2022 (3) TMI 1384 - AT - Income Tax

Reopening of assessment u/s 147 - assessee was not carrying genuine business of trading in diamonds and was engaged only in providing accommodation entries - undisclosed commission income on protective basis - HELD THAT - We find that this addition made by the A.O has been deleted by the ld. CIT(A) and revenue is not in appeal against the said deletion. GP estimation - gross profit rate declared by the assessee in the year under consideration is too low i.e 1.19% as compared to the gross profit percentage declared by other such concern of the Shri Bhanwarlal Jain group - A.O adopted average gross profit rate of 11.5% and made addition for the difference in gross profit rate of 10.31% 11.5 (-) 1.19 - HELD THAT - As assessee submitted that the Income-Tax authorities cannot blow hot and cold in the same breath. According to him if Income Tax Department has accepted the assessee as controlled and managed by Shri Bhanwarlal Jain for providing accommodation entries, then addition to compensate gross profit rate is not justified. The ld. D.R also could not controvert the fact that the assessee has been held a concern controlled by Shri Bhanwarlal Jain engaged only for providing accommodation entry bills. In our opinion such circumstances, the lower authorities are not justified in sustaining the addition to cover the low gross profit rate on the basis of books of account of the assessee which has not been accepted by the department and percentage commission has been assessed treating the purchase and sales recorded in books of accounts. Similarly commission income has also been estimated on the unsecured loan advanced by the assessee also. We have noted that in the case of Bhanwarlal Jain, the department has taken stand that accommodation entries have been provided through the assessee concern. The revenue has to take one stand and cannot treat the assessee simultaneously as accommodation entry provider as well as genuine concern engaged in trading of the diamond. In view of the above discussion, we set aside the finding of the ld. CIT(A) on the merit of the addition and direct the A.O to delete the addition - Since, we have already allowed the appeal of the assessee on merit the Ground No. 1 raised by the assessee challenging the legality/validity of reassessment proceedings has been rendered only academic, and therefore we are not adjudicating upon the same. The Ground is rendered infructous and therefore is dismissed.

Summary

Issues:
1. Validity of reassessment proceedings under section 147 of the Income Tax Act.
2. Addition of commission income on protective basis.
3. Addition of gross profit to compensate for low declared rate.
4. Confirmation of additions by the Commissioner of Income Tax (Appeals) without providing an opportunity for cross-examination.

Analysis:

1. Validity of Reassessment Proceedings:
The appeal challenged the jurisdiction of the Assessing Officer (A.O) to initiate reassessment proceedings under section 147 of the Income Tax Act. The appellant contended that the conditions for initiating such proceedings were not fulfilled. However, the Tribunal did not adjudicate on this issue as it allowed the appeal on merit, rendering the challenge to the validity of reassessment proceedings academic.

2. Addition of Commission Income:
The A.O made an addition to the appellant's income on a protective basis, attributing commission income of Rs. 14,94,462 to the appellant for accommodation entries provided by another individual. The Commissioner of Income Tax (Appeals) deleted this addition, and the revenue did not appeal against this deletion. The Tribunal upheld the deletion of this addition, emphasizing that the revenue cannot treat the appellant as both an accommodation entry provider and a genuine trading concern simultaneously.

3. Addition of Gross Profit:
Another addition was made by the A.O to compensate for the low gross profit rate declared by the appellant. The A.O compared the appellant's gross profit rate with that of other concerns managed by a specific individual and added Rs. 2,71,98,014 to the appellant's income. The Commissioner of Income Tax (Appeals) upheld this addition. However, the Tribunal disagreed with this approach, noting that the department had accepted the appellant as controlled by the individual for providing accommodation entries. The Tribunal directed the A.O to delete the addition of Rs. 2,71,98,014, emphasizing that the income tax authorities cannot take inconsistent positions regarding the nature of the appellant's business.

4. Confirmation of Additions without Cross-Examination:
The appellant raised concerns about the confirmation of additions by the Commissioner of Income Tax (Appeals) without providing an opportunity for cross-examination, corroborative evidence, or copies of statements relied upon. However, the Tribunal did not specifically address this issue in its judgment.

In conclusion, the Tribunal partially allowed the appeal of the assessee, deleting the addition related to gross profit compensation while not addressing the challenge to the validity of reassessment proceedings. The judgment highlights the importance of consistency in the tax authorities' approach and the need for proper justification when making additions to an assessee's income.