Tribunal partially allows appeal, deems AO's doubts arbitrary, lacking evidence. Challenge on assessment proceedings' validity dismissed.

The Tribunal allowed the appeal partly, deleting the addition of Rs. 10,00,000 to the assessee's income as the AO's doubts were deemed arbitrary and lacking substantial evidence. The Tribunal dismissed the additional ground challenging the assessment proceedings' validity under Section 153D as academic, having already granted relief on the main issue.

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Issues Involved:
1. Legitimacy of the addition of Rs. 10,00,000 to the assessee's income.
2. Validity of the assessment proceedings under Section 153D of the Income Tax Act, 1961.

Detailed Analysis:

1. Legitimacy of the Addition of Rs. 10,00,000 to the Assessee's Income:

The core issue revolves around the addition of Rs. 10,00,000 made by the Assessing Officer (AO) to the assessee's income for the assessment year 2017-18. The AO observed that during the demonetization period, the assessee had deposited Rs. 10 lacs in the bank account of M/s Syna Creations and Rs. 17 lacs in M/s Wool World. While the AO accepted the deposit in M/s Wool World, he questioned the deposit in M/s Syna Creations, suspecting it to be unaccounted money introduced under the guise of sales.

The assessee contended that the deposits were legitimate and supported by regular books of accounts, which were duly audited and showed no discrepancies. The AO, however, did not find the explanation satisfactory for M/s Syna Creations and invoked Section 69A of the Act, charging the amount to tax under Section 115BBE at 60%.

The Tribunal observed that the AO had accepted the books of accounts, sales, purchases, and expenses of the assessee without pointing out any defects. The AO's decision to doubt the cash deposit in M/s Syna Creations while accepting the same in M/s Wool World was found to be arbitrary and without cogent reasons. The Tribunal noted that the AO acted on mere surmises and conjectures without substantial evidence, especially since no incriminating material was found during the search that could indicate the introduction of unaccounted money.

The Tribunal concluded that the addition of Rs. 10,00,000 was unwarranted, given that the books of accounts were not rejected, and all transactions were duly recorded. Therefore, the Tribunal directed the AO to delete the addition, setting aside the order of the Ld. CIT(A).

2. Validity of the Assessment Proceedings under Section 153D of the Income Tax Act, 1961:

The assessee raised an additional ground challenging the validity of the assessment proceedings, arguing that the mandatory approval under Section 153D was given mechanically without application of mind. The assessee relied on the ITAT Chandigarh Bench's decision in the case of M/s Inder International Vs. ACIT, which held that mechanical approval invalidates the assessment.

The Tribunal admitted this additional ground, recognizing it as a legal issue going to the root of the matter. However, since the Tribunal had already provided complete relief to the assessee on the merits of the case, it deemed the additional ground to be academic and infructuous. Consequently, the Tribunal dismissed this ground without delving into its merits.

Conclusion:

The Tribunal allowed the appeal partly, providing relief to the assessee by deleting the addition of Rs. 10,00,000 on the merits of the case. The additional ground concerning the validity of the assessment under Section 153D was dismissed as academic.

Order pronounced on 13.06.2022.

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