ITO, WD-24(4), HOOGHLY, HOOGHLY vs. SMT SARMILA GHOSH, HOOGHLY

First we take up the appeal of the revenue being which is directed against the order of Ld. CIT(A) – 6, Kolkata dated 15.02.2016 passed in the case of Dr. Kajal Ghosh.

The assessee in the present case is an individual who is a doctor by profession. The return of income for the year under consideration was filed by him on 28.08.2009 declaring a total income of Rs. 8,33,993/-. During the course of assessment proceedings, it was noticed by the AO that the assessee had made substantial investment in mutual funds amounting to Rs. 83,47,624/-. He, therefore, required the assessee to explain the source of the said investment. In reply, it was submitted by the assessee that the investment in mutual funds was made from the funds accumulated over the years. It was also submitted that some of the investment in mutual funds was routed twice in the year under consideration by shifting from one mutual fund to other mutual fund. It was explained by the assessee that all these transactions relating to investment in mutual funds however were not duly incorporated in the financial statements due to lack of knowledge. This explanation of the assessee was not found acceptable by the A.O. and in the absence of any details or documents furnished by the assessee to substantiate the source of funds utilised for making investment in mutual funds, he treated the investment of Rs. 83,47,624/- made by the assessee in the mutual funds as unexplained.

3 & 832/Kol/2016 Assessment Year: 2009-10 Dr. Kalidas Ghosh & Smt. Sarmila Ghosh Accordingly addition of Rs. 83,47,624/- was made by the A.O. to the total income of the assessee in the assessment completed under section 143(3) vide an order dated 26.12.2011.

Against the order passed by the A.O. under section 143(3), an appeal was preferred by the assessee before the Ld. CIT(A) challenging the addition of Rs. 83,47,624/- made by the A.O. on account of the alleged unexplained investment in mutual fund. During the course of appellate proceedings before the Ld. CIT(A), it was submitted by the assessee that the assessee being practicing gynaecologist was not having proper knowledge of accountancy or taxation. It was submitted that certain assets and income therefore were omitted to be disclosed by the assessee in the regular books / returns. It was contended that the assessee, in order to rectify his past mistakes and to avoid protracted litigation, redrafted / rectified his accounts and filed an application before the Settlement Commission offering the additional income for A.Y. 2007-08, 2008-09, 2010-11 to 2013-14 on the basis of redrafted / rectified account. It was contended on behalf of the assessee before the Ld. CIT(A) that although the application of the assessee for A.Y. 2011-12, 2012-13 and 2013-14 was accepted by the Settlement Commission, the same for A.Y. 2007-08, 2008-09 and 2010-11 was rejected on technical ground. It was pointed out on behalf of the assessee that assessments for A.Y. 2007-08, 2008-09 and 2010-11 however were reopened by the A.O. and in the return filed in response to the notices issued by the A.O. under section 148, the additional income on the basis of redrafted or rectified account was offered by the assessee to tax for A.Y. 2007-08, 2008-09 and 2010-11. A fund flow on the basis of 4 & 832/Kol/2016 Assessment Year: 2009-10 Dr. Kalidas Ghosh & Smt. Sarmila Ghosh redrafted or rectified accounts was also furnished by the assessee before the Ld. CIT(A) to show that the investment in mutual funds treated by the A.O. as unexplained was reflected in the redrafted / rectified accounts and source of the same was duly explained.

