ACIT-19(3), MUMBAI, MUMBAI vs. RARE JEWELS, MUMBAI

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ITA 1966/MUM/2026Status: DisposedITAT Mumbai14 May 2026AY 2013-148 pages
AI SummaryRemanded

What did the Tribunal hold?

The ITAT admitted additional legal grounds regarding the validity of reopening, which were not adjudicated by the lower authorities. Consequently, the matter was set aside to the CIT(A) for fresh adjudication.

What were the facts?

The assessee's assessment for AY 2013-14 was reopened. The CIT(A) dismissed grounds on reopening validity but sustained a cash credit addition while reducing the GP rate on bogus purchases. Both assessee and revenue appealed to the ITAT.

What were the issues?

The primary issues were the validity of the assessment reopening and the genuineness of cash credits and purchases. The ITAT also considered new legal grounds regarding time-barring of reopening notices.

Which sections of the Income-tax Act were involved?

Section 148,Section 148A,Section 149,Section 68

AI-generated summary — verify with the full judgment below

Before: SHRI SANDEEP GOSAIN & SHRI BIJAYANANDA PRUSETH

For Appellant: Shri Aajay R. Singh & Shri
For Respondent: Shri Annavaram Kosuri (SR. AR)
Hearing: 14.05.2026Pronounced: 27.05.2026

IN THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI “D” BENCH, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER ITA No. 810/MUM/2026 (AY: 2013-14) Rare Jewels vs. DCIT-19(3) HW 4030, Bharat Diamond Matru Mandir Bourse, Bandra Kurla Complex, Tardeo, Mumbai-400 007. Bandra-E, Mumbai-400 051. ITA No. 1966/MUM/2026 (AY: 2013-14) DCIT-19(3) Vs. Rare Jewels Matru Mandir HW 4030, Bharat Diamond Tardeo, Mumbai-400 007. Bourse, Bandra Kurla Complex Bandra-E, Mumbai-400 051. APPELLANT RESPONDENT

Assessee by Shri Aajay R. Singh & Shri Akshay Pawar Revenue by Shri Annavaram Kosuri (SR. AR) Date of Hearing 14.05.2026 Date of Pronouncement 27.05.2026

O R D E R PER BIJYANANDA PRUSETH, AM:

These cross appeals filed by the assessee and Department emanate from the order passed under section 250 of the Income-tax Act, 1961 (in short, 'Act') by the Commissioner of Income-Tax (Appeals)/ National Faceless Appeal Centre [in short, 'CIT(A)'] dated 02.12.2025 for the assessment years (AY) 2013-14. With consent of both parties, the appeals were clubbed and heard together and a common order is passed for the sake of convenience and brevity. ITA No.810/Mum/2026 for AY 2013-14 is taken as a “lead case.” 2. The grounds of appeal raised by the assessee in ITA No.810/Mum/2026 are as under.

1.

Reopening of Assessment 2. The learned CITA erred in confirming in reopening the assessment made by ITO who has not taken proper sanction and authority in law and assessing the income u/s. 143(3) rws 147 though no income has escaped the assessment. 3. The learned CITA erred in confirming the action of the learned ITO who had issued notice u/s. 148 without any valid material in his possession, to support the reason to believe that income has escaped assessment, at the time of issuance of notice u/s. 148. 4. The learned CITA erred in not considering the fact that the appellant's case was already scrutinized u/s 143(3) of the act where all the details were duly submitted during the proceedings. 2. Addition of Cash credit U/s. 68 -2,55,00,000/- 1. The learned CITA erred in confirming the action of the learned Income Tax officer by taxing loan of Rs. 2,55,00,000 taken from various parties as mentioned in the reason to reopen the case Ltd u/s. 68 of the Income Tax Act, 1961. (the Act), In fact it was loan which was given by appellant were repaid back to them. 2. The learned CITA erred in not considering the fact that The learned ITO has not given to the assessee the statements of owners of these concerns and relied upon for making addition for rebuttal. 3. The learned CITA erred in not considering the fact that The learned ITO has not allowed to the assessee cross examination of the owners of these concerns whose statements are relied upon for making addition

3.

