Translate
Text Highlighter

Bookmark

PDF

Share

Report a problem
AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
Acts
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Click here to upload
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
Acts
See more information ...
Smart Summary

Structured Summary of Income Tax Appellate Tribunal Order (Radhe Sham Jain Diamond Jewellers Pvt. Ltd.)

Factual and Procedural Background

M/s Radhe Sham Jain Diamond Jewellers Pvt. Ltd. (assessee) filed ITA Nos. 398 to 401/Chd/2019 against orders dated 16.01.2019 of the Commissioner of Income Tax (Appeals)-5, Ludhiana, relating to assessment years 2009-10 through 2012-13. The appeals raised identical grounds and were heard together; ITA No. 401/Chd/2019 (A.Y. 2012-13) was treated as the lead matter for discussion.

The core procedural backdrop was that reassessments were framed by the Assessing Officer under section 143(3) read with section 147 of the Income Tax Act, 1961. The assessee contended that the statutory notice under section 143(2) was not issued/served during the reassessment proceedings. The departmental representative conceded that no notice under section 143(2) had been issued before or during framing of the assessment. The Tribunal considered this omission, associated legal principles and related factual/material submissions on merits.

Legal Issues Presented

  1. Whether a reassessment framed under section 143(3) read with section 147 can be sustained where no statutory notice under section 143(2) was issued or served.
  2. Whether additions made by the Assessing Officer could be sustained where the books of account were not rejected under section 145(3) of the Income Tax Act, 1961.
  3. Whether additions on account of alleged "bogus purchases" and enhancement of such additions (quantified in the appeals) were justified on the material before the authorities.
  4. Whether reopening of assessment under section 147 was liable to be quashed on the procedural and substantive grounds raised by the assessee.

Arguments of the Parties

Appellant's (Assessee) Arguments

  • The reassessment is invalid and liable to be quashed because no statutory notice under section 143(2) was issued or served; issuance of such notice is a mandatory pre-condition even for reassessments framed under section 147 read with section 143(3).
  • Section 292BB cannot cure a complete absence of notice; it only cures infirmities in service where a departmental notice exists. The assessee relied on case law to support this proposition.
  • The Assessing Officer made additions in respect of alleged bogus purchases without rejecting the books of account under section 145(3); no defect was pointed out in the books and the books were not rejected.
  • The assessee produced detailed records—purchase and sale ledgers, item-wise quantitative details, diamond stock register, trading account, valuation report and confirmations—which were available in assessment and reassessment proceedings and were not appropriately verified by the AO.
  • If the alleged purchases from M/s Nazar Impex are excluded, the assessee would incur a large loss (as pleaded by the assessee), which undermines the claim that purchases were fabricated to suppress profits.

