2020 (5) TMI 550 - AT - Income Tax

Validity of issuance of notice u/s. 153C - HELD THAT - Since the AO has issued the notice u/s. 153C and the assessment has been completed u/s. 153C therefore, we do not find and substance in the additional grounds raised by the assessee. Accordingly the above grounds are dismissed. Addition of unexplained deposits - adoption of rate of 3% commission - HELD THAT - AO to adopt the profit rate of 0.5% as commission on such accommodation entry of ₹ 23,56,61,255/-. Accordingly the order of the CIT(A) is modified and the AO is directed to restrict the addition to ₹ 11,78,306/- being commission @0.5% of ₹ 23,56,61,265/- as against ₹ 70,69,838/- adopted by him and upheld by the CIT(A). Coming to the addition on protective basis we find from the order of the AO as well as the CIT(A) that there is no such addition on substantive basis in any other hand. AO has made the addition on protective basis without making any addition on substantive basis in any other hand. It has been held in various decisions that if no substantive addition has been made in any other hand, then there cannot be any protective addition. The Delhi Bench of the Tribunal in the case of Sh. Anuj Kumar 2018 (6) TMI 1700 - ITAT DELHI and Fussi Financial Services Private Limited 2017 (6) TMI 1164 - ITAT DELHI has held that when AO has not made any addition on substantive basis there cannot be any protective addition. It has been held that there may be substantive assessment without there being a protective assessment.There cannot be any protective assessment or addition without any substantive assessment or addition. Since in the instant case the AO has not made any substantive assessment or addition in any other hand, therefore, the protective addition made in the hands of the assessee being not in accordance with law has to be deleted. We accordingly set aside the order of the CIT(A) and direct the AO to delete the addition made by him on protective basis without making any addition on substantive basis. Unaccounted purchases - HELD THAT - AO in the instant case, on the basis of documents seized marked as Annexure-A-1 containing 80 pages which were impounded during the course of survey noted that the said note sheet contains unexplained purchase and accordingly made addition of the same which has been upheld by the CIT(A). The addition made by the AO on account of business income from outside books of account and unexplained initial investment has been deleted by the CIT(A) and the revenue is not in appeal before us and, therefore, we are not concerned with the same. So far as the addition on account of unaccounted purchases is concerned in our opinion only the profit element in such unaccounted purchase should be made especially when there is no unaccounted stock found during the survey on account of such unaccounted purchases. In our opinion profit rate @10% on such unaccounted purchase will be reasonable and will meet the ends of justice. Set aside the order of the CIT(A) on this issue and direct the AO to restrict the addition made by the AO and sustained by the CIT(A). The grounds raised by the assessee are accordingly partly allowed.

Issues Involved:
1. Validity of notice under section 153C.
2. Validity of assessment under section 143(3) instead of 153C.
3. Protective addition of unexplained deposits.
4. Commission rate applied on accommodation entries.
5. Addition for unaccounted purchases.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 153C:
The assessee objected to the issuance of notice under section 153C, arguing that only a survey under section 133A was conducted, not a search. The AO justified the notice under section 153C, citing a search in the case of A.K. Traders and subsequent survey at the assessee’s premises. The Tribunal noted that the AO had issued the notice under section 153C and completed the assessment accordingly, dismissing the assessee’s additional grounds challenging the validity of the notice.

2. Validity of Assessment under Section 143(3) Instead of 153C:
The assessee contended that the assessment should have been completed under section 153C since the satisfaction note was prepared, and the relevant assessment year fell within the six-year block. The Tribunal observed that the AO had issued the notice and completed the assessment under section 153C, thus rejecting the assessee’s argument.

3. Protective Addition of Unexplained Deposits:
The AO made a protective addition of ?23,56,61,265 as unexplained deposits, without making any substantive addition in any other hands. The Tribunal cited various decisions, including those of the Delhi Bench of the Tribunal and the Mumbai Bench, which held that protective additions cannot be made without substantive additions. Consequently, the Tribunal directed the AO to delete the protective addition of ?23,56,61,265.

4. Commission Rate Applied on Accommodation Entries:
The AO applied a 3% commission rate on accommodation entries, resulting in an addition of ?70,69,838. The assessee argued that the commission rate should be lower, citing various Tribunal decisions where rates ranged from 0.15% to 0.5%. The Tribunal found no basis for the 3% rate and directed the AO to adopt a 0.5% commission rate, reducing the addition to ?11,78,306.

5. Addition for Unaccounted Purchases:
The AO made an addition of ?26,54,591 for unaccounted purchases based on documents seized during the survey. The CIT(A) sustained this addition. The Tribunal, however, held that only the profit element in unaccounted purchases should be added, as no unaccounted stock was found. It directed the AO to restrict the addition to 10% of the unaccounted purchases, amounting to ?2,65,459.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to delete the protective addition of ?23,56,61,265, reduce the commission-based addition to ?11,78,306, and restrict the addition for unaccounted purchases to ?2,65,459. The other grounds raised by the assessee were dismissed as not pressed.

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