2022 (6) TMI 1452 - AT - Income Tax

Assessment u/s 153A - bogus purchases - whether satisfaction has not been recorded by AO of the searched person and when there was no incriminating document was found? - books of accounts of the company were rejected u/s 145(2) and a substantive addition was made in the hands of M/s. Orient Craft Ltd. and a Protective Assessment was made in the hands of assessee - addition @ 5% on account of alleged commission/brokerage as business income - HELD THAT - Appreciating the matter on record it can be observed that in ITAT order 2021 (9) TMI 1408 - ITAT DELHI dated 24.09.2021 in ITA No. 3312/Del/2019 for assessment year 2015- 16 and 2021 (10) TMI 86 - ITAT DELHI ITA No. 3311/Del./2019 for assessment year 2014-15 the substantive additions in the hands of M/s. Orient Craft Ltd. have been deleted. It can be observed that as been held that M/s. Orient Craft Ltd. has proved that the material was purchased from vendors involved and payments have been made through banking channel. It was further held that the voluminous documentary evidences filed by M/s. Orient Craft Ltd. clearly established the genuineness of purchase of fabric from the present assessee / appellant. That being so there is no force in the contention of the Ld. DR that if substantive additions are deleted then as per orders of ld. CIT(A) the protective assessment in the hands of present assessee / appellant will still revive. In fact the findings arrived by the Tribunal in case of M/s. Orient Craft Ltd. are to the effect that the purchases made from the present assessee were genuine therefore, the Bench is of firm view that protective additions in the hands of the assessee/ appellant was never sustainable. In the light of aforesaid facts and circumstances the order of Ld. CIT(A) making additions on account of alleged commission / brokerage as business income is not sustainable.

Summary

Issues:
- Jurisdiction under section 153C of the Income Tax Act, 1961
- Addition of commission/brokerage as business income without incriminating material
- Rejection of books of accounts under section 145(3) of the Act
- Approval under section 153D for passing the assessment order
- Charging interest under section 234B of the Income Tax Act, 1961

Jurisdiction under section 153C of the Income Tax Act, 1961:
The appeals were filed against the appellate order for assessment years 2014-15 & 2015-16 passed by the Commissioner of Income Tax (Appeals). The search conducted at various premises of a group of companies led to the issuance of notice under section 153C r.w.s. 153A of the Act to the assessee. The Assessing Officer concluded that the assessee was a paper entity used for tax evasion purposes. The Commissioner of Income Tax (Appeals) confirmed the addition on substantive basis but deleted the protective addition in the hands of the assessee. However, the Tribunal found that the substantive additions in the hands of another company had been deleted, leading to the conclusion that the protective additions in the hands of the present assessee were not sustainable.

Addition of commission/brokerage as business income without incriminating material:
The Tribunal held that the order making additions on account of alleged commission/brokerage as business income was not sustainable. The findings in the case of another company showed that purchases made from the present assessee were genuine, rendering the protective additions in the hands of the present assessee unjustified. Consequently, the grounds related to these additions were allowed, and the impugned orders making the additions were set aside.

Rejection of books of accounts under section 145(3) of the Act:
The Tribunal did not find merit in the contention that the rejection of books of accounts under section 145(3) was justified. Given the circumstances and findings related to the genuineness of purchases, the Tribunal disposed of the remaining grounds as not pressed.

Approval under section 153D for passing the assessment order:
The Tribunal noted that there was no requisite approval under section 153D for passing the assessment order. It was observed that any approval present was mechanical and lacked the application of mind, rendering it insufficient in the eyes of the law.

Charging interest under section 234B of the Income Tax Act, 1961:
The Tribunal found that the action of charging interest under section 234B was not reversed by the Commissioner of Income Tax (Appeals). However, the Tribunal did not provide detailed reasoning or ruling on this specific issue in the judgment.

In conclusion, the Tribunal allowed the appeals, set aside the impugned orders making additions, and provided detailed reasoning for each issue raised by the assessee in the appeal. The judgment highlighted the importance of substantiating additions with incriminating material and ensuring the proper application of legal provisions for jurisdiction and approval in tax assessments.