INCOME TAX OFFICER, WARD- 3(1), GANGTOK, GANGTOK, SIKKIM V. NIRMALA SHARMA, SORENG, WEST SIKKIM

ITA 2298/KOL/2024

AI Insights

The case involves cross appeals by Nirmala Sharma, the assessee, and the Revenue against the order of the Commissioner of Income Tax (Appeals) concerning the assessment year 2018-19. The primary contention revolves around the validity of the assessment order issued under sections 147/144 of the Income Tax Act, 1961, and the claim of exemption under section 10(26AAA) by the assessee, a resident of Sikkim. The Assessing Officer had treated substantial cash withdrawals and deposits as unexplained investments under section 69, leading to additions to the assessee's income. The CIT(A) partially allowed the appeal but upheld the addition on the basis of estimated income from unexplained sources. Both parties challenged the CIT(A)'s decision, leading to the current tribunal's decision to remit the case back for a fresh assessment.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 36406 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2025
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Set aside; Opportunity of being heard; Additional evidence; Unexplained investment; TDS; Competent authority; Benefit of exemption
• Section: 148; 250; 139(1); 69; 139

Judgement Text

"आयकर अपीलीय अधिकरण कोलकाता 'ए' पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA श्री प्रदीप क ुमार चौबे, न्याधयक सदस्य एवं श्री राक ेश धमश्रा, लेखा सदस्य क े समक्ष Before SHRI PRADIP KUMAR CHOUBEY, JUDICIAL MEMBER & SHRI RAKESH MISHRA, ACCOUNTANT MEMBER I.T.A. No.: 2227/KOL/2024 Assessment Year: 2018-19 Nirmala Sharma Vs. I.T.O., Ward-3(1), Gangtok (Appellant) (Respondent) PAN: ETRPS6042C I.T.A. No.: 2298/KOL/2024 Assessment Year: 2018-19 I.T.O., Ward-3(1), Gangtok Vs. Nirmala Sharma (Appellant) (Respondent) PAN: ETRPS6042C Appearances: Assessee represented by : A. N. Chatterjee. CA & A. K. Mitra, CA. Department represented by : Ankur Goyal, JCIT, Sr. DR. Date of concluding the hearing : February 11th, 2025 Date of pronouncing the order : February 13th, 2025 ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: These cross appeals filed by the assessee and the Revenue are against the order of the Ld. Commissioner of Income Tax (Appeals)- Page | 2 I.T.A. No.: 2227/KOL/2024 I.T.A. No.: 2298/KOL/2024 Assessment Year: 2018-19 Nirmala Sharma. Page 2 of 10 NFAC, Delhi [hereinafter referred to as “the Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2018-19 dated 19.09.2024, which has been passed against the assessment order u/s 147/144 of the Act, dated 03.03.2023. 2. The assessee is in appeal before the Tribunal raising the following grounds of appeal: “1. For that in the facts and circumstances of the case and in law, the assessee was not given sufficient or reasonable opportunity of hearing in course of assessment proceedings and the notices issued u/s. 147/148 were beyond jurisdiction and invalid, rendering the impugned assessment order u/s. 147/144/144B dated 03.03.2023 wrong, erroneous, ab-initio void, unlawful and deserves to be set-aside/quashed. 2. For that in the facts and circumstances of the case and in law, the reason recorded in writing holding income escaped assessment and the sanction of appropriate authority were not made available to the assessee, rendering the process of assessment invalid, erroneous and untenable. 3. For that in the facts and circumstances of the case the lower authorities failed to appreciate that the income of the assessee is fully exempt u/s 10(26AAA) of the Income Tax Act, 1961, being resident of the state of Sikkim. 4. For that the adjudication of the Learned Commissioner of Income Tax (Appeals) in directing addition u/s 69 of the Income Tax Act, 1961 on estimate basis, to determine total income, is wrong, misconceived and should be deleted. 5. For that the assessee craves leave to alter, add, amend, moderate, substitute or delete any one or more of the ground or grounds of appeal at any time before or in course of hearing of the appeal.” 2.1. The Revenue is in appeal before the Tribunal raising the following grounds of appeal: “1. That the Ld. CIT(A), NFAC, Delhi is not justified both in law and in fact, in stating that the Assessing Officer is directed to estimate the total income at 8% on the total receipts in the bank account and determine the total income as the assessee could not explain the cash deposit and withdrawal and liable for addition on account of unexplained income u/s 69. Page | 3 I.T.A. No.: 2227/KOL/2024 I.T.A. No.: 2298/KOL/2024 Assessment Year: 2018-19 Nirmala Sharma. Page 3 of 10 2. That the Ld. CIT(A), NFAC, Delhi is not justified both in law and in fact, in deleting addition treated as unexplained income u/s 69 of the I.T. Act, 1961 made by the AO relying upon fresh evidences such as bank statement, details of monthly expenditure etc. which were not produced during the course of assessment. 