SAHIL DIAMONDS PRIVATE LIMITED,MUMBAI vs. THE ITO, WARD 5(3)(1), MUMBAI., MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “G” MUMBAI

BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI PAWAN SINGH (JUDICIAL MEMBER)

ITA No.2180 and 2181/MUM/2026 Assessment Year: 2013-14 and 2014-15

Sahil Diamonds Private Income Tax Officer, Ward 5(3)(1), Limited, 416-A, Panchratna Room No.526, 5th Floor, Aayakar Opera House, Girgaon Vs. Bhavan, Maharshi Karve Road, Mumbai – 400004, Mumbai – 400020, Maharashtra. Maharashtra.

PAN NO. AADCS 2094 N Appellant Respondent

Assessee by : Shri Rajesh C. Shah, CA (Virtually Appeared).

: Shri Basavaraj Hiremath – CIT DR. Revenue by

Date of Hearing : 21/07/2026 Date of pronouncement : 29/07/2026

ORDER PER OM PRAKASH KANT, AM

These two appeals by the assessee are directed against two separate orders, both dated 30.12.2025, passed by the learned Commissioner of Income-Tax (Appeals) – 48, Mumbai [in short, ‘the Ld. CIT(A)’], for Assessment Years (in short ‘A.Y’), 2013-14 and 2014-15 respectively. As the common issue-in-dispute is involved in

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these appeals and therefore same were heard together and disposed of by way of this consolidated order for the sake of convenience and to avoid repetition of facts.

“1. The Ld. AO has erred in issuing a time-barred notice dated 29.07.2022 u/s 148 of the Act. 2. The case of the assessee is not a fit case to be reopened under section 148 of the Income Tax Act, as there is no asset involved. Hence, the order passed under section 147 should be quashed, and also the Ld. CIT (Appeals) has erred in confirming the same. 3. The Ld. AO has grossly erred in making an addition of ₹ 41,45,07,032/- as an addition on account of a bogus transaction and credit in Axis Bank and treated as accommodation entries and added u/s 68, and hence the same should be deleted, and also the Ld. CIT (Appeals) has erred in confirming the same.” 2.1. Briefly stated, the relevant facts are that the assessee filed its return of income for the year under consideration on 11.05.2013 declaring a total income of Rs.3,69,410/-. The return was initially processed under section 143(1) of the Income-tax Act, 1961 ("the Act"). Subsequently, the case was selected for scrutiny and an assessment under section 143(3) of the Act was completed on 25.03.2016, determining the total income at Rs.3,73,360/-.

2.2. Thereafter, the Assessing Officer received information through the Insight Portal from the office of the DDIT (Investigation)-2, Surat regarding a Suspicious Transaction Report (STR) pertaining to M/s M.D. Enterprises. According to the information so received, the said

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concern had allegedly contravened the provisions of the Foreign Exchange Management Act, 1999 by effecting foreign outward remittances without corresponding imports and was stated to be involved in activities relating to money laundering. The information further contained that the Enforcement Directorate (ED) and the Financial Intelligence Unit (FIU) had also identified ‘M/s Ridhi Exim Pvt. Ltd.’ and ‘M/s M.B. Offshore Distributors Pvt. Ltd. as front entities allegedly engaged in remitting funds outside India on the strength of fictitious Bills of Entry. From the aforesaid information, the Assessing Officer observed that the assessee had carried out substantial transactions through its Axis Bank Account No. 740010200001113 with entities, namely ‘M/s Ridhi Exim Pvt. Ltd.’ and ‘M/s M.B. Offshore Distributors Pvt. Ltd.’

2.3. On the basis of the aforesaid information, the Assessing Officer recorded reasons to believe that income escaped assessment and issued a notice under section 148 of the Act on 29.06.2021 under the unamended reassessment regime in operation before 1/04/2021.

2.4. Subsequently, pursuant to the judgment of the Hon'ble Supreme Court in Union of India v. Ashish Agarwal (2023) 454 ITR 1 (SC), all notices issued under the unamended provisions of section 148 between 01.04.2021 and 30.06.2021 were deemed to be show-cause notices under section 148A(b) of the Act. In conformity with the directions issued by the Hon'ble Supreme

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Court, the Assessing Officer furnished the information relied upon and issued a notice under section 148A(b) on 25.05.2022. As no reply was filed by the assessee within the stipulated period, an order under section 148A(d) was passed on 27.07.2022, holding that income amounting to Rs.41,45,07,032/- had escaped assessment. The relevant findings recorded in the order under section 148A(d) are reproduced herein below:

“On perusal of the Bank Account No. 740010200001113 of Sahil Diamond Pvt. Ltd, it is seen that there was huge transaction of fund during F.Y. 2012-13. On perusal of the account No. 740010200001113 for F.Y. 2012-13 of Sahil Diamond Pvt. Ltd., it is observed that this entity had made transaction with Ridhi Exim Pvt. Ltd. and M B Offshore Distributors Pvt. Ltd. which were mentioned by ED and FIU in their reports as one of the frontline entities involved in remitting the funds from out of India on pretext of fake bills of entry. Therefore, it can be inferred that Sahil Diamond Pvt. Ltd. had undertaken non-genuine business transaction during the relevant assessment years. Therefore income of Rs. 41,45,07,032/- chargeable to tax has escaped income. In view of the above, a notice u/s 148 of the Act was issued to the assessee on 29.07.2022 asking him to furnish a true and correct return of income in the prescribed form. In response to the same, the assessee filed return of income on 19.08.2022 declaring total income of Rs.3,73,360/-.” 2.5. Consequent thereto, a notice under section 148 of the Act was issued on 29.07.2022. In response to which the assessee filed its return of income on 19.08.2022, declaring the same income as originally assessed.