The Submissions made by the assessee along with the details and documents submitted in support were forwarded by the Ld. CIT(A) to the A.O. for his comments. In the remand report submitted to the Ld. CIT(A), the A.O. offered his comments and when the same were confronted by the Ld. CIT(A) to the assessee, the latter also submitted his rejoinder. After taking into consideration the entire material available on record including the submissions made by the assessee and remand report submitted by the A.O., the Ld. CIT(A) decided the issue involved in the case of the assessee relating to the alleged unexplained investment made in mutual fund vide paragraph no 4 of this impugned order: “The AR was heard again on various dates after the undersigned took over as CIT(A)-6, Kolkata and the submissions made by the appellant and the remand reports were perused carefully. The assessment records for A.Y. 207-08 and A.Y. 2008-09 were also called for and examined. The appellant was asked to substantiate the fund flow statement furnished by the appellant as a part of the submission on 18.09.2013 and the AR furnished the relevant details which were verified in order to examine the sources of funds. The AR also furnished a day to day cash book. The appellant has basically redrawn his accounts and revised his balance sheets starting from F.Y. 2006-07. The assessment for A.Y. 2007-08 and A.Y. 2008-09 were reopened after the Hon’ble Settlement Commission declared the applications for those years are invalid. Additional income of Rs. 6,88,815/- and Rs. 7,01,569/- were declared by the appellant for the A.Y. 2007-08 and 2008-09 in the returns filed in response to notice u/s 148 of the Act. In the assessment order dated 23.03.2015 u/s 147 read with section 143(3) of the Act for A.Y. 2007-08, inter alia an addition of Rs. 12,70,555/- has been made on account of opening cash balance as on 01.04.2006 in excess of closing cash balance as on 31.03.2006 declared in 5 & 832/Kol/2016 Assessment Year: 2009-10 Dr. Kalidas Ghosh & Smt. Sarmila Ghosh the A.Y. 2006-07. In the order dated 19.03.2015 u/s 147 read with section 143(3) of the Act for the A.Y. 2008-09, no addition has been made to income as per the relevant return filed in response to notice u/s 148 of the Act. I find that the appellant has filed a revised balance sheet as on 31.03.2009 for the assessment year under appeal and compared the same with the revised balance sheet as on 31.03.2008 (as filed with the return for A.Y. 2008-09 filed in response to the notice u/s 148) and prepared the aforesaid fund flow statement. All the assets including the investments in mutual funds treated as unexplained investments in the assessment order for A.Y. 2009-10 have been taken into account by the appellant in the revised balance sheet as at 31.03.2009. The sources of the individual investments/deposits in bank accounts and sources claimed to be redemptions/maturity proceeds of investments made in earlier years were explained satisfactorily. The specific objections of the A.O. in the remand report were rebutted satisfactorily with the help of the cash book, fund flow statement and bank statements by the appellant. The appellant had an opening cash balance of Rs. 17,89,701/- as on 01.04.2008 and specific cash deposits aggregating to Rs. 3,40,000/- considered not properly clarified by the A.O. in his remand report were explained to have been made out of the decrease in the cash balance of Rs. 17,89,701/- as on 01.04.2008 to cash balance of Rs. 31,107/- as on 31.03.2009. The A.O. had also been unable to trace the deposits of matured investments in NSC/KVP aggregating to Rs. 2,67,836/- in the bank accounts but their deposits in various bank accounts were satisfactorily demonstrated by the appellant. To sum up the fund flow statement furnished by the appellant is found to be satisfactorily explained. In the result, the appellant has admitted to have earned undisclosed income of Rs. 11,76,246/- for the A.Y. 2009-10. In the process, however, undisclosed dividend income of Rs. 29,381/- has been claimed to be exempt by the appellant. On being asked to show that the dividend income was exempt, the appellant could only show that dividend of Rs. 1,995/- from UTI Multi Cap fund and Rs. 1,549/- from UTI Mid cap fund, totalling to Rs. 3,544/-which is the originally disclosed dividend in the return of income out of total dividend of Rs. 32,925/- is exempt. The appellant could not furnish any evidence to show that the undisclosed dividend income of Rs. 29,381/- is exempt. Hence, the undisclosed taxable income of the appellant works out to Rs. 12,05,627/- (i.e. Rs. 11,76,246/- admitted to be undisclosed by the appellant + undisclosed taxable dividend income of Rs. 29,381/-). Accordingly, Rs. 12,05,627/- made by the A.O. is confirmed and the balance addition of Rs. 71,41,997/- is deleted”

