2024 (5) TMI 214 - AT - Income Tax

Addition on protective basis - commission income on issuing the bogus accommodation entry bills - AO treated the assessee as engaged in issuing accommodation entry bills and accordingly assessed the commission income on bogus unsecured loans/bogus purchase/sales etc - along with the commission income the Assessing Officer also assessed not only assessed the trading results appearing in the books of account but also enhanced the profit from such trading activity - HELD THAT - Since the issue in dispute in present case being identical following the finding of the Tribunal in the case of Rare Diamonds Pvt. Ltd.( 2022 (6) TMI 1472 - ITAT MUMBAI as held 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 - thus the addition made on protective by the AO and sustained by the Ld. CIT(A) is deleted. The ground No. 2 of the appeal of the assessee is accordingly allowed. Addition being 8.05% of turnover - assessee was engaged in issuing bogus accommodation entry bills and therefore claim of the assessee that it is a trader and quantity tally of the goods submitted in the tax audit report had no meaning and those were devoid of truth and genuineness and not reliable - HELD THAT - We find that the Ld. CIT(A) on one hand as held that the entity has been utilized by Shri Bhanwarlal Jain for issuing bogus accommodation entry bills however on other side he has upheld the profit from said business activity in addition to commission income sustained on bogus accommodation entries. The Tribunal in the case of Rare Diamond Pvt. Ltd. (supra) in similar circumstances has deleted the addition made in respect of trading activity. Addition for the trading payables - difference of preceding years trade payables and the current year trade payables - HELD THAT - We are of the opinion that once the Assessing Officer is of the view that the assessee has been used or misused for providing accommodation entry bills of unsecured loans and bogus purchase and sale entries and addition of commission income for same has already been made then separate addition for the trade payables in terms of section 68 is not justified as held by us while adjudicating the ground No. 3 of the appeal. Accordingly the ground No. 4 of the appeal of the assessee is allowed. Enhancement of the commission income by CIT(A) u/s 251(2) - HELD THAT - As decided in RARE DIAMONDS PVT LTD 2022 (6) TMI 1472 - ITAT MUMBAI 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).

Summary

Issues Involved:
1. Assumption of jurisdiction u/s 147.
2. Addition of commission income on protective basis.
3. Addition based on estimation of bogus sales.
4. Addition of trade payables.
5. Coexistence of commission income and gross profit additions.
6. Consistency in deletion of protective addition.
7. Change from protective to substantive addition.
8. Violation of natural justice principles.
9. Opportunity for cross-examination.

Summary of Judgment:

1. Assumption of Jurisdiction u/s 147:
The assessee contended that the Ld. CIT(A) erred in not considering that the assumption of jurisdiction by the Assessing Officer was bad in law as the conditions laid down for initiating reassessment proceedings u/s 147 were not fulfilled. The Tribunal did not specifically address this issue as the appeal was allowed on other grounds.

2. Addition of Commission Income on Protective Basis:
The Tribunal found that the Ld. CIT(A) upheld the commission added on a protective basis, despite the substantive addition being made in the case of Shri Bhanwarlal Jain. The Tribunal, following the precedent in the case of Rare Diamond Pvt. Ltd., deleted the protective addition of Rs. 5,73,082/-.

3. Addition Based on Estimation of Bogus Sales:
The Tribunal noted that the Ld. CIT(A) confirmed the addition of Rs. 63,40,432/- based on an estimated gross profit rate of 8.05% on the turnover. However, the Tribunal found this approach inconsistent, as the Ld. CIT(A) simultaneously held that the assessee was engaged in issuing bogus accommodation entry bills. The Tribunal deleted the addition, following the precedent set in the case of Rare Diamond Pvt. Ltd.

4. Addition of Trade Payables:
The Tribunal held that the addition of Rs. 34,22,589/- for trade payables was unjustified since the assessee was already assessed for commission income on accommodation entries. The addition was deleted.

5. Coexistence of Commission Income and Gross Profit Additions:
The Tribunal found that both additions could not coexist. Since the commission income addition was deleted, the gross profit addition was also rendered academic and not adjudicated upon.

6. Consistency in Deletion of Protective Addition:
The Tribunal noted that for previous assessment years, the Ld. CIT(A) had deleted the protective addition of alleged commission income. Following the principle of consistency, the Tribunal deleted the protective addition for the current year as well.

7. Change from Protective to Substantive Addition:
The Tribunal found that the Ld. CIT(A) erred in changing the protective addition to substantive without issuing a show cause notice or providing an opportunity of being heard to the appellant, violating section 251(2) and the principles of natural justice. The enhancement was deleted.

8. Violation of Natural Justice Principles:
The Tribunal observed that the Ld. CIT(A) confirmed the addition without providing an opportunity for cross-examination, corroborative evidence, or copies of statements relied upon. This was a violation of the principles of natural justice.

9. Opportunity for Cross-Examination:
Since the Tribunal deleted the additions, the issue of cross-examination was rendered academic and was not adjudicated upon.

Conclusion:
The appeals of the assessee were allowed, and all the disputed additions were deleted. The Tribunal emphasized the importance of following judicial precedents and the principles of natural justice.