2.6. During the reassessment proceedings, the Assessing Officer issued a show-cause notice requiring the assessee to explain the nature and source of the credits appearing in the aforesaid bank account. The explanation furnished by the assessee was not found

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satisfactory. According to the Assessing Officer, the material received from the Investigation Wing, read with the banking transactions, indicated that the assessee had entered into transactions with entities allegedly involved in accommodation entries and overseas remittances through fictitious Bills of Entry. The Assessing Officer accordingly concluded that the assessee had failed to establish the genuineness of the credits appearing in its bank account and treated the aggregate credits of Rs.41,45,07,032/- as unexplained cash credits under section 68 of the Act. The relevant finding of ld AO is reproduced as under:

“In response to the same the assessee filed its reply on 10.03.2023. The assesee’s reply is perused but not found tenable due to the fact that, in the bank account of Sahil Diamond Pvt. Ltd, it is seen that there was huge transaction of fund during F.Y. 2012-13. On perusal of the account No. 740010200001113 for F.Y. 2012- 13 of Sahil Diamond Pvt. Ltd., it is observed that this entity had made transaction with Ridhi Exim Pvt. Ltd. and M B Offshore Distributors Pvt. Ltd. which were mentioned by ED and FIU in their reports as one of the frontline entities involved in remitting the funds from out of India on pretext of fake bills of entry. Therefore, it can be inferred that Sahil Diamond Pvt. Ltd. had undertaken non-genuine business transaction during the relevant assessment years. From the information uploaded on Insight Portal and verification of investigation report, it is seen that the assessee is having Cash Credit in guise of deposit in bank account which is an asset u/s 149 of the Act. The assessee is not able to establish the genuineness of its transactions. Hence, the cash credits amounting to Rs.41,45,07,032/- has remained unexplained and added as assessee’s income u/s 68 r.w.s 115BBE of the Act. A penalty u/s 271(1)(c ) of the Income Tax Act,1961 for concealment of income, is initiated separately.”

2.7. Accordingly, the reassessment was completed under section 147 read with section 143(3) of the Act vide order dated 21.03.2023, determining the total income at Rs.41,48,80,390/-.

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2.8 Aggrieved, the assessee preferred an appeal before the learned CIT(A), who upheld both the validity of the reassessment proceedings as well as the addition made under section 68 of the Act for the reasons recorded in the impugned appellate order.

“The appellant has raised the issue in the appeal that the impugned notice issued u/s 148 of the Act is bad because it is time-barred and it vital issue, hence discussed here first. Based on two judgments of the Hon'ble Supreme Court in cases of Ashish Agarwal and Rajeev Bansal on this issue with TOLA: Para 107 - "Resultantly, the entire time allowed to the assessee to respond to the show cause notice has to be excluded for computing the period of limitation. In Ashish Agarwal (supra), this Court provided two weeks to the assesses to reply to the show cause notices. This period of two weeks is also liable to be excluded from the computation of limitation given the third proviso to Section 149. Hence, the total time that is excluded for computation of limitation for the deemed notices is:

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(i) the time during which the show cause notices were effectively stayed, that is, from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information or material by the assessing officers to the assesses in terms of the directions in Ashish Agarwal (supra); and (ii) two weeks allowed to the assesses to respond to the show cause notices." Validity in the following cases (As per the judgment in Rajeev Bansal)

 Reply not filed in 2 weeks, but late?  No reply filed? Para 107-Hence, the total time that is excluded for computation of limitation for the deemed notices is: (i) the time during which the show cause notices were effectively stayed, that is, from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information or material by the assessing officers to the assesses in terms of the directions in Ashish Agarwal (supra); and (ii) two weeks allowed to the assesses to respond to the show cause notices. Para 114(g) - "g. The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices; First Ground of Appeal: Notice dated 29.07.2022 issued u/s 148 is time- barred. Facts of the case: (If we take from the reply was not given by the appellant) Date of Original Notice : 29.06.2021 Surviving Period as per the Judgment : 2 days (29.06.2021- 30.06.2021) Due Date of notice U/s 148A(b) : 02.06.2022 (30 days as per Ashish Agarwal) Actual Notice issued on 25.05.2022 (reply within two weeks) Date of actual reply : Not submitted Date of reply expires on : 09.06.2022 New notice u/s 148 to be issued on :11.06.2022 (date on reply given or expires the date of

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reply. The date of reply expires 09.06.22 + surviving period of 2 days) 18.06.2022 if period is counted from 16.06.2022

Date of new Notice issued u/s 148 : 29.07.2022 (Time barred)

Based on the above, we shall prepare a chart to find out whether the notice issued u/s 148 of the Act on 29.07.2022 is time-barred or not time-barred. Original Time Material Time limit Time limit to Repl Date of the Time gap Time gap Whe Notice from provided on provided (30 reply (2 y new 148 between between ther 30.06.2 days) Weeks) filed Notice notice notice barr 021 on and reply and reply ed filing due filing date date (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) 29.06.2012 2 25.05 2022 02.06 2022 16.06. 2022 - 29.07.2022 43 - Yes

The surviving period (Difference between the 30.06.2021 date of original notice) was, as per column 2 was only 2 days. The old notice u/s 148 of the Act was issued on 29.06.2021. As per the verdict of the Hon'ble Supreme Court in the case of Ashish Agarwal (supra) and Rajiv Bansal (supra), the period from 29.06.2021 to the date of the reply of the assessee, or if the reply is not filed, the due date to file the reply, has to be excluded. It means the period from 29.06.2021 to 16.06.2022 is to be excluded; then only two days (30.06.2021-29.06.2021) were available to issue a new notice u/s 148 of the Act; hence, a new notice u/s 148 of the Act has to be issued on or before 18.06.2022, but the notice was issued on 29.07.2022; it is time- barred. The due date of reply was given on 09.06.2022, and the due date for reply from the last date of issue notice u/s 148A(b) of the Act (02.06.2022), the date of the new notice u/s 148 (29.07.2022), and the time gap between the issue of the new notice and the due date of the reply is 43 days as per column 8 (which is more than 2 days). Hence, the notice dated 29.07.2022 issued u/s 148 of the Act is delayed by a minimum of 41 days (43-2) and time-barred.”

