MAYANK JAYANTILAL DESAI ,MUMBAI V. ITO- WARD 19(2)(2), MUMBAI

ITA 706/MUM/2025

AI Insights

The case involves cross appeals by the assessee, Mayank Jayantilal Desai, and the revenue against the order of the Commissioner of Income Tax (Appeals)-51, Mumbai, concerning the assessment year 2007-08. The primary contention revolved around the validity of the reassessment proceedings initiated by the Income Tax Officer (ITO) under Section 148 of the Income Tax Act, which were challenged by the assessee on grounds of lack of jurisdiction and violation of natural justice. The reassessment was based on alleged non-genuine purchases amounting to Rs. 3,06,46,678 from hawala traders. The Tribunal's decision focused on procedural lapses in providing the recorded reasons for reassessment to the assessee, leading to the quashing of the reassessment order.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 782967 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 31-01-2025
• Other Referred Cases: GKN Driveshafts (India) Ltd. v. ITO, M/s. N. K. Proteins Ltd. Vs. Dy. CIT, M/s. Swetamber Steels Ltd. Vs. CIT, Sri. Ganesh Rice Mills Vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANNAVARAN KOSURI
• Assessee Lawyers: VIPUL B. JOSHI; DINKLE
• Keywords: Opportunity of being heard; Additional evidence; Reassessment proceedings; Rejection of books of accounts; Bogus purchase; Tax effect; Period of limitation; Principle of natural justice; Search and seizure; Accommodation entries; Assessment record; Bogus
• Section: 147; 68; 145; 37

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SMT. BEENA PILLAI (JUDICIAL MEMBER) AND SHRI ARUN KHODPIA (ACCOUNTANT MEMBER) I.T.A. No.1300/Mum/2025 Assessment Year: 2007-08 Income Tax Officer, Ward-19(2)(2) 503, 5th Floor, Piramal Chamber, Lalbaug, Maharashtra-400012 Vs. Mayank Jayantilal Desai 20/20, Praveen Terrace, Dr. D.D. Sathe Marg Maharashtra-400004 PAN:AAAPD9253A (Appellant) (Respondent) I.T.A. No.706/Mum/2025 Assessment Year: 2007-08 Mayank Jayantilal Desai 20/20, Praveen Terrace, Dr. D.D. Sathe Marg Maharashtra-400004 PAN:AAAPD9253A Vs. Income Tax Officer, Ward-19(2)(2) Room No.608, 6th Floor, Piramal Chamber, Lalbaug, Mubmai-400012 (Appellant) (Respondent) Appellant by Shri Vipul B. Joshi, Ms. Dinkle Hariya Respondent by Shri Annavaran Kosuri, SR. A.R. Date of Hearing 04.09.2025 Date of Pronouncement 28.10.2025 Printed from counselvise.com 2 ITA No.1300 & 706/Mum/2025; A.Y. 2007-08 Mayank Jayantilal Desai ORDER Per: Smt. Beena Pillai, J.M.: The Present cross appeals filed the assessee and revenue arising out of order dated 02/12/2024 passed by Ld. CIT(A)-51, Mumbai for assessment year 2007-08 on following grounds of appeal: assessee’s appeal in I.T.A. No.706/Mum/2025 “1. THE ORDER BAD, ILLEGAL AND WITHOUT JURISDICTION 1.1 In the facts and the circumstances of the case, and in law, the appellate order framed by the Commissioner of Income tax (Appeals)-51, Mumbai, ['Ld. CIT (A)'] is bad in law, illegal and without jurisdiction, as the same is framed in breach of the statutory provisions and as otherwise also is not in accordance with the law. 1.2 Otherwise also, in the facts and the circumstances of the case, and in law, the appellate order so framed by the Ld. CIT (A) is bad in law, illegal and void as the same is arbitrary and perverse. WITHOUT PREJUDICE TO THE ABOVE- 2. NATURAL JUSTICE 2.1 The Ld. CIT (A) erred in not granting proper, sufficient and adequate opportunity of being heard to the Appellant while framing the appellate order. 2.2 It is submitted that, in the facts and the circumstances of the case, and in law, the appellate order so framed be held as bad and illegal, as: (i) The same is framed in breach of the principles of natural justice; and (ii) The same is passed without application of mind to the facts. 3. REASSESSMENT 3.1 The Ld. CIT (A) erred in confirming the action of the A.O. in initiating the reassessment proceeding and framing the assessment of the Printed from counselvise.com 3 ITA No.1300 & 706/Mum/2025; A.Y. 2007-08 Mayank Jayantilal Desai Appellant by invoking the provisions of section 147 r.w.s. 148 of the Act. 3.2 While doing so, the Ld. CIT (A) failed to appreciate that: (i) The case of the Appellant did not fall within the parameters laid down by section 147 r.w.s. 148 r.w.s. 149 & 151 of the Act; and (ii) The necessary preconditions for initiating the reassessment proceeding and completion thereof were not satisfied. 