2022 (6) TMI 1472 - AT - Income Tax

Commission income from accommodation entries - addition on substantive basis in hand of accommodation entry provider - addition in hands of assessee on protective basis - HELD THAT - CIT(A) in the instant case has upheld the addition on the reasoning that the Income-tax department has not accepted the percentage estimated by the Tribunal in the case of Sh. Bhanwarlal Jain 2021 (8) TMI 1316 - ITAT MUMBAI , and further appeal has been preferred - CIT(A) has ignored that he, being a appellate authority, is required to follow the decision of the higher appellate forum irrespective whether the department has preferred appeal again the same, unless the decision of that appellate forum has been stayed by the higher appellate forum. CIT(A) cannot confirm an addition on protective basis. He is required to decided the issue either way and cannot proceed with keeping an addition on substantive in one case and protective in other case that too even after a finding of the higher appellate forum i.e. ITAT. We accordingly, reject this approach of the Ld CIT(A) and set aside his finding on the issue on dispute. Respectfully following the finding of the ITAT in the case of Sh. Bhanwarlal Jain the protective addition made in the case of the assessee in respect of commission income from accommodation entries is deleted. Decided in favour of assessee. Addition for low gross profit declared in trading activity - AO has made addition at the rate of 10.32% on the sales turnover to compensate the low gross profit rate of the assessee - CIT(A) upheld the gross profit rate addition made by AO - HELD THAT - We find that tribunal in the case of Sh. Bhawarlal Jain ( 2021 (8) TMI 1316 - ITAT MUMBAI ) has given a specific finding that 70 associate concerns of Sh. Bhanwarlal Jain were engaged in providing only accommodation entry and no real business was carried, which was recorded in their books of accounts. The assessee also being one of the concern out of those 70 concerns, the Ld. CIT(A) has correctly rejected the claim of the assessee that it was engaged in any trading activity. Once it is held, that assessee was not engaged in any trading activity, there is no justification for making any addition for low gross profit rate in such trading activity. The finding of the Ld. CIT(A)accordingly set aside. Decided in favour of assessee. Commission from accommodation entries enhanced by the CIT(A) - HELD THAT - When it is evident that after the finding of the Tribunal in the case of Sh. Bhanwarlal Jian, no addition can be made on protective basis in the case of the assessee, there is no question of further enhancement of said commission income from accommodation entry and that too on substantive basis. The enhancing of such commission income from accommodation entries of bogus sales is without any reasoning and totally unjustified. We reject this action of Ld. CIT(A). CIT(A) has enhanced the commission income without providing any show cause notice to the assessee, which is in violation of the section 251(2) - In the impugned order there is no mention of any opportunity provided to the assessee by way of issue show cause notice, before making the addition and therefore this addition is unsustainable on the ground of violation provision of section 251(2) of the Act also.

Summary

Issues Involved:
1. Assumption of jurisdiction by the Assessing Officer (AO) under section 147 of the Income Tax Act.
2. Addition of commission income on a protective basis.
3. Estimation of gross profit in trading activity.
4. Addition of commission income on a substantive basis.
5. Consistency in the treatment of protective additions across assessment years.
6. Change from protective to substantive addition without due process.
7. Violation of principles of natural justice.
8. Lack of opportunity for cross-examination and absence of corroborative evidence.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction by the AO:
The assessee contended that the AO's assumption of jurisdiction under section 147 for initiating reassessment proceedings was invalid. However, the Tribunal did not explicitly rule on this issue as the appeal was decided on other grounds.

2. Addition of Commission Income on a Protective Basis:
The AO made protective additions for commission income from accommodation entries, which were upheld by the Ld. CIT(A). The Tribunal found that the Ld. CIT(A) erred by not following the judicial precedent set by the Tribunal in the case of Sh. Bhanwarlal Jain, where such income was assessed substantively in his hands. The Tribunal emphasized the need for judicial discipline and deleted the protective additions in the assessee's case.

3. Estimation of Gross Profit in Trading Activity:
The AO added Rs. 35,31,237/- to the gross profit of the assessee, citing a low gross profit rate. The Ld. CIT(A) upheld this addition. However, the Tribunal found this contradictory, as the Ld. CIT(A) had also treated the assessee as engaged in providing accommodation entries, not genuine trading. The Tribunal ruled that no addition for low gross profit rate was justified if the assessee was not engaged in genuine trading activity and set aside the addition.

4. Addition of Commission Income on a Substantive Basis:
The Ld. CIT(A) enhanced the commission income on a substantive basis for bogus sales. The Tribunal rejected this, stating that any commission income not considered in the substantive assessment of Sh. Bhanwarlal Jain should be added in his hands, not the assessee's. The Tribunal also noted that the enhancement was done without proper reasoning and was unjustified.

5. Consistency in Treatment of Protective Additions:
The assessee argued that for previous assessment years, the Ld. CIT(A) had deleted protective additions. The Tribunal noted that the Ld. CIT(A) failed to follow the principle of consistency and judicial discipline by not adhering to the Tribunal's earlier decision in Sh. Bhanwarlal Jain's case.

6. Change from Protective to Substantive Addition Without Due Process:
The Ld. CIT(A) changed the protective addition to a substantive one without issuing a show cause notice or providing an opportunity for the assessee to be heard. The Tribunal found this to be a violation of section 251(2) of the Act and principles of natural justice, thus rendering the addition unsustainable.

7. Violation of Principles of Natural Justice:
The Tribunal noted that the Ld. CIT(A) had failed to provide the assessee with an opportunity to cross-examine or present evidence, violating principles of natural justice. This further invalidated the additions made.

8. Lack of Opportunity for Cross-Examination and Absence of Corroborative Evidence:
The Tribunal highlighted that the additions were made without providing the assessee an opportunity for cross-examination or presenting corroborative evidence, which was a significant procedural lapse.

Conclusion:
The Tribunal allowed the appeals of the respective assessees, deleting the protective additions and setting aside the gross profit additions. The Tribunal emphasized the need for judicial discipline, consistency, and adherence to principles of natural justice, thereby invalidating the substantive enhancements made by the Ld. CIT(A) without due process.