Respondent's (Revenue) Arguments

  • The Revenue relied on section 292BB to submit that where an assessee has participated in proceedings and not objected to service of notice, the assessee is precluded from raising objection later regarding service; the Revenue relied on the Punjab & Haryana High Court decision in Josh Builders & Developers (P) Ltd. vs PCIT to support this position.
  • The Assessing Officer relied on a report from the Investigation Wing (Directorate General of Investigation) alleging the assessee's involvement in bogus purchases; the CIT(A) noted factual difficulties in verifying particular items because diamonds lacked specific identity numbers.
  • On merits, the Revenue relied on precedents that permit taxing the profit element embedded in purchases covered by bogus bills rather than disallowing entire expenditure (cited authorities from Bombay High Court decisions).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Tribunal
CIT vs. Laxman Dass Khandelwal (Civil Appeal No. 6261-6262 of 2019; Hon'ble Supreme Court) Section 292BB is not intended to cure the complete absence of notice; it cures infirmities in the mode of service of a notice that has emanated from the department. The Tribunal relied on this Supreme Court holding to conclude that where no notice under section 143(2) was ever issued, section 292BB could not validate the reassessment; this supported quashing of the reassessment.
PCIT vs. Jai Shiv Shankar Traders Pvt. Ltd. (Delhi High Court) Failure by the AO to issue a notice to the assessee under section 143(2) after filing of the return pursuant to a notice issued under section 148 is fatal to a reassessment order. The Tribunal applied this principle to hold that the reassessment framed without issuance of section 143(2) notice was liable to be quashed.
PCIT vs. Kamla Devi Sharma (Rajasthan High Court) Failure to issue section 143(2) notice after filing of the return pursuant to section 148 is fatal to reassessment. Used by the assessee in submissions; Tribunal referenced similar authorities to reinforce its conclusion that absence of s.143(2) notice fatally undermined reassessment.
PCIT vs. Silver Line & Anr. (Delhi High Court) A reassessment order cannot be passed without compliance with the mandatory requirement of notice under section 143(2). Referenced to support the proposition that absence of the mandatory notice renders reassessment invalid; Tribunal adopted this view.
Sapthagiri Finance & Investments vs. ITO (Madras High Court) In completing assessment under section 148, compliance of the procedure under sections 142 and 143(2) is mandatory. Referenced to reinforce the procedural requirement that led the Tribunal to quash reassessment where section 143(2) notice was not issued.
CIT vs. Cebon India Ltd. (Punjab & Haryana High Court) Absence of notice cannot be held to be curable under section 292BB. Relied on by the assessee in submissions and noted by the Tribunal when addressing the applicability of section 292BB.
Sanjeev Aggarwal vs. DCIT (ITAT Chandigarh) Quashing of an assessing officer's order made without issue of notice under section 143(2). ITAT's prior view cited by the assessee; Tribunal noted similar outcome and applied the same logic in quashing the reassessment here.
Josh Builders & Developers (P) Ltd. vs PCIT (P&H High Court) (2016) 389 ITR 314 Where an assessee has participated in proceedings, section 292BB may validate notices with infirmities (as relied upon by Revenue). The Tribunal considered the Revenue's reliance on this decision but distinguished the present situation because of the admitted complete absence of any notice under section 143(2).
PCIT vs. Tejua Rohit Kumar Kapadia Purchases supported by bills, account-payee payments and confirmations; acceptance that no evidence showed recycling of funds back to assessee — legal recognition that supported a trader's position where purchases/sales were corroborated. Cited by the assessee to show that documented purchases and confirmations weigh against a finding of "bogus purchases"; Tribunal relied on documentary support to displace AO's addition.
PCIT vs. Paramshakti Distributors Pvt. Ltd. (Bombay High Court) Where AO has not rejected purchases or the sales made out of such purchases, it is permissible to apply the principle of taxing the profit embedded in purchases covered by bogus bills rather than disallowing the entire expenditure. Cited in the context of the revenue's approach; Tribunal observed evidentiary shortcomings in the AO's case and ultimately found additions unsustainable on the facts.
PCIT vs. Pinaki D. Panani (Bombay High Court) Authority permitting application of principle to tax profit embedded in purchases covered by bogus bills rather than disallow entire expenditure. Referenced among authorities on the approach to bogus purchases; Tribunal nonetheless allowed the assessee's grounds in view of record and lack of independent verification by AO.
"Blue Moon" case (referenced) Earlier authority on the applicability of the requirement of notice under section 143(2) (referred to in Tribunal's discussion of law). Referred to in the Tribunal's exposition of settled law on notice under section 143(2) before discussing section 292BB; used as part of the legal context.

Court's Reasoning and Analysis

The Tribunal's analysis proceeded in the following logical steps, strictly following the material and authorities cited in the record:

