GULSHAN KUMAR SETHI,DELHI V. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, GHAZIABAD

ITA 1092/DEL/2024

AI Insights

The case involves appeals by Gulshan Kumar Sethi against the orders of the CIT(Appeals) for the assessment years 2015-16 and 2016-17. The primary contention was the validity of the assessments made under section 153A of the Income Tax Act, which were challenged on grounds of lack of jurisdiction and non-compliance with legal requirements. The assessee also contested the additions made under section 68, which were based on alleged bogus long-term capital gains from penny stocks. The Tribunal examined the procedural aspects of the assessments, including the mechanical approval under section 153D and the reliance on unexamined statements for making additions under section 10(38).

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 43554 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-08-2024
• Assessment Year: 2016-2017
• Appeal Filed On: 09-03-2024
• Other Referred Cases: National Thermal Power Co. Ltd. (NTPC) Vs. CIT, Jute Corporation of India Ltd. Vs. CIT, Pr CIT vs Krishna Devi, Pr CIT vs Smt Renu Aggarwal, Pr CIT vs Kuntala Mohapatra, Himani M. Vakil vs CIT, Maheshchandra G. Vakil vs CIT, Parasben Kasturchand Kochar vs ITO, Farzad Sheriar Jehani vs ITO, Andaman Timber Industries vs CCE, Kishinchand Chellaram vs CTT, CIT vs Ashwani Gupta, CIT vs SMC Share Brokers Ltd, Pr CIT vs Best Infrastructure (India) P Ltd, Swadeshi Cotton Mills Company Ltd. vs UOI, Tin Box Company vs CIT, Sargam Cinema vs. CIT, CIT vs. Pratap Singh Amro Singh Rajendera Singh, CIT vs. Sadhna Gupta, Nalinikant Ambala Mody vs CIT, CIT vs DP Sandhu Bros Chembur P Ltd, Krishna Textile vs CIT, PCIT vs R.G. Buildwell Engineers Ltd, PCIT vs Shiv Kumar Nayyar, PCIT vs Anuj Bansal, ACIT vs Serajuddin & Co, Pr CIT vs Kuntala Mohapatra
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T. JAMES SINGSON; VIVEK KUMAR UPADHYAY
• Assessee Lawyers: S.K. GUPTA; SUBMITTING RECORDS OF PURCHASE BILLS; SALE BILLS
• Keywords: Question of law; Corroborative evidences; Unexplained cash credit; Onus to prove; Capital Gains; Principle of natural justice; Accommodation entries; Earning of tax free income; Transactions in derivatives; Opportunity of cross examination; Bogus
• Section: 143(3); 132; 153A; 153C; 133A

Judgement Text

"I.T.A. Nos. 1091 & 1092/Del/2024 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “B” NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER आ.अ.सं/.I.T.A Nos.1091 & 1092/Del/2024 िनधा\tरणवष\t/Assessment Years: 2015-16 & 2016-17 Gulshan Kumar Sethi A-12, Swasthya Vihar, Delhi. PAN No. AASPS1248Q बनाम Vs. DCIT, Central Circle, CGO, Complex, Purani Hapur Chungi, Ghaziabad. अपीलाथ\u0012 Appellant \u0014\u0015यथ\u0012/Respondent Assessee by Shri S.K. Gupta, CA Revenue by Shri T. James Singson, CIT DR & Shri Vivek Kumar Upadhyay, Sr. DR सुनवाईक तारीख/ Date of hearing: 01.08.2024 उ\u0010ोषणाक तारीख/Pronouncement on 25.10.2024 आदेश /O R D E R PER C.N. PRASAD, J.M. These two appeals are filed by the Assessee for the assessment years 2015-16 & 2016-17 against different orders of the Ld.CIT(Appeals) dated 15.02.2024. The assessee has raised the following grounds in the appeal for AY 2015-16 : “1. The impugned assessment is invalid and without jurisdiction as the said assessment is completed without complying with legal requirements of the provisions of section 153C of the Income Tax Act therefore such assessment is void ab initio and. liable to be quashed. I.T.A. Nos. 1091 & 1092/Del/2024 2 2. The Ld. CIT(A) has erred both in law and in facts in circumstances of the case in upholding addition of Rs.11,26,32,075/- made u/s 68 of the IT Act by disallowing the claim of exemption u/s 10(38) of the LTCG earned on the shares of public limited company complying with all the requirements laid down in the above section to claim the exemption and action of the AO is based on conjectures and surmises. 3. The Ld. CIT(A) has erred both in law and in facts in circumstances of the case in upholding addition of Rs.11,26,32,075/- by relying on the perception based on the generalized material without applying the same on the appellant with the corroborative facts and in the absence of which the order under appeal Is not in conformity with principle of natural justice. 4. The Ld. CIT(A) has erred both in law and in facts in circumstances of the case in upholding addition of Rs.11,26.32,075/- by relying on the statement of one Sh.Subhash Chandra Khaneja, Managing Director of Integrated Master Securities Pvt Ltd recorded in survey action u/s 133 A of IT Act which has no evidentiary value and therefore, such addition need be deleted. 