Judgment:
1. The Hon'ble Vice President, Shri M K Chaturvedi, sitting as Third Member has given his opinion vide order dt 3.9.2004 in respect of following questions: "1. Whether on the facts and circumstances of the case, the CIT (A) is justified in confirming the addition of Rs. 5,00,000/- being the share of undisclosed income from M/s Khivsara Lunkad & Co.? 2. Whether on the facts and circumstances of the case, the order of the Accountant Member in deleting the addition of Rs. 1,00,000/- with respect to Navalakha Agency and B B Raisoni, each is justified or the order of the JM in restoring the matter back on the file of the AO in this regard is justified? 3. Whether on the facts and in the circumstances of the case, the CIT (A) is justified in confirming the addition of Rs. 1,00,000/- with respect to Shri Phiroz Mistry? The Hon'ble Vice President has concurred with the views of the Id Accountant Member in respect of question Nos. 1 & 3. However, he has agreed with the view of the Id Judicial Member in respect of question No. 2. Thus, in accordance with the majority view, the assessee's appeal is partly allowed for statistical purposes.
1. This appeal came before me as a Third Member, to express my opinion on the following questions: - "1. Whether on the facts and circumstances of the case, the CIT(A) is justified In confirming the addition of Rs. 5,00,000/- being the share of undisclosed income from M/s Khivsara Lunkad & Co.? 2. Whether on the facts and circumstances of the case, the order of the Accountant Member in deleting the addition of Rs. 1,00,000/- with respect to Navalakha Agency and B B Raisoni, each is justified or the order of the JM in restoring the matter back on the file of the AO in this regard is justified? 3. Whether on the facts and in the circumstances of the case, the CIT(A) is justified in confirming the addition of Rs. 1,00,000/- with respect to Shri Phiroz Mistry? 2. I have heard the rival submissions in the light of material placed before me and precedents relied upon. In regard to the first Question, I find that the issue is squarely covered by the order of the Tribunal rendered in the case of Mr. Bansilal B Lunkad v. ACIT, being ITA No.1421/PN/1994, dated 8th March, 1995, for the assessment year 1992-93.
The question before the Tribunal was as under: - "2) The teamed taxing authorities below had erred in law and on facts and circumstances prevailing In the case in holding that the explanation given by the appellant for the investments made in various articles, shares, etc. is not acceptable and it is the afterthought on the part of the appellant and also did not appreciate mat inadvertent mistakes have been committed in stating the date of the journal entry as on 31.12.1992 ignoring that the said entry is appearing in the books maintained and pertaining to the FY 1991-92. The additions so made merely on the basis of the declaration made while recording the statement Under Section 132(4) and without considering the subsequent explanation given is unwarranted and unjustified and is requested to be deleted. Just and proper relief be granted to the appellant in this respect." 3. While deciding the issue, the Tribunal held: -".........Since the additional income of the firm was outside its books, that income could have been withdrawn by the partners only outside the books. We, therefore, see no merit in the reasoning of the Assessing Officer that since the withdrawals by the assessee in the books of the firm were not Sufficient to explain the investment in ornaments and shares etc. it should be presumed that these investments were made not out of the assessee's share of profit in the additional income declared by the firm. There is sufficient force in the argument of the teamed counsel that since the additional income in the case of the firm did not appear in the books of the firm, utilization of the same income could only be outside the books of the firm.........." 4. It is pertinent to note that M/s Khivsara Lunkad & Co. made the declaration of Rs. 10,00,000/- as its undisclosed income. It was assessed accordingly in the hands of the firm. The assessee had 50% share in the said firm. Ex consequenti, the assessee did receive Rs. 5,00,000/- from such undisclosed income towards his share. The other partner, Shri B B Lunkad also received similar amount from the said source. In the case of Shri B B Lunkad, the Tribunal allowed the claim on identical facts.
5. In the case of H A Shah and Co. v. CIT (1956) 30 ITR 618 (Bom) the Hon'ble High Court has held that a Tribunal like the Appellate Tribunal, should be extremely slow to depart from a finding given by an earlier Tribunal. In other words, the rule of consistency should be followed.
6. I find that the Tribunal considered the identical facts in deciding the Issue. Reference Application filed by the revenue being R A No: 87/PN/1995 was rejected vide order dated 7th February, 1996. There is absolutely nothing on record to indicate that the matter was admitted by the Hon'ble High Court under Section 256(2) of the Income Tax Act, 1961 (hereinafter called the Act). Therefore, in my opinion, it is not proper to disturb the earlier finding of the Tribunal. There is absolutely nothing in the order of learned Judicial Member to indicate that the order of Tribunal was rendered per incurium. I find that the present facts are also identical. I, therefore, in view of the order of the Tribunal, agree with the view taken by the learned Accountant Member.
7. In regard to Question No. 2, the learned AM, at Page 9 of the order, observed as under: - "........if the AO was not satisfied with the confirmations, he could have examined these persons, but he rejected this vital piece of evidence without placing any evidence on record and the CIT(A) simply endorsed the finding of the AO which was based on erroneous appreciation of facts. We accordingly direct the AO to delete the two amounts of Rs. 1,00,000/- each, i.e. Rs. 2,00,000/- in aggregate." 8. The learned AM impliedly applied the principles of natural justice In deciding the issue and struck down the order of the AO by rendering direction to delete the addition. The order was vacated by virtue of its inherent defect The defect being that persons concerned were not examined. Mere filing of confirmation is not enough. I find that even the GIR / PAN was not mentioned on the confirmations. Its veracity is not beyond doubt. Further, it was incumbent on the AO to make proper examination to find out the real truth. This was not done. As such, the maxim of "AUDI ALTERAM PARTEM" was not followed by the AO. In a case where the flaw in the order appealed against consists of in the non-observance of certain procedure or in not giving effect to the maxim 'AUDI ALTERAM PARTEM" , the impugned order should not be quashed.
Infirmity crept in the order should be directed to be cured. AO should be directed to follow the rules of procedure and principles of natural Justice. This view was taken by the Hon'ble Supreme Court in the case of Guduthur Bros v. ITO (1960) 40 ITR 298 (SC). This is so because breach of the principles of natural justice may affect the legality of the order made but that does not affect the Jurisdiction of the authority concerned.
9. No doubt, the infirmity affecting the validity of the order could also be cured by the Tribunal. In that eventuality, the Tribunal should cat both the parties and alter hearing the matter, decide the issue in accordance with the principles of justice. On removal of the infirmity, the original order merges with the appellate order and such appellate order shall validty govern the matter.
10. This was not done. Instead, the order was quashed. The learned JM proposed the adjudication afresh by the AO. The decision of learned JM is more close to the canons of justice, I, therefore, agree with his finding on this aspect.
11. In regard to the last Question, I find that the amount paid to Shri J F Mistry on 11.07.1991 amounting to Rs. 1,00,000/- had been recovered within three months. This is dearly stated in Answer to Question No. 10 and the deposition recorded under Section 132(4) of the Act, appearing at Page 8 of the Paper Book. The relevant Question reads as under: - Q. 10. Now I as showing you document No. 1 & 2 from Maharashtra Office Files as noted in Annexure A. What you have to tell about it's business? Ans. As stated in the document to purchase the plot No. 22, S.No. 575, Munjeri, Gultekadi, Pune-37, I had given Rs. 1,00,0007- on 11.07.1991 to Shri Jal Firoze Mistry & Sau. Firoza Firoze Mistry.
But after three months they repaid me my Rs. 1 lac as the deal could (sic) be completed. These Rs. 1 lac are not shown anywhere in the account books." 12. The search took place on 17th and 18th December, 1991. It is, therefore, abundantly clear that the amount in question was available with the assessee for making Investment before the date of search. This amount was offered by mistake. I have perused the reasonings adduced in this regard in the order. I am inclined to agree with the finding given by the learned AM on this aspect.
13. The matter will now go before the Regular Bench for deciding the appeal in accordance with the opinion of the majority.