  1. Fact-finding on notice: The Tribunal examined the assessment order sheets and found no entry stating that any notice under section 143(2) had been issued by the Assessing Officer. The Departmental Representative also fairly conceded that no such notice was issued either before or during framing of the assessment under section 143(3).
  2. Legal principle on section 292BB: The Tribunal considered the Revenue's reliance on section 292BB, which can validate notices that have infirmities where an assessee has participated in proceedings. However, the Tribunal relied on the Supreme Court decision in CIT vs. Laxman Dass Khandelwal, which holds that section 292BB does not cure the complete absence of a notice; it only cures infirmities in the manner of service of a departmental notice.
  3. Mandatory nature of section 143(2) for reassessment: The Tribunal also relied on precedents such as PCIT vs. Jai Shiv Shankar Traders Pvt. Ltd. (Delhi High Court) and other High Court decisions that hold that the failure to issue a notice under section 143(2) after filing a return pursuant to a section 148 notice is fatal to reassessment. Given that no section 143(2) notice had been issued at all, the Tribunal concluded the reassessment was vitiated.
  4. Resultant order on reassessment: Applying the above legal principles to the undisputed factual position (no section 143(2) notice), the Tribunal quashed the reassessment framed under section 143(3) read with section 147 and ordered that consequential additions arising from such invalid reassessment be deleted.
  5. Merits (secondary, rendered academic but addressed): Although the Tribunal held the issue of reassessment's validity to be dispositive, it dealt with merits for completeness. On the merits, it found that:
    • The assessee had produced comprehensive documentary material (purchase/sale ledgers, item-wise details, stock register, trading account, valuation report and confirmations) during assessment and reassessment proceedings.
    • The Assessing Officer relied on an investigation report but did not undertake verification of the details supplied by the assessee nor sought corroboration from the seller (M/s Nazar Impex Pvt. Ltd.). The AO also did not point out defects in the books and did not reject the books under section 145(3).
    • Given the available documents and the absence of independent verification or other corroborative material to establish that purchases were bogus, and given that exclusion of the alleged purchases would have resulted in a large loss (undermining the inference that purchases were fabricated to suppress profits), the Tribunal found the additions unsustainable and allowed grounds 2 and 3 in favour of the assessee.
  6. Extension to other years: The Tribunal explicitly stated that the facts and issues were identical across assessment years 2009-10 to 2012-13, and applied its findings mutatis mutandis to those appeals as well.

Holding and Implications

Holding: All reassessments framed by the Assessing Officer under section 143(3) read with section 147 for assessment years 2009-10 to 2012-13 are quashed and the appeals of the assessee are allowed.

Implications / Consequences:

  • Direct effect on the parties: The Tribunal quashed the reassessment orders and directed deletion of consequential additions that had been made pursuant to those invalid reassessments. Grounds taken on the merits (including additions for alleged bogus purchases and the point regarding non-rejection of books under section 145(3)) were addressed and, on the facts, were allowed in favour of the assessee.
  • On precedent and broader law: The Tribunal applied existing Supreme Court and High Court authorities (notably CIT vs. Laxman Dass Khandelwal and PCIT vs. Jai Shiv Shankar Traders Pvt. Ltd.) to hold that section 292BB cannot validate a reassessment where there was a complete absence of a departmental notice under section 143(2). The order follows and applies these authorities; the Tribunal did not purport to lay down a new legal principle beyond application of those precedents.

Order Formalities and Miscellaneous

The order was pronounced in open court on 28.02.2020. The Bench comprised Sanjay Garg (Judicial Member) and Annapurna Gupta (Accountant Member). The appeals stood allowed and the reassessments quashed; copies of the order were forwarded to the appellant, the respondent, the CIT, the CIT(A) and the DR, ITAT, Chandigarh, as indicated in the order.

Show full summary ...
To access the original judgment, please Sign In or Subscribe.

    M/s Radhe Sham Jain Diamonds Jewellers Pvt. Ltd., Ludhiana v. DCIT, CC-III, Ludhiana

    , ,  IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B CHANDIGARH  ,     ',  BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND Ms. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA Nos. 398 to 401/C HD /2019   / Assessment Years : 2009-10 & 2012-13 M/s Radhe Sham Jain Diamond Jewellers Pvt Ltd., B-XIX, 549/1, College Road, Fountain Chowk, Civil Lines, Ludhiana The DCIT, Central Circle - III Ludhiana  ./PAN NO: AADCR8437J /Appellant /Respondent  /Assessee by : Shri Rajeev Gupta, CA  / Revenue by : Smt. Anita Meena, JCIT %/Date of Hearing : 04.02 2020 %/Date of Pronouncement : 28.02.2020 /Order Per Sanjay Garg, Judicial Member: The captioned appeals for four consecutive assessment years 2009-

    10 to 2012-13 have been preferred by the assessee against the separate orders dated 16.01.2019 of the Commissioner of Income Tax (Appeals)- 5, Ludhiana [hereinafter referred to as CIT (A)] raising identical grounds. ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana

    2. Since the facts and issue involved in all the appeals are identical, hence, the same were heard together and are being disposed of by this common order.