3.3 It is submitted that in the facts and the circumstances of the case, and in law, action of the Ld. CIT (A) in confirming the initiation of the reassessment proceeding and framing of the reassessment order is bad in law, illegal, void and without jurisdiction. WITHOUT PREJUDICE TO THE ABOVE 4. REJECTION OF ADDITION EVIDENCES 4.1 The Ld. CIT (A) erred in rejecting the additional evidences submitted by the Appellant under Rule 46A of the Income tax Rule, 1962, in spite of issuing a remand order to the A.O. to consider the additional evidences. 4.2 The Ld. CIT (A) erred in not recording the fact regarding the status of the Remand Report. 4.3 It is submitted that, in the facts and circumstances of the case and in law, no such action was called for. WITHOUT PREJUDICE TO THE ABOVE 5. REJECTION OF BOOKS OF ACCOUNTS 5.1 The Ld. CIT (A) erred in confirming the action of the A.O. in rejecting the books of accounts of the Appellant by invoking the provisions of section 145(3) of the Act. 5.2 It is submitted that, in the facts and circumstances of the case and in law, such action is bad in law, illegal and without jurisdiction and no such action was called for. WITHOUT PREJUDICE TO THE ABOVE 6. DISALLOWANCE OF ALLEGED NON - GENUINE PURCHASE [RS. 24,51,734/-] Printed from counselvise.com 4 ITA No.1300 & 706/Mum/2025; A.Y. 2007-08 Mayank Jayantilal Desai 6.1 The Ld. CIT (A) erred in confirming the action of the A.O. to the extent of the amount of Rs. 24,51,734/-, being 8% of total alleged non- genuine purchases of Rs. 3,06,46,678/- claimed by the Appellant. 6.2 While doing so, the Ld. CIT (A) erred in: (i) Basing his action only on surmises, suspicion and conjecture; (ii) Taking into account irrelevant and extraneous considerations; and (iii) Ignoring relevant material and considerations as submitted by the Appellant. 6.3 It is submitted that in the facts and the circumstances of the case, and in law, no such addition was called for. 6.4 Without prejudice to the above, assuming but not admitting that some disallowance was called for, the Ld. CIT (A) failed to appreciate that the computation of the disallowance made by the A.O. is arbitrary, excessive and not in accordance with the law” Revenues appeal in I.T.A. No.1300/Mum/2025 “1. Whether on the facts and circumstances of the case and in law, the L. CIT(A) has erred in restricting the addition upto 8% as against 100% addition of Rs. 3,06,46,678/ made by the AO on account of the bogus purchases from 3 hawala parties and also Led CITIA) has erred in directing to delete the remaining amount of Rs. 2,81,94,944/-7 2. Whether on the facts and circumstances of the case and in law, the Ed. CITIA) has erred in restricting the addition upto 8% as against 100% addition for bogus purchases made of Rs. 3,06.16.578/, by ignoring the fact that action of the AO was based on the information Report received from the DCT (Investigation Wing), Mumbai about Rajendra Group, Sanjay Choudhary Group, Dharmichand Jain Group, that these hawala traders were indulged only in providing accommodation entries in the form of issuing bogus Sales/Purchase bills without supplying any goods and the assessee was found to be one of the beneficiaries, who had obtained accommodation entries for bogus purchases from Ms. Avi Printed from counselvise.com 5 ITA No.1300 & 706/Mum/2025; A.Y. 2007-08 Mayank Jayantilal Desai Exports, M/s. Sun Diam, M/s. Vitraj to inflate it's expenses and thereby suppress it's true profit ?\" 3. \"Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition upto 8% as against 100% addition for bogus purchases made of Rs. 3,0646,678/- from three huwala traders by ignoring the fact that during the Reassessment Proceedings, the assessee could neither produce the quantity tally of day to day purchases, Sales, Stocks. Delivery Challans and corresponding values nor could produce the parties for verification, from whom the alleged purchases were purportedly made, in spite of opportunity provided by the Assessing Officer? 4. Whether on the facts and circumstances of the case and in law, the Ld. CITIA) has erred in restricting the addition upto 8% as against 100% addition for bogus purchases made of R 3,06,46,6787-hy not justified in estimating the income of bogus purchases on the basis of comparing of the bogus purchases with the purchases in the regular books of accounts, ignoring that the fact of procuring bogus invoices leads to the unverified inflation of purchase price by the assessee which cannot be compared with the regular GP of the books of accounts? 5. \"Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition upto 3% as against 100% addition for bogus purchases made of Rs. 3,05,46,678/-, by ignoring the element of reasons for procuring of bogus invoices, when it is observed that the GP on these bogus invoices are almost matching with the GP as per genuine invoices and therefore such estimation of income out of bogus purchases with the GP as per regular books of accounts is not justified?