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of India v. Ashish Agarwal ( supra)) and the subsequent interpretation rendered in Rajeev Bansal (supra).

4.1. The legal position is no longer res integra. In Ashish Agarwal (supra), the Hon'ble Supreme Court, exercising powers under Article 142 of the Constitution, held that reassessment notices issued under the unamended provisions between 01.04.2021 and 30.06.2021 shall be deemed to be show-cause notices under section 148A(b) of the Act. The Hon’ble Court directed the Assessing Officers to furnish the information relied upon within thirty days, permit the assessee to file its reply within two weeks thereafter, pass an order under section 148A(d) and thereafter, if permissible in law, issue notice under section 148 under the substituted provisions.

4.2. Subsequently, in. Rajeev Bansal ( supra), the Hon'ble Supreme Court explained the manner in which limitation is to be computed after the judgment in Ashish Agarwal (supra). The Hon’ble Court held that while computing limitation under section 149, the following periods are liable to be excluded:

(i) the period during which the deemed notice remained effectively stayed, namely, from the date of issuance of the old notice till the date on which the Assessing Officer supplied the information/material pursuant to the directions in Ashish Agarwal (supra); and

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(ii) the period of two weeks granted to the assessee for submitting its reply to the show-cause notice.

4.3. The Hon'ble Supreme Court further clarified that after exclusion of the aforesaid period, the Assessing Officer is entitled only to the balance or surviving period of limitation which remained available on the date when the original notice was issued, and not to a fresh period of limitation.

4.4. In the present case, the original notice under the unamended section 148 was admittedly issued on 29.06.2021, i.e., only two days before the expiry of limitation on 30.06.2021 under the then applicable law read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 ("TOLA"). Consequently, as on the date of issuance of the original notice, only two days of limitation remained unexpired i.e. the "surviving time" available to the Revenue for issuance of a fresh notice under the substituted regime was, therefore, confined to two days. Pursuant to the judgment in Ashish Agarwal (supra), the Assessing Officer supplied the requisite information and issued notice under section 148A(b) on 25.05.2022. The assessee was granted two weeks' time to respond, which expired on 09.06.2022, no reply having been filed.

4.5. Therefore, in terms of the law declared in Rajeev Bansal (supra), the entire intervening period up to the expiry of the two-

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week period stood excluded from computation of limitation. Once the excluded period came to an end, the Assessing Officer was left only with the surviving period of two days. Consequently, the notice under section 148 ought to have been issued within those surviving two days. Adding the surviving period of two days to the expiry of the reply period, the outer limit for issuance of a fresh notice under Section 148 fell 11/06/2022. Even if the period of reply to be filed is considered liberally approximately upto 15 days or so, the limitation for issue of notice u/s 148 under amended provisions would fall in mid-June 2022. However, the notice under section 148 has admittedly been issued only on 29.07.2022, which is much beyond the period available to the Assessing Officer after applying the exclusion directed by the Hon'ble Supreme Court in Rajeev Bansal (supra). The Revenue has not demonstrated before us any statutory provision or factual circumstance extending the surviving limitation beyond what has been recognised by the Hon'ble Supreme Court in Rajeev Bansal (supra). The coordinate benches of the Tribunal, while applying Rajeev Bansal (supra), have consistently held that after excluding the period specified by the Hon'ble Supreme Court, the Assessing Officer acquires only the balance period that survived under the erstwhile law and not an entirely fresh limitation period. We respectfully adopt the same principle.

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4.6. In view of the foregoing discussion, we hold that the notice issued under section 148 dated 29.07.2022 is barred by limitation. Since the assumption of jurisdiction itself is invalid, the consequential order passed under section 147 read with section 143(3) cannot be sustained and is accordingly quashed.

4.7. Having quashed the reassessment proceedings for AY 2013-14 on the preliminary jurisdictional ground, the grounds raised by the assessee on the merits of the additions become purely academic and, therefore, require no adjudication.

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5.1. The assessee filed its return of income for the year under consideration on 29.11.2014, declaring a total income of Rs.3,07,740/-. The return of income was selected for scrutiny and assessment under section 143(3) of the Act was completed on 20.12.2016, accepting the returned income.

5.2 Subsequently, the AO received information from the Investigation Directorate, Surat, regarding a racket of bogus foreign outward remittances. The information revealed that certain entities had made large foreign remittances against bogus imports of polished diamonds. The investigation, which originated from findings by ICICI Bank and was further investigated by the Enforcement Directorate (ED) and Customs authorities, identified a list of 12 entities involved in this modus operandi.

5.3 Based on this information, it was found that the assessee had made payments totaling Rs. 14,15,37,622/- to two foreign entities, namely M/s Nippon Incorporation Limited and M/s Cornel Trading (HK) Limited. These entities were identified as shell companies used for providing accommodation entries and laundering money under the guise of import payments. The Customs authorities had found the relevant Bills of Entry to be bogus, meaning no actual import of goods took place.