3. That the Ld CIT(A), NFAC, Delhi is not justified both in law and in fact, to delete the addition made by the Assessing Officer relying on fresh evidence which were not produced before the A.O. during the course of assessment proceedings. Further it is evident that the CIT(A) has relied on fresh evidences without calling remand report from the AO which contravenes Rule 46A(3) of the Income Tax Rules, 1962. 4. That the Ld CIT(A), NFAC, Delhi has not discussed in his appellate order the reasons of accepting additional evidences and the situation which prevented the assessee from producing such evidence before the AO during the course of assessment proceedings. Therefore, the appellate authority has erred in accepting additional evidences without discussing the circumstances that prevented the assessee from producing the same before the AO during the course of assessment proceedings. 5. That, the Ld CIT(A), NFAC, Delhi is not justified in law and in fact in striking down the addition made by the assessing officer treating the assessee eligible for addition at 8% of his/her business turnover without calling for confirmation of account. There is no evidence with audited books of accounts etc. maintained and submitted by the assessee. 6. That, the department craves the right to add, modify, delete or alter any grounds further during the course of present appeal.” 3. Brief facts of the case are that information had been received through Insight Portal of the Department that the assessee had made cash withdrawals in current A/c at Rs. 1,08,28,180/- including through bearer cheques and had deposited cash of Rs. 4,10,000/- in Central Bank of India but had not filed the return of income. Accordingly, the case was reopened by issuing notice u/s 148 of the Act but no return of income was filed even in response to this notice. Several notices were issued subsequently and the assessee made the same submission as that made in in response to notice u/s 148A(b) of the Act. The assessee had stated in response to the aforesaid Page | 4 I.T.A. No.: 2227/KOL/2024 I.T.A. No.: 2298/KOL/2024 Assessment Year: 2018-19 Nirmala Sharma. Page 4 of 10 notice that she is a Sikkimese individual holding a certificate of Identification having volume number and serial number of the Government of Sikkim. She further stated that her source of income was from the contractor’s business within the State of Sikkim and cash was withdrawn frequently as payment to labourers had to be made. Since the income was exempt u/s 10(26AAA) of the Act and as per section 2(7) of the Act she was not an assessee as an assessee means a person by whom any tax or any other sum of money is payable under the Act, consequently she did not come under the definition of assessee as she was exempt from paying tax. Being a Sikkimese individual and exempt from the provision of the Act as per section 10(26AAA) of the Act, she was not required to file the return. The assessee attached a certificate of identification issued by the office of District Collector, West District, Gyalshing, Sikkim. The Ld. AO held that the assessee had made a general submission. The Ld. AO analysed the provision of section 10(26AAA) of the Act and was of the view that the financial transactions remained unexplained. The relevant extract from the assessment order is as under: “2. In this context, as per section 10(26AAA) of the Act, the following income accruing or arising to Sikkimese individual is exempt from tax: 1. Income from any source in the state of Sikkim; or 2. Income by way of dividend or interest on securities. 2.1 It has further been provided that nothing contained in this clause shall apply to a Sikkimese woman who, on or after the first day of April 2008 marries an individual who is not a Sikkimese. 3. The assessee has merely furnished a copy of her Certificate of Identification (COI) issued by the competent authority to substantiate her eligibility of her being a Sikkimese. However, the main issue in the case of the assessee is whether the financial transactions in her bank accounts are genuine transactions for business activities in the state of Sikkim. Mere Page | 5 I.T.A. No.: 2227/KOL/2024 I.T.A. No.: 2298/KOL/2024 Assessment Year: 2018-19 Nirmala Sharma. Page 5 of 10 submission of enlistment certificate does not prove that she was engaged in the business activities in the state of Sikkim. Therefore, in the absence of documentary evidence i.e. work order for labour contract, GST/VAT Returns and TDS certificates, financial transactions remains unexplained.” 