Accommodation entry bank transactions: only the unexplained component and attributable profit can be taxed, not the full credits.

Reassessment proceedings were upheld where the objection to sanction under section 151 was unsupported by reliable material and the assessee failed to rebut the presumption of regularity attached to official acts. On the bank-transaction additions, the assessee did not substantiate the claim of a cheque-issue or accommodation-entry business, yet the record did not justify taxing the entire credits as income. The taxable amount was restricted to the unexplained component and the profit element reasonably attributable to the activity, with telescoping applied on the available material. The additions were therefore modified rather than sustained in full.

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Issues: (i) Whether the reassessment initiation was invalid for want of sanction under section 151 of the Income-tax Act, 1961. (ii) Whether the additions arising from the bank transactions were to be sustained in full or modified on the facts found.

Issue (i): Whether the reassessment initiation was invalid for want of sanction under section 151 of the Income-tax Act, 1961.

Analysis: The objection to reopening was not supported by any reliable material showing that the approval had not been obtained or was unlawful. The assessee did not demonstrate a proper request for supply of the approval or produce the assessment record to rebut the presumption that official acts are regularly performed. The reassessing authority had recorded that notice under section 148(1) was issued after obtaining approval from the appropriate authority, and the objection remained vague and unsubstantiated.

Conclusion: The reassessment initiation was not held invalid and the objection failed.

Issue (ii): Whether the additions arising from the bank transactions were to be sustained in full or modified on the facts found.

Analysis: The assessee failed to substantiate the claim that the bank transactions represented a cheque-issue or accommodation-entry business with supporting evidence, books, or customer confirmations. However, the material on record also did not justify treating the entire credits as income of the assessee. The transactions were found consistent with an accommodation-entry operation, and in such a factual setting only the unexplained component and the business profit reasonably attributable to the activity could be brought to tax. The first appellate reliance on an unrelated precedent was found inapposite, and the assessee was given the benefit of telescoping on the material available.

Conclusion: The full deletions were not sustained, and the additions were modified so that only the excess of credits over debits in one account and the unexplained cash deposit in the other were upheld as business income.

Final Conclusion: The appeal and cross-objection were both disposed of by sustaining the reassessment and recalculating the taxable income on a restricted basis, rather than on the full additions made by the Assessing Officer.

Ratio Decidendi: In a case involving unexplained bank transactions linked to accommodation entries, the absence of full substantiation does not automatically justify taxing the entire credits as income; the taxable amount must be determined on the basis of the proved unexplained component and the reasonably ascertainable profit element.

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