5.4 Consequently, the AO reopened the assessment by issuing a notice u/s 148 on 10/03/2021. The assessee filed objections to the

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reopening, which were disposed of by the AO vide order dated 21/12/2021.

5.5. After considering the submissions filed by the assessee and examining the material available on record, the Assessing Officer rejected the explanation furnished by the assessee and made an addition of Rs.14,15,37,622/- under section 69 read with section 115BBE of the Act. The Assessing Officer, inter alia, recorded that the investigation report revealed that the Surat Branch of ICICI Bank had detected substantial outward foreign remittances purportedly made towards import of polished diamonds and, upon verification by the Customs authorities, certain Bills of Entry were found to be fabricated, indicating that no corresponding imports had, in fact, taken place. The matter was thereafter referred by the Bank to the Enforcement Directorate.

5.6 The Assessing Officer further observed that, despite being called upon to substantiate the impugned import transactions by furnishing complete details relating to purchases, sales, stock records and other supporting evidence, the assessee merely produced copies of certain documents which, according to him, did not contain essential particulars such as carat weight, shape/make, quality or colour of the diamonds. According to the Assessing Officer, the absence of such material particulars was inconsistent with the normal course of business of a genuine

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diamond trader and raised serious doubts regarding the authenticity of the transactions claimed by the assessee.

5.7 Placing reliance upon the findings of the Investigation Wing, the Assessing Officer further held that M/s. Nippon Incorporation Ltd. and Cornell Trading (HK) Ltd. were shell concerns engaged in providing accommodation entries and facilitating bogus foreign remittances under the guise of import transactions. The assessee provided the following details, for the foreign exchange transaction with these two entities:

PAYMENT SR. IMPORT PARTY AMOUNT AMOUNT PAYMENT AMOUNT EXCH. AMT. DIFFERENCE NO. DATE NAME (IN US$) (IN RS.) DATE (IN RS.) (IN US$) NIPPON 1 3/5/2013 INCORPOR 858734.28 46490588 23/04/2013 858734.28 46086904 -403684 ATION LTD CORNELL 2 3/5/2013 TRADING 853345.04 46635305 13/05/2013 853345.04 46835842 200537 HK LTD CORNELL 3 31.03.2014 TRADING 886809.10 53607610 17/05/2013 886809.10 48614875 -4992735 HK LTD TOTAL 14,15,37,622 -51,95,882

5.8 Referring to the foreign remittances made by the assessee to the aforesaid entities, aggregating to Rs.14,15,37,622/-, the Assessing Officer concluded that the alleged import transactions were merely a façade for diversion of funds outside India and did not represent genuine business transactions. On this premise, he treated the aggregate amount remitted as unexplained investment

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under section 69 read with section 115BBE of the Act and added the same to the total income of the assessee.

5.9 Without prejudice to the aforesaid conclusion, the Assessing Officer alternatively held that the impugned remittances either represented unexplained cash credits or unexplained expenditure relatable to bogus purchases. Accordingly, he observed that, even on an alternative footing, the amount of Rs.14,15,37,622/- was liable to be disallowed under section 69C of the Act as unexplained expenditure.

5.10 The Assessing Officer further disallowed the assessee's claim of foreign exchange loss amounting to Rs.51,96,282/-, holding that such loss had arisen in relation to the aforesaid transactions which, according to him, were themselves found to be non-genuine and unexplained. Consequently, the said loss was held to be inadmissible as a business deduction and was added back to the total income.

5.11 The Assessing Officer also observed that the assessee would necessarily have incurred certain incidental expenditure, including bank charges, commission and other administrative expenses, in connection with the impugned transactions. Proceeding on an estimated basis, he disallowed 15% of the employee expenses and administrative and other expenses (excluding foreign exchange

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loss), amounting to Rs.2,65,034/-, and added the same to the total income.

6.1 The learned CIT(A) further held that the material collected by the investigation agencies established that the assessee was one of the beneficiaries of the modus operandi involving shell entities engaged in facilitating bogus import remittances. Applying the test of surrounding circumstances and human probabilities as laid down by the Hon'ble Supreme Court in Sumati Dayal v. CIT (1995) 214 ITR 801 (SC), the learned CIT(A) concluded that the transactions lacked commercial substance. He also rejected the assessee's contention regarding denial of cross-examination,

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observing that the addition was founded not merely on third-party statements but also on the findings of the Customs Authorities and the Enforcement Directorate regarding the bogus nature of the import documents. The alternative plea for restricting the addition to the gross profit element was also rejected on the ground that the case was not one of purchases from the grey market but of alleged diversion of funds abroad through fictitious import transactions. Accordingly, the addition made under section 69 read with section 115BBE of the Act was confirmed.

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two foreign entities with whom the assessee had transacted did not figure amongst the twelve entities referred to in the investigation report and that the Assessing Officer neither verified the bank accounts nor examined the purchase transactions before recording the reasons to believe. In support of above contention, the ld counsel placed reliance on following decision:

“ 1. [2019] 70 ITR (Trib.) 211 (Delhi) M/s. Key Components (P) Ltd. vs. the Income Tax Officer ITA. No.366/Del./2016.