    3. The assessees appeal for assessment year 2012-13 bearing ITA No.401/Chd/2019 is taken as a lead case for the purpose of discussion. ITA No. 401/Chd/2019(A.Y. 2012-13)

    4. The assessee in this appeal has taken the following grounds of appeal:-

    1. That the Hon'ble CIT (A)-5 has erred in rejecting the additional ground of appeal that the re-assessment is liable to be quashed on the ground that the statutory notice u/s 143(2) was not served on the assessee.

    2. That the Hon'ble CIT (A]-5 has erred in rejecting the additional ground of appeal that the addition has been made by the AO without rejecting the books of account u/s 145(3) of the Income Tax Act, 1961.

    3. That the Hon'ble CIT (A)-5 has erred in confirming the addition of Rs. 128996/- on account of G.P. on so called Bogus Purchases for Rs. 2149920/- and further enhancing the addition to Rs. 2149920/-, which is against the law and facts.

    4. That the Hon'ble CIT (A)-5 has erred in dismissing the plea of the assessee for quashing the reopening of assessment under section 147 of the Income Tax Act, 1961. ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana

    5. That the Appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.

    5. Ground No.1 : The assessee vide ground No.1 has contested the validity of the assessment framed u/s 143(3) read with section 147 of the Income Tax Act, 1961 on the ground that statutory notice u/s 143(2) was not issued or served upon the assessee. The Ld. Counsel in this respect has placed reliance on the copies of the assessment records / order sheet of the assessment proceedings, which is placed at pages 7 to10 of the paper book.

    6. We have gone through the said order sheet entries and find that there is no mention in any of the orders of the Assessing Officer of different dates relating to the assessment proceedings carried out in the case of the assessee of issuance of any notice u/s 143(2) of the Income Tax Act.

    7. The Ld. DR, after perusal of the record has fairly agreed that in this case no notice u/s 143 (2) was issued by the Assessing Officer to the assessee either before or during the framing of the assessment u/s 143(3) of the Act. The Ld. Counsel for the assessee has submitted that the issue is very well settled on this point that even to assume jurisdiction by the Assessing Officer to frame reassessment u/s 143(3) read with section 147 of the Act, statutory notice u/s 143(2) is ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana mandatorily required to be issued. The Ld. Counsel in this respect has made the following submissions:- Ground of appeal No. Assessing Officers Findings CIT(A)s Findings AR submissions.

    1. That the Hon,ble CIT(A)-5 has erred in rejecting the additional ground of appeal that the re-assessment is liable to be quashed on the ground that the statutory notice u/s 143(2) was not served on the assessee. Re-assessment order passed without issuing statutory notice u/s 143(2) of the Act. Dismissed the assessee's gound by taking plea of section 292BB. Para no.4.6 at page no.15 - Here issue is not regarding service of notice but in fact no notice issued u/s 143(2) at all during the re- assessment proceedings. Copy of order sheet placed at PB folio 7-10. Also para 1 of assessment order is self explanatory i.e. no notice issued u/s 143(2) of the Act. - Hon'ble Apex Court in the case of CIT vs. Laxman Dass Khandelwal held; in para 9, the section i.e. 292BB is not intended to cure complete absence of notice itself. - Hon'ble Delhi High Court in the case of PCIT vs. Jai Shiv Shankar Traders Pvt. Ltd. Held; in para 19, the failure by the AO to issue a notice to assessee u/s 143(2) after filing the return pursuant to a notice issued u/s 148 of the Act, is fatal to the order of reassessment. - Hon'ble Rajasthan High Court in the case of PCIT vs. Kamla Devi Sharma held; in para no.18 same finding i.e., the failure by the AO to issue a notice to assessee u/s 143(2) after filing the return pursuant to a notice issued u/s 148 of the Act, was fatal to the order of re-assessment. - Hon'ble Delhi High Court in the case of PCIT vs. Silver Line & ANR. Held; in para 23, that a re- assessment order cannot be passed without compliance with the mandatory requirement of notice being issued by the AO to the assessee under section u/s 143(2) of the Act - Hon'ble Madras High Court in the case of Sapthagiri Finance & Investments vs. ITO held; in para no.13 i.e. we are of the view that in completing the assessment under section 148 of the Act, compliance of the procedure laid down under sections 142 and 143(2) is ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana mandatory. - Hon'ble P&H High Court in the case of CIT vs. Cebon India Ltd. Held; in para no.5, Absence of notice cannot be held to be curable under S.292BB of the Act. - Hon'ble ITAT Chandigarh in the case of Sanjeev Aggarwal vs. DCIT Held; in para 10 last lines i.e. We hereby quash the order of the Assessing officer, which was made without issue of notice u/s & 143(2) of the Act.

