TaxTMI 
TaxTMI 
TaxTMI 
2024 (8) TMI 1606
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 banking channel and that invocation of Sec. 69C has been wrongly made without any bas....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed 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. Large value of non-cash transactions in the account seems to be unusual and raises a suspicion. M/s. Sancheti Diamonds Private Limited is engaged in trading of Diamond and gold jewellery business. On perusal of financials of the M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 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 Rs. 2,69,76,121/- 2012-13 Rs. 141,55,45,281/- 2013-14 Rs. 19,28,62,081/- 5. Aggrieved, assessee preferred appeal before the Ld. CIT (A) but failed to succeed on the legal issues as well as merits of the case. Ld. CIT (A) held that reopening proceedings are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat 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 (vii) CIT Vs. Motor & General Finance Ltd. 184 Taxman 465 (viii) Austin Engineering Co. ltd. Vs. JCIT 312 ITR 70 (ix) CIT Vs. Shri Tirath Ram Ahuja (HUF) 306 ITR 173 (Del.) (x) Haryana Acrylic Manufacturing Co. Vs. CIT 308 ITR 38 (xi) Avted Vs. DCIT 395 ITR 434. 8. Further, ld. Counsel for the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 appellant from Sancheti Diamonds Pvt. Ltd. In any case, where facts, if they are supported by documentary evidences cannot be thrown out unless there are other documentary evidences, which would negate the genuineness of the transaction. Transactions are duly supported by documentary evidences that is, Bills. Sancheti Diamonds Pvt. Ltd. are assessed to Tax and had filed return of income. Assessment has been m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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, Horne 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, M/s. Sancheti Diamonds Private Limited has replied that credits in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iling 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 reply to each of the query raised by the AO in the questionnaire and the books of accounts were produced and the business transaction including purchase and sales have been examined by the AO to the best possible extent. The reasons recorded for reopening for all the three impugned years are similar and though we have already reproduced the reasons in the preceding para, we deem it appropriate to reproduce it again. "The information received from reliable is that Ms. Sancheti Diamonds Private Lim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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. 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 ar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncheti 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. Vijay Rathod which is placed at pages 72 to 74 and the affidavit is dated 14.05.2017. The original statements where Mr. Vijay Rathod accepted to be indulged in providing accommodation entry were recorded on 14.01.2017 and 17.01.2017. But, in less than a month, i.e. on 14.05.2017 Mr. Vijay Rathod filed an affidavit retracting the contents of the statement made on 14.01.2017 and 17.01.2017 stating that he was under tremendous stress and trauma and was not in a proper state of mind and was without sleep and proper food. He has further stated that the statement was dictated by the Officer in Charge of the survey and the said statement was not out of his free volition and the same was also o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 ITAT Delhi in the case of Captive Commerce Pvt. Ltd. vs. ACIT in ITA No. 2698/Del/2018, Assessment Year 2010-11, vide order dt. 09.08.2023, under identical circumstances has held as under: "7. A bare perusal of the reasons recorded suggests that the Assessing Officer has propelled himself to reopen the completed assessment on the grounds of doubts on the correctness of losses claimed in the transactions carried on the platform of the National Stock Exchange. At the first glance of the reasons recorded (supra), it can be seen that the Assessing Officer has merely made averments towards the modus operandi used by the different brokers for transfer of profit and loss of one constituent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 assessment in defiance of statutory requirement of substantial nature. The notice issued under Section 148(1) is thus ultra vires the provision of Section 147 of the Act. Therefore, we see considerable force in the plea of the assessee for non-maintainability of re-assessment order passed in pursuance of a notice under Section 148 of the Act which is vitiated in law. 10. Hence, the re-assessment notice under Section 148 giving rise to the jurisdiction under Section 147 of the Act is quashed and consequently the re-assessment order appeal against is also similarly quashed and set aside. 11. The objection on assumption of jurisdiction under Section 147 of the Act thus succeeds. Having held that the re-asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ourt 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 reopening the reassessment, are to be examined on a standalone basis. Nothing can be added to the reasons so recorded, nor anything can be deleted from the reasons so recorded. The Hon'ble Bombay High Court in the case of Hindustan Lever [2004] 267 ITR 332 has inter alia, observes that "........ it is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of reason not recorded by him. He has to speak through the reasons." Their Lordship added that "The reasons recorded should be self-explanatory and should not keep the assessee guessing for reasons. Reasons provide link betwe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 adequacy of the material & substitute its own opinion for that of the ITO on the point as to whether actions should be initiated for reopening assessment. At the same time we have to bear in mind that it is not that any or every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee." 12. Sec. 116 of the Act also defines the Income Tax Authorities as different and distinct authorities. Such different and distinct authorities have to exercise their powers given to them in specified circumstances. If power conferred on a particular authority are arrogated by another authority without mandate of law, it will create chaos in the administration....