OSTWAL DIAMOND P. LTD, MUMBAI V. ITO WD 2(5), MUMBAI

ITA 3653/MUM/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6963 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 19-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKEYAN
• Keywords: Reopening of assessment; Bogus purchase; Business income; Opportunity of cross examination; Third party statement; Accommodation entries; Retraction; Reason to believe; Documents seized; Reassessment proceedings
• Section: 143(3); 142(1); 251; 131; 148; 132; 12; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI SANDEEP GOSAIN , JM ITA NO. 3653 / MUM/20 1 7 & 2270/MUM/2018 ( ASSESSMENT YEAR : 2007 - 08 & 2008 - 09 ) SHRI OSTWAL DIAMOND PVT. LTD., C/O. RMR & CO. (CHARTERED ACCOUN TANTS) 425, THE SUMMIT BUSINESS BAY (OMKAR), NEAR WEH METRO STATION PRAKASHWADI, ANDHERI (E) MUMBAI 400 069 VS. INCOME TAX OFFICER, WARD 2(5) ROOM NO.16, B WING, 6 TH FLOOR, ASHAR IT PARK ROAD NO.16Z, MIDC THANE (W) PAN/GIR NO. AAACO4853A ( APPELLANT ) . . ( RESPONDENT ) ASSESSEE BY SHRI RAJESH SHAH REVENUE BY SHRI ABI RAMA KARTIKEYAN DATE OF HEARING 04 / 01 /201 9 DATE OF PRONOUNCEMENT 01 / 03 /201 9 / O R D E R PER SANDEEP GOSAIN (JM ) : ITA NO.3 653/MUM/ 2017 (A .Y.2007 - 08) THI S IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 1, MUMBAI DATED 08/03/2017 FOR THE A.Y.2007 - 08 IN THE MATTER OF ORDER PASSED U/S.143(3) R.W.S. 147 OF THE IT ACT. 2. IN THIS APPEAL ASSESSEE IS AGGRIEVED FOR REOPENING OF ASSESSMENT AS WELL A S MERIT OF THE ADDITION MADE IN RESPECT OF ALLEGED BOGUS PURCHASES. ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 2 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FROM THE RECORD WE FOUND THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF DIAMONDS. DURING THE YEAR UNDER C ONSIDERATION, ASSESSEE FILED ITS RETURN OF INCOME AT RS.5,20,147/ - ON 24/10/2007. THE ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT, THEREAFTER , O N INFORMATION RECEIVED FROM DGIT (INV.) MUMBAI THE CASE WAS REOPENED BY ISSUING NO TIC E U/S 148 OF THE ACT ON 28.03.2014. THE ASSESSMENT ORDER FOR REASSESSMENT U/S 143(3) R.W.S. 147 OF THE ACT WAS PASSED ON 31.03.2015. THE RE - ASSESSMENT ORDER WAS COMPLETED AFTER MAKING ADDITION IN RESPECT OF ALLEGED PURCHASES OF RS.4,16,38,902/ - . 4. BY THE IMPUGNED ORDER, CIT(A) C ONFIRMED THE ADDITION TO THE EXTENT OF RS.2,84,96,601/ - BY ESTIMATING PROFIT OF 6% ON THE ENTIRE SALES. ASSESSEE IS IN FURTHER APPEAL BEFORE US AGAINST THE ADDITION UPHELD BY THE CIT(A) AND ALSO AGAINST THE CONFIRMATION OF REOPENING BY THE CIT(A). 5. IT WA S ARGUED BY THE LD. AR THAT NOTICE ISSUED U/S.148 OF THE ACT BY ACIT, CIR - 2, FOR REOPENING OF THE CASE IS WITHOUT JURISDICTION. OUR ATTENTION WAS INVITED TO THE FOLLOWING FACTS: - A. THE ASSESSEE HAS FILED ITS ORIGINAL RETURN OF INCOME FOR 2007 - 08 ASST. YEA R VIDE ACKNOWLEDGMENT NO. 2407471241007 ON 24.10.2007 WITH WARD 4(2), THANE, THE COPY OF ACKNOWLEDGMENT IS PLACED ON RECORD B. THE ORIGINAL ASSESSMENT ORDER U/S 143(3) OF THE ACT FOR 2007 - 08 ASST. YEAR WAS PASSED BY ITO WARD 2(3), THANE, ON 22.12.2009. FU RTHER, THE RECTIFICATION U/S 154 OF THE ACT WAS DONE BY