G C JEWELLERS PVT. LTD.,KOLKATA vs. I.T.O., WARD - 8(4), KOLKATA

Per Rajesh Kumar, AM:

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 11.06.2024 for the AY 2012-13.

delay is for bonafide and genuine reasons and , hence, we condone the delay and admit the appeal for adjudication.

ITA No. 3107/KOL/2025 3. The issue raised in ground no.2 is against the order of ld. CIT (A) upholding the reassessment proceedings u/s 147 of the act which is void ab initio and nullity.

accommodation entries and the income has been under assessed to the tune 97% of the bogus purchases which comes to ₹59,56,873/-. Finally, the assessment was framed by framing the assessment u/s 147 of the Act dated 17.12.2019, by making an addition of ₹59,56,873/-.

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6.1. We note that in the first round the ld. AO stated the total escaped income at ₹61,41,096/- as apparent from the above. We also note that in the assessment has been framed u/s 147/ 143(3) of the Act as apparent from the above. We also note that in the assessment framed u/s 147/ 143(3) of the Act, the ld. AO estimated the income on purchases by estimating the income at the rate of 3% of ₹61,41,096/- and made the addition of ₹1,84,223/-. In the second round the ld. AO recorded the reasons on the basis of same facts by taking the same purchase that income has escaped assessment to tune of the remaining purchase of 97% (97% of ₹61,41,096/- ) i.e. ₹59,56,893/-, which according to the ld. AO has escaped income and accordingly, the notice u/s 148 of the Act was issued on 22.02.2019. The notice u/s 148 of the Act and the reasons recorded in the second round are extracted below:-

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6.2. It is apparent from the above that all the information qua the bogus purchases were before the ld. AO at the time of Page 8 of 13

first round of reopening of assessment, wherein the ld. AO estimated the income on the said purchases at the rate of 3%. Therefore, in our opinion, there is no new material before the ld. AO at the time of second round of reopening. It is just a change of opinion on the basis of same information which amounts to review of the assessment order passed in the first round. In our opinion, the review of order is not permissible under the Act as has been held in the case of CIT vs. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC), wherein it has categorically held that reassessment cannot be based on mere suspicion or change of opinion and must be founded on tangible material. Moreover, this is case of borrowed satisfaction by the ld. AO as the ld. AO has not recorded his own satisfaction as to how the income has escaped income as he has relied on the information received only. Therefore, on this count also, the reopening is bad in a law. The case of the assessee find support from the Hon'ble Delhi High Court in case of Principal Commissioner of Income-tax-6 vs. Meenakshi Overseas (P.) Ltd. [2017] 395 ITR 677 (Delhi)[26-05-2017], wherein it has held that reopening made on the basis of borrowed satisfaction cannot be sustained where the reasons failed to demonstrate live link between the tangible material and formation of the reason to believe that the income has escaped assessment, as under:-

“26. The first part of Section 147 (1) of the Act requires the AO to have "reasons to believe" that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might Page 9 of 13

constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre- condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment. ……………… 36. In the present case, as already noticed, the reasons to believe contain not he reasons but the conclusions of the AO one after the other. There is no independent application of mind by the AO to the tangible material which forms the basis of the reasons to believe that income has escaped assessment. The conclusions of the AO are at best a reproduction of the conclusion in the investigation report. Indeed it is a 'borrowed satisfaction'. The reasons fail to demonstrate the link between the tangible material and the formation of the reason to believe that income has escaped assessment.” 6.3. Similarly, the Hon'ble Bombay High Court in case of Principal Commissioner of Income-tax-5 vs. Shodiman Investments (P.) Ltd. [2020] 422 ITR 337 (Bombay)[16-04- 2018], has held as under:-

