ITO WD 22(3)(2), NAVI MUMBAI vs. KARUNAKAR N. SHETTY, NAVI MUMBAI

This appeal has been preferred by the revenue against order dated 25/06/2012 passed by the Ld CIT(Appeals)-33, Mumbai, for the assessment year 2009-10, whereby the Ld. CIT(A) partly allowed the appeal filed by the assessee against assessment order dated 07/12/2011.

Brief facts of the case are that the assessee filed its return of income for the A.Y. 2009-10 declaring the total income of Rs. 7,30,210/-. The assessment was completed u/s 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) determining total income of Rs. 1,05,30,869/- after making inter-alia addition of Rs. 31,15,000/- on account of unexplained loan and Rs. 30,24,249/- on account of unexplained investment. In appeal, the Ld. CIT(A) deleted the addition of Rs. 15,50,000/- out of the total disallowance of Rs. 31,15,000/- made on account of unexplained loan and Rs. 30,24,249/- made on account unexplained investment. The revenue has challenged the impugned order by raising the following grounds of appeal:-

The case was called for hearing, however, neither the appellant/assessee himself nor any authorized representative appeared on his behalf. We find that the notice has been served upon the assessee through registered post well in time. Hence, we are satisfied that the assessee has not appeared despite service of notice, which gives rise to the conclusion that the assessee is no more interested in pursuing the appeal. Accordingly, we decided to proceed ex-parte against the appellant and dispose of the appeal on the basis of material available on record, after hearing the departmental representative.

The Ld. Departmental Representative (DR), relying heavily on the assessment order, submitted that the Ld. CIT(A) has wrongly deleted the addition of Rs. 15,50,000/-made by the A.O on account of bogus loan without verifying the genuineness of loan. Similarly, the Ld. CIT(A) has wrongly deleted the addition of Rs. 30,24,249/- made by the A.O as unexplained investment without verifying the source thereof.

We have carefully gone through the material placed on record including the orders passed by the authorities below. The A.O has treated the amount of Rs. 31,15,000/- as unexplained loans holding that the assessee has failed to submit the details of the loans stated as received from friend and relatives. But the Ld. CIT(A) has deleted Rs. 15,15,000/- out of the total amount of Rs. 31,15,000/- on the ground that the assessee has established on the basis of documentary evidences that the amount of Rs. 15,15,000/- was part of the old loans received from friends and relatives during the financial year 2007- 08, and the same were brought forward to the assessment year under consideration. There can be no dispute with the proposition that if some of the impugned credits do not arise during the current year, but in the immediately preceding year, the same cannot be brought to tax for the current year. No details were admittedly furnished before the A.O., while the Ld. CIT(A) has admitted evidence without allowing opportunity to the A.O. to examine and/or rebut the same. Even as we agree with the Ld. CIT(A) in principle, the matter is restored back to the file of the A.O. for adjudication afresh in accordance with law after hearing the assessee. We decide accordingly.

As regards the second ground the A.O. has made addition of Rs. 30,24,249/- as unexplained source of investment holding that the assessee has failed to explain the source of payment made for NRI Flat. However, the Ld. CIT(A) has deleted the addition holding that the assessee has explained the source of investment in question. As per the agreement executed/registered on 24.3.2009, the assessee purchased the property for a total consideration of Rs. 67 lacs. Payments of Rs. 7,70,250/-, Rs. 5,00,000/- and Rs. 7,79,250/-were made by the assessee vide cheque no 014388 dated 09/03/2009, cheque No. 014319 dated 23/03/2009 and cheque No. 0143920 dated 27/03/2009, all drawn on Abhudhaya Co-operative Bank. The assessee had also taken loan of Rs. 51,19,856/-from Divan Finance Corporation and the assessee has been depositing monthly installment of Rs.61,815/-. So, on the basis of the documentary evidence aforesaid, the Ld.CIT(A) has come to the conclusion that the total amount of Rs. 67,00,000/-was partly met out of the funds obtained from Divan Finance Corporation and balance of Rs. 15,80,144/- was paid from the loans taken from the friends and relatives.

The findings by the ld. CIT(A) may be based on appreciation of evidence adduced before him, but none was during the assessment proceedings. This is precisely the Revenue’s grievance per Ground 3 of its appeal. Rule 46A of the Income Tax Rules, 1962 is, as held by the Hon’ble Courts, mandatory. We, accordingly, are in agreement with the Revenue that the impugned order stands passed without observing the due process of law. Reference in this context may also be made to the decision in Tin Box Company vs. CIT [2001] 249 ITR 216 (SC). We, accordingly, consider it fit and proper to restore the matter back to the file of the A.O. for adjudicating afresh in accordance with law after hearing the assessee. We decide accordingly.

In the result appeal by the Revenue is allowed for statistical purposes.