    8. The Ld. DR, on the other hand, has relied upon the provisions of section 292BB of the Act to submit that if the assessee has not raised any objection of service of notice, appeared in any proceedings or cooperated in an enquiry relating to the assessment or re-assessment and no objection has been raised regarding the service of notice upon him, such assessee is precluded from taking any objection in this respect at a later stage. The Ld. DR in this respect has also relied upon the decision of the Hon'ble Punjab & Haryana High Court in the case of Josh Builders and Developer (P) Ltd. vs PCIT (2016) 389 ITR 314(P&H).

    9. In rebuttal, the Ld. AR of the assessee has submitted that the case law relied upon by the Revenue of Hon'ble High Court of Punjab & Haryana in the case of Josh Builders & Developers (P') Ltd. vs PCIT (supra) is regarding the validity and service of notice issued u/s 143(2) of the Act, while in the present case there is complete absence of notice u/s 143(2) i.e no notice was issued at all either before or after filing of the return in response to notice issued u/s 148 of the Act. It was, ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana therefore, submitted that the said decision is not applicable to the facts and circumstances of the case.

    10. We have considered the rival contentions and have also gone through the record. So far as the reliance of the Ld. DR upon the provisions of section 292BB of the Act is concerned, the issue is now well settled by the Hon'ble Supreme Court in the case of CIT vs Laxman Dass Khandelwal Civil Appeal No. 6261-6262 of 2019 decided vide order dated August 13, 2019, wherein, the Hon'ble Supreme Court in para 8 to10 of the order has observed as under:-

    8. The law on the point as regards applicability of the requirement of notice under Section 143(2) of the Act is quite clear from the decision in Blue Moon's case. The issue that however needs to be considered is the impact of Section 292BB of the Act.

    9. According to Section 292BB of the Act , i f the assessee had participated in the proceedings, by way of legal fiction, notice would be deemed to be valid even if there be infractions as detailed in said Section. The scope of the provision is to make service of notice having certain infirmities to be proper and valid if there was requisite participation on part of the assessee. It is, however, to be noted that die Section does not save complete absence of notice. For Section 292BB to apply, the notice must have emanated from the department. It is only the infirmities in the manner of service of notice that the Section seeks to cure. The Section is not intended to cure complete absence of notice itself .

    10. Since the facts on record are clear that no notice undersection143(2) of the Act was ever issued by the Department, the findings rendered by the High Court and the Tribunal and the conclusion arrived at were correct. We, therefore, see no reason to take a different view in the matter. ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana The Hon'ble Supreme Court, thus, has categorically held that section

    292 BB is not indeed to cure complete absence of notice itself. So far as the mandatory requirement of issue of notice u/s 143(2) of the Act in the case of re-assessment proceeding carried out u/s 147 of the Act is concerned, the issue has been settled by the Hon'ble Delhi High Court in the case of PCIT vs Jai Shiv Shankar Traders Pvt Ltd. (2016) 383 ITR

    448 (Delhi), wherein, the Hon'ble Delhi High Court held that the failure of the Assessing Officer to issue a notice to the assessee u/s 143(2) of the Act subsequent to the fil ing of the return pursuant to the notice issued u/s 148 of the Act is fatal of the order of the re-assessment. In view of this, the assessment / re-assessment framed by the Assessing Officer u/s 143(3) of the Act read with section 147 of the Act is l iable to be quashed. We order accordingly. In view of this, the consequential addition pursuant to such invalid assessment framed will have no legs to stand and are accordingly ordered to be deleted.