5. The Ld, CIT(A) has erred in upholding addition of Rs.11,26,32,075/- which are bad in law as the same has been made without the appellant being provided with the incriminating material and cross examination of the material and statements on the basis of which the Investment of the appellant is characterized as penny stock and Ld. AO has simply relied on the reports/ information which are contrary to the evidence submitted by the appellant in support of the transaction of the purchase/sale of shares. 6. The Ld. CIT(A) has erred both in law and circumstances of the cases in upholding action of the assessing officer in making an addition of Rs.25,264/- being 0.2% of the alleged accommodation entries of Rs.11,26,32,075/- is arbitrary and without basis and therefore need be quashed. I.T.A. Nos. 1091 & 1092/Del/2024 3 7. The appellant craves leave to add, delete, modify / amend the above grounds of appeal with the permission of the Hon’ble appellate authority.” Identical grounds were also raised by the assessee for the AY 2016-17 except for the figures. Assessee also raised the following additional ground for the AY 2015-16 in ITA No.1091/Del/2024: “The impugned assessment is invalid in law as the same has been passed after taking approval u/s 153D of the Act granted without application of mind by the Joint Commissioner of Income Tax through a common communication dated 30.12.2016 vide F.No. JCIT/Central/Range/Meerut/S&S/153D/2016-17/1473 for various AY’s in the appellant’s case.” 2. Ld. Counsel for the assessee submits that the additional ground raised by the assessee is purely a legal ground and its adjudication does not require any fresh investigation into facts apart from looking into the material already on record. Therefore, it is submitted that since the additional ground is going to the very jurisdiction and validity of the assessment made u/s 153A of the Act the same may be admitted and adjudicated upon. Ld. Counsel placed reliance on the decision of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. (NTPC) Vs. CIT 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT 187 ITR 688. 3. Upon hearing both the parties and perusing the additional ground, we observe that the additional ground raised by the I.T.A. Nos. 1091 & 1092/Del/2024 4 assessee is purely legal ground going into the very validity of the assessment made u/s 153A of the Act and thus, the same is admitted for adjudication. 4. Briefly stated the facts are that the assessment has been completed u/s 153A r.w.s. 143(3) of the Act. The assessment year in question is related to the previous year in which search dated 13.04.2014 was conducted u/s 132 of the Act. The assessee claimed exemption u/s 10(38) for Long Term Capital Gains (LTCG) of Rs.11,26,32,075/- on sale of listed equity shares of Gracious Software Ltd. During the assessment proceedings the appellant was required to submit supporting evidence of the above exemption claimed in the return. The assessee submitted demat statement through which the equities acquired and sold were transferred. The equity shares numbering 50,000 shares were allotted by the Company for Rs.50 lakhs on 08.01.2014 and the same were credited in the demat account on the same date. Cost was paid through bank account. The whole of shares have been sold on line during assessment years 2015-16 and 2016-17 through a registered broker on the Bombay Stock Exchange on which STT has been paid as is evident from the contract notes submitted. These shares remained parked in demat account for more than 365 days. The Assessing I.T.A. Nos. 1091 & 1092/Del/2024 5 Officer (AO) during assessment proceedings based on information from the survey u/s 133A of the Act dated 24.06.2015 on the broker M/s Integrated Master Securities Pvt. Ltd. whereby activities of Client Code Modification in F&O segment was noticed through profit and loss of the clients were manipulated according to their requirements. To support the above allegation admission in the statement of Managing Director of the Broker Company was also relied upon. The AO taking cognizance of the above broker came to the conclusion that the sale transaction of the equity shares in cash segment has also been manipulated. Accordingly, the AO concluded that the assessee’s claim for LTCG u/s 10(38) of the Act is a bogus claim. The Long Term Capital Gain on the sale of shares of 311000 equity shares of Rs.11,26,32,075/- was claimed during AY 2015-16 and on the sale of balance shares of 189000 for Rs.6,47,24,491/- was claimed during AY 2016-17 as exempt income u/s 10(38) of the Act in the respective assessment years was disallowed while completing the assessments u/s 153A of the Act. On appeal the Ld.CIT(A) sustained the disallowance. 