SHRI PRAKASH S. SHAH,,MUMBAI vs. THE DY. COMMR. INCOME TAX, CEN. CIRCLE-II,, RAJKOT-GUJARAT

This is a recalled matter. In the first round of appeal, the appeal of the assessee was dismissed ex parte by the Tribunal vide order dated 6.9.2018. Thereafter, assessee filed Misc. Application being MA No.25/RJT/2019 seeking recall of the exparte order. Considering the pleadings in the MA and submissions of the 2 ld.counsel for the assessee, the impugned ex parte order was recalled vide order dated 29.7.2022, and restored the appeal to its original number and listed for hearing afresh on merit. Accordingly, this matter has come up before us, and we proceed to adjudicate the same hereinafter as follows.

The ld.counsel for the assessee submitted before us that there are only two issues involved in the present appeal relating addition made on account of two investments made by the assessee remaining unexplained – one investment in flat amounting to Rs.66.00 lakhs and other in fixed deposits amounting to Rs.5.00 lakhs. The ld.counsel for the assessee contended that both before the AO and the Ld.CIT(A) the assessee had fairly conceded that he was unable to explain and substantiate the source of the above two investments made, but at the same time, he pointed out that when the penalty was levied on this addition made and the matter carried in appeal before the ld.CIT(A),the assessee furnished complete explanation of the source of both the investments, duly substantiating the same with evidences.The ld.CIT(A) sought report from the AO with respect to the explanation and evidences furnished by the assessee, and the AO in turn, after examining the details and evidences filed by the assessee, gave a finding of fact that both the investments stood duly explained by the assessee. He contended that noting this finding of the AO in remand proceedings, the ld.CIT(A) deleted the penalty levied in the case of the assessee. The Ld.Counsel for the assessee stated that in view of the fact that source of these investments had been accepted by the AO as explained, though in penalty proceedings, there was no question at all now for confirming the addition treating this investment as remaining unexplained. The ld.counsel for the assessee contended that Hon’ble Supreme Court, in an identical case where the assessee

Referring to the above, the ld.counsel for the assessee pointed out that the AO had given categorical finding of the fact of both investments in FDRs of Rs.5.00 lakhs and investment in Flat of Rs.65 lakhs being adequately explained by the assessee. The ld.counsel thereafter drew our attention to the order of the ld.CIT(A) in penalty proceedings, while deleting the penalty, noting that the AO in remand proceedings had found the assessee to have duly explained source of investment in FDRs and Flat. A copy of the order was placed in PB page no.25 to 32. Our attention was drawn to para-8 containing the decision of the ld.CIT(A) regarding the above finding as under:

The ld.DR, on the other hand, vehemently objected to the arguments of the ld.counsel for the assessee and heavily relied on the order of the ITAT in the first round, pointing out to the observation made in the said order to the effect that if the loan given by the employer to the assessee for purchase of flat remained unpaid it would take nature of salary income in the hands of the assessee. He contended that this observation of the ITAT in the first round needed consideration, more particularly in view of the fact that the assessee admittedly was no longer employee of the Backbone Construction Ltd. from whom loan had been taken and had not repaid the loan also, which had increased from Rs.65 lakhs taken by 7 the assessee to Rs.72 lakhs on account of interest being added to the same.

We have heard contentions of both the parties and we have also gone through orders of the authorities below, as also documents referred to by both the parties before us. The issue before us relates to the addition made in the hands of the assessee on account of investments in FDR of Rs.5 lakhs and Rs.65 lakhs in flat property remained unexplained. It is a fact on record that source of investments have been duly explained by the assessee in the appellate proceedings before the ld.CIT(A) in an appeal filed against penalty levied on the aforesaid two additions. It is also a fact that the AO himself had examined the explanation of the assessee with evidences filed and had accepted it as correct. Having so accepted the explanation of the assessee as correct, be that so in penalty proceedings, what stands and remains, as a matter of fact is that the AO accepted the assessee’s explanation with regard to the source aforesaid two investments made by the assessee. The AO having given categorical finding of fact that the source of investment stands duly explained, there is no reason absolutely now to make addition on account of the same remaining unexplained in quantum proceedings. The reason for making addition was source of investment remained unexplained. The assessee having explained the source in penalty proceedings, and the AO having accepted the same investments, there was no room to hold that the investment remained unexplained, therefore, there is no reason at all to confirm the two additions made on account of aforesaid two investments. We draw support from the judgment of Hon’ble Apex Court in the case of Basir Ahmed Sisodia (supra) wherein in identical set of facts, Hon’ble Apex Court held that factual basis on which the AO had formed his opinion in assessment order, having been dispelled by affidavits and statements of the concerned parties in penalty proceedings, there was no occasion for confirming the addition in quantum proceedings. The arguments of the ld.DR, we have noted, are based on the order of the ITAT passed on earlier occasion, which now stand recalled. Therefore, the aforesaid order does not exist at all in the eyes of law and no cognizance of any observation made in the said order can be taken. Even otherwise, the basis of addition made in the present case is the source of investment remaining unexplained. Now, the assessee having explained the source of investment, the ld.DR cannot make out a new case for confirming the addition by stating that though the source of investment stands explained by loan taken by the assessee from his ex-employer, but since this loan was not repaid by the assessee, therefore, it partakes the nature of income by way of salary. This definitely was not the case of the AO and in an appellate proceedings, the Department is debarred from improving upon the case of the AO. In view of the same, we delete the additions made on account of investment made in FDR of Rs.5.00 lakhs and Rs.65.00 lakhs in flat.

In view of the above, appeal of the assessee is allowed.