    11. In view of our findings given above on the legal issue, the grounds taken by the assessee on merits have become academic in nature. However, for the sake of completeness, the grounds on merits are also dealt with.

    12. Ground Nos 2 & 3: Vide ground Nos. 2 & 3, the assessee has agitated the confirmation of addition of Rs. 1,28,996/- on account of ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana GP rate applied on alleged bogus purchases and further, the enhancement to the addition by the CIT(A) of Rs. 21,49,920/- pleading that such an addition was not warranted as neither any defect in the books of account of the assessee were pointed out nor the books of account were rejected u/s 145(3) of the Act. That even the alleged bogus purchases have been presumed by the lower authorities without there being any evidence of such bogus purchases. The Ld. AR of the assessee in this respect has made the following submissions:- Ground of appeal No. Assessing Officers Findings CIT(A)s Findings AR submissions.

    2. That the Hon'ble CIT (A)-5 has erred in rejecting the additional ground of appeal that the addition has been made by the AO without rejecting the books of account u/s 145(3) of the Income Tax Act, 1961. In re-assessment books were not rejected by AO Para 4.5 at page no.15 of CIT(A) order held; The addition has been made by the AO on the basis of this information and for doing so, there was no requirement to reject the books of accounts u/s 145(3) because apart this item, no other addition has been made during the^ re- assessment proceedings. -There is no other adverse finding except information from investigation wing. -Assessee is an trading concern and supplied the day to day stock register of diamonds during re- assessment proceedings at PB folio

    53 to71 showing the receipt from Nazar Impex as well as sale of diamonds. - Even books rejected u/s 145(3) in original assessment were not upheld by the CIT(A) as well as Hon'ble Chandigarh Tribunal (Copy enclosed, para 11 at page no.7 of the ITAT's Order) - Sales as well as value in closing stock in respect of the purchases from Nazar Impex were accepted by the Revenue, thus the purchases can not be disallowed without rejecting books of accounts in the case of trading concern.

    3. That the Hon'ble CIT (A)-5 has erred in confirming the addition of Rs. 128996/- on account of G.P. on so called Bogus Purchases for Rs. 2149920/- and further enhancing There is no other adverse finding except information from investigation wing. Para 4.2, 8th line from below of page 13 of CIT(A)'s order; Since the items do not have specific identity number, hence it cannot be -Bogus purchases not established by the AO. -PB folio 42; if purchase of diamonds excluded from purchases as well as stock in trade, it results to loss of Rs.20,16,844/-, cannot be said that assessee made efforts to reduce the profit. - Hon'ble Apex Court in the case of ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana the addition to Rs. 2149920/-, which is against the law and facts. verified whether the diamonds shown as purchased from Nazar Impex were included in the stock and only those particular items have been sold and included in sales declared by the assessee. Para 4.2,19;h line from top of the page no.14; As the assessee has debited the amount of purchase from Nazar Impex in the trading account this has led to suppression of the profit to the extent of bogus purchases. PCIT vs. Tejua Rohit kumar Kapadia (PB folio 3 to 6) held; in para 3, the purchases were duly supported by bills and payment were made by account payee cheque, conformation of transactions, no evidence that the amount was recycled back to assesssee, particularly trader had also shown sales out of purchases made, which were accepted by Revenue. No question of law arises. -Confirmation u/s 133(6) is placed at PB folio 11 to 32. -Hon'ble Bombay High Court in the case of PCIT vs. Paramshakti Distributors Pvt. Ltd. Concl; Where AO has not rejected either purchases or the sales made out of the said purchases, it is allowed to apply the principle of taxing the profit embedded in such purchases covered by bogus bills, instead of disallowing the entire expenditure. - Hon'ble Bombay High Court in the case of PCIT vs. Pinaki D. Panani, allowed to apply the principle of taxing the profit embedded in such purchases covered by bogus bills, instead of disallowing the entire expenditure.

