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

"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?

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 ?"

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?"

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 ?

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 & 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?"

The appellant craves, leave to amend or alter any grounds or add a new ground which may be necessary.”

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 & 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.

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 & 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 & 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:

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 & 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.

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.