5. Ld. Counsel for the assessee arguing on behalf of the assessee on the rejection of exemption u/s 10(38) of the Act has made the following submissions: I.T.A. Nos. 1091 & 1092/Del/2024 6 “1. On the allegation that in the course of survey u/s 133A on the premises of IMPSL, the above broker was found to be involved in activities of client code modification through which it was used to provide accommodation entries to the beneficiaries. The above allegation is supported by the statement of Sh Subhash Chand Khaneja, MD of above broker company (PB 31 -40 for AY 2016-17). The above statement of the MD of the broker company does not support the case of the department that the above entity had provided accommodation entry to any beneficiary in form of bogus LTCG. Your kind attention is invited to the reply of appellant in course of proceeding for AY 2016-17 through letter dated 25.09.2018 (PB 12-15 for AY 2016-17) where the appellant submitted that there is no admission by the said deponent that he has provided accommodation entry to appellant in relevant assessment years. The statement nowhere finds any direct or indirect admission on behalf of the broker company regarding its alleged activities of providing accommodation entries in form of LTCG. As a matter of fact, the above statement merely finds admission of the broker that it was involved in client code modification in F&O transactions through which accommodation entries in form of bogus F&O loss/profit was provided to beneficiaries. No question was raised to the deponent regarding the transactions in the shares of the company M/s GSL undertaken for providing accommodation entries of bogus LTCG. 2. The case of the appellant is not that of the transactions in F&O segment where client code modification might have done by the broker to benefit other beneficiaries. It is also stated in above reply that the copy of the statement has not been provided by the Ld AO and as a matter of fact this issue has been raised by the Ld AO during AY 2016-17 only and the appellant was able to procure the statement from his own sources after completion of assessment for AY 2015-16 during appeal proceedings before the Ld CIT(A) but before completion of assessment proceedings for AY 2016-17 (Para 5.3 page 14 of the CIT(A) Order AY 2015-16) 3. From the above facts, it is evident that the statement, relied on by the authorities below to take the adverse view of the transactions relating to LTCG, does I.T.A. Nos. 1091 & 1092/Del/2024 7 not support the conclusion that the above noted broker has provided accommodation entries through bogus LTCG. The Ld CIT(A) has acted on the premise as noted in para 4 at page 17 placing heavy reliance on Q No.16, 17 & 18 of above statement to support his finding that there is admission by the above deponent of the accommodation entries in form of LTCG provided by the above broker. The relevant part of the statement is on page 34-36 of paper book for AY 2016-17 where the deponent has clearly explained the modus operandi through which the F&O transactions are shifted from one client code to another to transship to the beneficiaries the loss or profit on the transaction in F&O segment. Sucu code modification cannot be done and is impossible in the delivery segment where the transaction of sale /purchase involves the actual delivery of the scrip involved. There is no mention of any transaction in the delivery segment manipulated by the above broker company for providing accommodation entries to the beneficiaries including the appellant. It may also be noted for sake of argument that the statement recorded during survey, relied by the lower authorities, has no evidentiary value in view of decision of Hon’ble Apex Court in the case of CIT vs S Khader Khan Son 352 ITR 480 (SC). 4. There is no adverse finding regarding the evidences furnished in support of genuineness of acquisition of shares by the appellant. The payment of the cost of acquisition was made through account payee cheque duly debited to bank account and the shares were directly allotted in demat account of appellant by the said company i.e. M/s GSL. The transaction of purchase of acquisition of shares was duly accepted by the department framed u/s 143(3) dated 02.08.2016 for AY 2014-15 (PB 35- 36 for AY 2015-16). The fact that the shares remained in demat account for more than 12 months is also not found disputed by the authorities below and so is the case of the sale of shares by the appellant through broker M/s IMPSL on the BSE platform online on which STT has been duly charged, payment has been received through banking channels and credited in bank account of appellant. No third-party enquiry or investigation was conducted by the Ld AO to prove that the transaction by the appellant I.T.A. Nos. 1091 & 1092/Del/2024 8 supported by the evidences cited above, is not actually done in the manner it is projected and the projection is based on false evidences. In the absence of any adverse/contrary material found from the enquiry the explanation duly supported by evidences brought on record needs be accepted. 