    13. The Ld. DR, on the other hand, has submitted that the Assessing Officer has relied upon the report of the Investigation Wing that the assessee was involved in bogus purchases. Further, the Ld. DR has relied upon the observation of the CIT(A) made in para 4.2 at page 13 of the impugned order of the CIT(A) to submit that the Ld. CIT(A) has observed that items do not have any specific identify number, hence, it cannot be verified whether the diamonds shown as purchased from M/s Nazar Impex Pvt Ltd. were included in the stock and that the same have been included in the sales declared by the assessee. ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana

    14. In rebuttal, the Ld. Counsel for the assessee has relied upon page

    50 of the paper book to submit that assessee had duly submitted the relevant details not only during assessment proceedings but also during re-assessment proceedings. Page 50 is the copy of the letter dated 29.12.2019 submitted to the Assessing Officer during the re-assessment proceedings, point 9 of which is relevant, which for the sake of convenience is reproduced as under:- Copy of account with M/s Nazar Impex Pvt. Ltd. is enclosed. It is pertinent to mention here that during the assessment proceedings assessee had provided the complete particulars of Purchases, Sales, Item wise quantative details, Stock Register, Trading account of diamond, Date wise movement of diamonds etc. Ld. AO. also had verified the same. Confirmation from the party is on record. Even on the date of search i.e. 14.03.2012 physical stock summary had prepared and there was negligible difference in stock of diamonds, as per books of accounts. Which also had duly surrendered and tax already paid on the same. Please find enclosed the following documents in support of our submissions, which are already given during the assessment proceedings and are on record :-

    (i) Detail enclosed with reply dt 12.09.2013.

    (ii) Diamond Purchase Ledger.

    (iii) Diamond Sale Ledger.

    (iv) Diamond Trading A/c.

    (v) Diamond Stock Register.

    (vi) Valuation report dt 14.03.2012.

    15. A perusal of the above details along with documents attached with the paper book reveals that the assessee has submitted the complete particulars of purchase / sales, item-wise quantitative details, stock ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana register, trading account of diamond and date wise movement of diamond. The details noted above were also submitted during the re- assessment proceedings. From the above, it is duly proved that the entire details were submitted by the assessee. The Assessing Officer without any verification of any of the details submitted by the assessee and even without verification from the concerned seller M/s Nazar Impex Pvt Ltd. made the additions without application of mind merely on the basis of the some investigation report from the Director General (Investigation),Mumbai which on stand-alone basis without corroboration with any of the facts of the case of the assessee cannot be made the sole basis to hold that the assessee had made bogus purchases. Moreover, the Ld. Counsel for the assessee has demonstrated that if the alleged bogus purchases and corresponding sales are ignored or excluded, there will be a resultant loss of Rs. 20,16,844/- and under the circumstances, it cannot be said that the assessee had booked bogus purchases to reduce the profits. Moreover, when the sales have been admitted and there is sufficient profit shown by the assessee on such sales and even without any iota of evidence on the file that the assessee was indulged in bogus purchases, the lower authorities were not justified in making / confirming the impugned additions. Moreover, no defect has been pointed out in the books of account of the assessee and even the books of account have not been rejected by the Assessing Officer. ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana In view of this, grounds Nos. 2 & 3 are allowed in favour of the assessee.

    16. Ground No.4: At the outset, the Ld. Counsel for the assessee has submitted that he does not press ground No.4 of the appeal, hence, is same is dismissed as not pressed.

    17. In view of our findings given above on ground No.1, re-assessment is quashed and, therefore, the consequential additions made by the Assessing Officer have no legs to stand and the same are also accordingly ordered to be deleted. Even on merits, in view of our findings given above, the additions made by the Assessing Officer are not sustainable.

    18. Now coming to the assessees appeals for assessment years 2009-

    10 to 2011-12, wherein, the assessee has taken following grounds of appeal:- ITA No. 398/Chd/2019 (A.Y. 2009-10):-

    1. That the Hon'ble CIT (A)-5 has erred in rejecting the additional ground of appeal that the re- assessment is liable to be quashed on the ground that the statutory notice u/s 143(2) was not served on the assessee.