FACTS:

The assessee’s case was reopened on the basis of information received from the Investigation Wing of the Income-tax Department that the assessee company has taken accommodation entries. The assessee objected to the reopening; however, the AO completed the assessment after making an addition of undisclosed income on account of issue of share capital. The assessee challenged the reopening of the assessment as well as the addition on merits before the Commissioner (Appeals). The CIT(A), however, dismissed the appeal of the assessee on both grounds. Aggrieved, the assessee preferred an appeal on the same grounds to the Tribunal. HELD:

The Tribunal observed that in this case the AO has merely reproduced the information which he received from the Investigation Wing, in the reasons recorded u/s. 148 of the Act. He has neither gone through the details of the information nor has he applied his mind and merely concluded that the transaction SEEMS not to be genuine, which indicates that he has not recorded his satisfaction. These reasons are, therefore, not in fact reasons but only his conclusion, that, too, without any basis. The AO has not brought anything on record on the basis of which any nexus could have been established between the material and the escapement of income. The reasons fail to demonstrate the link between the alleged tangible material and formation of the reason to believe that income has escaped assessment, the very basis that enables an officer to assume jurisdiction u/s. 147. 2. Pr. CIT vs. Meenakshi Overseas Pvt. Ltd. [395 ITR 677] (Del.), the Hon’ble Delhi High Court held as under: "Reassessment notice condition precedent recording of reasons to believe that income as escaped assessment mere reproduction of investigation report in reasons recorded

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absence of link between tangible material and formation of ceding illegal Income Tax Act, 1961, Sec.147, 148" 3. Pr. CIT vs. G&G Pharma India Ltd. (2016) [384 ITR 147] (Del.), the Hon’ble Delhi High Court held as under: “Reassessment condition precedent application of mind by assessing officer to materials prior to forming reason to believe income has escaped assessment - No independent application of mind to information received from Directorate of Investigation and no prima facie opinion formed reassessment order invalid”.

 4. In the case of Sarthak Securities Co. (P) Ltd., 329 ITR 110 (Del.), the Hon’ble Delhi High Court held as under: “No independent application of mind by the Assessing officer but acting under information from Inv. Wing - Notice U/s. 147 to be quashed”.  5. Pr. CIT vs. RMG Polyvinyl (I) Ltd. (2017) [396 ITR 5] (Del.), the Hon’ble Delhi High Court held as under: "In the present case too, the information received from the Inv. Wing cannot be said to be tangible material per se without a further enquiry being undertaken by the learned assessing officer" 7.1 It was also contended that the approval granted under section 151 by the learned Principal Commissioner was mechanical and without independent consideration of the material placed before him. The ld Counsel in written submission reproduced the relavant part of the sanction letter as under:

“I have gone through reasons stated by the Assessing Officer. I am satisfied that the Income escaped assessment and this is a fit case for issuance of Notice u/s 148 of the Income Tax Act, 1961. Approval to issue notice u/s 148 of the Income Tax Act, 1961 is accordingly granted.” 7.2 The ld Counsel further relied on following judicial pronouncements:

“ The case of the assessee is squarely covered by the decision of the Hon'ble Apex Court in the case of Income-tax Officer vs. Lakhmani Mewal Das [1976] 103 ITR 437 (SC)[30-03-1976], wherein it has been held that where

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the sanction is required for initiating certain proceedings and after expiry of four years, such sanction must be recorded after independent consideration of materials and reasons. The sanctioning authority cannot merely rubberstamp the proposal of the ld. Assessing Officer. Similarly, in the case of the Commissioner of Income-tax. vs. S. Goyanka Lime and Chemical Ltd. [2023] 150 taxmann.com 245 (SC)/[2023] 453 ITR 242 (SC)[08-07-2015], it was categorically held that such approval has to be after proper verification of material and cannot be mechanical. Further, in the case of Commissioner of Income-tax-5, Mumbai vs. Jet Airways (I) Ltd. [2010] 195 Taxman 117 (Bombay)/[2011] 331 ITR 236 (Bombay)/[2011] 239 CTR 183 (Bombay)[12-04-2010], held that the sanction accorded by the Commissioner must show independent application of mind. In the case of Principal Commissioner of Income-tax-6 vs. Meenakshi Overseas (P.) Ltd. [2017] 82 taxmann.com 300 (Delhi)/[2017] 395 ITR 677 (Delhi)[26-05-2017], it has been held that the satisfaction of the commissioner is an essential jurisdictional condition for reopening after four years; such satisfaction must be based on independent application of mind to the reasons recorded and materially available. The mechanical approval without consideration of facts vitiates the proceedings. We further rely on the case Omkam Developers Ltd. Vs. ITO [ITA No.6862/Del./2018]. A copy of the order is enclosed. [Please refer to page no. 33 to 57]. In para 10.1 of the order, the Hon’ble bench has stated as under: “ 10.1 On perusal of the proforma for the approval granted by the PCIT, it is evident that in the relevant column No.13 for satisfaction of the Pr. CIT, he has only mentioned “yes”. No other information is available on record or provided by the ld. DR, which could establish application of mind by the CIT, while granting sanction/approval for issue of notice u/s 148 of the Act. No other evidence was produced as to substantiate that matter was ever discussed between the Assessing Officer or Addl. CIT and the Learned Pr. CIT for arriving at satisfaction of Learned Pr. CIT on the reasons recorded by the Assessing Officer. Even no evidences whether Ld PCIT examined the material relied upon by the Ld AO for reopening, was produced before us. In similar circumstances, Hon’ble Delhi High Court in the case of NC Cable Ltd (supra) held that section 151 of the Act clearly stipulates that Learned CIT, who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The Hon’ble High Court further observed that the mere appending of the expression ‘approved’ says nothing. It is not as if the CIT has to record elaborate reasons for agreeing with the noting put up but at the same time, satisfaction has to be recorded of the given case, which can be reflected in the briefest possible manner. The Hon’ble High Court further observed that in that case the exercise appeared to have been the ritualistic

