the Hon'ble Supreme Court in a specific case, the Tribunal decided to restore the issue to the AO for further consideration.In conclusion, the Tribunal partially allowed the revenue's appeal for statistical purposes and dismissed the assessee's cross objection. The issue related to the deduction of leave encashment u/s.43B(f) was also restored to the AO for both the current and previous assessment years based on the established legal principles.