TaxTMI 
TaxTMI 
2024 (8) TMI 1606
X X X X Extracts X X X X
X X X X Extracts X X X X
....nsolidated order for the sake of brevity and convenience. 2. The Grounds of appeal raised by the assessee for the impugned Assessment Years are as under:- Assessment Year 2011-12 1. For that the orders passed by the lower authorities are arbitrary, erroneous, without proper reasons, invalid and bad-in-law, to the extent to which they are prejudicial to the interests of the appellant. 2. For that the Ld. CIT (A) erred in holding that the A.O. had correctly and legally assumed jurisdiction u/s 147 of the Act and that the reopening of the assessment u/s 148 of the Act is valid and lawful. 3. For that issue of notice u/s 148 of the Act by the A.O. proceeded on non-appreciation of the factual aspect of the case of the appellant and the Ld. CIT (A) erred in holding that A.O. was correct in initiating proceedings u/s 148 of the Act. 4. For that the Ld. CIT (A) ought to have accepted the documentary evidences adduced by the appellant in support of the purchases made by it from Sancheti Diamonds Pvt. Ltd. 5. For that the Ld. CIT (A) erred in appreciating the fact that the payments made to Sancheti Diamonds Pvt. Ltd. were through banki....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... supported by documentary evidences & in view of the fact that the same have not been rejected by the A.O., the treatment given by the A.O. to purchases made from Sancheti Diamonds Pvt. Ltd are on wrong basis. 8. For that the Ld. CIT (A) erred in confirming addition of Rs. 1,41,55,45,281/- being the payment made by the appellant to Sancheti Diamonds Pvt. Ltd. treating the same as bogus. 9. For that the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds." Assessment Year 2013-14 1. For that the orders passed by the lower authorities are arbitrary, erroneous, without proper reasons, invalid and bad-in-law, to the extent to which they are prejudicial to the interests of the appellant. 2. For that the Ld. CIT (A) erred in holding that the A.O. had correctly and legally assumed jurisdiction u/s 147 of the Act and that the reopening of the assessment u/s 148 of the Act is valid and lawful. 3. For that issue of notice u/s 148 of the Act by the A.O. proceeded on non-appreciation of the factual aspect of the case of the appellant and the Ld. CIT (A) erred in holding ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so entered into transaction of purchase of goods from SDPL during all the three impugned years. Accordingly, notice u/s. 148 of the Act dated 29.03.2018 for Ay 2011-12 and dated 30.03.2018 for AY 2012-13 and 2013-14 were issued and served upon the assessee for reopening of the assessment proceedings. The reasons recorded are common except for change of figures of purchases made by the assessee from SDPL. Copy of reasons recorded for AY 2011-12 is reproduced below: "The information received from reliable is that Ms. Sancheti Diamonds Private Limited is a private company having account No. 034805003043 with Mumbai Opera House branch having PAN AALCS2336M. The account was opened on 25.01-2008. Date of incorporation 01.10.2007. The account has triggered for high value of non-cash transactions in the current account. As per the information obtained through bank officials the customers is a Gems and Jewellery Trader Transaction pattern shows that account get credit mainly by RTGS & transfer and get debits by clearing. RTGs and transfer. Total deposits between 29.01.2011 to 30.03.2012 amounted to Rs. 385.76 cr. out of which Rs: 380.60 cr. are debited through transfer. L....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urisdiction have entered made purchases from Ms. Sancheti Diamonds Private Limited which are suspicious and need verification. Further on perusal of financials of Ms. Purple Suppliers Pvt. Ltd. the company has poor financials and it has shown either NIL income loss or meagre income against the huge turnover. The huge turnover does not match with the financial profile and seems suspicious. Every year, huge creditors and debtors are outstanding which further raises suspicious. Both the registered address and return addresses of the company are in Kolkata but directors are based in Mumbai." 4. In the reassessment proceedings assessee submitted certain details to explain that the purchases are genuine and sales have also been made against the said purchases. Against the final show cause notice Ld. AR of the assessee filed submission on 20.11.2018 providing complete details of purchase bills, copy of trade receivables, financial statement of the company, VAT returns. However, Ld. AO was not and he completed reassessment proceedings making the addition u/s. 69C of the Act on account of bogus purchases from SDPL for the following amount: Assessment Year Amount 2011-12....