\" 6. \"Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in restricting the addition upto 8% as against 100% addition for bogus purchases made of Rs. 3.06,46,678/-, in ignoring that though there was no dispute that the bogus purchases were made Printed from counselvise.com 6 ITA No.1300 & 706/Mum/2025; A.Y. 2007-08 Mayank Jayantilal Desai and so act of infraction of law was committed, in violation of section 74(1A) of the Maharashtra Value Added Tax Act, 2022 and therefore such expenses is not allowed as per express provisions u/s 37 of the Act?\" 7. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in net appreciating the decision of the Hon'ble Supreme Court in the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (Gull 354, Dated. 16.01.2017, wherein Hon'ble Supreme Court has dismissed the appeal and held that once a findings of act has been given that entire purchases shown on the basis of fictitious invoices and debited in the P&L account are established as bogus, then restricting the addition to a curtained percentage goes against the principles of section 68 and 690 of the Income-Tax Act, 1961 and when the purchases mode are from bogus suppliers or concerns, the entire purchases are liable to disallowed ?\" 8. Whether on the facts and circumstances of the case and in law, the Ld. CITIA) is perverse in not considering the decision of the order of Hon'ble Supreme Court in the case of M/s. N. K. Proteins Ltd. Vs. Dy. CIT (2016) 292 CTR (Guj.) 354, SLP (CC) of 963/2017, Dated. 16.01.2017, which is on the similar issue of bogus purchases, which has been confirmed and was already the law of the land, when the Ld. CITIA) has pronounced it's order on 02.12.2024?\" 9. Whether on the facts and circumstances of the case and in law, the Id. CITIA) has erred in erred in not appreciating the fact that in the case of M/s. Swetamber Steels Ltd. (Supra), the Hon'ble ITAT, Ahmadabad had conformed the disallowance of the bogus purchase, by stating that the purchases shown from respective parties were found non genuine and the decision of The DAT was upheld by Hon'ble Gujrat High Court and also by the Hon'ble Supreme Court ? 10. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not considering that after invocation of Printed from counselvise.com 7 ITA No.1300 & 706/Mum/2025; A.Y. 2007-08 Mayank Jayantilal Desai provisions of section 145(3) of the Act, the Assessing Officer acquired the mandate even to add the whole amount of purchases found as bogus to the total income of the assessee and not appreciated the decision in Sri. Ganesh Rice Mills Vs. CIT 294 ITR 316 (All), wherein the entire amount of bogus purchases, from hawala parties, was disallowed and same decision was also upheld?\" 11.The appeal u/a. 253 of the Income Tax Act, 1961, is being filed in view of Tax Effect involved in the instant case is Rs. 94,90,418/-, which is above the prescribed limit mentioned in the CBDT's Circular F.No.279/Misc. 142/2007-ITJ(Pt) amended vide No. 09/2024 dinted. 17.09.2024 and this case also falls under one of the exceptions specified in paragraph 3.1ict of the of the CBDT's Circular No 05/2024 Dated 15.03.2024, wherein it is stated that in cases involving \"Organized Tax Evasion\" including cases of accommodation entry of bogus purchases, the decision to file appeal/ SLP shall be taken on merit without regard to the tax effect und the monetary limit. 12. The appellant craves, leave to amend or alter any grounds or add a new ground which may be necessary.” Brief facts of the case are as under: 2. The assessee is an individual and filed his return of income for the year under consideration on 30/10/2007, declaring total income of Rs.9,94,720/-. The return was processed under section 143(1) of the act. 2.1 In the meantime, search and seizure action was conducted on Rajendra Jain group/Sanjay Chowdhury group/Dharmichand Jain group on 03/10/2013 by the DGIT Investigation, Mumbai. During the course of the search proceedings it was established that the group concerns are all people companies/firms/proprietary concerns with no real business Printed from counselvise.com 8 ITA No.1300 & 706/Mum/2025; A.Y. 2007-08 Mayank Jayantilal Desai activities and were operating solely with the purpose facilitate fraudulent financial transaction which includes among others providing accommodation entries in the form of unsecured loans to interested parties, issuing of bogus sale bills to various parties and providing bogus front to concerns which do not want to import diamonds in their own hands/books of accounts. 