4. The Ld. AO accordingly added the amount of Rs. 1,08,28,180/- deposited and later withdrawn treating it as unexplained investment u/s 69 of the Act as the required reconciliation was not done by the assessee. Aggrieved with the assessment order, the assessee filed appeal before the Ld. CIT(A) who vide the impugned order allowed partial relief to the assessee. The relevant extract from the order of the Ld. CIT(A) is as under: “8. Adjudication: The averments of the Assessing Officer and the submission of the appellant have been considered by me carefully. The only issue raised in this appeal relates to addition made under sec.69 towards cash withdrawals made during the financial year 2017-18 relevant to Asst Year 2018-19. The assessment in this case was reopened to examine the source for cash withdrawals made by the appellant to the tune of Rs.1,08,28,180/-. When the assessment was reopened under Sec.147 to examine the source for cash withdrawals to the tune of Rs. 1.08,28,180, appellant submitted as below: The appellant is carrying the proprietorship business in the name and style of Nirmala Sharma having its registered office at Samsing Gelling Pipalay, Soreng West Sikkim. Mrs Nirmala Sharma is in the business of construction within the State of Sikkim. The enlistment Certificate as issued by the Government of Sikkim proving that she is a contractor is attached herewith. However, the appellant did not file a return of income under Sec.139(1) making a claim of exemption under Sec 10(26AAA). Appellant in the grounds of appeal and in her submission in the appeal was harping on the only issue that she was residing in Sikkim for a long period and also produced the certificate granted by the Sikkim Government and she also explained that she was working as contractor and the withdrawals in the bank account were payments made to labourers and it also consists of expenditure for building materials for executing the contract work. Page | 6 I.T.A. No.: 2227/KOL/2024 I.T.A. No.: 2298/KOL/2024 Assessment Year: 2018-19 Nirmala Sharma. Page 6 of 10 The appellant has submitted the break up for expenditure incurred every month and cash book and bank statement in support of its claim. However the assessing Officer stated that the appellant did not file her return of income within the due date making a claim of exemption fulfilling the conditions to claim the benefit of exemption under sec. 10(26AAA) of the Act. It is the claim of the appellant that since the income earned at Sikkim is eligible for exemption under Sec. 10(26AAA) of the Act, return of income was not filed and it was also claimed that since the entire income earned by the appellant is exempt under Sec. 10(26AAA) return of income. was not filed. In this regard, it is pointed out that to make a claim under sec.10. appellant ought to have filed return of income within the due date as gross total Income exceeds the non-taxable maximum limit before making the claim of exemption under Sec. 10 of the Act. The appellant did not file the return of income under Sec. 139 (1) and also in response to notice u/s 148 issued by the Assessing Officer. Since the appellant did not file a return of income making the claim of exemption it was held that the appellant is not eligible for claim of exemption under Sec. 10. Assessing Officer pointed out that the appellant also did not produce the details of contract work undertaken by the appellant during the year. In this regard, appellant had submitted the details of payment made to the labourers and other agencies and the enlistment certificate. It is mandatory on the part of the appellant to file a return of income reflecting the details of income and expenditure and without ascertaining the income as per the computation sheet, the correctness of the claim of benefit of exemption cannot be determined, There is no dispute that the income earned in Sikkim is exempt under the provisions of Income tax Act. Since the appellant failed to furnish a return of income either under Sec. 139(1) or under Sec. 148 and also the computation of total income and mentioning the details of exemption in the column provided in the return, I am constrained to uphold the action of the Assessing Officer in denying claim of benefit of exemption under Sec. 10(26AAA) of the Act. Now, coming to the addition made under the appellant even though did not file the return of income, had submitted the copy of bank statement, cash book and details of expenditure incurred every month. The Assessing Officer did not dispute the fact that the appellant is a contractor and the source for cash withdrawal was towards execution of contract work. But the entire cash withdrawal was brought to tax as no details or evidences to prove that the appellant was engaged in contract work was submitted by the appellant. There is no doubt that the appellant has carried on the business. In these circumstances, to meet the ends of justice, the Assessing Officer is directed to estimate the total income at 8% on the total receipts in the bank account and determine the total income. Thus, the ground stands \"Partly Allowed\". Page | 7 I.T.A. No.: 2227/KOL/2024 I.T.A. No.: 2298/KOL/2024 Assessment Year: 2018-19 Nirmala Sharma. Page 7 of 10 In the result, the appeal is “Partly Allowed”.” Aggrieved with the appellate order, both the assessee as well as the Revenue have filed the appeals. 