2024 (5) TMI 859 - AT - Income Tax

Trust's section 11 exemption claim remanded after procedural violation of Rule 46A(3) regarding additional evidence

The ITAT Delhi set aside the CIT(A)'s decision to admit additional evidence regarding a trust's section 11 exemption claim for accumulated income ... Admission of additional evidence by CIT(A) - Exemption u/s 11 - Poof of investment of accumulated income of the assessee trust in instruments prescribed under section 11(5) - Whether action of the CIT(A) is in violation of Rule 46A of the Income Tax Rules, 1962? - HELD THAT:- As observed that in the case before the Hon’ble Delhi High Court MANISH BUILD WELL PVT. LTD. [2011 (11) TMI 35 - DELHI HIGH COURT] CIT(A) had admitted the additional evidence as the case of the assessee fell within the ambit of clause (c) of sub- rule (1) of Rule 46A and the requirement of sub-rule (2) i.e. recording of reason for admittance of additional evidence was also met. In the case before us requirement of clause (a) or (b) or (c) of sub-rule (1) and sub rule (2) have not been complied with. Further in the case despite the requirement of sub-rule (1) and (2) having been satisfied the Hon’ble Delhi High Court held that the action of CIT(A) was vitiated as he violated the mandate of sub–rule (3) of Rule 46A which is an indispensable requirement. Sub-rule (3) specifically prohibits the CIT(A) from taking into account any evidence produced for the first time before him unless the AO has been given reasonable opportunity of examining the evidence and rebut the same. This has not been complied with by the Ld. CIT(A) in the case of the assessee under consideration by us. For the reasons set out above, we deem it fit to restore the matter back to the file of the Ld. AO to verify the additional evidence filed by the assessee before the Ld. CIT(A) and decide the matter afresh Issues:1. Admissibility of additional evidence without granting opportunity under Rule 46A of IT Rules, 1962.2. Genuineness of claim of investment of accumulated income in prescribed modes under section 11(5) of the Act.3. Deletion of addition made by AO without proper verification.Analysis:Issue 1 - Admissibility of additional evidence:The Revenue appealed against the order of the Ld. CIT(A) which deleted the addition made by the AO. The Revenue contended that the Ld. CIT(A) admitted additional evidence without giving an opportunity to the AO under Rule 46A of the IT Rules, 1962. The Ld. CIT(A) allowed the appeal based on details of Fixed Deposit Receipts (FDRs) submitted during the appellate proceedings, which were not considered by the AO. The Tribunal noted that the Ld. CIT(A) violated Rule 46A as the complete details and documents were not produced before the AO. Referring to a decision of the Delhi High Court, the Tribunal emphasized that the AO must have a reasonable opportunity to examine and rebut any additional evidence presented before the CIT(A). Consequently, the Tribunal ordered to restore the matter to the AO for proper verification.Issue 2 - Genuineness of claim of investment:The assessee trust, engaged in healthcare projects, had accumulated funds deposited in various bank accounts and instruments. The AO disallowed the claim of investment under section 11(5) of the Act due to lack of documentary evidence. However, during the appeal, the assessee submitted bank statements and FDR copies as proof of investments in scheduled banks, which the CIT(A) accepted. The CIT(A) held that the surplus was deposited in eligible modes of investment as per Section 11(5)(iii) of the Act, thereby deleting the addition made by the AO.Issue 3 - Deletion of addition without proper verification:The Tribunal observed that the AO had issued notices to the assessee to provide details of surplus accumulation and explain why it should not be treated as taxable income. Despite non-compliance by the assessee and lack of complete documents before the AO, the CIT(A) admitted additional evidence and deleted the entire addition without affording the AO an opportunity to verify the evidence. Citing the Delhi High Court decision, the Tribunal concluded that the CIT(A) violated Rule 46A by not allowing the AO to examine and rebut the evidence. Therefore, the Tribunal ordered the matter to be reconsidered by the AO after proper verification and hearing.In conclusion, the Tribunal allowed the Revenue's appeal for statistical purposes and directed the matter to be sent back to the AO for reevaluation in accordance with the law and after providing a reasonable opportunity to the assessee.