ITO WARD 2(3), THANE ON 10.03.2010. THE COPY OF THE SAID ORDER PASSED U/S 143(3) OF THE ACT AS WELL AS ORDER PASSED U/S 154 OF THE ACT IS PLACED ON RECORD. C. THE LD. AO IN PARA 2.1 OF HIS ASSESSMENT ORDER SPECIFICALLY MENTIONED AS UNDER: ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 3 2.1 ON THE STRENGTH OF THE ABOVE VALID INFORMATION, RECOURSE TO SECTION U/S 147 WAS TAKEN, ACCORDINGLY, NOTICE U/S 148 OF THE I.T. ACT WAS ISSUED BY THE ACIT, CIR - 2, THANE ON 28.03.2014 F.' -- 'CH WAS DULY SERVED UPON T HE ASSESSEE THROUGH REGISTERED POST. THE CASE WAS TRANSFERRED TO THE ITO, WD - 2(2), THANE WHO ISSUED NOTICES U/S 143(2)/142(1} 07.08.2014. D. IT IS CLEAR FROM THE ABOVE THAT THE NOTICE WAS ISSUED BY THE ACIT, CIR - 2, THANE ON 28.03.2014. E. THE ASSESSEE HA S FILED ITS RETURN WITH ITO (THEN), WARD 4(3), THANE AND THE ORIGINAL ASSESSMENT U/S 143(3) OF THE ACT AND ORDER U/S 154 OF THE ACT WAS ALSO PASSED BY ITO WARD 2(3), THANE, THEN HOW THE ACIT, CIR - 2, THANE HAS ASSUMED THE CHARGE AND REOPENED THE CASE U/S 14 7 OF THE ACT AND ISSUED NOTICE U/S 148 OF THE ACT AND THEN TRANSFERRED THE CASE TO JURISDICTIONAL OFFICER. IT IS CLEAR THAT THE ACIT, CIR - 2 HAS WRONGLY ASSUMED THE CHARGE AND ACCORDINGLY THE NOTICE ISSUED U/S 148 OF THE ACT IS WITHOUT VALID JURISDICTION. 6. IN SUPPORT OF THE ABOVE PROPOSITION THAT NOTICE ISSUED BY AO WAS WITHOUT JURISDICTION , RELIANCE WAS PLACED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS: Y. NARAYANA CHETTY VS. ITO 35 ITR 388, 392 (SC) CIT VS. MAHARAHA PRATAP SINGH BAHADUR 41 ITR 421 (SC) CI T VS. ROBERT 48 ITR 177 (SC) 7 . FURTHER RELIANCE WAS PLACED ON THE DECISION OF ITAT DELHI BENCH DATED 12/06/2015 IN CASE OF M UKESH KUMAR VS. IJO, WARD 23(3), DELHI, APPEAL NO. 2358/DEL/2012, IN WHICH THE FOLL OWING OBSERVATION WAS MADE: THE ISSUE OF VALID JURISDICTION IS A CONDITION PRECEDENT TO THE VALIDITY OF ANY ASSESSMENT UNDER SECTION 147 OF THE ACT; THEREFORE, THE ASSESSMENT MADE PURSUANT TO SUCH NOTICE IS BA D IN LAW. WE HAVE NO HESITATION TO QUASH THE REASSESSMENT PROCEEDINGS SINCE THERE WAS NO VALI D NOTICE PURSUANT TO WHICH THE REASSESSMENT PROCEEDING WAS MADE IN THE PR ESENT CASE. ACCORDINGLY, THE APPEAL FILED B Y THE APPELLANT IS ALLOWED. 8 . RELIANCE WAS ALSO PLACED ON THE DECISION OF 'C' BENCH OF HON'BLE TRIBUNAL, DELHI, IN CASE OF INCOME - TAX OFF ICER, WARD 11(4), DELHI VS. M/S ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 4 INDUS VALLEY INVESTMENT & FINANCE PVT. LTD. PRONOUNCED ON 06.07.2012. THE FOLLOWING OBSERVATION WERE MADE: IT IS WELL - SETTLED THAT IF A NOTICE UNDER SECTION 148 OF T HE ACT HAS BEEN ISSUED WITHOUT TH E J URISDICTIONAL FOUNDATI ON U/S 147 OF THE ACT BEING AVAILABLE TO THE AO, THE NOTICE AND THE SUBSEQUENT PROCEEDINGS WILL BE WITHOUT JURISDICTIONA L AND THUS, LIABLE TO BE STRUCK DOWN. IN VIEW OF FOREGOING, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF LD. CIT (A), QUASHING THE REASSESSMENT ORDER. CONSEQUENTLY, GROUND NO 1 IN THE APPEAL IS DISMISSED . 