2021 (9) TMI 1080 - AT - Income Tax

Validity of assessment u/s 153A - No valid approval u/s 153D - whether mechanical approval under section 153D of the Income Tax Act, 1961 granted by the Joint Commissioner of Income Tax (Central Range) Kanpur? - JCIT passed combined order u/s 153D with respect to different assessee's/group/searches for different assessment years in 67 cases instead of separate order(s) as envisaged under the provisions of Section 153D - HELD THAT - As relying on NAVIN JAIN, SHRIMATI JAIN, SMT. NEETU JAIN, SHRI NARESH KUMAR JAIN, 2021 (9) TMI 1068 - ITAT LUCKNOW approval must be granted only on the basis of material available on record and the approval must reflect the application of mind to the facts of the case - Addl. CIT has though not expressly expressed his inability to analyze the issues of draft order but it is abundantly clear that he had not analyzed the issues in the draft order as in the present cases the approval has been given in 67 cases on the same date which is humanly impossible If an ACIT cannot express his opinion on a single case in one day how another ACIT can express his opinion in 67 cases in a single day. - Decided in favour of assessee.

Issues Involved:
1. Validity of assessment under Section 143(3) in violation of Section 153C.
2. Validity of jurisdiction assumption and assessment order under Section 127.
3. Validity of approval under Section 153D.
4. Treatment of unsecured loan as unexplained investment.
5. Addition of unexplained expenditure under Section 69C.
6. Prejudgment in show cause notices.
7. Lack of confrontation and cross-examination of witnesses.
8. Addition of deemed speculative income under Section 69A.
9. Addition for alleged investment as margin money under Section 69A.
10. Validity of retraction of statement under Section 132(4).
11. Failure to address objections and legal issues regarding seized diary.
12. Arbitrary additions contrary to principles of natural justice.
13. Additional ground regarding addition under Section 68 for unsecured loan.

Detailed Analysis:

1. Validity of Assessment under Section 143(3) in Violation of Section 153C:
The assessee argued that the assessment completed under Section 143(3) was in gross violation of Section 153C, rendering the assessment order illegal and void. This issue was raised as the primary ground of appeal.

2. Validity of Jurisdiction Assumption and Assessment Order under Section 127:
The appellant contended that the jurisdiction assumed by the AO and the resultant assessment order were invalid due to an illegal order passed under Section 127. The CIT(A)'s rejection of this ground was challenged.

3. Validity of Approval under Section 153D:
The assessee argued that the approval granted by the JCIT under Section 153D was mechanical and lacked proper application of mind. The Tribunal found that the JCIT did not properly analyze the search material and other relevant documents before granting approval. The Tribunal relied on the precedent set in the case of 'Shri Navin Jain vs. Dy. CIT,' where similar approval was deemed mechanical and the assessment orders were annulled. The Tribunal concluded that the approval in the present case was also mechanical and annulled the assessment order.

4. Treatment of Unsecured Loan as Unexplained Investment:
The assessee challenged the addition of ?2,00,00,000 as unexplained investment. The Tribunal noted that the JCIT failed to consider the retraction of the statement and other relevant factors, leading to a prejudiced assessment. The Tribunal found the addition unsustainable.

5. Addition of Unexplained Expenditure under Section 69C:
The CIT(A) sustained the addition of ?5,00,000 as unexplained expenditure under Section 69C. The Tribunal found that the addition was based on surmises and conjectures without any incriminating documents or basis, rendering it unsustainable.

6. Prejudgment in Show Cause Notices:
The assessee argued that the AO had prejudged and pre-decided issues in the show cause notices, leading to unsustainable additions. The Tribunal agreed that the show cause notices were unsustainable in law due to prejudgment.

7. Lack of Confrontation and Cross-Examination of Witnesses:
The assessee contended that the AO did not confront any incriminating material or provide an opportunity to cross-examine witnesses. The Tribunal found that the lack of confrontation and cross-examination rendered the additions unsustainable.

8. Addition of Deemed Speculative Income under Section 69A:
The CIT(A) sustained the addition of ?21,00,00,000 as deemed speculative income under Section 69A. The Tribunal found that the addition was based on a retracted statement without corroborative evidence, making it unsustainable.

9. Addition for Alleged Investment as Margin Money under Section 69A:
The CIT(A) sustained the addition of ?81,00,000 as alleged investment for margin money under Section 69A. The Tribunal found the addition unsustainable due to lack of evidence and reliance on a retracted statement.

10. Validity of Retraction of Statement under Section 132(4):
The CIT(A) held that the retraction of the statement under Section 132(4) was invalid. The Tribunal found that the retraction was reasonable and backed by an affidavit, rendering the CIT(A)'s decision unsustainable.

11. Failure to Address Objections and Legal Issues Regarding Seized Diary:
The assessee argued that the AO failed to address various objections and legal issues related to the seized diary. The Tribunal found that the AO's failure to address these issues rendered the additions unsustainable.

12. Arbitrary Additions Contrary to Principles of Natural Justice:
The assessee contended that the additions were arbitrary and contrary to principles of natural justice. The Tribunal found that the arbitrary nature of the additions rendered them unsustainable.

13. Additional Ground Regarding Addition under Section 68 for Unsecured Loan:
The assessee raised an additional ground challenging the addition of ?2,00,00,000 under Section 68, arguing that the bank passbook is not a book of account. The Tribunal found the addition unsustainable due to lack of evidence.

Conclusion:
The Tribunal allowed the appeal, annulling the assessment order due to mechanical approval under Section 153D and unsustainable additions based on retracted statements and lack of evidence. The judgment emphasized the importance of proper application of mind and adherence to legal procedures in tax assessments.

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