5. There is no adverse comment in the form of general and specific statement by the any Officer of stock exchange or by the company whose shares were involved in these transactions and the Assessing Officer only quoted facts pertaining to various completely unrelated transactions/persons and the statement recorded on which inferences have been drawn on unfounded presumptions. In support of adverse view taken by the authorities below qua the transaction of appellant, there is no information of investigation or penal action under taken by the regulated authority of the stock market i.e. SEBI regarding the objectionable activities attributed to the investee company, the broker or the appellant. In the survey report itself, there is mere mention of code modification of F&O transactions done by the above broker but there is no mention of accommodation entries of LTCG done by the broker in general and with appellant in particular. The name of the appellants was neither quoted by any of such persons nor was any material relating to the assessee found at any place where investigation was done by the investigation Wing. 6. There is a detailed general discussion of modus operandi done by the intermediaries with the assistance of exit providers as per the discussion in page 4 to 8 of the assessment order. The general discussion on role of exit providers but the Department has not identified the exit provider involved in providing exit to appellant to facilitate the so called bogus LTCG and the absence of identified any exit provider, the Department\" is not any form of cash has flown back to the exit provider so as to tree the instant capital gain as bogus. 7. In support of the conclusion drawn that transaction in hand being pre-managed, there is specific mention of misuse of the practice of allotment of shares through preferential allotment and as per the SEBI regulation 2009 I.T.A. Nos. 1091 & 1092/Del/2024 9 such shares need to have been in lock-in period of one year. But Ld AO and Ld CIT(A) neither of them is able to pin point how the preferential allotment in the present case, which was done as per the provisions of Companies Act, could be doubted in the absence of any adverse corroborative material. In any case, the condition of one year holding period has been duly complied by the appellant. There is no restriction or bar on the holding period under SEBI regulation to be ignored for computing long period of shares covered by such regulation. The Ld AO has objected to this at page 11 of the assessment order. In the absence of any material doubting the genuineness of above process, the conclusion to doubt the genuineness is something based on suspicion and surmises. 8. There is also mention of unnatural fluctuation in share prices of the scrip in dispute but such observation is again based on suspicion. The department has not brought anything on record to prove that appellant was involved in price rigging in the instant share unless there is evidence brought on record that the assessee appellant had role in the rigging or artificial jacking up the rates of the scrip in question. 9. The Hon’ble Delhi High Court in the case of Pr CIT vs Krishna Devi 431 ITR 0361 (Del) happened to consider the facts identical to the present case to uphold the claim of the assessee on the long-term capital gain u/s 10(38) of the IT Act. The para 11 of the said decision is relevant which deals with the following facts and despite those facts existing, the claim of the appellant was allowed. In above para, the Hon’ble High Court found nothing adverse on the analysis of the disproportionate price fluctuation in the scrip dealt by the assessee not co-related with the movement in the Sensex but the Hon'ble Court held that the fact that there was an astounding 4849.2% jump in the share price within two years, which is not supported by the financials, does not justify the AO's conclusion that the assessee converted unaccounted money into fictitious exempt LTCG to evade taxes. The finding is unsupported by material on record & is purely an assumption based on conjecture. The Hon'ble Court further held that the theory of human behavior and preponderance of probabilities, I.T.A. Nos. 1091 & 1092/Del/2024 10 based on Sumati Dayal v. CIT 214 ITR 801 (SC), cannot be cited as a basis to turn a blind eye to the evidence. 10.The Hon’ble Jurisdictional Allahabad High Court in the case of Pr CIT vs Smt Renu Aggarwal 2022 (7) TMI 1340 (All) approved by Hon'ble Apex Court in 456 ITR 249 (SC) upholds the decision of Hon'ble ITAT, Lucknow Bench that there is no adverse comment in the form of general and specific statement by the Pr. Officer of stock exchange or by the company whose shares were involved in these transactions and he held that Assessing Officer only quoted facts pertaining to various completely unrelated persons whose statement were recorded and on the basis of unfounded presumptions. He further held that the name of the appellants were neither quoted by any of such persons nor any material relating to the assessee was found at any place where investigation was done by the investigation Wing. 11 .The Hon’ble Apex Court in the case of Pr CIT vs Kuntala Mohapatra 160 Taxmann.com 608 (SC) uphold the decision of Hon'ble Orissa High Court that if shares were bought via account payee mode, held in a demat account for over 12 months, and then sold through a Recognized Stock Exchange after payment of STT, the taxpayer qualifies for exemption under section 10(38) for long-term capital gains. 