2.1 Ongoing to the documents forwarded by the DGI investigation Mumbai, it was found that the assessee had obtained accommodation entries of bogus purchases from various concerns of Shri Rajendra Jain group and others to the extent of Rs.3,06,46,678/-by way of non-genuine purchases. 2.2 The case of the assessee was thus reopened by issuing notice under section 148 of the act on 25/03/2014. In response to the notice the assessee furnished copy of the return originally filed along with letter dated 03/04/2014, requesting to treat the original return in lieu of the notice issued under section 148. The assessee also requested Ld.AO to furnish copy of the reasons recorded. 2.3 The Ld.AO called upon the assessee to furnish details and explanation in respect of the purchases made by the assessee. Based on the submissions furnished by the assesseeLd.AO however came to the conclusion that the purchases made by the assessee from the parties which were claimed as expenses in its profit and loss account were not genuine. The Ld.AO also noted that the purchases to that extent remained unverified and therefore cannot be accepted. The Ld.AO rejected the books of account under section 145 (3) of the act, and made addition of Rs.3,06,46,678/- by treating the purchases as non genuine. Printed from counselvise.com 9 ITA No.1300 & 706/Mum/2025; A.Y. 2007-08 Mayank Jayantilal Desai Aggrieved by the order of the Ld.AO, the assessee preferred appeal before the Ld.CIT(A). 3. Before the Ld.CIT(A), the assessee raised legal issue challenging validity of reassessment by submitting that, the reasons recorded were not furnished to the assessee and therefore the order passed without following the mandate under section 148 of the act is bad in law. Assessee also challenge the validity of the reassessment order by submitting that no opportunity to cross examine was provided to the assessee and that the assessing officer did not carry out any independent verification in respect of the information received against assessee from the investigation wing based on the documents furnished by the assessee. 3.1 The assessee also furnish application dated 08/03/2017 requesting admission of additional evidence under rule 46A of the Income Tax Rules. It is submitted that, the additional evidence were affidavits from the parties from whom the alleged bogus purchases have been said to have made by the assessee. The Ld.CIT(A) however rejected all the admission of additional evidences and also rejected all the legal issues raised by the assessee. However while deciding the issue on merits the Ld.CIT(A) restricted the addition to 8% of the bogus purchases. Aggrieved by the order of the Ld.CIT(A), assessee as well as revenues are inappeal before the Tribunal. 4. At the outset, the Ld.AR submitted that, Ground number 1- 3 raised by the assessee are challenging validity of the reassessment order passed by the Ld.AO, without following the mandate of section 148 of the act. He submitted that, there are Printed from counselvise.com 10 ITA No.1300 & 706/Mum/2025; A.Y. 2007-08 Mayank Jayantilal Desai various other grounds on which the reassessment proceedings have been challenged. However one of the primary issue contested by the assessee in ground number 1.1 that, the assessee was not provide with the reasons recorded for reopening. He submitted that, during the assessment proceedings the assessee had filed letters requesting Ld.AO to furnish the reasons recorded. He referred to the letter dated 03/04/2014 that filed with the office of the Ld.AO on 09/04/2014, pleased to page 160 of the paper book. 4.1 The Ld.AR further referred to letter dated 05/03/2015 wherein the assessee specifically mentioned that, the preconditions for the reassessment proceedings has not been fulfilled. He submitted that, even before the Ld.CIT(A) the reasons recorded were not provided to the assessee. The Ld.AR submitted that assessee had also requested for inspection of the assessment records which was denied by the authorities below. 