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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, it is settled that "Reason to believe" postulates a foundation based on information and a belief based on reason. After a foundation based on information, is made there still must be some reason which should warrant the holding of a belief that income chargeable to tax has escaped income. In this context it must be remembered that Hon'ble Supreme Court in M/s Ganga Saran & sons (P) Ltd. vs. 130 ITR 1 (SC) has held that the expression "Reason to believe" occurring in section 147 of the Act "is stronger" than the expression "is satisfied" and such jurisdictional requirement has to be met by the AO before he usurp the jurisdiction to reopen an assessment 19. In the light of the aforesaid well settled principles governing the reopening of assessment, we need to examine as to whether the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 29-10-2014 m which he had accepted the fact of being engaged in providing bogus accommodation entry in lieu of commission through some companies controlled by him and that of his being director of few such companies including M/s. Bridge & Building Pvt. Ltd. 5. It is clear from the information available on record as discussed above that the assessee M/s Coalsale Company Limited, assessed to this charge, has availed accommodation 'entry of Bogus Billing through shell companies amounting to Rs. 470.08 lakh (Rs. 267.58 + Rs. 202.50 Lakh) during F.Y. 2013- 14 which is facilitated by accommodation Entry Operator Shri Ajit Kumar Jindal through his shell company namely Bridge & Building Construction Pvt. Ltd. The said entry operator Shri Ajit Kumar Jindal & Others same has also accepted on oath in his statements recorde....
X X X X Extracts X X X X
X X X X Extracts X X X X
....id 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 Jindal being an entry provider, gives bogus bills through his shell companies to the beneficiaries and cheques given to these shell companies are later returned back as cash to the beneficiaries after deduction of commission. 22. A perusal of para 4, it is noted that the AO states that the assessee has availed the service of entry provider Shri Ajit for providing it with bogus billing from his company, M/s. Bridge & Building Pvt. Ltd. and again repeated about the admission made by Shri Ajit Kumar Jindal that he was an entry provider. 23. The AO in para 5 refers to the transaction of assessee with M/s. Bridge & Building Pvt. Ltd. to the tune Rs. 470.08 lakhs and alleges it to be accommodation entry availed by the assessee in the form of bogus billing. This according to AO is based on the statement of Shri Ajit Kumar Jindal recorded by the Inve....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee'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 the Investigation Wing only says about the statement of Shri Ajit Kumar Jindal who on 29.10.2014 has admitted before them, that he is providing accommodation entry through his entities which includes M/s. Bridge & Building Pvt. Ltd. Accordingly to Shri Ajit Kumar Jindal his entities gives bogus bills in lieu of commission and the cheques given by the beneficiaries are returned back as cash. Taking note of this statement which was recorded when the Income Tax Department searched him along with "Bathwal Group" he has made the admission of being an entry provider. The Investigation Wing on the strength of his admission has taken out the transaction made by Shri Ajit Kumar Jindal's entities viz. M/s. Bridge & Building Pvt. Ltd. and found that assessee had transaction with M/s. Bridge & Building Pvt. Ltd., so this information was passed on to the AO, who on receipt of it has jumped....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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. Here in this case the information from Investigation Wing is only that Shri Ajit has admitted to be providing accommodation entry to "Bathwal Group" and to beneficiaries. However, when we examine the jurisdiction of AO, we have to look at the 'reasons recorded' on a standalone basis. So in the absence of the list of beneficiaries attached to the reasons recorded on the statement of Shri Ajit, we do not find the name of assessee as beneficiary. Just because, the assessee had transaction with M/s B & B Pvt. Ltd., cannot be a ground to believe that assessee's income has escaped assessment. Without any other material as discussed the conclusion drawn by the AO merely on receipt of the aforesaid information does not muster the requirement of law to validly form the reason to believe escapement of income. According to our considered opinion the jurisdictional requirement 'reason to bel....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 the Hon'ble Apex Court. A. Reassessment - Income escaping assessment - assessee disclosing all material facts in return filed -no case of wilful suppression of material facts made out - Reopening assessment after four years without assigning sufficient reasons - not valid - CIT vs. TVS Motor Co. Ltd. (Mad.) 319 ITR 192. B. Reassessment - Initial notice - order for issue of notice - notice - validity - notice based on information from Insight portal that assessee had purchased property - assessee disclosing all details including bank statement in response to notice under section 142(1) and duly examined by Assessing Officer in original assessment - notices and order for issue of notice set aside - Urban Homes Realty vs. Union of India (Born.) ITR 459 /Page 96. C. Reassessment - Notice - All relevant information provided by assessee prior to original assessment order - Assessing Officer has no power to review his own o....