12. Further, reliance is placed on following decisions: • Himani M. Vakil 41 taxmann.com 425 (Gujarat), it was held that where assessee duly proved genuineness of share transactions by bringing on record contract notes for sale and purchase, bank statement of broker and demat account showing transfer in and out of shares, Assessing Officer was not justified in bringing to tax capital gain arising from sale of shares as unexplained cash credit. • Maheshchandra G. Vakil 40 taxmann.com 326 (Gujarat), it was held that where assessee proved genuineness of share transactions by contract notes for sale and purchase, bank statement of broker, demat account showing transfer in and out of shares, I.T.A. Nos. 1091 & 1092/Del/2024 11 as also abstract of transactions furnished by stock exchange, Assessing Officer was not justified in treating capital gain arising from sale of shares as unexplained cash credit. • Parasben Kasturchand Kochar [2021] 130 taxmann.com 177 (SC), the assessee-individual was engaged in business of trading in shares claimed long term capital gains arising out of sale of shares as exemption under Section 10(38) .The Assessing Officer denied claim and made certain additions into assessee's income on grounds that said gains were earned through bogus penny stock transactions and companies to whom sold shares belonged were bogus in nature. The Tribunal observing that assessee by submitting records of purchase bills, sale bills, demat statement, etc., had discharged his onus of establishing said transactions to be fair and transparent, same not being earned from bogus companies was eligible for exemption under Section 10(38) of the Act. The High Court by impugned order held that no substantial question of law arose from Tribunal’s order. The SC dismissed the SLP against said impugned order. • Farzad Sheriar Jehani ITA No.2065/Mum/2023, it was held that the even though all the characteristics of the penny stock exists in the present case, still the revenue has not brought on record any materials linking the assessee in any dubious transactions relating to entry, price rigging or exit providers. Even in the SEBI report, there is no mention or reference to the involvement of the assessee. We can only presume that the assessee is one of the beneficiary in this transactions merely as unsuspecting investor, who has entered in investment fray to make quick profit. Even the assessing officer has applied the presumptions and concept of human probabilities to make the additions without their being any material against the assessee. The Hon’ble ITAT relying on the decision of Hon’ble Bombay High Court in the case of Pr CIT vs Ziauddin A Siddique ITA No.2012 of 2017 dated 04.03.2022 and decision of Hon’ble Delhi High Court in the case of Pr CITvs I.T.A. Nos. 1091 & 1092/Del/2024 12 Krishna Devi (supra). Similarly reliance is placed in the decision of Chirag Tejprakash Dangivs ITO ITA No.3256/Mum/2022 13. No Opportunity of Cross Examination and denial the statement relied upon. From the foregoing facts, it is evident that only evidence against the appellant used by the department is the statement of the MD of the broker company i.e. M/s IMSPL. During the assessment proceedings for AY 2015-16, the statement of above witness was not provided and the same was provided during first appeal proceeding on the direction of Ld CIT(A) which fact was duly noted by the Ld CIT(A) in para 5.3 at page 14 of CIT(A) order. The statement of the above witness came to the appellant thus during assessment proceeding for AY 2016-17 and immediately thereafter vide letter dated 25.09.2018 (PB 12-15, relevant page 15). The question of assessee demanding cross examination did not arise in AY 2015-16 proceeding as the statement was not provided to appellant and the content of statement not confronted to the appellant, but the appellant requested for cross examination during first appeal proceeding for AY 2015-16 (earliest opportunity post granting of copy of statement) and assessment proceeding for AY 2016-17. The Ld AO did not grant opportunity of cross examination for AY 2016-17 and Ld CIT(A) both in AY 2015-16 and AY 2016-17 despite specific request made. Since, the first appeal proceedings are extension of assessment proceedings, the request of cross examination