9 . IT WAS FURTHER CONTENDED THAT PROVISIONS OF SECTION 292B B WAS NOT APPLICABLE IN TERMS OF THE ORDER OF DELHI BENCH OF ITAT DATED 14/09/2010 IN THE CASE OF M/S NASEMAN FARMS PVT. LT D. (APPEAL NO.970/2010 ). ACCORDINGLY, IT WAS PLEADED THAT NOTICE ISSUED U/S.148 OF THE ACT IS WITHOUT VALID JURISDICTION. AFTER READING THE PROVISIONS OF SECTION 147, LD. AR CONTENDED THAT SECTION STATES THAT THE ASSESSING OFFICER HAS TO BELIEV E, HENCE IT IS CLEAR AND ALSO I T IS WELL SETTLED LAW THAT THE ASSESSING OFFICER SHOULD HAVE HIS OWN SATISFACTION FOR REASON TO BELIEVE THAT INCOME CHARGEABLE TO TAX HAS BEEN ESCAPED AND HE CANNOT BORROW THE REASON FROM OTHERS. AS PER THE ASSESSMENT ORDER, THE REOP ENING WAS MADE ONLY ON THE BASIS OF INFORMATION RECEIVED FROM DIRECTOR GENERAL OF INCOME TAX (INV.) MUMBAI AND THERE WAS NO SATISFACTION OF THE CONCERN AO, WHO HAS REOPENED THE CASE. OUR ATTENTION WAS INVITED TO THE TEXT MENTIONED IN PARA 2, 2.1 AND 8.1 O F THE ASSESSMENT ORDER, WHICH READ AS UNDER: '2. BRIEF FA CTS OF THE CASE WAS THAT ON THE BASIS OF INFORMATION RECEIVED FROM THE DIRECTOR GENERAL OF INCOME TAX (INV), MUMBAI VIDE LETTER DATED 13.03.2014, IN CONNECTION WITH SHARING OF INFORMATION IN TH E CASE OF BENEFICIARIES OF ACCOMMODATION ENTRIES - SHRI GAUTAMCHOND JAIN & OTHERS ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 5 (SURAT DIAMOND CONCERNS GROUP). AS PER THE INFORMATION, A SEARCH U/S 132 OF THE IT. ACT, 1961 WAS CONDUCTED ON 03.10.2013 ON SURAT BASED DIAMOND CONCERNS. R HE PIECE OF INFORMA TION EXPLICITLY CONTAINED THE NAME, PAN OF THE ASSESSEE WHEREIN IT HAS BEEN ASCERTAINED THAT THE ASSESSEE HAD OBTAINED ACCOMMODATION ENTRIES OF PURCHASES WITHOUT ACTUAL AND PHYSICAL DELIVERY OF GOODS. THUS, THE ASSESSEE WAS ONE OF THE BENEFICIARY. THE DETA ILS OF TRANSACTIONS ARE AS FOLLOWS: NAME /PAN OF THE BEN E FICIARY NAME OF THE CONCERNS FROM WHOM ACCOMMODATION ENFRIES OBTAINED NATURE OF TRANSACTION/F.Y. AMOUNT INVOLVED ( R S.) M/S OSTWAL DIAMOND PVT. \ LTD. AAACO4853A KARISHMA DIAMONDS PVT. LTD. P URCHASE/06 - 07 58,99,0/3A KRISHNA DIAMONDS 2,86,24,306/ - MIHIR DIAMONDS 71,15,523/ - TOTAL 4,16,38,902/ - 2.1. ON THE STRENGTH OF THE ABOVE VALID INFORMATION, RECOURSE TO SECTION U/S 14 7 WAS TAKEN. ACCORDINGLY, NOTICE U/S.148 OF THE IT ACT WAS ISSUED BY THE ACIT, CIR - 2, THANE ON 28.03,2014 WHICH WAS DULY SERVED UPON THE ASSESSEE THROUGH REGISTERED POST . THE CASE WAS TRANSFERRED TO THE ITO, WD - 2(2), THANE WHO ISSUED NOTICES U/S 143(2)/142(1) 07 /08/2014. 10 . OUR ATTENTION WAS ALSO INVITED TO THE FOLLOWING OBSERVATIONS OF THE AO WHICH PROVES THAT REOPENING WAS MADE ONLY ON THE BASIS OF JUST INFORMATION RECEIVED FROM DDIT - INVESTIGATION WING, MUMBAI. IN PARA 2 OF THE ASSESSMENT ORDER, THE LD. AO, H IMSELF HAS MENTIONED THAT ON THE STRENGTH OF THE ABOVE VALID INFORMATION, RECOURSE TO SECTION U/S 147 WAS TAKEN. THIS IS CLEAR CUT VIOLATION OF SECTION 147 OF THE ACT AS THE SECTION STATES THAT THE RECOURSE TO SECTION 147 CAN BE TA KEN ON SATISFACTION OF TH E AO BY R EASON RECORDED IN WRITING BUT IN THE CASE OF ASSESSEE RECOURSE TO SECTION 147 WAS TAKEN ON THE BASIS OF JUST INFORMATION. THE LD. AO HAS ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 6 NOT MENTIONED HOW AND ON WHAT DOCUMENTS HE HAS REACHED TO THE CONCLUSION THAT INFORMATION WAS VALID. 