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rchases from SDPL as bogus which is not at all justified and not in accordance with law. He also submitted that for AY 2011-12 Ld. AO had merely suspected the transaction carried out by SDPL by only relying on the statement of Mr. Rathod which was subsequently retracted stating that the statement on 14.01.2017 & 17.01.2017 was under duress. Therefore, the reopening has been carried out mainly on suspicion and there is no reason to believe. Also for AYs 2012-13 and 2013-14, in absence of any material information not found to be filed before the Ld. AO in the assessment proceedings, the reopening proceedings are merely on borrowed satisfaction and change of opinion. Therefore, the reassessment proceeding for AY 2011-12 and 2013-14 are illegal, bad in law and deserve to be quashed. Reliance also placed on the following decisions: (i) CIT Vs. TVS Motor Co. Ltd. 319 ITR 192, (ii) Urban Homes Realty Vs. Union of India 459 ITR 95 (iii) Knight Riders Sports Pvt. Ltd. Vs. ACIT 459 ITR 16 (iv) Pr. CIT Vs. Salarpuria Soft Zone 458 ITR 345 (v) Calcutta Discount Co. ltd. Vs. ITO 41 ITR 192 (SC) (vi) German Remedies Ltd. Vs. DCIT 287 ITR 494 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 256,84,57,511/- which have not been disturbed by the A.O. and have been accepted. Thus whereas sales made by the appellant to Sancheti Diamonds Pvt. Ltd have been accepted by the A.O., purchases made by the appellant from Sancheti Diamonds Pvt Ltd have not been accepted. As a matter of fact the A.O. has not found any fault regarding sales made by the appellant to Sancheti Diamonds Private Limited but purchases made by the appellant from Sancheti Diamonds Private Limited for an amount of Rs. 2,69,76,121/- have not been accepted which has resulted in addition of this amount as income of the appellant. In the order of assessment the A.O. has made observations in connection with statement of one Shri Vijay Rathod taken by the DDIT, Bombay on 14.01.2017. A copy of this statement is submitted in the Paper Book. This statement recorded by the DDIT has been retracted by Shri Vijay Rathod. The appellant submits that there is no mention in the statement recorded by DDIT, Bombay about the appellant and nowhere the name of the appellant appears. In any case this is not a material to be considered in adjudicating the issue involved about the purchases made by the ap....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te Limited is engaged in trading of Diamond and gold jewellery business. On perusal of financials of the M/s. Sancheti Diamonds Private Limited, it is noticed that the company M/s. Sancheti Diamonds Private Limited does not have sound financial and it has shown meagre profits against huge sales. For A.Y 2010-11& A.Y. 2011-12 the company has shown net profit of Rs. 50982/- and Rs. 2,95,669/- against the total turnover of Rs. 323.67 cr. and 171.04 cr. respectively. It appears that director are dummy directors only who have no creditworthiness. During investigation proceedings summons were to its Director, Shri Vijay R. Rathod and statement was also recorded in the statement he asked state where the stock and books are maintained at Surat office at H. NO. 6/1365, Office No. 32 L. B. Palace, 3rd floor, Jadakhadi Road, Surat - 395 003. However, on field enquiry and verification unit inspector has reported that no business activity is carried out from the Surat Address and no stock is maintained there. Further, Shri Vijay R. Rathod was also asked to provide transportation details of material purchased but he could not provide. He was also asked many questions....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gal issue challenging the validity of the reopening of the assessments for AYs 2011-12, 2012-13 and 2013-14. We notice that assessee a private limited company is engaged in the business of purchase and sale of diamonds for past many years. Books of accounts are regularly audited and audited financial statements are uploaded on the website of the Income Tax Department as well as Ministry of Corporate Affairs. The assessee is also registered with the Value Added Tax Department and has been regularly filing returns and also being assessed by VAT Authorities from time to time. Regular returns of income for AYs 2011- 12 to 2013-14 were filed on 29.09.2011, 30.09.2012 and 28.09.2013 respectively. Reopening for AY 2011-12 has been carried out after four years. But, the return for AY 2011-12 was processed u/s. 143(1) of the Act and no scrutiny proceedings were undertaken. So far as the AYs 2012-13 and 2013-14 are concerned, original returns were selected for scrutiny and assessment u/s. 143(3) of the Act was framed on 31.03.2015 and 15.03.2016. Copies of the assessment orders u/s. 143(3) of the Act for AY 2012-13 and AY 2013-14 are placed on record which suggest that assessee had furnished....