Revenue's appeal dismissed as addition under Section 69A based on unsupported presumption rejected; reassessment approval found mechanically granted making initiation invalid

ITAT Delhi dismissed revenue's appeal challenging deletion of addition u/s 69A where AO treated assessee's sales as bogus. Court found AO accepted books of account, purchases, and inventory but made addition based on unsupported presumption that assessee rerouted own funds. CIT(A) correctly noted no discrepancy in financial results and assessee likely purchased gold in grey market. Additionally, ITAT allowed assessee's appeal on validity of reassessment proceedings, finding approval u/s 151 was mechanically granted using another person's assessment with mere "yes" notation, making initiation bad in law and setting aside entire assessment.

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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.

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