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and formal rather than meaningful, which is the rationale for safeguard of an approval by a high-ranking officer. Thus, in the instant case, mere mentioning of “yes’ for approval, without any other evidence of application of the mind, amounts to mechanical approval by the Learned Pr. CIT.” Kippy Engineering Pvt. Ltd. Vs. ACIT [ITA No. 2727/KOL/2025]. A copy of the order is enclosed. [Please refer to page no. 58 to 69] “ 7.3 On merits, the learned counsel submitted that the addition had been made solely on the basis of third-party investigation material without furnishing the underlying documents or affording an opportunity of cross-examination. It was contended that the assessee had produced purchase invoices, import documents, quantitative details and books of account, none of which had been rejected by the Assessing Officer. The corresponding sales had also been accepted as genuine. According to the learned counsel, in the absence of rejection of the books of account or any evidence showing that the remitted funds had reverted to the assessee, the addition under section 69 was legally unsustainable. Without prejudice, it was alternatively argued that, if the purchases were held to be non-genuine, only the profit element embedded therein could be brought to tax.

7.4 The learned counsel further submitted that the disallowance of foreign exchange loss was factually erroneous since, according to the ledger account, there was in fact a net foreign exchange gain in respect of the impugned transactions. It was also contended that the disallowance of administrative expenses at 15% was purely ad

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hoc and had been made without rejecting the books of account or pointing out any specific defect therein.

7.5 The learned Departmental Representative strongly supported the orders of the Assessing Officer and the learned CIT(A). He submitted that the reassessment had been initiated on the basis of credible information received from the Investigation Directorate and, therefore, the Assessing Officer had validly formed the requisite belief regarding escapement of income. He further submitted that the approval granted under section 151 was in accordance with law and that no material had been brought on record by the assessee to establish that the sanctioning authority had acted mechanically. On merits, the learned Departmental Representative relied upon the findings recorded by the Assessing Officer and the learned CIT(A), contending that the investigation conducted by the Customs Authorities and the Enforcement Directorate had conclusively established the bogus nature of the import transactions and justified the additions made in the assessment.

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8.1 The challenge of the assessee to the reassessment proceedings is essentially founded on three propositions, namely, (i) that the Assessing Officer acted merely on borrowed satisfaction without independently applying his mind to the information received from the Investigation Wing; (ii) that the reasons recorded contain an incorrect quantification of the alleged escaped income, thereby vitiating the very formation of belief; and (iii) that the approval granted by the learned Principal Commissioner under section 151 of the Act was mechanical in nature. We shall deal with each of these objections separately.

8.2 The first objection of the learned counsel is that the Assessing Officer merely reproduced the information received from the Investigation Directorate and, therefore, the assumption of jurisdiction under section 147 is invalid being based on borrowed satisfaction. For adjudication of objection of the assessee, it is relevant to reproduce the reasons recorded in the case of the assessee, which is available on paperbook pages 16 and 17:

“Reasons for reopening of assessment u/s.147 of the Income Tax Act, 1961 Assessee is a company filed its original return of income on 29.11.2014 declaring total income of Rs.307740/-. The return was duly processed under section 143(1) of the Income Tax Act,1961. Further, assessment order u/s.143(3) of the Income Tax Act, 1961 passed on 20.12.2016 determining the total income of Rs.307740/-. 2. Subsequently, an information was received through email on 19.03.2019 in this case from Investigation Directorate, Suratstating that it is was noticed by Surat branch of ICICI Bank that some entities had made large foreign outward remittances against import of polished diamonds. Some bills of entries were sent by ICICI Bank to Customs authorities for verification and authentication. The

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Custom authorities found on verification that the said bills of entries were bogus and there was no such import made by the Indian company mentioned in bill of entry at all. The ICICI Bank on receipt of the confirmation of bogus import informed the Enforcement Directorate at Ahmedabad. The ED conducted this investigation and filed a charge sheet against some persons on 18/7/14. Almost a few months later 12 STR’s were received in this Directorate (popularly labeled as 10 +2 STR) alleging foreign remittances by some entities from Surat. These entities were almost the same as mentioned in the ED Charge sheet. The list of companies is as follows:

S.NO. Name of the Subject/Companies 1 Bajrang Diam Pvt Ltd 2 Ridhi Exim Pvt Ltd 3 Renuka Exim Pvt Ltd 4 Shimmer Exim Pvt Ltd 5 Agni Gems Pvt Ltd 6 Hem Jewels Pvt Ltd 7 MaaMumbadevi Jewels Pvt Ltd 8 R A DisributersPvt Ltd 9 Ramshyam Exports Pvt Ltd 10 M B Offshore DistibutersPvt Ltd 11 Aunik Diamond Pvt Ltd 12 Jaime Exim Pvt Ltd The physical verification was carried out by the Investigation wing of Surat and it was noticed that none of the aforesaid company is operating from the address mentioned above. It was also found that none of the directors were found at the addresses mentioned while registering their DIN.

2.1 The modus operandi of the transactions in the bank accounts of these entities was that huge remittances were sent to the entities based abroad mainly to Hong Kong and UAE in the guise of payment for the import of diamonds. It is noticed that the accounts of aforementioned 12 entities at ICICI bank were credited by way of transfer from different entities and subsequently the amount were transferred to different entities based at Hong Kong and UAE in lieu of import of rough and cut polished diamonds. On verification, it has been found that most of the foreign suppliers had common addresses. It appears that the account of these foreign based entities were used for parking of funds in guise of import payments from Indian based entities.