11. IT W AS ALSO ARGUED BY LD. AR THAT ORIGINAL ASSESSMENT WAS COMPLETED U/S.143(3) AFTER MAKING DETAILED ENQUIRY WITH REGARD TO THE PURCHASES AND SALES SO MADE BY THE ASSESSEE. HOWEVER, REOPENING WAS MADE AFTER MORE THAN FOUR YEARS FROM THE END OF THE RELEVANT ASS ESSMENT YEAR BY ISSUE OF NOTICE U/S.148. AS PER LD. AR, THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO MAKE RETURN U/S.139 OR IN RESPONSE TO NOTICE ISSUED UNDER SUB - SECTION 1 OF SECTION 142 OR SECTION 148 TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT, ACCORDINGLY, NO REOPENING CAN BE MADE AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR IN TERMS OF PROVISO TO SECTION 147. 1 2 . ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES IN RESPEC T OF VALIDITY OF THE REOPENING AND THE REASONS RECORDED. 1 3 . WE HAVE CONSIDERED RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. UNDER THE PROVISIONS OF SECTION 147, REOPENING SOLELY ON THE BASIS OF INFORMATION RECEIVED FRO M THE INVESTIGATION WING AND WITHOUT INDEPENDENT APPLICATION OF MIND IS VOID . T HE LAST FIVE LINE OF PARA 2 OF THE REASON RECORDED IN WRITING ARE AS UNDER: 'THUS, IT IS OBSERVED THAT THE ASSESSEE IS ALSO ONE OF THE BENEFICIARIES OF SHRI GAUTAM JAIN & OTHER S AND ACCEPTING THE ACCOMMODATION ENTRIES DURING THE FINANCIAL YEAR 2006 - 07 RELEVANT TO \ ASSESSMENT YEAR 2007 - 08. THEREFORE, THE SAME WILL NEEDS VERIFICATION AND SHOULD BE DISALLOWED & ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 7 TAXED ACCORDINGLY. SINCE, THE INCOME ESCAPED ASSESSMENT IS MUCH HIGHER THAN RSJ LACS, NOTICE U/S 148 OF THE I. J. ACT. 196 / SHOULD BE ISSUED.' 1 4 . ON GOING THROUGH THE ABOVE OBSERVATION OF NON - JURISDICTIONAL OFFICER, WHO HAS CATEGORICALLY MENTIONED THE WORDS NEEDS VERIFICATION (OF INFORMATION). IT CLEARLY MEANS THAT AO IS N OT SATISFIED WITH THE INFORMATION FOR THAT SHE NEEDS FURTHER VERIFICATION THEN HOW SHE CAN REACH TO THE CONCLUSION THAT INCOME IS UNDER ASSESSED, PARTICULARLY, WHEN SHE HAS NOT VERIFIED ANYTHING BECAUSE NOTHING WAS AVAILABLE WITH HER AT THE TIME OF REOPENI NG OF THE CASE. 1 5 . IT IS WELL SETTLED PRINCIPLE THAT THE ACT, DOES NOT PERMIT TO REOPEN THE CASE FOR REASSESSMENT FOR THE REASON OF VERIFICATION OF ANY REASON TO BELIEVE, WHICH IS MISSING IN THE REASON RECORDED. 1 6 . IN PARA 8.1 OF THE ASSESSMENT ORDER, T HE LD. AO HAS CATEGORICALLY MENTIONED THAT FURTHER IN ORDER TO RECONFIRM THE FACTS AS COMMUNICATED BY THE INVESTIGATION WING A LETTER DATED 18.02.2015 WAS ISSUED TO THE DDIT(LNV), UNIT - 4(1), MUMBAI. HERE, IT IS WORTHWHILE TO MENTION THAT EVEN AT THE STAGE OF ASSESSMENT PROCEEDINGS ON 18.02.2013 THE LD. AO WAS JUST DEALING WITH INFORMATION AND WAS NOT HAVING ANY MATERIAL EVIDENCE ON RECORD TO CONFRONT TH E ASSESSEE THEN HOW ON WHICH BASIS HE/SHE CAN FORM REASON TO BELIEVE FOR REOPENING OF THE CASE. IT IS AGA IN WORTHWHILE TO MENTION THAT IN THE SAME PARA THE LD. AO HAS REQUESTED TO PROVIDE THE RELEVANT COPIES OF STATEMENT RECORDED DURING AND POST SEARCH PROCEEDINGS . IT WAS FURTHER REQUESTED BY THE LD. AO TO THE DDIT(LNV) TO PROVIDE COPIES OF INCRIMINATING DOCU MENTS SEIZED DURING THE SEARCH PROCEEDINGS. ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 8 1 7 . IT IS CLEAR FROM ABOVE THAT THE OFFICER WAS NEITHER HAVING STATEMENT RECORDED DURING SEARCH NOR HAVING ANY INCRIMINATING DOCUMENTS SEIZED DURING THE SEARCH AT ASSESSMENT STAGE. IT MEANS THE NO INCRIMINATING DOCUMENTS OR STATEMENT RECORDED WERE AVAILABLE AT THE TIME OF RECORDING OF REASON, THEN ON WHICH MATERIAL OR DOCUMENTS, THE OFFICER REACHED TO BELIEVE THAT THE INCOME IS ESCAPED OR UNDER ASSESSED. 1 8 . IN PARA 7 OF THE ASSESSMENT ORDER IN WHICH THE LD. AO ONCE AGAIN MENTIONED AS UNDER: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, SHRI MANOJ JAIN DULY AUTHORISED BY THE ASSESSEE ATTENDED ALONG WITH THE TWO DIRECTORS NAMELY SHRI ASHOK JAIN AND UTTAMCHAND OSFWAI THEY WERE CONFRONTED UPON THE INFORMATION RECEIV ED FROM THE INVESTIGATION WING.' 1 9 . IT IS AGAIN ESTABLISHED THAT THE LD. AO WAS HAVING JUST INFORMATION AND THE SAME IS PART OF ASSESSMENT ORDER. HENCE, IT IS ESTABLISHED THAT THE REASON S WERE RECORDED JUST ON THE BASIS OF INFORMATION WITHOUT ANY MATERIA L AND THE SAME IS NOT SUFFICIENT FOR REOPENING THE ASSESSMENT COMPLETED UNDER SCRUTINY PROCEEDINGS OF SEC.143(3) OF IT ACT. FURTHERMORE, THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION IS 2007 - 08, WHEREAS REOPENING WAS ON 28/03/2014 BY ISSUE OF NOTICE U/S .148. SINCE THE ASSESSMENT WAS REOPENED AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, THE DEPARTMENT HAS TO SHOW THAT THERE IS FAILURE ON THE PART OF THE ASSESSEE TO MAKE RETURN U/S.139 OR IN ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 9 RESPONSE TO NOTICE ISSUED U/S. 142(1) OR SECTION 148 ARE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR. HOWEVER, NOWHERE DEPARTMENT HAS SHOWN THAT THERE IS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL THE MATER IAL FACTS IN THE RETURN OF INCOME SO FILED, ACCORDINGLY, IN TERMS OF THE JURI SDICTIONAL HIGH COURT DECISION IN THE CASE OF 1. IPCA LABORATORIES LTD., VS. GAJANAND MEENA, DCIT & OTHERS (NO.2) REPORTED IN 251 ITR 416. 2. ICICI BANK LTD., VS. K.J . RAO AND ANOTHER REPORTED IN 268 ITR 203 3. HINDUSTAN LEVER LTD., VS. R.B.WADKAR, ACIT AND OTHERS (NO.1) REPORTED IN 268 ITR 332 4. DEVIDAYAL ROLLING MILL AND ANOTHER VS. Y.R.SAINI, ACIT AND OTHERS REPORTED IN 285 ITR 514 , NO REOPENING AFTER EXPIRY O F FOUR YEARS IS VALID UNLESS DEPARTMENT SHOWS THAT THERE IS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. ACCORDINGLY, WE DO NOT FIND ANY JUSTIFICATION IN THE REOPENING SO MADE U/S.147. 20 . NOW, COMING TO THE MERIT OF THE ADDITION, WE OBSERVE THAT ADDITION OF RS.4,21,59,050 WAS MADE ON ACCOUNT OF UNPROVED PURCHASES. FROM THE RECORD WE FOUND THAT THE ASSESSEE HAD SUBMITTED ALL THE DOCUMENTS DURING THE ASSESSEE PROCEEDINGS, SUCH AS PURCHASE BILL, SALES AGAINST SAID ALLEG E D PURCHASE, PAYMENT BY ACCOUNT PAYEE CHEQUE, CONFIRMATION OF ACCOUNTS OF ALLEGED PARTIES, STOCK REGISTER. THE ASSESSEE HAS ALSO PRODUCED THE COMPLETE BOOKS OF ACCOUNTS, THE LD. AO HAS NOT POINTED OUT ANY MISTAKE IN SUCH RECORDS. THE ASSESSEE HAS ALSO PRODUCED THE ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 10 RETRACTION STATEMENT OF ALLEGED PARTIES. THE LD. AO HAS NOT PROVIDED ANY COGENT MATERIAL IN SUPPORT OF HIS CLAIM. THERE IS NO MATERIAL ON RECORD OTHER THAT THE THIRD PARTY STATEMENT, WHICH WERE ALSO RETRACTED. 