even made during appeal proceeding made acceded to in the interest of principles of natural justice. The Ld CIT (A) rejected the request on the ground that the denial of opportunity of cross examination of the witness does not amount to violation of principles of natural justice. The appellant is aggrieved from above stance taken by the Ld CIT(A) as the orders relied upon in support thereof are not applicable to the case as the sole evidence against the appellant is the statement of the MD of broker entity. It is therefore a primary evidence used against the appellant and in view of the following decisions wherein it was held that no reliance can be placed on such statements just for the sake of convenience of taking a biased view against the appellant: I.T.A. Nos. 1091 & 1092/Del/2024 13 • Andaman Timber Industries vs CCE 281 CTR 241 (SC); • KishinchandChellaram v. CTT [1980] 125 ITR 713 (SC) • CIT v. Ashwani Gupta [2010] 322 ITR 396 (Delhi) • CIT vs SMC Share Brokers Ltd 288 ITR 0345 (Del); • Pr CIT vs Best Infrastructure (India) P Ltd (2017) 397 ITR 82 (Del); • Swadeshi Cotton Mills Company Ltd. vs UOI51 ITC 210 (SC) • Tin Box Company vs CIT 116 Taxman 419 (SC). Ground No.6 Merits of Addition of Rs.25,264/- (AY 2011-12) and Rs.l,33,229/- (AY 2012-13) The appellant seeks to contest the above additions on account of alleged commission @0.2% paid on the sale consideration in the scrip in question and such addition is based on mere surmises and conjectures and is not supported by any evidences/material on record. There is no material with the AO on the basis of which incurring of such expenditure is proved. Only when such burden is discharged by the revenue, the onus shift on the assessee to prove that there is no such so-called expenditure. Primary burden of proof to prove understatement or concealment of income is on the revenue and it is only when such burden is discharged. Similar views have been taken by the authorities cited below: a) Sargam Cinema vs. CIT (2010) 328 iTR 513 (SC) b) CIT vs. Pratap Singh Amro Singh Rajendera Singh (1993) 200 ITR 788 (Raj) c) CIT vs. Sadhna Gupta (2013) 352 ITR 595 (Guj.) In the present case also, the AO has failed to establish that any payment on account of commission expenses has been made by the appellant and in the absence of any material to support the allegation of commission, no such addition can be made. It is respectfully submitted that it is a settled law that suspicion, howsoever strong, cannot take place of proof and there can be no addition on the I.T.A. Nos. 1091 & 1092/Del/2024 14 basis of mere suspicion. Reference, in this regard, may be made to the following decisions:- a) Lalchand Bhagat Ambica Ram v CIT (1959) 37ITR 288 (SC); b) CIT v. Paras Cotton Co (2007) 288 ITR 211 (Raj.) c) Faqir Chand Chaman Lai v. ACIT 268 ITR 215 (SC) Further, the Ld AO has made above addition under the head less section and therefore, in view of following authorities wherein it was held that that there can never been headless income each income need be characterised/identified with particular head of income specified u/s 14 of IT Act. The relevant authorities to support the above view are as under: • Nalinikant Ambala Mody v CIT (61 ITR 428); • CIT v DP Sandhu Bros Chembur P Ltd 273 ITR 1 (SC); • Krishna Textile vs CIT (174 Taxman 372) (Guj); Ground Nos.7 and 8 of AY 2016-17 Merits of Disaiiowance of Rs.13,96,339/- The above disallowance of expenses incurred by the assessee on account of business promotion expenses which have been disallowed by the Ld AO for failure to produce bills and vouchers. However, the appellant has submitted copy of ledger account of expense (PB ...) and produced complete books of account. But the Ld AO without finding any defect in books of account disallowed the above expenses merely for non-production of bills and vouchers. It is submitted that the above action of Ld AO without rejecting books of accounts is against the decision of Hon'ble Delhi High Court in identical facts of the case in PCIT vs R.G. Buildwell Engineers Ltd (2018) 259 Taxman 371 (Del) approved by Hon’ble Apex Court in (2018) 259 Taxman 370 (SC) held that no disallowances can be made without rejecting the books of account. Additional Ground No.1: Mechanical approval u/s 153D of the Act for AY 2015- 16 I.T.A. Nos. 1091 & 1092/Del/2024 15 The appellant has raised this ground that the approval as per section 153D was mechanical and without application of mind by the approving authority i.e. JCIT Central Range Meerut. From the assessment order under appeal for AY 2015-16, it can be noticed that the approval has been granted by the JCIT through common communication i.e. F.No.JCIT/Central/Range/Meerut/S&S/153D/2016-17/1473 dated 30.12.2016. The above fact is evident from copies of assessment orders for AY's 2009-10 to AY 2015-16 in appellant case, where the common communication