From the enquiry conducted by the Investigation wing and charge sheet filed by the ED it is evident that M/s. Sahil Diamond Pvt. Ltd. has made bogus payment of Rs.6.29 crores to M/s. Nippon Incorporation Limited and 6.56 Crore to Cornel Trading(HK) Limited., which are shell/paper companies, without having any business activities. These paper companies are only involved in providing accommodation entries or sending bogus foreign remittance in guise of bogus

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import purchases. Since, assessee has made non-genuine purchases of Rs.12.85 crores during the year and not disclosed this fact in its ROI or during the assessment completed u/s 143(3) of the Income Tax Act, 1961. 3. Therefore, I have a reason to believe that income of Rs.12.85 crores chargeable to tax has escaped assessment for A.Y.2014-15 within the meaning of clause (c) of Explanation-2 of section 147 of the Income-tax Act, 1961. The income chargeable to tax has escaped assessment on account of the failure of the assessee to disclose full and true material facts necessary for assessment of its income for the assessment year under consideration. 4. As per the provisions of section 151(1) of the Income-tax Act, 1961, a notice u/s.148 of the Income-tax Act, 1961 can be issued only after the Pr.Commissioner of Income tax(Central)-1, Mumbai is satisfied that it is a fit case for issue of such notice. Accordingly, the kind approval of Pr. Commissioner of Income tax(Central)- 1, Mumbai is sought to issue notice u/s.148 of the Income-tax Act, 1961 for the A.Y.2014-15.” 8.3 A plain reading of reasons recorded f shows that the Assessing Officer referred to the information received from the Directorate of Investigation regarding the modus operandi unearthed in relation to bogus foreign outward remittances through fabricated Bills of Entry. The second part of a 2.1 of the reasons further record that, on the basis of enquiries conducted by the Investigation Wing and the charge-sheet filed by the Enforcement Directorate, the assessee had allegedly made remittances to two overseas entities, namely M/s Nippon Incorporation Ltd. and M/s Cornel Trading (HK) Ltd., which were stated to be shell entities engaged in facilitating accommodation entries. On the basis of the said information, the Assessing Officer recorded his satisfaction that income chargeable to tax had escaped assessment.

8.4 It is now well settled that, at the stage of issuance of notice under section 148, the Assessing Officer is only required to form a

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prima facie belief regarding escapement of income and not to conclusively establish such escapement. The adequacy or sufficiency of the material cannot be examined while testing the validity of the assumption of jurisdiction. The Hon'ble Supreme Court in Raymond Woollen Mills Ltd. v. ITO (1999) 236 ITR 34 (SC) has held that, at the stage of reopening, the Court is only concerned with whether there existed some relevant material on the basis of which a reasonable person could have formed the requisite belief. Similarly, in ACIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. (2007) 291 ITR 500 (SC), the Hon'ble Supreme Court has reiterated that the expression "reason to believe" postulates a bona fide belief founded on relevant material and not conclusive proof of escapement of income.

8.5 In the present case, the information emanated from the Directorate of Investigation and was based upon enquiries conducted by specialised investigating agencies. Such information cannot, by itself, be regarded as inherently unreliable. Merely because the Assessing Officer acted upon such information does not necessarily lead to the conclusion that the reopening was founded upon borrowed satisfaction. The reasons recorded disclose the material considered by the Assessing Officer as well as the nexus sought to be drawn between such material and the formation of the belief regarding escapement of income. We are, therefore, unable to accept the contention that the reassessment proceedings

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are liable to be quashed solely on the ground of borrowed satisfaction.

8.6 The next contention advanced by the learned counsel is that the reasons recorded refer to remittances aggregating to Rs.12.85 crore, whereas the reassessment ultimately resulted in an addition of Rs.14,15,37,622/-, thereby demonstrating complete non- application of mind.

8.7 We are unable to persuade ourselves to accept the aforesaid submission. The discrepancy in the figures recorded in the reasons may, at best, have a bearing upon the correctness or adequacy of the material available with the Assessing Officer. However, such discrepancy, by itself, does not invalidate the assumption of jurisdiction once there existed tangible material giving rise to a prima facie belief that income had escaped assessment. The correctness of the quantification and the ultimate sustainability of the addition fall within the domain of reassessment proceedings and are matters to be examined on merits. They do not, in the facts of the present case, render the very initiation of proceedings without jurisdiction.

8.8 The last limb of the challenge relates to the approval granted by the learned Principal Commissioner under section 151 of the Act. According to the learned counsel the PCIT has not applied mind or investigated the details. According to him the Ld. CIT(A)

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approved the initiation of reassessment proceeding, despite recording of incorrect facts by the Assessing Officer in the reasons recorded. The learned counsel has relied on various decisions cited above. But we find that in the instant case a copy of approval under section 151 of the Act granted by the PCIT is available on paperbook pages 15. While granting the approval, the learned PCIT recorded that he had gone through the reasons stated by the Assessing Officer and was satisfied that to be a fit case for issuance of the notice under section 148 of the Act. The learned DR submitted that it is the normal practice in the income tax department of sending the relevant assessment record or file to the PCIT for perusal. Before us the learned counsel has not brought on record any evidence that said procedure was not followed in the case of the assessee. In such circumstances, it was the mere presumption of the assessee without any evidence that learned PCIT had not gone through the entire record while approving the case for issuance of the notice under section 148 of the Act.

