Facts of the Case

The assessee, Chunakhali Samabay Krishi Unnayan Samiti Limited, is a primary agricultural cooperative society registered under the West Bengal Cooperative Societies Act. It filed its return of income for Assessment Year 2018-19 declaring Nil income after claiming deduction of ₹26,11,197 under Section 80LA. The case was selected for limited scrutiny to verify low income vis-à-vis high investments reflected in the balance sheet. During assessment proceedings, the assessee did not respond to statutory notices. The Assessing Officer completed assessment under Section 143(3) read with Sections 143(3A) and 143(3B), making an addition of ₹2,83,00,000 as unexplained investment under Section 69B read with Section 115BBE and disallowing the deduction claimed under Section 80LA.

On appeal, the CIT(A) deleted the addition under Section 69B and allowed deduction under Section 80LA, while denying deduction under Sections 80P(2)(a) and 80P(2)(d). Aggrieved, the Revenue filed an appeal before the Tribunal with a delay of 503 days, which was condoned.

Issues Involved

Whether the CIT(A) was justified in admitting additional evidence without recording reasons and without allowing the Assessing Officer an opportunity to examine the evidence as required under Rule 46A, whether deletion of addition under Section 69B without examining the source of investment was sustainable, and whether the appellate order suffered from lack of application of mind.

Petitioner’s Arguments

The Revenue contended that the assessee failed to explain the source of substantial increase in long-term investments during assessment proceedings. It was argued that the CIT(A) accepted additional documents at the appellate stage without calling for a remand report or granting opportunity to the Assessing Officer, in violation of Rule 46A. It was further submitted that the order of the CIT(A) was cryptic and merely stated that the explanation was acceptable without proper examination of the source of investment.

Respondent’s Arguments

The assessee submitted that the CIT(A) had examined the financial statements and other materials and had rightly granted relief after considering the facts of the case.

Court Order / Findings

The ITAT Kolkata held that although the powers of the CIT(A) are co-terminous with those of the Assessing Officer, the procedure prescribed under Rule 46A must be strictly followed when additional evidence is admitted. The Tribunal observed that the CIT(A) failed to record reasons for admission of additional evidence and did not provide the Assessing Officer an opportunity to examine such evidence or furnish a remand report. It was further held that the relief was granted in a cryptic manner without examining the source of investment. Accordingly, the Tribunal set aside the order of the CIT(A) and restored the matter to his file with directions to decide the appeal afresh after complying with Rule 46A and after providing opportunity to both the Assessing Officer and the assessee.

Important Clarification

The Tribunal clarified that while the CIT(A) has wide appellate powers, admission of additional evidence must strictly comply with Rule 46A. Any relief granted without following the prescribed procedure and without proper examination of facts renders the appellate order unsustainable in law.

Final Outcome

The appeal filed by the Revenue was allowed. The order of the CIT(A) was set aside, and the matter was restored to the file of the CIT(A) for fresh adjudication in accordance with law after granting opportunity to the Assessing Officer to examine the additional evidence and after providing reasonable opportunity of hearing to the assessee.

Source Link- https://itat.gov.in/public/files/upload/1767330391-JcN569-1-TO.pdf

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