Addition of gross profit on estimated basis 1. The learned CITA erred in restricting addition of Rs. 2096519/- by estimating additional gross profit of 6% on purchase cost of Rs. 3,49,41,986/- of diamond from the parties mentioned in the reason to reopen the case as bogus transaction of purchases on surmises and conjunctures. 2. The learned CITA erred in not considering the fact The learned ACIT has not considered that the subsequent sale and export of goods to customers along with the evidence of sale/export proves the genuineness of purchases 3. The learned CITA erred in confirming the action of The learned ACIT who has made an addition to income based on statement of third party without having any other corroborative evidence. 4. The learned CITA has failed to consider the fact that On 30.07.2022 the learned ITO has again issued a notice u/s 148 of the Act whose completion proceeding date is 31.3.2024 and we have again filed return u/s 148 of the act on 22.08.22. Till 16.01.2023 (i.e. from 26.07.22 to 16.01.223) there were two e proceedings for same assessment year whose completion proceeding date is 31.3.2023 and 31.3.2024 respectively. However on 17.01.2023 The learned ITO suo moto closed duplicate assessment/re-assessment e-Proceedings based on present assessment/re-assessment e-Proceedings, the Notice u/s 148 was generated during the period from 01/04/2021 to 30/06/2021 under the old provisions of sections 147 to 151. Therefore, prima-facie, this proceeding is covered by the decision of Hon'ble Supreme Court in "UOl vs. Ashish Agarwal" dated 04/05/2022 5. Even though time line for completion of assessment was 31.3.2024 the learned AO has hurriedly completed assessment in march 2023 without appreciating the proper facts of the case. 6. The learned CITA has failed to consider the fact that he learned ITO has not providing the details who is approval authority whereas in appellant case the approval/satisfaction of the Principal Chief Commissioner (PCCIT) was required to be obtained. Appellant craves, leave to add to, amend, alter or withdraw any of the above grounds of appeal before or at the time of hearing of the appeal, if necessary.”

3.

The grounds of appeal raised by the revenue in ITA No. 1966/Mum/2026 are as under :

1.

"Whether in the facts and circumstances of the case and in law, the Learned CIT(A) was justified in reducing the gross profit rate from 12.5% to 6% on purchases from non-genuine or grey-market suppliers, despite concrete evidence showing that the transactions were accommodation entries from paper concerns?" 2. "Whether in the facts and circumstances of the case and in law, the Learned CIT(A) was justified in relying on judicial precedents from Dilkhush Annraj Babel u. ITO [2024] 169 Taxmann.com 472 and PCIT v. Keshri Export [2025] 174 Taxmann.com 162, when those cases pertained to controlled diamond- trading transactions and not non-genuine purchases?" 3. "Whether in the facts and circumstances of the case and in law, the Learned CIT(A) was justified in ignoring the findings of the Assessing Officer and investigation reports that entities such as M/s Seven Star Jewels, Kinjal Gems Pvt. Ltd., Shree Bhairav Star Jewels Pvt. Ltd., and Samkit Diamonds were paper concerns providing accommodation entries?" 4. "Whether in the facts and circumstances of the case and in law, the Learned CIT(A) was justified in partially allowing the appeal despite the assessee failed to produce credible evidence to substantiate the genuineness of the transactions?" 5. "Whether in the facts and circumstances of the case and in law, the Learned CIT(A) erred in allowing a lower gross profit rate, thereby resulting in underassessment of income, in violation of the principle that bogus or accommodation entries cannot be allowed to reduce taxable income?" 6. "Whether on the facts and in the circumstances of the case and in law, the Learned CIT(A) was perverse in not considering the order of the Hon'ble Gujarat High Court in N.K. Industries Ltd. (2016) 72 Taxman.com 289 (Guj), relating to similar issues of bogus purchases, which was confirmed by the Hon'ble Supreme Court by dismissing SLP (CC) No. 963/2017 dated 16.01.2017?" 7. "Whether on the facts and in the circumstances of the case and in law, the Learned CIT(A) failed to consider that once purchases are proved to be bogus in their entirety, and no real transaction is established, a partial addition based on estimation of profit is not legally tenable, as held by various High Courts, including the Bombay High Court in PCIT v. Drisha Impex Pvt. Ltd.?

8.

"The appellant craves leave to add to, amend, alter or modify any of the above grounds of appeal at or before the time of hearing."

4.

Facts of the case, in brief, are that the assessee filed return of income for

A.Y. 2013-14 on 30.09.2013 declaring total income of Rs. 79,56,960/-. The case

was processed under section 143(1) of the Act. Subsequently, the case was

reopened by issue of notice under section 148 of the Act on 28.06.2021.