21. FROM THE RECORD WE ALSO FOUND THAT THE AO ISSUED SUMMONS U/S.131 TO SHRI GAUTAMCHAND JAIN SUPPLIER OF GOODS WHO SUBMITTED BEFORE THE AO THAT HE HAD ACTUALLY SOLD DIAMONDS TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION AND HAD FILED THE FOLLOWING DETAILS BEFORE THE AO, T HE AO HAD SUMMARIZED THE SAME AS UNDER: - COPIES OF I.T. RETURNS ALONGWITH BALANCE - SHEET, PROFIT & LOSS A/C OF ALL THE THREE CONCERNS FOR A.Y.2007 - 08, COPIES OF BANK STATEMENT OF THESE CONCERNS FOR F.Y.2006 - 07, COPIES OF BILLS ISSUED TO THE ASSESSEE, COPIE S OF LEDGER EXTRACT OF THE ASSESSEE AS APPEARING IN THEIR BOOKS OF ACCOUNTS FOR THE RELEVANT PERIOD. HOWEVER, SHRI GAUTAM JAIN FAILED TO ATTEND IN PERSON FOR VERIFICATION. 22. SHRI GAUTAMCHAND JAIN APPEARED BEFORE THE AO ON 25/03/2015 WHEN THE AO RECORDE D HIS STATEMENT WHICH HAS BEEN REPRODUCED IN THE ASSESSMENT ORDER AT PAGE NO.14 TO 20. 2 3 . FROM THE RECORD WE ALSO FOUND THAT THE ALLEGED PARTIES HA VE ALSO REPLIED TO SUMMONS ISSUED U/S 131 OF THE ACT AND PROVIDED ALL THE REQUIRED DETAILS TO THE LD. AO. T HE ASSESSEE HAS PRODUCED THE DIRECTOR/PARTNER OF ALLEGED PARTIES AND THE LD. AO HAD RECORDED THE STATEMENT ON OATH. IN THE WHOLE STATEMENT THERE IS NO ADVERSE ANSWER BY THE SAID DIRECTOR/PARTNER OF ALLEGED PARTIES . ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 11 2 4 . IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY MERIT FOR THE ADDITION SO MADE BY THE AO WHEN ALL THE DOCUMENTARY EVIDENCES WITH RESPECT TO THE PURCHASES, CORRESPONDING SALES, QUANTITATIVE STATEMENT WAS FILED BEFORE THE AO. THE ALLEGED PARTY HAS ALSO REPLIED TO THE SUMMON ISSUED BY THE A O U/S.131 AND PROVIDED ALL THE INFORMATION REQUIRED BY THE AO. FURTHERMORE, THE DIRECTORS / PARTNERS OF ALLEGED PARTIES WERE PRODUCED BEFORE THE AO AND THE AO HAS RECORDED A STATEMENT ON OATH. ACCORDINGLY, THERE IS NO JUSTIFICATION FOR ANY ADDITION MADE BY THE AO. 2 3 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO. 2270/MUM/2018 (A.Y.2008 - 09) 2 5 . THIS IS APPEAL FILED BY T HE ASSESSEE AGAINST THE ORDER PASS ED BY CIT U/S.263 OF THE IT ACT FOR THE A.Y.2008 - 09. 2 6 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, AO HAS PASSED SCRUTINY ASSESSMENT U/S.143(3) WHEREIN AFTER MAKING DETAILED ENQUIRY, AO HAS MADE ADDITION OF 3% OF ALLEGED BOGUS PURCHASES. THE CIT PROPOSED THE ORDER U/S.263 ON THE BASIS OF ORDER PASSED BY SAME AO FOR THE A.Y.2007 - 08 AND DIRECTED FOR 100% ADDITION IN RESPECT OF BOGUS PURCHASES AS AGAINST ADDITION OF 3% MADE BY AO. A S DISCUSSED BY US IN THE APPEAL OF THE ASSESSEE FOR A.Y.2007 - 08 HEREINABOVE , WHERE WE OBSERVE D THAT 100% ADDITION MAD E IN RESPECT OF BOGUS PURCHASES WAS RESTRICTED BY THE CIT(A) BY ESTIMATING PROFIT OF 6% ON THE TOTAL SALES MADE DURING THE YEAR. AFTER ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 12 GIVING DUE REASONING, THE ENTIRE ADDITION HAVE BEEN DELETED BY US ON MERITS AND THE REOPENING OF ASSESSMENT WAS ALSO FOUN D TO BE NOT VALID. 