Tribunal rules reassessment void for A.Y. 2010-11, upholds reopening for A.Ys. 2011-12, 2012-13. Guidelines on alleged bogus purchases.

The Tribunal held that the reassessment made under section 143(3) read with section 147 for A.Y. 2010-11 was bad in law and void ab initio as there was no failure on the part of the assessee to disclose all material facts necessary for assessment. However, for A.Ys. 2011-12 and 2012-13, the Tribunal upheld the reopening based on tangible materials. Regarding the validity of additions based on alleged bogus purchases for A.Ys. 2011-12, 2012-13, and 2013-14, the Tribunal directed the Assessing Officer to estimate the profit element at 3% of the purchases treated as non-genuine.

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Issues Involved:
1. Reopening of assessment under section 147 of the Income Tax Act.
2. Validity of additions made by the Assessing Officer based on alleged bogus purchases.
3. Charging of interest under sections 234B, 234C, and 234D of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 147:

A.Y. 2010-11:
The assessee challenged the reopening of the assessment and the order passed under section 143(3) read with section 147 of the Income Tax Act as bad in law and void ab initio. The assessee argued that the original assessment was completed under section 143(3) and the reopening was beyond four years from the end of the relevant assessment year. The proviso to section 147 applies, which requires a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The assessee had furnished all necessary details during the original assessment proceedings, and there was no failure to disclose material facts. The Tribunal held that since there was no failure on the part of the assessee in disclosing all material facts necessary for completion of assessment, the reassessment made under section 143(3) read with section 147 for A.Y. 2010-11 was bad in law and void ab initio. The reassessment order was quashed.

A.Ys. 2011-12 & 2012-13:
For these years, the returns were processed only under section 143(1) and there was no scrutiny assessment under section 143(3). The reopening was based on information received from the DGIT(Inv.), Mumbai, and the assessee was not provided with the information or given an opportunity to cross-examine the parties. The Tribunal upheld the reopening, stating that the Assessing Officer had tangible materials and formed a reasonable belief that income had escaped assessment. The Tribunal relied on the Supreme Court's decision in CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd., which held that intimation under section 143(1) is not an assessment, and the reopening was valid.

2. Validity of Additions Based on Alleged Bogus Purchases:

A.Ys. 2011-12, 2012-13 & 2013-14:
The Assessing Officer required the assessee to prove the genuineness of the purchases made from various parties. The assessee provided copies of bank statements, sales invoices, shipping bills, and other documents. The Tribunal agreed with the CIT(A) that only the profit element embedded in the purchases should be brought to tax. The CIT(A) had sustained the estimation of profit element at 8%, considering the nature of the business and the CBDT's instruction for diamond traders. However, the Tribunal noted that the margin in the diamond industry is between 1 to 4.5% and the advantage from purchasing in the gray market was 1% for VAT. The Tribunal directed the Assessing Officer to estimate the profit element at 3% of the purchases treated as non-genuine and recompute the income for these assessment years.

3. Charging of Interest under Sections 234B, 234C, and 234D:
The Tribunal did not specifically address the issue of charging interest under sections 234B, 234C, and 234D, as the primary focus was on the validity of the reopening of assessments and the additions made based on alleged bogus purchases.

Conclusion:
The appeal for A.Y. 2010-11 was allowed, and the reassessment order was quashed. The appeals for A.Ys. 2011-12, 2012-13, and 2013-14 were partly allowed, with the profit element in the purchases being estimated at 3%. The Tribunal's decision was pronounced in the open court on 30th September 2019.

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