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etails of material purchased but he could not provide. He was also asked many questions related diamond business but he could not satisfactorily explain. From the statement it became ample clear that he is not engaged in diamond trading business. On further verification of Mumbai office at the company at 104. Home Land CHS Ltd., 3rd Lane, Lokhandwala Compound Andheri (West), Mumbai- 400 053, no business activity was found to be carried out as reported by unit inspector. Though, Ms. Ms. Sancheti Diamonds Private Limited has replied that credits in banks are against the sales. However, no supporting evidences have been produced by the assessee company to justify the credits in its bank accounts. The transaction in the bank account does not match with income profile of the assessee. Considering the facts discussed above, it appears that the company is not engaged in any genuine business activity and exists on paper only and credits in its banks accounts are suspicious. One perusal of the bank statements and reply received from Ms. Sancheti Diamonds Private Limited, it is noticed that following parties pertaining to your charge/jurisdiction have entered made purchases from Ms.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....R filed u/s 139 on 29.09.2011 30.09.2012 28.09.2013 2. Returned Income 88,845/- 77,250/- (-) 45,62,601/- 3. Gross Turnover 3,78,87,40,081/- 1,77,03,38,730/- 26,39,22,541/- 4. Assessed Income -- 74,98,040 (-) 28,70,800/- 5. Date of Order -- 31.03.2015 15.03.2016 6. Notice u/s 148 29.03.2018 30.03.2018 30.03.2018 7. ITR filed u/s 148 21.04.2018 21.04.2018 21.04.2018 8. Notice u/s 143(2) 20.09.2018 20.09.2018 20.09.2018 9. Total Purchases 3,78,87,40,081/- 2,55,82,99,537/- 20,90,31,347/- 10. Purchases from Sancheti Diamonds 2,69,76,121/- 1,41,55,45,281/- 19,28,62,081/- 11. Total Sales 3,79,45,41,716/- 2,49,47,77,317/- 26,39,22,541/- 12. Sales to Sancheti Diamonds 2,54,32,49,846/- 4,68,78,445/- -- 13. Addition u/s 69C towards alleged undisclosed purchases 2,69,76,121/- 1,41,55,45,281/- 19,28,62,081/- 14. Total income assessed u/s 143(3)/147 2,70,64,970/- 1,42,30,43,321/- 18,99,91,280/- 13. Before us, ld. Counsel for the assessee has also referred to the retraction statement of Mr. Vi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ried out the reassessment proceeding and without making any verification simply made the addition disallowing the purchases made by the assessee from M/s. SDPL treating them to be bogus purchases. In this haste, Ld. AO even forgot to note that the present assessee apart from making purchase from M/s. SDPL has also made sales to M/s. SDPL for AYs 2011-12 and 2012-13 which has been accepted by the AO. For AY 2011-12 where the alleged purchases from M/s. SDPL is Rs. 2,69,76,121/- the sales to M/s. SDPL are almost 100 times at Rs. 254,32,99,846/-. Similarly, for AY 2012-13 against the purchase of M/s. SDPL at Rs. 141.55 Cr. sales to M/s. SDPL are approx. Rs. 4.69 Cr. It is surprising to note that in case the AO had examined the transaction between assessee and M/s. SDPL, why has he raised doubt only about the purchase transactions with M/s. SDPL but fully accepted the sales to M/s. SDPL. This fact in itself makes the picture very clear that reopening has been carried out based only on borrowed satisfaction and a mere change of opinion. Though various judgments have been referred by Ld. Counsel for the assessee, we will first take note of the Co-ordinate Bench of ITA....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the instant case are in complete disarray. Mere reiteration of statutory language employed in Section 147 of the Act that the Assessing Officer has 'reason to believe' towards escapement of income is not, by itself, adequate. The instances of transactions resulting in loss/profit to the assessee on account of client code modification do not feature in the reasons at all. The reasons recorded appears to be a token exercise for assumption of jurisdiction and without compliance of jurisdictional parameters. The Assessing Officer in the instant case has proceeded on a hypothesis flowing from a generic information rendering the whole exercise to be arbitrary and unsustainable in law. 9. The believe towards escapement in the instant case is only pretense and a mere doubt and suspicion towards probable escapement though worded as 'reasonable to believe'. The Hon'ble Supreme Court in Lakhmani Mewal Das (1976) 103 ITR 437 (SC) has underscored that the word of the statute 'reason to I.T.A. No. 2698/Del/2018 6 believe' are not 'reason to suspect'. The vague feeling or suspicion of the Assessing Officer towards possible escapement would not permit to reopen a completed assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment: year)......... " Provided that where an assessment under sub-section (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of Section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year." 10. Hon'ble Bombay High Court in the case of Prashant S. Joshi (2010) 230 CTR 232 (Bom) has observed 'The AO must have reasons to believe that such is the case (i.e. any income chargeable to tax has escaped assessment for a particular year) before he proceeds to issue notice u/s 147". In other words, reasons have to be recorded for reopening the assessment prior to issuance of notice u/s 148 of the Act. It is well settled in law that reasons, as recorded for reop....