We have heard the arguments of both the sides and also perused the relevant material available on record. The learned DR has relied on the order of the Assessing Officer in support of the revenue’s case on the issue and also submitted that the remand report filed by the A.O. before the Ld. CIT(A) may be taken into consideration while deciding the said issue. The learned counsel for the assessee, on the other hand, has strongly supported the impugned order of the Ld. CIT(A) and submitted that the Ld. CIT(A) has allowed substantial relief on the basis of rectified / redrafted account prepared and furnished by the assessee along with the application filed before the Settlement Commission for relevant years including the year under consideration. He has also submitted the SMC Bench of this Tribunal in the case of Shri Kalidas Ghosh vs ITO (ITA No. 2053/Kol/2016 dated 28.04.2017) has allowed a similar relief to the assessee on the issue of addition made on account of difference in cash balance by relying on the redrafted / rectified accounts prepared and furnished by the assessee along with the application filed before the Settlement Commission. He has also placed on record a copy of the order passed by the Tribunal in the case of Shri Kalidas Ghosh (supra) and perusal of the same shows that a relief was allowed by the Tribunal to the assessee on similar basis by relying on the redrafted / rectified 7 & 832/Kol/2016 Assessment Year: 2009-10 Dr. Kalidas Ghosh & Smt. Sarmila Ghosh application filed before the Settlement Commission vide paragraph no 8 of its order which reads as under: “I have considered the rival submissions and also perused the relevant material available on record. It is observed that an application was filed by the assessee before the Settlement Commission offering additional income for AY 2007-08, 2008-09, 2010-11, 2011-12, 2012-13 and 2013-14 on the basis of redrafted/rectified accounts and although the said application for AY 2007-08, 2008-09 and 2010-11 was rejected by the Settlement Commission on technical ground, the same was accepted for AY 2011-12, 2012-13 and 2013-14 thus were accepted by the Settlement Commission and since the same were in continuation of the earlier years, I find merit in the contentions of the learned counsel for the assessee that there is no justification to reject the same for the year under consideration, i.e. AY 2007-08, especially when the additional income sought to be offered by the assessee before the Settlement Commission on the basis of such rectified / redrafted accounts was finally offered by the assessee in the return of income filed for the year under consideration in response to notice issued by the Assessing Officer under section 148. A useful reference in this regard can be made to sun-section (6) of section 245D, which provides that every order passed under sub-section (4) thereof shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts. It is also pertinent to note here that opening cash balance as on 01.04.2006 for the year under consideration was taken by the assessee at Rs. 19,88,336/- on the basis of redrafted/rectified accounts for the immediately preceding year, wherein the closing cash balance was shown to that extent. In the balance-sheet originally prepared by the assessee and filed along with his return of income for AY 2006-07, the closing cash balance, however, was shown by the assessee at Rs. 7,17,781/- and this difference was duly explained by the assessee before the Assessing Officer as well as before the Ld. CIT(A) as withdrawals made from bank in the financial year 2005-06. At no stage either the Assessing Officer or the Ld. CIT(A) disputed or controverted this explanation of the assessee and the same was rejected by him only on the ground that his income for AY 2006- 07 was not revised by the assessee nor any further tax was paid by him on any undisclosed income. As rightly contended by the learned counsel for the assessee the fact that the income, if any, on account of difference in cash balance pertained to AY 2006-07 thus was accepted by the authorities below and the same, therefore, cannot be brought to tax in the hands of the assessee for the year under consideration, i.e. AY 2007-08. Keeping in view all these facts of the case, I hold that the addition of Rs.

As all the material facts involved in the present case are similar to the case of Shri Kalidas Ghosh (supra) decided by this Tribunal, we respectfully follow the decision rendered by the Tribunal in the said case and uphold the impugned order of the Ld. CIT(A) restricting the addition of Rs. 83,47,624/- made by the A.O. on account of alleged unexplained investment in mutual fund to Rs. 12,05,627/-.

As regards the appeal of the revenue being which is directed against the order of Ld. CIT(A) – 6, Kolkata dated 16.02.2016 passed in the case of Smt. Sarmila Ghosh, it is observed that the issue involved therein as well as all the material fact relevant thereto are similar to the case of Dr. Kalidas Ghosh in as much as the addition made by the A.O. in this case to the extent of Rs. 82,53,149/- on account of the alleged unexplained investment made by the assessee in the mutual fund is restricted by the Ld. CIT(A) to Rs. 15,84,334/- by relying on the redrafted/rectified accounts prepared and furnished by the assessee along with application filed before the Settlement Commission for the relevant years including the year under consideration. As the argument raised by the learned representatives of both the sides in this case are also similar to the case of Dr. Kalidas Ghosh, we follow our decision rendered in the case of Dr. Kalidas Ghosh and uphold the impugned order of the Ld. CIT(A) restricting the addition of Rs. 82,53,149/- made by the A.O. on account of alleged unexplained investment in mutual fund to Rs. 15,84,334/-.”

In the result, both the appeals of the revenue are dismissed. Order Pronounced in the Open Court on 22nd June, 2018.