2022 (7) TMI 1130 - AT - Income Tax

Tribunal overturns jurisdiction assumptions under Section 153C, pivotal Orient Craft Ltd. case determines genuineness.

Sh. Subhash Chander Gupta Versus DCIT, Central Circle-II Gurgaon And M/s. Starline Clothing (P) Ltd. Versus Central Circle-II, Gurgaon

Sh. Subhash Chander Gupta Versus DCIT, Central Circle-II Gurgaon And M/s. Starline Clothing (P) Ltd. Versus Central Circle-II, Gurgaon - TMI Issues Involved:1. Jurisdiction under Section 153C of the Income Tax Act.2. Addition on account of alleged commission/brokerage as business income.3. Rejection of books of accounts under Section 145(3) of the Income Tax Act.4. Charging of interest under Section 234B of the Income Tax Act.5. Approval under Section 153D of the Income Tax Act.Issue-wise Detailed Analysis:1. Jurisdiction under Section 153C of the Income Tax Act:The appellant contended that the Assessing Officer (AO) erred in assuming jurisdiction under Section 153C for the relevant assessment years and passing the assessment orders without recording the necessary 'satisfaction' by the AO of the searched person. The Tribunal noted that the assumption of jurisdiction and framing of the impugned assessment orders under Section 153C were bad in law and not sustainable on various legal and factual grounds. The Tribunal emphasized that no incriminating documents were found during the search to justify the initiation of proceedings under Section 153C.2. Addition on account of alleged commission/brokerage as business income:The AO had made additions on account of alleged commission/brokerage as business income, which were later modified by the Commissioner of Income Tax (Appeals) [CIT(A)]. The Tribunal observed that the AO challenged the existence of the proprietary concern Shri Ram Export and held the job work income as sham. However, the Tribunal referred to the decision of the Co-ordinate Bench in the case of M/s. Orient Craft Ltd., where the job work charges incurred by Orient Craft Ltd. through the assessee were found to be genuine. Consequently, the Tribunal held that the additions made by the AO and modified by the CIT(A) were inconsistent with the findings of the Co-ordinate Bench and thus could not be sustained. The appeals for the relevant assessment years were allowed, and the additions were deleted.3. Rejection of books of accounts under Section 145(3) of the Income Tax Act:The appellant argued that the CIT(A) erred in not reversing the AO's action in rejecting the books of accounts under Section 145(3). The Tribunal found that the AO had not examined the nature and genuineness of expenses incurred by the assessee-company and had made the addition on a protective basis. Given the Tribunal's findings in the case of Orient Craft Ltd., the rejection of books of accounts and the corresponding additions were deemed unsustainable.4. Charging of interest under Section 234B of the Income Tax Act:The appellant contended that the CIT(A) erred in confirming the AO's action of charging interest under Section 234B. The Tribunal's decision to delete the additions made by the AO and modified by the CIT(A) implied that the basis for charging interest under Section 234B no longer existed. Therefore, the Tribunal held that the interest charged under Section 234B was not justified.5. Approval under Section 153D of the Income Tax Act:The appellant argued that the assessment orders were passed without requisite approval under Section 153D, or if any approval was given, it was mechanical and without application of mind. The Tribunal did not find it necessary to adjudicate this issue separately, as the primary grounds related to the additions and jurisdiction under Section 153C were already decided in favor of the appellant.Separate Judgments:The Tribunal delivered separate judgments for each assessment year and each appellant, but the findings and conclusions were consistent across all cases. The Tribunal allowed all the appeals, deleting the additions made by the AO and modified by the CIT(A), and held that the assumptions of jurisdiction under Section 153C and the consequent assessment orders were not sustainable.Conclusion:The Tribunal allowed all five appeals, deleting the additions and holding that the assumptions of jurisdiction under Section 153C were not justified. The Tribunal's findings in the case of Orient Craft Ltd. were pivotal in determining the genuineness of the job work charges and the corresponding transactions, leading to the deletion of the additions in the hands of the appellants.