4.2 Referring to page 175 of the paper book, the assessee submitted that vide order dated 24/03/2015 Ld.AO disposed of the objections raised by the assessee vide letter dated 05/03/2015. The Ld.AR submitted that, in the said letter, the assessee objected the reassessment proceedings which is placed at page 169 of the paper book.It is submitted that the assessee categorically objected by submitting that the preconditions necessary for continuing with the reassessment proceedings has not been fulfilled before issuing of notice. He submitted that, the assessee is vehemently objected the reassessment proceedings, as the reasons recorded were never furnished to the assessee. He submitted that, while disposing of the objections, the assessing Printed from counselvise.com 11 ITA No.1300 & 706/Mum/2025; A.Y. 2007-08 Mayank Jayantilal Desai officer has cryptically mentioned that the reasons recorded has already been provided, which is factually incorrect. 4.3 The Ld.AR placed reliance on the decision of Hon’ble Supreme Court in case of GKN Driveshaft reported (2003) 259 ITR 19 wherein in it is held that: “However, it was clarified that when a notice under section 148 is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notice. The Assessing Officer is bound to furnish reasons within a reasonable time.” 4.4 On the contrary, the Ld.DR furnished his argument by filing written submission dated 04/09/2025 wherein the Ld.AO reiterated observation of the Ld.AO in the order dated 24/03/2015 wherein categorically the assessing officer records that the reasons recorded have been furnish to the assessee. Printed from counselvise.com 12 ITA No.1300 & 706/Mum/2025; A.Y. 2007-08 Mayank Jayantilal Desai We have perused the submissions advanced by both sides in the light of the records pleased before us. 5. It is noted that, the on multiple occasions assessee requested to provide the reasons recorded with the assessing officer. However nothing is pleased on record in respect of the same. It is noted that the revenue has not been able to bring on record the reasons recorded and has been placing reliance on the observations of the Ld.AOvide letter dated 24/03/2015,placed at page 175 of the people. 5.1 For reassessment proceedings initiated under the Act, the reasons recorded by the Ld.AO must be provided to the assessee upon request. This principle is the cornerstone to ensure fairness and transparency in tax matters. The legal foundation for providing reasons to the assessee was established by Hon’ble Supreme Court in case of GKN Driveshafts (India) Ltd. v. ITO (supra). The procedure laid down by Hon’ble Supreme Court is: • When an assessee receives a notice under Section 148, they should first file a return of income. • The assessee then has the right to request a copy of the recorded reasons from the Ld.AO. • The Ld.AO is obligated to furnish the reasons within a reasonable period of time. • On receiving the reasons, the assessee can file objections to challenge the notice's validity. • The Ld.AO must then dispose of these objections by passing a speaking (reasoned) order before proceeding with the assessment. 5.2 Thus if the assessing officer fails to provide the reasons for reopening the assessment to the assessee, the entire Printed from counselvise.com 13 ITA No.1300 & 706/Mum/2025; A.Y. 2007-08 Mayank Jayantilal Desai reassessment proceeding may be considered invalid and liable to be quashed. 5.3 In the present facts of this case, there is nothing placed on record by the revenue to support the observations of the Ld.AO in his letter dated 24/03/2015 about the reasons recorded being issued to the assessee. Under such circumstances we are left with the option but to hold the entire reassessment proceedings to be bad in law by following the ratio laid down by Hon’ble Supreme Court in case of GKN Driveshaft (supra). As a consequence, the reassessment order dated 30/03/2015 passed by the Ld.AO is held to be void ab initio. 5.4. However, liberty is granted to the revenue to revive the present appeal to file miscellaneous petition within the period of limitation, in the event the reasons recorded having served to the assessee could be furnished before the Tribunal. Accordingly ground number 1.1, 3.1, & 3.2 raised by the assessee stands allowed on this issue. 6. All other legal grounds raised by the assessee are kept open to be raised in appropriate circumstances. As we have quashed the assessment order the addition made by the Ld.AO also does not survive. Accordingly ground raised by the revenue stands dismissed. In the result appeal filed by the assessee stands allowed and appeal filed by the revenue stands dismissed. Printed from counselvise.com 14 ITA No.1300 & 706/Mum/2025; A.Y. 2007-08 Mayank Jayantilal Desai Order pronounced in the open court on 28/10/2025 Sd/- Sd/- (ARUN KHODPIA) (BEENA PILLAI) Accountant Member Judicial Member Mumbai: Dated: 28/10/2025 Poonam Mirashi, Stenographer Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By order (Asstt. Registrar) ITAT, Mumbai Printed from counselvise.com "