2 7 . FROM THE RECORD, WE FOUND THAT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION THE ACCOUNTS OF THE ASSESSEE WAS SUBJECT TO AUDIT UNDER COMPANIES ACT AND U/S.44AB OF THE I.T. ACT , REPORTS WERE ALSO FILED ALONGWITH RETURN OF INCOME. THE AS SESSEE COMPANY HAS FURNISHED BOTH THE AUDIT REPORT AT THE TIME OF ASSESSMENT PROCEEDINGS. THE ASSESSMENT OF THE ASSESSEE COMPANY WAS COMPLETED U/S 143(3) AFTER DETAILED SCRUTINY. ON THE POINTS WHICH CONSTITUTE CONDITION PRECEDENT FOR INVOCATION OF JURISDIC TION UNDER SECTION 26 3, WE OBSERVE THAT THE COMMISSIONER HAS TO BE SATISFIED OF TWIN CONDITIONS, NAMELY, (I) THE ORDER OF THE ASSESSING OFFICER SOUGHT TO BE REVISED IS ERRONEOUS; AND (II ) IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IF ONE OF THEM IS ABSENT - IF THE ORDER OF THE INCOME TAX OFFICER IS ERRONEOUS BUT IS NOT PREJUDICIAL TO THE REVENUE OR IF IT IS NOT ERRONEOUS BUT IS PREJUDICIAL TO THE REVENUE - RECOURSE CANNOT BE HAD TO SECTION 263(1). FOR THIS PROPOSITION RELIANCE CAN BE PLACED ON THE OR DER OF SUPREME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. V. C/T (2000) 14 DTC 146 (SC) : (2000)243ITR83(SC). 2 8 . THE COMMISSIONER GETS POWER OF REVISION, UNDER SECTIPN_263 WHERE THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE TWIN CONDITIONS ARE REQUIRED TO BE SATISFIED SIMULTANEOUSLY. ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 13 S. MURUGAN V. /TO [20J2JI35 ITD 527 (CHENNAI) (T RIB.). J. K. CONSTRUCTION CO. V. /TO [2007] 162 TAXMAN 46 (JODHPUR) (TRIB) 2 9 . SO FAR AS ENQUIRY MADE BY THE AO AND THE ADDITION MADE BY THE AO TO THE EXTENT OF 3% OF ALLEGED BOGUS PURCHASES IS CONCERNED, WE FOUND THAT T HE CASE OF THE ASSESSEE COMPANY WAS SELECTED FOR SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE COMPANY HAS SUBMITTED ALL THE REQUIRED DETAILS WHICH INCLUDE THE CONFIRMATION OF ACCOUNTS, STOCK REGISTER, PAYMENT THROUGH ACCOUNT PAYEE CHEQUES ETC. THE ASSESSEE HAS PRODUCED MR. GAUTAM B JAIN DURING THE ASSESSMENT PROCEEDINGS OF 2007 - 08 ASST. YEAR A ND THE LD. A O COULD NOT BROUGHT ANY ADVERSE MATERIAL AGAINST THE ASSESSEE , HOWEVER, THE AO HAS MADE ADDITION OF 3% OF ALLEGED BOGUS PURCHASE . THE ADDITION OF 3% OF ALLEGED BOGUS PURCHASES WAS MADE BY AO AFTER MAKING DETAILED INQUIRY. HOWEVER, T HERE IS NO MATERIAL AVAI LABLE BEFORE CIT TO JUSTIFY THE ADDITION OF 100% . IT IS FURTHER WORTHWHILE TO MENTIONED HERE THAT AS PER ORDERS PLACED BY LD. AR ON RECORD, THE DEPARTMENT HAS ALSO ESTIMATED 3% OF ALLEGED PURCHASE AND MADE ADDITION ACCORDINGLY IN NUMEROUS CASE BY RANGE 19 , MUMBAI. THERE ARE SO MANY DECISION OF MUMBAI TRIBUNAL AS CITED BY LD. AR DURING THE COURSE OF HEARING BEFORE US IN WHICH 0%, 3%, 5% OF ALLEGED BOGUS PURCHASE IS ACCEPTED. THERE MAY BE SEVERAL VIEWS ON THIS ISSUE. WHEN THE ASSESSING OFFICER TAKES ONE OF T HE VIEWS PERMISSIBLE IN LAW AFTER CONSIDERING ENTIRE ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 14 FACTS AND CIRCUMSTANCES OF THE CASE AND WITH WHICH THE COMMISSIONER DOES NOT AGREE WHICH RESULTS IN A LOSS OF REVENUE, IT CANNOT BE TREATED AS ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF REVENUE, UNLE SS THE VIEW TAKEN BY THE ASSESSING OFFI CER IS COMPLETELY UNSUSTAINABLE IN LAW AS HELD IN THE CASE OF CIT V. MAX INDIA LIMITED [2007] 295 ITR 282 (SC) MALBAR INDUSTRIES CO LTD V. CIT [2000] 243 JTR 83 (SC) . T HIS DECISION OF THE SC HAS BEEN FOLLOWED BY THE B OMBAY, DELHI, MADRAS, PUNJAB & HARYANA, GUJARAT HIGH COURTS AND A NUMBER OF TRIBUNALS IN THE COUNTRY. 