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ately lead to further inquiries which may lead to detection of an income which has escaped assessment. In order to validly reopen, the requirement is that there has to be some kind of cause & effect relationship between reasons recorded and the income escaping assessment. While dealing with this matter it is useful to bear in mind the following observation of Hon'ble Supreme Court in ITO vs. Lakhmani Mewal Das [1976] 103 ITR 437 wherein the Hon'ble Supreme Court has taken note of the additional condition precedent required as per first proviso u/s 147 for reopening the assessment after four (4) years . The relevant portion has held as follows: "The reasons for the formation of the belief must have a rational connection with or relevant bearing of the formation of the belief . Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of his belief that there has been escapement of income of the assessee from the assessment in the particular year because of his failure to disclose fully & truly all material facts. It is no doubt true that the court cannot go into the sufficiency or ade....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the adequacy or sufficiency of the reasons which have weighed with the AO in coming to the belief the Court can certainly examine whether the reason are relevant and have a bearing on the matter in regard to which he is required to entertain the belief before he can issue notice u/s 147(1). If there is no rational and intelligible nexus between the reasons & the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the AO could not have reason to believe that any part of the assessee had escaped assessment refer 203 ITR 456 (SC) also). 18. Here it is important to understand one more aspect that information adverse may trigger "reason to suspect", then the AO to make reasonable enquiry and collect material which would make him believe that there is in fact an escapement of income. The statutory mandate/condition precedent for an AO to exercise his power is that he should have reason to believe escapement of income. Before an AO proposed to reopen an assessment he should record his reasons as to how he has formed the belief about the escapement of income. In this respect....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ajit Kr. Jindal along with the shared information wherein the name assessee company i.e. name M/s Coalsale Company Limited is mentioned. 3. It is found form the statement of Ajit Kr. Jindal that he has facilitated prearranged accommodation entries of bogus billing to various beneficiaries through different paper/ bogus/ shell companies controlled by him viz. M/s Bridge & Building Pvt. Ltd. It is clear from his sworn statement that such entries are also given to the assessee company through said paper/ shell company viz. M/s Bridge & Building Pvt. Ltd. While explaining the modus it is stated by the entry operator that bogus bills are issued b; companies controlled by him against which cheques are issued by the interested parties which is rotated in few layers after which cash is withdrawn & returned back to the concerned party after deducting his commission. 4 It is found from the facts available in the form of shared statement and information that the assessee has engaged concerned entry operator namely Shri Ajit Kumar Jindal to avail accommodation entry of bogus billing It is also found that the statement of same Entry operator was also recorded earlier on 29-10....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the reasons recorded it is noted that the AO has recorded that the assessment in this case was completed u/s 143(3) of the Act which is a fact and has nothing to do with escapement of income. In the second para the AO refers to some information from DDIT (Inv.) Unit 3(2) with regard to the search and seizure operation in the case of a third party i.e. Shri Ajit Kumar Jindal. The AO further refer that the said person was engaged in facilitating pre-arranged accommodation entries of bogus billing and has further referred to some list of beneficiaries in which the assessee's name is there. [Please Note: However, it was brought to our notice that neither the alleged statement formed part of the "reasons recorded" nor the alleged list beneficiaries was therein. And the fact that the AO has also not recorded in the reasons that he had gone through the said statement and the list of the beneficiaries and that the name of the assessee appeared in the alleged list. So according to Ld. A.R. this para only states about a hearsay that assessee is a beneficiary] 21. Para 3 it is noted to be the