Subsequently, following the decision of Hon’ble Supreme Court in the case of

Union of India Vs. Ashish Agrawal (2022 SCC Online SC 543), the earlier notice

under section 148 of the Act was deemed to be a notice under section 148A(b) of

the Act. The information and materials based on which earlier notice under

section 148 of the Act was issued were provided to the assessee vide notice dated

24.05.2022. After considering the reply of the assessee in response to the said

notice, order u/s. 148A(d) was passed on 28.07.2022. Fresh notice u/s. 148 under

the new regime was also issued on 28.07.2022. In response thereto, the assessee

filed return of income showing the same total income of Rs. 79,56,960/-.

Thereafter, AO issued various notices and after hearing the assessee, he added

unsecured loan of Rs. 2,55,00,000/- u/s. 68 of the Act and 12.5% of bogus

purchase amounting to Rs. 43,67,748/-. The total income was accordingly

determined at Rs. 3,78,24,710/-.

4.1 Aggrieved by the order of the AO, the assessee filed appeal before the

CIT(A), wherein grounds on validity of reopening as well as merits of addition

were raised. The CIT(A) dismissed the grounds on validity of reopening of the

assessment. The CIT(A) also sustained the addition of Rs. 2,55,00,000/- made u/s.

68 of the Act. He has, however, reduced the GP rate of 12.5% to 6% of the bogus

purchases.

4.2 Aggrieved by the order of CIT(A) both assessee and revenue filed the

appeals before the Tribunal.

5.

During the course of hearing before the Tribunal, the assessee has filed

additional grounds of appeal, which are as under :

I. Reopening is time barred: 1. The Ld Assessing Officer erred in reopening the assessment for A.Y. 2013- 2014 vide notice u/s 148 dated 28/07/2022 without appreciating that reopening was time barred as the last day for issuance of Notice u/s 148 was 31.03.2020 [extended by TOLA to 31/06/2021] and by virtue of first proviso to Section 149 of the Act, the reopening is time barred. 2. The notice dated 28.07.2022 under section 148 of the Act for the A. Y. 2013- 14 has become time barred as per the directions laid down by the Hon'ble Supreme Court in UOl v. Rajeev Bansal [2024] 469 ITR 46 (SC). Thus, the said notice issued under section 148 of the Act is time barred and therefore, void ab initio. 3. The Appellant craves leave to add, amend, omit any of the aforesaid grounds of appeal as the occasion may arise or demand. 5 5.1 The Ld. AR of the assessee submitted that the grounds regarding reopening

were raised in the original appeal memo, however, specific/proper grounds are

now being raised to avoid any confusion. The new legal ground raised goes to the

root of the matter and, hence, the same may be admitted and adjudicated.

5.2 The Ld. Sr. DR submitted that the Bench may decide the matter as it thinks fit. In case the additional grounds are admitted, the matter may be set aside to the lower authority because the assessee had never raised any objection or similar grounds before the lower authorities. 5.3 We have heard both the parties and perused the material available on record. Since the issue raised by way of additional grounds are legal in nature, which can be decided on the basis of material available on record, the same is liable to be admitted in view of the decision of Hon’ble Supreme Court in the case of National Thermal Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC). Similar view has also been taken by the Hon’ble Bombay High Court in the case of CIT Vs. Pruthvi Brokers and Shareholders Pvt. Ltd. (2012) 349 ITR 336 (Bom). Hence, the additional grounds are admitted. However, we find that neither any objection regarding the notice issued u/s. 148 of the Act was raised before the AO nor any specific ground similar to the additional grounds were raised before the CIT(A). Hence, they have not decided the additional grounds on the basis of materials available in their records. Therefore, we deem it proper to set aside the matter to the file of CIT(A) for fresh adjudication after granting adequate and reasonable opportunity of being heard to the assessee. The assessee is directed to file

necessary details and precedents on the impugned issue, on which it relies upon

and furnish for the explanation/clarification, which the CIT(A) may called for

during the fresh proceedings. Accordingly, the grounds are allowed for statistical

purposes.

6.

In the result, appeal is allowed for statistical purposes.

ITA No. 1966/Mum/2026 (Revenue Appeal) :

7.

We have already set aside the matter to the file of CIT(A) for fresh

adjudication. Hence, there is no need for adjudication of the grounds raised by

the Revenue. The Revenue is, however, giving the liberty to raise any objection or

argument before CITA) during the fresh adjudication.

8.

In the result, the grounds raised are allowed for statistical purpose.

9.

In combined result, both the appeals are allowed for statistical purposes.

Order is pronounced on 27.05.2026.

Sd/- Sd/-

(SANDEEP GOSAIN) (BIJYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER *Aniket Chand (Sr. PS) MUMBAI Date: 27.05.2026 Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, MUMBAI 6. Guard File By Order Assistant Registrar ITAT, MUMBAI

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