2024 (11) TMI 861 - AT - Income Tax

Addition u/s 69A - sales declared by the assessee were treated as bogus - HELD THAT - CIT(A) has given clear finding that the AO has not rejected the books of account and accepted the purchases and inventory declared by the assessee, proceeded to make the addition. We are also in agreement with the above findings that the basis of financials submitted by the assessee is the sales and the same was accepted. The net profit declared by the assessee was accepted by the revenue. The AO has taken a presumption that the assessee must have rerouted his own funds. This presumptions is not backed by any material and ld CIT(A) has rightly observed that the assessee must have purchased the gold in grey market and the revenue has not found any discrepancy in the financial result. No reason to take a different view considering the relevant facts on record. Therefore, we are inclined to dismiss the grounds raised by the revenue. Validity of reassessment proceedings - Invalid approval granted u/s 151 - In this case, the approval was granted from the assessment of another person and merely recorded the reason as yes , proceeded to approve the same mechanically. Hence we are inclined to allow the ground raised by the assessee and held to be initiation of proceeding itself is bad in law and accordingly, the assessment made in the case of the assessee is set aside. In the result, appeal filed by the assessee is allowed.

Summary

Issues Involved:

1. Legitimacy of the sales transactions declared by the assessee.
2. Validity of the approval granted under Section 151 of the Income Tax Act, 1961.

Detailed Analysis:

1. Legitimacy of the Sales Transactions:

The Revenue's appeal challenged the legitimacy of the sales transactions declared by the assessee, based on information from the assessment proceedings of Shambhu Dayal Sharma, who was involved in providing accommodation entries under the guise of bullion business. The Assessing Officer (AO) reopened the assessment, alleging that the sales amounting to Rs. 11,12,37,624/- declared by the assessee were bogus, as Shambhu Dayal Sharma failed to substantiate his purchases and sales during his assessment.

The AO presumed that the assessee converted his own cash through accommodation entries provided by Shambhu Dayal Sharma. However, the Commissioner of Income-tax Appeals (CIT(A)) found that the purchases and sales invoices were accounted for in VAT, and the AO did not question the purchases, VAT payments, or the audited books of account. CIT(A) observed that if the sales were deemed bogus, the AO should have rejected the books of account under Section 145(3) of the Income-tax Act, 1961, which was not done. Instead, CIT(A) sustained a notional addition of 2% presumed profit on sales, amounting to Rs. 22,24,752/-, which the assessee contested. The Tribunal agreed with CIT(A) that the AO's presumption lacked material backing, and since the financials, including net profit, were accepted by the Revenue, the Tribunal dismissed the Revenue's appeal.

2. Validity of Approval under Section 151:

The assessee's appeal contested the jurisdictional issue regarding the approval granted under Section 151 of the Income Tax Act, 1961. The approval form showed that the Joint Commissioner of Income Tax (JCIT) merely recorded 'Yes' in the approval column, which the assessee argued was mechanical and lacked application of mind. The assessee relied on the Delhi High Court's decision in Vinod Kumar Solanki vs. ACIT, which quashed a similar reassessment due to mechanical approval.

The Revenue countered by citing various cases where courts upheld approvals with similar expressions, arguing that 'Yes, I am satisfied' was sufficient for compliance with Section 151. However, the Tribunal noted that the recent decision in Vinod Kumar Solanki emphasized that merely recording 'Yes' does not fulfill the mandate of Section 151, as it suggests a mechanical process without due application of mind. The Tribunal found the approval in the present case to be similarly flawed, as it was based on another person's assessment and lacked independent reasoning. Consequently, the Tribunal set aside the assessment proceedings, ruling them invalid due to improper approval under Section 151.

Conclusion:

The Tribunal dismissed the Revenue's appeal regarding the legitimacy of sales transactions and allowed the assessee's appeal on the jurisdictional issue of Section 151 approval, thereby setting aside the assessment. The decision underscores the necessity for substantive reasoning and adherence to procedural safeguards in tax assessments.