8.9 We are of the opinion that the approval placed in the paper book records that the learned Principal Commissioner had gone through the reasons recorded by the Assessing Officer and was satisfied that it was a fit case for issuance of notice under section 148 of the Act. Apart from contending that the approval is brief in its expression, no material has been brought before us to establish that the sanctioning authority had acted mechanically or without

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considering the proposal placed before him. It is also not the case of the assessee that the assessment records were not placed before the sanctioning authority while seeking approval.

8.10 In our considered opinion, section 151 requires the sanctioning authority to record its satisfaction regarding the fitness of the case for issuance of notice. It does not envisage that the Principal Commissioner should himself undertake an independent investigation or record elaborate reasons akin to an appellate order. As far as contention of granting approval on the basis of incorrect amount is concerned, we have already held that sufficiency or correctness of the material is to be seen at the stage of reassessment proceeding and not at the stage of recording reasons to believe. In the absence of any material demonstrating total non- application of mind, merely because the approval is concise cannot lead to the inference that it was mechanical.

8.11 The decisions relied upon by the learned counsel, including Pr. CIT v. Meenakshi Overseas (P.) Ltd. (2017) 395 ITR 677 (Del.), Pr. CIT v. G&G Pharma India Ltd. (2016) 384 ITR 147 (Del.), Sarthak Securities Co. (P.) Ltd. v. ITO (2010) 329 ITR 110 (Del.), and other authorities, were rendered in their own factual background where the Courts found complete absence of application of mind by the Assessing Officer or the sanctioning authority. In our considered opinion, those decisions do not

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advance the case of the assessee on the facts obtaining in the present appeal.

8.12 Accordingly, we uphold the finding of the learned CIT(A) sustaining the validity of the reassessment proceedings. The grounds challenging validity of the reassessment are dismissed.

9.1 We have carefully considered the rival submissions and perused the orders of the authorities below as well as the material placed before us. The principal addition of Rs.14,15,37,622/- has been made by the Assessing Officer by treating the foreign remittances effected by the assessee as unexplained investment under section 69 of the Act and, in the alternative, as unexplained expenditure under section 69C of the Act. The Assessing Officer has primarily relied upon the information received from the Investigation Directorate, the findings of the Customs authorities and the Enforcement Directorate, and the alleged bogus nature of the Bills of Entry. The learned CIT(A) has affirmed the said addition substantially on the same reasoning.

9.2 The learned counsel for the assessee, on the other hand, has assailed the addition on several factual and legal grounds. According to him, complete documentary evidence in support of the

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purchases, imports, quantitative details and corresponding sales was produced before the Assessing Officer. It has further been contended that the books of account were never rejected and the sales corresponding to the alleged purchases have also been accepted. The learned counsel has also raised a grievance that neither the material relied upon by the Assessing Officer, including the charge-sheet allegedly filed by the Enforcement Directorate, nor any opportunity of cross-examination of the persons whose statements or reports formed the basis of the addition, was made available to the assessee. Without prejudice, it has further been argued that, even assuming the purchases were not fully established, the addition, if any, could only be restricted to the profit element embedded in such transactions.

9.3 From the impugned appellate order, we find that although the learned CIT(A) has dealt with the principal addition under section 69 of the Act, he has not adjudicated several specific grounds raised before him by the assessee. In particular, the grievance relating to the disallowance of foreign exchange difference amounting to Rs.51,96,282/- and the separate disallowance of administrative expenditure amounting to Rs.2,65,034/- has not been independently examined. Likewise, the factual submissions of the assessee regarding quantitative reconciliation of imports and sales, the contention that the books of account had not been rejected, the plea regarding non-supply of the material relied upon by the

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Assessing Officer and the consequential plea based on the gross profit rate have not been examined in the light of the documentary evidence placed on record.

9.4 In our considered opinion, the first appellate authority, being the final fact-finding authority under the Act, is under a statutory obligation to adjudicate every ground of appeal raised before it by assigning cogent and independent reasons. An order affirming the assessment without dealing with the material factual contentions urged by the appellant cannot be regarded as a complete adjudication of the controversy. Since the learned CIT(A) has not rendered findings on several factual issues which go to the root of the additions under challenge, any adjudication by us at this stage would necessarily require appreciation of evidence at the first instance, which is ordinarily the function of the first appellate authority.

9.5 Having regard to the totality of the facts and circumstances of the case, we are, therefore, of the considered opinion that the ends of justice would be adequately served by restoring the issues relating to the additions on merits to the file of the learned CIT(A) for fresh adjudication. The learned CIT(A) shall examine all the documentary evidence produced by the assessee, consider the rival submissions, deal with each of the grounds urged before him, including the challenge to the additions under sections 69 and 69C of the Act, the disallowance of foreign exchange difference, the

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estimated disallowance of expenditure, and the alternative plea regarding the quantum of addition, and thereafter pass a reasoned and speaking order in accordance with law after affording adequate opportunity of hearing to both the parties.

9.6 We clarify that we have not expressed any opinion on the merits of the additions, and all the contentions available to both the parties are left open to be urged before the learned CIT(A).

9.7 In the result, Ground No. 1 challenging the validity of the reassessment is dismissed. Ground Nos. 2 to 4 are restored to the file of the learned CIT(A) for fresh adjudication in the light of the observations made hereinabove. These grounds are, accordingly, treated as allowed for statistical purposes.

Order pronounced in the open Court on 29/07/2026.

Sd/- Sd/- (PAWAN SINGH) (OM PRAKASH KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 29/07/2026 M. Ranganath Vittal , Sr. P.S.

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Copy of the Order forwarded to :

BY ORDER, //True Copy// (Assistant Registrar) ITAT, Mumbai