30 . FROM THE RECORD WE FOUND THAT THE LD. AO HAS MADE ADDITION OF 3% OF ALLEGED BOGUS PURCHASE AFTER MAKING DETAILED INQUIRY AND THE CIT HAS NO MATERIAL BY WHICH IT COULD BE SAID THAT HIGHER ADDITION CAN BE MADE IN OTHER WORDS, THE ADDITION MADE BY LD. AO IS ONE OPINION AND THE SAME OPINION IS ALSO TAKEN BY FOLLOWING OFFICERS OF THE DEPARTMENT IN THE RESPECTIVE CASES: M/S TRUESTAR DIAMONDS, ADDITION OF 3% OF ALLEGED BOGUS PURCHASE WAS MADE FOR 2013 - 14 ASST. YEAR BY ITO, WARD 19(3)(5), MUMBAI. (DATE OF ORDER 29.03.2016) M/S FOUR STAR DIAMONDS, ADDITION OF 3% OF ALLEGED BOGUS PURCHASE WAS MADE FOR 2008 - 09 ASST. YEAR BY ITO, WARD 24(1 )(3), MUMBAI. (DATE OF ORDER 23.03.2015) M/S AURA EXPORTS, ADDITION OF 3% OF ALLEGED BOGUS PURCHASE WAS MADE FOR 2010 - 11 ASST. YEAR BY ACIT, CIRCLE 19(1), MUMBAI. (DATE OF ORDER 20.02.201 6) M/S SHEEL GEMS, ADDITION OF 3% OF ALLEGED BOGUS PURCHASE WAS MADE FOR 2010 - 11 ASST. YEAR BY ACIT, CIRCLE 19(3), MUMBAI. (DATE OF ORDER 04.03.2015) M/S VINIT IMPEX, ADDITION OF 3% OF ALLEGED BOGUS PURCHASE WAS MADE FOR 2010 - 11 ASST. YEAR BY ACIT, CIRCLE 19(1), MUMBAI. (DATE OF ORDER 07.03.2016) ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 15 M/S RIDDHI EXPORT PV T. LTD., ADDITION OF 3% OF ALLEGED BOGUS PURCHASE WAS MADE FOR 2007 - 08 ASST. YEAR BY ITO, WARD 5(3)(1), MUMBAI. (DATE OF ORDER 26.11.2014) M/S VASU IMPEX, ADDITION OF 3% OF ALLEGED BOGUS PURCHASE WAS MADE FOR 2013 - 14 ASST. YEAR BY ACIT, CIRCLE 19(3), MUMBAI. (DATE OF ORDER 14.03.2016) 31 . CIT(A) - 10, MUMBAI, HAS ALSO CONFIRMED DISALLOWANCES OF 3% OF ALLEGED BOGUS PURCHASES VIDE APPEAL NO. CIT(A)/10/ACIT/5(2)(11/158/2015 - 16 IN CASE OF M/S. INDO UNIQUE TRADING PVT. LIMITED FOR 2007 - 08 ASST. YEAR. CIT (A) - 30, MUMBAI, HAS ALSO CONFIRMED DISALLOWANCES OF 3% OF ALLEGED BOGUS PURCHASES VIDE APPEAL NO. CIT(A)/30/19(2)7754/2014 - 15 IN CASE OF M/S POLAR STAR FOR 2012 - 13 ASST. YEAR. 3 2 . THE ABOVE REFERRED CASES ARE JUST FEW EXAMPLES, THERE ARE TOO MANY OTHER CASES IN WHICH SIMILAR VIEW WAS TAKEN BY DIFFERENT AO, ACIT OR CIT(A) & ITAT, HENCE, THE ACTION OF LD. AO FOR DISALLOWING 3% OF ALLEGED BOGUS PURCHASES ARE AS PER MATERIAL ON RECORD AND DULY JUSTIFIED AS PER HIS DETAILED INQUIRIES. 3 3 . IN VIEW OF THE ABOVE DISC USSION, WE DO NOT FIND ANY MERIT IN THE ORDER PASSED BY CIT U /S.263 OF THE IT ACT. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED 3 4 . IN THE RESULT, BOTH THE APPEAL S OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 01/03 /20 1 9 SD/ - ( R.C. SHARMA ) SD/ - ( SANDEEP GOSAIN ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED 01/03 /201 9 ITA NO. 3653/MUM/2017 & 2270/MUM/2018 M/S. OSTWAL DIAMONDS PVT. LTD., 16 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//