    2. That the Hon'ble CIT (A)-5 has erred in rejecting the additional ground of appeal that the addition has been made by the AO without rejecting the ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana books of account u/s 145(3) of the Income Tax Act, 1961.

    3. That the Hon'ble CIT (A)-5 has erred in confirming the addition of Rs. 116610/- on account of bogus purchases for Rs. 1943495/- and further enhancing the addition to Rs. 1943495/-, which is against the law and facts.

    4. That the Hon'ble CIT (A)-5 has erred in dismissing the plea of the assessee for quashing the reopening of assessment under section 147 of the Income Tax Act, 1961.

    5. That the Appellant craves leave to add or amend grounds of appeal before the appeal is finally heard or disposed off. ITA No. 399/Chd/2019 (A.Y. 2010-11):-

    1. That the Hon'ble CIT (A)-5 has erred in rejecting the additional ground of appeal that the re- assessment is liable to be quashed on the ground that the statutory notice u/s 143(2) was not served on the assessee.

    2. That the Hon'ble CIT (A)-5 has erred in rejecting the additional ground of appeal that the addition has been made by the AO without rejecting the books of account u/s 145(3) of the Income Tax Act, 1961.

    3. That the Hon'ble CIT (A)-5 has erred in confirming the addition of Rs. 420392/- on account of G.P. on so called Bogus Purchases for Rs. 7006529/- and further enhancing the addition to Rs. 7006529/-, which is against the law and facts.

    4. That the Hon'ble CIT (A)-5 has erred in dismissing the plea of the assessee for quashing ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana the reopening of assessment under section 147 of the Income Tax Act, 1961.

    5. That the Appellant craves leave to add or amend grounds of appeal before the appeal is finally heard or disposed off. ITA No. 400/Chd/2019 (A.Y. 2011-12):-

    1. That the Hon'ble CIT (A)-5 has erred in rejecting the additional ground of appeal that the re- assessment is liable to be quashed on the ground that the statutory notice u/s 143(2) was not served on the assessee.

    2. That the Hon'ble CIT (A)-5 has erred in rejecting the additional ground of appeal that the addition has been made by the AO without rejecting the books of account u/s 145(3) of the Income Tax Act, 1961.

    3. That the Hon'ble CIT (A)-5 has erred in confirming the addition of Rs. 55954/- on account of G.P. on so called Bogus Purchases for Rs. 932568/- and further enhancing the addition to Rs. 932568/-, which is against the law and facts.

    4. That the Hon'ble CIT (A)-5 has erred in dismissing the plea of the assessee for quashing the reopening of assessment under section 147 of the Income Tax Act, 1961.

    5. That the appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.

    19. Both the Ld. representatives of the parties have stated the since the identical grounds have been taken in all the appeals and even the ITA Nos. 398 to 401/Chd/2019- Shri Radhey Shayam Jain Diamond Jewellers Pvt Ltd, Ludhiana facts and issues involved are identical, hence, the findings given by us on each of the issue in assessees appeal for assessment year 2012-13 will apply mutatis-mutandis in these cases also. In view of the findings given above, the re-assessment framed in all the captioned appeals stand quashed and all the appeals of the assessee stand allowed. Order pronounced in the Open Court on 28.02.2020. Sd/- Sd/- ( ' / ANNAPURNA GUPTA) / Accountant Member (  / SANJAY GARG)  / Judicial Member Dated : 28.2.2020  ,- .-/ Copy of the order forwarded to :

    1. / The Appellant

    2. / The Respondent

    3. // CIT

    4. / ()/ The CIT(A)

    5. -  2, % 2, 4/ DR, ITAT, CHANDIGARH

    Use AI to get other relevant cases.
    Try AI Pro free for 7 days Upgrade to AI Pro

    Comments

    M/s Radhe Sham Jain Diamonds Jewellers Pvt. Ltd., Ludhiana v. DCIT, CC-III, Ludhiana
    (Feb 28, 2020)