CIT(A) cannot cannot grant relief merely on new evidence without giving AO an opportunity to respond: ITAT

The ITAT Chennai held that the CIT(A) wrongly deleted the Rs 6.37 crore addition without proper verification and by admitting new evidence. It found a lack of fair opportunity for tax authorities and remanded the case for fresh examination of the reconciliation, partly allowing the department’s appeal for statistical purposes.

The assessee, Manikandam Union Teachers Cooperative Thrift and Credit Society Limited, is engaged in providing credit facilities to its members and accepting deposits from members. It is registered under the Tamil Nadu Co-operative Societies Act, 1983. The assessee had not filed its income tax return (ITR) for the Assessment Year 2016-17.

Later, the tax authorities received information that the assessee had made a significant cash deposit into its bank account maintained with the TDCC Bank Ramalinga Nagar Branch during the year in consideration. The tax authorities considered it a case of income escapement. Accordingly, it reopened the assessment through a notice dated March 27, 2021, passed under Section 148 of the Income Tax Act.

In response to the notice, the assessee filed its ITR declaring NIL income after availing a deduction amounting to Rs 43.27 lakh under Section 80P Chapter-VIA of the Act. The tax authorities completed the assessment by declaring the total income of the assessee at Rs 6.46 crore, taxing the entire amount deposited into the bank account on the grounds of unexplained credit of Rs 6.37 crore, stating that amounts shown in the society’s cash book were not actually deposited into the bank. Another addition of Rs 8.54 lakh was also added in the assessee’s income as unexplained cash credits because the assessee could not explain the source of the credit. As a result, the total taxable income was significantly increased.

When the assessee filed an appeal before the Commissioner of Income Tax (Appeals), its reconciliation statement was accepted and impugned additions were all deleted.

The aggrieved tax department thereafter filed an appeal in the ITAT Chennai, arguing that the reconciliation was accepted without giving the tax authorities a fair chance to examine it. The key issue on which the tribunal had to decide was whether CIT(A) was right in deleting the Rs 6.37 crore. When the tribunal analysed the case, it noted that the CIT(A) had not properly addressed the tax authorities’ concerns and had admitted new evidence without verification. As a result, the tribunal remanded the case back to the tax authorities for fresh examination of the reconciliation statement. Meaning, the appeal was partly allowed for statistical purposes.