CHAGAN CHIMAJI KHATKE,BHIWANDI vs. DEPUTY COMMISSIONER OF INCOME TAX OFFICE, CIRCLE 1 KALYAN, KALYAN

The grounds of appeal are as under:

At the outset, it may be stated that the Registry intimated that the instant appeal is delayed by 52 days. In this regard, the assessee has filed a condonation request alongwith an affidavit inter alia stating that the regular Accountant looking after the tax affairs was not aware of the time limit of filing of the appeal leading to an unintentional delay of 52 days. It is contented that though the delay being unintentional has admittedly not resulted into it having gained any undue benefit which may be condoned and appeal be admitted and adjudicated upon in the Page 3 interest of justice. After considering the above facts, we condone the delay which appears to be bonafide and unintentional.

Brief facts of the case are that the assessee an individual filed return of income for the year declaring total income of Rs.26,18,170/-. In the course of assessment proceedings, the observed that the assessee being one of the directors of M/s Jayaraj Textiles Pvt. Ltd. (henceforth 'JTPL'), holding a 14.67% shareholding had taken a loan of Rs.53,10,000/- stated to be for working capital requirement. However, the AO made an addition to the tune of Rs.25,98,505/-,equivalent to the reserve of the above named company by invoking the provisions of Section 2(22)(e) of the Act, treating the alleged amount as deemed dividend in hands of the assessee.

Aggrieved by the said order, he filed an appeal before the ld.CIT (A). Before him, it was stated that the amount in question was advanced to the assessee as earnest money by JTPL as they intended to buy a plot of land from the assessee for a consideration of Rs.75,00,000/-. An agreement of sale was made between him and JTPL. It was also submitted that the assessee was unaware of these facts and did not produce the agreement before the AO during the course of the hearing, which led him to an erroneous conclusion, resulting in the above Page 4 addition under Section 2(22)(e) of the Act. It has been pointed by the ld.CIT(A) that before the AO in response to the show cause to treat loans as deemed dividend has contented that the "...assessee is a director and shareholder of Jayraj Textiles Park Pvt Ltd. They also trading with each other whenever they required but during said period assessee was facing fund crises for the working capital and hence assessee has taken funds from Jayraj Textiles Park Pvt Ltd. So this taken fund indirectly related to his business transaction. Without prejudice to above the company i.e. Jayraj Textile Park Pvt Ltd having Reserve and Surplus of Rs.25,98,505/-." It was observed by the ld.CIT(A) that the assessee has made a U-turn, stating that the advances were received for an alleged sale of land. In support of this claim, the appellant submitted a copy of an unregistered agreement for sale dated 12.09.2014 between him and JTPL. Furthermore, he observed that the assessee did not file any application for furnishing the additional evidence during the appellate proceedings as required under Rule 46A of the Income Tax Rules, nor did they provide the circumstances for its admissibility. Accordingly, he did not find it fit to admit the above additional ground or evidence submitted before him observing that the assessee was given ample opportunity before the AO to explain the case, and after having considered his submissions, he correctly concluded that the loan Page 5 accounted in the books, which was received from the company in which he was a shareholder with substantial interest, falls within the scope of deemed dividend under Section 2(22)(e) of the Act. Moreover, he did not appreciate the inconsistency in the appellant's explanations before the assessing authority and during the appeal, and therefore, did not find any merit in his argument to allow the appeal. In conclusion, the appeal was dismissed.

We have carefully gone through the record. We find that the issue was not adjudicated by the ld.CIT(A) judiciously and without taking due cognizance of the submissions made before him. He brushed aside the arguments duly supported by certain additional evidence on purely technical ground that no request was made in terms of Rule 46A. Such dismissal without deciding the appeal on merits is contrary to the principles of natural justice. It is settled law that it is the duty of the appellate authority to dispose of an appeal on merits after considering the material on record. The order passed by the CIT(A) is non-speaking and non-reasoned cryptic order in which he has simply upheld the order of the AO which is not in accordance provisions of section 250(6) of the Act as he is obligated to pass appellate order by stating points for determination, his decision and reasoning thereof which has not been Page 6 done. Thus, there is clearly breach of principles of natural justice by him as proper and adequate opportunity of heard was not granted to the assessee. The CIT(A) is required to pass reasoned and speaking order on merits in accordance with law, but the appellate order passed by ld. CIT(A) is a non speaking and non reasoned which is not in compliance with provisions of section 250(6) and is liable to be set aside. The powers of CIT(A) are co-terminus with the powers of the AO. He could have made enquiries himself or have caused enquiries to be made by the AO and submit remand report to him to enable him to adjudicate the appeal. It is equally true that the assessee made contrary pleas before the lower authorities. Under these facts and circumstances and fairness of both the parties, in the interest of justice, the appellate order of ld.CIT(A) is set aside and sent back to him for fresh adjudication. He shall pass the appellate order in compliance with the provision of section 250(6) of the Act on merit in accordance with law, in set aside proceedings,after giving opportunity to both the parties in compliance with principles of natural justice. The assessee on his part is also directed to comply with the direction/notices and in case of failure of the assessee, the ld. CIT(A) shall be free to pass such appellate order as deemed fit in accordance with law on merits and after complying with the provisions of section 250(6) of the Act. Page 7

In the result, the appeal is allowed for statistical purposes. Order pronounced in the open court on 21.07.2025 SANDEEP GOSAIN PRABHASH SHANKAR (न्यायिक सदस्य / JUDICIAL MEMBER) (लेखा सदस्य / ACCOUNTANT MEMBER) Place: मुंबई/Mumbai दिनांक/Date 21.07.2025 Lubhna Shaikh / Steno आदेश की प्रतिलिपि अग्रेषित/