5. Rival contentions were heard and the record and the submissions made have been examined. Before us, the Ld. AR filed a copy of the works contract agreement made on the fourth day of February, 2017 between M/s. Nirmala Sharma and M/s. Skipping Stones (P) Ltd. and also Form for Identity of Contractor under Sikkim Public Works Department bearing Registration No. 4597/PWD/2017 dated 04.02.2017 and Certificate of Identification bearing Sl. No. 7923 DC (W) dated 16.11.2010 issued by Office of the District Collector, Government of Sikkim. In this context it is relevant to refer to Section 10 under Chapter III of the Act which deals with incomes which do not form a part of total income. As per the provisions of clause (26AAA) of Section 10 of the Act, in computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included— 10(26AAA) in case of an individual, being a Sikkimese, any income which accrues or arises to him— (a) from any source in the State of Sikkim; or (b) by way of dividend or interest on securities. Explanation.—For the purposes of this clause \"Sikkimese\" shall mean— (i) an individual, whose name is recorded in the register maintained under the Sikkim Subjects Regulation, 1961 read with the Sikkim Subject Rules, 1961 (hereinafter referred to as the \"Register of Sikkim Subjects\"), immediately before the 26th day of April, 1975; or (ii) an individual, whose name is included in the Register of Sikkim Subjects by virtue of the Government of India Order No. 26030/36/90-I.C.I., dated the 7th August, 1990 and Order of even number dated the 8th April, 1991; or (iii) any other individual, whose name does not appear in the Register of Sikkim Subjects, but it is established beyond doubt that the name of such Page | 8 I.T.A. No.: 2227/KOL/2024 I.T.A. No.: 2298/KOL/2024 Assessment Year: 2018-19 Nirmala Sharma. Page 8 of 10 individual's father or husband or paternal grand-father or brother from the same father has been recorded in that register; or (iv) any other individual, whose name does not appear in the Register of Sikkim Subjects but it is established that such individual was domiciled in Sikkim on or before the 26th day of April, 1975; or (v) any other individual, who was not domiciled in Sikkim on or before the 26th day of April, 1975, but it is established beyond doubt that such individual's father or husband or paternal grand-father or brother from the same father was domiciled in Sikkim on or before the 26th day of April, 1975; 6. Thus, for claiming exemption u/s 10(26AAA) of the Act, not only the assessee should be a Sikkimese as per the provision specified but the source of income should also be from within the State of Sikkim. The Ld. CIT(A), accepted the contention of the Ld. AO in denying the claim of benefit u/s 10(26AAA) of the Act, however, without allowing an opportunity of being heard to the Ld. AO, treated the entire deposit as income from contract by admitting additional evidence in violation of Rule 46A of the Income Tax Rules, 1962. Since some of the documents filed before us were not filed before the Ld. AO and additional evidence has been admitted by the Ld. CIT(A), after examining the facts of the case, we deem it appropriate to set aside the orders of the Ld. CIT(A) as well as of the Ld. AO and remit the matter back to the file of the Ld. AO for passing the assessment order de novo as the evidence filed before us along with the grounds of appeal for claiming exemption under section 10(26AAA) of the Act were not filed before the Ld. AO and some of them were admitted by the Ld. CIT(A). The assessee shall be at liberty to make all submissions in support of the claim that the income was exempt u/s 10(26AAA) of the Act as per the provisions thereof and shall be given a reasonable opportunity of being heard to make any further submission it wants to make in support of the relief claimed. The assessee shall not seek unnecessary adjournment. Accordingly, the Page | 9 I.T.A. No.: 2227/KOL/2024 I.T.A. No.: 2298/KOL/2024 Assessment Year: 2018-19 Nirmala Sharma. Page 9 of 10 grounds taken by the assessee in this appeal as well as the grounds taken by the Revenue are allowed for statistical purposes. 7. In the result, both the appeals filed by the assessee as well as the Revenue are allowed for statistical purposes. Order pronounced in the open Court on 13th February, 2025. Sd/- Sd/- [Pradip Kumar Choubey] [Rakesh Mishra] Judicial Member Accountant Member Dated: 13.02.2025 Bidhan (P.S.) Page | 10 I.T.A. No.: 2227/KOL/2024 I.T.A. No.: 2298/KOL/2024 Assessment Year: 2018-19 Nirmala Sharma. Page 10 of 10 Copy of the order forwarded to: 1. Nirmala Sharma, Samsing, Gelling, Pipaly, Soreng, West Sikkim, Sikkim, 737121. 2. I.T.O., Ward-3(1), Gangtok. 3. CIT(A)-NFAC, Delhi. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata "