Tribunal dismisses Revenue's appeal, upholds CIT(A)'s decision on jurisdiction lacking legal sanction.

The Tribunal upheld the CIT(A)'s decision to set aside the AO's order due to lack of jurisdiction and legal sanction. Consequently, the Revenue's appeal challenging the addition of undisclosed investment was dismissed, and the assessee's cross-objection was also disposed of. The Tribunal found that the AO's actions in converting protective addition to substantive addition were beyond jurisdiction and lacked legal basis. The order was pronounced on 14/07/2021, with both appeals being dismissed.

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Issues Involved:

1. Validity of the addition of Rs. 3,27,83,846/- as undisclosed investment.
2. Jurisdiction of CIT(A) to adjudicate the appeal against the AO's order dated 15.09.2017.
3. Procedural fairness in providing an opportunity of hearing to the Revenue.
4. Legality of the AO’s action in converting protective addition to substantive addition.

Issue-wise Detailed Analysis:

1. Validity of the Addition of Rs. 3,27,83,846/- as Undisclosed Investment:

The Revenue's appeal questioned whether the CIT(A) was justified in deleting the addition of Rs. 3,27,83,846/- on the grounds that the assessee had not explained the source of the undisclosed investment in the land. The CIT(A) had deleted this addition, stating that the addition was made without reference to any incriminating material. The Tribunal upheld this decision, noting that the addition was not sustainable as it lacked substantive evidence.

2. Jurisdiction of CIT(A) to Adjudicate the Appeal Against the AO's Order Dated 15.09.2017:

The Revenue contended that the CIT(A) exceeded its jurisdiction by adjudicating an order that was not appealable under section 246A of the IT Act, 1961. The Tribunal examined the CIT(A)'s findings and the AO's order, which purportedly gave effect to the Settlement Commission's order. The Tribunal found that the Settlement Commission had not issued any direction to modify the assessee's assessment. Therefore, the AO's order was without jurisdiction. The Tribunal agreed with the CIT(A) that the AO had become functus officio after completing the original assessment and could not modify it without proper jurisdiction. Thus, the CIT(A) was within its rights to adjudicate the appeal.

3. Procedural Fairness in Providing an Opportunity of Hearing to the Revenue:

The Revenue argued that the CIT(A) had not provided a proper opportunity for a hearing, violating the principles of natural justice. The Tribunal noted that the CIT(A) had forwarded the additional grounds raised by the assessee to the AO and had called for a remand report, which was duly considered. Therefore, the Tribunal found no merit in the Revenue's claim of procedural unfairness.

4. Legality of the AO’s Action in Converting Protective Addition to Substantive Addition:

The Tribunal scrutinized the AO's order dated 15.09.2017, which converted the protective addition into a substantive addition. It was noted that the AO had based this conversion on the fact that the Settlement Commission had not discussed the issue of investment in the land at Jugalpura in its order. The Tribunal found that the AO had no jurisdiction to convert the protective addition into a substantive addition without fresh evidence or direction from the Settlement Commission. The Tribunal upheld the CIT(A)'s decision that the AO's action was beyond his jurisdiction and lacked legal sanction.

The Tribunal concluded that the CIT(A) had correctly set aside the AO's order for want of jurisdiction and necessary legal sanction. Consequently, the Revenue's appeal was dismissed, and the assessee's cross-objection was also disposed of in light of these directions.

Order Pronounced:

The Tribunal pronounced the order on 14/07/2021, dismissing both the Revenue's appeal and the assessee's cross-objection.

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