No is mentioned in all assessments. Copies of above assessment orders are placed in paper book at pages 103-129. It is therefore beyond dispute that all the approvals have been granted through a common approval for at least 7 cases in one go were provided by the Ld JCIT through a common communication. The pproval provided through communication has been found to be mechanical and without application of mind by the jurisdictional Hon’ble Allahabad High Court in the case of PCIT vs Sapna Gupta 2022 SCC Online ALL 1294. The above decision has been duly considered in the latest decision of Hon'ble Delhi High Court in the case of Pr CIT vs Shiv Kumar Nayyar ITA No.285/2024 dated 15.05.2024 in which various decision on this issue including Pr CIT vs Anuj Bansal ITA 368/2023 (Del) dated 13.07.2023, Sapna Gupta (Supra) and ACIT vs Serajuddin & Co 223 SCC Online Ori 992 have been cited/followed. Incidentally, it needs be appreciated that decision in the case of Serajuddin (supra) has been approved by Hon’ble Apex Court in the order dated 28.11.2023 whereby the department appeal was dismissed.” 6. On the other hand, the Ld. DR strongly supported the orders of the authorities below. 7. Heard rival submissions, perused the orders of the authorities below. I.T.A. Nos. 1091 & 1092/Del/2024 16 8. Coming to the additional ground raised by the assessee, we observe that the assessee has raised this ground of approval as per Section 153D of the Act was made mechanically and without application of mind by the Approving Authority that JCIT, Central Circle, Meerut. From the assessment order under appeal for AY 2015-16 it can be noticed that the approval has been granted by the JCIT through common communication i.e. F.No. JCIT/Central/Range/Meerut/S&S/153D/2016-17/1473 dated 30.12.2016. The above fact is evident from copies of assessment orders for assessment years 2009-10 to 2015-16 in assessee’s case where the common communication number is mentioned in all assessments. We find that the copies of the above assessment orders are placed in Paper Book at pages 103 to 129. It is, therefore, beyond dispute that all the approvals have been granted through a common approval for at least 7 cases in one go were provided by the Ld. JCIT through a common communication. The approval provided through communication has been found to be mechanical and without application of mind by the Hon’ble Jurisdictional Allahabad High Court in the case of PCIT VS. Sapna Gupta reported in (2022) SCC Online ALL 1294. We find that the above discussion has been duly considered in the latest decision of Hon’ble Delhi High Court in the case of Pr. CIT Vs. Shiv Kumar I.T.A. Nos. 1091 & 1092/Del/2024 17 Nayyar in ITA No.285/2024 dated 15.05.2024 in which various decisions on the issue including the decision of Sapna Gupta (supra) and the decision of the Delhi High Court in the case of Pr. CIT Vs. Anuj Bansal in ITA No.368/2023 dated 13.07.2023 and the decision in the case of ACIT Vs. Serajuddin & Company 223 SCC Online Ori 992 have been considered. We further observe that the decision of Hon’ble Orissa High Court in the case of Serajuddin & Company (supra) has been approved by the Hon’ble Apex Court by dismissing the appeal of the Revenue by order dated 28.11.2023. The ratio of the above decisions squarely applies to the facts of the assessee’s case. Thus, respectfully following the above said decisions, we hold that the approval granted by the JCIT u/s 153D for the AY 2015-16 is bad in law and consequently the assessment made u/s 153A pursuant to the approval granted u/s 153D of the Act is also bad in law. Thus, the assessment framed by the AO u/s 153A/143(3) dated 30.12.2016 for the AY 2015-16 is hereby quashed. 9. As we have quashed the assessment made u/s 153A on the additional and legal ground raised by the assessee, we are not inclined to go into the merits of the additions made in the assessment as it would be of only academic in nature at this stage. The additional ground raised by the assessee is allowed. I.T.A. Nos. 1091 & 1092/Del/2024 18 10. We further observed that in the appeals of the assessee for the AY 2015-16 in ITA No.1091/Del/2024 and for AY 2016-17 in ITA No.1092/Del/2024 the assessee apart from making arguments on merits also argued that the assessment is bad in law since no opportunity of cross examination and the denial of statement relied upon by the AO the assessment framed is in violation of principle of natural justice and, therefore, is bad in law. We observe that this argument was also made for the assessment year 2015-16 by the Ld. Counsel for the assessee. 