2024 (11) TMI 235 - AT - Income Tax

Assessment made u/s 153A - approval granted u/s 153D - HELD THAT - From the assessment order under appeal for AY 2015-16 it can be noticed that the approval has been granted by the JCIT through common communication - all the approvals have been granted through a common approval for at least 7 cases in one go were provided by the Ld. JCIT through a common communication. The approval provided through communication has been found to be mechanical and without application of mind. We hold that the approval granted by the JCIT u/s 153D for the AY 2015-16 is bad in law and consequently the assessment made u/s 153A pursuant to the approval granted u/s 153D of the Act is also bad in law. Thus, the assessment framed by the AO u/s 153A/143(3) dated 30.12.2016 for the AY 2015-16 is hereby quashed. Addition made u/s 10(38) - We observe that the Ld.CIT(A) rejected the request on the ground that the denial of opportunity of cross examination of the witness does not amount to violation of principles of natural justice. The assessee is aggrieved from above stands taken by the CIT(A) as the orders relied upon in support thereof are not applicable to the case as the sole evidence against assessee is the statement of the Managing Director of the broker entity. It is a primary evidence used against the assessee and in view of the decision of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT the assessment framed without providing opportunity to cross examine the witness whose statement the AO is relied on is bad in law. In the case of Andaman Timber Industries 2015 (10) TMI 442 - SUPREME COURT the Hon ble Supreme Court held that failure to give the assessee the right to cross examine witnesses whose statements are relied upon results in breach of principles of natural justice and it is a serious flaw which renders the order in nullity. We further observe that the assessment for AY 2015-16 was also framed without providing cross examination of the broker whose statement was relied on and even the CIT(A) also did not provide for cross examination for AY 2015-16 and 2016-17 in spite of the assessee s request. We, therefore, observe that the ratio of the decision of the Hon ble Supreme Court in the case of Andaman Timber Industries (supra) squarely applies. Thus, we hold that the addition made by the AO based on the statement of the Managing Director of the Broker Company which was relied on without providing cross examination despite the request of the assessee is certainly in violation of principles of natural justice and consequently the addition based on such statement cannot be sustained. Therefore, the AO is directed to delete the addition made u/s 10(38) of the Act for the assessment years 2015-16 and 2016-17. Addition made on account of commission at 0.2% is also directed to be deleted. Disallowance of expenses incurred on account of business promotion expenses which have been disallowed by the AO for failure to produce bills and vouchers - We observe that the assessee has submitted the copy of ledger account of expenses and produce complete books of account. However, the AO without finding any defect in the books of account disallowed the expenses merely for non production of bills and vouchers. We observe that the Hon ble Delhi High Court in the case of PCIT Vs. R.G. Buildwell Engineers Ltd. 2017 (12) TMI 1614 - DELHI HIGH COURT which was approved by the Hon ble Apex Court 2018 (10) TMI 252 - SC ORDER held that no disallowances can be made without rejecting the books of account. Following the decision, we delete the disallowance made by the AO.

Summary

Issues Involved:

1. Validity of the assessment under Section 153C of the Income Tax Act.
2. Disallowance of exemption under Section 10(38) for Long Term Capital Gains (LTCG).
3. Reliance on statements made during survey actions and denial of cross-examination.
4. Addition of commission expenses at 0.2% of alleged accommodation entries.
5. Disallowance of business promotion expenses due to non-production of bills and vouchers.
6. Mechanical approval under Section 153D without application of mind.

Issue-wise Detailed Analysis:

1. Validity of the Assessment under Section 153C:

The assessee challenged the validity of the assessment under Section 153C, arguing it was completed without jurisdiction and legal compliance, rendering it void ab initio. The tribunal admitted this as a legal ground, emphasizing that it pertains to the jurisdiction and validity of the assessment made under Section 153A. The tribunal relied on precedents, including the Supreme Court's decisions, to underscore the necessity of legal compliance in such assessments.

2. Disallowance of Exemption under Section 10(38) for LTCG:

The assessee contested the disallowance of exemption for LTCG on the sale of shares, which the AO deemed bogus based on a survey of the broker involved. The tribunal noted that the AO's conclusion was based on generalized material and statements from a broker's MD, which lacked direct evidence against the assessee. The tribunal highlighted that the shares were held in a demat account for over 365 days, sold through a registered broker, and STT was paid, meeting the criteria for exemption under Section 10(38). The tribunal cited various judicial precedents where similar disallowances were overturned due to lack of concrete evidence.

3. Reliance on Statements Made During Survey Actions and Denial of Cross-Examination:

The tribunal found that the AO relied heavily on the statement of the broker's MD, which was not provided to the assessee during the assessment proceedings. The tribunal emphasized the importance of cross-examination as a principle of natural justice, citing the Supreme Court's decision in Andaman Timber Industries vs. CCE, which held that denial of cross-examination renders the order a nullity. Consequently, the tribunal directed the deletion of additions made based on such statements.

4. Addition of Commission Expenses at 0.2% of Alleged Accommodation Entries:

The tribunal observed that the addition of commission expenses was based on conjectures without any supporting evidence. It reiterated that the primary burden of proof lies with the revenue to establish such expenses, which was not discharged in this case. The tribunal referenced judicial precedents that emphasize the necessity of evidence to support any additions made by the AO.

5. Disallowance of Business Promotion Expenses:

The AO disallowed business promotion expenses due to non-production of bills and vouchers, despite the assessee providing a ledger account and complete books of account. The tribunal, referencing the Delhi High Court's decision in PCIT vs. R.G. Buildwell Engineers Ltd., held that disallowances cannot be made without rejecting the books of account. Therefore, the tribunal deleted the disallowance.

6. Mechanical Approval under Section 153D without Application of Mind:

The tribunal noted that the approval under Section 153D was granted through a common communication for multiple cases, indicating a lack of application of mind. Citing the Allahabad High Court's decision in PCIT vs. Sapna Gupta, the tribunal held that such mechanical approvals are bad in law. Consequently, the assessment made under Section 153A was quashed.

Conclusion:

The tribunal allowed the appeals for both assessment years, quashing the assessments and deleting the additions made by the AO. The judgment emphasized adherence to legal procedures, the importance of evidence, and the principles of natural justice in tax assessments.