Sikkimese Identity Alone Not Sufficient for S.10(26AAA) Exemption, All Conditions Must Be Verified: ITAT [Read Order]

The Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ) has set aside an order that granted exemption under Section 10(26AAA) of the Income Tax Act, 1961 and ruled that all statutory conditions under the provision must be verified.

Bhumika Rai (assessee), a resident of Namchi, Sikkim, operated an LPG dealership under the name Nayuma Indane and also earned commission income from Dish Infra Services Pvt. Ltd. Despite substantial financial transactions during the year, no income tax return was filed.

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The Assessing Officer (AO) reopened the assessment and treated cash deposits of Rs. 8.92 crore and a vehicle purchase of Rs. 15.08 lakh as unexplained income under Sections 69A and 69 respectively and commission income of Rs. 11.62 lakh was also added.

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The assessee claimed that being a Sikkimese individual, her income was exempt under Section 10(26AAA), which exempts certain income earned by Sikkimese individuals from tax. She submitted a certificate of identification and stated that all income arose from sources within Sikkim.

The AO denied the claim of exemption under section 10(26AAA) of the Income Tax Act. Aggrieved by the order of the AO, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A]. 

The CIT(A) accepted the assessee’s submissions and held that as a Sikkimese individual with valid identification certificate, the assessee was entitled to full exemption under Section 10(26AAA) of the Income Tax Act.

The CIT(A) did not call for a remand report or seek verification of the evidence by the AO. the CIT(A) also directed deletion of all additions. Aggrieved by the order, the Revenue filed an appeal before ITAT.

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The two-member bench comprising Sanjay Garg (Judicial Member) and Rakesh Mishra (Accountant Member) observed that the CIT(A) failed to verify whether all statutory conditions under Section 10(26AAA) were fulfilled.

The Tribunal held that the CIT(A) had erred in admitting additional evidence without complying with Rule 46A(3) of the Income Tax Rules, 1962, which requires a remand report or an opportunity of rebuttal to the AO.

The Tribunal restored the matter to the file of the AO for fresh adjudication. The tribunal directed the AO to verify all claims and allow the assessee to furnish additional evidence including the certificate of identification and any supporting documentation.

The Tribunal concluded that mere possession of a certificate of identification is insufficient to claim exemption under Section 10(26AAA) unless all statutory conditions are thoroughly examined and fulfilled.

The AO was directed to pass a fresh assessment order after affording adequate opportunity to the assessee. The appeal of the Revenue was allowed for statistical purposes.

To Read the full text of the Order CLICK HERE

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