“13. In this case, the reasons as made available to the Respondent- Assessee as produced before the Tribunal merely indicates information received from the DIT (Investigation) about a particular entity, entering into suspicious transactions. However, that material is not further linked by any reason to come to the conclusion that the Respondent-Assessee has indulged in any activity which could give rise to reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped Assessment. It is for this reason that the recorded reasons even does not indicate the amount which according to the Assessing Officer, has escaped Assessment. This is an evidence of a fishing enquiry and not a reasonable belief that income chargeable to tax has escaped assessment. 14. Further, the reasons clearly shows that the Assessing Officer has not applied his mind to the information received by him from the DDIT (Inv.). The Assessing Officer has merely issued a re-opening notice on the basis of intimation regarding re-opening notice from the DDIT (Inv.) This is clearly in breach of the settled position in law that re- opening notice has to be issued by the Assessing Office on his own satisfaction and not on borrowed satisfaction” Page 10 of 13

6.4. Considering the facts of the assessee’s case in the light of the aforesaid decisions, we are inclined to hold that the reopening of assessment has been made invalidly on the basis of borrowed satisfaction as the ld. AO has failed to apply his mind independently to arrive at an objective belief that the income has escaped assessment. Therefore, the re-opening of assessment as well as the assessment framed by the ld. AO are bad in law and are hereby quashed. The ground no. 2 of assessee appeal is allowed.

ITA No. 3108/KOL/2025 7. At the time of hearing the ld. Counsel for the assessee pressed ground no.3, which is extracted as under:-

“3. That on the facts and in the circumstances of the case, the ld. CIT (A) erred in confirming the addition to the tune of ₹1,84,223/- on account of bogus purchases made by AO as unexplained cash credit u/s 68 of the Act.” 8. After hearing the rival contentions and perusing the materials available on record, we find that the case of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 of the Income-tax Act, 1961 (the Act) on 27.03.2015, after the AO received information that the assessee has taken bogus accommodation entries in the form of purchases. The assessee is engaged in the business of manufacturing of garments. The ld. AO during the course of assessment called for various details and evidences and assessee. Accordingly, the assessee furnished copies of purchase bills, bank statement, purchase register, etc. along with other books of accounts. However, the ld. AO relied on the information from DDIT (Investigation) that assessee has received Page 11 of 13

accommodation entries. The notice u/s 133(6) of the Act was also issued and replied by the supplier, however, the ld. AO came to the conclusion from the reply of the purchases could not be verified from the said reply. Finally, the ld. AO applied a rate of 3% to estimate the income thereby making an addition of ₹1,84,223/- in the assessment framed on 28.03.2016.

8.1. In the appellate proceedings, the ld. CIT (A) confirmed the addition made by the ld. AO beside confirming the reopening of assessment.

8.2. We note that the ld. AO relied mainly on the information received from DDIT. It is also undisputed that purchases were included in the books of account and assessee produced all the evidences qua the purchases such as purchase bills, purchase register, bank statement etc. The purchases were consumed in the manufacturing process and finished products were also obtained from therefrom. Therefore, the rate applied by the ld. AO appears to be excessive as in this case the assessee has already shown the purchases and sales in the books of accounts. Therefore, it would be reasonable and fair if the rate of 1% is applied. Accordingly, we set aside the order of ld. CIT (A) on this issue and direct the ld. AO to apply the rate of 1% on the purchases of ₹1,84,223/-. In the result, the addition to the extent of ₹1,22,815/- is deleted and ₹61,408/- is sustained. The appeal is partly allowed.

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9. In the result, assessee’s appeal in ITA No.3107/KOL/2025 is allowed and appeal in ITA No. 3108/KOL/2025 is partly allowed.

Order pronounced on 03.09.2026.

Sd/- Sd/- (PRADIP KUMAR CHOUBEY) (RAJESH KUMAR) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Kolkata, Dated: 03.09.2026 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT DR, ITAT, 4. 5. Guard file. BY ORDER, True Copy//

(Manish Bhoi) Dy. Registrar Income Tax Appellate Tribunal, Kolkata

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