ITAT Sets Aside CIT(A) Order on Scheduled Tribe Doctor’s S.10(26) Exemption Claim Over Eligibility Misinterpretation [Read Order]

The Kolkata Bench of Income Tax Appellate Tribunal (ITAT) set aside the Commissioner of Income Tax(Appeals)[CIT(A)] order regarding a Scheduled Tribe doctor's exemption claim under Section 10(26) of Income Tax Act,1961 due to misinterpretation of eligibility.

The Revenue-appellant, appealed against the order dated 25.08.2023 passed by CIT(A) for the Assessment Year(AY)  2013-14. In this case, Achula Darneichong Sailo, respondent-assessee, did not file a return of income. During the year, professional fees of ₹1,70,000 were earned from Novartis Healthcare Pvt. Ltd., with ₹17,000 deducted as Tax Deducted at Source(TDS). Cash deposits totaling ₹2,43,45,200 and high-value banking transactions of ₹47,29,500 were recorded.

The case was reopened under Section 147, and a notice under Section 148 was issued. A return was later filed on April 24, 2021, declaring 'Nil' income. However, there was no response to the notice under Section 142(1) or the questionnaire. Due to non-compliance, the assessment was completed by adding all transactions, determining total income at ₹2,43,45,200.

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The statement of facts before the CIT(A) stated that the assessee, a Scheduled Tribe member and medical doctor, owned Bethany Hospital in Shillong, with income exempt under Section 10(26). After passing away due to COVID-19 on April 15, 2020, the legal heir, the spouse, took over.

Despite filing returns in previous years, issues with PAN deactivation in the new tax portal led to non-filing notices. The family couldn't respond due to these complications. After escalating the matter, the issues were resolved on October 7, 2022, allowing access to notices and orders.

Due to the portal issues, no response was made earlier, and the assessment was completed suo moto. Aggrieved by this, an appeal was filed before the CIT(A).

The two member bench comprising Manomohan Das (Judicial Member) and Rakesh Mishra (Accountant Member) reviewed the orders of the CIT(A) and AO and found that the assessee did not explain the cash deposit of ₹2,43,45,200, the technical fee of ₹1,70,000 with TDS deduction, or the source of bank transactions of ₹47,29,500.

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The CIT(A) did not provide reasons for allowing the exemption or establish that the cash deposits were linked to professional income from the specified states under Section 10(26). The AO was also not given an opportunity to be heard, and the provisions of Section 250(6) were not followed.

Read More: ITAT Sets Aside Order Passed by CIT(A) for Ignoring Assessee’s Consistent Business Practice: Directs Re-examination of TDS Claim

Since res judicata does not apply to tax proceedings, the ITATl held that reliance on the assessment order for AY 2017-18 was incorrect. It set aside the CIT(A)’s order and restored the appeal for fresh adjudication. The assessee was allowed to present submissions on the exemption claim, and the CIT(A) was directed to decide the appeal as per Rule 46A of the Income Tax Rules, 1962.

In short,the appeal filed by the revenue was allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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