2023 (1) TMI 400 - AT - Income Tax

Unexplained investment - investments in FDR in flat property remained unexplained - HELD THAT - 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. As decided in BASIR AHMED SISODIYA VERSUS THE INCOME TAX OFFICER 2020 (4) TMI 793 - SUPREME 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 basis of addition made in the present case is the source of investment remaining unexplained. Now, the assessee having explained the source of investment, .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. We delete the additions made on account of investment made in FDR in flat. Assessee appeal allowed.

Summary

Issues:
- Addition made on account of two investments remaining unexplained
- Consideration of explanation provided in penalty proceedings for investments made

Analysis:
- The appeal was filed against an order passed by the Commissioner of Income-Tax (Appeals) regarding additions made on two investments by the assessee. Initially dismissed ex parte, the appeal was restored for fresh hearing. The main contention was that the source of investments had been explained during penalty proceedings, leading to the deletion of the penalty by the CIT(A).

- The assessee conceded the inability to explain the source of the investments during the initial proceedings. However, during penalty proceedings, detailed explanations were provided, supported by evidence such as bank statements and confirmations from the employer. The AO, after examining the details, accepted the explanations provided by the assessee, leading to the deletion of the penalty by the CIT(A).

- The AO's remand report confirmed that the investments were adequately explained by the assessee. The CIT(A) also noted the AO's findings and deleted the penalty. The arguments presented by the Department were based on observations from the previous order, which had been recalled. The Tribunal emphasized that once the source of the investments had been explained, there was no basis to confirm the additions as remaining unexplained.

- Citing a Supreme Court judgment in a similar case, the Tribunal held that if the source of investment had been explained in penalty proceedings, there was no justification for confirming the addition in quantum proceedings. Therefore, the Tribunal allowed the appeal and deleted the additions made on account of the investments in the FDR and flat property.

- The Tribunal concluded that since the source of the investments had been adequately explained during the penalty proceedings and accepted by the AO, there was no valid reason to uphold the additions. The Tribunal emphasized that the Department could not introduce new arguments in appellate proceedings that were not part of the AO's original case. As a result, the additions on the investments were deleted, and the appeal of the assessee was allowed.