11. On going through the facts it is observed that the only evidence used against the assessee by the Revenue is the statement of the Managing Director of the Broker Company M/s IMSPL. During the assessment proceedings for the AY 2015-16 the statement of the witness was not provided to the assessee and the same was provided only during first appeal proceedings on the direction of the Ld.CIT(A) which fact was also duly noted by the Ld.CIT(A) in para 5.3 at page 14 of the Ld.CIT(A) order. The statement of the above witness came to the assessee during the assessment proceedings for AY 2016-17 and thereafter the assessee vide letter dated 25.09.2018 requested the AO to provide cross examination of the witnesses statement. We observe that the question of assessee demanding I.T.A. Nos. 1091 & 1092/Del/2024 19 cross examination did not arise in AY 2015-16 proceedings as the statement was not provided to the assessee and the content of statement was not confronted to the assessee but the assessee requested for cross examination during first appeal proceedings for AY 2015-16 which is the earliest opportunity post granting of copy of statement and also during assessment proceedings for AY 2016-17 vide letter dated 25.09.2018 which is placed at pages 12 to 15 of the Paper Book. We find that the AO did not grant opportunity of cross examination for AY 2016-17 and also the Ld.CIT(A) in assessment years 2015-16 & 2016-17 despite specific request made by the assessee. We observe that since the first appeal proceedings are extension of assessment proceedings the request of cross examination even made during appeal proceedings should have been acceded to in the interest of principles of natural justice. We observe that the Ld.CIT(A) rejected the request on the ground that the denial of opportunity of cross examination of the witness does not amount to violation of principles of natural justice. The assessee is aggrieved from above stands taken by the Ld. CIT(A) as the orders relied upon in support thereof are not applicable to the case as the sole evidence against assessee is the statement of the Managing Director of the broker entity. We further observe that it is a primary evidence used against the assessee and in view of the I.T.A. Nos. 1091 & 1092/Del/2024 20 decision of the Hon’ble Supreme Court in the case of Andaman Timber Industries Vs. CCE (281 CTR 241) the assessment framed without providing opportunity to cross examine the witness whose statement the AO is relied on is bad in law. In the case of Andaman Timber Industries Vs. CCE (supra) the Hon’ble Supreme Court held that failure to give the assessee the right to cross examine witnesses whose statements are relied upon results in breach of principles of natural justice and it is a serious flaw which renders the order in nullity. We further observe that the assessment for AY 2015-16 was also framed without providing cross examination of the broker whose statement was relied on and even the Ld.CIT(A) also did not provide for cross examination for AY 2015-16 and 2016-17 in spite of the assessee’s request. 12. We, therefore, observe that the ratio of the decision of the Hon’ble Supreme Court in the case of Andaman Timber Industries (supra) squarely applies. Thus, respectfully following the said decision we hold that the addition made by the AO based on the statement of the Managing Director of the Broker Company which was relied on without providing cross examination despite the request of the assessee is certainly in violation of principles of natural justice and consequently the addition based on such I.T.A. Nos. 1091 & 1092/Del/2024 21 statement cannot be sustained. Therefore, the AO is directed to delete the addition made u/s 10(38) of the Act for the assessment years 2015-16 and 2016-17. 13. The consequential addition made on account of commission at 0.2% is also directed to be deleted. 14. The assessee has raised ground no.7 & 8 for the AY 2016-17 in respect of disallowance of expenses incurred on account of business promotion expenses which have been disallowed by the AO for failure to produce bills and vouchers. We observe that the assessee has submitted the copy of ledger account of expenses and produce complete books of account. However, the AO without finding any defect in the books of account disallowed the expenses merely for non production of bills and vouchers. We observe that the Hon’ble Delhi High Court in the case of PCIT Vs. R.G. Buildwell Engineers Ltd. (2018) 259 Taxman 371 which was approved y the Hon’ble Apex Court which is reported in 259 Taxman 370 held that no disallowances can be made without rejecting the books of account. Following the decision, we delete the disallowance made by the AO. I.T.A. Nos. 1091 & 1092/Del/2024 22 15. In the result, the appeals of the Assessee for the assessment years 2015-16 & 2016-17 are allowed as indicated above. Order pronounced in the open court on 25/10/2024 Sd/- Sd/- (DR. BRR KUMAR) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 25/10/2024 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order Assistant Registrar, ITAT: Delhi Benches-Delhi "