modus-operandi adopted by the entry provider. The AO in para 3 observes that Shri Ajit Kumar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncome had escaped assessment. Keeping this principle also in mind when we examine the validity of jurisdiction of the AO to re-open we have to see whether there was 'reasons to believe' (escapement of income). Reason to believe postulates a foundation based on information and a belief based on reasons. After a foundation based on information, is made, there still must be some reason which should warrant holding a belief that income chargeable to tax has escaped assessment. So firstly we have to see whether in the reasons recorded by the AO there was any information on which a foundation could be based upon; and if this condition is satisfied i.e. a foundation based on information is there, then the next step, is to see whether there is reasons which should warrant holding the belief that income chargeable to tax has escaped assessment. Here, it has to be kept in mind the assessee's scrutiny assessment u/s 143(3) was completed on 02.12.2016 and the information which the AO relies on is the statement of Shri Ajit Kumar Jindal was recorded as early as on 29.10.2014 (i.e. 2 years before). A reading of the reason recorded by the AO as discussed and analysed reveals that information from....
X X X X Extracts X X X X
X X X X Extracts X X X X
....starting point of preliminary enquiry and the AO cannot straight away assume jurisdiction to reopen, so according to us, the AO erred in jumping to the conclusion that assessee's income has escaped assessment on receipt of the information that a company run by Shri Ajit Jindal had transaction with assessee. Simply because the assessee had transaction with M/s B & B Pvt. Ltd., cannot be the basis to believe escapement of income, unless there is any material there to suggest that so called assessee's transaction was bogus & the cheque given by assessee had been returned as cash to assessee. Thus in the facts discussed and based on the analysis of the reason recorded by the AO according to us, the AO could not have formed a belief that income chargeable to tax has escaped assessment. Simply because Shri Ajit stated once that he is an entry provider doesn't mean that all his actions through his controlled companies are doing only wrong things. It has to be kept in mind that the maxim "Falsus in uno falsus in omnibus' meaning false in one thing is false in everything has no application in India as held by Hon'ble Supreme Court in Gangadhar Behera vs. State of Orissa (2002) 8 SCC 381. He....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... available with the AO for re-opening the assessment - especially in those cases where the first proviso to Section 147 is attracted. The reasons to believe ought to also paraphrase any investigation report which may form the basis of the reasons and any enquiry conducted by the AO on the same and if so, the conclusions thereof; (iii) where the reasons make a reference to another document, whether as a letter or report, such document and/ or relevant portions of such report should be enclosed along with the reasons; (iv) the exercise of considering the Assessee's objections to the reopening of assessment is not a mechanical ritual. It is a quasi-judicial function. The order disposing of the objections should deal with each objection and give proper reasons for the conclusion. No attempt should be made to add to the reasons for reopening of the assessment beyond what has already been disclosed. 20. The writ petition is allowed in the above terms. There will be no order as to costs." 17. The above judgment of Hon'ble Delhi High Court was challenged by the revenue before the Hon'ble Apex Court but the said application of the revenue was dismissed by t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r recomputed the loss or the depreciation allowance or any other allowance or deduction for such assessment year (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year)." 19. Now, for the purpose of carrying out the reassessment proceedings beyond four years or in cases where regular scrutiny proceedings have been carried out u/s. 143(3) of the Act one of the important aspects is that there has to be a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. In the present case, for all the three impugned years assessee has fully disclosed all material facts and the transactions of purchases and sales and they have also passed through the processing for AY 2011-12 and assessment proceedings u/s. 143(3) of the Act for AYs 2012-13 and 2013-14 and the transaction of purchases and sales have been accepted by the revenue authorities for these years. In the case of an assessee a consistent view has been taken by the revenue authorities accepting the business transaction of the assessee. Before carrying out of the reassessment proceedings Ld. AO failed to find that the assessee has not di....